THE IRISH banks should be recapitalised “as swiftly as practicable”, but “transitional arrangements” will be required to bring their capital levels into line with new bank rules, the head of financial regulation, Matthew Elderfield, has said.
In his first public interview, Mr Elderfield told The Irish Timesthat the cost of a "big bang" recapitalisation to instil market confidence in the banks would be "manageable" for the Government.
There would have to be “transitional arrangements” for the banks to reach the “end destination” for capital thresholds to be set under the new bank capital rules, known as Basel III, he said.
Mr Elderfield said the regulator was assessing potential losses on the non-Nama loans under likely and stressed scenarios, both of which would be taken into account in the recapitalisation exercise.
The Government will announce capital requirements for the banks later this month, coinciding with first loan transfers to the National Asset Management Agency (Nama).
“The specific target capital level and the amount of time that we are going to let the banks have is something that we will have to await in the Government’s statement,” said Mr Elderfield.
“There will be a regulator-Central Bank statement and a Government statement in due course.”
The Basel III rules which are due imminently will set “fairly rigorous capital requirements”, he said, and many banks would be competing to get to that level.
“Therefore, the recapitalisation exercise has to command market confidence, that the banks are put on a stronger footing, that they are well on the way to meeting the capital levels,” Mr Elderfield said.
It was “important to make good, fast progress and to make sure that recapitalisation moves the banks to a strong capital position as soon as practicable,” he said.
Analysts estimate that AIB requires up to €4.4 billion and Bank of Ireland up to €2.8 billion to bolster their capital ratios.
Mr Elderfield said he would introduce “risk based” regulation “backed by some steel, and that requires this credible threat of enforcement.
“The rule book needs to be tightened. I don’t think it needs to swing to the extreme, but there needs to be some tightening up, particularly for the banks.”
