Ireland guarantees bank deposits at six banks

Update: While the Irish were following the Swedish script, it became clear to me shortly after I wrote this that the bank debt guarantees were not a good idea. This post from Willem Buiter explains it best. 

Along with American and British banks, Irish banks have been under heavy attack due to the turmoil in the financial services sector. The government has finally had enough and stepped in with a blanket guarantee for six institutions of both deposits and bank debts.

This is a move that is identical to what the Swedes did during their banking crisis and I see this as a necessary position from which to start true banking reform and recapitalization.

The goal is to stop the loss of confidence in banks as deposit institutions and as bank counterparties first. Then, one can move on quickly to the comprehensive solution of merging, liquidating and recapitalizing.

Ireland’s government said it will guarantee Irish banks’ deposits and debts for two years, seeking to calm investor concern after banking shares fell 26pc in Dublin.

The government said it will safeguard all deposits at six financial institutions in response to turmoil in financial markets.

The scheme, which starts immediately and expires in September 2010, applies to Allied Irish Bank, Bank of Ireland, Anglo Irish Bank, Irish Life and Permanent, Irish Nationwide Building Society and the Educational Building Society, the government said.

"The guarantee is being provided at a charge to the institutions concerned and will be subject to specific terms and conditions so that the taxpayers’ interest can be protected," it said in a statement.

Anglo Irish Bank, Ireland’s third-biggest lender by market value, plummeted 44pc yesterday – the most in more than 21 years – leading Irish financial stocks lower, as European governments rescued banks hit by funding shortages.

Read the rest of the article at the source below.

Source

Irish government guarantees bank deposits – Telegraph

Other sources

Ireland gives savers guarantees for two years – Times Online

Update II: Also see "Is Ireland the Next Iceland?" where I outline why the bank debt guarantees were ill-considered.