Guarantees for banks to be phased out -- Lenihan
Published 20/08/2010 | 05:00
ELEMENTS of the bank guarantee will not be continued after September, Finance Minister Brian Lenihan said yesterday.
"We want to see them (the banks) off the guarantee as soon as possible. What we're talking about here is the phasing out of the guarantee over time," Mr Lenihan said on RTE.
But the taxpayer could still have to shoulder the risk on most of the €77bn which the banks will have to raise in fresh funds before the end of the year, industry sources say.
This is because they can be covered by the extension of parts of the guarantee scheme to December 31. The extension, agreed with the EU in June, covers bank borrowings of between one year and five years' duration. This will allow the banks replace the loans which have to be repaid at the end of September, when the original two-year guarantee was due to expire.
Department of Finance information shows that the only liabilities still set to come off guarantee at the end of next month are loans and corporate deposits of less than three months' duration and interbank deposits.
All the others are guaranteed to the end of the year. Mr Lenihan said discussions were under way with the European Commission about extending some of the September deadlines. There may be government concerns about the effects of an end to the guarantee on both interbank deposits and short-term corporate deposits.
The Government is examining applications made by individual banks as discussions continue, Mr Lenihan said.
Blanket rescues of the kind controversially launched by the Irish Government could become a thing of the past, under proposals being considered by the Basel Committee on Banking Supervision.
The committee, which sets international banking rules, is proposing that investors who lend to banks should bear some of the cost of future bank bailouts in an effort to curb excessive risk-taking by banks and reduce the dangers to taxpayers of bank failures.
The most controversial aspect of the Irish bank rescue was that so-called 'subordinated' loans, which do not legally have to be repaid if the bank does not have the funds, were also covered by the taxpayer.
The same thing happened in several countries. The committee wants to go further than leaving subordinated debt to carry risk. It said all bonds sold to provide regulatory capital for banks should be capable of absorbing losses if the bank cannot fund itself in the private markets.