Minister for Public Expenditure Paschal Donohoe has expressed confidence in European banks and said the sector will weather the current crisis, following the failure of Credit Suisse.
peaking to German public broadcaster Deutsche Welle in his capacity as Eurogroup president, Mr Donohoe said regulatory reforms following the Great Financial Crisis had left the banking industry in much stronger condition.
“I believe the regulatory changes that we have made since the global financial crisis have had a significant and positive effect on our banking system,” he said.
“I also look at the amount of capital and liquidity that our banks have at the moment and again I believe that is a very strong level of protection against the kind of risks that have developed.”
He added that we can never be complacent, but that the measures taken by authorities in Europe will work to contain any problems that may arise.
His comments followed the emergency sale of Swiss megabank Credit Suisse to UBS in a €3bn deal over the weekend.
Credit Suisse was hit by massive deposit outflows last week that prompted a share price collapse and the intervention of Swiss regulators, who first provided a funding line to the ailing bank before forcing through a takeover by its rival.
As part of the deal, holders of contingent capital bonds – also known as additional tier one or AT1 bonds – were wiped out ahead of equity holders, who received about 50pc of Friday’s closing price for their shares.
Bank AT1 bonds, including those issued by Irish banks, fell significantly this morning as a result, with AIB’s dropping 15 percentage points.
The European Banking Authority (EBA) moved to calm fears of disorderly bail-ins by reaffirming the order of resolution if a bank in an EU country were to fail.
“In particular, common equity instruments are the first ones to absorb losses, and only after their full use would Additional Tier One be required to be written down,” the EBA said in a statement.
However, that reassurance will have to contend with a view forming in the markets that loss absorption buffers in the banks may not be fully secure, which has implications for bank profitability.
"We believe this AT1 writedown by a systemically important bank will have negative implications for the wider European banks’ AT1 market as well as overall funding profile and cost of equity for the banks," JPMorgan strategists Kian Abouhossein and Amit Ranjan said.
