Banking Sector Regulation

Dáil Éireann Debate, Tuesday - 23 October 2012

Tuesday, 23 October 2012

Questions (179)

Clare Daly

Question:

179. Deputy Clare Daly asked the Minister for Finance in relation to default insurance on banking loans, if this is normal practise; if there is a legal regulation or any rule of enforcement stating that a bank must insure its loans against default; with whom is this insurance policy in place; if there is any legal regulation for financial institutions and banks to retain a provision fund or deposit account to clear defaulted loans; if yes, what is the regulation, if no, is it common practice to set up such accounts regardless and time limit within which a bank must clear defaulted loans. [46256/12]

Written answers

Minister for Finance

I am advised by the Central Bank, that there is no requirement on financial institutions, legal or otherwise, to avail of such insurance. International accounting rules that apply to financial institutions dictate that financial institutions provide for bad or doubtful debts. Carrying these loans with a provision against them for the expected loss provides leeway for the distressed borrower to regularise their situation and may result therefore in the financial institution recovering more than had been provisioned for.

In 2011, the Central Bank of Ireland published Impairment Provisioning and Disclosure Guidelines in relation to the development and application of impairment provisioning frameworks. The paper sets out the policies, procedures and disclosures which institutions should adopt for their loan asset portfolios which are subject to impairment review in accordance with International Accounting Standards. These guidelines are available on the Central Bank website.