Sunday, 27 September 2009

Europe Economy: Ireland announces 10-billion-euro bank rescue

Europe Economy: Ireland announces 10-billion-euro bank rescueThe Irish government announced Sunday a 10-billion-euro (13-billion-dollar) rescue of Ireland's six main banks. The money will be used to recapitalise banks by buying their shares and other measures. "The government has decided either through the National Pensions Reserve Fund or otherwise... to support, alongside existing shareholders and private investors, a recapitalisation programme for credit institutions in Ireland of up to 10 billion euros," the finance ministry said in a statement. It said the aim was to ensure the long-term sustainability of the banking sector and "to underpin its contribution through the availability of credit to individuals and businesses in the real economy." "This initiative will help to foster and encourage the flow of funds to the economy, and limit the impact of financial market difficulties on businesses and individuals," the ministry said. Ireland was one of the first countries to respond to the global credit crisis with a two-year unlimited guarantee scheme for banks that involves a contingency liability of 485 billion euros. The finance ministry said the state's investment may take the form of preference shares and/or ordinary shares, and the government might participate by offering guarantees. "In principle existing shareholders will be expected to have the right to subscribe for new capital on the same terms as the government," it said. "A key principle in the operation of such a fund will be to secure the interests of the taxpayers through an appropriate return on, and appropriate terms for, the investment." Finance Minister Brian Lenihan will start talks with the banks about specific proposals -- he has previously stated that using public money was a "last resort" and any state involvement would be on a case-by-case basis. The statement noted that recapitalisation is recognised by the European Commission as one of the key measures that may be used by to preserve stability and proper functioning of financial markets. Dublin "believes that in current market conditions even fundamentally sound banks may require additional capital to respond to widespread market perception that higher capital ratios are appropriate for the sector internationally," it said.