MINISTER FOR Finance Brian Lenihan said the Government’s decision to seek approval for an extension to the banking guarantee followed recommendations from the Central Bank, the Financial Regulator and the National Treasury Management Agency.
The extension renews until December 31st the Government guarantee for short-term bank liabilities, including corporate and interbank deposits and debt securities whose protection is set to expire on September 29th.
Such liabilities were not covered by the European Commission’s decision in June to extend other strands of the guarantee scheme until the end of the year.
The development follows talks in Brussels on Monday between Mr Lenihan and EU competition commissioner Joaquín Almunia, who agreed to approve the extension.
Acknowledging that the European authorities were taken aback when the guarantee was first introduced in 2008, he said the original measure reflected the gravity of the crisis at that point and indicated that the situation remained serious.
“I think today’s decision by the commission confirms in a sense just how serious the problem was when Ireland still needs an extension of a guarantee of such a broad character.”
In advance of Cabinet talks today on Anglo Irish Bank, the Minister also discussed the rescue of the nationalised institution with Mr Almunia.
While the European authorities share the Government’s view that the question of the State’s ultimate liability to Anglo must be quantified as soon as possible, Mr Lenihan said he did not want to pre-empt the outcome of the Cabinet discussion.
“A final resolution of the Anglo difficulties will be announced in a matter of weeks,” he said.
“We are satisfied that we can identify what the precise losses are in our most distressed financial institution and we can deal with those losses over time.”
He declined to comment on the likelihood of a medium-term wind-down of Anglo, now widely expected, but made the point that “the bank has not been open for lending since it was nationalised”.
Mr Lenihan made public the decision to renew the guarantee last evening after a scheduled meeting of finance ministers whose countries share the euro.
“Ireland was far from being the exclusive focus of euro group today,” he told reporters as he prepared to return to Dublin.
Unusually, euro zone president Jean Claude Juncker did not hold a press conference after the meeting.
On a record spike in Irish bond yields, however, Mr Juncker expressed confidence in the Government’s capacity to weather the storm.
“We were listening carefully to our Irish colleague and all of us were convinced that the Government will be able to manage that situation,” Mr Juncker told reporters on the sidelines of the meeting.
Mr Lenihan said the renewal of the guarantee meant State protection would be available for both short- and long-term liabilities up to the end of the year.
The extension, publicly sought by Anglo Irish Bank and Allied Irish Banks, comes as Irish banks prepare to refinance several billion euros of debt in the coming weeks.
“This is an important support to the Irish banking system facilitating their access to both short- and long-term funding to help maintain the overall stability of the banking sector,” Mr Lenihan said.
The extension reflects fears that the holders of corporate depositors with up to three months’ maturity would move their money away from banks such as Anglo and AIB before the original protection over such deposits expired.
The Minister left open the question as to whether he would seek a further extension, saying it would be “unwise” to anticipate in public any further action.
