Ireland’s government will lift its bank guarantee at the end of March, marking the nation’s exit from a financial emergency ward, Finance Minister Michael Noonan said.
Irish lenders are moving back into a “normal banking space,” Noonan told reporters in Dublin today. Bank liabilities covered by guarantees for up to five years are unaffected, while deposits of up to 100,000 euros are shielded by a permanent central bank guarantee.
“The guarantee was made in an emergency,” Noonan said. “We’ve moved out of the emergency ward now.”
Ireland introduced a snap guarantee in September 2008 of almost all its banks’ liabilities, totalling about 440 billion euros, weeks after the collapse of Lehman Brothers Holdings Inc sparked a global financial crisis. Former Finance Minister Brian Lenihan in November 2010 was forced to seek an international bailout to prop up the country’s banks.
The ending of the guarantee marks “a major milestone for the Irish government in its attempts to unwind its near total backstopping of the Irish banking system,” said Owen Callan, an analyst at Danske Bank A/S (DANSKE) in Dublin.
“The date of Tuesday, 30 September 2008, will go down in history as the blackest day in Ireland since the Civil War broke out” in 1922, Noonan said in March 2011, weeks after his Fine Gael party led a coalition into power. “That was the date on which the then government extended the infamous guarantee to the Irish banks.”
He said today he didn’t want to “go back in time” to discuss whether the guarantee should have been introduced. He said the removal of the program is part of a process leading up to Ireland’s exit from the international bailout program at the end of the year.
Between July 2011 and the end of January this year, state- guaranteed banks’ deposits increased 10 percent to 154.3 billion euros, the finance ministry said on Feb. 14. Their European Central Bank funding reliance fell about 30 percent to 48 billion euros in the same period, it said.
The amount of bank liabilities covered by the so-called Eligible Liabilities Guarantee is about 73 billion euros. The ELG, introduced in December 2009, covers senior unsecured certificates of deposits, commercial paper, bonds and notes and deposits over 100,000 euros not covered by a separate retail deposits guarantee.
The nation’s two largest lenders, Bank of Ireland Plc and Allied Irish Banks Plc (ALBK), withdrew their U.K. units from the ELG program last year. Both banks said in November they are prepared for the expiry of the guarantee. Noonan said today the banks will welcome the ending of the program, which costs the banks about 1 billion euros a year in fees.
“The Irish banking system failed the Irish people and the mismanagement of the banks and the crisis has cost the Irish taxpayer over 62 billion euros,” Noonan said. “All of the government actions since taking office in March 2011, both at home and abroad, are designed to repair this damage and break the negative link between the banks and the state.”
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