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Power struggle as ECB demands veto for Honohan

THE governor of the Central Bank, Dr Patrick Honohan, should have an "explicit" right to veto funding and budget decisions by the Financial Regulator, according to the European Central Bank (ECB).

The Government is currently compiling legislation for a new system that will effectively merge the Central Bank and the Financial Regulator.

The ECB have said that it would be of "critical importance'' that the Financial Regulator should not seek to influence the governor in his role as a member of the ECB.

It said the governor should be able to block decisions, particularly if they are incompatible with his responsibilities.

Changes to the regulatory system have already been included in the recent NAMA bill.

Meanwhile, delays in approving the plan at European Commission level are adding to fears that the first transfer of loans worth an estimated €19bn to NAMA will not take place on February 12 as intended.

It has been reported that the Bank of Ireland has objected to 40pc of the valuations undertaken in recent weeks, while Fine Gael senator Eugene Regan has formally complained to the Commission about the current NAMA proposals.

The ECB has said that it believes that the governor of the Central Bank should be granted an explicit right to oppose any funding, budgetary or staffing decisions taken by the Financial Regulator, if they had implications for the independence of the Central Bank, as well as Mr Honohan's role at the ECB.

Up to €77bn in property and land loans are to transfer under the rescue plan, with the Government due to hand over a total of €54bn for the loans, representing a 30pc discount.

The Frankfurt-based ECB has been concerned for several years that funding decisions could be taken by the Financial Regulator that could threaten the Central Bank's independence.

Legislation setting up NAMA has allowed for a combining the two bodies under a single board, although Finance Minister Brian Lenihan has yet to streamline the size of the combined board.

The submission "in its present form doesn't comply with EU rules and guidelines", according to a former EU official.

The EC is not expected to approve the rescue plan until the end of February at the earliest.