ECB stress tests banks- Another positive indication

In an ideal, almost impossibly functional world, it might have been best if all Irish banks had passed the ECB post-crisis health check.

It is, however, a very reassuring measure of how very far we have come from the panic-stricken days when we were far, far more dependent on the kindness of strangers than was or might be again comfortable that four of Ireland’s main financial institutions — AIB, Bank of Ireland, Merrill Lynch, and Ulster Bank — all passed muster.

Only one Irish bank — Permanent TSB — failed the stress test designed to ensure lenders are as well positioned as is possible to withstand unforeseen economic shocks.

It must be assumed too that the reassurances give by PTSB group chief executive Jeremy Masding, that the bank can and will resolve its difficulties, are of a different nature to the dangerous blather offered by bank leaders in the fraught days leading up to the infamous and crippling bank guarantee.

He has give reassurances that PTSB, one of 25 banks that failed the stress test, will be able to raise the capital needed to plug the hole exposed by the ECB test. He suggested that PTSB, which is more than 99%-owned by Irish taxpayers, had already “provided for” more than 80% of its €885m capital shortfall. Let us all hope he is right.

He has won support from Finance Minister Michael Noonan who said the bank had made “strong progress” since management was changed in 2012 and has done significant work to raise its financial reserves to the level required by Europe. The ECB said that 25 of Europe’s 130 biggest banks need better disaster buffers but that 12 have already made up their shortfall. The remaining 13 have two weeks to tell Frankfurt how they plan to build capital reserves.

Ahead of the ECB tests banks held onto cash to placate regulators but now it may become easier to borrow money, especially for small to medium enterprises — the greatest employers despite everything — beginning to return to some level of profitability. This would add to the ever stronger sense of possibility around economy and hopefully make a contribution to reducing further unsustainable levels of unemployment. It almost goes without saying though that a return to the debt free-for-all that made the ECB’s stress tests necessary in the first place would be unimaginably reckless and would probably undo the progress made at such a high cost over recent years.

One of the tests’ consequences is that Government must sell part of its 99.2% holding if PTSB is to raise cash. The price secured in that sale will be a real world indication of how our recovery is viewed. It will tell us if our progress has been imaginary or real and if we have shaken off the unwelcome “wild west of European finance” slur once and for all. The stress test results may not be enough to turn this bank holiday Monday into a national festival but they are another indication that real progress is best made through long, hard and patient work. As Mr Noonan asserted during his budget speech, we do seem to be on the right road.


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