Central Bank spent €17.6m on bank stress tests, says Noonan

The Central Bank of Ireland spent €17.6 million on its work for the comprehensive assessments of banks’ capital strength and liquidity completed recently by the European Central Bank.

This was first revealed by The Irish Times in September but has been confirmed by the Minister for Finance Michael Noonan in a written answer to a question from Fianna Fáil's finance spokesman Michael McGrath.

This figure excludes the costs incurred by the individual banks in complying with the ECB’s tests.

It is understood that the Central Bank will recoup the €17.6 million from the various banks involved in the tests.

“Whilst, the Irish banking system being assessed is relatively small in terms of balance sheet size versus the outer countries, it was in the top five countries in terms of loan files to be reviewed and collateral to be valued - the most expensive element of an asset quality review (AQR),” the minister said.

The comprehensive assessments - which comprised AQRs and stress tests - covered five financial institutions with Irish banking licences - AIB, Bank of Ireland, Permanent TSB, Ulster Bank and Merrill Lynch International Bank.

In addition, the Central Bank conducted AQRs on a “host” basis for ACC, which is part of Rabobank, Depfa, which is part of Germany’s Hypo Real Estate Holding, and KBC Bank Ireland, which is part of the Belgian KBC group.

The Irish costs relate largely to work carried out by Ernst & Young, KPMG and Deloitte on behalf of the regulators.

The minister said the Central Bank’s “extensive” experience in recent years of balance sheet assessments and stress tests for the Irish banking sector had resulted in costs savings for the assessments carried out for the ECB this year.

“It used exclusively internal expertise to conduct quality assurance on the data received from banks before it was passed to the ECB,” he explained. “It was then not necessary to utilise third parties to perform this function, resulting in a saving.”

Mr Noonan said all project management operations were carried out using the internal resources of the Central Bank or secondees, “also resulting in a saving”.

“The Central Bank saved significant cost by utilising the file review results from the balance sheet assessment conducted in late 2013, where possible, for Bank of Ireland and AIB.”

The results of comprehensive assessments last month showed that PTSB, which is 99.2 per cent owned by the State, had a capital shortfall of €855 million, which must be plugged within nine months. The other Irish banks were given a clean bill of health by Frankfurt.

The assessments were conducted in advance of the establishment of the Single Supervisory Mechanism, which earlier this month took over direct control for financial supervision in the euro zone.