Cowen says bank recapitalisation is not cure for all ills

BANKS HAVE enough capital to meet regulatory requirements until 2011, Taoiseach Brian Cowen told the Dáil as he warned that a recapitalisation of financial institutions was not a "panacea for the solving of all ills".

During Leaders' Questions he told the Opposition that "international market expectations" about capital levels had altered. The banks were expected to "explore fully the potential for meeting these capital needs through raising private capital and the disposal of appropriate assets".

As he came under Opposition pressure to say when the State would invest in Irish financial institutions, Mr Cowen said the Government was looking at all options and "it is important not to suggest that any particular course of action taken immediately is, in fact, the overall solution to this problem".

Fine Gael leader Enda Kenny had insisted that a format of capitalisation was needed "which would allow for credit to be extended to businesses to be enabled to survive and protect thousands of jobs".

"It would be very important that any moneys going into Irish banks should not sit in their vaults, but should be used for the purpose for which it is intended, to enable credit lines to flow for Irish business, particularly Irish small business, to maintain jobs" and not "only to be used for the purpose of supporting delinquent developers in whatever form".

However, Mr Cowen said if capital was provided "by private or other means into the banking sector, that is for capital for the bank and not automatically provided as cash flow for Irish business".

He added that "it's important for people not to feel that the question of the injection of capital provides per se increased lines of credit".

Mr Cowen said the PricewaterhouseCoopers report on the state of the banks' loan books "confirms that all the institutions reviewed are in excess of regulatory capital requirements as of September 30th, 2008, the date that the guarantee scheme was announced by the Government".

The content of the report "is commercially-sensitive and the details cannot be disclosed" but "the PwC report demonstrates under a number of stress scenarios that capital levels in the covered institutions will remain above regulatory levels in the period to 2011".

Labour leader Eamon Gilmore called on the Taoiseach to say when a decision would be made about capitalisation, whether private or otherwise.

He asked if the Government would consider a proposal by the Small Firms' Association for a fund for small business "which would draw down the money available through the European Investment Bank (EIB)". Some mechanism should be found by Government for the release of that money to small businesses "because clearly the commercial banks are not availing of that scheme".

He also asked that if the capitalisation did not mean an end to the "credit famine" businesses were now experiencing, what conditions "do you intend to impose on the banks if there is recapitalisation to ensure that credit is made available to businesses who now need it".

The Government was "trying to ensure a strong banking sector that can serve the Irish economy in the future", said Mr Cowen, adding that "the requirement under the scheme to submit business plans is the best mechanism for ensuring transparently that banks are providing lines of credit to Irish businesses".

He was encouraging the banks to take up the EIB facility to the greatest extent possible. "Financial institutions should use the facility with a view to making the additional funding available to small and medium-sized enterprises as soon as possible."