Sovereign-debt fears outweigh plan to extend guarantee scheme
Published 12/11/2010 | 08:56
THE perilous state of the sovereign means the extension of the bank guarantee scheme may not be enough to stop corporate deposits moving out of Irish institutions, industry insiders warned last night.
The commentary came the day after the Government announced plans to extend the Eligible Liabilities Guarantee (ELG) scheme until June.
The scheme, which covers most types of bank deposits and debts, had been due to term out in December but was extended to "support" Irish banks through the crisis.
The main focus of the extension is understood to be the tens of billions of large deposits held by Irish banks that fall outside the scope of a separate guarantee for sums up to €100,000.
Markets yesterday, however, expressed extreme scepticism on how effective the extended guarantee would be, since the State's financial position is so perilous.
"A guarantee is only as strong as the guarantor," one source said last night, pointing to the record rates of interest investors are now demanding to hold Irish debt.
Anglo had about €11bn of "non-retail" deposits at the half-year point in June, while Bank of Ireland (BoI) had about €50bn and Irish Life & Permanent had about €5.2bn. Figures for AIB were not disclosed.
Corporate deposits across Irish institutions are believed to have fallen since the half-year point, and BoI is expected to face intense questioning when it releases its interim management statement today.
"The extension is helpful in that it does give some certainty to the market, but things would need to calm down a bit for it to be of use [in helping us keep deposits]," said one banking source last night.
"If the Budget and the four-year plan make markets calm down again then it [the guarantee] could be very useful, but you'd have to view things differently now."