Stress tests ‘could be rolled out indefinitely’
Irish banks were originally supposed to undergo Central Bank-conducted stress tests before the country exits the IMF/EU bailout programme in November. But this asset quality review was scrapped and subsumed into the wider EU bank stress tests that were to be scheduled in March.
Mr Mortimer-Lee, speaking at a conference organised by the Federation of International Banks in Ireland, said: “They [European Banking Authority] are putting off this asset quality review for as long as possible because they don’t want to uncover the dead bodies. Those dead bodies are in Italy, by the way, not Ireland.”
If, after a stress test, there was a capital shortfall in the Italian banking sector, it would put huge pressure on the Government because of its dire debt position, he added.
And because of Ireland’s funding commitments following the bailout, he recommended that the Government secure a €10bn credit line, which, combined with the roughly €20bn in cash reserves, should allay any investor concerns.
Nigel Nagarajan, adviser on financial stability and monetary affairs, EU directorate-general on economic and financial affairs, and former troika representative in Ireland, noted the challenges facing the banking system and economy, but sounded an optimistic note: “I don’t want to oversell it, but the beginnings of a turn- around are clearly there.”
He said the banks had a limited amount of capital and it was important to use this to deal with mortgage arrears customers in genuine distress. He suggested that some mortgage arrears customers had lost the motivation or discipline to pay. Legal action was necessary to deal with these cases, he added.
Even though repossessions of family homes should remain a last resort, he said it has to be an option open to banks, otherwise mortgages would in future be priced as an unsecured lending product.
The head of banking supervision for international banks, Fiona McMahon, outlined the proposed EU banking union and its implications for Ireland. She noted that the original plans for a banking union had been scaled back.
“Unfortunately, we have already seen some erosion of the original objectives of banking union and it would be undesirable for this to continue.”
