Spectre of more bank bailouts looms

The spectre of the Government having to pump more taxpayers’ money into the banks has been raised by a Central Bank report.

The main banks could make greater losses this year than expected by the Government due to the escalating mortgage arrears crisis and other potential problems, the bank has warned.

It suggests the State could have to funnel more cash into the banks if the worst-case scenario materialises.

In a review of the risks facing the economy, the Central Bank cited the possibility that the banks’ problems could yet increase, despite the billions already received from the State.

This time last year, after a range of further stress tests, the Government announced it would pump up to €24bn into the crisis-ridden institutions to plug the various black holes.

That money included a “buffer” so the banks would have sufficient money to deal with any further problems, such as an escalation in mortgage arrears.

However, the Central Bank review said the banks’ capital “could be eroded more quickly than expected” if stresses intensify in the period ahead.

Risks to the banks included continued exposure to the property sector, the lack of “systematic workout of this debt to date”, further property price falls, and concerns about debtors’ ability to repay loans.

A combination of these problems and/or an escalation in the eurozone debt crisis “could lead to greater losses than anticipated” by the Government last year.

If the State were required to pump extra money into the banks, “this would be viewed negatively by financial markets” — meaning it would be harder for Ireland to exit the bailout programme and raise its own finances again.

The bank also warned of other risks that could yet affect Ireland’s plans to return to the bond markets.

These included weaker-than-anticipated growth in the economy and the knock-on effect this would have on the State’s ability to service the debt incurred from the bank bailout.

The Government played down the report, saying it was the Central Bank’s job to assess the risks to financial stability.

A spokesperson for the Department of Finance said: “As outlined in the preface to the report, the report naturally focuses on potential risks. The Department of Finance continues to implement and develop policies to mitigate these risks and this is acknowledged in the report… [It] also acknowledges that better-than-expected outcomes are possible.”

However, Fianna Fáil finance spokesman Michael McGrath said the Government needed to act with “greater urgency” in tackling the problems on the banks’ loan books. He said the mortgage arrears crisis had yet to be properly tackled despite the Coalition receiving a report on the issue last autumn. “There needs to be far greater urgency in facing up to the problems in the loan books that the banks possess.”


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