Mr Elderfield said: “Forced deleveraging, at an unrealistic pace, would crystallise huge losses by selling assets into depressed markets. But, it is also critical that the deleveraging process moves ahead as swiftly as practicable.
“There are no easy choices or no overnight solutions. The process of deleveraging and of reducing reliance on Central Bank funding will take time,” Mr Elderfield told the Foresight Business Group at Trinity College Dublin, yesterday.
His address — which mainly focused on a plan to remove “unfit” executives from the main banks — comes ahead of the Central Bank’s latest stress test results for Irish banks, due to be published in the coming week. They are expected to be made available to EU officials in time for this week’s Brussels Summit.
They are likely to show the need for further state investment, on top of the €46 billion already injected into the banking system and for banks to radically shrink their loan books and asset base.
“Loan losses and credit quality is only half the story in the resuscitation of the Irish banking system. The other half of the story is the funding position of the banks, which in turn is linked to their structure,” Mr Elderfield said.
Analysts are in broad agreement with the Financial Regulator.
Davy Stockbrokers’ Stephen Lyons said asset sales cannot currently take place because they would result in further capital losses.
He said: “Extended monetary funding is needed for the banks until such a time as asset sales are practical.”
Bloxham Stockbrokers said it believes Ireland may now need more than the €35bn already set aside to recapitalise its banks — a feeling apparently shared by numerous EU officials.