Dáil Éireann Debate, Wednesday - 23 March 2011
15 Deputy Pearse Doherty asked the Minister for Finance his plans to renew the bank guarantee scheme when it runs out in June 2011; the consultation he has had with his European counterparts on the bank guarantee scheme and the possibility of its renewal; and if he will make a statement on the matter. [5392/11]
View answerThe issuance window under the eligible liabilities guarantee or ELG scheme runs in national law until 31 December 2011. This is subject to a renewal of the current European Union state aid approval for the continuance of the so-called issuance window for the scheme beyond 30 June to 31 December 2011. The issuance window is the period during which a guarantee can be applied to a new bank liability. The guarantee is then in place for the duration of the term of the liability.
The State authorities, in particular the Central Bank, monitor funding conditions for the guaranteed credit institutions on an ongoing basis. A formal assessment will be undertaken by my Department shortly which will be communicated to the European Commission for the continuation of state aid approval to the end of this year. In this regard, the views of the Governor of the Central Bank on how best to continue to maintain confidence in Irish banks, in particular that of depositors, will be a key part of this assessment.
It is also important to ensure there is no uncertainty regarding guarantee arrangements. In that context, I confirm that debt and term deposits issued during the relevant issuance windows continue to be guaranteed for the duration of the term of the debt or deposits regardless of what happens to the ELG issuance window in future.
The capital and liquidity assessments being carried out by the Central Bank together with the deleverage plans being developed by the banks are critical steps in restoring market confidence in the Irish banking sector. This is expected in due course to facilitate the return of the banks to broad based market funding. The necessity for State guarantees of bank liabilities will be reviewed by the authorities in light of the progress achieved in restoring the banks to conventional funding mechanisms. This is a key medium term objective for the Government — one that is fully in line with the programme agreement with the EU and IMF – to differentiate fully bank debt from that of the sovereign to underpin Ireland's overall fiscal sustainability.
In light of conversations in recent weeks and the Government's claims that it is arguing for burden sharing which would result in some senior bondholders taking a hit on their investments in private banks, does the Minister agree that it would be sensible and prudent for the Government not to guarantee new debt in private banks when the bank guarantee scheme is extended at the end of June? As he indicated, he, his Department and the Taoiseach do not know when this debt will become unsustainable. Given that is the case, why would the State guarantee future debt in private banks when such debt could become unsustainable and significant new debt is being added to the burden on the State?
Has the extension of the bank guarantee scheme been on the agenda in the ongoing dialogue on the pact for the euro? Has the Government, as part of this dialogue, signalled that it will extend the bank guarantee as part of the specific commitments Ireland must make over the 12 month period? I understand the objective of the meeting to be held this weekend is to lay out a 12 month programme. Is the extension of the bank guarantee scheme among the commitments the State will make in that regard?
There appears to be a misunderstanding that the guarantee only includes a guarantee for persons who bought bank bonds. It guarantees all creditors and the largest creditors in the banks are those who have money on deposit. If an individual opens a savings account and places his or her savings on deposit in a local bank, the bank owes the person in question the sum of money on deposit. One of the main features of the guarantee is that it guarantees deposits. It also guarantees certificates of deposits, commercial paper, senior unsecured bonds and notes and other senior debt specified by the Minister in accordance with EU state aid rules. At present, €117 billion of assets of creditors is covered by the guarantee. The Deputy should not forget when calling for the plug to be pulled on the guarantee that the people who will suffer are people like himself, his family, friends and neighbours whose deposits are guaranteed.
The Minister well knows that we are not calling for a lifting of the guarantee for depositors. A banking resolution Bill could be introduced, legislation Sinn Féin has been seeking for some time, to distinguish between creditors and bondholders. We are speaking here about the gamblers in Irish banks who have taken out investments or taken a punt which has come up wrong. The State is to guarantee new debt in those private institutions, thereby walking us down the road of a possible sovereign default rather than that for which Sinn Féin is arguing, namely, an orderly banking default in relation to the bank and private debt. It is disingenuous of the Minister to muddle the issue and to suggest we are asking that depositors in the banks take the hit. The Minister knows well that we are asking that bondholders not be guaranteed and that the guarantee not be extended. The Government has the option of bringing in a different guarantee that would distinguish between depositors and bondholders, senior debt and creditors and depositors and banks.
Only six minutes per question is allowed. The longer Members take asking their questions or replying, the less time there is available for supplementary questions. To ensure every Member gets a chance to speak, I intend to stick rigidly to the six minutes allowed per question.
On a point of order, may I, as a new Member, ask a question?
If the Deputy comes to my office following Question Time I will discuss the procedure with him.
