Michael McGrath
Question:74 Deputy Michael McGrath asked the Minister for Finance his plans to introduce legislation to facilitate burden sharing with different classes of bondholders. [6476/11]
View answerTuesday, 5 April 2011
Questions (59, 60)
Michael McGrath
Question:86 Deputy Michael McGrath asked the Minister for Finance in view of the results of the bank stress tests, if he will provide details of his plans to achieve burden sharing with senior unsecured bank bondholders. [6587/11]
View answerWritten answers
I propose to take Questions Nos. 74 and 86 together.
The Credit Institutions (Stabilisation) Act 2010 ('the Act') enacted in December 2010 provides legislative scope for appropriate burden-sharing in relation to subordinated debt. A subordinated liabilities order can be made under the Act in relation to the subordinated liabilities of a relevant institution to which the Minister has provided or intends to provide financial support. These orders can postpone, terminate, suspend or otherwise modify specific rights, terms and obligations associated with subordinated liabilities or require the institution concerned to acquire the subordinated liabilities for a specified consideration. Burden-sharing can also be achieved under the Act by granting subordinated creditors a shareholding in the relevant institution and where this happens the debt owed to affected subordinated creditors can become instead an equity interest in the relevant institution. No subordinated liabilities orders have been made under the Act to date. It is important to note that a number of institutions have, however, undertaken liability management exercises where they have purchased their securities at a discount thereby generating a gain for the institution and an effective burden sharing with creditors and investors. Sub-debt holders have contributed, through this channel, almost €10 billion to the recapitalisation of the Irish banks.
Regarding burden sharing with senior bondholders, as I set out in my Statement to the House on Banking Matters last Thursday, it is vital that, after going through the reorganisation, the proposed three banks (Bank of Ireland, AIB/EBS, and IL&P) are able to operate in the market place as strong banks with a positive future and ongoing positive relationships with counterparties of all kinds. Therefore the Government has decided, informed by the reservations of the ECB, that these banks will not burden share with senior bondholders of their constituent banks, whether guaranteed or unguaranteed.
It is Government policy to work out Anglo Irish Bank and INBS in an orderly manner over time and to minimise further injections of taxpayer capital into either institution. Should additional capital be required, the Government will then consult with the external partners on the timeframe and means of recapitalising those institutions at minimum cost to the taxpayer, having regard to the financial stability impacts in Ireland and abroad.