Business Irish

Tuesday 20 February 2018

Decision due on guarantee extension

Joe Brennan

Finance Minister Brian Lenihan said talks with Brussels "are close to conclusion" on plans to extend the second guarantee scheme to the end of the year, as banks face €29bn of bonds maturing in September.

The two-year blanket banking guarantee is due to expire at the end of September. However, the Government is hoping to extend the so-called Eligible Liabilities Guarantee, allowing banks to issue bonds of up to five years in duration, to the end of December.

"Discussions with the (European) Commission are progressing and are close to conclusion," Mr Lenihan told the Dail yesterday, confirming that a decision will be made before June 30.

He added: "Deputies must appreciate the very, very difficult situation in world markets at present."

Opposition parties picked up during Dail questions on the Central Bank governor's criticism in his banking crisis report on the inclusion of riskier bonds -- or dated subordinated bonds -- in the original guarantee in September 2008.

As debate raged between various State agencies ahead of the fateful decision, investment bank Merrill Lynch, which had been hired to advise the Government, "had explicitly envisaged exclusion of dated subordinated debt from coverage".

The minister said the extent of coverage of the guarantee was to "preserve the banking system when threatened with collapse" and confirmed that he would make the entire file relating to the decision available to the Oireachtas.

When asked about the €22bn of capital earmarked for Anglo Irish Bank, Mr Lenihan acknowledged it was "unpalatable" but the "least-worst option" to maintain overall stability in the banking sector.


Fine Gael interim finance spokesman Kieran O'Donnell asked if the minister "could look at senior debt in Anglo" when trying to limit losses for the taxpayer.

But Mr Lenihan said the Government was involved in "intensive discussions" with the EU, Central Bank, Financial Regulator and National Treasury Management Agency on how to protect the taxpayer.

He said: "I am not prepared to countenance or announce to the Dail a default on senior debt." The minister added that it is "a far reaching step for this country ... to signal at this stage ... any default in any institution".

Addressing broader budgetary policy, Mr Lenihan said he was examining suggestions for the establishment of an economic or fiscal council.

Max Watson, co-author of the second banking crisis report, said before an Oireachtas committee last week that there was scope for the establishment of such a council the provide another layer of advice.

"The matter is under consideration at my department. I believe it is something that needs to be put in place," Mr Lenihan said. "In the course of this year I would like to make an announcement."

Irish Independent

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