Q&A: What the deal means
For the State, expunging what Enda Kenny describes as “stains on our international reputation” provides closure on a sorry legacy from the previous administration. The idea of standing over the permanent removal of the bank from the landscape is thus appealing.
For the ECB, meanwhile, no more IBRC means no more ELA, its least-favoured form of finance. ECB governor Mario Draghi was reluctant to discuss the agreement at yesterday’s monthly press conference in Frankfurt, but the end of ELA was something he was prepared to emphasise.
It is also worth considering IBRC’s annual running costs of €320 million or so – it is hard to argue that these could be justified in the wake of this deal, particularly with Nama available to take on a similar role. Nama’s annual running costs are in the order of €130 million.
Why did it have to happen yesterday?
News of the liquidation had reached the media, which immediately made IBRC vulnerable. This led the Government, as shareholder, to act quickly to protect the bank’s €12 billion in assets.
What does liquidation mean for IBRC’s depositors?
Most deposits at IBRC were transferred to AIB last year, while those that remain (mostly corporate loans worth about €1 billion) should be covered by two State guarantee schemes.
What about IBRC staff?
The bank’s 1,031 employees are being made redundant but the liquidators will be able to rehire them for as long as the liquidation takes. It is expected that most staff will be retained on this basis, with some then transferring to Nama.
What is the benefit for the domestic economy in the deal?
Kenny said it would mean the State’s overall funding shortfall, or deficit, would ease by about €1 billion over coming years. The knock-on effect of this should be that the Government will need to impose €1 billion less in spending cuts and tax increases, or €1 billion less austerity.
It should also remove a lot of pressure from the NTMA, the body charged with managing the State’s funding requirements.
Over the coming decades, the agency should need to borrow €20 billion less than it had expected, making the overall debt burden more sustainable.