Skip to main content

Financial Crisis: Everything You Need To Know...

Financial crisis...the main issues behind the government's decision to guarantee bank deposits...


Q: Why did the Government guarantee bank deposits?
A: It had no choice. After yesterday's collapse in bank shares and the rejection of the Paulson bank bailout plan in the United States, the Government had to move.

With Irish banks paying a huge premium to borrow money from foreign banks our entire financial system had come within a few hours of completely seizing up.

Q: How safe are my savings?
A: After this morning's move, the savings of bank depositors are now 100pc state-guaranteed.
This means that savers who have money deposited with the six Irish banks -- AIB, Bank of Ireland, Irish Life & Permanent, Anglo Irish, EBS and Irish Nationwide -- can sleep easily in their beds at night.

Q: Which banks aren't covered by the guarantee?
A: None of the foreign-owned banks are covered by the guarantee. These include Ulster Bank, NIB, First Active, Bank of Scotland, Halifax and IIB Bank.

Q: Is there anything I should be doing?
A: If you have money deposited with one of the foreign banks operating in Ireland, it might now be a good idea to switch it to one of the Irish banks covered by the State guarantee.

Q: What are the chances of an Irish bank going under?
A: By guaranteeing their deposits and wholesale funding, the Government has ensured that an Irish bank won't go bust. But this morning's move does no more than buy time for the embattled Irish banking system.

The fundamental problem, one of massive over-lending to a property sector where values have fallen by at least a fifth, remains unchanged.

There will have to be a major restructuring of the Irish banking system before the Government guarantee expires in two years' time.

Q: Are the Irish banks now vulnerable to takeover?
A: Almost certainly yes. While the Government will do everything in its power to maintain the independence of AIB and Bank of Ireland, it is a different story for the smaller Irish banks.

By the time the guarantee expires in September 2010, most if not all of these will have found new owners.

Q: How exposed is the Irish taxpayer by the guarantee?
A: Massively. The Government has now unconditionally guaranteed over €380bn of bank depo-sits and inter-bank borrowing. That's more than twice the value of our total economic output.


If the Government has to pay out even a tenth of the amount which it has guaranteed, the national debt would double.

Even more worrying is the fact that the Government hasn't disclosed the terms and conditions on which it is providing this guarantee to the banks.

Q: What does the guarantee mean for next month's budget?
A: Brian Lenihan has now underwritten almost €400bn of bank deposits and inter-bank borrowing. That's over six times the amount of money the Government will spend this year. The guarantee makes nonsense of the pre-Budget arithmetic.

Q: What does the guarantee mean for bank shareholders?
A: Irish bank shares soared on the announcement of the guarantee. This is good news for anyone who is a member of a company pension scheme or has a private pension plan, as bank shares make up a large proportion of most pension funds.

Q: When will this instability end?
A: Not any time soon.
Until the Paulson package is finally passed by Congress this crisis is going to get worse not better.


Dan White - Evening Herald

Popular posts from this blog

Ireland's Celtic Tiger Excesses...

'Bang twins' may never get to run a business again... POST-boom Ireland is awash with cautionary tales of Celtic Tiger excesses, as a rattle around the carcasses of fallen property developers and entrepreneurs will show. Few can compete with the so-called Bang twins for youth, glamour and tasteful extravagance. Simon and Christian Stokes, the 35-year-old identical twins behind Bang Cafe and exclusive private members club, Residence, saw their entire business go bust with debts of €9m, €3m of which is owed to the tax man. The debt may be in the ha'penny place compared with the eye-watering billions owed by some of their former customers. But their fall has been arguably steeper and more damning than some of the country's richest tycoons. Last week, further humiliation was heaped on them with revelations that even as their businesses were going under, the twins spent €146,000 of company money in 18 months on designer shopping sprees, five star holidays and sumptu

I fear a very different kind of property crash

While 80% of people over 40 own their own home just a third of adults under 40 do. This is disastrous for social solidarity and cohesion Changing this system of policymaking requires a government to act in a way that may be uncomfortable for some. Governments have a horizon of no more than five years, and the housing issue requires long-term planning. The Department of Public Expenditure and Reform was intended to tackle some of these problems. According to its website its remit is to “drive the delivery of better public services, living standards and infrastructure for the people of Ireland by enhancing governance, building capacity and delivering effectively”. So how is the challenge of delivering homes for people in 2024 and beyond going to be met? The extent of the problem is visible in the move by companies, including Ryanair, to buy properties to house staff. Ryanair has, justifiably, defended its right to do so. IPAV has long articulated its views on how to improve supply an

Property Tycoon's Dolce Vita Ends...

Tycoon's dolce vita ends as art seized... THE Dublin city sheriff has seized an art collection and other valuables from the Ailesbury Road home of fallen property developer Bernard McNamara. The collection will be sold to help pay his debts. The sheriff, Brendan Walsh, is believed to have moved against the property developer within the past fortnight, calling to his salubrious Dublin 4 home acting on a court order to seize anything of value from his home to reimburse his creditors. The sheriff is believed to have taken paintings from the family home along with a small number of other items. The development marks a new low for Mr McNamara, once one of Ireland's richest men but who now owes €1.5bn . The property developer and former county councillor from Clare turned the building firm founded by his father Michael into one of the biggest in Ireland. He is the highest-profile former tycoon to date to be targeted by bailiffs, signalling just how far some of Ireland's billionai