No more stress tests for Irish banks this year, says ECB

The Irish banks will not have to undergo stress tests again this year, according to an ECB source.

Under the terms of the EU Banking Union, it was agreed that the banks under the direct supervision of the Single Supervisory Mechanism would be subjected to annual stress tests in order to safeguard the stability of the banking system.

However, an ECB source, speaking at the margins of a meeting of economic and finance ministers (EcoFin) in Brussels, said no decision had been made on the timing of the next stress tests, but it is highly unlikely they would be held this year on the basis that the ECB’s comprehensive assessment of the banking system carried out last year was wide-ranging.

The earliest the banks would have to undergo the next regulatory probe is the first quarter of 2016, added the ECB source.

Three Irish banks — Bank of Ireland, AIB, and Permanent TSB — underwent a health check in 2014, which included an asset quality review and stress tests.

The results were released last October, and showed that Bank of Ireland and AIB both passed. However, Permanent TSB had a capital shortfall of €864m, although because of asset sales and other measures taken in 2014, the actual shortfall was less than €200m.

Permanent TSB is still awaiting approval from the European Commission for its restructuring plan. Moreover, it has hired Deutsche Bank to help raise up to €400m in new capital before the ECB imposed deadline this summer.

The ECB’s €1.1 trillion quantitative easing programme, announced last week, attracted criticism from some member states, including Ireland, for making national central banks liable for 80% of losses in the event of a sovereign default.

The ECB source said that the prospects of a member state defaulting were extremely remote. However, the ECB has very low levels of capital. Consequently, if the bank did incur losses through a default, it would be up to the national central banks of member states to make up the shortfall according to their capital key, the source added.

At a conference in Dublin Castle on January 19, organised by the IMF, Finance Minister Michael Noonan said it would be a mistake to make national central banks liable for any losses as it would effectively mean the renationalisation of the eurozone’s financial system .

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