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Bank Capital and Pensions

According to the Sunday Tribune, Irish banks face yet another threat to solvency, as the Basel Committee on Banking Supervision is mooting proposals that would force banks to ‘deduct staff pension-scheme surpluses or deficits from their capital cushions’.

AIB staff are currently being balloted to accept proposals that staff who joined after 1998 pay 4% and 5% towards plugging a gap in the pension fund, while Bank of Ireland has a cool €1.5bn deficit in its defined benefit pension scheme.

On top of all this, the Irish Bank Officials Association has warned that:

up to 10,000 jobs in the banking sector could be lost in the next few years, ultimately meaning far fewer members making contributions to schemes with an increasing number of pensioners. And bank workers will not be expecting their employers to help with contributions because of the need to shore up battered balance sheets against losses.

BoI and AIB are faced with ever-increasing needs for cash, although there isn’t agreement between analysts on the exact figures:

At the upper end of the range Morgan Stanley estimates that AIB will need €5bn in capital and Bank of Ireland €4.1bn, while Davy stockbrokers says the banks need €4.1bn and €2.2bn respectively.

If the banks are forced to deduct the pension-fund deficits, the cost of recapitalising them will be a lot more.

Posted in Money Systems, Resilient Investment.