Govt Guarantees Billions for Banks

The facility provided by the government would be subject to charge or levy which banks must pay. The level of the charge would be decided by the Central Bank which would advise the government.

Lenihan also said the banks were not being bailed out of the consequences of past mistakes.

"We're talking about their basic capacity to access funds in a world market that is now drying up of funds which are available for the use of our banks. If funds are not secured by Irish banks it will be a very, very serious matter for economic life in this country," he said.

"Every business, every worker, everyone knows how short those funds have been in the last year. If they dry up entirely that is very, very serious for Ireland. We must take action to secure the stability of our banking system, and that's what the government has decided to do.

"We are a small, exposed economy, one that is more globally exposed than any economy in any other member state in the EU. For us not to have a viable banking system would paralyze the trade of this country and reduce us to a powerless position in all the markets in which we buy and sell our goods and services."

Independent financial experts said that while the level of guarantee was very large, the government would argue that it wasn't going to cost the taxpayer that amount because with expected newly-acquired confidence in the Irish banking system, the banks won't ever have to call on the guarantee.

Eamonn Hughes, head of research with Goodbody Stockbrokers, gave a flavor of reaction to the plan from the money markets.

"This is a massive step by the government to alleviate financial stress in the domestic system. This presumably puts the Irish banks in better shape to seek funding compared with other non-guaranteed banks in international capital markets," he said.

Under the new arrangement all deposits are covered by the guarantee, including retail, commercial, institutional and inter-bank deposits. All money borrowed by Irish banks from other financial institutions is also covered by the guarantee which took effect immediately on Tuesday morning and will expire at midnight on September 28, 2010.

Opposition parties demanded further details of the government's guarantee and insisted that there must be assurances that the move will not lead to further reckless lending.

Fine Gael leader Enda Kenny wanted to know what the government was getting in return for its actions.

Labor Party leader Eamon Gilmore described the decision as possibly the biggest ever made by an Irish government. He said the move was effectively betting the country on the banks.

​
Nster.com