Mary Lou McDonald (Dublin Central, Sinn Fein)
Link to this: Individually | In context

Question 25: To ask the Minister for Finance his view or the view of the capacity of the covered institutions to absorb losses from domestic mortgages without requiring further capitalisation. [27659/11]

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context

As the Deputy is aware, the Central Bank of Ireland's Prudential Capital Assessment Review (PCAR), which was published in March 2011 and formed part of the Financial Measures Programme, provides for an annual stress test of the capital resources of the domestic banks under a given stress scenario. The loan loss exercise in the Financial Measures Programme, which includes estimated losses on residential mortgages, measures the loan losses banks might experience under the base and adverse (stress) scenarios over both a three year and a loan-lifetime horizon, stretching out to 2040. The Central Bank's three year projected base loss for the Irish residential mortgage loan book is estimated to be 5.8% (€5.7bn) while the adverse (stress) scenario is 9.2% (€9bn). BlackRock Solutions performed an independent loan loss assessment exercise and show lifetime loan losses post-deleveraging for the total mortgage loan book is 10% (€9.7bn) in the base scenario which the adverse (stress) scenario is 16.7% (€16.3bn).

Under the PCAR requirements, the banks will be capitalised to meet the projected Central Bank's three year stress losses, this includes a significant proportion of the projected life time losses to 2040. It is important to point out that these stress loan-loss estimates are not considered likely to materialize, they are an input designed to ensure the associated capital requirements are fully convincing as being sufficient to cover even extreme and improbable losses.

The recapitalisation commitment from the Irish State is lower than initially expected as a result of the LME exercises with subordinated bondholders conducted since 31st March 2011 and private sector investment in Bank of Ireland. Out of the total identified capital of €70.3 billion, at the end of July actual capital investment was circa €63 billion. There will be further stress tests in 2012 by the Central Bank of Ireland through a PCAR and also by the European Banking Authority. I believe that the Irish banks will have sufficient capital to absorb losses from domestic mortgages.