ALLIED Irish Banks last night denied a report that it is one of the leading backers of bonds issued by the Catholic Church in California.
AIB, together with US Bancorp and Wells Fargo, are among the most active guarantors of municipal bonds issued by the Catholic Church in California, the 'Economist' magazine concluded following a lengthy study of the secretive US church's finances. This would mean that Irish taxpayers would be on the hook if the church in California declared bankruptcy. The sums involved are large; Catholic groups in California have raised more than $12bn through muni bonds.
AIB said yesterday it had "significantly reduced its outstanding balances with US Catholic dioceses to immaterial levels" and denied that it had any outstanding letter of credit with any diocese in the US.
Branches of the Catholic Church in the US have been forced to declare bankruptcy after being crippled by payments related to child abuse. Eight dioceses have gone bust, including San Diego, Tuscon and Milwaukee along with the US arm of the Christian Brothers. Many others are likely to follow as scandals come to court.
The Catholic Church in the US is the biggest contributor to Vatican funds but has struggled in recent years as attendance has waned.
This has forced church fathers to seek new funding such as the tax-free municipal bond market which is accessible to charities such as the church as well as local government.
The Catholic Church has been forced to pay out $3.3bn for child abuse, including $1.3bn in California.
AIB is 99pc owned by the Irish State.
US law allows churches not to file income tax returns, list their assets or disclose basic financial facts. That means that information about lenders is only revealed sparodically.
AIB was almost destroyed in the 1980s when a UK subsidary called the Insurance Corporation of Ireland developed problems that threatened to bring down the bank.
The taxpayer had to bail out AIB at a cost of several hundred million punt. A significant part of ICI's problems were linked to insurance and the Catholic Church.