November 29, 2010 / 2:27 PM / 9 years ago

Highlights: Irish central bank governor on country's bailout

DUBLIN (Reuters) - There was no appetite in European capitals for making senior bank bondholders take some of the pain as part the Irish bailout agreed over the weekend, the country’s central bank governor said on Monday.

Following are highlights from Patrick Honohan’s interview with Ireland’s national broadcaster RTE.

ON POTENTIAL HOLES IN BANKS

“There has been no indication in our discussions over the past couple of weeks that there is a hole that we haven’t discovered. I think some of the people from outside came in thinking they’d probably find a hole and they didn’t find a hole.”

ON 5.8 PERCENT INTEREST RATE

“People are not trying to scalp you. Okay, they are not charging the cheapest interest rates ever found but they are trying to ensure that the economy comes back to strength again. The interest rates are reasonably high because they don’t want other countries to say ‘oh sure, if we get into trouble we’ll be able to get very cheap financing’.”

ON ECB FUNDING

“There was a concern that somehow the ECB is going to shut off the taps. I was talking to them all yesterday and while the confidence is being restored, they are underpinning the stability of the banking system in Ireland. That is unquestioned.”

MEMORANDUM OF UNDERSTANDING

“What you will see in the memorandum of understanding when it is published, and it is still being finalized ... is that there’s a lot of detailed precision on what will be done in the coming months, so if you like budget 2011. And then as the programme goes out, the degree of precision vanishes. So there are things that a future government could have to do ... The targets become vaguer as the programme goes out to allow future governments the autonomy which is necessary to get buy-in to this.”

CAPITAL INJECTION

“We did a capital assessment in March ... we’ll do one to be completed in March of next year ... And if there are more anticipated losses, which there might be given that the fact that the economy is projected to be weaker now than was projected in the spring, then those losses could be absorbed out of t2his higher capital amount.

If the losses are even more, (than 10 bln euro capital injection provides for), then you could imagine drawing on the contingency amount. But it is a contingency amount, it’s meant to impress the markets that look if anything really bad happens, the money is (there). I would be very disappointed if things turned out to be like that. I would be surprised actually.”

Question: “Do you imagine that you’ll be drawing down this 25 billion of contingency money?

“I would be very disappointed if things turned out to be like that. I would be surprised actually.”

ON FRESH BANK CAPITAL “If I had an unlimited menu of instruments, rather than just putting in capital, I would have preferred to have received from our partners in Europe an insurance scheme which would insure against these downsize risks and we could pay a fee for it. That would have been the more well-adapted instrument to use, but it’s not available. They don’t have such a scheme in Europe or the IMF so putting the capital in is the best scheme that’s available.”

ON BANK RESTRUCTURING

“We’re trying to get the banks to take blocks of the portfolio and if possible sell them abroad, if necessary using techniques called credit enhancements which cost a bit of money but take the risk away from the buyer.”

ON WINDING DOWN ANGLO IRISH BANK

“It was a sort of artificial construct (splitting Anglo Irish bank in two) which would continue while the rest of the bank was being wound down. Now I think the idea is to push that out to finality as quickly as we can do it.”

“I think we’re talking weeks. I think a deadline has been established which is early in 2011. There are so many deadlines... it might be the end of January, I’m not quite sure.”

ON CHANGE OF GOVERNMENT NEXT YEAR

“I know that not only myself, but the civil servants involved in the negotiations were very acutely aware of the dimension to which a future government might not want to be held to a programme that had been agreed by the current government.

ON IRELAND’S LOAN PACKAGE

“The main pain that is being suffered now is an adjustment in the government’s finances. Let alone the banks, the main adjustments that are happening this year and next year are necessary even if we did not have any debt.”

“This package provides cheaper funding, not cheap funding, and buys the government and the nation time to convincingly demonstrate that we have got the adjustment on track.”

ON SENIOR DEBT

“The whole question of dealing with that relatively small block of unguaranteed senior bondholders, which amounts to about 5 percent of the total debts of the banks, was floating around in the last couple of weeks and there was no enthusiasm in European capitals for something to be done about those in a context of which, for entirely different reasons, the banking markets are quite nervous about much more aggressive action being taken.

Reporting by Dublin newsroom; editing by Paul Hoskins

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