merrion street

The Minister for Finance, Mr Michael Noonan TD, today acknowledged the results of the EU-wide bank stress test, the objective of which is to assess the resilience of the EU banking system.

"In announcing the stress test results today, the European Banking Authority has confirmed the overall soundness and resilience of the EU banking sector which should provide comfort and reassurance to businesses, consumers and investors alike. Together with my EU colleagues I welcome the enhanced transparency in the publication of the test results and in the disclosure of sovereign exposures of participating banking groups. I note that the favourable outcome of the stress test reflects steps already taken by many EU banks to reinforce their capital position, as well as significant government support in the form of capital injections, guarantees on liabilities, impaired assets relief and liquidity support.

I am pleased to note that the three Irish institutions that participated in the stress test – Allied Irish Banks, Bank of Ireland and Irish Life and Permanent – have all passed on the basis of the actions underway to increase their capital position announced in my Statement on Banking of 31 March last. This increased capital requirement was identified in the Central Bank’s Prudential Capital Assessment Review (PCAR) undertaken in the first quarter of 2011. It is important to note that the result of the EBA stress test for the three Irish institutions confirms the findings of the PCAR test and no additional capital requirement has been identified from the outcome of the exercise. The institutions will continue with the deleveraging and restructuring work which was set out in my March Banking Statement."

Under the PCAR the Central Bank required Bank of Ireland to raise €5.2bn, AIB €13.3bn, and IL&P €4bn. My March Statement confirmed that the Government was committed to ensuring that the banks meet these PCAR targets, but have identified a number ways in which private sources of capital can make direct contributions towards the level of capital required – asset sales, contributions from subordinated debt holders and private sector investment.

To date the three banks have engaged in liability management exercises, to reduce the value of outstanding subordinated liabilities. The banks have also prepared deleveraging plans identifying assets which could be sold. IL&P will be selling their non banking businesses the largest of which is its life assurance company. Bank of Ireland is also planning to raise capital through an equity issue, and a prospectus to facilitate this has been issued.

The Government has indicated that if private sources prove insufficient to meet the capital requirements set by the Central Bank the State will ensure that the capital targets are achieved. Such State support would be funded from the €35 billion contingency fund for the banking system which is part of the IMF/EU Programme of Support.