Nine failures of the blanket bank guarantee – and its sole ‘success’
The benefits we were promised five years ago have proved illusory. The costs have been locked in for decades
Brian Lenihan, the then minister for finance, said he was told by Jean-Claude Trichet: ‘you must save your banks at all costs’.
We are now five years on from the blanket bank guarantee. Let us ask, as calmly as we can, two basic questions. What were our aims in putting €100 billion (including the cost of Nama) into the banks? And were those aims achieved?
If we analyse the official statements
of the time, we can break the reasoning behind the guarantee into ten distinct aims.
We can then ask, objectively, whether the €100 billion gamble paid off. All unattributed quotes here are from
the late Brian Lenihan, then minister
1 To save the State massive amounts of money. “We’ve had the cheapest bailout in the world so far.” (November 2008)
Result: FAIL. The bailout is proportionally the most expensive bank rescue in history.
2 To ensure no bank be allowed to collapse: “As a country, we cannot afford to have the message going out that we will let a bank fail.” (January 2009). “The fundamental question that arises in connection with the guarantee concerns the fact that the Government decided it could not let a bank fail.”
Result: FAIL. Two of the six covered institutions, Anglo Irish Bank and Irish Nationwide, have since been liquidated.
A third, EBS, has in effect disappeared as an independent entity.
3 In particular, to rescue Anglo
Irish: “Anglo is a major financial institution, with a current balance sheet in excess of €88 billion and a substantial deposit base, whose viability is of
systemic importance to the economy.” (November 2009) “Winding up the bank
is not and was never a viable option.”
4 To avoid the nationalisation. “I do really want to scotch the idea that there are huge risks to the taxpayer in the valuation process [for Bank of Ireland and AIB] because we are not nationalising these institutions.” (February 2009)
5 To invest public money in the banks as a commercial proposition with a good return. “We are going to commit an investment for a definite return to the taxpayer. This is not bailing out the banks. This is a commercial investment for the State.” (February 2009) The State would “hold valuable shares in our two main banks which can realise gains for the citizens of this country”. (March 2010)
Result: FAIL. There is no chance of a commercial return on the taxpayer’s €100 billion investment. If we were to get half of that back, it would be a miracle.
6 To “get credit flowing”: “My overriding concern throughout this financial crisis has been to get credit
to viable businesses, particularly SMEs, which will lead our way out of this
recession.” (February 2009)
Result: FAIL. Almost half of SMEs say banks are not lending to their sector. Ireland has by far the lowest level of investment in the EU.