THE COST of dealing with Anglo Irish Bank will be less than has been “touted around” recently, the governor of the Central Bank has said.
However, Prof Patrick Honohan did not give any figure. It is expected the capital levels required for the two banks being created out of Anglo will be given in the coming week or weeks. The figures will enable the Government to give a more definitive estimate for the total cost of dealing with Anglo.
Prof Honohan said it might be worth explaining the type of capital assessment that was being done as it was different to that done for the other Irish banks.
Part of the calculation will include the publication of a stress assessment of future potential losses, taking account of stress funding costs.
Recognising that losses may exceed the base assessment over time, by setting out a stress case, the Central Bank aims to provide as much certainty as is reasonably possible as to the potential exposure presented by Anglo under a “severe hypothetical stress scenario” in the runoff of its book. “It will be less than the numbers recently touted around, actually.”
The Government’s decision to split Anglo in two came as welcome relief to him, Prof Honohan said, addressing a conference of banking regulators and academics in Dublin. During a question and answer session, he said about half of the cost of dealing with the Irish banking crisis had fallen on shareholders and about half on the Exchequer.
The Anglo base capital and stress calculations will help narrow the range of estimates of the net fiscal cost of the banking crisis. “Historical experience cautions against expecting great precision.” Completion of the Nama process will also help narrow the range, Prof Honohan added.
Much of the exceptional Government support for the banks will arise this year and will create a sharp transient spike in Government borrowing in 2010.
“Interested market participants are being kept well aware of this and publication of exact numbers at the end of the year should not come as a surprise,” he said.
The exceptional financial injections into the banks are smaller than the rest of the Government deficit in 2009-2010.
“Just as the expansive credit conditions filled the coffers in the good years, so the unwinding of an unsustainable domestic boom is draining the coffers in much the same way and to a similar magnitude.”
Prof Honohan outlined the steps taken in relation to the recapitalisation of Bank of Ireland and AIB, pointing out that the Government has undertaken to meet any shortcomings in AIB’s efforts to raise what it requires. “So the two main banks are sorted.”
Recapitalisation and restructuring of the three smaller institutions – the EBS, Irish Life and Irish Nationwide – was well under way.
On taxing the banking sector, Prof Honohan said a tax on bank transactions would not in his view generate as much revenue as is often supposed. A banking licence was a privilege, not a right, and needed to be exercised with greater regard to the public good.
