THE NEW governor of the Central Bank, Patrick Honohan, has said that the Government would take additional equity stakes in the Irish banks as part of the recapitalisation process.

Although he could not “put a number” on the future cost to the State of recapitalising the banking system, Mr Honohan said the overall net cost would be “manageable”.

“It will of course be a sizable sum, though some of what is needed may be raised by the banks themselves through such steps as asset sales, new issues of equity, and discounted debt buybacks.”

Speaking yesterday at the launch of the Trinity Alumni Career Network, which aims to assist TCD’s unemployed graduates, he said the recapitalisation would ensure the banks are seen in financial markets as “strong, financially self-reliant entities” and the “overhang of the banking situation” on the State’s finances would be removed. As a result, Ireland’s borrowing spreads would tighten further, he predicted.

The State’s borrowing rates are already significantly lower than they were a few months ago, he pointed out, and have remained “relatively unscathed” despite the turmoil in international sovereign debt markets in recent weeks.

“This is clearly because of the degree to which foreign confidence has been building in Ireland’s ability and determination to restore the public finances along a clearly defined strategy,” he said.

The governor praised the Government’s macro-economic policies and budgetary adjustments, describing them as being “about right” as a basis for building a sustained recovery. Recent reductions in public sector pay will not only contribute significantly to correcting the budget deficit, he said, but also indicates a “realignment” of overall wages levels in the economy, which is necessary to restore employment growth.

He went on to criticise the banks for having “lost their edge” in small-business lending during the property boom. “This is something that they need to pay more attention to, not just for the sake of the economy, but for their own business performance in the years ahead when property-based lending will be on a much more limited scale.”

He also noted that employment levels among young Irish people have deteriorated much more rapidly than in other countries. The “youth unemployment” rate has jumped from under 10 per cent to over 31 per cent in the last two years, whereas the overall rate of unemployment has risen from 4.7 per cent to 13.3 per cent.