Promissory note vital for State’s financial stability, court told

The Minister for Finance had to issue a €25 billion promissory note in 2010 to recapitalise Anglo Irish Bank because that was vitally necessary for the financial stability of the State and to avoid a possible collapse of the banking system, counsel for the State has told the High Court.

Anglo was by 2010 in State ownership and the State’s “problem”, and allowing it to collapse was not an option, Michael McDowell SC said.

When Mr Justice Gerard Hogan said this had imposed an "enormous cost" on the taxpayer for years into the future, counsel accepted that is the case.

When the judge asked was the Minister required to save “hopelessly insolvent” institutions, counsel said he was if he considered this was necessary to ensure the State’s financial stability. When the notes were issued in 2010, the Minister was not then aware at least two institutions were hopelessly insolvent.

It was wrong for United Left TD Joan Collins to argue the Minister has acted unlawfully, counsel also argued.

The evidence was that the State from 2008 was facing an unprecedented financial crisis threatening to collapse the banking sector and economy and it was imperative the Minister take swift and decisive action to deal with it, he said.

While the Credit Institutions Financial Support Act introduced that year was “an unusual law”, and it was unusual that it gave the Minister for Finance power to create sovereign debt, this had to be seen in the context of a serious threat to the stability of the financial institutions.

It was also wrong to argue the Act allowed the Minister do what he liked and to throw money at the problem. The Act required the Minister to consider whether there was a threat to the stability of the financial system necessitating him to take steps.

The steps taken by the Minister were necessary in the public interest to remedy a serious disturbance in the economy, counsel argued.

The issuing of the promissory notes under Section 6 could constitute “financial support” within the meaning of that Section, he submitted.

He was making submissions opposing the challenge by Ms Collins to the legality of promissory notes made in 2010 in favour of Anglo, the Educational Building Society and Irish Nationwide Building Society as part of the State's €31 billion capitalisation of those institutions.

The court has heard, following the liquidation of Irish Bank Resolution Corporation (formerly Anglo) last February, the €25 billion promissory note issued to that bank was exchanged for Government bonds due to mature after periods between 25 and 40 years.

Ms Collins claims, given her claim the promissory notes are illegal, those bonds cannot be valid.

The action raises important constitutional issues with implications for the entire basis of the State's funding and is being heard by a three-judge court comprising Mr Justice Peter Kelly, Ms Justice Mary Finlay Geoghegan and Mr Justice Gerard Hogan.

The hearing is expected to conclude later today with judgment reserved.