Tuesday 21 January 2020

If banks need more stress tests let's do them now

SUGGESTIONS by economist Jim Power that the banks will require further cash injections costing at least €20bn are a timely reminder that our broken lenders continue to cast a long shadow over the economy.

The Government has promised to conduct new stress tests on the banks but has recently been dragging its feet on the issue, suggesting that the tests might not be necessary until next year. That's foolish because it will be impossible for the State to return to the bond markets until foreign investors are convinced that the banks will not gobble up their money again over the next few years.

The banks like to pretend that everything is slowly returning to normal but warnings from outside investors, including the troika, have become increasingly shrill in recent months as the banks fail to cut their costs.

A sign of how deluded the banks are came last week when Bank of Ireland boss Richie Boucher said the country's largest lender won't need further recapitalisation and added for good measure that every "financial metric" at the bank was heading in the right direction. Try telling that to the bank's hard-pressed mortgage holders who are currently being squeezed to pay for lending mistakes made during the boom.

While Bank of Ireland may still avoid the need for a fresh round of loans from tax payers, it remains the case that we will almost certainly be forced to stump up cash for other banks at a time when the State has been forced to cut everything from childcare to defence to save money.

Yesterday's dreadful retail sales figures were another reminder that consumers are still fearful. There are many reasons to be anxious these days but one of the most persuasive is the prospect of pouring tens of billions of euros into the banks.

The next round of stress tests should come sooner rather than later to give succour to the markets but also to let the Irish people know how much more money might be needed by the banks. Further delays and prevarications about bank stress tests will only serve to further delay the return of consumer confidence.

Irish Independent

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