Written Answers - Financial Institutions Support Scheme.

Thursday, 26 March 2009

Dáil Eireann Debate
Vol. 678 No. 4

First Page Previous Page Page of 168 Next Page Last Page

  55.  Deputy Seán Sherlock  Information on Sean Sherlock  Zoom on Sean Sherlock   asked the Minister for Finance  Information on Brian Joseph Lenihan  Zoom on Brian Joseph Lenihan   the steps he will be taking in order to stabilise the credit institutions covered by the bank guarantee scheme; and if he will make a statement on the matter. [12317/09]

Minister for Finance (Deputy Brian Lenihan): Information on Brian Joseph Lenihan  Zoom on Brian Joseph Lenihan  The Government’s approach to the unprecedented crisis in global financial markets has been structured and considered. The series of measures taken to ensure the stabilisation of the Irish financial system since last September evidences the proactive stance taken by the Government. In deciding policy approaches, the Government has taken advice and consulted with the Central Bank, the Financial Regulator, the National Treasury Management Agency and its legal and financial advisors.

The Deputy will be aware that following a drain on liquidity in the Irish banking system in 2008, the Government, through the Credit Institutions (Financial Support) Scheme 2008, guaranteed all the deposits, covered bonds, senior debt and dated subordinated debt (lower tier II) of seven Irish banking institutions (covered institutions). This very important initiative by the Government was designed to protect the Irish financial system and to remedy a serious disturbance in the economy caused by the turmoil in the international financial markets.

The Guarantee scheme (the scheme) has proved successful in safeguarding the stability of the Irish banking sector and in restoring its liquidity position in order to support its normal lending activities.

As I have emphasised on several occasions, the scheme imposes very strict conditions to ensure that balance sheet growth is measured and in accordance with prudent banking practice, that risk is properly measured and managed.

In addition to what is contained in the scheme, the Financial Regulator has instigated a series of regulatory measures to take account of the changed environment, including an increased focus on the management of credit and liquidity risks of the banks.

Among the actions the Financial Regulator is taking are the following:

the recruitment of an additional 20 senior supervisory staff with banking experience to be placed on-site in key banks to monitor developments;

requiring banks to set out new business plans focusing on the need to reduce their risk profile and how their models of banking are sustainable in the new environment; and

enhanced reporting obligations in relation to capital, asset quality and individual large loans to supplement daily liquidity reporting requirements.

As the Deputy is aware, in early January the Government nationalised Anglo Irish Bank. Anglo Irish Bank is a major financial institution whose viability is of systemic importance [1001]to Ireland. The Government has made clear that it will ensure its continued viability as a going concern.

In view of the continuing turmoil in global financial markets the Government decided on 11 February, on a comprehensive recapitalisation package for AIB and Bank of Ireland which will reinforce the stability of our financial system, increase confidence in the banking system here, and facilitate the banks involved in lending to the economy.

The Government is also in discussions with other covered institutions (Irish Life and Permanent, EBS and INBS) concerning their respective capital positions and is reviewing the guarantee scheme.

In the context of the six month review of the guarantee Scheme to be completed during April 2009 the Government will examine how the Scheme could be revised subject to European Commission approval and consistent with EU State aid requirements, in ways which include supporting longer-term bond issuance by the covered institutions. This would be in line with international and EU trends where the average term of State cover for bond issues extends beyond 2010.

Irish institutions have engaged in lending for land and property development which exposes them to specific risk at a time of falling property prices and difficult economic conditions. The Government will examine proposals for the management and reduction of risks within financial institutions with respect to these specific exposures, having regard to international developments. I will be carrying forward this work to produce proposals as a matter of priority.


Last Updated: 28/09/2010 13:10:24 First Page Previous Page Page of 168 Next Page Last Page