Finance: EU Banking Debt Resolution 4th July 2013

DÁIL QUESTION
NO   288

To ask the Minister for Finance the extent to which he has achieved agreement at EU level regarding the likelihood of the European Central Bank becoming involved in the issue of banking debt; and if he will make a statement on the matter.

– Bernard J. Durkan.

*       For WRITTEN answer on Tuesday, 2nd July, 2013.
Ref No: 32299/13

REPLY

Minister for Finance ( Mr Noonan) : I intend taking questions 288 and 289 together.
As you are aware the Euro-area Heads of State and Government agreed on 29th June 2012 to break the vicious circle between banks and sovereigns, and that when a Single Supervisory Mechanism is in place involving the ECB, the European Stability Mechanism (ESM) could recapitalise banks directly. The Euro-area Heads of State and Government confirmed this position and mandated EU Finance Ministers to prepare an operational framework by mid-2013.

A considerable amount of work has been undertaken at technical, senior official and Ministerial level on the ESM’s Direct Bank Recapitalisation (DBR) Instrument. This work culminated in agreement on the operational framework for the ESM’s Direct Bank Recapitalisation Instrument at the June 20th Eurogroup of Euro-area Finance Ministers meeting in Luxembourg.

This framework builds upon the agreement secured on the 29th of June 2012, and is an important step in the Eurozone’s efforts to restore market confidence in the Eurozone. It is expected that the earliest date that the ESM DBR can come into effect will be towards the end of the first half of 2014, given the need to satisfy national procedures, and also the requirement to have the Single Supervisory Mechanism in place beforehand.

The European Central Bank, as the Single Supervisory Mechanism (SSM), will complete assessments of banks in the Eurozone.   Asset quality reviews will take place in Quarter 4 2013 or early 2014.   These will be followed by stress tests in early 2014. Both tests will assess capital and identify any bank shortfalls that might need to access the European Stability Mechanism (ESM).

Finally, we have succeeded in having provision for retrospective recapitalisation included in the framework. There is still a lot of negotiation to be done on this aspect of the facility but the agreement now in place keeps open the possibility for us to apply to the ESM for a retrospective direct recapitalisation of the Irish banks, should we wish to avail of it.  

Ref No: 32299/13(Ans. covers questions: 32299/13, 32300/13)