THE GOVERNOR of the Central Bank, John Hurley, has signalled that the establishment of the National Asset Management Agency (Nama) will pave the way for consolidation and changes in the banking sector.
In a speech to ACI Ireland, the financial markets association, Mr Hurley said the “very existence” of the Nama, the State’s “bad bank”, would be “central” to future changes in the structure and shape of the domestic banking system.
“The banks that emerge from that process may well be smaller but better prepared for the new environment,” he said.
“This should allow for a more focused and consolidated banking sector. We need to ensure that the banking system that emerges is one that is there to serve the future needs of the economy.”
The bank guarantee, the recapitalisation of the banks, nationalisation where warranted and the Nama plan were consistent with the approach taken by other EU countries.
“A final necessary stage must address the optimum shape and structure of the domestic banking sector that will be required to meet the needs of the economy in the years ahead,” he said.
Mr Hurley said it was “essential” that the land and development loans and “appropriate associated exposures” at the banks be transferred to Nama in return for Government bonds. He said this was “critical” to renewing confidence in the banking sector.
“The correct pricing of these assets is a most important issue and must balance value for the taxpayer with restoring the capacity of the banking sector to support the real economy,” he said.
He said euro-zone interest rates, which have been reduced to a record low of 1 per cent, would have to remain low “for as long as is required, and will only be adjusted when there are definite signs of a significant improvement”.
Mr Hurley said economic recovery would not solve the problems in the public finances alone.
The Commission on Taxation and the cost-cutting review group, An Bord Snip Nua, would have a key role in identifying measures to improve the budgetary situation in the coming years, he said.
He said the “deterioration” in labour costs had to be addressed to “return to a sustainable growth path” and “a flexible approach to wage developments is essential”.
“Risk management practices” across the financial sector had to be “improved significantly” and the raising of concerns about the build-up of economic and systemic pressures was “not effective”.
“It is essential, therefore, that we bridge the gap between financial stability, or macroprudential supervision, on the one hand and microprudential, or traditional supervision, on the other,” he said.
Mr Hurley said it was “essential” that procedures be developed to ensure that banks accumulated “resources in good times to act as a cushion when the cycle turns”.
