Central Bank to gain more regulatory power in bill

FINANCE Minister Michael Noonan has published a bill aimed at granting more regulatory power to the Central Bank, including the ability to wind down failing lenders, and lessening taxpayer exposure to future bank failures.

Once passed into law, the new Central Bank and Credit Institutions (Resolution) Bill, established as part of last year’s EU/IMF agreement, will provide the Central Bank with additional powers to achieve “an effective and efficient resolution regime for credit institutions — including building societies and credit unions — that are failing or likely to fail, and that is effective in protecting the Exchequer and the stability of the financial system and the economy.”

The minister said: “The publication of the bill is an important step in ensuring that the Central Bank has the appropriate powers to promptly and effectively resolve distressed institutions when they pose a risk to financial stability.”

The Central Bank will have the right to appoint — on an order from the High Court — a special manager to an ailing institution to either wind it down or to facilitate its recovery.

The bill directly replaces last year’s Credit Institutions (Stabilisation) Act, which allowed then Finance Minister Brian Lenihan the power to inject further capital into AIB and transfer the deposit books of Irish Nationwide and Anglo Irish Bank. It also allows the Central Bank to transfer some or all of an institution’s assets and liabilities to another institution.

Also of note is the planned provision of a resolution fund, which would be used to minimise taxpayer exposure to future financial sector difficulties, and would be funded by contributions from credit institutions.

“The purpose of the bill is to provide for a ‘mainstream’ long-term special resolution regime for credit institutions in the state,” Minister Noonan said, before adding that he is preparing committee stage amendments to it, in order to enhance the resolution element in line with EU best practice.