Ireland Weighs Capital Buffer Cut as Virus Spreads
Ireland Weighs Capital Buffer Cut as Virus Spreads
(Bloomberg) --
Ireland’s central bank is considering allowing lenders release capital set aside to counter downturns, according to a person familiar with the matter, in a move to help shore up the economy amid the coronavirus crisis.
The regulator may cut the so-called counter-cyclical capital buffer from the 1% it is set at currently, said the person, who asked not to be named as the information is not public. No final decision has been made yet, the person added.
The central bank declined to comment.
The buffer guards against banks’ boosting lending in a boom and slashing in a crash. It’s designed to be built up when risks are growing, and allows banks to lend more during times of stress. Reducing the buffer to zero would free banks to lend a potential 10.5 billion euros ($11.7 billion) into the economy, Eamonn Hughes and Barry Egan, analysts at Goodbody Stockbrokers in Dublin, wrote in a research note.
If Ireland does reduce the buffer, it would be the latest move by a central bank to help shore up the economy as the coronavirus spreads around the world. The Bank of England reduced its countercyclical capital buffer to zero from 1% on Wednesday alongside a raft of measures to support the U.K. economy, including interest rate cuts. The ECB on Thursday moved to let banks operate with lower capital levels to deal with the fallout from the coronavirus.
Ireland is among a host of countries to close schools and colleges, slash mass gatherings, and ask people to limit their social interactions in an effort to manage the virus’s impact. There are 70 confirmed cases in Ireland so far, and one death.
Retaining the buffer is “untenable,” Stephen Lyons and Diarmaid Sheridan, analysts at Dublin-based securities firm Davy, said in a note Thursday. Reducing the buffer to zero would lower capital requirements by 60bps for Bank of Ireland Group Plc, 70bps for AIB Group Plc and 100bps for Permanent TSB Group Holdings Plc, they added.
Bank of Ireland shares rose 8% in Dublin, while AIB rose 4.7%.
To contact the reporter on this story: Peter Flanagan in Dublin at pflanagan23@bloomberg.net
To contact the editors responsible for this story: Ambereen Choudhury at achoudhury@bloomberg.net, Dara Doyle
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