Written Answers - Financial Institutions Support Scheme

Tuesday, 15 June 2010

Dáil Eireann Debate
Vol. 712 No. 2

First Page Previous Page Page of 273 Next Page Last Page

  120.  Deputy Joan Burton  Information on Joan Burton  Zoom on Joan Burton   asked the Minister for Finance  Information on Brian Joseph Lenihan  Zoom on Brian Joseph Lenihan   the extent to which the savings of credit union members are covered by the deposit guarantee scheme; the financial contribution that the credit union movement has made to date to the coinsurance fund underpinning the deposit guarantee scheme; the financial contribution that the credit union movement is expected to make to the coinsurance fund underpinning the deposit guarantee scheme in 2010, 2011 and 2012 respectively; and if he will make a statement on the matter. [25068/10]

Minister for Finance (Deputy Brian Lenihan): Information on Brian Joseph Lenihan  Zoom on Brian Joseph Lenihan  The Deposit Guarantee Scheme covers credit union savers for 100 per cent of their savings up to a maximum of €100,000 per institution.

With regard to the coinsurance fund, I assume that the Deputy refers to the amount maintained by credit unions in the deposit protection account at the Central Bank and Financial Services Authority of Ireland (CBFSAI) under Section 4 of the Financial Services (Deposit Guarantee Scheme) Act 2009 (the Act). This requires that credit institutions maintain an amount on deposit with the CBFSAI in the deposit protection account. The amount is prescribed by the Minister for Finance by regulations. Section 12(2) of the Act provides that Section 4 will come into operation on such day as the Minister may appoint by order. In addition, Section 7 of the Act provides that a group or groups of credit unions may, subject to the prior approval of the Minister, make an aggregate payment or payments on behalf of each credit union which is a member of such a group in satisfaction of the amount of a deposit in the deposit protection account. My Department, in consultation with the CBFSAI, is considering the amount of the deposit to be paid and the method of payment of the deposit and I will make a decision of this in the near future. I will then, as Minister for Finance, appoint the date of commencement of Section 4 of the Act for credit unions.

The amount of the deposit to be held in the deposit protection account has already been set in European Communities (Deposit Guarantee Schemes) (Amendment) Regulations 2009 at 0.2% of a financial institution’s total deposits held in EU Member States. This represents a figure of €26m approx. across the credit union movement. As provided for in Section 5 of the Act, the amount of the deposit by a credit institution in the deposit protection account, after the initial calculation, shall be recalculated annually by the CBFSAI for each credit institution or class of credit institutions by reference to the returns made by them.

  121.  Deputy Joan Burton  Information on Joan Burton  Zoom on Joan Burton   asked the Minister for Finance  Information on Brian Joseph Lenihan  Zoom on Brian Joseph Lenihan   the formula for calculating the guarantee fees paid by credit institutions participating in the eligible liabilities guarantee scheme; the changes that are being made to the fee structure at the request of the EU Commission; if the fee structure differentiates between credit institutions with varying credit ratings; the level of fee income expected to be derived from the ELG scheme in 2010, 2011 and 2012; if fee income from the ELG scheme is to be paid into a fund or account administered by the Central Bank; if this fee income is held on deposit or if it is invested to generate a return; and when it is envisaged that the fee income accrued is to be transferred to the Exchequer. [25069/10]

Minister for Finance (Deputy Brian Lenihan): Information on Brian Joseph Lenihan  Zoom on Brian Joseph Lenihan  There are a number of aspects to the Deputy’s questions and I will answer each individually.

The formula for calculating the guarantee fees paid under ELG is based on European Central Bank recommendations on government guarantees for bank debt dated 20 October 2008, available at http://www.ecb.int/pub/pdf/other/recommendations_on_guaranteesen.pdf .

I am aware that the European Commission has produced a staff working document on the application of State Aid rules on Government Guarantee Schemes covering bank debt to be [221]issued after 30 June. The pricing structure outlined in the document will be taken into account in discussions between the Department and the European Commission on a possible extension of the ELG Scheme.

In line with the ECB recommendations above, the fee structure is differentiated for institutions based on their credit ratings for liabilities with a maturity of greater than one year. A flat rate fee of 50bp applies to all liabilities of less than or equal to one year.

The ELG Scheme envisages that institutions will issue unguaranteed debt, which has began to happen, and will gradually reduce their dependence on the guarantee. This makes it is difficult to estimate what fees will be received over the coming years. However on the basis of information we have to date, we have estimated that €700m will be received in 2010, €600m will be received in 2011 and €300m in 2012.

The fee income is paid into an interest bearing mandated account in the Central Bank where it is held on deposit. To date €90.5m has been received which was in respect of Q1 2010.

I have previously referred to the €1bn which will be raised under CIFS and ELG by end September 2010 and which will be transferred to the Exchequer thereafter. I am presently considering the best mechanism for receiving and holding payments under ELG after September.


Last Updated: 12/01/2011 12:40:00 First Page Previous Page Page of 273 Next Page Last Page