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Noonan confirms plans to extend bank guarantee

Michael Noonan has accepted the advice of Patrick Honohan and proposes to extend the Eligible Liabilities Guarantee Scheme.

Image: Sasko Lazarov/Photocall Ireland

FINANCE MINISTER Michael Noonan has confirmed his intention to extend the bank guarantee scheme until the end of 2012.

In a press statement this afternoon the minister said the Cabinet had agreed to extend the plan by a year, and would shortly issue a Statutory Instrument which would extend the order for that time.

The plan, originally introduced in controversial circumstances in 2008 and which took effect in 2009, would otherwise have expired by the end of December.

Approval for the move will now also be sought from the European Commission, which had previously given its permission for the scheme to continue until the end of June 2012.

The minister said in his statement, however, that he expected the request to be approved “in due course”.

“As is customary, the Department of Finance has consulted  with the European Central Bank on this measure, and has obtained an opinion which inter alia states that ‘taking into account financial stability considerations, a further extension of the ELG Scheme would be beneficial’,” the statement read.

The extension will mean that the existing guarantee, which covers deposits and some senior bonds at the participating institutions, will be extended.

Any bonds issued while the guarantee is in place will also be guaranteed – meaning that the guarantee will continue to take effect for years after the guarantee is withdrawn.

Unguaranteed

The minister separately announced that the participating banks had asked him to make provisions for deposits which are not guaranteed under the ELG scheme.

The banks will initially offer non-guaranteed deposit facilities to corporate and institutional investors, who will acknowledge in writing that their funds are not covered under the government’s extra guarantee.

“These conditions make it crystal clear that any decision to place an unguaranteed deposit with a participating institution is a voluntary one and without prejudice to any guarantee that applies to other deposits under the ELG Scheme,” the Department of Finance said.

The minister added that while the demand for unguaranteed deposits was likely not to be very large, he saw the request as “a very positive sign of a return of confidence in the banks and the sovereign and should be encouraged.”

Personal depositors who have savings of up to €100,000 are covered under a separate, State-run perpetual guarantee.

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