‘Missing’ bailout letter may be released by ECB

The ECB may release documents including a missing letter relating to Ireland’s bailout once the bank stress tests are finalised, according to a source.

‘Missing’ bailout letter may be released by ECB

The bank will also investigate whether it could purchase the €50bn worth of tracker mortgages from Irish banks as part of its asset-backed securities purchase scheme.

However, they could be considered as more risky and the ECB could require the State to guarantee them against default — and that may not be an option.

ECB president Mario Draghi said the bank’s governing council will consider this and the issue of whether the bank should give evidence to the bank inquiry.

MEP Brian Hayes asked Mr Draghi for his opinion on what the ECB will do to facilitate the long-awaited inquiry, especially in light of his predecessor Jean Claude Trichet telling Irish media last year that he would not attend any such hearing.

Mr Draghi said “I have no answer, I will reflect on this and will have to discuss this at the ECB governing council’s next meeting”.

Two of three letters were leaked to the media that came from the ECB during the crisis, putting pressure on Ireland to accept a bailout. The third letter has not been made public.

However, the ECB is under pressure from EU ombudsman, Emily O’Reilly to release the November 2010 letter. According to a source, given that the economy is recovering, it may be easier to do this now.

Mr Draghi, when asked by Mr Hayes about the ECB purchasing Ireland’s tracker mortgages, said he did not know whether they would qualify or not, but he would be in a better position to answer next month when he again meets the MEPs.

Senior tranche securities that are simple and transparent will be purchased from banks by the ECB soon, Mr Draghi told the parliament’s economics committee.

If these were to default, the losses would be borne by the equity and second-tier “mezzanine” owners. For this reason, if the ECB were to extend its purchases into the mezzanine tranches, it would need a national or supranational guarantee compatible with state aid rules.

Mr Draghi said the bank intended to purchase residential mortgage-based securities and said that some time ago the ECB set up a register on asset-backed securities so it knows what sort of loans they contain.

Mr Hayes, who was minister of state in the Department of Finance until he won a seat in the European Parliament, said he hoped the tracker mortgages could be included in the bank’s asset-backed securities.

“They will have to consider the issue in light of the developments in the Irish property market with rising house prices making the trackers more attractive.”

Finance Minister Michael Noonan said this month he would be interested in asset-backed securities and supported the ECB in its move to buy mezzanine assets backed by a state guarantee.

Mr Draghi was put under pressure by many MEPs claiming that there were no new developments and that his announcements of asset-backed securities purchases and targeted long-term refinancing operations had failed to restore confidence to the eurozone.

He warned the economic recovery in the eurozone was losing momentum, and he expected inflation to remain low before increasing gradually in 2015/16.

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