THE FINANCIAL Regulator has stepped up scrutiny of Irish financial institutions since the start of this week, tracking the flow of customer deposits in and out of institutions amid increased turbulence in the financial markets.
Stock markets plunged yesterday as banks stopped lending to one another and the US government rushed to shore up the Federal Reserve (the US central bank), following an $85 billion bailout of insurance giant AIG.
Shares of investment banks Morgan Stanley and Goldman Sachs plummeted amid more signs of distress in the global financial industry. Morgan Stanley was discussing a merger with regional banking powerhouse Wachovia, the New York Times reported, while Washington Mutual, the country's largest savings bank, put itself up for sale, sources said.
The Financial Regulator has asked banks to provide daily updates through this week on deposit lodgement and withdrawals to track any significant changes in the market.
The collapse of the fourth-largest US investment bank Lehman Brothers on Monday has heightened fears about the financial health of banks around the globe.
"As we have already said, we are monitoring our regulated institutions on a daily basis," said a spokeswoman for the regulator. "You would expect regulators to be doing this in the current climate."
The US Treasury said it would raise $40 billion through the issue of US government debt at the Fed's request to help the US central bank better manage its balance sheet following the takeover of AIG.
Republican presidential candidate John McCain, who warned on Monday against a government bailout of AIG, said yesterday that the Fed had been forced to take action. "These actions stem from failed regulation, reckless management and a casino culture on Wall Street that has crippled one of the most important companies in America," Mr McCain said.
Democratic candidate Barack Obama said he needed to study the details of the AIG deal but declared that the Wall Street crisis had been caused by Republican policies over the past eight years. "The one thing I do know is this - we can't steer ourselves out of this crisis by heading in the same, disastrous direction and that's what this election is about," Mr Obama said.
Meanwhile, regulatory authority chief executive Pat Neary said in a scheduled speech last night to the Institute of Directors that his office and the Central Bank "remain on high alert" and are "vigilant to any emerging risks".
He said the turbulence in the international markets has been "significant" and had "widened and deepened" since the crisis began more than a year ago.
The availability of funding from the European Central Bank and liquidity rules introduced last year meant Irish banks were "in a position to benefit from a solid base" when turmoil hit.
"Irish banks are resilient and have good shock-absorption capacity to cope with the current situation," Mr Neary added.
His remarks came after Bank of Ireland suffered its largest one-day decline in 19 years after halving dividend payouts due to an expected fall in half-year profits, rising bad debts and slower lending growth.
The fallout from the collapse of Lehman spread to the UK yesterday, when Lloyds TSB last night agreed to a £15 billion rescue of HBOS, owner of Bank of Scotland (Ireland) and Irish retail bank Halifax, after Britain's largest mortgage lender saw its shares drop amid fears the crisis could claim its biggest British victim yet.
Bank of Ireland shares record biggest one-day fall in 19 years; Fears grow of run on money market funds: page 20
