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UPDATE 2-Irish regulator says Anglo's senior bonds at risk

Published 04/06/2011, 07:10 AM

* Elderfield says government policy on bondholders is clear

* Irish lenders to report on liquidity every quarter

* Ireland must be ready to go beyond global banking rules

* Deadlines for capital raising due within 10 days

(Recasts, adds comment)

By Carmel Crimmins and Huw Jones

LONDON, April 6 (Reuters) - Ireland may try to impose losses on senior bondholders in two defunct lenders if they need more capital, the banking regulator said on Wednesday, potentially putting the country on a collision course with the ECB.

The Frankfurt-based European Central Bank, which is helping keep Irish lenders afloat, is opposed to Ireland hitting senior bondholders with any losses in case it sparks contagion within the euro zone, exacerbating the bloc's debt crisis.

Matthew Elderfield, head of financial regulation at Ireland's central bank, said the government accepted the ECB view that it should not impose losses on senior bondholders in the country's four remaining lenders, but Anglo Irish Bank and Irish Nationwide, which are being wound down, were being viewed differently.

"Anglo and INBS (Irish Nationwide Building Society) possibly something will happen in the future but for the principle four banks going forward the government's position is quite clear," Elderfield told a Reuters Newsmaker event on Wednesday.

Anglo Irish and Irish Nationwide are at the heart of Ireland's financial crisis, having swallowed over 34 billion euros ($49 billion) of capital between them, and Elderfield said any move to impose losses on their senior bondholders would be subject to consultation with the ECB.

"I do not think the Irish government would want to take action on its own," he said.

CLASS OF ITS OWN

Ireland put a 70 billion euro price tag last week on bailing out its banks when the results of a new health check showed they required an additional 24 billion to protect them against future shocks.

Elderfield signalled there would be an announcement within 10 days about the timetable for capital raisings at the four main banks being kept afloat and merged into two.

Authorities are considering whether there should be a common timeline for capital raising or a staggered one tailored to the different banks, he said.

Ireland's stress test of its banks is seen as tougher than a similar exercise being conducted by the European Union on 90 banks across the bloc.

Elderfield said the Irish tests needed to be rigorous to overcome market scepticism after four previous attempts to recapitalise the banks failed to draw an end to the crisis.

"Ireland is in a class of its own I am afraid. It is probably going to set a record for the worst banking crisis or close to it, the top two or three, and there is still a long way to go."

While concerns about the sector's level of capital should abate over the next 12 months, Elderfield said the process of shrinking their assets and improving their funding base would take much longer. "That is a project that will take years."

Elderfield said he will be far more intrusive in the banking sector in future. In particular, there will be regular checks on how much liquidity or cash-like assets banks have to ride out short-term turbulence in markets.

Irish banks will have to submit a "detailed point-in-time liquidity profile" every quarter starting at the end of June.

Ireland's financial crisis was not solely caused by weak international bank capital and liquidity standards, he said.

"There were home grown elements too, where it is important that the central bank is prepared to act with more rigorous standards than prevail internationally," Elderfield said. (Reporting by Carmel Crimmins and Huw Jones; Editing by Hans Peters and Dan Lalor) ($1 = 0.7050 euro)

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