Cover for foreign-owned banks will add €45bn to State guarantee plan

THE EXTENSION of the Irish bank guarantee scheme to foreign-owned Irish banks with significant retail operations in the State will add about 10 per cent, or €45 billion, to the €440 billion already covered under the scheme

Minister for Finance Brian Lenihan extended the guarantee to Ulster Bank Group, including its sister bank First Active; Halifax-Bank of Scotland (Ireland); Belgian-owned IIB Bank and Irish savings bank Postbank, a joint venture between An Post and Belgian-Dutch financial group Fortis.

Based on the size of their balance sheets, about 60 per cent of the additional liabilities covered at the foreign-owned Irish banks is attributable to Ulster Bank and First Active, which are owned by UK bank Royal Bank of Scotland.

A further 20 per cent of the €45 billion increase covers the liabilities at Bank of Scotland (Ireland) and its retail bank Halifax, both of which are owned by UK bank HBOS.

Another 20 per cent covers the liabilities at IIB Bank, which is owned by Belgian bank KBC. Postbank represents a small portion of the additional liabilities.

The foreign-owned banks argued that the €440 billion State guarantee to the six Irish-owned institutions, unveiled last week, created an uneven playing field in the Irish banking market as it excluded them from the scheme.

The announcement of the guarantee triggered transfers of deposits, sparking concerns in Brussels and London that the plan discriminated against foreign-owned banks operating in Ireland.

The European Commission said the decision to extend the guarantee would remove the concerns of European regulators about the scheme.

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

He said the commission had received information on the updated scheme, but had to scrutinise it before making a decision.

Mr Lenihan agreed to extend the scheme to "certain banking subsidiaries in Ireland with a significant and broad-based footprint in the domestic economy", the Department of Finance said.

The Minister said the scheme was "in the advanced stages of drafting", and would be presented to the Dáil "as quickly as possible".

"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," said Mr Lenihan.

Taoiseach Brian Cowen has said he expects to publish details of the scheme next week.

The liabilities covered at the foreign-owned banks will not include inter-company debt between the Irish banks and their parent banks based overseas.

The UK-owned banks are also covered by the British protection plan through their parent banks.