Friday 15 December 2017

State still hoping for EU insurance scheme to cover future bank losses

Financial Regulator Matthew Elderfield in his office at the Central Bank Building in Dublin
Financial Regulator Matthew Elderfield in his office at the Central Bank Building in Dublin

Laura Noonan

HOPES of getting a European insurance scheme that would cap Ireland's exposure to future bank losses are not dead, financial regulator Matthew Elderfield has said.

In the aftermath of the latest €35bn bank bailout, Central Bank governor Patrick Honohan said he would have "preferred" if our European partners had offered an insurance scheme.

"(It) would insure us against these downside risks (of higher bank losses) and we could pay a fee for it," he explained. "That would have been the more well-adapted instrument to use."

Mr Elderfield this week said that he shared Prof Honohan's views on the merits of an insurance scheme, and that there could be an "opportunity" to create such a scheme later in the year.

"I think the value of adding more capital gets lower and lower," he said.

"You can say you're 99pc sure that the hole in the banks is a certain size, but if you're an investor from the outside you'll still see a remote risk that the hole can get bigger.

"If you have someone who'll insure against that tail-risk, that takes it totally out of the system."

Merits

Mr Elderfield said the merits of such a scheme had been explored as part of the November bailout discussions with the IMF, the European Commission and the ECB.

"The problem is that the EFSF (the European Commission's bailout fund) and the IMF, as they're organised now, are not constitutionally able to provide that sort of (insurance) facility," said.

There will be an "opportunity" to change that later in the year when the EFSF's framework is reviewed, Mr Elderfield said.

"That (an insurance scheme) might be something to put on the table," he added. "Patrick (Honohan) and I think that might be a very sensible change".

A spokesman for the Luxembourg-based EFSF declined to comment yesterday.

It is understood that any change to the fund's framework would need approval from the governments of its 16 member nations.

Any further bailout for Ireland's banks would also have to be viewed in the context of the existing international agreement governing the banks' bailout, sources stressed.

Insurance schemes have been used extensively for banks overseas, including a £200bn (€238bn) scheme put in place by the British government in January 2009 to cover loan losses by the country's banks.

Meanwhile, the Central Bank yesterday confirmed that it had hired a number of key advisers to assist it with reviewing the capital needs and restructuring of Ireland's banks.

Review

Money manager BlackRock has been appointed to review the "assets and data quality" of the data banks provide for the upcoming regulatory reviews.

The Boston Consulting Group will provide "project management resources" for the Central Bank's "Financial Measurement Implementation Project" and will also advise on the capital and restructuring reviews.

Barclays Capital will provide "advice on the banking sector structure issues".

Irish Independent

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