Lenihan issues rules to go with €485bn liability scheme

BANKS will have to comply with a series of rules relating to officials’ pay and will have at least one director appointed to their boards to look after the taxpayer’s interest, Finance Minister Brian Lenihan said last night.

The scheme guarantees about €485 billion worth of liabilities for the six Irish-owned banks and five mostly British banks with significant retail operations in the country.

But Mr Lenihan ruled out capping the pay of bank chiefs and insisted the panel of directors he would appoint, from which the banks could select a director, would be independent.

The bulk of the €1bn the banks will have to pay will come from Irish banks and will constitute more than 10% of their quoted value on the stock exchange. “This is a substantial amount we are insisting on especially in the current climate,” he said.

The precise sum each bank would pay would be worked out in negotiations and would depend on the risk of each institution, but the amount would not be made public as it was a commercial issue, Mr Lenihan said.

Each bank will be asked to prepare a plan to restructure the terms of pay, including bonuses and share options of bank executives and submit this to the minister for approval.

Mr Lenihan said he approved of the German government’s decision to cap bank executives pay at €500,000 a year, but he was not going to put a limit on Irish executives.

Neither would he demand the dismissal of any bank chiefs as the situation was different to the US where banks had collapsed due to the reckless behaviour of its executives.

Mr Lenihan said each bank would have at least one and no more than two directors appointed to their board.

He insisted this would be a “tight panel” and while each director would have a duty to the bank, he would have a parallel duty to consider the public interest.

Mr Lenihan defended the decision not to talk to the European Commission until after the guarantee scheme was decided and publicly announced.

He said he had positive response from North America and CNN.

He did not contact the commission because they could not provide any practical measure to rescue the Irish banking sector.

They had been helpful, however, in working through the two reservations — using State aid to discriminate against other EU banks and to guard against the banks taking in or lending more than they traditionally would given the cushion of the guarantee.

The Governor of the European Central Bank, Jean Claude Trichet, had been kept in the loop when the bank rescue deal was being put together and had been supportive, he said.

Mr Lenihan would not say that Ireland had been picked on by the commission who insisted the scheme had to be adjusted to meet competition and State aid rules.