Central Bank gets new powers of control

THE Oireachtas last night published a Bill that gives the governor of the Central Bank major powers over the banking sector.

One of the key aspects of the new law is to empower the bank’s governor to appoint a special manager where he believes the financial state of that bank has severely deteriorated.

It also gives it power to transfer assets to other institutions and to create a framework for the establishment of bridge banks.

This new legislation replaces the Credit Institutions (Stabilisation) Act introduced late last year that gave the Minister for Finance wide-ranging powers, that opposition parties claimed were “draconian” powers over the banks.

Brian Lenihan used some of those powers last week to transfer almost €13 billion in deposits from Anglo Irish Bank and Irish Nationwide to AIB and Irish Life & Permanent.

That was a major step in winding down the two financial institutions which will be merged as the next step in ending their function as lenders.

As part of the IMF-EU €85bn bailout the outgoing government gave a commitment to bringing in this new law.

At the time he passed the initial piece of legislation in December Mr Lenihan said the measure reflected the desire of the EU/IMF to see a fundamental restructuring of the Irish banks undertaken without further delay.

Under the new law a special resolution fund will be set up to cover the cost of assuming control of an institution. The money for that will come from a levy on banks, which is intended to protect the taxpayers’ from any further unnecessary exposure to the banks.

In an unexpected development the new legislation will also cover foreign banks, including those in the IFSC and it allows the authorities to establish a “bridge bank” to hold assets temporarily as bank futures are being decided.

The legislation says the media will not be able to report on the Central Bank’s intention to take control of a bank while the High Court will also be able to impose restrictions on the publication of commercially sensitive information.

The latest Bill carries this process to the next phase and allows the authorities far greater scope in their attempts to get Irish banks functioning as lenders.

This process of creating viable Irish banks faces a further hurdle at the end of this month when the latest stress tests on the Irish banking sector by the Central Bank are published.

Up to €10bn in extra funding was due to be put ito the banks before the election, but the finance minister decided to delay the process until after the election.