Business Irish

Saturday 23 August 2014

Fitch backs timetable for end of bank guarantee by next summer

Donal O'Donovan

Published 05/12/2012 | 05:00

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Rating agency Fitch said it expects the bank guarantee to end next June, backing the Government's timetable to phase out the controversial support to banks by the middle of next year.

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Last week Finance Minister Michael Noonan said the controversial Eligible Liabilities Guarantee (ELG) scheme would be extended into next year, ending speculation it might have been allowed to lapse at the end of this month.

The "emergency" guarantee has been in place since 2008.

The Government has written to European competition authorities to request perm-ission for the ELG scheme to be available until the end of June, but is planning to move the main banks out of the scheme as early as March.

Recovery

The ELG was brought in to prevent banks collapsing as a result of a mass withdrawal of their deposits.

That risk has eased following the recapitalisation of the Irish banks in July last year, though ending the guarantee could still heighten the risk of deposit flight, according to Fitch.

However, it would also mark a further step forward in terms of a wider recovery, the agency said.

"A withdrawal of the ELG scheme would be another step towards the recovery of the Irish banking sector," Fitch said in a note.

Supports like the guarantee are regarded by European competition as a form of state aid to business, only to be used in extreme circumstances.

EU authorities can only approve its extension for a maximum of six months.

Irish Independent

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