Honohan says banks will need more capital

THE GOVERNOR of the Central Bank, Patrick Honohan, has said that Irish banks will require additional capital after the transfer of loans to the National Assets Management Agency (Nama).

Speaking at an Oireachtas committee meeting, Prof Honohan expressed strong support for Nama. “[It] will deliver on what has been expected . . . which is to de-risk the banks’ balance sheets, give them liquidity, build their capital and that will set the scene and create the foundations for the recovery of banking.”

However, he stopped short of saying that Nama will lead directly to an increase in the flow of credit, noting that he has always said this will also depend on the recovery of confidence of both borrowers and bankers.

He pointed out that future recapitalisation would “take account of the additional loan losses that can be predicted in the banks’ books that are non-Nama loan losses. There won’t be a question of dipping back in, year-in, year-out.”

Prof Honohan also revealed details about the scope and nature of his preliminary report into the Central Bank and the Financial Regulator, including the make-up of his team. This includes ESRI professor and former Competition Authority member Paul Gorecki and Donal Donovan, formerly a senior adviser with the IMF. The six other members of the team are all employed by, retired from or on secondment from the Central Bank.

Mr Honohan confirmed he will interview former Central Bank governor John Hurley and financial regulator Patrick Neary during the course of his inquiry, while an investigation into Anglo Irish Bank and Irish Nationwide will also be included in the report, which is due to be submitted to the Government by the end of May.

In opening remarks to the committee, he said it may seem surprising that it falls to him to investigate his own organisation, but that although “it is not the easiest of balancing acts” , he is confident he can do the job effectively.

He said there have already been changes at the Central Bank, including a huge increase in the number of staff working on bank regulation for covered institutions, a whole-bank risk approach and a new head of financial regulation who has introduced a set of new methods and procedures.

Asked by Labour finance spokeswoman Joan Burton if his report would generate further questions to be answered, rather than provide analysis, Prof Honohan said he intended to provide as many conclusions as possible to the questions implicitly posed by the terms of reference of the report.