THE IRISH Financial Services Regulatory Authority is exploring possible mergers between Irish financial institutions to strengthen the banking sector in the event of any further deterioration due to the global financial crisis.
The financial regulator is continuing discussions with senior bank executives this week about potential solutions to future pressures facing the sector.
Possible marriages between institutions have been suggested and examined in exploratory discussions to ensure the banking system can react quickly to any emerging shocks. Bank executives have proposed a variety of potential tie-ups to the regulator as ways of strengthening institutions.
The talks with bankers are seen as contingency planning by the regulator and form part of its heightened vigilance of the sector.
The collapse of US investment bank Lehman Brothers last week has driven up the cost of funding and shut down debt markets, where banks and building societies raise money, creating growing problems for Irish institutions.
US government interventions in the financial sector and "shotgun" mergers between banks in Britain and the US has prompted the Irish regulator to explore the possibility of similar moves.
The regulator is keeping Department of Finance officials closely informed on its discussions and planning. Spokesmen for the regulator and the department declined to comment.
The regulator's chief executive Pat Neary said last week that his office and the Central Bank "remain on high alert" and were "vigilant to any emerging risks". The regulator has sought daily updates on deposit flows in and out of banks and building societies in addition to daily liquidity reports to assess the ability of institutions to meet their outgoings.
It emerged last week that Anglo Irish, the third largest public Irish bank, has expressed serious interest in taking over Irish Nationwide Building Society, contingent on support from the Government.
Spokesmen for the bank and building society have declined to comment. A potential takeover of Irish Nationwide by Anglo was discussed in meetings between a number of institutions, the regulator and the Central Bank last Saturday.
Irish Nationwide has come under growing pressure in recent weeks due to the sharp downturn in the Irish and British property markets, to which the building society is heavily exposed.
The building society's debt rating - a measure of its capacity to repay its borrowings - was downgraded by two credit ratings agencies earlier this month. The society has said it "fundamentally disagreed" with the downgrades.
Meanwhile, National Irish Bank has applied to the regulator to have the protection guarantee on deposits at the bank raised to the new €100,000 protection limit introduced by the Government last weekend.
As NIB is owned by Danish bank Danske, the bank falls under the supervision of the Danish banking regulator which guarantees savings up to €40,300.
A spokesman for NIB said the bank had lodged an application to the regulator yesterday to "supplement" its deposit protection to the new maximum of €100,000 per depositor. The spokesman said the bank was "empowered under Irish law to seek supplementary protection for its customers to match local guarantee levels under the Irish deposit protection scheme, which it is now doing".
The Danish-owned bank had offered one of the best deposit protection guarantees in Ireland until Minister for Finance Brian Lenihan decided to raise the Irish deposit guarantee from €20,000 to €100,000 on Saturday.
A spokeswoman for Dutch-owned online bank Rabodirect, where savings are protected up to €38,000 under the Dutch deposit guarantee scheme, said the bank did not intend to apply to the regulator for an increase in its deposit protection, as the bank felt its "AAA" credit rating made it one of the safest banks in the world.
AIB was upgraded to a "buy" by analysts at RBS who said that bank funding costs would fall, benefiting institutions with greater dependence on the wholesale money markets. The bank already has a "buy" recommendation on Irish Life Permanent. Bank of Ireland's outlook was yesterday cut from "stable" to "negative" by ratings agency Moody's, which cited concerns over weakening asset quality and the impact of a more challenging economic environment on profitability.
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