Sempre dal FT
Published: November 21 2010 23:10 | Last updated: November 21 2010 23:10
Banks to be restructured as part of bail-out
Ireland’s banks will be restructured as part of a financial bail-out and the financial sector will “become significantly smaller” as the result, Brian Cowen, the prime minister, said on Sunday.
Mr Cowen and Brian Lenihan, finance minister, said a “deep restructuring” would be one of the two main elements of a bail-out led by the European Union and the International Monetary Fund requested by Dublin on Sunday.
“Irish banks will become significantly smaller than they have been in the past, so that they can gradually be brought to stand on their own two feet once more,” Mr Cowen said.
Mr Lenihan said as part of the restructuring banks would have to sell non-essential foreign assets. But he said Ireland’s banks still needed fundamental reform.
The EU/IMF-led bail-out, the finance minister said, was intended to make sure that financial markets got the message that significant “firepower” stood behind the Irish banking sector, even if Dublin might choose not to use it.
“It is important to bear in mind that it is not intended to draw down all these monies, particularly in relation to the banking sector,” Mr Lenihan said. “It is important to demonstrate that the reserves are available to meet whatever capital requirements are established, and that that firepower stands behind the Irish banking system.”
A team from the IMF, the EU and the European Central Bank has been in Dublin since Thursday probing the books of the six domestic lenders as a prelude to a large-scale recapitalisation. Irish banks have been brought to the brink by a property and building sector crash. that has left them holding billions of euros of impaired loans.
With the interbank markets closed, Irish banks have become dangerously reliant on ECB funds and at the end of October accounted for a quarter of all the liquidity provided to the euro banking system.
The precipitate cause of the bail-out request appears to have been the recent exodus of deposits that has made the banks ever more dependent on central bank support.
“You cannot have a bank system that’s just dependent on central bank support,” Mr Lenihan told Irish radio earlier on Sunday.
“It has to be weaned off central bank support, and a detailed structural plan for the resolution of all Irish banking difficulties will be devised as part of the programme,” Mr Lenihan said.
“Because of the degree of their dependence and support from the European Central Bank it is essential that we deepen the approach to addressing the structural problems in the [Irish] banking system.”
“Over time, the banks can be reshaped. The key issue is to ensure that we do not have a collapse of the banking sector.”