ANALYSIS:THERE IS arguably no better individual to become the head of banking and financial supervision in Ireland than the current head of financial regulation in Bermuda.
Bermuda, like Dublin, is a global financial centre and a hub for international companies such as insurers and investment funds.
The statement announcing the appointment of Matthew Elderfield as head of financial supervision at the proposed new Central Bank of Ireland Commission included statistics showing Bermuda’s status as a financial centre.
The appointment of Elderfield, the chief executive of the Bermuda Monetary Authority – the island’s equivalent to the Irish regulator – is certainly welcome, even if it is a long-overdue development.
The role has been filled on an interim basis since the departure of Pat Neary last January following the near-collapse of the Irish banking system and the spate of scandals at Anglo Irish Bank.
Elderfield’s experience supervising international firms in Bermuda will prove useful when it comes to monitoring 13,000 IFSC-type entities falling under his watch at the new Central Bank.
The new authority brings under one roof the supervision of individual firms including domestic banks under Elderfield, and the monitoring of the wider financial system under Tony Grimes, head of central banking.
Both will report to Central Bank governor Patrick Honohan.
Elderfield’s key task will be to rebalance financial regulation, moving the focus away from consumer protection to ensuring the financial soundness of the banks.
To that end, the post of prudential director, a crucial role that assesses the solvency of banks, is being split in three, with all three roles reporting to Elderfield.
During his time in Bermuda, Elderfield introduced capital stress tests to protect the island’s banking system and insurance industry. His initial work in Dublin will be similar, liaising with Honohan to assess the capital needs of the domestic financial institutions.
A minimum core tier-one capital ratio – the basic gauge of whether a bank has enough cash in reserve for future losses – may be set at 4 per cent of risky assets, but the demands of the markets are pushing this up to 8 per cent.
The Government has injected €11 billion into the three big banks, but this will rise sharply following Nama-induced losses and the market’s higher capital expectations.
How far this rises will depend partly on the assessment of Elderfield’s office on what the Irish banks should put in reserve.
