Honohan: Government will up stake in banks

THE Government will have to buy further stakes in the country’s banks as a result of the banking meltdown, Central Bank governor Patrick Honohan disclosed yesterday.

It will also have to sustain its attack on reforming national debt in order to give a clear signal to the markets that it will not go soft on fiscal reform, he said.

The governor warned the banks would have to get back to lending to business if they want to get back to making profit. It is in the banks’ own interests to ensure growth in lending to small firms, as property-based lending will be greatly reduced in the years ahead, he said.

Speaking at the Trinity College Alumni Career Network, the Central Bank boss made it clear he thought more government funding for the banks would be needed to keep the banks solvent.

Davy Research said in a report last week the banks would require a capital injection of €6.3 billion, with AIB requiring the biggest portion of that figure at €4.1bn.

Mr Honohan said the cost to the taxpayer will be “sizeable”, though the banks may raise some money themselves.

“It is pretty clear the Government will be acquiring additional equity stakes,” he added.

The governor added that there was no way Government can provide extra spending to boost the flagging economy. While an injection of additional demand would be “nice”, he warned that it “cannot come from the budget in our present circumstances”.