Banks ‘warned of destabilisation’

Dublin: AIB and Bank of Ireland warned the Government that the price banks could have to pay to use the state’s guarantee may be so big it would run the risk of “destabilising the entire bank system”.

This is according to a letter released to RTÉ under the Freedom of Information Act.

In the letter to the secretary general of the Department of Finance, David Doyle, from AIB CEO Eugene Sheehy and Bank of Ireland CEO Brian Goggin, they said: “An unreasonably high premium would threaten the viability of even the strongest institutions.”

The letter, stamped “Secret”, was sent on October 1, 2008, one day after the Government announced the bank guarantee.

In the letter, Mr Goggin and Mr Sheehy said there should be differentiation between different categories of banks, depending on how they were rated by markets. They also said there should be differentiation between banks, depending on how much support they give to the mortgage market.

The notes say: “Lehmans messed up the world markets but Bradford and Bingley created real difficulty for Ireland given that some Irish institutions have similar, though better quality, UK assets.”

The notes say the “greatest ever decline” in the Irish Stock Exchange indicated that the collapse could easily threaten the whole economic future.

The documentation also contains an email from a Department of Finance official raising concerns about increasing the deposit guarantee for ordinary bank customers up to €100,000, according to RTÉ.

Fine Gael’s spokesman on finance, Richard Bruton, said the letter was “further evidence that the banks were trying to swindle the Government into giving them a sweetheart deal”.

The email was written a day before the Government increased the guarantee from €20,000 to €100,000.

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