Government extends key elements of guarantee
A major collapse in bank deposits at the end of September was averted last night after the Government extended key elements of the bank guarantee scheme by another three months.
Short-term corporate deposits and interbank deposits were due to fall out of the bank guarantee scheme at the end of the month, on foot of a European Commission decision back in June.
Anglo Irish Bank bosses last week warned that its €12bn in short-term deposits would flow out before the end of September unless the guarantee was extended, while short-term corporate deposits across the market are estimated at more than €40bn.
"It certainly helps the banks to hang on to money that could flow out quickly," one banking analyst said last night, while stressing that most banks would have been able to "manage" the corporate deposit outflow better than Anglo.
The extension of the guarantee also applies to short-term debt issued by banks. Long-term debt and long-term deposits are already covered until December 31, while retail deposits up to €100,000 are covered indefinitely.
Finance Minister Brian Lenihan last night said banks would be allowed to "opt in or out" of the extended guarantee, which are likely to command a cost of between 0.7pc and 0.9pc of the guaranteed sum.
Both Irish Life & Permanent and Bank of Ireland (BoI) have recently commented on the "expensive" nature of the support.
In a statement, BoI last night said it "remained committed" to "disengaging" from the scheme "as market conditions allow".
AIB, which had publicly called for the extension of the guarantee, last night said it had "nothing to add" to its previous statement. AIB wants the entire guarantee scheme extended beyond December, as does Anglo Irish Bank. Mr Lenihan last night hinted that the Government might be open to pushing for that extension.
The finance minister stressed, however, that the European Commission's willingness to extend the guarantee "reinforces the fact that Europe is standing by the stability of its financial system . . . and is not going to take risks in its financial system".
Asked if the Commission "took much convincing" on the merits of extending the September deadline, Mr Lenihan said Brussels was "very positive" and "felt it was important in the current market conditions that confidence in the Irish banking system be upheld".