Bondholder talks 'possible'

The head of financial regulation at the Central Bank said the Government has not ruled out the possibility of negotiating with senior bondholders in Anglo Irish Bank and Irish Nationwide Building Society.

Addressing the Oireachtas Joint Committee on Economic Regulatory Affairs, Matthew Elderfield said he supported the measures that have been announced to ensure the burden was shared by holders of subordinated debt in Anglo and INBS.

"The Government has made its position clear on this matter, and it does not intend to impose losses on senior bondholders," he said. "However, this does not rule out the possibility of some negotiations or a liquidity management exercise agreed by consent."

He said a "liability management exercise" with senior bondholders in Anglo and INBS hasn't been ruled out.

Ireland's funding crisis means the government should be "very cautious about contemplating such a step", Mr Elderfield said. A liability management exercise may include a tender for bonds at below face value.

Mr Elderfield said the findings of a review of the quality of banks’ strategies would be made public in November. The Central Bank is also carrying out in-depth reviews of governance and risk management arrangements, lending practices and remuneration arrangements.

Mr Elderfield said regulators would intervene if banks were not managing risk adequately.

“We are very clear that 'risk-based' is not a synonym for light-touch regulation,” he said. “We will make life difficult and expensive for banks which fail to manage risk adequately."

The financial regulator also warned the State's credit unions are systemically underprovisioning against loan losses.

"We are finding systemically . . . underprovisioning in the credit union sector," Matthew Elderfield told the committee. "That's a worry to me."

Mr Elderfield said the regulator had discovered credit unions were underprovisioning by 40 per cent and that he intended on dealing with this problem.

Additional reporting: Bloomberg