Morning business news - December 13

Thursday 13 December 2012 18.25
Morning business news with Brian Finn
Morning business news with Brian Finn

The first step has been taken on the road to a banking union in Europe as euro zone finance Ministers have agreed on a European banking supervisor. The deal gives the ECB powers to shut down euro zone banks that do not play by the rules - it also paves the way for euro zone rescue funds to come to the aid of struggling banks.

John Finn, Managing Director of Treasury Solutions, says the immediate effect of the deal for Ireland is that the banks will probably have to have more staff engaged in the area of supervision and, from a practical point of view, they will have to report to somebody else.

"The danger, ironically, is of over-regulation. There's a conservative approach taken to capital they hold and how they fund themselves. If they're pushed for more profits, it may mean higher borrowing costs for SMEs and individuals," John Finn says.

"It will be interesting to see what moves they make on property write offs. Some commentators suggest the level of capital may need to be topped up," he adds.

John McHale, Professor of Economics at NUIG, said the nature of supervision of the main Irish banks would change as they will be supervised centrally by the ECB.

"There's general agreement that a full union is a good thing. It would invove a common resolution regime for failed banks. If we go the full way, it will be a positive development but it will be a tortuous path to get there."

Professor McHale says Ireland has put in place an effective supervisory regime since the bubble years.

"We lose a certain degree of national control over the workings of the bank system once it moves to the ECB. For instance, policies on lending targets could be more difficult. If this is all that happens, it wouldn't necessarily be a good thing for Ireland. But it's a necessary step toward a full union," he concluded.

Morning Briefs

+++ A complex deal to form a joint venture between Glanbia plc and co-op has passed the last of three hurdles. 83% of co-op members voted in favour of a deal that would see the co-op reduce its sharholding in the plc to 41% 3% of the issued share capital will be used to fund the new venture and clear debts.

+++ Tamboran Resources has entered into a joint venture with energy company, Santos. Santos will acquire a 14% shareholding in Tamboran - that will see it investing up to €8m in the Tamboran's operations. Tamboran holds a licence option for shale gas extraction in Leitrim and Fermanagh - an indpendent report by MHA Consulting indicates that the area contains 3.2 trillion cubic feet of natural gas. But the controversial practice of fracking is under review in Ireland right now until the EPA has reported on it. The UK government is expected to give the go-ahead to the controversial practice there today - it was temporarily banned after a series of earth tremors in the northwest of England.

+++ The US Federal Reserve has announced a new range of measures to stimulate the world's biggest economy. It said it will keep interest rates at near zero until unemployment gets down to 6.5% - it is at 7.7% at the moment and inching slowly downwards. Ben Bernanke's team also announced a new round of bond buying to replace Operation Twist. Unlike Twist, the new programme will be funded by effectively creating more money.