THE FINANCIAL Regulator is investigating the placing of a €4 billion deposit with Anglo Irish Bank before the end of the bank’s financial year by rival lender Irish Life Permanent (ILP) .
It emerged yesterday that the regulator and the Government-appointed directors at Anglo Irish are investigating the deposit placed by IL&P on September 30th, the day the bank’s financial year ended.
It is understood that deposits placed by IL&P with Anglo during September totalled between €6-€7 billion, although €4 billion was lodged with Anglo Irish on September 30th, hours after the State’s bank guarantee was announced.
The money was withdrawn by IL&P a week to 10 days later.
The deposit bolstered Anglo, which had suffered withdrawals of €4 billion before the State’s bank guarantee was announced on September 30th, a move that helped to attract other deposits to the bank.
The deposit also allowed the bank to show a higher level of deposits on its books on the day the auditors assessed the bank’s accounts.
It put the bank’s funding position in a more favourable light, helping the bank to show almost three times more deposits from other banks on September 30th than a year earlier.
IL&P confirmed last night that it placed deposits with Anglo Irish during September 2008 and, in particular, on September 30th following the Government guarantee scheme.
However, the company declined to confirm the amounts involved.IL&P said the transactions were “fully and appropriately accounted for” in its books and records, and in its reports and returns to the regulator”. “During a period of unprecedented turmoil in global financial markets, there was an acceptance that financial institutions would seek to provide each other with appropriate support where possible.”
In a separate development, the Government will consider setting up a “bad bank” to remove the toxic assets from Irish financial institutions to encourage lending, but only after the deal to recapitalise the banks is finalised.
The Government also warned it will not be rushed into removing bad debts from Irish bank balance sheets to restore credit flows, if it exposes taxpayers to unlimited risks.
“We can’t be jump-led by markets and market expectations into solutions that suit the banks rather than the people,” said Minister for Finance Brian Lenihan. “We want to clean up the banks’ balance sheets and get them back to resuming normal lending,” he said in Brussels .
The Minister made his comments as the US government unveiled a plan to use $500 billion (€389 billion) in public and private funds to buy toxic assets from US banks.
The fund is part of a revamped financial rescue plan involving up to $2 trillion to encourage new lending and end the credit crisis that is hampering economic recovery in the US.
Announcing the plan, US treasury secretary Timothy Geithner said: “Instead of catalysing recovery, the financial system is working against recovery. At the same time, the recession is putting greater pressure on banks. This is a dangerous dynamic and we need to arrest it.”
Mr Lenihan warned that removing toxic debts by setting up bad banks or insurance schemes could leave the taxpayer exposed. He said that such proposals “seem to involve a payment of a definite premium to the taxpayer in return for the assumption of an indefinite risk, and that is not something that any government could commit itself to.”
However, the Minister said he was studying all available options.
He said the Government hoped to give more information on the recapitalisation of Allied Irish Banks and Bank of Ireland today. The two banks have agreed to delay taking legal action against mortgage holders who miss repayments for 12 months