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Credit Institutions (Eligible Liabilities Guarantee)(Amendment) Scheme 2012: Motion (Continued)

Thursday, 29 November 2012

Dáil Éireann Debate
Vol. 784 No. 4

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(Speaker Continuing)

[Deputy Brian Hayes: Information on Brian Hayes Zoom on Brian Hayes] The Minister for Finance facilitated this move by issuing a series of notices under paragraph 13 of the schedule to the ELG scheme, whereby he is empowered to limit the applicability of the guarantee to different categories of deposit. In this way it was possible to restrict the guarantee to that category of deposits existing up to - but not after - a given date in the case of the UK institutions concerned. The outcome is that deposits under guarantee have fallen by approximately €11 billion to date in these entities, but without any significant accompanying loss to the institutions of the deposits concerned. In other words, the deposits were successfully retained even in the absence of the guarantee.

  A second reason for the fall in liabilities covered during 2012 is that bank debt that has been maturing this year has not been replaced. This accounted for approximately €6 billion of the reduction in liabilities. A third, albeit more modest, factor has been the uptake of unguaranteed deposits which in turn displaced an equivalent amount of guaranteed deposits to a total of almost €1 billion. This positive move stems from the original request - also made in accordance with paragraph 13 of the schedule to the ELG scheme - from the participating institutions to be allowed to offer unguaranteed deposits to certain corporate and institutional customers. Again, the Minister for Finance facilitated this request by allowing such offers to be made, subject to certain conditions. This move may now be seen, in retrospect, as being a small but significant first step towards removing the necessity for the maintenance of the guarantee in the first place.

  I previously mentioned two specific amendments to the scheme before the House that are necessary to extend the scheme in law. For the further information of the House, however, I wish to mention in passing that there are also two amending orders of a consequential, technical nature which will have to be made if the statutory instrument amending the scheme is passed by this House. These are called financial support orders and will be made in exercise of the powers that are conferred on the Minister for Finance under section 6 of the Credit Institutions (Financial Support) Act 2008. These orders do not have to be brought before the House as they are not part of the proposed amendment to the scheme but are supplementary to it. I have set out what the two orders are in my speech for the information of colleagues.

  I believe that we are in a much stronger position than we were a year ago but, notwithstanding that, I am bringing this statutory instrument before the House today. We are very near to bringing closure to the guarantee narrative. There have been similar guarantee schemes internationally, including in Europe - for example, in Finland, Austria, Denmark and Sweden - and these have all been successfully ended when the time was judged right. For Ireland, this time is close. We want to continue our return to more normal banking conditions under which, inter alia, a guarantee should not be necessary. To facilitate this move, it is proposed that we provide for prolongation of the ELG scheme into 2013 with the intention that this will be the last time we will have to discuss such a motion in the House.

  I wish to make a final point, one which is often not fully comprehended when the ELG scheme is being discussed. The vast majority of bank, building society and credit union depositors are not affected by the existence of the ELG scheme at all. Most account holders, excluding the corporate sector, in the participating institutions are covered by the deposit guarantee scheme only, operated by the Central Bank of Ireland, which guarantees qualifying deposits of up to €100,000 per depositor per institution. This is the standard form of guarantee scheme in the majority of EU member states.

  I began by setting out the improvements in the banks' capital, deposit and funding positions. All of these improvements point to a normalisation of our banking system. The removal of the guarantee will be a further reinforcement of this return to normal operations. I again assure the House that the vast majority of depositors will continue to benefit from the deposit guarantee scheme. I commend the motion to the House.

Deputy Sean Fleming: Information on Seán Fleming Zoom on Seán Fleming I welcome the opportunity to speak on the motion, which in essence is to extend the Credit Institutions (Eligible Liabilities Guarantee) Scheme 2009 for a period of 12 months, up to the end of December 2013. That is subject to continuing EU state aid approval. It is important to state that at the outset.

The current guarantee expires on 31 December 2012. We are talking about extending the scheme only for new deposits made in 2013. Existing deposits are guaranteed by the scheme until their maturity date. As the Minister of State indicated, we are talking about deposits of more than €100,000. It must be said, in the week before the budget, that if one has less than €100,000 in one’s account in a bank, post office, credit union or State savings bank, or with An Post or Postbank, they are guaranteed by the Central Bank. One need not have any fear in that regard. When people hear the issue being discussed in the Dáil they often get worried, especially older people. We want to reassure them in that regard.

The order will extend the liabilities scheme for a further year, subject to the approval of the European Commission. The Secretary General of the Department of Finance, John Moran, recently indicated that, if possible, he would like the covered institutions to stop using the guarantee scheme in early 2013. He was more specific than the Minister on the matter. That is his target and he has stated it on the record. He said the income from the guarantee was not accounted for in Ireland’s medium-term fiscal projections published earlier this month. The Department is saying that there is an income of €1 billion and that it will have a budgetary implication. It is important with regard to the memorandum of understanding, meeting our fiscal targets by 2015 and working our way out of the IMF programme at the end of next year. The Secretary General of the Department of Finance was categoric in saying that the continued guarantee is not accounted for - in other words, he presumes it will no longer be in place. The Department did not build it into its medium-term fiscal projections which the Minister for Finance published recently. That must be said. The scheme is on its way out and the Government does not expect it to continue into the future. It is important that this is taken into account. While there is a loss of income, this is already factored into the Government’s medium-term fiscal projections.

Currently the scheme costs the banks approximately €1 billion, which does have an impact on their profitability. Both Bank of Ireland and AIB have deposits in the United Kingdom not covered by the scheme and at the end of September approximately €78 billion was guaranteed, with €56 billion of that by way of deposits and the balance of €22 billion by way of guaranteed bonds. The amount covered has fallen since the original guarantee was introduced in 2008, as shown in the schedules. Both AIB and Bank of Ireland recently issued covered bonds, backed by loans to customers, which were unguaranteed. That suggests the banks are almost ready to fund themselves without the aid of the guarantee. The majority of deposits guaranteed are now in this country as the main banks' UK deposits are not guaranteed. Even if the ELG scheme was not renewed, deposits in Irish banks of up to €100,000 would be protected.

The main banks joined the ELG scheme on 4 and 11 January 2010, while the EBS joined on 1 February 2010. Irish Life & Permanent, Bank of Ireland, ICS Building Society, Bank of Ireland Mortgage Bank, Allied Irish Banks plc, Anglo Irish Bank Corporation Limited, EBS and Irish Nationwide are all covered under the guarantee scheme, although some of them have changed their formats and their names. In addition, a number of subsidiaries are covered. I do not expect the Minister of State to have time to reply on the matter but I would welcome the sending of a note to me and to the spokespersons in this regard. I understand that when the scheme came into operation in 2010, Irish Permanent (IOM) and Bank of Ireland (IOM) became involved in the scheme. Bank of Ireland (UK) plc joined the scheme in July 2010. AIB Group (UK) plc is involved in the scheme, while AIB (CI) limited joined the scheme in 2010.

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