Finance Minister Brian Lenihan has told the Dáil that the role of the Central Bank will be reformed to place it at the centre of financial supervision and financial stability oversight. He said the Central Bank will in future be headed by a Commission, chaired by the Governor.
The former deputy Governor of the Bank of England Sir Andrew Large has been asked to advise on the process to select a new head of financial regulation within the new institutional structure.
The Minister also said that cleansing and repairing the banks' balance sheets is considered fundamental to achieving a sustained recovery of the banking system.
To this end he is proposing the setting up of a National Asset Management Agency, under the aegis of the National Treasury Management Agency.
He said that assets will be transferred from the banks to the new National Asset Management Agency with the purpose of ensuring that banks have a clean bill of health, their balance sheets are strengthened and uncertainty over bad debts is reduced. He said this will ensure a sustained flow of credit on a commercial basis to people and businesses in the 'real economy'.
The new Agency will then purchase the assets through the issue to the banks of Government bonds. Mr Lenihan said this will result in a 'very significant' increase in gross national debt, which will be offset by the assets taken in.
He estimates that the potential maximum book value of loans will be transferred to the Agency will be €80-90 billion, although the amount paid by the Agency will be much less than this to reflect the loss in value of the properties.
He added that all borrowers would be required to meet their full legal obligations for repayment and also warned of a hardening of approach to these borrowers.
The Minister said that a key pillar of the country's economic renewal is a well regulated financial system. 'The actions of those who have tarnished the reputation of Ireland will be dealt with through the appropriate process,' he stated.
Speaking on RTE radio this evening, the Finance Minister Brian Lenihan gave more details of how the new Asset Management Agency will work.
He said the State will take an increasing stake in financial institutions if their losses are greater than what was expected. If the bank has further exposures, he said the State will take up ordinary shares to protect the tax payer from the increasing exposure which these banks have.
Mr Lenihan said the State is insisting on the banks taking their losses now, for the sake of the economy, so that they can resume their proper operation as givers of credit in the economy.
He said that he believes that in the medium term, this is a good investment for the state.
Bank of Ireland welcomes new agency
Bank of Ireland said it welcomes the initiatives concerning the extension of the Government Guarantee of certain liabilities of Irish banks and to set up a National Asset Management Agency.
In a statement this evening, it said it will actively engage with the National Treasury Management Agency and the Government to explore how these initiatives will apply to Bank of Ireland.
The bank added that it will and assist in continuing to support customers, aiding economic recovery and, over time, rebuilding value for stockholders.
