Saturday 22 July 2017

Department of Finance urges the banks to rely less on guarantees

Joe Brennan and Emmet Oliver

The Department of Finance is putting pressure on the banks to start issuing more unguaranteed bonds into the market over the coming months, in order to wean themselves off state support.

The original two-year blanket guarantee scheme is due to expire at the end of September. An extended scheme, brought in at the start of this year to allow banks issue debt of up to five years in duration, is due for a six-monthly review in June.

Finance Minister Brian Lenihan signalled three weeks ago that he will unveil proposals before June aimed at phasing out the guarantee schemes. As with the extended scheme, any new plan will not cover banks' riskier -- or subordinated -- debt.

The existing subordinated debt guarantee, which has courted huge criticism, will lapse at the end of September.

Mr Lenihan highlighted at the time that the ordinary deposit guarantee scheme, which covers up to €100,000 per depositor per institution, will remain permanently in place.

Mr Lenihan said last weekend in a radio interview that his department was also looking at what is happening in relation to the phasing out of guarantees across Europe.

But the Irish Independent has learned that the Finance Department is pushing banks to start selling unguaranteed debt into the market.

Some of the lenders, including Bank of Ireland, Allied Irish Banks and EBS Building Society, sold bonds in the market late last year without Government backing -- though they had to pay higher rates to get the deals over the line with investors.

A senior government source said: "The banks have managed to raise money without a guarantee before, but they need to do more of it.

"That should help them ultimately -- and also reduce the pressure on the sovereign."

The Financial Regulator has demanded that the country's lenders raise billions of euro before the end of the year to reach new regulatory capital levels.

The aim is to convince the markets that the banks will have enough equity to absorb future losses, even in a stress scenario, and make it easier to fund themselves at competitive rates in the wholesale and deposits markets.

Irish Independent

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