Warning of consequences if bank had failed

THE MINISTER for Finance has said if Anglo Irish Bank had been permitted to fail there would have been catastrophic consequences for the economy.

Speaking on RTÉ radio, Brian Lenihan said nationalising the bank was not “a discretionary issue”.

He said because Anglo has so few branches a lot of people thought the State could “let it go to the wall”. However, this could not happen because of the size of its balance sheet.

He said the position at Anglo Irish was much more difficult than at other banks; its exposure was greater as a proportion of its balance sheet. The loan book stood at €100 billion, while the deposits were €70 billion, making it the third largest bank in the country.

“It was important that the State put the position of this bank beyond doubt,” he said.

“If a problem emerged in Anglo in the future it would have been a systemic threat to the Irish banking system because of the sheer size of the institution. Were this bank to be permitted to fail, then there would be catastrophic consequences for the real economy in Ireland and for this country.”

He said the State’s primary interest was ensuring that the deposits were safe and the entire banking system was solid. The former chairman, Seán FitzPatrick, had done “huge reputational damage” to the bank.

Mr Lenihan acknowledged he had earlier described nationalising banks as “an awful risk”. Risk still existed, but nationalisation was the only action open to the Government as taking a 75 per cent stake in the bank had not settled markets.

It was important to minimise the exposure to the taxpayer, he said, and this could be achieved by carefully selecting a suitable board and drawing up a strategic plan for the bank’s management.

He said there would be a return for the taxpayer, although this was not as certain as the return from investment in Allied Irish Bank or Bank of Ireland.

While Mr Lenihan did not rule out using Anglo Irish as a “toxic bank” – where debts from other Irish banks could be dumped – he did say the debts of other banks were the responsibility of those banks and not Anglo Irish.

“The Government isn’t going to provide a free loan to other financial institutions or buy their debts off their books for nothing; that would have to be a commercial transaction.”