Irish banks need $34 billion more

Ireland’s ailing banks need another $34 billion in cash in a move that will leave all of them under state control and facing a complete overhaul, officials announced Thursday in a long-awaited effort to cap a three-year banking crisis.

The Central Bank of Ireland made that recommendation as it published pessimistic results for stress tests on four banks. The banks, whose losses the government insured early during the financial crisis, caused Ireland to need a bailout in the first place, so their fate is closely tied with that of the wider country.

The tests presumed that the country’s real estate market would keep sinking for the next two years and produce tens of thousands of home foreclosures, a problem that is just starting to bite in a country committed to the idea of home ownership for all.

Central Bank Governor Patrick Honohan said all four banks would need enough money to cover mammoth write-offs of dud property loans and to boost their cash reserves to higher standards. He said these cash requirements can’t be met by any of the banks, so each will have to receive funding from Ireland’s emergency European Union-International Monetary Fund credit line.

The European Commission, European Central Bank and Washington-based IMF in a joint statement praised the Irish plans as “comprehensive” and “a major step toward restoring the Irish banking system to health.”

And in a separate statement, the ECB said it now considered the four banks solvent and worthy of uninterrupted flows of short-term liquidity loans until Ireland’s banks are restructured and able to borrow on open markets again. It also announced a lowering of lending conditions in the interim.

This story was originally published March 31, 2011 at 5:00 AM with the headline "Irish banks need $34 billion more."