30th Sep 2008
When is a bank an Irish bank?
When is a bank an Irish bank?
That is the question on everyone’s lips after the government stepped in to underwrite ‘Irish banks’. The answer came this lunchtime from Finance Minister, Brian Lenihan on RTE:
The Government has stepped in to guarantee the entire Irish banking system. The development covers the six main Irish-owned financial institutions: AIB, Bank of Ireland, Anglo Irish Bank, Irish Life and Permanent (which owns Permanent TSB), EBS Building Society and Irish Nationwide.
The deal means the State will guarantee all the debts and deposits of the banks and building societies.
The scheme announced this morning does not apply to the liabilities of Ulster Bank, National Irish Bank or Rabobank, which are all supported by large overseas parent banks. Deposits of up to €100,000 in Ulster Bank, First Active and IIB, have already been guaranteed by the Government.
National Irish Bank, owned by Denmark’s Danske Bank, said it was also covered by the Irish scheme. Rabobank comes under the Dutch scheme which guarantees €38,000.
Will this lead to a run on the internationally owned players in the Irish market?
I guess only time will tell. One thing for sure they look much less competitive today then they did yesterday, and all through no fault of their own.
It will certainly reduce steady indigenous banks by shoring up confidence in them. It will also most likely boost the appeal of their stocks (or at least stabilise them), initially anyway. As for the ‘foreign’ banks, it’s true that are now at a comparitive disadvantage in the southern Irish market, but I don’t think that we’ll see any runs presently as they are most likely guaranteed by their own countries’ arrangements in addition to the pre-existing southern Irish guarantees.
All this, of course, is not to say that this plan is a good idea- the southern government has effectively provided a guarantee of up to 500 billion euros, way above the kind of money it could actually afford to fork out in the event of a doomsday scenario. The southern government will hope that this move will steady the market, thus avoiding the kind of situation that these guarantees have been created to cover.
Apologies for the extraneous ‘reduce’ in the first sentence.