The Corner

Banking: Intervention in Ireland

Via the Financial Post:

The government of Ireland yesterday took decisive action to prevent a crisis of confidence in its banking sector by immediately insuring as much as $600-billion worth of debt and deposits at its six largest banks…

The move, which is estimated to be worth more than twice Ireland’s GDP in liabilities, resurrected confidence in the country’s financial sector after those stocks plunged 27% on Monday and dragged the Irish Stock Exchange’s Overall index down 13%. With sentiment greatly improved, Irish financial stocks surged an astounding 28% yesterday, pulling the Overall index up 8% by the close.

The announcement appeared to have also triggered a flood of funds out of the U. K. and into the Irish banking system in a flight to safety, Reuters reported yesterday, citing a senior Irish stockbroker who declined to be named.

Under the guarantee, which went into immediate effect, the government will insure all retail, commercial, institutional and interbank deposits as well as covered bonds, senior debt and dated subordinated debt at these six Irish banks: Allied Irish Bank, Bank of Ireland, Anglo Irish Bank, Irish Life and Permanent, Irish Nationwide Building Society and the Educational Building Society.

The government said the guarantee would cover all existing and new debt and deposits over the next two years and would be provided at a charge to the six banks concerned to protect taxpayers from incurring any costs.

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