Saturday 3 December 2016

State backed BoI to borrow €14bn from Central Bank

Published 22/02/2012 | 05:00

BANK of Ireland could have drawn down as much as €14bn from the Central Bank last year using a government guarantee as the only collateral, recent filings from the bank suggest.

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Disclosures with Bank of Ireland's 2011 accounts show the Department of Finance guaranteed a "facility deed" that would have allowed the bank to get as much as €14bn from the Central Bank over the year.

Bank of Ireland doesn't set out exactly how the 'facility deed' works, but last year's accounts from Anglo Irish Bank show that its "facility deed" allowed Anglo to get "unsecured" money from the Central Bank of Ireland.

This "unsecured" money would not have had any collateral attached to it -- meaning that the Government would be on the hook for the money if it was not repaid by the bank.

This makes it different to the "letter of comfort" the Government was already known to be giving to cover the tens of billions of "exceptional" liquidity advanced by the Central Bank.

The "letter of comfort" involves borrowings which are primarily secured against assets that are ineligible for mainstream funding but which are nonetheless accepted by the Central Bank.

Protection

This means that the Government has added protection, since it would only have to pay up if the bank didn't repay the facility and if the bank's collateral wasn't worth enough to honour the debt.

The "facility deeds" include a counter indemnity that would make the bank responsible for paying back the State for any losses. But if the bank involved couldn't pay the Central Bank it would probably be unable to repay the State.

A spokesman for the Department of Finance said last night that his office was "not in a position to provide further information on ELA (exceptional liquidity assistance) beyond the information published by the CBI and the banks themselves". The Central Bank declined to give any further detail on the facility.

Bank of Ireland's results show that the "facility deed" reached a maximum of €14bn in 2011 but fell to €10bn at the end of the year, before sliding to €5bn on January 23.

The facility is "currently due to expire on April 23, 2012", the lender noted.

The maximum of the facility deed does not match the bank's actual drawings.

The €10bn facility remained in place at the end of the year, even though Bank of Ireland was no longer taking any exceptional liquidity assistance at that point.

The bank this week said it did not envisage returning to exceptional liquidity assistance.

Irish Independent

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