Ireland's two biggest banks have already passed domestic stress tests more severe than those currently being carried out by the Committee of European Banking Supervisors, the Central Bank governor said today.
The financial regulator stress-tested Allied Irish Banks and Bank of Ireland - the two local participants in Europe's tests - earlier this year to prepare them for loan transfers to Nama.
Governor Patrick Honohan said the European-wide tests covering 91 banks to be published on July 23rd had been extended to reflect events in the sovereign debt markets and would reassure them about the banks' health.
"It is a good idea laying out the facts for the major banks. I think it will go some way to removing exaggerated concerns about some particular risks," Mr Honohan, a member of the European Central Bank's governing council, said at the publication of the Central Bank's annual report.
The Central Bank governor said the revised plan put forward by Anglo Irish Bank on its future was "more realistic" than an earlier restructuring proposal which he termed "optimistic."
"Whatever final solution is adopted, we will see certain entities emerging from what was Anglo Irish Bank, at least two entities," he said.
Mr Honohan said Ireland has made “significant progress” in tackling its banking and fiscal problems. However, he added that it remains critical that the Government sticks firmly to the programme of fiscal adjustment it has embarked on. and said the budget plans were broadly on track.
Earlier this week, the IMF said Dublin would not meet a European Union-agreed deadline to reduce its budget deficit to 3 per cent of gross domestic product (GDP) by 2014, a day after a think tank forecast that bank bailouts could expand this year's budget deficit to almost 20 per cent. Mr Honohan said the bank costs, although a one-off budget item, could distort theperception of Ireland's fiscal situation and that the €22 billion Dublin has promised to nationalised Anglo Irish Bank's was a "ballpark figure."
Mr Honohan said the bank costs, although a one-off budget item, could distort the perception of Ireland's fiscal situation and that the €22 billion Dublin has promised to nationalised Anglo Irish Bank's was a "ballpark figure."
The Central Bank's annual report shows that it made a profit of €933.8 million last year. After transfers to reserves, surplus income of €745.5million will be paid to the Exchequer. The Central Bank's balance sheet assets at the end of 2009 amounted to just under €125 billion reflecting the continuing high levels of liquidity support by the Bank through the Eurosystem to banks located in Ireland.
Mr Honohan also said he would be in favour of offering some kind of support to householders in negative equity.
"If you create an environment in which certain borrowers are allowed to walk away from their debt when they could have paid it then you create huge unfairness. You need a well considered scheme which is targetted at those who can't pay and is designed to get a realistic solution to their housing and indebtness problems which does not impose an arbitary debt on the rest of society," he said.
"Narrowly targeted measures to deal with the problem of distressed households who cannot pay deserve attention and then should be focused," he added.
An analysis of mortgage-backed bonds by ratings agency Moody’s published today shows mortgage defaults rose again in May.
The report shows that 4.08 per cent of the homeloans contained within the bonds were in arrears by more than 90 days in May. This compared to 3.8 per cent in March and 2.36 per cent in May 2009.
Meanwhile, data compiled by the Financial Regulator showed in May that one in every 25 Irish residential mortgage holders was more than three months in arrears on their repayments.
Added reporting: agencies