ECB to directly regulate AIB and Bank of Ireland

AIB and Bank of Ireland and at least one more systemically important institution operating here will be regulated directly by the European Central Bank in Frankfurt when the new European banking supervisory regime comes into force, Minister for Finance Michael Noonan told the Oireachtas Committee on Finance, Public Expenditure and Reform yesterday.

Mr Noonan also reiterated that the Irish banks are well capitalised and said there was no evidence that they would need additional funds from the State when a new set of stress tests is completed next year.

When asked by Sinn Féin finance spokesman Pearse Doherty to identify which Irish banks would be directly regulated by Frankfurt, Mr Noonan said "AIB and Bank of Ireland will be two. We could have a number of bids on the table for the third."

He said the third institution could be Ulster Bank, in spite of the fact that it is owned by Royal Bank of Scotland, which is regulated in the UK. It will come down to which banks are considered “systemically important”, he added.

Mr Noonan said the Central Bank of Ireland and the ECB would decide which Irish banks are directly regulated under the regime.

The banking union will see the introduction of a single supervisor in Europe, the ECB. It will take over responsibility for all major or systemically important banks from national regulators from mid-2014. This will involve a minimum of three institutions per country, Mr Noonan said.

Fianna Fáil finance spokesman Michael McGrath asked the Minister what impact direct supervision from Frankfurt would have on the activities of the Central Bank here.

Mr Noonan said the ECB could choose to fly people in to Dublin for supervisory purposes or it might use a group of people based locally. “I’m not sure how the logistics will work.”

He also suggested the ECB might delegate certain functions to national regulators, while retaining its right to override the domestic supervisor and “take control” of a situation. Those banks in Ireland not directly regulated from Frankfurt will continue to supervised by the Central Bank, he added.

On the issue of the Irish banks needing more capital, Mr Noonan said: “There is no evidence whatsoever that any of the Irish banks will need extra capital next year. They are very well capitalised. I have no evidence [to the contrary] at this point in time either.”

He was involved in a testy exchange with Mr Doherty, lasting a few minutes, on what mechanism would be used to provide extra capital to the Irish banks if it was required following the stress tests next year.

“You are trying to construct a theory on a fake premise,” Mr Noonan said.

Mr Noonan confirmed that the budget would be brought forward from its usual slot in early December to October 15th under new European rules.

The Finance Bill will be published before Christmas, he added.