THE EUROPEAN Union competition commissioner’s head of cabinet, Irishman Anthony Whelan, says banks will need to be incentivised to “get themselves off the drip of State support”.
Mr Whelan said the first priority when dealing with the restructuring of banks was to ensure their viability.
“We need to make sure the banks are made viable in the sense that they can get themselves off the drip of State support and be sustainable in the medium term with business models that don’t entail too much risk,” he said.
The banks could then lend to the real economy without having to rely on State support. “We’re looking here for incentives.” The commission was also trying to address a “moral hazard”, he said.
“This idea that banks, if they know taking on excessive risks doesn’t involve certain costs if the risks don’t work out, if the State will step in and cover them that in fact constitutes an incentive to take these perhaps inordinate risks.” Mr Whelan said Ireland’s case was “a bit special” as most domestic banks were candidates for the National Asset Management Agency (Nama) even if they had not all received State capital.
Foreign players did not have a pronounced interest in entering the Irish market, he added. The case of Anglo Irish Bank was particularly severe and “a very radical solution” could be necessary.
“In the decision of the commission adopted on Anglo . . . we stated that the Government should consider all the options available, which is code for saying this is a case . . . where some sort of very radical solution may be necessary.”
Mr Whelan said one of the challenges for valuations in Ireland was that a significant number of the assets to be looked at were not producing any revenue.
Generally, he said certain types of assets were still “pariah assets”. Subprime securities in New Orleans were a particularly dangerous product. “Irish property loans have a little bit of a question mark over them as well,” he said.