Government to extend guarantee to foreign banks

The Government’s guarantee scheme is to be extended to foreign-owned banking groups with “significant” operations in the State, the Minister for Finance Brian Lenihan said today.

In a statement the Minister said Ulster Bank and First Active; Halifax Bank of Scotland (Ireland), IIB Bank, owned by Belgium's KBC; and Postbank, a joint venture between Belgian-based Fortis and the Irish post office; would be eligible for the scheme.

The Minister for Finance said the scheme was being extended "to certain banking subsidiaries in Ireland with a significant and broadbased footprint in the domestic economy".

By including the foreign-owned banks the State is increasing its potential liabilities under the scheme by approximately 10 per cent to €440 billion, according to the Department of Finance.

He added: "Clearly, there will be some additional limitations and safeguards in relation to these operations to ensure that the support provided relates to liabilities arising from their position within the national economy, rather than to their wider group".

Widening the scheme may also serve to make it more palatable to the European Commission. The original scheme, which applied to the six Irish-owned banks, was seen as being anti-competitive because of the advantage it offered banks covered by the guarantee.

"It was one of the problems identified by the Commission," a Commission spokesman told a daily briefing in Brussels.

Yesterday the Government sent a draft of its bank guarantee scheme to the Commission and the Financial Regulator for approval.

The Commission spokesman said it needed to scrutinise the updated Irish scheme before taking a decision.

"The Commission has received information from the Irish authorities ... There is no decision yet. We will take a decision as soon as possible," he said.

Minister Lenihan has also welcomed the intervention yesterday by the British government in its banking sector. The move was an example of the determination of European governments to support to "systemically relevant financial institutions".

He said the Government would continue to "protect the security and stability of its financial system and is convinced of the determination of our partners to do the same."

The Taosieach Brian Cowen said yesterday he expects to publish details of the scheme next week.