Lack of direct capital a ‘missed chance’

Not allowing temporary or permanent bailout funds to directly recapitalise banks directly is a “missed opportunity”, Patrick Honohan, the governor of the Central Bank has said.

Mr Honohan, who is also a member of the ECB’s governing council, said that injections from the European funding mechanisms to governments inflated their debt, which in turn led to concerns among rating agencies.

“Using pooled European funding mechanisms directly as a means of recapitalising weak banks and acting as a backstop for future problems is an obvious way of pooling risk and breaking the sovereign-bank linkage,” said Mr Honohan, who was delivering the Mais lecture at Cass Business School in London.