Oireachtas Joint and Select Committees

Wednesday, 21 September 2022

Joint Oireachtas Committee on Finance, Public Expenditure and Reform, and Taoiseach

Banking Issues: Discussion (Resumed)

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

This is a decision that is made by central banks and regulators. The Central Bank of Ireland decides how much capital our banks hold and I will not give an indication on how an independent regulatory decision could be made. I know Deputy Richmond will understand why that is the case and why I have to take that course of comment. I am aware of all the commentary that has taken place on the difference between capital levels for Irish banks, the amount and kind of capital they are required to hold and how that stacks up versus other countries. That then has an impact on the interest rates that are made available to new borrowers. I am aware of all of that but I would make two points alongside it. First, if we ever needed a reminder of the importance of banks being well capitalised and being resilient, it was when we got hit by a pandemic in Ireland.

Our financial sector here did not become an amplifier of the economic shock that was the closure of our economy for prolonged periods. That demonstrated the value of our banking sector having a high degree of capital because that was one of the reasons, alongside the economic support the Government made available, that the financial sector avoided becoming part of the problem.

The second reason is that the high level of capital our banks have is directly driven by the scale of the banking crisis we endured in Ireland for a number of years. That period is part of the overall period which the regulators use to calculate the level of capital banks should hold now. This is an illustration of the many costs and consequences of our banking system running into such extraordinary difficulty and the costs that were borne from that. It reminds me of the need never to get to that point again. Of course, as that crisis recedes into the rearview mirror, its role in influencing the level of capital that our banks must hold will also recede.

Comments

No comments

Log in or join to post a public comment.