In the latest development in the ongoing train-wreck that is global financial markets, the Irish Government has stepped in to guarantee deposits and debt of all Irish Banks. This is an extraordinary step to take and reflects a banking system that is truly broken. Finance, particularly banking, is built on trust more than law (as described in Francis Fukuyama’s book “Trust”) and that trust has well and truly gone from the market.
The press release does not yet appear to be on the Department of Finance’s website, but here it is, courtesy of Bloomberg:
Government Decision to Safeguard Irish Banking System
The Government has decided to put in place with immediate effect a guarantee arrangement to safeguard all deposits (retail, commercial, institutional and interbank), covered bonds, senior debt and dated subordinated debt (lower tier II), with the following banks: Allied Irish Bank, Bank of Ireland, Anglo Irish Bank, Irish Life and Permanent, Irish Nationwide Building Society and the Educational Building Society and such specific subsidiaries as may be approved by Government following consultation with the Central Bank and the Financial Regulator. It has done so following advice from the Governor of the Central Bank and the Financial Regulator about the impact of the recent international market turmoil on the Irish Banking system. The guarantee is being provided at a charge to the institutions concerned and will be subject to specific terms and conditions so that the taxpayers’ interest can be protected. The guarantee will cover all existing aforementioned facilities with these institutions and any new such facilities issued from midnight on 29 September 2008, and will expire at midnight on 28 September 2010.
The decision has been taken by Government to remove any uncertainty on the part of counterparties and customers of the six credit institutions. The Government’s objective in taking this decisive action is to maintain financial stability for the benefit of depositors and businesses and is in the best interests of the Irish economy.
The Financial Regulator has advised that all the financial institutions in Ireland will continue to be subject to normal ongoing regulatory requirements.
This very important initiative by the Government is designed to safeguard the Irish financial system and to remedy a serious disturbance in the economy caused by the recent turmoil in the international financial markets.
UPDATE: The announcement is now up on the Department of Finance’s website.
Possibly Related Posts (automatically generated):
- Banks Covered by the Australian Government Guarantee (24 October 2008)
- Australian Banks Get A Government Guarantee (13 October 2008)
- Australian Bank Guarantee on Wholesale Debt (24 October 2008)
- Update on the Guarantee of Australian Banks (22 October 2008)
When I read the title I first thought there was going to be some sort of Irish joke here, of course that didn’t end up being the case.
This whole banking ‘effup’ is really scary, there’s going to be so much mis-information out in the public that it has the potential to blow up even further..if that’s actually possible..
After today’s fail, I can’t wait to see my next superannuation report……
@Mat: sadly no joke! I’m stunned by this development.
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Surely this kind of decision will only cause more problems in the future .. in essence its a get of jail free card which allows Irish banks to get upto any hijinks they want and still not risk depositors $$
@Neerav: I think you can be sure that a guarantee like this will come with plenty of strings attached (as well as the undisclosed guarantee fee). Expect to see plenty of new regulation coming out of Ireland and elsewhere in the future!
Irish Government Bails out Banks? I think you mean Irish Taxpayer Mule. God bless them…
This is a disaster to be sure to be sure.
Where’s me lucky charms?
@CV: you make a good point. Perhaps I should have said “The Irish Government, acting as agent for the Irish Taxpayer has decided, without consulting those they are acting for, to bail out the Irish Banks”.
Needless to say, European markets were closely focused on this announcement overnight. There is speculation that the UK may follow suit. Also, a number of commentators have pointed out that the aggregate size of this guarantee is about double the GDP of Ireland.
I was talking to an ex-CEO of a major Canadian company a few years ago, and was asking his advice on where to invest my piddling sums of dosh. His advice, without hesitation, was banks. Because, he said, if they go under, we are all in trouble. Let me be clear then: We are all in trouble.
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