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Dublin: 4 °C Wednesday 11 December, 2019

After four years and €64.1 billion, bank guarantee is finally scrapped

Ireland will still guarantee bonds issued by banks since 2010, but will no longer guarantee new bonds or high-level deposits.

Brian Lenihan described Ireland's bank guarantee as the 'cheapest bailout in the world' - but the costs quickly mounted, and ended at €64.1 billion.
Brian Lenihan described Ireland's bank guarantee as the 'cheapest bailout in the world' - but the costs quickly mounted, and ended at €64.1 billion.
Image: Mark Stedman/Photocall Ireland

IRELAND’S BLANKET GUARANTEE for its banking sector has been officially withdrawn, after four-and-a-half years.

The guarantee – introduced in infamous haste in September 2008, as an effort to save the banking system from collapse – meant Ireland had to foot a €64.1 billion cost for saving individual banks.

The sheer cost of the banking bailout meant Ireland itself was forced into an EU-IMF bailout in November 2010, when the scale of its banking losses leaving investors demanding penal interest rates in order to lend to the Irish government.

Six institutions were covered by the guarantee – AIB, Bank of Ireland, EBS Building Society, Irish Life & Permanent, Anglo Irish Bank and Irish Nationwide.

Ireland’s investment into those institutions left it with a 15 per cent stake in Bank of Ireland, a 99.8 per cent ownership of AIB, and in total ownership of EBS, IL&P, Anglo and Irish Nationwide.

EBS has since been restructured into a subsidiary of AIB, while Irish Life & Permanent has been split into two with the Irish Life arm sold off to the owners of Canada Life, while Permanent TSB remains a wholly-owned government bank.

Anglo and Irish Nationwide were merged into a new body, the Irish Bank Resolution Corporation, which is currently being liquidated.

Guarantee for previous bonds still lingers

The withdrawal of the guarantee – which lapsed at midnight – means the Irish government will no longer offer a state guarantee for any new bonds issued by the banks.

It also means that if the banks require further recapitalisation, after the next round of stress tests, the government will not be considered legally responsible for offering any further investment.

The withdrawal also means that the State will revert to guaranteeing deposits up to €100,000 in each bank – a guarantee made under a separate, permanent scheme – but will not insure balances over that amount.

However, it will continue to guarantee bonds issued while the guarantee was in place – which are collectively worth tens of billions of euro.

Two of the covered banks, Bank of Ireland and Permanent TSB, chose to issue new bonds this week before the guarantee ended.

Bank of Ireland borrowed €5 billion, while Permanent TSB raised €3.065 billion, with both bonds due for repayment in March 2015.

Each of the two bonds was issued on Wednesday, just a day before the guarantee was withdrawn.

Read: Banks repay €3.3 billion in fees from State guarantee schemes

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About the author:

Gavan Reilly

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