Bank guarantee down to final €2.5bn

The bank guarantee, which resulted in billions in bailouts and a temporary loss of the State’s economic sovereignty, is now down to insuring €2.5 billion of lenders’ liabilities.

Some €400 billion of bank deposits and bonds were covered by the initial guarantee following its introduction in September 2008. This was done to stave off a collapse of the financial system, weeks after the fall of Lehman Brothers. A spokesman for the National Treasury Management Agency gave the most recent figure, which is for the end of April.

“The total liabilities covered by the State have reduced by more than 99 per cent from the peak,” said Philip O’Sullivan, an economist with Investec in Dublin. “This is a reminder of how the contingent liabilities that had been on the sovereign as a result of the financial crisis are now nearly extinguished.”

The guarantee has been the source of controversy since its introduction, with the State forced to commit a gross €64 billion to banks to help them pay off bondholders and depositors and meet rising regulatory capital requirements.

While an Oireachtas banking inquiry found in January that regulators assured ministers in September 2008 that assets of all six lenders to be covered by the guarantee outstripped their liabilities, the word “solvent” as it pertained to the banks was removed from the final statement announcing the blanket coverage.

The State was later forced into a €67.5 billion international bailout in 2010 as the cost of bailing out the country’s banks became too much for the sovereign to handle.

The initial two-year bank guarantee was replaced in 2010 by the Eligible Liabilities Guarantee, which covered new bonds and deposits for a maximum five years.

The last government lifted the guarantee in March 2013 for new issuance, as it sought to limit the link between the banking sector and the State ahead of it exiting its own aid programme. Deposits of up to €100,000 are covered by a separate guarantee plan run by the Central Bank.

At the time that the ELG was removed for new bonds and deposits, the scheme covered almost €75 billion of liabilities. This fell to €3.2 billion by the end of 2015.

The report showed that banks have paid about €4.5 billion in fees to the State for the insurance.

Other contingent liabilities on the State are also reducing. While many commentators said the National Asset Management Agency, formed in 2009 to buy €74 billion of banks’ risky commercial property assets, would result in unquantifiable future losses, the bad bank said last week it would deliver a €2.3 billion lifetime profit.

When Irish Bank Resolution Corp, formerly Anglo Irish Bank, was put into liquidation in February 2013 after costing taxpayers almost €35 billion, the Government warned that it could face additional costs. However, an update on the process published last month said that unsecured creditors, including the State, which has a claim in for €1.1 billion, stand to eventually recoup up to 100 per cent of what they are owed.