Irish banks to be controlled by ECB

The financial services sector in Ireland could be set for more regulatory changes after minister for finance Michael Noonan told the Oireachtas Committee on Finance, Public Expenditure and Reform that AIB, the Bank of Ireland and one further important institution will be directly regulated by the European Central Bank (ECB) in Frankfurt.

This change will come about when the new European banking supervisory regime comes into force, Mr Noonan explained.

Ireland's banking sector has endured a torrid time over the last five years, causing some damage to Dublin's reputation as a global financial hub, but there have been recent suggestions that the Irish capital could be moving towards recovery.

The minister for finance reassured reporters that  Irish banks are well capitalised and said there was no evidence that they would need additional funds following the stress tests planned for next year, reports the Irish Times.

However, people working within the industry will no doubt have some concerns about the prospect of direct regulation from the ECB, which could lead to further red tape and hold back growth in the sector.

Which third institution will come under the ECB's aegis depends on what one is considered the most 'structurally important', Mr Noonan explained - he also refused to rule out Ulster Bank, despite its links with the UK-regulated Bank of Scotland.

However, the finance minister admitted that he is currently unsure as to how the logistics of the new situation will work, with Fianna Fail finance spokesman Michael McGrath asking how the ECB is likely to work with the Dublin-based Central Bank.

Mr Noonan suggested that the ECB could choose to fly people in to Dublin for supervisory purposes, or base a local team in the Irish capital.

ECB chief Mario Draghi recently raised the possibility of a further interest rate drop, despite the fact that the rate is already at a record low.

"The governing council expects the key ECB rates to remain at present or lower levels for an extended period," Mr Draghi told a news conference.