THE 11 BANKS covered by the State guarantee scheme will pay €1 billion over two years to be covered by the deal, it emerged yesterday evening when details of the scheme were published.
Minister for Finance Brian Lenihan said that this amounts to more than 10 per cent of the annual profits of the four publicly-quoted Irish banks.
Speaking at a meeting of EU leaders and finance ministers in Brussels, Mr Lenihan also said it was his personal view that senior bankers should not be paid more than €500,000, but he could not specify it in the legislation establishing the scheme.
Under the draft scheme, a three-person independent remuneration committee, appointed by the Minister, will oversee pay to senior bank executives and assess their bonuses on their ability to reduce "excessive risk-taking" and encourage "long-term sustainability" of guaranteed banks.
Mr Lenihan said the independent remuneration committee will decide executive pay on a commercial basis. He said he shared the view of German finance minister Peer Steinbruek that bankers' pay be limited to €500,000, but that this was "a matter for the independent committee".
Chief executives at the top three Irish public banks were paid a combined €8.3 million in the banks' most recent financial years for which they posted annual reports.
Mr Lenihan said he noted some criticism of the scheme because banks could choose to appoint at least one and up to two board members from a panel, but he said this panel would be drawn up by himself and he would choose members to protect the public interest.
"Directors have fiduciary duties but we are making it clear directors will look after the public interest," he said. "I will draw up a panel to act in public interest on the boards of directors. The panel will be composed of people I consider fit to act."
Mr Lenihan said the charge for participation in the scheme would vary depending on how much risk each institution had taken on. The charge applicable to each bank would be commercially-sensitive information and could not be released, he added. Banks with a greater loan exposure to the declining construction and commercial property sectors are likely to face a higher charge.
He said the Government saw no need at this stage to invest any public money into the banks to bolster their financial position. He said that if a financial institution needed to draw down the State guarantee, the legislation provided a framework to allow the Government to intervene by a levy or otherwise to ensure the banking sector carried the loss.
The State's borrowing costs will rise as a result of taking on a higher risk under the scheme and the Minister intends to recoup the difference from the banks without any expense to the taxpayer.
Banks using the insurance scheme will not be able to pass on the cost of the guarantee to customers "in an unwarranted manner", while banks falling outside the scheme can buy or merge with a guaranteed Irish bank, subject to the Minister's discretion.
The Minister will be able to limit new lending and deposit growth "to minimise any potential competitive distortion" and "avoid any abuse of the guarantee".
Under the scheme, limits can be set on maximum loan-to-value for new residential mortgages and other loans, while the Minister can limit a guarantee bank's exposure to any sector, customer or group of connected customers.
The Minister will also be able to establish rules curtailing dividend pay-outs to shareholders and share buy-backs from investors in an effort to protect the banks' capital.
The scheme initially guaranteed €440 billion in deposits and liabilities at six Irish-owned banks, but the revised €485 billion plan includes another five foreign-owned banks with significant high street retail operations in Ireland.
Labour's finance spokeswoman Joan Burton said the publication of the scheme "raises as many questions as it answers". She said the published details failed to put a monetary value on the charge to banks for the scheme and was vague on how salaries would be limited for top executives. "The scheme gives no indication that any senior bankers will be resigning, or will be removed as was the case in the UK. Nor is there any apology forthcoming from anyone in the banking sector," she said.
Fine Gael finance spokesman Richard Bruton welcomed the publication of the scheme and the decision to appoint State observers to the risk assessment committee of the banks.
However, he said he had some concerns. "The charges are surprisingly low, being based on an estimate of the higher cost of borrowing for the State rather than the reduced cost to the banks," he said. "There is no explanation as to why subordinated debt holders who knew the risks and got very high returns in exchange were included in the scheme."