The Government is considering ending the controversial bank guarantee which was introduced three years ago today, but has downplayed the significance of such a move.
Minister for Finance Michael Noonan yesterday told the Oireachtas select finance sub committee that it was possible the guarantee would not be renewed in December
Today, a Department of Finance spokesman played down the significance of Mr Noonan's comments, saying the guarantee was under constant review. He added that even if the Government decided not to renew the scheme, existing deposits would remain covered.
"A lot of the debt that has been issued is guaranteed for the full five years. When you end the guarantee all it means is that new term deposits won't have the guarantee," the spokesman said.
"Those termed deposits taken out when the guarantee is in force would still hold the guarantee until they mature," he added.
Today marks the third anniversary of the introduction of the guarantee which was designed to cover the vast majority of Irish retail and corporate deposits.
It is also intended to help Irish banks to access funding, as it covers new senior bonds with maturities of up to five years. Since September 29th 2010, dated subordinated debt, a riskier form of bond, is not included in the guarantee.
The Eligible Liabilities Guarantee which came into force in December 2009 superseded the original blanket guarantee scheme introduced in September 2008.
The guarantee is subject to review and approval by the European Commission every six months.
The Department of Finance spokesman said that the guarantee was priced in such a way as to incentivise banks to move away from the scheme as early as possible.
Mr Noonan told members of the select sub committee yesterday that there are signs of stabilisation in the bank sector.
"There were liquidity issues coming into the summer in the banking sector," he said. "The deposit flow increased during August and it is quite sound now and we're in a very good position.
Tánaiste Eamon Gilmore said earlier this year that Ireland had made a "major mistake" when it guaranteed all liabilities of the banks in 2008. However, he insisted the guarantee would be honoured.
Subsequently, the Nyberg report into the collapse of the banking system said alternative responses to the bailout were overlooked by authorities.
Speaking three weeks after the guarantee scheme was announced, then Minister for Finance Brian Lenihan referred to it as "the cheapest bailout in the world." when compared to bank rescues carried out in other countries.
Those words came back to haunt him as the full-scale of the banking crisis became clear. The bailout has now cost taxpayers at least €70 billion.
