‘Safety net’ for €37bn bank debt

DEBT topping more than €37 billion is covered by a state safety net for major banks, Finance Minister Brian Lenihan revealed.

The eligible liabilities guarantee (ELG) covers AIB, Anglo Irish Bank, Bank of Ireland, EBS, Irish Life & Permanent and the Irish Nationwide Building Society and named subsidiaries which have a total of €108bn deposits secured by the scheme.

The admission came during a stormy debate on the Finance Bill which saw the Dáil suspended due to a row in which Labour and Fine Gael accused the Government of bending parliamentary rules by re-introducing an amendment the opposition believed ministers had already agreed to which would have forced a cost benefit analysis to be carried out of tax changes provided for in the bill.

The Government refused to back down and Mr Lenihan went on to tell the Dáil the ELG was a natural progression from the two-year blanket bank guarantee scheme brought in as the country teetered on the brink of financial collapse in September 2008.

“The funding of Irish banks has improved dramatically in the intervening period and the blanket guarantee will no longer be necessary into the future,” Mr Lenihan told TDs.

“A key feature of the new scheme introduced in December 2009 is access to longer-term funding, which is in line with the mainstream approach in the EU and is expected to contribute significantly to supporting the sustainable funding needs of the banks and to securing their continued stability. The structure of the scheme allows participating institutions to issue guaranteed and unguaranteed liabilities, which will help reduce their reliance on state guarantee support over time as financial market conditions continue to improve,” he added.

Mr Lenihan stressed subordinated debt is not a covered liability under the ELG scheme due to an EU ruling. He also refused to be drawn when pressed by Labour’s Joan Burton on whether he was readying to pump an extra €6bn into Anglo Irish.

“The scale of Anglo Irish Bank’s NAMA-eligible loans are such that they will give rise to some additional capital requirement for the state – there is no question about that. I am assessing the scale of any further capital support in light of the emerging accounting end-year financial position of the bank and the likely impact of the NAMA transfers over the course of 2010,” Mr Lenihan said.

Ms Burton said the country would not be impressed to see billions of euro more going into Anglo Irish.

“Does the minister understand how upset many ordinary people are at the notion that the state will absorb perhaps €12bn of losses in Anglo Irish Bank and, will then pump a further €6bn and upwards into the bank?” she stated.