Regulator warns banks may need more capital

THE CENTRAL Bank director in charge of supervising the banks says it is not possible to say that the banks will not require capital until they deal with the problems in their mortgage books and property prices stop declining.

Fiona Muldoon, director of credit institutions and insurance supervision, said the banks may require further capital if they continued “to do nothing” to tackle rising mortgage arrears or if there were widespread defaults on loans.

“It would certainly be foolish to sit here today and say that there is absolutely no way that no new further capital will be required. There is still a lot to work through,” Ms Muldoon said in an interview with The Irish Times.

The €64 billion in public funds being injected into the banks was still sufficient to cover the immediate needs of the banks based on last year’s stress tests, she said.

However, the banks may require further capital if property prices fall further or if borrowers in default are not helped to allow them to make repayments again.

Failing to deal with the write-down of unaffordable mortgage debt in a “careful and measured” way could also lead to a contagion that could mean the banks require further capital, she said.

John Moran, secretary general at the Department of Finance, said yesterday he agreed with the Central Bank that the banks may need up to €4 billion more in capital over the next six years to meet new international banking rules.

Speaking at the Oireachtas public accounts committee, Mr Moran said the aim was that the banks would be able to raise this money from new investors rather than the State after they return to profitability.

The Central Bank has directed the banks to identify borrowers who cannot repay their mortgages and to develop new products such as split or trade-down mortgages for borrowers who cannot afford to repay loans in full and to repossess properties in the worst cases.

The Central Bank has met the boards of Bank of Ireland and AIB and will meet the board of Permanent TSB later this month to direct them to take a personal interest in resolving the mortgage crisis.

Ms Muldoon said there would be “very robust conversations” with the banks as they were “not there” on their work to manage the problem, create a “shop” of solutions and set up systems to deal with each type of borrower.