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Banking Update - Extension of the Credit Institutions (Stabilisation) Act 2010
Emergency banking legislation that was introduced two years ago to give the Irish Minister for Finance extensive powers in the restructuring and recapitalisation of banks has been extended.
The Credit Institutions (Stabilisation) Act 2010, which was due to expire at the end of last year has been extended until the end of 2014, by resolutions of both houses of the Oireachtas (the National Parliament) passed last month.
This means that the Minister for Finance will continue to have the extensive range of restructuring powers granted under the Act with respect to “relevant institutions” which include each of the banks which have received financial support from the State such as Allied Irish Banks, plc (“AIB”) and The Governor and Company of the Bank of Ireland and certain other credit institutions such as credit unions and building societies (“Relevant Institutions”).
While the Central Bank and Credit Institutions (Resolution) Act 2011 (the “Resolution Act”) contains some comparable powers to those provided by the Stabilisation Act, the Minister in his Dail speech stated that the resolution powers contained in the Resolution Act (which are vested in the Central Bank of Ireland rather than the Minister) “are designed to be exercised where regulatory intervention is required because a problem appears in an individual bank in an otherwise normally functioning system.”
He noted that the procedures set out in the Resolution Act can “be referred to as a “steady state” resolution regime”. The Stabilisation Act powers on the other hand, according to the Minister ”are based on the country’s need to restructure out of the ongoing international systemic banking and debt crisis” and may yet be required for the implementation of further possible restructuring of the Irish banks.
The Stabilisation Act empowers the Minister, (in each case subject to certain conditions and consultation with the Governor of the Central Bank), to make any of the following orders, each of which is subject to judicial confirmation:
- a direction order: whereby the Minister may direct a Relevant Institution to do or refrain from taking any action such as issuing shares to the Minister;
- a special management order: pursuant to which an experienced special manager may be appointed to a Relevant Institution to take over the management of the business with a view to preserving and restoring its financial position;
- a subordinated liabilities order: with regard to a Relevant Institution (which has received financial support from the State) whereby rights relating to certain subordinated liabilities may be modified such as rights to interest and repayment of principal;
- a transfer order: pursuant to which the assets and / or liabilities of a Relevant Institution may be transferred to another institution on the terms and conditions contained in the order.
Examples of how some of the Stabilisation Act powers have been used to date include the following:
- in February 2011, a direction order was issued that the former Anglo Irish Bank Corporation Limited (“Anglo”) and Irish Nationwide Building Society (“INBS”) commence the process to sell, by way of an auction, deposits and assets of both institutions to another institution or institutions;
- in February 2011, a transfer order was made directing the immediate transfer of the deposit books and corresponding assets of Anglo and INBS to AIB and Irish Life & Permanent plc respectively; and
- in April 2011, a subordinated liabilities order was issued with respect to certain subordinated liabilities of AIB.