Written answers

Tuesday, 29 September 2015

Department of Finance

Financial Services Regulation

Photo of Peter MathewsPeter Mathews (Dublin South, Independent)
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258. To ask the Minister for Finance if the Central Bank of Ireland has the authority to deal with instances where banks knowingly underprovide for losses (details supplied). [33223/15]

Photo of Peter MathewsPeter Mathews (Dublin South, Independent)
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259. To ask the Minister for Finance if he is aware that the Central Bank of Ireland has effectively outsourced responsibility for identifying bank losses to the Office of the Director of Corporate Enforcement and the Irish Auditing and Accounting Supervisory Authority, both of which have neither the resources nor willingness to investigate, follow-up and be satisfied that all losses are provided for correctly (details supplied). [33224/15]

Photo of Peter MathewsPeter Mathews (Dublin South, Independent)
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260. To ask the Minister for Finance if he is aware that, based on evidence given to the Oireachtas banking inquiry, both internal accountants and external auditors of Irish banks are in breach of Irish company law by not providing fully for losses in their published accounts; and his plans to correct this by ensuring that banks comply with the law (details supplied). [33225/15]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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I propose to take Questions Nos. 258 to 260, inclusive, together.

Prior to 4 November 2014 the Central Bank of Ireland had overall responsibility for the authorisation and supervision of credit institutions operating in Ireland. Following the establishment of the Single Supervisory Mechanism (SSM) this changed with a number of supervisory responsibilities and decision making powers moving to the European Central Bank (ECB).

The core objectives of the Bank in supervising Credit Institutions are:

- to foster a stable banking system;

- to provide protection to depositors with individual credit institutions

As appropriate, the Bank's powers in respect of loan loss provisioning are limited to those prudential powers conferred on the Bank by the European Communities (Capital Adequacy of Credit Institutions) Regulations 2006 (i.e. the regulations transposing the European Capital Requirements Directive (CRD III)) and the European Union (Capital Requirements) Regulation 2014 and its other general supervisory powers. 

Under Regulation 70 of the 2006 Regulations, the Bank was obliged to require any credit institution that did not meet the requirements of the 2006 Regulations to take the necessary actions or steps at an early stage to address the situation. Such measures included requiring credit institutions to apply a specific provisioning policy or treatment of assets, in terms of own funds requirements; obliging credit institutions to hold own funds in excess of the minimum level set out in Regulation 19; and requiring credit institutions to use net profits to strengthen the capital base. The Bank has comparable powers under Regulation 92 of the European Union (Capital Requirements) Regulation 2014.

As the prudential regulator, the Bank aims to ensure that credit institutions are adequately capitalised at all times. It regards the issue of losses on loan portfolios as very important and aims to ensure that banks hold adequate capital in respect of such losses.  The Bank has not outsourced its responsibility for identifying losses at credit institutions. Under the Regulations, the Bank has the power to set overall capital adequacy standards and, depending on the circumstances, may rely on those powers to increase capital in the event provisions are assessed as inadequate.

The Bank availed of this power under Regulation 70 in the case of the credit institutions subject to the Bank's Prudential Capital Assessment Review. A similar approach underpinned the Single Supervisory Mechanism (SSM) approach under the 2014 Comprehensive Assessment exercise. I would expect the Bank to utilise such powers in any cases where it assesses a bank's provisioning to be inadequate.

The Bank has limited ability to influence provisioning practices within the confines of the existing accounting framework although it did publish Impairment Provisioning and Disclosure Guidelines in December 2011 which were revised and reissued in May, 2013.  However, the Bank does not have legal power to require credit institutions to reclassify assets and/or to increase their provisioning level beyond that required under IAS 39 for financial reporting purposes to shareholders.

The European Communities (Credit Institutions: Accounts) Regulations 1992 contain specific requirements regarding the preparation of accounts by credit institutions and in principle, the Bank has power to bring proceedings in relation to a breach of those requirements. However, in respect of prosecuting credit institutions that fail to provide adequately for loan losses in their accounts, the power conferred on the Bank under Regulation 15 is of a very circumscribed nature, where the credit institution in question complied with either local GAAP or IFRS in preparing its accounts.

The Central Bank has no enforcement role regarding obligations imposed by the Companies Acts in respect of the maintenance of proper books of account and the preparation and publication of accounts which is a matter for the Director of Corporate Enforcement. Neither has the Bank a role in enforcement of accounting standards which is a matter for the Irish Auditing and Accounting Supervisory Authority (IAASA).

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