Guarantee scheme to be modified and extended


GUARANTEE SCHEME:THE DRAFT Nama legislation revises and extends the bank guarantee scheme. The guarantee was introduced last September as an emergency measure to prop up the banks. Under the extension to the scheme, Irish banks will have their liabilities guaranteed for up to five years, once the debt has been incurred between the enactment of the extension and before September 2010, when the original cover is due to expire.

The liabilities eligible for cover under the scheme are all deposits; senior unsecured certificates of deposit; senior unsecured commercial paper; and other senior unsecured bonds and notes.

AIB said yesterday it will pay the Government €140 million in fees this year relating to its inclusion in the bank guarantee scheme.

It will pay an additional €170 million between January and September 2010, when the State’s two-year cover is due to expire.

The bank welcomed “the commitment to adjust and modify the Government guarantee to depositors and other suppliers of funding provides certainty and security to them,” a statement from AIB said last night.

The bank said a “yet to be defined increase” in its fees is expected to apply when the guarantee is extended. About €115 billion in AIB liabilities is guaranteed by the Government.

Mr Lenihan said EU aid approval for the extended scheme was at an “advanced stage”.

“A formal market notice will be issued later this month once approval of the European Commission has been secured and I anticipate that I will bring the necessary statutory instrument to commence the scheme before the house in early October.”

At present, seven banks are covered by the guarantee scheme – AIB, Bank of Ireland, Anglo Irish Bank, EBS, Irish Nationwide, Irish Life Permanent and Postbank.

According to the Comptroller and Auditor General’s recently-published annual report, the covered banks had paid €295 million between them in fees for their inclusion in the guarantee up to the end of June 2009.

This money has been paid into a special account in the Central Bank, which is being maintained for any payments that might have to be made under the terms of the scheme.

At the end of June 2009, the total value of guaranteed liabilities of institutions covered by the guarantee was €346.5 million.

Mr Lenihan said yesterday that a “key feature” of the modified guarantee scheme is that it allows the covered institutions to access unguaranteed funding.

“Over the last month, certain Irish institutions have started taking the first steps towards issuing unguaranteed term debt and we welcome this positive trend,” Mr Lenihan told the Dáil in his speech yesterday.