Lenihan calls for EU-wide protection of banks

Finance Minister Brian Lenihan today called for EU-wide protection for banks as he announced a €400bn state guarantee of all deposits in the country’s indigenous financial firms.

The unprecedented two-year safeguard applies to Allied Irish Bank, Bank of Ireland, Anglo Irish Bank, Irish Life and Permanent, Irish Nationwide Building Society and the Educational Building Society.

Mr Lenihan also called on the EU Commission to consider similar guarantees to bolster the banking system across the 27-state bloc.

“There is a need for a wider European approach on this so that there is a common standard of protection,” he told a news briefing in Dublin.

“It is important that Europe protects its financial systems but in the absence of a European-wide system there is an onus on the Irish Government to take action.”

The Government’s guarantee also covers all money borrowed by Irish banks from other financial institutions.

Opposition parties called for tight regulation of the scheme while Ireland’s biggest union, Siptu said the six banks should be charged a premium rate for the guarantee.

A spokesman for Irish Life and Permanent said the guarantee also applies to its subsidiary, permanent tsb bank.

Mr Lenihan said there would be an approximate €400bn liability to Irish taxpayers but charges and strict terms and conditions applying to the agreement would safeguard their interests.

“I do not see any hazard or exposure to the taxpayer from the decision I have arrived at,” he explained.

“Were liquidity to dry up in the Irish banking system in the weeks ahead, the inevitable result would be economic catastrophe for this country.

“We are a small, exposed economy – more globally exposed than any economy in the EU. For us not to have a viable banking system would paralyse trade in this country and reduce us to a perilous position in the market place.”

The Government will release more details of the agreement when legislation proceeds through the Dáil – expected next week.

An emergency debate on the issue is expected to be scheduled for Leinster House this evening.

It emerged that officials had drafted the laws in recent days as a contingency plan, while the international banking crisis deepened.

Mr Lenihan added: “We’re not in the business here of bailing out banks or assisting those who have invested on a risk basis.

“Shareholders take their risks on the markets. What we’re guaranteeing here is the lifeblood of the banking system ... borrowing that is essential to the successful operation of any banking system.”

The Government will decide on the level of charge to the banks in consultation with the Central Bank and the Financial Regulator.

Siptu general secretary Jack O’Connor said of the guarantee: “There should be no golden parachute for profligacy. Financial institutions should be obliged to pay the Irish taxpayer at a premium rate for this gilt-edged guarantee.”

Opposition finance spokesman Richard Bruton said: “This must not allow banks to play roulette practices under guarantee from the state. There will be a need for tighter regulation during the next two years.”

Mr Lenihan also said that he believed that US financial giant, Lehman Brothers, should not have been allowed to collapse.

“My personal view is that the US authorities were mistaken in permitting that bank to go to the wall because it has had very serious consequences for the world financial system.”