Irish banks likely to need more capital before 2019, Central Bank governor predicts

Irish banks will need more capital before 2019, the governor of the Central Bank of Ireland said yesterday following the publication of its 2012 annual report.

"By 2019, they will need more capital when Basel III comes into effect," Mr Honohan said.

He declined to say how much the banks would need, adding that this would emerge when a fresh round of prudential capital ratio stress tests (known as PCARs) are conducted in September or October this year.

“PCAR will reveal just at what point over the next six years the additional capital will be needed,” the governor added.

These stress tests will apply to AIB, Bank of Ireland and Permanent TSB. Basel III deals with capital adequacy and liquidity requirements for international active banks. This latest accord increases the capital buffers that banks must hold.

Speaking yesterday at the joint Oireachtas Committee on EU Affairs, Mr Honohan said in an “ideal world”, all the capital needed by the banks “could be provided by the private sector”.

However, Minister for Finance Michael Noonan has a longer time-frame in mind. Yesterday afternoon he also asserted that while the PCAR is imminent, he noted that its "timing is under discussion".

Stress tests
"If not this year it will be the first half of next year," he said. This would coincide with similar stress tests planned by the European Banking Authority for next March.

Mr Honohan said “full implementation” of announced budgetary measures was “essential” to preserve market confidence in Ireland’s recovery. “I’m to sticking to the programme as designed,” he said.

The governor said adherence to the targets set out in the EU-IMF bailout had helped it re-enter capital markets in the past year and increased the prospect of a “successful exiting” from the programme at the end of the year.

Mr Honohan also referred to recent events in Cyprus, where certain depositors had their funds raided as part of an overall solution to the financial crisis in the country.

“I wasn’t wholly satisfied with the way Cyprus worked out. I would have done it differently myself. It’s water under the bridge now.”