Irish Republican News · October 1, 2008
[Irish Republican News]

[Irish Republican News]
IRISH REPUBLICAN NEWS: Dublin govt defends deposits, banks
Dublin govt defends deposits, banks

Sitting in emergency session, the Dublin parliament has agreed legislation to guarantee and underwrite the banking system in the 26 Counties.

Minister for Finance Brian Lenihan said the agreement “will send a clear signal to the markets tomorrow morning about our determination to secure the stability of the financial sector”.

In a bold move, the government has underwritten 400 billion Euro worth of deposits, twice the value of the state’s Gross National Product -- but has stopped short of nationalisation.

Allied Irish Banks (AIB), Bank of Ireland, Anglo Irish Bank, Irish Life Permanent, Irish Nationwide Building Society and EBS building society, as well as their subsidiaries, are all covered.

The committee and report stages of the bill, where the details of the legislation will be debated, will be taken later today [Wednesday] and are considered a formality.

Questions regarding the power of the Dublin government to act independently of central European legislation to protect only the six Irish-owned banks proved problematic. However, the need to act with speed amid global uncertainty and fear in the financial markets ensured these concerns were overridden.

“These six institutions do not have any other friend in the EU or on the continent of Europe. All of the other banks that are referred to... are subsidiaries of banks, the ultimate responsibility for which rests with other member states,” Mr Lenihan added.

Speaking during a chaotic and confused debate in the Dail chamber shortly before midnight, Mr Lenihan denied that delays in bringing forward the legisation were due to European law on competition.

“We are satisfied that we are in accordance with our obligations to the European Union,” said Lenihan. Of course, complaints may be made to the [European] Commission [but] we have been advised by the Attorney General that we are acting in accordance with those obligations”.

While the Minister said the institutions would be required to pay a charge for this support, it was still unclear last night what cost to the banks was involved.

The institutions in question have previously been criticised for profligate lending practices which exposed Irish home buyers and the institutions themselves to the consequences of the recent collapse in house prices. Opposition parties tonight queried the degree to which Irish taxpayers were being required to effectively foot the bill for the high-stakes gambles of the banks and building societies.

Labour Party spokesman Pat Rabbitte said that “the US was talking about $700 billion purchase of “dodgy toxic accounts” which represented 5 per cent of its GNP.

“We have put 200 per cent of GNP theoretically at risk here and we don’t know what the Minister means when he says there will be a cost levied, how it will be levied.

“That is not the way to make law or to ask us to confer these powers on the Minister without any knowledge of what kind of oversight”.

However, the move has put an end to suggestions of an imminent failure of an Irish bank, leading to widespread fears among depositors for the security of their savings.

It is also anticipated the relatively decisive action will surprise and confront manipulative stock-market traders who have sought to profit from the potential collapse of one or more Irish banks.

Fine Gael Communications spokesman Simon Coveney said this was essentially war-time legislation in extreme circumstances, which gave the Minister extraordinary powers.

However the “radical measure will not solve the domestic problem of exposure to bad debts,” the Cork South-Central TD said.

Sinn Fein Finance Spokesperson Arthur Morgan welcomed the government move but demanded that the Finance Minister reveal what “quid pro quo” he has secured from the banking sector.

“Today’s announcement needs to herald a new relationship between the state and the banking sector,” he said, calling for a commitment from bank management to forego bonuses for the length of the time -- two years -- covered by this guarantee.

“Maintaining international confidence in the Irish banking system is a priority. However, today must be a line in the sand of reckless practices in the Irish financial sector and a new day of responsible banking must begin.”

Donegal Sinn Féin Senator Pearse Doherty called on the Government to bring forward a plan to provide security for mortgage holders and ordinary people in debt to banks, just as they have bailed out the banks themselves.

“When is the Government going to come forward with a plan to bail them out? When will they work through the night to insure against their losses? Those are the people with the most to lose.”

© 2008 Irish Republican News