Four of Ireland’s banks need €24 billion of additional capital, according to the latest round of stress tests.
Of that total, approximately €13bn is needed by just one lender, Allied Irish Banks (AIB), to enable it to withstand potential further losses.
The new total will take the final bill for bailing out Ireland’s banking system to €70bn – compared with the initial forecast of €46bn.
The results of the stress tests were announced this evening by Patrick Honohan, the governor of Ireland’s central bank.
He told reporters that Ireland’s difficulties were “one of the costliest banking crises in history”.
He said he hoped that confidence would come back to Ireland’s banking sector once banks were forced to hold more capital. Currently they rely on short-term funding from the European Central Bank (ECB).
In addition to €13.3bn needed by Allied Irish, Bank of Ireland requires €5.2bn, EBS building society needs €1.5bn and Irish Life and Permanent needs €4bn. The money will come from the bail-out fund created by the EU and International Monetary Fund (IMF) announced in November.
Speaking to the Irish parliament today, Michael Noonan, Ireland’s finance minister, said: “The country has been left with an appalling legacy – a legacy of debt, of unemployment, of emigration, of falling living standards and of low morale.”
Noonan said he wanted to “break the vicious cycle of the massive dependence of the banks on the state”.
It now seems likely that all Irish banks will come under state control. Noonan announced that the government would reduce the number of domestic banks to two new “universal pillar banks”, which will be created from the existing institutions.
Bank of Ireland will remain while AIB and EBS are likely to be merged. Irish Life and Permanent will be radically restructured while the two remaining institutions, Anglo Irish Bank and Irish Nationwide Building Society, will be merged and wound down.
Noonan added: “This radical restructuring of the banking system is designed to put the banking system on a firm footing for the future and break the bonds with our toxic banking past.
“This is essential for our economy. It is essential for our country. From here, therefore, we move forward with purpose.”
The government said it would submit new restructuring plans for the banks to the European Commission for approval under state aid rules.