Q & A


A guide to the Government's decision to guarantee deposits in six Irish-owned banks and building societies.

What has the Government just done?

It has guaranteed the deposits in the six Irish-owned banks and building societies, as well as all their borrowings, for two years.

The guarantee is being provided at a charge, as yet unspecified, to the banks and will be subject to terms and conditions, also unspecified.

Why is the Government taking this action?

Minister for Finance Brian Lenihan says the measure is designed to safeguard the Irish financial system. Banks have been falling like dominoes in the US and Europe in recent weeks, and many observers felt the contagion would spread to Ireland.

Large overseas investors, concerned about the stability of the Irish banking system, were withdrawing funds, while hedge funds involved in short-selling had a vested interest in seeing Irish bank stocks fall until the practice was banned almost two weeks ago. By guaranteeing the debts of the Irish-owned banks and building societies, the Government believes it will make it easier for them to raise money.

This will take a huge amount of pressure off these lenders as the funding markets where they raise money have closed in recent weeks due to financial turmoil.

Mr Lenihan has warned that we cannot afford to let the "financial bloodstream" of the State dry up. "Were liquidity to dry up in the Irish banking system in the weeks ahead, the inevitable result would be economic catastrophe for this country."

What are the risks involved?

Mr Lenihan says he does not see a hazard or exposure arising from his decision. However, the total liabilities of the banks come to €400 billion and their assets stand at €500 billion, sums that dwarf the Irish economy. If the banks were all to collapse, the amounts involved would make the current budget deficit of about €7 billion seem minuscule.

When does it take effect?

The Government was last night seeking to rush the necessary legislation through the Oireachtas.

What banks are covered?

The guarantee covers Bank of Ireland, AIB, Anglo Irish Bank, Irish Life and Permanent, Irish Nationwide Building Society and the Educational Building Society.

All deposits in these banks are guaranteed by the Government. Subsidiaries of the six lenders can be included in the guarantee following consultation with the Central Bank. The guarantee also covers any deposit-taking businesses fully owned by these lenders, including Bank of Ireland's joint venture with the Post Office in the UK.

How does yesterday's announcement differ from the Deposit Protection Scheme introduced two weeks ago?

That scheme provides up to €100,000 compensation to depositors if a credit institution goes bust. The new guarantee covers all deposits in the six institutions concerned.

Are the loans to property developers and builders covered?

No. Only the six banks' own debts to investors, holders of bonds and other financial institutions are guaranteed.

Which bank offers the best protection for my money?

The Government guarantees all deposits with the six banks. Savings with the Post Office (not Postbank) are also 100 per cent guaranteed to any limit.

Savings at the following institutions are guaranteed up to €100,000 under the Deposit Protection Scheme: ACC Bank, Halifax [owned by Bank of Scotland (Ireland)], National Irish Bank (owned by Danske Bank), First Active, ICS Building Society (owned by Bank of Ireland), IIB Bank, Pfizer International Bank Europe, Postbank (owned by An Post and Fortis), Ulster Bank, and the credit unions.

The following foreign-owned banks are subject to the deposit protection schemes of the countries in which they are headquartered: Rabobank (subject to the Dutch compensation scheme of 100 per cent of the first €20,000 and 90 per cent of the next €20,000), Investec Bank (UK) and Leeds Building Society (subject to the British scheme of 100 per cent compensation for the first €35,000) and Northern Rock (all deposits guaranteed by the Bank of England since it was nationalised last year).

Who is going to pay for the guarantee?

Initially, the banks, which will be charged commercial rates. Ultimately, though, at least some of the costs are likely to be passed on to the consumer. Irish banks and building societies have been passing on their higher funding costs to customers.

Compiled by Paul Cullen and Simon Carswell