THE USE by the Irish Nationwide Building Society of the State guarantee to drum up business for itself in the UK pretty much says all that needs to be said about what is wrong with Irish banking. It also highlights the problem that the Government now faces.
Although the purpose of the guarantee is, of course, to enable the banks to attract and protect their deposits during the current crisis, the Government has made it clear that it does not want it to be abused. But it appears that so deeply entrenched is the culture of devil take the hindmost in Irish banking that Irish Nationwide could not resist hawking round the taxpayers AAA credit rating, even as the Government was coming under the most intense pressure to defend its actions.
Irish Nationwide's behaviour may be mind-boggling in its crassness but it would be naive to think that it was the exception. The other banks are without doubt making sure that everybody who matters knows they are now underwritten by the taxpayer.
This highlights the need for a swift resolution of the anomalous situation in which foreign-owned Irish banks now find themselves. It also brings into focus the need to address corporate governance issues at Irish Nationwide. But, above all, it is a timely warning to the Government as it goes about putting flesh on the bones of its guarantee. If a reminder was needed that the banks will continue to act in their own short-term interest, regardless of the obligation they are now under, then this is it. There has not been and will not be any Pauline conversion.
As he sits down with the banks this weekend to try and agree the price that they will pay for the Government's support, the Minister for Finance must drive a hard bargain. There is no advantage in extracting terms that, in themselves, undermine the banks the guarantee is supposed to protect but there needs to be a punitive aspect to what is agreed. This applies particularly if there is any future abuse of, or profiteering from, the guarantee.
The Government, in this instance, should not be afraid to flex its muscles. The six banks currently covered by the guarantee are not in a strong position. They have little choice but to accept the Government's terms or else they face a very uncertain future outside the safety net of the taxpayers' guarantee. There is a political as well as a financial imperative on the Taoiseach and the Minister for Finance to strike a realistic price for the deal in the interest of the public at large.