The Central Bank today (Thursday 30 September) published its assessment of the capital requirements resulting from the recently announced restructuring of Anglo Irish Bank.
In addition, the Central Bank has published the outcome of its review of the capital requirements of those Irish banks subject to the Prudential Capital Assessment Review (PCAR) exercise, in light of the estimated remaining haircuts to be applied by NAMA.
Anglo Irish Bank Restructuring
The Central Bank has assessed the injection of capital needed to meet minimum regulatory requirements under both a base, or central, scenario, taking account of expected losses, and under a severe hypothetical stress scenario.
This assessment has been applied to both the proposed Funding Bank and the Asset Recovery Bank that will be created. The total capital required for both institutions under the base, or expected loss, scenario is €29.3billion.
Under the stress scenario, in the event that unexpected additional losses are incurred, the Central Bank estimates that an additional €5 billion of capital could potentially be required.
A detailed description of the capital requirements and the methodology used are set out in the attached statement.
Implementation of PCAR Requirements for Irish Banks
The Central Bank has advised the Irish banks subject to the Prudential Capital Assessment Review (PCAR) that the year-end deadline for meeting the standards remains in place. The Central Bank has reviewed the requirements based on the higher NAMA haircuts announced today and which were not available when the original calculations were conducted on 30 March.
The outcome of the review is as follows:
In light of the higher NAMA haircuts, the Central Bank has advised AIB that it will be required to raise an additional €3 billion by 31 December.
Bank of Ireland
Bank of Ireland already has sufficient capital to meet the PCAR standard in the light of the higher NAMA haircuts.
NAMA has not indicated haircut estimates for EBS at this point. Given the small size of the portfolio of loans, the impact of higher haircuts is unlikely to be significant. However, the Central Bank has informed EBS that it will need to take account of higher haircut levels of up to 60% in its capital planning and it should advise acquirers accordingly.
IL&P does not have loans in NAMA and its PCAR is unaffected.
A PCAR exercise has not yet been conducted for INBS in light of the continuing discussion on its restructuring plans.
A more detailed description of the PCAR review is in the attached statement.
Speaking today, Central Bank Governor, Patrick Honohan, said: “Taking account of NAMA’s estimates of future haircuts has implications for required capital injections which need to be acted on now. The new calculations give clarity and as much certainty as can reasonably be expected to the budgetary cost of the bank restructuring. The additional budgetary costs – and in particular the higher debt-to-GDP ratio that is implied – confirm the need for a reprogramming of the budgetary profile, though it is important to recognise that the bulk of this reprogramming need arises from other sources. Today’s announcements take the Irish banking system closer to a final resolution of its restructuring, which is a prerequisite for sustained economic recovery.”
The Head of Financial Regulation at the Central Bank, Matthew Elderfield, said: “The assessment we have published today of the costs of Anglo’s restructuring reflect careful analysis of information from a range of sources. It also includes a projection based on a prudent hypothetical stress scenario which gives guidance as to the likely upper bound of those costs. At the same time, we have today confirmed that we are pressing ahead with our plans to require the Irish banks to meet more rigorous capital requirements which are closely aligned with the new international standards set by the Basel Committee and to do so by the year end. As part of this process, we have advised the banks that they need to take account of developments in the NAMA haircuts which have occurred during the course of the year. This ensures that the banks’ year end capital position fully meets the objectives of our Prudential Capital Assessment Review process.”