Saturday 24 March 2018

Investors in banks 'will share burden'

The Central Bank in Dublin. Photo: Getty Images
The Central Bank in Dublin. Photo: Getty Images

Donal O'Donovan and Tom Shiel

THE Government has signalled it will use the final bill for rescuing the banking sector to force investors to share some of the burden.

The Central Bank is due to present on Thursday what the Government hopes is a final figure for the cost of rescuing the banks.

The details of the stress tests remain under discussion with the ECB, the European Commission and the IMF, but they will reveal the need for between €18bn and €23bn of cash for the banks. This is more than the €10bn the IMF originally said was needed to recapitalise the banks but below the €35bn potentially available under the IMF/EU bailout.

Last night, Taoiseach Enda Kenny told the Irish Independent the clarity provided by the stress tests report would be important.

"When we know the scale of what we have to do we will be in a much better position to go back and take up discussions with European leaders," he said.

The Taoiseach refused to comment on speculation surrounding the likely outcome of the stress tests, but said extreme figures mentioned in some quarters were based on a fire sale of assets in a short time.

Mr Kenny also distanced himself from reports he was involved in discussions with the ECB about a scheme to provide Irish banks with more than €60bn in medium-term 'liquidity' loans.

He said only that he had read of the scheme and that Finance Minister Michael Noonan had meetings with ECB president Jean-Claude Trichet recently.

"We have intensified discussions. . . to make them aware how serious the new Irish Government is about dealing with those problems," he said.

Earlier, Agriculture Minister Simon Coveney said the Government was trying to put together a "final banking solution" and seeking an "element of burden sharing" to finally fix banks that had been rescued at the taxpayer's expense.

'Burden sharing' is code for investors being repaid less than they are owed.

The Government thinks the bailout bill can be reduced if agreement is reached on not fully repaying commercial debts owed by the banks to so-called 'senior bondholders'.


These investors are normally at the front of the queue to have their debts repaid.

Any move to hurt these investors will prove controversial, as the ECB fears that if senior bondholders lose money on their Irish investments, they will raise the price charged to lend to banks across Europe -- hurting the fragile economic recovery.

Mr Coveney said the Government's aim was to minimise the burden on taxpayers and to ensure there was a flow of funds coming into Irish banks.

London-based analyst Elizabeth Afseth, of Evolution Securities, said there was a strong case for the Irish argument on burden sharing because it was no different to what European leaders had agreed would happen in the future to bondholders when countries had to be bailed out by the EU and IMF.

Irish Independent

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