Monthly Archives: March 2014

ECB stress tests

Irish Finance Minister “optimistic” about ECB Stress Tests for Irish Banks

The Big Three Banks

The Irish Minister for Finance, Michael Noonan, gave a speech in Brussels regarding the ECB Stress Tests that are to be introduced within the banks of Ireland. Mr. Noonan said that he is optimistic that Irish Banks have the ability to withstand the stress tests and remarked they have been through tougher tests previously.

noonanWhat will the stress tests involve?

The three main Irish banks – Bank of Ireland, AIB and TSB, will be under much scrutiny for how they perform during the stress tests. The system is said to be intrusive enough to ensure that the confidence is restored globally amongst the banks investors. If any of the banks do fail the stress tests then their recapitalisation will then become the Governments responsibility. Michael Noonan spoke about how confident he was that all of the banks would make it through these tests.

The tests will investigate around 1,250 credit files within each bank, and assess over 58% of risk-weighted assets, which is thought to be the equivalent to near 3.7 trillion euros in financial value. The work will be done by the auditors of the national banks, with the ECB monitoring the process closely. Each bank will be expected to look into approximately 20% of its portfolio, and the results will be released next October by the European Banking Authority. If there are any significant problems that emerge, then these will be highlighted immediately during the assessment.

The ECB published a 285-page manual for the test; which means there is sure to be nothing overlooked. Ireland is unconcerned, however, according to the Minister of Finance. The banks of the world were hit hard by the recession of 2008, with more non-performing loans than for many years due to people who had borrowed simply lacking the funds to pay them back. The recession hit Ireland hard. During the test, non-performing loans are to be of high priority and with new definitions of non-performing loans this means that any loan that is overdue by more than 90 days will be categorised as non performing.

Some of the results of tests that were performed around Europe have already been published with the Italian bank UniCredit revealing a record loss of over 14 billion euros loss for last year, as it took huge write-downs ahead of the stress tests.