Lenihan defends €4bn new capital

 

MINISTER FOR Finance Brian Lenihan has said the Government’s provision of €4 billion in new capital to Anglo Irish Bank was required to avoid “wider losses” in the economy if the bank was allowed to fail.

Disputing suggestions that Anglo’s business could be subjected to an orderly wind-down, he said the Government’s overriding concern was to prevent the bank from becoming a systemic threat to the financial system at large and to protect customer and interbank deposits held by Anglo. “If you close it down, €64 billion in customer and interbank deposits would be called into question.”

Anglo’s results were extremely disappointing, he said. “In my view it is a disgrace that this bank evolved into the institution it did.”

Asked if responsibility for that was limited to Anglo or whether it extended to the Government and the Financial Regulator, he said the “primary responsibility” rested with the bank itself.

On the Government’s role, he said the over-risking of the Irish financial system was not unique. “As far as the Government is concerned, what has happened here is clearly part of an international trend.” The credibility of regulatory systems “clearly have crashed and been trashed throughout the world”, he added.

The National Treasury Management Agency (NTMA) will guide the Government on the most efficient means of funding the recapitalisation, he said. The Government is seeking the recruitment of an external chief executive and an external chief risk officer for the bank.

Mr Lenihan said Anglo’s results do not give rise to any reconsideration of the capital requirements of Allied Irish Banks and Bank of Ireland, each of them a recent recipient of €3.5 billion in new capital from the State. “Our two main banks are unaffected by this and are evolving as they should be.”

On claims from Opposition and other critics that all of the banking system should be nationalised instead of setting up the National Asset Management Agency (Nama), he said Anglo’s need for capital “illustrates the point that, when nationalising a bank, there is an issue for the taxpayer”.

While Anglo has received approaches from potential suitors for its entire business and parts thereof, Mr Lenihan said the bank’s board would be unable to advise on the best route forward until the institution is stabilised, derisked and deleveraged.

On the inquiries into Anglo, he understood that legal actions against the bank were under way.