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UPDATE: Irish Government Moves To Safeguard Banking System

 
   (Adds finance minister, analyst comment, detail.) 
 

DUBLIN (Dow Jones)--The Irish government Tuesday announced a surprise decision to safeguard the Irish banking system for two years, guaranteeing all deposits, covered bonds, senior debt and dated subordinated debt of the four main banks.

"It has done so following advice from the governor of the central bank and the financial regulator about the impact of the recent international market turmoil on the Irish banking system," the government said in a statement.

The government said it aims "to safeguard the Irish financial system and to remedy a serious disturbance in the economy caused by the recent turmoil in the international financial markets."

The guarantee will cover about EUR500 billion, says Davy Research, more than Ireland's gross domestic product of EUR190 billion, national debt of EUR45 billion and the offsetting national pension reserve fund of EUR20 billion.

Finance Minister Brian Lenihan said Tuesday that the guarantee will mean a commercial charge for Irish banks, but this would be decided by the Central Bank of Ireland; he gave no more details on the charge.

He said that the decision to guarantee the banking system for two years was primarily aimed at addressing liquidity concerns, protecting taxpayers funds and crucially ensuring banking funds don't dry up.

Lenihan said that if funds dried up for Irish banks it would be "very, very serious for the Irish economy" and said that the Irish government wouldn't in theory bail out a particular bank.

"The Irish banks will find it easier to access funds from world markets," he told state broadcaster RTE Radio. "The key bloodstream of the Irish economy must remain sustainable."

Investors welcomed the news. By 0755 GMT, Allied Irish Banks PLC (AIB) was up 14% at EUR5.70, Anglo Irish Bank PLC (ANGL.DB) was up 22% at EUR2.81, Bank of Ireland PLC (IRE) was up 6.7% at EUR3.49, and Irish Life & Permanent PLC (IPM.DB) was up 22% at EUR4.35.

The government guarantee also applies to the Irish Nationwide Building Society and Educational Building Society, and subsidiaries approved with consultation with the Central Bank of Ireland and financial regulator.

The guarantee runs from midnight on Sept. 29, 2008, and expires at midnight on Sept. 28, 2010, and follows the decision last week by the government to guarantee deposits in Irish banks up to EUR100,000.

The government said it aims "to remove any uncertainty" and "maintain financial stability for the benefit of depositors and businesses and is in the best interests of the Irish economy."

With the U.S. Congress rejecting the planned $700 billion bailout of financial institutions there late Monday, Davy Research analyst Scott Rankin said: "The Irish government has taken out its bazooka."

-By Quentin Fottrell, Dow Jones Newswires; +353 1 676 2189; quentin.fottrell®dowjones.com

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(END) Dow Jones Newswires

September 30, 2008 04:32 ET (08:32 GMT)


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