Restoring the banking system

Exiting from the banking crisis and restoring the banking system

Banking Crisis

The government has acted decisively to stabilise the banking system following the banking crisis which played a central role in Ireland’s economic difficulties.

As of July 2012, the state has supported the banking system with over €64 billion gross. Ireland is working towards a sound, sustainable and innovative banking system capable of driving economic growth and job creation and supporting small and medium enterprises.

Key banking reforms leading to stabilisation

In March 2011, a comprehensive strategy was adopted to return to a fully functioning banking sector serving the needs of the Irish economy.

Two universal pillar banks were created from the country’s two largest banks. These compete with each other and with other banks operating in the Irish economy.

The government has recapitalised, downsized and stabilised the domestic banking system. It has overhauled senior management and boards of the domestic Irish banks to restore confidence and trust.

New governance and supervisory frameworks have been introduced at bank, regulator and state level.

The recapitalisation of the banks following comprehensive stress tests was achieved on schedule at the end of July 2011.

These measures taken by government have contributed to stabilising the banking system. Deposits held in Irish banks have increased and support from the European Central Bank has been reduced significantly.

In February 2013, the promissory notes arrangement around Irish Bank Resolution Corporation (IBRC - formerly Anglo Irish Bank) was brought to an end. Part of the arrangement for this involved the liquidation of IBRC - see more details here. The first months of 2013 also brought significant disposals by the Irish government, notably involving Bank of Ireland and the Irish Life Insurance company.

Banks serving the real economy

The government is working to ensure that the restructured banking system serves the needs of each sector of the economy. There has been a strong focus on lending to small and medium-sized enterprises (SMEs), a key sector for job creation.

the two pillar banks have been set ambitious targets for their lending to SMEs: €3.5 billion each in 2012 and €4 billion each in 2013
an independent Credit Review Office was established in April 2010 to assist SMEs that have been refused credit by the pillar banks, leading to an additional supply of €9.6 million of credit for small businesses and safeguarding over 850 jobs
government has also introduced a Credit Guarantee Scheme and Micro-finance Scheme to boost the availability of credit to viable businesses

There are still many challenges ahead in restoring the state supported banks to full viability and private ownership, particularly at a time of great pressure on the European banking sector. But Ireland is continuing to drive forward with determination.