Race to the top

29 November 2010 By Peter Thal Larsen Follow @Peter_TL

Ireland is injecting 10 bln euros into its lenders to raise core capital ratios to 12 percent. With a further 25 bln euros in reserve if needed, the latest plan may just reassure depositors and the ECB. Other European countries with large banks will have to take similar steps.

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Ireland's central bank on Nov. 28 said it had set a new minimum Tier 1 capital ratio of 10.5 percent for four of the country's largest banks.

In addition, the central bank said it would require Bank of Ireland, Allied Irish Banks, Irish Life & Permanent to raise their Tier 1 capital ratios to 12 percent by Feb. 28 2011. EBS Building Society has until May 2011 to meet the target.

The total capital injection required for the four banks is 8 billion euros. The central bank said this would result in an injection of 10 billion euros in the entire banking system.

The new targets, which are well above the 8 percent minimum ratio previously imposed by the central bank, were announced as part of Ireland's 85 billion euro bailout. In addition to the 10 billion euros being injected into its banks, the government will also have a 25 billion euro backup facility.

The four banks will be subjected to a stress test in March 2011. As part of this stress test, the quality of their loans will be subjected to a detailed review by an independent third party.

Separately, the central bank said it would also review the four lenders' liquidity requirements to make sure that they had sufficient stable, highquality funding.

As a result of the increased requirements, AIB will need an additional 5.27 billion euros, taking the total the bank still needs to raise to 9.77 billion euros. Bank of Ireland must raise 2.2 billion euros, while EBS must raise an additional 438 million euros and Irish Life must raise an extra 98 million euros.

Bank of Ireland said on Nov. 28 that it "intends to seek to generate the required capital through a combination of internal capital management initiatives, support from existing shareholders and other capital markets sources."

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