Darling undecided on cover for UK-owned Irish banks

BRITISH CHANCELLOR Alistair Darling said yesterday he still hadn’t decided whether Irish subsidiaries of British banks will be covered in his new plan to underwrite “toxic debts”.

He made the comments on the fringes of an EU finance ministers’ meeting in Brussels where he appealed to other member states to replicate Britain’s latest bank bailout plan.

“Most banks operate across several countries, not just in Europe, but across the world. And that is why in looking at how we resolve this it is very important that we get international co-operation,” said Mr Darling, who outlined his new strategy to ministers.

Under the draft plan the UK exchequer would provide insurance to banks and effectively underwrite any “toxic debts” held by banks.

The measure is intended to persuade banks to loosen their purse strings and begin lending again to restore credit flows to business.

“That is something we have still to decide,” said Mr Darling when asked whether British-owned Irish banks such as Ulster Bank or HBOS Ireland would be covered by insurance.

Any decision to extend the insurance scheme to British-owned Irish banks would leave British taxpayers effectively underwriting the debts accrued by Irish property developers.

Mr Darling said further work was required to finalise the details of the insurance scheme.

“I made it very clear yesterday that we need to have intensive discussions with institutions so that we can decide the extent of the scheme.

“It is necessary to have those discussions first,” he said, adding that the British and Irish authorities held regular talks.

But EU finance ministers gave a cool response to the new British plan, suggesting Mr Darling will struggle to persuade them to match the insurance scheme.

Most wanted more detail on the potential cost and workings of the insurance scheme for bad bank assets.

“I do not understand how insurance will work yet,” said German finance minister Peer Steinbrück, who expressed doubts about how to find the right price for assets and loans held by banks.

He also expressed concern about Ireland and Britain’s growing deficits.

“The situation in Ireland and Great Britain is viewed with great anxiety,” he said.

Czech finance minister Miroslav Kalousek, who chaired the meeting because his country holds the EU presidency, also expressed concern over the potential cost of the insurance scheme.

“I do not know what the economic effects of this kind of underwriting will be. I do not think we will know for quite some time unfortunately,” he said.

EU monetary affairs commissioner Joaquín Almunia was more upbeat, describing the scheme as “very interesting”. But he added that the commission would have to investigate whether the plan would have any negative effect on competition within the union.