Uncertainty over foreign banks’ level of protection

IT IS not certain that five foreign-owned banks operating here will be given protection under the Government’s guarantee scheme.

Finance Minister Brian Lenihan confirmed the Government’s intention that the scheme will be made available “to certain banking subsidiaries in Ireland with a significant and broad-based footprint in the domestic economy”.

A finance spokeswoman said the extension would raise the total guaranteed liabilities to €460 billion. However, Labour has claimed the figure is closer to €600bn.

The minister said it is intended that the following banks will be covered: Ulster Bank, which is part of Royal Bank of Scotland Group Plc; First Active; Halifax (Bank of Scotland Ireland) a unit of British bank HBOS Plc; IIB Bank, owned by Belgium’s KBC and Postbank, a joint venture between Belgian-based Fortis and An Post. All five institutions sought access to the Government’s guarantee scheme.

NCB banking analyst Christopher Wheeler said financial institutions are awaiting the final detail on costing of the deposit guarantee scheme to see how it will impact the Irish banks over the next two years.

He said NCB expects the pricing mechanism to be based on a risk-based model, although there is no detail at this time.

“That said, those subsidiaries of foreign institutions will have to weigh up the benefit of joining the scheme against the related cost so we cannot rule their participation in or out at this stage,” he added.

Danske Bank said its National Irish Bank division will not be applying for the guarantee as customers will be covered by new Danish protection.

Mr Lenihan said the scheme was in the advanced stages of drafting and would be presented to the Dáil as quickly as possible. It is expected before the Oireachtas next week.

“Clearly, there will be some additional limitations and safeguards in relation to these operations to ensure that the support provided relates to liabilities arising from their position within the national economy, rather than to their wider group,” he said.

Details of the scheme have been sent to European commissioner for competition Neelie Kroes for approval. Her response is expected in advance of the proposed legislation coming before the Dáil.

The European Commission said limiting the programme to Irish banks had been a problem for the EU executive, which monitors whether national decisions are compatible with EU laws on state aid and competition.

“It was one of the problems identified by the commission,” EU spokesman Jonathan Todd told a daily briefing yesterday.

He said the commission received information on the updated Irish scheme, but needed to scrutinise it further before making a decision.

“The commission has received information from the Irish authorities... There is no decision yet. We will take a decision as soon as possible,” he said.

Yesterday, the minister welcomed the intervention by the British government in its banking market.

“This broad-ranging package is another indication of the determination of European governments... to provide support to systemically relevant financial institutions,” he said.

Mr Lenihan also stressed Ireland would continue to be vigilant to protect the security and stability of its financial system and is convinced our partners are determined to do the same.