Lenihan: Markets don’t believe banks’ claims

CLAIMS by Irish banks that they are sufficiently capitalised are not believed internationally, Finance Minister Brian Lenihan has admitted.

Speaking yesterday in the Dáil, he reiterated that the banks were, in fact, capitalised “above minimum European regulatory requirements.”

But international markets believed they needed much more capital to counter bad loans.

“High loan impairments, whether already acknowledged or anticipated in the next few years, mean that the markets now expect that banks should have a higher level of quality capital,” Mr Lenihan said.

“Significant falls in the share prices of Irish banks in recent times point to the capital market’s belief that the Irish banks are undercapitalised.”

Mr Lenihan said the Government’s €10 billion plan, announced last weekend, was intended to “stabilise the Irish financial system and secure its funding base”.

The banks have been given until January to respond to the proposals.

“The Government’s plan will enable banks to increase lending into the economy,” he added. “Currently, the incentive is for banks to hoard capital to meet market expectations on capital levels. Reducing this incentive by injecting capital will facilitate lending to the real economy.”

But opposition TDs were critical of Mr Lenihan and the scheme.

Fine Gael deputy leader Richard Bruton said it made no sense for the Dáil to be dismissed for the next six weeks in the middle of such a delicate and important issue.

The recapitalisation scheme was full of “undecided options”, he said, with the Government waiting for the banks to set the agenda.

“We need a Government that sets the standards and tells every bank which new capital ratios are required of them… We want to know what requirements the Government will set on banks in terms of their behaviour, how they will manage their toxic loan books and the manner in which they will deal with the drying-up of credit for small business.”

Labour deputy leader Joan Burton said the most striking aspect of the banking crisis had been “the complete lack of accountability” at the highest levels.

“It beggars belief that the same CEOs and board chairmen are [still] in place,” she said.