CENTRAL BANK governor John Hurley has said the State recapitalisation plan for Allied Irish Banks (AIB) and Bank of Ireland should be given every chance to run its course, and said the two banks have a “very good opportunity” to raise €1 billion each from private investors as required by the plan.
“I think that they are clearly making every effort to tap the market themselves, and we will see how that plays out,” he said before the Oireachtas Joint Committee on Finance and the Public Service.
In a meeting that took place against the backdrop of drastic share-price erosion in both banks since the nationalisation of Anglo Irish Bank, Mr Hurley noted in his remarks the Government’s intention that both institutions remain as independent banks in private ownership.
“I think that what’s proposed should be given every opportunity to run its course,” he said in reference the recapitalisation scheme.
“Whatever is necessary will have to be done in relation to it. I think we can’t rule anything out – it seems to me that what’s in train should be allowed to run its course.”
AIB shares gained 26.67 per cent to close last night at 57 cent. Bank of Ireland shares lost 7.5 per cent to close at 37 cent. Contrary to expectations, the Government did not engage in any detailed talks yesterday with either bank.
In advance of a lengthy Cabinet meeting yesterday, Minister for Finance Brian Lenihan said there were no proposals before him to nationalise either bank. Asked if he would rule out nationalisation of either bank, he said he would not have “policy by soundbite”.
Mr Hurley said at the committee that the drop in the share price of the banks was “not really indicative” of their actual situation, adding that they were “strong institutions” and “solvent institutions”.
Asked by Fine Gael TD Kieran O’Donnell whether either bank had encountered any liquidity difficulties, Mr Hurley said that was not so. Both banks made use of the European Central Bank (ECB) liquidity facility, he said, but their drawings were limited. “There isn’t really a difficulty. There have been some modest drawings from the ECB, but it’s not significant.”
Repeatedly stressing the crucial position that both banks occupy in the Irish economy, Mr Hurley said they were central to the financial system and were “vital institutions for the State”. Mr Hurley, whose response to some questions was halting, said it was very important that they continued to lend into the economy. “There’s no question but that their contribution to the economy is extremely important.”
The Central Bank was finalising its latest annual Financial Stability Reportin respect of the Irish economy, he said. The Central Bank repeatedly highlighted for four or five years the risks to the economy when house price and credit growth rose at very high rates. "In the context of an unprecedented period of expansion and wealth-creation, this proved a difficult message to get across."
An international debate was under way on how authorities might directly change the behaviour of market participants to mitigate risks to stability. “This debate, in part, is focusing on whether central banks need specific powers to intervene directly in this regard. For example, one proposal is that central banks might have an explicit role in setting capital ratios in response to emerging risks identified in financial stability assessments.”
