BANKS OPERATING IN Ireland will be forced to pay a levy into a special fund to cover the costs of failed banks under legislation to meet a condition of the EU/IMF bailout.

The aim of the new legislation, published yesterday, is to protect the taxpayer from the future possibility of footing the bill for banking failures. It will overrule the controversial Credit Institutions Stabilisation Act, which gave extra powers to the Minister for Finance, by the end of 2012.

The new legislation will see the Central Bank gain sweeping new powers – allowing it to take over, run and break up banks; it will also be able to appoint a special manager to run troubled banks and fire any directors, staff or consultants.

It will also require foreign banks, including those operating in the International Financial Services Centre (IFSC), to create special resolution funds that will cover the cost of assuming control of an institution.

Under the legislation, the media will be barred from reporting on the Central  Bank’s intention to take over a bank. The High Court will also be able to restrict the publication of commercially sensitive details. Huge fines of up to €100,000 and three year’s imprisonment could be imposed on those who break this law.

Banks that refuse to comply with the new laws will face fines of up to €250,000 and may have their banking licence revoked. Banks with directors face fines of another €10 million  if they do not draft so-called “living wills”, which would outline strategies to resolve difficulties.

Read the Central Bank and Credit Institutions (Resolution) Bill in full >