Will Irish banks soon face more capital requirements? – Hayes
New Basel Rules must not lead to more banking paralysis
Brian Hayes MEP today (Tuesday) said that Irish banks could soon be subject to further capital requirements as the Basel Committee on Banking Supervision prepares to introduce new capital rules for banks.
“Following the financial crisis and particularly the collapse of Lehman Brothers, there was international consensus that banks could not operate as they used to. The Basel Committee put in place global standards that required banks to hold more capital in order to withstand any major shocks. These requirements have been largely implemented – Irish banks now have to comply with the EU Capital Requirements Directive (CRD), which ensures that banks hold a minimum level of capital at all times.
“These rules were absolutely necessary. They have future proofed our banks and put them on a solid footing. Irish banks, while they still face problems, are now well capitalised and well supervised. This is a sea change from the pre-crisis days when our banks could lend recklessly and operate under light-touch regulation. Now both the ECB and the Central Bank of Ireland have a major role in stress testing our banks and continuously monitoring them.
“The Basel Committee is now working towards putting new international requirements in place by the end of November, with a hike in capital requirements widely expected. The major Irish banks, AIB, Bank of Ireland and PTSB, will be subject to any new requirements provided that the EU agrees to go along with the approach of the Basel Committee.
“In July this year, the EBA found that AIB and Bank of Ireland, under very stressed conditions, fell just below the 5.5% tier 1 capital level expected of regulators. Irish banks are currently addressing this issue but if new Basel rules were to be forced on them, they would need to offset even more potential losses. This would seriously hamper Irish banks ability to lend.
“The European Parliament’s ECON Committee is currently fast-tracking a resolution through the Parliament stating that new Basel Rules should not lead to a significant increase in capital requirements. The ECON Committee, of which I am a member, is expected to vote on this resolution this coming Thursday. This resolution will then go before the November Plenary session of Parliament for a vote among all MEPs.
“The government must be firm in defying new capital rules for Irish banks when this issue comes to the EU negotiations. Whatever the European Commission proposes, the government must stick to this line. The new Basel rules must not lead to more banking paralysis.
“We need a proper public debate about this. The only time we really had a genuine public debate about the state of our banks was during the crisis. If there are any major changes to our banking structure, Irish taxpayers are on the hook since the government has a substantial stake in our banks.
“We have come through a long period of restructuring of our banking system. Irish banks have now reached a point where they can operate safely and will be viable into the future. Additionally, the EU’s Banking Union plans remain on track – Irish banks are completely signed up to this process. It’s absolutely crucial that we keep Irish banks on a solid footing.”