MINISTER FOR Finance Michael Noonan has asked European Central Bank (ECB) chief Jean-Claude Trichet to deepen the bank’s emergency support for Ireland’s financial system.
At his first EU meeting yesterday, the Minister said he wanted the Frankfurt-based institution to allow a longer deleveraging process for the Irish banks and to provide medium-term liquidity so they do not have to rely on two-week funding.
The Minister’s demands are at odds with ECB’s exit strategy from the financial crisis, which is to quickly wean a small number of remaining “addicted” banks from its emergency support operations.
Through these operations, the ECB is exposed to Ireland’s banking system to the tune of about €150 billion. This presents a risk in its own right to the ECB.
“It’s generally known in Ireland that we need two things at least,” the Minister told reporters after he met Mr Trichet on the margins of the EU meeting.
“We need medium-term facilities from the ECB so that the liquidity problems in the Irish banks are not addressed on a fortnightly basis with a rollover of the liquidity funding every two weeks,” he said. “We need more certainty into the medium term and I made my case strongly on that basis.
“Secondly, if, in downsizing the banks, the deleveraging has to take place over too short a period, bank debt will become crystallised quickly and that’s a burden which is not necessary to bear in my view. So one of the things I said at all the meetings was we would require a longer deleveraging period so that we can restructure the banks.”
Mr Noonan, who was attending a day-long series of meetings on the overhaul of the euro zone bailout fund, said he would discuss the matter further with ECB officials in Dublin tomorrow.
The Minister said the Government was committed to the target of reducing high loan-to-deposit ratios in Ireland’s banks to a common target of 122.5 per cent.
However, he was concerned that deleveraging would increase the requirement for fresh bank capital if done too quickly.
“It’s the methodology of reducing that and the manner in which impaired assets are dealt with in the deleveraging process which is one of our concerns,” Mr Noonan said.
High loan-to-deposit ratios in Ireland’s banks, a legacy of imprudent property lending and declining deposits, are a key measure of their weakness.
Bank of Ireland’s loan-to-deposit ratio was 160 per cent in November and the ratio at AIB, which was in effect nationalised just before Christmas, stood at some 159 per cent last September.
“There are people back at home working on a plan to restructure the banks and as I say it will mean essentially downsizing them to meet our common targets of a debt-to-deposit ratio of 122.5 and in doing that certain things have to be done across the banking system,” Mr Noonan said.
Arriving for the EU meetings after private talks with EU economics commissioner Olli Rehn, Mr Noonan said he wanted to explain to Mr Trichet that the Irish banking system is too big for the economy and that it has to be reduced. “I want to explain to him in detail that we want to bring the Irish banks down to a debt-to-deposit ratio which is acceptable across Europe,” he said.
Mr Noonan said criticism of ECB’s actions prior to the financial crisis by former taoiseach John Bruton did “not necessarily” reflect the view of the Government.
“He’s not acting on behalf of the Government and he has no role in the administration. What he says is his personal view.”
