ECB to discuss Trichet role in bank inquiry

The Governing Council of the European Central Bank will discuss the question of Jean-Claude Trichet's appearance before the Irish banking inquiry in the coming months, ECB President Mario Draghi said yesterday.

Responding to a question from Irish MEP Brian Hayes at a hearing of the European Parliament’s economic and monetary affairs committee in Brussels, Mr Draghi said the bank had “no answer at this time”.

“We will have to discuss this in the ECB governing council. It’s not my view that matters. It’s the ECB governing council,” he said, adding that he could have a response at his next appearance before the committee in November.

Documentation

Minister for Finance Michael Noonan said last week that he would not personally intervene to ask Mr Trichet to attend the banking inquiry, but he added that for an efficient inquiry to take place it must "hear from everybody who's directly involved."

As president of the European Central Bank from 2003 to 2011, Mr Trichet played a central role in the Irish bailout and the handling of the euro zone crisis.

Speaking after the hearing, Mr Hayes said that the ECB should consider the matter because it is accountable to national parliaments. "If Mr Trichet does not attend, the ECB should provide documentation and, where relevant, officials, as a means of helping the inquiry with their work," he said.

During his two-hour hearing before the economic and monetary affairs committee, Mr Draghi defended the ECB’s new cheap lending programme – known as the LTRO (long-term refinancing operation) – which received a lukewarm response from banks last week.

Official figures last week showed that just 255 banks had availed of the programme, taking up €82.6 billion of the cheap four-year loans on offer, well short of expectations.

He said that the take-up had been “within the range of take-up values we had expected”, noting that there was another round scheduled for December.

“The September and December operations should be assessed in combination,” he said, adding that the announcement of the programme “already had a noticeable positive impact on financial market sentiment”.

Mr Draghi also noted that the current LTRO, which will continue until 2016, differed from previous LTRO programmes, which were designed to address the very serious funding problems in the banks at the time.

The present situation is different, he said, as it specifically obliges banks to lend to companies. “If they don’t lend to the real economy, they will have to pay back what they borrow,” he said.

The ECB has unveiled a range of measures this year to stimulate the euro zone economy, including a plan to purchase repackaged loans which will commence later this year, a series of interest rate cuts, and the three-year LTRO.

While Mr Draghi urged countries to continue with structural reforms, he said there were “margins” and “room” within the Stability and Growth Pact for a certain amount of flexibility, depending on the condition of each individual country.

Tracker mortgages

On the ECB’s loan-buying programme, Mr Draghi reiterated the bank’s intention not to purchase lower-ranking bank debt without a state guarantee, though he indicated that the bank could buy the asset-backed securities created by banks during the financial crisis. He declined to clarify whether Irish tracker mortgages would qualify for the loan-buying programme.

The poor take-up by banks of the LTRO programme has prompted some analysts to predict a more ambitious bond- buying programme by the Central Bank, which could include the purchase of government bonds.

In an investor note yesterday, Barclays Research said it now expects the ECB to extend its new asset purchase programme by adding central government bonds, given that the ECB previously indicated the programme would expand the ECB's balance sheet by €1 trillion.