Shane Ross (Dublin South, Independent)
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Question 12: To ask the Minister for Finance if he will confirm, further to Question No. 123, that the EBA peer review team was aware of and approved all amendments to methodologies and changes to formulas applied by the Irish banks or the Central Bank of Ireland to the stress tests in 2011; and if he will make a statement on the matter. [14809/12]

Michael Noonan (Limerick City, Fine Gael)
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I refer the Deputy to my replies to recent parliamentary questions (Nos. 122 of 22 November 2011, 42 to 44, inclusive, of 6 December 2011 and 166 of 21 Feb 2012), which address the query raised in his latest question. The position as regards this matter has not changed. I am advised by the Central Bank of Ireland (CBI) that it assisted the European Banking Authority (EBA) in carrying out a European-wide bank solvency stress test in July 2011. The test was applied to three Irish banks in accordance with a methodology that was pre-agreed with the EBA. As a result of the significant restructuring underway in the Irish banking system at the time, the methodology applied by the EBA to the Irish banks differed in some respects to that prescribed to the other European banks participating in the exercise. The differences in methodology were introduced to fully account for the Irish banks requirement to deleverage their balance sheets in the coming years and also to consider the detailed loan loss forecasts produced by BlackRock Solutions on behalf of the CBI earlier in 2011 as part of the Irish PCAR stress tests. By taking account of the negative impact of the asset disposals and the losses forecast by BlackRock, the Irish banks were subject to a much tougher stress test than other banks participating in the European stress test. In addition, Irish, Greek and Portuguese banks were issued with separate cost of funds instructions to account for the impact of the sovereign spreads and external support programmes.

In order to assure quality in the process and the outputs in the European stress test, the EBA assigned a team of independent peer reviewers to verify that methodologies were applied consistently and correctly. This team, which comprised of senior European stress testing experts, worked with the CBI to validate and verify the submissions made by the Irish banks. This iterative process resulted in many clarifications leading to instructions to each of the Irish banks. Once updated submissions were received from the banks, the CBI checked and subsequently forwarded them on to the EBA for further validation and review. The results/submissions made by the Irish Banks were not amended in any way before being forwarded on to the EBA peer review team.

I am further advised by the CBI, that one of their employees expressed a concern over the way in which the EBA stress testing procedure was applied in Ireland. In response, CBI management commissioned an investigation. This investigation was conducted by the CBI's Internal Audit Department under the CBI's 'speak-up' policy. Based on the report of this investigation, which has been accepted by the employee, CBI Management are satisfied that, while the complaint was made in good faith, there is no reason for concern with the figures provided to the EBA.

Despite the additional conservatism applied to the Irish banks, all three Irish banks passed the European stress test. This is a direct result of applying a much tougher PCAR stress test earlier in 2011, as part of the Irish Financial Measures Programme, and requiring the banks to recapitalise based on the results of that stress test. The PCAR stress test was overseen by a series of independent observers, including the Troika, and was widely regarded by market participants as being credible and a benchmark on information disclosure that other supervisory authorities should follow.