Burden-sharing decision to depend on stress test results

THE GOVERNMENT will consider whether to impose losses on senior bank bondholders following the Central Bank’s stress tests on the banks on March 31st, Minister for Finance Michael Noonan said.

The results of the tests will influence whether investors in senior bank bonds not covered by a Government guarantee will be forced to share losses, said Mr Noonan.

“Government consideration as to the approach to burden-sharing will be further informed by the important capital assessment currently being undertaken by the Central Bank, as well as international developments on burden-sharing,” he told the Dáil.

Mr Noonan ruled out any losses being forced on bondholders of Irish sovereign debt saying that this was “sacrosanct”.

Losses can be imposed on subordinated bank bondholders under the terms of the EU-IMF deal, but burden-sharing with senior bondholders was ruled out.

The Irish banks had €6.9 billion worth of subordinated bonds on February 18th, while senior unsecured debt not covered by the guarantee stood at €16.4 billion.

Mr Noonan said the Department of Finance would consider formally whether the Government bank guarantee should be extended for a further six months until the end of the year.

Last November the eligible liabilities guarantee was extended until the end of June 2011.

The guarantee, which covers individual bonds of up to five years, was introduced in December 2009 and superseded the original blanket guarantee when it lapsed in September 2010.