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Monday 18 December 2017

Elderfield insists tough capital rules will protect banks

Joe Brennan

THE new financial regulator insisted yesterday that the banks will be protected by his new rules on how much fresh money they must raise.

"It is important that our banks move to a strong capital position as soon as possible and draw a line under the banking crisis," said Mr Elderfield, who took up the post in January, having previously headed up the watchdog in Bermuda.

The regulatory boss also forced banks to carry out massive 'stress tests' of their non-NAMA loans -- focusing on their mortgage books and property and development loans not heading into the State's 'bad bank'.

In the worst-case scenario, he told the banks to account for writing off 5pc of their mortgages in Ireland -- more than double what analysts are currently factoring in.

In addition, he told banks to test themselves against possible property-loan losses of 60pc in Ireland and 35pc in the UK.

However, he said: "We emphasise that these are not forecast or expected loss levels, and are disclosed to show the extent of the stress that has been applied in the test."

The huge exercise being required of the banks here is similar to that carried out in the UK and US over the past year.

Mr Elderfield has pushed for the banks to raise enough equity over the coming months to leave them in a position where their reserves do not fall below 7pc of total assets as the economy bottoms out.

But under the stress test, they are required to show that they can still maintain a 4pc rate, which is also along the lines of the British and American guidelines to their banks.


Central Bank governor Patrick Honohan said that the capital announcements yesterday were aimed at rebuilding confidence in the banking system.

"While the costs that are revealed today are certainly significant, they are manageable and affordable for the State," Dr Honohan insisted.

"They are certainly a necessary measure to put the banking crisis behind us and provide for a stronger economy."

Mr Elderfield wrote to the two main banks yesterday evening telling them that they had 30 days to put together credible plans to raise cash this year.

However, Allied Irish Banks wasted no time last night outlining that it plans to sell its main foreign assets in the first instance, before launching a share sale to investors later this year.

It is expected that the bank will still have to rely on a major bailout from the Government by the end of the year, which could leave it with a majority shareholding.

Bank of Ireland is expected to flag a capital-raising plan today as it unveils its figures.

Irish Independent

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