The governor of the Central Bank John Hurley has said the recapitalisation of Bank of Ireland and AIB should be allowed to run its course and said they were central to the Irish financial system.
Speaking before the Oireachtas Joint Committee on Finance and the Public Service today Mr Hurley said: "So far as Allied Irish Bank and Bank of Ireland are concerned, the government has reiterated that it sees these banks as central to the Irish financial system and essential to the proper functioning of the economy. "
"It has also indicated its intention that both banks remain as independent banks in private ownership and has stated that it is proceeding with the planned re-capitalisations of both banks."
Mr Hurley said the Irish economy is currently going through a very difficult period and is facing into a second consecutive year of contraction. The contraction in output is set to result in significant job losses and a sharp rise in unemployment.
Earlier today the Committee was told that the financial regulator may ask for new legislation covering loans made to company directors at financial institutions.
Jim Farrell, chairman of the Irish Financial Regulatory Authority (IFSRA) told the committee this morning that the organisation was committed to fully investigating all aspects surrounding the issues around directors' loans at Anglo Irish Bank.
In his opening statement to the committee, Mr Farrell said the Financial Regulator relies on appropriate management and controls in firms, ethical behaviour and true and fair reporting by firms and their auditors, as well as on-site inspections and supervision actions by the regulator. However, he admitted that in the case of Anglo Irish, this did not happen.
"We are committed to putting in place measures to try and ensure nothing of this sort can happen again, including, if necessary requesting Government to introduce new legislation in this area if necessary," said Mr Farrell.
"Apart from the controls over directors loans, it is clear that key areas such as risk management, compliance and general control processes in banks need to be re-examined in light of recent market turmoil. Liquidity management and risk concentration are also areas that need particular attention," he added.
Mr Farrell said the need to revisit and improve the regulatory system was very clear against the background of both the international crisis, the severity of which no banking regulator, central bank or government anywhere was able to foresee.
He also told the committee he believed that AIB and Bank of Ireland are in good financial health despite having seen half of their share value wiped out this week.
"At government level and we at the regulator have done what we can to insure the solvency and liquidity of those banks. Beyond that, the market has to make up its mind as to what value to put on those banks," said Mr Farrell.
The governor of the Central Bank John Hurley and executives from the Financial Regulator are all appearing before the committee today to discuss the regulatory and supervisory environment for the financial services sector.
Members of the committee are seeking answers about the level of supervision and regulation of banks and whether the credibility of our regulatory framework has been damaged by recent events.
Former Anglo Irish Bank chairman Sean FitzPatrick resigned in December after it was revealed that he owed the bank more than €84 million, but had not disclosed this fact to shareholders.
Following his resignation the chief executive of the financial regulator, Pat Neary, announced his decision to retire early over the handling of the regulator's investigation into the €87 million in secret directors' loans at Anglo Irish Bank.
Additional reporting Bloomberg
