ECB fears on Ir­ish bank bill

La­hore, Is­lam­abad, Karachi Tues­day, De­cem­ber 21, 2010, Muhar­ram 14, 1432

The Pak Banker - - Front Page -

DUBLIN: The Euro­pean Cen­tral Bank (ECB) has told the Govern­ment that it has "se­ri­ous con­cerns" about the Credit In­sti­tu­tions ( Sta­bil­i­sa­tion) Bill, which gives the Min­is­ter for Fi­nance sweep­ing pow­ers to in­ter­vene in the bank­ing sec­tor.

In a seven-page opin­ion signed off by ECB pres­i­dent Jean-Claude Trichet, the Frank­furt-based in­sti­tu­tion raised con­cerns that the draft law is "in­suf­fi­ciently legally cer­tain" on a num­ber of crit­i­cal is­sues for the euro sys­tem.

The ECB said the laws could usurp its rights over the col­lat­eral given as se­cu­rity for liq­uid­ity pur­poses to banks. It also said "prob­lems of le­gal un­cer­tainty" re­lated to the im­pact of the leg­is­la­tion on the rights of the Cen­tral Bank of Ire­land, the ECB and "pos­si­bly" other cen­tral banks in the euro area.

Pres­i­dent Mary McAleese has al­ready con­vened a meet­ing of the Coun­cil of State for to­mor­row to ad­vise her on the emer­gency bank­ing leg­is­la­tion. The Pres­i­dent will then de­cide if she should re­fer the leg­is­la­tion to the Supreme Court to test its con­sti­tu­tion­al­ity. Op­po­si­tion par­ties have also raised con­cerns about the sweep­ing pow­ers granted to the Min­is­ter for Fi­nance in the Bill. The warn­ing from Mr Trichet re­flects ECB fears of the risks in­volved in pro­vid­ing liq­uid­ity to Ir­ish banks. The most re­cent data show Ir­ish banks hav­ing €136 bil­lion in loans out­stand­ing from the ECB - a quar­ter of the to­tal in the euro zone - and €45 bil­lion in emer­gency liq­uid­ity as­sis­tance from the Ir­ish Cen­tral Bank.

To ob­tain liq­uid­ity euro zone banks have to put up as­sets as col­lat­eral. The ECB's con­cern is to en­sure it al­ways holds enough col­lat­eral of suf­fi­cient qual­ity to min­imise its ex­po­sure were some of the funds it pro­vides not paid back. The paper from Mr Trichet is the lat­est man­i­fes­ta­tion of the ECB's wor­ries about the risks it is car­ry­ing as it bat­tles the euro zone's mount­ing debt cri­sis.

Last week the ECB an­nounced it would in­crease by €5 bil­lion to €10.76 bil­lion its sub­scribed cap­i­tal as part of plans to shore up its fi­nan­cial strength. Since May the ECB has bought €72 bil­lion in euro zone govern­ment bonds to stop its bor­row­ing costs get­ting out of con­trol.

Ir­ish Govern­ment bonds are likely to com­prise a large part of the to­tal, al­though no de­tails are given.

Mr Trichet also said he would have "ap­pre­ci­ated" be­ing con­sulted at an "ear­lier stage" on the draft leg­is­la­tion, which formed part of the re­cent bailout deal agreed by Ire­land with the In­ter­na­tional Mon­e­tary Fund and the EU.

Min­is­ter for Fi­nance Brian Leni­han made a request to the ECB for an opin­ion on De­cem­ber 10th. Mr Leni­han asked that it be de­liv­ered by De­cem­ber 17th. The opin­ion was posted on the ECB's web­site last Fri­day. In the paper the ECB said that given time con­straints it could not as­sess all of the "many con­sti­tu­tional, other le­gal and reg­u­la­tory is­sues" in the Bill.

A Depart­ment of Fi­nance spokesman said there was "no ques­tion of the Cen­tral Bank, ECB or any na­tional cen­tral bank, as cred­i­tors to the guar­an­teed in­sti­tu­tions, be­ing ex­posed fi­nan­cially by the ex­er­cise of the Min­is­ter's pow­ers un­der the Bill". -PB News

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