Honohan rules out severe bank stress tests

The Governor of the Central Bank, Patrick Honohan, has said there is no mechanism whereby the stress-testing of Ireland's banks could lead to increased pressure on Small and Medium-sized businesses.

He was speaking in Dublin today where he was asked about the comments of economist Morgan Kelly, who has warned of the potential wiping out of a large number of SMEs who are burdened with debts from the property boom era.

Governor Honohan said the stress tests were conducted on the basis of the banks’ balance sheets last year and that nothing the banks did now would affect those balance sheets.

“I don’t see that as a threat at all,” he said, addding that the objective of the European Central Bank has at all times been to enhance the flow of credit to the SME sector.

He said the Irish banks have for the past three to four years been working through the SME loans on their books in a very systematic way. “As with the mortgages, it has been very slow,” he said, but it has been going on and the banks are dealing with the loans.

Asked about Prof Kelly’s suggestion that the ECB might conduct more thorough or severe stress tests on Ireland’s banks as an “experiment”, the governor said there were no policy differences between the different jurisdications. “That’s just a non-runner,” he said.

He said the stress tests were common across Europe, and were not just being conducted in euro countries.