Government considering all options on banks, says Cowen

Taoiseach Brian Cowen has said the Government is considering all options to help secure the future of the Irish banking sector and played down reports of an imminent recapitalisation scheme.

"International market expectations in relation to capital levels in the banking sector have altered and . . . meeting these expectations may be challenging," Mr Cowen told the Dáil this morning.

"The Government is considering all options in relation to these matters."

He warned that a mooted bank-recapitalisation scheme could not a “panacea to all ills” and would not necessarily lead to increased lines of credit for struggling businesses.

Mr Cowen faced calls from the Opposition during Leaders’ Questions to ensure that banks used the capital injection to make funds available to protect jobs in Irish companies.

Fine Gael leader Enda Kenny called on the Taoiseach to ensure that any money going into Irish banks “should not sit in their vaults”. Rather, the funds must be used to open credit lines to help protect Irish jobs and small businesses.

“I’m sure the Taoiseach doesn’t want a situation where capital is extended to banks and it sits in vaults only or would be used for the purposes of supporting delinquent developers,” he said.

Labour Party leader Eamon Gilmore accused Mr Cowen of not having “a grasp of the urgency” of the situation facing small businesses who were experiencing a huge drop in trade and were struggling to get credit as a result.

“Businesses are going to the wall because they can’t get the money to pay their staff,” he said.

Mr Cowen rejected the accusation. He said the Government, “acutely aware” of the situation, was actively involved in trying to find a solution.

He insisted that if capital were to be injected into the banks, it would go towards to securing their credit rating and would “not automatically be provided as cash flow for Irish business”.

Mr Cowen said the Central Bank has submitted a report to Minister for Finance Brian Lenihan on the financial positions of Ireland’s six main financial institutions.

He confirmed reports that Mr Lenihan has met the Financial Regulator and representatives of PriceWaterhouseCoopers to discuss this report, the content of which he said was commercially sensitive.

The report confirms that “all institutions reviewed are in excess of regulatory capital requirements” as of September 30th, 2008, the date the Government announced its bank-guarantee scheme.

"The PwC report demonstrates under a number of stress scenarios that capital levels in the covered institutions will remain above regulatory levels in the period to 2011," he added.

“The Government’s guarantee scheme has been successful in safeguarding the stability of the Irish banking sector and restoring its liquidity position,” he said.

“However, the Minister is aware that international market expectations in relation to capital level in the banking sector have altered and that meeting these expectations may be challenging with consequences for both the sector and the wider economy.”

He said the banks are expected to “explore fully” their ability to meet their capital needs through disposal of assets and raising capital privately.

Mr Gilmore asked why, if the banks were in a sound financial position at the end of September, was the Dáil led to believe that a bank or banks were “in imminent danger of collapse?”

Mr Cowen said the situation prior to the introduction of the bank guarantee scheme was not tenable.