Government faces challenge over legitimacy of bank bailouts

The Government faces a legal challenge today to the burdening of taxpayers with the cost of bailing out Anglo Irish Bank and Irish Nationwide Building Society.

David Hall, a director of Irish Mortgage Holders Organisation, a debtors’ advocacy group, is questioning whether the State’s use of €31bn of so-called promissory notes, or IOUs, to rescue the lenders is a legal use of public funds, he said on his Twitter account on Jan 13. The case is set to be heard over three days.

Mr Hall said that he is being represented by John Rogers and Ross Maguire. Department of Finance officials did not comment.

As the rescue bill for Anglo and INBS soared in 2010, then finance minister Brian Lenihan held off injecting all the cash into the lenders straight away. Instead, he promised to provide the money over more than 10 years, by issuing promissory notes.

This avoided the nation having to borrow from bond investors when its borrowing costs were soaring.

The legal challenge comes as the Government is in the “final stages” of restructuring the notes, Tánaiste Eamon Gilmore said on Sunday.

The notes are currently used as collateral to access emergency funding through the Central Bank. The Government is seeking to secure a deal with the ECB so that the money is paid back over a longer period of time.

The notes make up the bulk of the €34.7bn rescue cost of Anglo and INBS.

“Neither side to the case likes the promissory notes, which were effectively used to fund the bailout of private creditors to Anglo Irish,” said Conall Mac Coille, chief economist at Davy stockbrokers. “But the Government is taking a different approach in seeking to extend the repayment of the bailout and the ECB’s funding of it.”