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Banking Update - Extension of Ireland’s bank guarantee scheme

AUTHOR(S): Patrick Molloy, Peter O’Brien, William Prentice, Chris Quinn
PRACTICE AREA GROUP: Banking, Banking and Financial Services
DATE: 14.01.2013

Extension of Ireland’s bank guarantee scheme 

The Credit Institutions (Eligible Liabilities Guarantee) Scheme (the “Scheme”), which provides for a State guarantee of certain liabilities of designated Irish Banks, has been extended by the Credit Institutions (Eligible Liabilities Guarantee) (Amendment) Scheme 2012 (S.I. No. 519 of 2012) until 31 December 2013, subject to the necessary ongoing European Commission state aid approval.  On 12 December 2012, the Minister for Finance welcomed receipt of such EU approval for the prolongation of the Scheme up to 30 June 2013; however, should continuation of the Scheme beyond that point be necessary, further EU approval will be required. 

This means that the Scheme (which was due to expire on 31 December 2012) will now remain in place with respect to “Participating Institutions” (defined below) until 30 June 2013 (or such earlier date as may be indicated by the Minister and communicated in the national press / media).  The reason for this proviso is that, according to the Department of Finance, it is the Minister’s intention to begin withdrawal of the Scheme “as soon as is practicable”.  Other material published by the Department provides that the Minister “has signalled his intention to wind-down the Scheme in early 2013, conditions permitting”.  The Department has advised that adequate notice will be given to depositors in the event that any change to the Scheme is to be made.

In light of a number of positive developments concerning the Irish banking sector recently (such as the deleveraging of banks’ balance sheets and the recent success of both AIB and Bank of Ireland in raising funds in the debt capital markets without the requirement for a State guarantee) it is hoped that this will be the last extension of the Scheme and that an end date will be announced in the near future.

Background to the Scheme

On 29 September 2010, the blanket guarantee of bank liabilities introduced by the Minister on 30 September 2008 expired.  This blanket guarantee was succeeded by the Scheme which was officially commenced on 9 December 2009 and which applies to the following credit institutions:  The Governor and Company of the Bank of Ireland; Allied Irish Banks plc (which now includes EBS Limited as its subsidiary); ICS Building Society; Permanent TSB plc; Irish Bank Resolution Corporation Limited (formerly Anglo Irish Bank Corporation Limited); and certain named subsidiaries (the “Participating Institutions”).

The Scheme

Pursuant to the Scheme, the Minister has guaranteed all “eligible liabilities” incurred by Participating Institutions up to 30 June 2013 (or such earlier end date as may be indicated by the Minister as noted above) (“Eligible Liabilities”).  Again, in the event that the end date was to be extended beyond 30 June 2013, further EU approval would be needed.

Eligible Liabilities may be any of the following:

  • all deposits (to the extent not covered by deposit protection schemes in Ireland or any other jurisdiction – ie, in Ireland, certain retail deposits of up to €100,000 are guaranteed under a deposit guarantee scheme which does not have an end date);
  • senior unsecured certificates of deposit;
  • senior unsecured commercial paper; and
  • other senior unsecured bonds and notes,

provided that (i) these are incurred by the Participating Institution during the period which runs from the date on which the Participating Institution joined the Scheme until the Scheme’s end date (ie, 30 June 2013, albeit this could be extended in due course and equally an earlier end date could be announced – see above) and (ii) where relevant, the liabilities do not have a maturity date in excess of 5 years.

In respect of Eligible Liabilities other than deposits, securities:

  • must not contain an event of default constituted by cross-default or cross-acceleration; and
  • must be single currency denominated in one of euro, pounds sterling or US dollars or any other currency approved by the Minister.  An Eligible Liability issued under a programme may be issued in any currency permitted by the programme documentation.

Deposits

Under the Scheme, on demand deposits which are covered under the deposit guarantee scheme are guaranteed (in respect of amounts exceeding the €100,000 threshold) until the Scheme’s end date.  Equally, term deposits taken out between the date on which the Participating Institution joined the Scheme and the Scheme’s end date are guaranteed by the Minister until maturity (up to a maximum term of 5 years) on the same basis.  In the case of notice deposit accounts, a document published by the Department titled “Eligible Liabilities Guarantee Scheme – Frequently Asked Questions” states that the guarantee applies until the end of the notice period even if this falls after the Scheme end date once notice is given prior to the end date.

The Minister may, at the request of a Participating Institution, limit the application of the guarantee to certain types or categories of deposits.  As such, it is possible for a Participating Institution to take certain deposits on an unguaranteed basis.  Currently unguaranteed deposits are aimed mainly at corporate and institutional depositors and the depositor would have to acknowledge in writing that the relevant deposit is not guaranteed and this would also have to be provided for in the terms and conditions pertaining to the relevant deposit.

Other securities

With regard to Eligible Liabilities other than deposits, Participating Institutions must apply to the National Treasury Management Agency (as scheme operator) for a guarantee certificate for each specific debt security it issues and wishes to be guaranteed under the Scheme.  Such guarantee certificates may also be applied to a security issued under a programme.  Participating Institutions may therefore also issue Eligible Liabilities on an unguaranteed basis.

For further details in relation to the above, please contact Patrick Molloy or Rachel Kevans or your usual contact at Matheson. 

 

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