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Central Bank sought state guarantee over support for lenders

THE Central Bank sought a 'letter of comfort' from the State guaranteeing to repay 'emergency liquidity assistance' before individual banks had even asked for the support, it emerged yesterday.

The Central Bank's pre-emptive action to ensure all its advances were covered by government guarantee is revealed in documents released under the Freedom of Information Act and published by RTE.

The news comes months after the Irish Independent reported that the State had "explicitly" guaranteed as much as €70bn of emergency liquidity assistance (ELA) to our stricken banks.

ELA is given to banks who have run out of high-quality collateral to use at the European Central Bank. The money still ultimately comes from Frankfurt, but it's handed out by national central banks who also bare the risk if it's not repaid.

The latest documents show that in November 2010, then Finance Minister Brian Lenihan was asked to approve the provision of ELA to Bank of Ireland and to provide a 'letter of comfort' to the Central Bank of Ireland.

BoI had not yet asked for ELA but had "lost a significant amount of money" so it was "anticipated" that the request would be made. The letter of comfort was dispatched that same day.

Separate documents show that the Finance Minister also dispatched a letter of comfort for AIB in September 2010, on the basis that the Central Bank "may decide that it is appropriate" to provide ELA to that bank.

Both letters of comfort say it is the "intention of the Government" that the Central Bank "would receive payment to make good any shortfall and ensure that the (Central) Bank does not make a loss".

"Clearly the facility will be required to be monitored on a daily basis," the letters conclude.

EBS didn't ask for ELA until mid-December 2010, and the letter of comfort wasn't sought from the minister until after EBS had already made a request for the support. Irish Life & Permanent was the last in, on January 3, 2011, while Anglo Irish Bank and Irish Nationwide were the first recipients starting from late 2008.

Irish Independent