Banking watchdog to cure Irish ills

Ireland plans to create a new commission for banking regulation, seeking to end what Prime Minister Brian Cowen said had been a "sorry chapter" for the nation's lenders.

"There will be radical reform of the system," Cowen said at the annual conference of his ruling Fianna Fail party in Dublin. The Central Banking Commission "will have new powers for ensuring the financial health, stability and supervision of the banking and financial sector".

Ireland's banks have been battered by the global credit crisis and face rising bad debts as the domestic property market slumps. At the same time, a series of scandals that have led to resignations across the industry have marred the sector's reputation.

The Government has promised a 7 billion ($17.8 billion) bailout to Bank of Ireland and Allied Irish Banks, the two biggest Irish lenders, and has nationalised a third, Anglo Irish Bank Corp. Police this past week searched Anglo's offices as part of an investigation by the country's corporate enforcement agency.

The commission would incorporate the responsibilities of the central bank and the financial regulator, Cowen said. The reforms would begin within weeks and "will mark an end to a sorry chapter in Irish banking history", he said.

The commission will be similar to the model used in Canada, where banks have avoided government bailouts and have had a fraction of the debt-related writedowns recorded globally. Bank of Nova Scotia chief executive Richard Waugh said Canada's model was "worth careful consideration".

As he battles to save the nation's banks, Cowen is also grappling with a soaring budget deficit, the threat of a credit rating downgrade and public anger over proposed tax increases.

Ireland's economy is shrinking at the fastest pace in the euro area and more than 100,000 people marched in Dublin last week against budget plans.

The Government aimed to "restore balance" to the public finances by 2013 through a combination of higher taxes and increased spending cuts, Cowen said. Ireland budgeted for 55 billion in spending this year and expects to raise a maximum of 37 billion from taxes, leaving a shortfall of 18 billion.

"Obviously those who have done well through the good times will have to pay more," Cowen said in an interview with Irish state broadcaster RTE radio. "Those who have to bear most are those who can bear it best."

- BLOOMBERG