Irish Central Bank Governor, Dr. Patrick Honohan. He was a professor of economics at Trinity College, Dublin, until his appointment in Sept 2009.

The governor of the Central Bank, Patrick Honohan, said today that Government will provide further significant capital funding to the Irish banks in coming weeks. The governor said the cost will become clearer over the coming weeks, as the NAMA (State bank rescue agency) purchases clear the way for capital-raising exercises by the banks. "It will of course be a sizable sum, though some of what is needed may be raised by the banks themselves through such steps as asset sales, new issues of equity, and discounted debt buybacks," Honohan said. "Still, it is pretty clear that the government will be acquiring additional equity stakes. While I’m not yet in a position to put a number on it, I can say that the overall net cost to the State of recapitalisation will be manageable," he added.

Speaking this morning at the launch of the Trinity Alumni Career Network, Honohan said the recapitalisation will ensure that the banks are seen in financial markets as “strong, financially self-reliant entities”, and that the “overhang of the banking situation” on the State’s finances will be removed. As a result, Ireland’s borrowing spreads will tighten further, he predicted. The governor said  data seems to bear this out that banks in Ireland have reacted to their own difficulties and to the downturn by greatly reducing their risk appetite.

Some of this was a necessary adjustment, but the result has been limited availability of credit for start-up firms and SMEs.

"Indeed, I have the impression that, during the years of property-based lending, the banks have lost their edge in small business lending. This is something that they need to pay more attention to, not just for the sake of the economy, but for their own business performance in the years ahead when property-based lending will be on a much more limited scale.

 A number of new initiatives have been floated in this regard. It is important that the banks get going now on improving their techniques for making sound small business loans," he said.

Honohan said at the aggregate level, the pace of economic activity and the trend in unemployment still remain weak. The decline in aggregate income is bottoming out, but (in the second quarter of 2010) at a level of about 16 per cent lower than at the peak. (That’s GNP: economic activity, measured by GDP it is about 11 per cent down). Unemployment we will continue to rise somewhat during 2010, though a reversal of net migration flows will serve to limit this.

"I interpret the recent reductions in the net pay of public servants not only as a significant contribution to correcting the budget deficit, but also as a signal of the realignment of overall wage rates in the economy that is needed to restore employment growth," Governor Honohan said.

Speech