Darling intervened on bank guarantee plan - report

Thu, Oct 2, 2008, 01:00

Anger over the Government's bank guarantee scheme has grown with reports that British chancellor of the exchequer Alistair Darling made two calls to Minister for Finance Brian Lenihan yesterday to express concern over the impact of the plan on British banks.

According to a report in today's Guardian, Mr Darling intervened twice with the Minister for Finance amid fears that customers in the United Kingdom were flocking to switch accounts to Irish banks following the Government's decision to set up the guarantee scheme.

Banking chiefs in Britain are said to have reacted furiously to the Government's guarantee plan, claiming that the scheme is unfair and distorts competition.

Mr Darling is said to have told Mr Lenihan yesterday that "the scheme was a problem for the UK" and to have called on the Minister for Finance to offer the guarantee to British banks operating in the country.

Mr Lenihan is also reported to have told the chancellor that the decision to introduce the guarantee scheme was the result of the threat of imminent collapse of one of the country's leading financial institutions, which in turn could have led to the failure of a second.

The Minister for Finance told the Dáil late last night he would give "careful and sympathetic" consideration to a request by Ulster Bank to be included in the Government's bank guarantee scheme.

Replying to a debate on the committee stage of the Credit Institutions (Financial Support) Bill 2008, Mr Lenihan said the Government would consider applications to join the guarantee scheme from financial subsidiaries of foreign-owned banks with a presence here on a case-by-case basis.

British prime minister Gordon Brown is coming under increasing pressure to introduce a bank guarantee plan.

The Financial Services Agency is expected to recommend raising the amount guaranteed on British deposits from £35,000 to £50,000.

About 96 per cent of UK savers are covered by the £35,000 compensation and this would increase to 98 per cent if the new limit is agreed.

However, it was reported yesterday that Mervyn King, the Bank of England governor, is believed to be against raising the guarantee amount, believing that Irish-style guarantees represent "and unacceptable level of moral hazard.