The head of the European Central Bank's supervisory wing has expressed confidence that Permanent TSB will address the capital shortfall revealed by the European stress tests by raising private investment.

Addressing the European Parliament’s economic and monetary affairs committee in Brussels yesterday, Danièle Nouy also reiterated her support for the Irish Central Bank’s proposal to demand a 20 per cent deposit from house-buyers, arguing that “prudent” lending is necessary to maintain the stability of the banking system.

Ms Nouy was responding to Irish MEP Brian Hayes, a member of the European Parliament's economic and monetary affairs committee.

Ms Nouy was addressing MEPs a day before the ECB assumes supervisory control of 120 of the euro zone’s largest banks.

From today the bank's supervisory wing will begin supervising banks representing 85 per cent of assets in the euro sector, including Bank of Ireland, AIB and Permanent TSB.

The ECB’s new role marks the completion of the first stage of a euro-wide banking union known as the Single Supervisory Mechanism (SSM).

Stress tests

In her first appearance since the publication of the ECB’s stress tests on October 26th, Ms Nouy said the assessments had been a “major milestone in the establishment of the new supervisory regime in the euro area”.

“The comprehensive assessment has given the SSM extensive granular information that it will use to push ahead with effective supervision in the years to come.”

She said the assessment would “promote the return of confidence in the European banking system”.