UK banks are seeking talks with the Government about its plan to guarantee bank deposits, saying the proposals will distort competition.
"The guarantee has clear consequences for firms competing to win retail deposits," the British Bankers' Association said in an e-mailed statement last night.
"While we support proposals aimed at reintroducing stability to the financial markets, we need fair play for financial institutions across Europe." Banks, particularly those in Northern Ireland, will be hurt by the Irish plan, the BBA claimed.
This has "distorted competition," the statement added. Ireland's move comes as British banks have restricted lending to one another, causing a seizure in money markets and triggering the biggest downturn in the British housing market in at least 25 years.
British bank customers may also be lured to Irish banks by the guarantee, analysts said. The UK's deposit protection plan covers a maximum of £35,000.
"We can borrow more cheaply now because we have the benefit of an Irish government guarantee," Denis Casey, chief executive officer of Irish Life & Permanent, told RTE radio yesterday morning.
The Dail passed the emergency bank legislation early this morning following an overnight debate and it is now before the Seanad. The Seanad will vote at around noon for the President to sign the Bill into law.
The law will apply to six Irish-owned lenders.
Royal Bank of Scotland Group, the UK's second-biggest bank, said it was lobbying for the inclusion of its Ulster Bank Ireland and First Active units under the Irish plan, according to a spokesman.
"The Minister has indicated that he will consider applications to join the guarantee scheme from financial subsidiaries with a significant high street retail presence here,'' the Department of Finance said Dublin said in a statement.
"These will be considered on a case by case basis." The Government "is only guaranteeing domestic banks which massively skews the competitive picture within Ireland, let alone across Europe," Collins Stewart analyst Alex Potter said in a research note today.
"We now anticipate depositors withdrawing funds from non-guaranteed banks."
British Prime Minister Gordon Brown's office said Ireland's plan to guarantee all bank deposits will be studied by European Union regulators.
"Where there is a policy of one of the member states that impacts on single market rules, it is to be looked at by the European Commission,'' Mr Brown's spokesman Michael Ellam told journalists in London.
The UK's nationalization of Northern Rock was examined in the same way, he said. "We're in close contact with Irish authorities,'' the EU's Competition Commissioner Neelie Kroes said yesterday in Brussels.
The Irish plan is open to British and other EU citizens, who can open accounts at branches of Irish banks in London and elsewhere. "If it increases confidence in the underlying structure of the Irish banks it could make it easier for them to access capital markets," said BBA spokeswoman Lesley McLeod.
Bloomberg