Sunday 17 December 2017

Bank guarantee ends today and State loses €1bn fees from lenders

Brendan Keenan

Brendan Keenan

THE government guarantee on bank deposits above €100,000 finally comes to an end today, despite the nervousness over the Cyprus crisis.

The date had been announced last month by Finance Minister Michael Noonan and a spokeswoman said there had been no change in the plans.

Under the Cyprus deal, deposits of more than €100,000 are expected to face large losses. Deposits below that level will continue to be protected by government guarantee.

The hugely controversial guarantee announced to stave off a Cyprus-style banking collapse four years ago meant most lenders to Irish banks, including the failed Anglo, were repaid in full, but it never had to be used for deposits.

There have been no reports of withdrawals of deposits from Irish banks since the Cyprus deal, although it is too early for any specific statistics.

Figures from the Central Bank yesterday showed that deposits from companies rose by 4pc last year to almost €80bn. The rise in personal deposits compared with a 3pc fall in 2011.

The financial position of the guaranteed banks has improved slowly in the past two years.

Private deposits totalled €104bn , while loans fell 2pc to €153bn. At the time of the guarantee the deposits covered were estimated at €180bn.

Targets for improving the ratio of loan to deposits have been relaxed, but the squeeze on credit remains significant. Many of the large deposits that left at the time of the crisis did not return to the Irish banks

The ending of the guarantee, while a sign of improved conditions, is a loss to the Exchequer. The banks paid a fee for the benefit of being guaranteed by the State and this amounted to €1bn last year.

The guarantee failed in its fundamental objective of restoring stability to the banking system. After an initial positive response, investors and lenders quickly realised that the Irish State could not cover the total €440bn liability.

Deposits flooded out of the system and the European Central Bank insisted on a bailout to allay fears of imminent bankruptcy, while it pumped in emergency loans to the banks.

Those loans have also declined sharply in recent years but remain at around €50bn. AIB at least is still unable to fully finance its operations in the market and the confusion over Cyprus will not help the restoration of normality.

The Government's main liability now is the €20bn invested in AIB, and possible losses on the operations of NAMA. Some €30bn has been lost in Anglo.

Irish Independent

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