Wednesday 24 January 2018

ECB will find it very difficult to offer 'special aid' to the Irish banks

Laura Noonan and Charlie Weston

THE European Central Bank (ECB) is coming to Ireland only to offer "expert advice" and is not preparing to offer exceptional funding solutions to the country's ailing banks, sources told the Irish Independent last night.

Some analysts have suggested that the ECB could offer longer terms to Irish banks, thus alleviating at least some of the funding pressure that the banks are facing.

However, Frankfurt sources last night dismissed that suggestion. One source said: "It would be very unusual to have a special facility in place for just one country.

"You could (do it) in theory, but it would be very hard to do at a time when you're also trying to withdraw ECB facilities from the market generally."

Expert level

The source added that the ECB's involvement was "at expert level" to suggest policy solutions that the Government could activate.

"The ECB is not itself providing the solutions," he added.

Yesterday experts from the ECB, the International Monetary Fund (IMF) and the European Commission (EC) flock to Dublin to tackle the banking crisis.

Both analysts and bankers say funding is now the main challenge facing Irish banks, which have become increasingly dependent on the ECB after they were locked out of international money markets.

The ECB's stated policy is to wean banks off its support, so money is now only being offered on very short terms.

About €90bn of ECB money was in the Irish banks at the end of October, with the Irish accounting for about a fifth of the ECB's total funding to European institutions.

Frankfurt sources said the surge in ECB borrowings from Irish banks stemmed from the fact that other banks were afraid to lend to Irish institutions.

That fear stemmed from the fact that the Irish Government had not done enough to address the banks' capital problems, a source added.

"The ECB would see adding more capital as a way of making the banks capable of funding themselves," said one source.

Mortgage losses

However, the source added: "There is no guarantee that that would work."

The Department of Finance is understood to be unconvinced that capital alone can solve the problem. However, it is open to the ECB, IMF and EC exploring options over the coming days.

Future losses on Irish mortgages are understood not be a major concern at this point, since the banks are already bullet-proofed to withstand 5pc of their entire mortgage books not being repaid.

New figures yesterday showed that 5.1pc of mortgage holders are now in arrears but the Central Bank head of financial regulation, Matthew Elderfield, said this did not mean that banks would need more capital.

He stressed that not all of those in arrears would end up defaulting on their mortgages and forcing lenders to write off value of the home loan.

"There is still considerable headroom between the arrears rate and the loss rate," he said.

Irish Independent

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