EU REACTION:THE EU-IMF-ECB bailout "troika" gave its imprimatur to the stress tests results last night and said the Government's plan to restructure the banks was a big step towards their revival.
The ECB seperately announced measures aimed at counteracting any downgrading of Irish debt on foot of the latest bailout by suspending for an indefinite period its minimum rating threshold on Irish sovereign debt and on bank debt guaranteed by the State.
This means outstanding and new Irish debt will continue to be eligible as collateral for special ECB refinancing even if it receives a non-investment rating from rating agencies as the result of the implications for the exchequer of the expanded bank bailout.
The ECB said the extention was based on a positive assement of the implementation of the plan agreed with the troika and the commitment to further recapitalise the banks.
The measure applies to debt instruments issued guarantee by the Government.
,In its statement last night, the troika – comprising the European Commission (EC), European Central Bank (ECB) and International Monetary Fund (IMF) – said measures being taken in Dublin were comprehensive and a major step towards restoring the Irish banking system to health.
The grouping will send aformal review mission next week to assess progress made in the execution of Ireland’s rescue plan.
“As part of the EU-IMF programme,” the troika’s statement said, “the Central Bank, together with leading international consulting firms, has identified the banks’ capital needs based on thorough and transparent valuations of bank assets and rigorous stress tests conducted with an appropriately high minimum capital ratio, which will ensure a sound capital basis of the banks.
“The process was conducted in consultation with the staffs of the EC, ECB and IMF, who have reviewed the methodology.
“The EC, ECB and IMF therefore share the rigorous capital needs assessment and strongly support authorities’ plans to ensure that these capital needs are met in a timely manner.
“The capital needs can be funded comfortably under the programme supported by the EU and IMF.”
Klaus Regling, the chief of the European Financial Stability Facility bailout fund, made a similar point in a group interview with a number of European newspapers.
“The amount of €35 billion which is earmarked for the Irish banking sector under the financial support programme to Ireland is sufficient,” Mr Regling said.
The troika said in its statement that the plan to deleverage bank balance sheets would reinforce the benefits of higher capital and help the banks regain access to market sources for the financing they need to renew lending.
It is understood that the banks are likely to remain reliant on central bank funding during this deleveraging period,” the statement continued.
It said it endorsed the strategy of focusing on“the Irish Government also made important announcements on the future structure of the banking system, “and we endorse this strategy to focus on the development of a few strong pillar banks with sound business models able to serve the Irish economy’s needs”.“
The detailed restructuring plans for the banks weare “to be notified to the EC for approval under state aid rules”, itthe troika continued.;
“The staff of the EC, ECB and IMF look forward to discussing progress with implementing the measures announced today, together with a broader range of economic issues, during the programme review mission.”
