Nationalisation 'should not be ruled out'

BANKING:THE GOVERNMENT should not rule out taking the banks into temporary and full State ownership as they may require further capital to absorb increasing bad debts, according to a report by the Organisation for Economic Co-operation and Development (OECD).

The Paris-based body said the National Asset Management Agency (Nama) should be established quickly and banks should only be nationalised with the “utmost reluctance”.

“Further recapitalisation may be necessary as assets are being purchased below book value,” the OECD said. Substantial losses are likely to be met by the taxpayer, the report said, and any public ownership of the banks “should be temporary and transparent”.

“Temporary nationalisation would have a number of drawbacks, but it should not be ruled out altogether provided that appropriate safeguards are in place,” said the report. “Exit from public ownership will ultimately be required and should aim to maximise the return to the taxpayer.”

The Government was warned in the report not to limit the scope of Nama, saying Ireland had “little experience of losses on household mortgages but the pressures may be stronger in this episode than in the past and lead to losses in this segment as well”.

Minister for Finance Brian Lenihan said in response to the report that the Government was willing to inject further capital into the banks if required following the establishment of Nama.

The Government is “entirely accepting” of the OECD’s comments on further capital, he said.

The OECD said the regulation and supervision of banks should be strengthened further. A system of “numerical triggers” should be adopted by the regulator to monitor loan growth and the size of mortgages, the OECD said, and the banks should be required to hold more capital in line with international regulations.