In the latest development in the ongoing train-wreck that is global financial markets, the Irish Government has stepped in to guarantee deposits and debt of all Irish Banks. This is an extraordinary step to take and reflects a banking system that is truly broken. Finance, particularly banking, is built on trust more than law (as described in Francis Fukuyama’s book “Trust”) and that trust has well and truly gone from the market.
The press release does not yet appear to be on the Department of Finance’s website, but here it is, courtesy of Bloomberg:
Government Decision to Safeguard Irish Banking System
The Government has decided to put in place with immediate effect a guarantee arrangement to safeguard all deposits (retail, commercial, institutional and interbank), covered bonds, senior debt and dated subordinated debt (lower tier II), with the following banks: Allied Irish Bank, Bank of Ireland, Anglo Irish Bank, Irish Life and Permanent, Irish Nationwide Building Society and the Educational Building Society and such specific subsidiaries as may be approved by Government following consultation with the Central Bank and the Financial Regulator. It has done so following advice from the Governor of the Central Bank and the Financial Regulator about the impact of the recent international market turmoil on the Irish Banking system. The guarantee is being provided at a charge to the institutions concerned and will be subject to specific terms and conditions so that the taxpayers’ interest can be protected. The guarantee will cover all existing aforementioned facilities with these institutions and any new such facilities issued from midnight on 29 September 2008, and will expire at midnight on 28 September 2010.
The decision has been taken by Government to remove any uncertainty on the part of counterparties and customers of the six credit institutions. The Government’s objective in taking this decisive action is to maintain financial stability for the benefit of depositors and businesses and is in the best interests of the Irish economy.
The Financial Regulator has advised that all the financial institutions in Ireland will continue to be subject to normal ongoing regulatory requirements.
This very important initiative by the Government is designed to safeguard the Irish financial system and to remedy a serious disturbance in the economy caused by the recent turmoil in the international financial markets.
UPDATE: The announcement is now up on the Department of Finance’s website.
Possibly Related Posts (automatically generated):
- Australian Banks Get A Government Guarantee (13 October 2008)
- Australian Bank Guarantee on Wholesale Debt (24 October 2008)
- Banks Covered by the Australian Government Guarantee (24 October 2008)
- Time for States to Give Up Borrowing? (24 February 2009)