Commentators have woken up to the scale of what the Irish government is doing – already noted by shrewd Sugger contributors – of more than doubling its GDP to offer up to 400 billion euros to all bank deposits, liabilities including retail, commercial and interbank deposits in Irish-owned banks, to take effect immediately and expiring in September 2010.
My hero Peston says: This has huge ramifications for us. Potentially it puts British banks at a massive competitive disadvantage – especially since other European governments are also taking urgent steps to reassure their citizens that their bank deposits are safe. In other words, there could be a rush out of British banks and into the six named Irish banks covered by the scheme. The Irish authorities must be praying the guarantees are never called in or else theyd bust the State. Theyll be hoping their move is matched by other European countries pdq.
Meanwhile the Irish Times have a piece that makes the two classes of Irish clear. “Aside from the six Irish owned banks, ” other financial institutions, many of which are owned by foreign institutions are not covered under the new scheme. However, they can avail themselves of the Governments previous Deposit Protection Scheme on sums up to 100,000 (i.e. not necessarily the full value), but the foreign-owned bank must make a request to the Financial Regulator to be covered to this amount.” What will the regulator say if they all come rushing? From the BBC story “The department said that the scheme would cover all UK branches of the financial institutions, but that negotiations were under way with the British authorities on safeguards that might be provided to any of the six banks’ subsidiary companies in the UK.” For example, ThisisMoney reports that “full compensation will not stretch to UK customers of Allied Irish Bank, as it says its UK branches are separately authorised to its Irish parent bank when it comes to compensation. These savings are therefore only covered up to the UK limit of £35,000 per individual. The move will increase pressure on Alistair Darling to increase the UK limit to £50,000 before the end of the year as he hinted during the summer.” “This is by any standards an extraordinary development that may result in an exposure of as much as 400bn for the Irish taxpayer,” said Joan Burton of the Irish Labour party. No wonder the Dail would like to discuss it.