Dáil Éireann Debate, Tuesday - 21 January 2014
214. Deputy Michael McGrath asked the Minister for Finance when he envisages the bank resolution and recovery directive coming into force; the way banks would be recapitalised prior to its implementation; and if he will make a statement on the matter. [2582/14]
View answerIn late December 2013 the Lithuanian Presidency of the EU Council reached agreement with the European Parliament on the Bank Recovery and Resolution Directive (BRRD). The BRRD proposal provides a common framework of rules and powers to help EU countries manage arrangements to deal with failing banks at national level as well as cross-border banks, whilst preserving essential bank operations and minimising taxpayers' exposure to losses.
There are three pillars to the BRRD framework to facilitate a range of appropriate actions by authorities:
- Preparatory and preventative measures including reinforced supervision and robust recovery and resolution planning for major institutions;
- Early interventionmeasures which would include supervisory powers and implementing recovery plans;
- Resolution tools including appointing a special manager, sale of business, bridge bank, asset separation tools and the use of bail-in mechanisms.
Bail-in will enable resolution authorities to write down or convert into equity the claims of shareholders and creditors of institutions that are failing or likely to fail. This is an important means of ensuring that a bank's losses are absorbed by those who fund its activities and not taxpayers.
I welcome the introduction of this important piece of legislation which is designed to safeguard financial stability and to protect taxpayers funds. The legal text of the agreement is now being finalised by lawyer-linguists and it is expected to be adopted by the co-legislators in April but in any event no later than the end of the European Parliament's current term. Once the final legal text is published in the Official Journal, the rules will be transposed into national law over the course of 2014 and Member States will apply the BRRD from 1 January 2015. It should be noted however, that Member States have until 1 January 2016 to apply the bail-in provisions, although, they are not prevented from applying bail-in before this date.
In advance of this the ECB/EBA will complete a Comprehensive Assessment in 2014 in anticipation of the ECB taking over direct supervision of euro-area banks under the Single Supervisory Mechanism later this year. As you are aware the purpose of the Comprehensive Assessment is to ensure that banks are appropriately capitalised going forward. This is seen as an important exercise by the ECB, as they want a clean bill of health for the banking sector in advance of them taking control of supervision.
Irish banks were significantly recapitalised between 2009 and 2011. This was done in advance of the EBA capital exercises of 2011/2012, and a considerable strengthening of the banking sector took place. Irish Banks remain well capitalised today.
The Central Bank of Ireland has recently concluded a Balance Sheet Assessment (BSA) in advance of this year's Comprehensive Assessment and the Governor has informed me that there is no additional regulatory capital requirement in the banks as a result of this exercise.
As the Deputy will be aware the forthcoming ECB/EBA Comprehensive Assessment will use a minimum capital threshold of 8% Common Equity Tier 1 ratio and while I have not yet received the financial statements of the banks as of 31 December 2013, considering the strong capital positions of the banks as of June 2013, I would expect each of the banks to exceed the 8% Common Equity Tier 1 threshold.
However, in the unlikely event of a capital requirement arising from the Comprehensive Assessment private sources of capital could be accessed both internally as well as from the capital markets. As recent transactions have demonstrated the Banks now have access to both the debt and equity markets and coupled with the improved market conditions this is a realistic source of capital.
