‘Banks will be weaned off guarantee in Q1’
The scheme, known as the eligible liabilities guarantee (ELG), expires at the end of this year. Mr Moran says the Government is in talks with the troika about extending it with a view to phasing it out over the first three months of next year.
“We have already started the process of phasing out the ELG. For example UK deposits are not covered by the ELG and banks have now started taking in corporate deposits not covered by the guarantee.”
The Government’s guarantee of the banks’ deposits is a rollover, although less extensive in scope, of the State guarantee introduced in Sept 2008, which covered €440bn in liabilities. The ELG covers deposits over €100k held with the Irish-covered banks.
The deposit guarantee scheme, which covers deposits up to €100k will remain in place.
The ELG costs the banks roughly €1bn in fees each year, which is a major barrier to the sector returning to profitability. Mr Moran said even though the exchequer would be down €1bn in revenue next year if the scheme comes to an end, it is essential that the state-owned banks return to profitability and an independent funding model as this would ultimately benefit the taxpayers.
Moreover, the Government’s medium-term fiscal review, published last week, does not include revenues from the ELG.
However, the €3.1bn promissory note payment due next march is included in the medium term fiscal review, although Mr Moran said he does not expect the Government will have to make this payment.
The Government is in talks with the ECB about restructuring the €30bn in promissory notes relating to Anglo. A €3.1bn payment is scheduled every March until 2020.
Mr Moran said the divestment of the domestic banks to the European Stability Mechanism (ESM) is off the agenda until at least 2014 because a single European bank supervisor — which is a precondition for a sale — will not be in place before then.
Speaking at the same conference as Mr Moran yesterday, ESRI economist John Fitzgerald, said the Government should hold on to the state-controlled banks until 2020 by which time they could be worth 20% of GDP. This could work out at €30bn to €40bn and would recoup the €30bn the Government has pumped into the pillar banks.
Mr Fitzgerald said the Government should consider a sale to the ESM before 2020 but only if it generates at least 15% of GDP. The Government should resist off-loading its equity in the banks to the ESM at book value, which is currently €8bn, he said.
Mr Moran said the Government would not sell unless the price was right. The State owns AIB and Permanent TSB and has a 15% stake in Bank of Ireland. IBRC, which is running down the assets of Anglo and Irish Nationwide, is scheduled to be wound down by 2020.
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