The €400bn battle
Opposition to seek assurances today over new bank deal
Taoiseach Brian Cowen arriving at Government Buildings last night after the earlier announcement of a guarantee plan for banks
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THE Government last night battled for sweeping powers to allow it to step in and prevent troubled banks from going under.
Following a long day of drama, the full details finally emerged of Taoiseach Brian Cowen’s unprecedented €400bn guarantee to safeguard the country's six banks. But the wide-ranging new laws go far beyond just guaranteeing loans.
New legislation to back up €400bn worth of loan guarantees for banks, introduced to the Dail late last night, gives Finance Minister Brian Lenihan the ability to step in “as he sees fit” to help out with financial support, including loans, guarantees, exchange of assets, and buying up shares.
In effect, the legislation stops just short of nationalising a bank, if the Government thinks it is necessary, as it allows for a stake to be bought up. It also provides for the overriding of competition laws if a merger of a bank is required, similar to a recent case in Britain.
The action taken by the Government in giving €400bn worth of guarantees to six of the main banks prompted a bounce back on the domestic financial market.
However, the numerous delays in introducing the legislation to the Oireachtas were described as a “farce”, and the scale of the legislation sparked concerns on the opposition benches, especially since no reference is made in the law to the pay of chief executives of banks availing of the guarantees. There was also little detail on the level of scrutiny involved or on the amount the banks had to pay to get their loans guaranteed.
The day began with the Government decision to safeguard the Irish banking system being announced at 6:45am and ended with the Dail debate adjourning at midnight.
Mr Lenihan said the move was “in no way a bailout for the Irish financial system”.
“This guarantee is not ‘free’ and the taxpayer who ultimately underwrites this support will be remunerated for the value of the support provided. The terms and conditions on which the guarantee is provided will ensure that the taxpayer gets value for money,” he said.
Fine Gael, Labour and Sinn Fein backed the passing of the law in principle, but wanted their concerns addressed in this morning's debate.
Fine Gael said the specific powers it wanted in relation to regulation of banks was not dealt with. The party also wanted to ensure the legislation was robust and would pass the scrutiny of European Union directives.
Fine Gael finance spokesman Richard Bruton said the Government was seeking to play down the exposure of the taxpayer and the rules were being changed.
The Labour Party said it was alarmed by the lack of detail on how much the banks would have to contribute and wondered if deposits will flood towards Irish banks because of the added guarantees.
Labour finance spokesperson Joan Burton said there was no indication if any limitations would be put on the pay packets of executives in the banks who avail of the guarantees.
“This bill is an extraordinary blank cheque to the Minister for Finance, the Financial Regulator and the Central Bank to offer terms and conditions of support to banks,” she said.
Mr Cowen insisted there would be no exposure of the taxpayer in helping out the banks.
He said the stability of the Irish banking system would have been put at risk if he had done nothing in the face of the liquidity crisis facing Irish banks. The new law, the Credit Institutions (Protection) Bill 2008, was intended to be signed off on by the Dail and Seanad and signed by President Mary McAleese last night.
But debate on the legislation will continue today in both the Dail and Seanad, due to the delays in the drafting of the bill. The bill passed the second stage of the legislative process in the Dail last night and will be completed today.
The Government was forced into crisis talks after a sell-off across the four listed banks on Monday, following a raft of bailouts across Europe over the weekend.
Anglo Irish Bank, whose share price had tumbled 46.2pc on Monday, had borne the brunt of the collapse in confidence, and was understood to be main focus of the talks to avert an implosion in the system. The lender's stock rocketed 67.1pc higher yesterday in light of the Government lifeline.
One trader reported that Ireland may well be seen as the safe haven for European cash and investments after the Government's decision to underwrite the Irish banks.
However, among concerns raised were those voiced by the Financial Services Authority in Britain which suggested that the Irish action had resulted in depositors draining funds from British banks to place with Irish institutions.
There were also concerns that the Government guarantee could fall foul of the European Commission which last night said it would study the details of the guarantees to see whether they constituted illegal state aid.
