The Group has a flexible capital structure with the ability to improve and strengthen its capital base over the next few years. The Group's core capital objective is to meet or exceed all relevant regulatory capital requirements and to hold sufficient economic capital to withstand a worst case loss in economic value due to risks arising from business activities.

The Group has successfully managed its capital position through the extreme economic and market conditions experienced over recent years and continues to strongly capitalised in both its life and banking businesses.

As of 31st December 2009 the banking business had a Core Tier 1 ratio of 9.2% while the solvency cover of the life assurance business was 1.6 times the minimum required.

For full commentary on 2009 capital see 2009 Annual Report, Group Performance Review, pages 16 -19, and Analysis of Equity & Capital, pages 145 -149 .

Bank Capital

The bank's capital requirements are computed under Basel 2 rules. In the absence of the Pillar 2 requirement being determined an Interim Capital Requirement ("ICR") has applied, equal to 23% of Pillar 1 capital. The bank's Core Tier 1 ratio of 9.2% at Dec 2009 included €302m of capital in respect of the ICR.

In March 2010 the Irish Financial Regulator announced a new capital framework for the Irish banking system. This included a system-wide minimum Core Tier 1 capital requirement of 8% (including equity of 7%) and, specific to every institution, a prudential buffer requirement in the calculation of expected impairments. The ICR was removed.

The Financial Regulator set new capital levels for some of the main banks covered by the Government (funding) guarantee scheme and transferring loans into the National Asset Management Agency ("NAMA"). However Irish Life & Permanent was not included in the initial review as it is not a participant in NAMA, nor a recipient of capital from the government.

Based on initial discussions with the Financial Regulator the Group expects that, as currently structured, its capital resources are sufficient to meet the new regulatory requirements. A formal Prudential Capital Assessment Review ("PCAR") of Irish Life & Permanent will be undertaken in the first half of 2010 in the context of the Group's restructuring plans.

Further details of the new PCAR can be found on the Financial Regulator's web site:
http://www.financialregulator.ie/

Life Capital

The calculation of the minimum regulatory capital for the life assurance business is based on the EU Solvency 1 Directive. The solvency cover for Irish Life Assurance plc, the Group's main life assurance operation, at 31 December 2009 is 1.6 times the minimum requirement of €416m.