Central Bank says 'little evidence' to reduce bank capital lending requirements

Resilience necessary so banks can continue 'through good times and bad', says deputy governor

The deputy governor of the Centra Bank, Mary Elizabeth McMunn said there is "little evidence" to support calls to reduce bank capital requirements on the basis of boosting lending and competitiveness. 

The deputy governor of the Central Bank, Mary Elizabeth McMunn said there is "little evidence" to support calls to reduce bank capital requirements on the basis of boosting lending and competitiveness. 

Deputy governor Mary Elizabeth McMunn was speaking after the publication of new research from the Central Bank entitled 'Beyond the Big Three: A Broader View of Competition in the Irish Loan Market', an analysis of competition in the Irish loan market. Her comments also come on the back of a Banking and Payments Federation Ireland submission to the  European Commission’s consultation on the competitiveness of the EU banking sector, which called for targeted reforms of the banking sector, including easing capital requirements in place since the financial crisis.

Responding to the calls to ease capital requirements, the report stated that the robust capital and liquidity positions have served the sector well and said the evidence does not support a lowering of overall levels of resilience on the basis of bank credit, profitability, or international competitiveness.

“Keeping the sector strong and resilient is not about resilience for resilience’s sake — but so banks can continue to perform their important functions, through good times and bad," said Ms McMunn. "A resilient, well-capitalised banking sector is not just good for consumers: it is good for banks, good for their investors, and good for the economy.”

The research report found that when non-bank lenders, foreign banks, and credit unions are included alongside domestic retail banks, new business lending is 50% less concentrated and concentration in consumer credit falls by around 80%. The report said one in three Irish firms, including 40% of SMEs, borrow from multiple lender types, "indicating an active and diverse ecosystem".

Ms McMunn also addressed proposals to give the Central Bank a competitiveness mandate, saying the Honohan Report’s findings showed the last time the regulator carried such a mandate it contributed directly to Ireland's economic crisis.

"The last time the regulator had such a mandate, it did not end well — it was not in the interests of the public, the economy, or the country, and in the long run was certainly not in the interest of the sector itself," said Ms McMunn.

Ms McMunn said the Central Bank is committed to reducing regulatory complexity. “Regulators should  be open to challenge, accountability, and to review – and we should listen and we should engage. This is why we are serious about the simplification, and have set out a comprehensive multi-year domestic simplification programme to deliver further efficiencies and effectiveness across regulation, supervision, gatekeeping, and reporting."