EU COMPETITION commissioner Joaquín Almunia left the door open for further extensions to the Irish bank guarantee as he cleared the way for the scheme to run until the end of the year.
The extension points to continued pressure on the six main financial institutions, even as they transfer tens of billions of euro in property loans to the National Asset Management Agency (Nama).
The extension does not, however, include subordinated debt. The inclusion in the original two-year guarantee of this second-class form of debt, which carries a risk premium, has been heavily criticised by the Opposition parties.
The guarantee scheme – granted amid the turmoil which followed the collapse of Lehman Brothers in 2008 – was scheduled to lapse on September 29th and covered some €400 billion of bank liabilities.
With much of the Irish financial system now in the hands of the State following costly bank recapitalisations, lenders such as AIB and Bank of Ireland are still unable to stand on their own feet.
The guarantee also covers Irish Life Permanent, Anglo Irish Bank, Irish Nationwide Building Society and the Educational Building Society (EBS).
Nationwide is not considered viable as a stand-alone entity. Although the EBS is now State-controlled, it is involved in a sale process and has asked potential bidders to submit offers by the end of this week.
The commission’s move extends the issuance window for eligible liabilities of between three months’ and five years’ duration, except interbank deposits.
The issuance window for retail deposits regardless of maturity, up to a fixed term of five years, also continues until the end of the year.
The commission said the extension was “well targeted, proportionate and limited in time and scope” and included an increase in the fees banks pay.
Mr Almunia’s spokeswoman said, when asked, that it would be open to the Government to seek extensions beyond this year. “Of course member states have the possibility to request an extension of those schemes.”
Minister for Finance Brian Lenihan’s spokesman would not say whether the Government might apply for any further extension. “The situation will be monitored,” he said.
The extension of the Irish guarantee comes as the EU executive extends similar schemes in seven other EU countries.
“At the end of the year, we’ll reassess the situation and we will see whether those schemes are still needed,” Mr Almunia’s spokeswoman said.
Mr Lenihan’s spokesman declined to estimate the increased fees to be levied on the banks for the extension. The original guarantee is expected to yield around €1 billion over two years, a figure dwarfed by multibillion-euro recapitalisations.
“Progress in relation to the phasing out of the guarantee will be achieved over time consistent with any requirement for continued support of the funding conditions of the banks and the maintenance of financial stability overall,” Mr Lenihan said.
