EU approves extension of State bank guarantee

THE EU Commission has approved an extension of the Government bank guarantee, the Eligible Liabilities Guarantee (ELG) scheme, until the end of the year.

The scheme was extended last November until the end of this year subject to EU approval under state aid rules. The commission only approves guarantee schemes on a six-month basis.

Any bonds or deposits issued or “rolled over” before the end of the year will be guaranteed until they are due to be repaid, up to a maximum period of five years.

The ELG scheme also covers deposits of more than €100,000, while the Government’s deposit protection scheme covers deposits under that amount.

Some €110.6 billion of bank liabilities were covered under ELG at the end of March 2011, according to the most up-to-date figures.

Minister for Finance Michael Noonan said the extension of the guarantee was necessary to facilitate the restructuring of the banking system under the terms of the EU-IMF bailout.

The banks’ restructuring plans will “demonstrate their intention to progressively reduce and ultimately eliminate their reliance on the State guarantee”, he said.

State aid approval for the extension of the guarantee was sought following advice from the Central Bank governor and the National Treasury Management Agency.

The government introduced the ELG scheme in December 2009 to enable the six Irish lenders to raise longer-term funding beyond the expiry of the original two-year blanket guarantee in September 2010.

The ELG scheme has been extended three times since it was introduced as a result of the Irish banks being shut out of the international debt markets.

The banks have been unable to raise large-scale funding without State support since April 2010 due to the Irish banking and euro zone sovereign crises.

ELG fees are on average about five times more costly than the original blanket guarantee. AIB paid ELG-related charges of €306 million in 2010, while Bank of Ireland paid €275 million, Irish Life and Permanent €97 million, EBS building society €34.6 million and Irish Nationwide €11.7 million.