EUROPE 
Ireland passes disputed bank guarantee law
Friday, 3 October, 2008
Allied Irish bank. (Getty Images)
Irish lawmakers have passed a controversial emergency law guaranteeing bank deposits, despite protests that the move gives its financial sector a competitive advantage over neighbouring countries.
Britain in particular has argued that the guarantee, covering Ireland's six main banks, is unfair amid fears of a surge in savings from British banks into Irish deposit accounts.
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In an almost unprecedented all-night session, Ireland's Dail (lower house) passed the legislation giving a two-year blanket guarantee by 124-18 in the early hours, followed by the Senate by 39 votes to five around breakfast time.
The guarantee, estimated to be worth over 400 billion euros ($A712 billion), safeguards retail and commercial deposits, as well as bonds, for two years. It is designed to protect Irish banks amid the global economic turmoil.
It covers Allied Irish Bank, Bank of Ireland, Anglo Irish Bank, Irish Life and Permanent, Irish Nationwide Building Society and the Educational Building Society.
Before being signed into force by President Mary McAleese, which could happen later today, the Credit Institutions (Financial Support) Bill still needs to be reviewed once by the Dail.
Yesterday the British Bankers' Association (BBA) industry group slammed the Irish guarantee as anti-competitive, while British finance minister Alistair Darling reportedly urged Ireland to include British banks in the arrangement.
"The extent of the guarantee has clear consequences for firms competing to win retail deposits and, while we support proposals aimed at reintroducing stability to the financial markets, we need fair play for financial institutions across Europe," the BBA said in a statement.
According to British media, it was fear of an exodus of funds from Britain to Ireland that prompted Darling to intervene twice yesterday, urging Dublin to extend the guarantee to British banks operating in the republic.
The Irish government shifted some ground late yesterday, announcing that non-Irish owned banks with a "significant" high street presence may be included.
A spokesman for Irish Finance Minister Brian Lenihan said he would "consider applications to join the guarantee scheme from financial subsidiaries with a significant high street retail presence here".
But Joan Burton, finance spokeswoman for the opposition Labour party, warned that whatever the cost of guaranteeing the six original banks, adding further banks "will clearly extend it significantly".
"This move threatens to open up a financial Pandora's box and increases further the potential exposure of the Irish taxpayer," she said.
Irish Prime Minister Brian Cowen earlier defended the move, saying the banks were "facing an unprecedented situation where there is a credit crunch".
British Prime Minister Gordon Brown has so far refused calls for a similar blanket guarantee for British banks, although the maximum sum covered is expected to be raised from 35,000 pounds ($A78,300) to STG50,000 ($A112,300) pounds.
Eurozone member Ireland, rocked by a property market meltdown and the global credit crunch, has fallen into recession for the first time in 25 years after its economy shrank in the second quarter of 2008, official data showed last week.
The "Celtic Tiger" economy had not experienced a recession - defined as two successive quarters of negative growth - since 1983.
Source: AFP
Britain in particular has argued that the guarantee, covering Ireland's six main banks, is unfair amid fears of a surge in savings from British banks into Irish deposit accounts.
VIDEO: Pressure builds to accept bailout
VIDEO: All eyes on US House of Reps
VIDEO: Aussie markets respond badly to bailout vote
In an almost unprecedented all-night session, Ireland's Dail (lower house) passed the legislation giving a two-year blanket guarantee by 124-18 in the early hours, followed by the Senate by 39 votes to five around breakfast time.
The guarantee, estimated to be worth over 400 billion euros ($A712 billion), safeguards retail and commercial deposits, as well as bonds, for two years. It is designed to protect Irish banks amid the global economic turmoil.
It covers Allied Irish Bank, Bank of Ireland, Anglo Irish Bank, Irish Life and Permanent, Irish Nationwide Building Society and the Educational Building Society.
Before being signed into force by President Mary McAleese, which could happen later today, the Credit Institutions (Financial Support) Bill still needs to be reviewed once by the Dail.
Yesterday the British Bankers' Association (BBA) industry group slammed the Irish guarantee as anti-competitive, while British finance minister Alistair Darling reportedly urged Ireland to include British banks in the arrangement.
"The extent of the guarantee has clear consequences for firms competing to win retail deposits and, while we support proposals aimed at reintroducing stability to the financial markets, we need fair play for financial institutions across Europe," the BBA said in a statement.
According to British media, it was fear of an exodus of funds from Britain to Ireland that prompted Darling to intervene twice yesterday, urging Dublin to extend the guarantee to British banks operating in the republic.
The Irish government shifted some ground late yesterday, announcing that non-Irish owned banks with a "significant" high street presence may be included.
A spokesman for Irish Finance Minister Brian Lenihan said he would "consider applications to join the guarantee scheme from financial subsidiaries with a significant high street retail presence here".
But Joan Burton, finance spokeswoman for the opposition Labour party, warned that whatever the cost of guaranteeing the six original banks, adding further banks "will clearly extend it significantly".
"This move threatens to open up a financial Pandora's box and increases further the potential exposure of the Irish taxpayer," she said.
Irish Prime Minister Brian Cowen earlier defended the move, saying the banks were "facing an unprecedented situation where there is a credit crunch".
British Prime Minister Gordon Brown has so far refused calls for a similar blanket guarantee for British banks, although the maximum sum covered is expected to be raised from 35,000 pounds ($A78,300) to STG50,000 ($A112,300) pounds.
Eurozone member Ireland, rocked by a property market meltdown and the global credit crunch, has fallen into recession for the first time in 25 years after its economy shrank in the second quarter of 2008, official data showed last week.
The "Celtic Tiger" economy had not experienced a recession - defined as two successive quarters of negative growth - since 1983.
Source: AFP
