Government can't let banks go under
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Personal Finance Editor Charlie Weston answers your questions on why the banking meltdown has hit Irish lenders and how it will affect you
Why are shares in Irish banks collapsing?
STOCK market investors took fright yesterday as five banks had to be rescued.
Fortis in Belgium, Bradford & Bingley in Britain, Wachovia in the US, Hypo Real Estate in Germany, and Glitnir in Iceland were all bailed out yesterday.
Investors are wondering where the next bank collapse will be. As a peripheral country in the middle of a property bubble burst, Ireland has been singled out unfairly as the next country likely to see a bank go bust.
The share plunges are not confined to Ireland; banks everywhere saw their share prices hammered yesterday. But share falls for Irish banks have been more severe.
International investors view Irish banks as under pressure from bad debts due to loans to developers.
Will Irish banks fail?
IF the worst happens and a bank in this country does go to the wall, then all savings and current accounts at that bank will be protected by the state protection scheme -- up to a maximum value of €100,000.
But plans are also being finalised at the moment by the Government and the Financial Regulator to aid any Irish bank that gets into serious trouble.
And the State would intervene to save a bank if it appeared to be failing, by either bailing it out or forcing it to merge with a larger player.
How does the collapse in banks' share prices affect me?
BANKS everywhere are distrustful of each other and won't loan money to one another, and instead are hoarding their capital.
Share price collapses of banks is an indication of this funding crisis.
If you do not own shares in a bank, it should not impact you directly.
Indirectly, your pension could be invested in banking shares, which will devalue your pension fund.
But pension investments are long term and the expectation is that share prices will have recovered by the time most people draw down their pensions.
Also, sharp falls in the value of banking shares will mean less bank lending, which will be a drag on the economy's ability to recover.
How long will this last?
AT the moment, the banking system has seized up and there will probably need to be more intervention by the American authorities and the European Central Bank to free up the funding blockages in the system.
Until the liquidity problem is solved, the credit crisis will not go away.
There may also need to be a special funding arrangement put in place for Irish banks by the Government here.
Can governments run out of money?
NOT usually. Governments can raise money through issuing bonds.
The problem is that this saddles the next generation with debts and ends up smashing lending rules which are part of membership of the euro currency.
Are my savings and mortgage safe?
YES. The Government has guaranteed savings up to €100,000 per bank, building society or credit union.
Also, as banks can't raise money at the moment in wholesale markets they are offering hugely attractive savings rates to consumers in order to get money.
If you have a mortgage with a bank that is in trouble then that will still be owed if your bank collapses.
It is just that you may have to make the repayments to someone else who owns your debt.
