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Stress tests will see banks raid 'contingency' bailout fund

The results of new stress tests could show the banks needing so much cash that the bailout fund could be close to empty.

The Irish banking sector could need up to €27bn in extra funding under the results of stress tests due this week.
The Irish banking sector could need up to €27bn in extra funding under the results of stress tests due this week.
Image: Barry Batchelor/PA Wire

THE COST OF recapitalising Ireland’s banks could be so high that it could completely exhaust the bailout funds set aside to be pumped into them on a contingency basis – and leave them on the brink of needing an extension to the bailout fund.

The results of the latest round of stress tests, due to be published this week, are expected to show that the country’s crippled banking sector needs yet another major injection of public cash – in addition to the €10bn payment delayed by Brian Lenihan before last month’s election.

On top of that €10bn, the banks could need between €18bn and €27bn, according to differing reports published in the Sunday Business Post and in the Mail on Sunday.

The former report suggests that the banks will need somewhere between €18bn and €23bn, while the latter believes the total will be between €25bn and €27bn. Both totals are inclusive of the aforementioned €10bn.

When the bailout fund was agreed with the EU and IMF back in November, €35bn was set aside for use by the state in recapitalising the banking sector – a fund that is understood to include the €10bn payment postponed by former finance minister Lenihan.

Earlier reports had suggested, however, that the banks could need as much as €35bn – which would see the bailout fund, of which €25bn was aside aside on a “contingency” basis, completely emptied in one turn, and requiring a revision of the terms of the bailout.

The results of the new Prudential Capital Assessment Review and the Prudential Liquidity Asessment Review – dubbed ‘P-CAR’ and ‘P-LAR’ – are expected on Thursday.

It was reported yesterday that the European Central Bank was putting together an emergency fund of €60bn in order to supply operational funds for Ireland’s banking sector, such were the fears about the state of Ireland’s banks.

Read more in today’s Sunday Business Post >

About the author:

Gavan Reilly

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