Ireland should take the right actions now to safeguard the Exchequer from future shocks from the capital requirements for banking

The legislation will implement the global Basel III agreement into EU law so that EU banks would be better placed to absorb economic shocks while ensuring that banks continue to finance economic activity and growth. The legislation will set out higher minimum capital requirements for banks, tighten existing risk-weights for different categories of exposures, and apply a counter-cyclical buffer.

The CRD IV will apply to more than 8000 banks across the EU, amounting to 53% of global bank assets, and is estimated to lead to an extra €460 billion of new capital having to be raised by 2019. The Report finds that the overall provisions set out in the CRD IV package are clearly necessary now, as part of the wider single rulebook proposals to put EU banking on a more secure footing in the long term.

Among the issues identified in the Report are:

-    The financial crisis across the EU in 2007/2008 led to a sudden and incredible deterioration in Irish banking capital:
o    between 2005 and 2008, Ireland was one of a small group of countries whose banking sector was over 4 times their GDP(2). By 2008, Ireland’s banking sector had risen to over 7 times to the size of Ireland’s GDP(3).
o    by the end of 2009, Ireland was ahead in very different EU27 tables – it had the highest rate of public capital interventions in the banking sector (as % of GDP) at almost 7%
o    while most Member States had to provide guarantees on bank liabilities of between 1 and 10% of GDP, Ireland’s guarantee was effectively 167.5% (4)

-    There have been concerns expressed at some aspects of the proposals as published [paras 5.4 to 5.8]. These include

o    whether the Basel III agreement has been diluted in the draft legislation by weakening the common standards
o    will the use of maximum harmonised requirements considerably hamper the ability of individual member states to respond flexibly and in a timely manner to systemic risks in their jurisdiction
o    is it appropriate to give the European Commission the power by delegated acts to impose stricter requirements on a temporary basis.

-    These concerns need to be taken into account by the Minister for Finance to ensure that Ireland achieves the optimum result from the negotiations on CRD IV, and indeed on the overall package of EU measures for a single rulebook on banking requirements


-    The Committee notes that credit unions have a completely different capital structure from banks, so Ireland is retaining the credit union exemption in CRD IV. However, the Committee is concerned about the long-term capital needs of Irish credit unions and will return in a future report to consider the issues directly.

Chairman of the Committee, Alex White TD: “One of the main lessons since 2008 has been that, without sufficient regulation and control, the capital funding of the Irish banking model became completely unsustainable. Obviously, it is very unfortunate that it took a financial crisis of the current magnitude to bring this clarity of purpose”.

He added “The Irish State is now carrying a large debt burden due to decisions taken to publicly bail out banks, particularly Anglo\INB. There is nothing in the CRD IV package which can turn back the clock to lessen the burden caused to the Irish State by the actions of its own banking sector. But it is vital that we take the right policy actions now to ensure that this kind financial collapse can never happen again.”

For further information please contact:

Houses of the Oireachtas,
Communications Unit,
Leinster House,
Dublin 2

P: +3531 6183903
M: 086-0496518
E: Ciaran.brennan@oireachtas.ie

Notes to the editor:

To access the report click here: http://www.oireachtas.ie/parliament/media/committees/finance/CRD_IV_Report.pdf

Notes

1. The legislative package to amend the Capital Requirements Directive is called CRD IV. It consists of two proposals – a Regulation and a Directive (refs COM (2011) 452 and 453)
2. The only more exposed states were Luxemborg and Malta
3. In 2008, the average size of the banking sector in EU27 was 3.4 times its GDP.
4. The highest was Denmark at 205.3%