Government not forced into rescue, says regulator
It has been speculated that Anglo Irish Bank, whose shares fell dramatically on Monday was the key target of the government guarantee that covers €400 billion of deposits and loans tied up in the country’s six banks.
The Government’s decision was taken in response to the unprecedented shortage of liquidity in global markets and for no other reason, he said.
“This was not a problem confined to any individual bank. The problem was one for the system and caused entirely by the international market turmoil,” the regulator said.
“This was an issue of funding for the system. We now have a very good solution. This was the correct move to open up the international money markets again to the Irish banking system and it is working,” he said.
The taxpayer is now backing a system-wide guarantee and the banking sector is now operating in a new environment covering several areas such as stronger governance requirements, deeper risk management and oversight of strategic decisions, he said.
“We are already talking to the banks about these issues,” Mr Neary said.
Reaction to the €400bn guarantee for the country’s six leading banks has been broadly positive here while reaction in Britain and mainland Europe has been more critical.
The Financial Times yesterday said Ireland’s decision had put pressure on the British to follow the government’s swift move after the run on Irish bank shares on Monday.
However, Europe’s leading financial daily reported that British and other European officials were said to be enraged at the anti-competitive nature of the move as it makes Irish banks more attractive to savers and investors.
“We find this reaction predictable and hints of frustration” said Kevin McConnell, head of equity research at Bloxham Stockbrokers.
Credit default swaps on Irish banks improved so much yesterday for AIB that its debt is now priced at the same level as Santander, regarded as one of the strongest banks in the world due to its conservative lending policy.
The move will give banks here access to funding at very attractive rates, increasing their chances of survival by boosting liquidity and ultimately their capital raising prospects.
