Central Bank chief would have withheld triple the amount being retained by Nama

CENTRAL BANK governor Dr Patrick Honohan has said he would have withheld three times the amount being retained by the National Asset Management Agency (Nama) from the banks under its risk-sharing mechanism to protect the State from overpayment on the loans being acquired.

Speaking to an Oireachtas committee, Dr Honohan said he would have withheld more than the difference between the Government’s €47 billion estimate on the current market value of the loans and the €54 billion that the State has estimated it will pay the banks.

“I would have attached a greater proportion of risk-sharing to the whole plan,” he told the Oireachtas Joint Committee on Economic Regulatory Affairs.

The Government has agreed to withhold €2.7 billion of the €54 billion payment to split the risk between the current market value and the “long-term economic value” which Nama intends to pay for some of the €77 billion in loans it will take over. “I would have taken it a lot further,” he said. “I would have been quite happy to see that [€2.7 billion figure] tripled.”

The governor said it was “quite possible” that State ownership in one or both of the two biggest banks – Allied Irish Banks (AIB) and Bank of Ireland – may rise from an indirect stake of 25 per cent to a direct 50 per cent stake.

On the need for improved regulation, Dr Honohan said it was hard for regulators to detect fraud but he was seeking to introduce “a statutory regime to encourage whistleblowers and to provide a specific process for them”.

Dr Honohan said “experience elsewhere” had shown “how slow recovering banks are to get lending going smoothly again”.

There was “no ideal solution” to increasing the flow of credit. He said that, following the establishment of the independent loan review, as outlined in last week’s Budget, “the banks might up their game in making loan appraisals”.

The governor said that “as the acute phase of crisis management and resolution draws to a close”, it was important to learn lessons about our society from the crisis.

“Now that we have the prospect of the banks emerging, in the coming months, with a strong financial underpinning and renewed management, an imminent recurrence does not seem to be on the cards,” he added.