Drawdowns on €85bn fund to start next month
THE Government is set to accept an €85bn EU bailout and will draw down billions from that fund in the weeks ahead to shore up AIB and Bank of Ireland. The first tranche of the money for the banks will be drawn down in December.
The move brings relief for bank depositors who have been pulling funds out of these two banks in recent days and weeks. Depositors' funds up to €100,000 are already guaranteed under an EU-backed scheme, and this bailout money provides further reassurance for them.
As well as providing money for the banks, the fund will be used by the Government for other sectors of the economy.
Up to €50bn could be set aside for the Irish banks from the bailout fund and this money will be drawn down in stages as required. Some of it will also provide a buffer in case the banks incur further losses in the future so they will be able to use that money to boost their balance sheets.
So far, examinations by officials from the International Monetary Fund and European Central Bank are said to have not found any further loan losses beyond those identified by the Financial Regulator.
Once this money is put into the banks, further stress tests will begin in March to again see whether their loans have deteriorated. Money from the fund can be drawn down if this is the case.
Under new rules, the banks will be required to hold a ratio of capital to bank deposits of 12pc, compared to the current 8pc, which gives enhanced protection for depositors in the future.
The money for the banks will also be available to restructure the sector. It can be used, for example, to make part of the banks more attractive for potential buyers.
It is now clear that the restructuring will also mean that the Government will raise its stake in the Bank of Ireland from 36pc to possibly over 90pc and its stake in AIB could increase to 99.9pc.
The banks will also be told to prepare a list of assets that they can sell over the coming years to boost their capital as part of the terms of the bailout.
The money is being made available for two to three years and the terms and the rate of interest at which it will be repaid is being negotiated at the moment.