Joan Collins (Dublin South Central, People Before Profit Alliance)
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Question 213: To ask the Minister for Finance with regard to the Irish Euro, is this money created electronically, without relationship to underlying assets; if not, the assets that underpin the creation of Irish bank notes; if there is any legal or other requirement that loans advanced by the banks should be underpinned by assets or deposits of any kind held by those banks; the person who decides the quantities of the Irish Euro that are printed; how often is the printing of such notes undertaken, in what quantities and at whose instruction; is the Irish Euro note printed in Ireland; if not, where is it printed; the way that printing process is monitored and by whom; is such money generation generally carried out as a short or long-term liquidity measure as in, say, an asset purchase facility fund, or for the purposes of so-called quantitative easing to facilitate banks within the State, or in response to some other requirement or stated criteria, or under what other conditions. [19118/12]

Michael Noonan (Limerick City, Fine Gael)
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I should point out to the Deputy that there is no "Irish euro"; the euro is the common currency of the Member States in the eurozone. The amount of euro banknotes on the balance sheet of the Central Bank of Ireland represents Ireland's share of total euro banknotes in circulation. Ireland is currently allocated 1.46 per cent of the total euro banknotes in circulation based on its fully paid up share of the capital of the European Central Bank (ECB). Euro banknotes are backed by assets which relate to Eurosystem monetary policy operations, and primarily comprise loans provided to credit institutions and securities (Government bonds) purchased in connection with monetary policy operations. The income earned on assets backing the Euro banknotes in circulation is pooled by all Eurosystem National Central Banks and distributed back to these national Central Banks in accordance with their respective share of the ECB's capital.

The issue of euro banknotes is not subject to quantitative or other limits. Banknotes are printed in accordance with a pooled production system within the European System of Central Banks. Under this system, the ECB coordinates the annual banknote requirements of the eurosystem with the National Central Banks and allocates banknote production.

The Central Bank of Ireland is typically allocated one denomination per year. Under this pooled production arrangement, the Central Bank of Ireland printed 114.37 million €5 banknotes in 2011. The balance of Ireland's euro banknote requirements are drawn from the pooled production system within the European System of Central Banks.

There are currently 16 printing works fully accredited by the ECB to print euro banknotes. In Ireland our production allocation of euro banknotes is printed by the Central Bank of Ireland. All accredited printing works must report progress on the production of banknotes to the ECB on a regular basis.

The Deputy also asked whether there is any legal or other requirement that loans advanced by banks should be underpinned by assets or deposits of any kind held by those banks. I am advised by the Central Bank that, as part of its approach to monetary policy implementation, the ECB requires credit institutions in the euro area to hold compulsory deposits on account with national Central Banks. The amount of required reserves to be held by each institution is determined by its reserve base. The reserve base of an institution is defined in relation to prescribed elements of its balance sheet.

Banks are also required to meet the solvency requirements of the Capital Requirements Directive (CRD) which implements the Basel II capital framework in the European Union. By requiring banks to hold minimum levels of capital to absorb unexpected losses that a bank may face, capital requirements provide for continuing bank solvency so that they can continue to provide credit and other functions into the economy.

The Central Bank of Ireland is responsible, in accordance with the legislation transposing the CRD into Irish law, for the regulation and supervision of the capital, or solvency, requirements of banks in Ireland. Irish banks are required to calculate capital requirements and maintain a minimum level of own funds in accordance with the CRD as a cushion against credit and other risks and to absorb unexpected losses that a bank may face.

In addition to capital requirements imposed under the CRD, I am advised that the Central Bank, as part of its prudential oversight of banks in Ireland, imposes qualitative and quantitative requirements on banks in relation to the management of liquidity risk.

Arising from the recent financial crisis, the Basel Committee on Banking Supervision adopted amendments to the Basel capital framework in December 2010 to significantly increase the quality and quantity of capital held within the banking system relative to banks' risk-weighted assets and to impose standard liquidity requirements. These changes, known as Basel III, will require amendments to the Capital Requirements Directive which will be implemented in due course in the EU.

The Deputy also asks whether money generation is carried out as a short or long-term liquidity measure or for the purposes of quantitative easing to facilitate banks within the State. The Central Bank has advised me that the majority of Eurosystem liquidity provision takes the form of collateralised loans to eligible counterparties, which include Irish banks. In addition to collateralised loans, the Eurosystem has provided liquidity through the direct purchase of financial assets via the Securities Markets Programme and the Covered Bond Purchase Programmes.