Written answers

Thursday, 26 January 2012

Department of Finance

State Banking Sector

5:00 pm

Photo of Catherine MurphyCatherine Murphy (Kildare North, Independent)
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Question 80: To ask the Minister for Finance the advice provided to him by the Central Bank of Ireland and the European Central Bank regarding the solvency of Irish Nationwide Building Society and Anglo Irish Bank prior to the decision to nationalise the two institutions; the nature of the advice received, if any; if he will specify any other public or private sector institutions from which he sought advice regarding the solvency of INBS and Anglo Irish Bank in advance of their nationalisation; the nature of the advice received, if any; and if he will make a statement on the matter. [4672/12]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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My Department maintains close and on-going contact with the Central bank/Financial Regulator on all financial, stability and regulatory matters. Likewise, there is also close contact with appropriate external authorities. The Central Bank of Ireland and the Financial Regulator provided advice to the Minister at the time of nationalisation of Anglo Irish Bank and the effective nationalisation of Irish Nationwide Building Society (INBS). The ECB did not provide specific advice to the Minister in relation to these institutions prior to nationalisation. Anglo Irish Bank was nationalised in January 2009 while INBS was effectively nationalised in March 2010. It is important to note that, at no time were either of the institutions declared insolvent and the provision of capital and support by the Government has prevented insolvency and any consequential call under the various Guarantee Schemes. IBRC, the merged entity, comprising both these institutions, remains solvent and in compliance with all regulatory and capital requirements.

Both institutions were regarded as systemically important credit institutions and were managed and dealt with on that basis by all the Irish regulatory authorities. Failure of such important institutions would have had serious and immediate financial an economic implications. Having consulted with the Central Bank capital was provided to the institutions to ensure that they continued to meet all regulatory capital requirements.

The circumstances surrounding the decisions to deal with the institutions are very different. In the case of Anglo Irish Bank the Department knew, prior to nationalisation, that capital would be required, that funding at the bank was problematic and that certain risks, including governance issues, could, if not mitigated, materially impact on the bank. However, the bank was not adjudged insolvent at that time. The audited accounts for the period, and assessments by the Financial Regulator, PricewaterhouseCoopers (PWC) and Merrill Lynch all indicated that the bank was solvent and could absorb "stress level" losses over the period of review and projected strong capital adequacy ratios out to 2013. Anglo Irish Bank was nationalised because of governance issues, and funding problems in particular which would very quickly have placed the bank in a position of inability to repay maturing debt including deposits, with a major and immediate knock-on impact on other banks and on the State. Further, there was strong negative market sentiment towards the bank which was impacting on the banking sector generally.

With the benefit of hindsight, however, it is now clear that the full extent of the evolving problems in global financial crisis or the property market were not envisaged in any assessment of the bank at that time. In the course of 2009/2010 the extent of the problems became clear and the level of impairments on assets increased substantially necessitating further injections of capital to sustain the capital position of the bank.

In the case of INBS it became clear in the course of 2009 that the Society was in breach of its own funds solvency ratio. The Central bank/Financial Regulator reported on this. This problem persisted and the Minister was forced to intervene, to provide specific guarantees and eventually to effectively nationalise the institution in early 2010 in order to protect the solvency of the institution and a call on the State guarantee.

Throughout this period the Central Bank/Financial Regulator provided advice to the Minister. Other institutions which provided advice to the Minister over that period included the NTMA, PWC, Merrill Lynch, Arthur Cox, Rothschild.

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