THE BRITISH government will reveal a rescue package for the UK banking system before markets open today in a move that could bolster the two biggest foreign-owned Irish banks - Ulster Bank Group and Halifax-Bank of Scotland (Ireland).
Publication of the Irish Government's bank guarantee scheme has been deferred until all the details have been sanctioned by the European Commission and the full scope of schemes devised by other EU countries becomes clear.
At a special Cabinet meeting last night, Minister for Finance Brian Lenihan briefed colleagues about the detail of the scheme but it is not now expected to be published until later this week or even next week. The Cabinet meeting adjourned at 10.30pm and will reconvene at 1pm today.
British chancellor of the exchequer Alistair Darling confirmed last night that a UK banking rescue plan would be disclosed this morning, with a statement to the House of Commons later today, after Prime Minister Gordon Brown led crisis talks with Bank of England governor Mervyn King and the head of the UK banking watchdog, the Financial Services Authority last night.
It followed another day of steep falls in UK bank stocks after overnight reports of the chancellor's meeting with the heads of Royal Bank of Scotland, Barclays and Lloyds TSB to discuss a plan to inject fresh capital into UK banks.
Shares in HBOS, owner of Bank of Scotland (Ireland) and its Irish retail bank Halifax, dropped 42 per cent. Royal Bank of Scotland, owner of Ulster Bank and First Active, plummeted 39 per cent.
Irish shares suffered heavy falls again yesterday, dropping 7 per cent, with Anglo Irish Bank falling 24.6 per cent and Irish Life Permanent shedding 18.9 per cent.
A UK bank rescue plan could substantially reduce the risk to the Irish taxpayer from the guarantee scheme, as Ulster Bank and Halifax may be drawn towards any British scheme. Both banks have applied to join the Irish scheme. Including the deposits and debts of Ulster Bank and Halifax under the Irish scheme would add an estimated €90 billion to the €400 billion liabilities being covered at the six Irish-owned banks.
The Irish Government will set strict limits on any new deposits and borrowings that Irish banks availing of the State-backed guarantee scheme can take on.
Mr Lenihan said in Luxembourg yesterday that overseas subsidiaries of Irish-owned banks would not necessarily be covered by the guarantee to meet EU state -aid rules.
"There will be some limits. It cannot be unlimited in terms of the amount of deposits or borrowings that any particular institution can engage in," he said.
The issue of "recapitalisation" of banks - increasing the amounts they set aside to protect against future bad debts - was being considered by some EU states. He did not think this policy was required in Ireland but he said events were moving quickly.
The British rescue package, and a move by National Irish Bank to write down the value of its commercial property loans, may increase pressure for a capital injection into the Irish banks.
Meanwhile, the ESRI has warned that unemployment will jump to 8 per cent next year, with about 180,000 people predicted to be out of work.
