UK banks are seeking “urgent clarification” on the Dublin government's plan to guarantee customer deposits for Irish banks to shore up investor confidence, the British Bankers' Association says.
"If it increases confidence in the underlying structure of the Irish banks it could make it easier for them to access capital markets,'' BBA spokeswoman Lesley McLeod said by telephone today. "Our members are seeking urgent clarification" from the UK government, she said.
Ireland's move comes as banks have pulled back lending to one another, causing a seizure in money markets and triggering the biggest downturn in the British housing market in at least 25 years.
British bank customers may also be lured to Irish banks by the guarantee, analysts said. The UK's deposit guarantee plan covers a maximum of £35,000 (€44,264.)
"We can borrow more cheaply now because we have the benefit of an Irish government guarantee," Denis Casey, chief executive of Irish Life & Permanent, told RTE today.
Royal Bank of Scotland Group, the UK's second-biggest bank, may be among overseas banks with operations in Ireland that suffer customer deposit withdrawals, Collins Stewart analyst Alex Potter said in a research note today.
The Irish Government "is only guaranteeing domestic banks which massively skews the competitive picture within Ireland, let alone across Europe,'' Potter said. "We now anticipate depositors withdrawing funds from non-guaranteed banks such as RBS's Ulster Bank which does not appear on the government's list."
RBS spokeswoman Carolyn McAdam declined to comment.
UK Prime Minister Gordon Brown's office said Ireland's plan to guarantee all bank deposits will be studied by European Union regulators.
"Where there is a policy of one of the member states that impacts on single market rules, it is to be looked at by the European Commission,'' Brown's spokesman Michael Ellam told journalists in London.
The UK's nationalization of Northern Rock was examined in the same way, he said.
"We're in close contact with Irish authorities," the EU's Competition Commissioner Neelie Kroes said today in Brussels.
The British government says it plans to raise the maximum limit on its financial services compensation scheme to £50,000 from £35,000 this year.