Page last updated at 15:49 GMT, Thursday, 2 October 2008 16:49 UK

'No advantage' for Irish bankers

Bank of Ireland building
UK banks have been concerned about the move in Ireland

Irish banks will not get a competitive advantage under the 100% savings guarantee scheme, an Irish finance department source told the BBC.

The government will charge banks different amounts to be in the scheme, pushing up their costs. It could also limit advertising of the scheme.

A political row is developing over the Irish government's decision.

This is because other countries fear the 100% guarantee makes Irish bank accounts more attractive to savers.

The Irish government agreed on Thursday to introduce legislation that would eventually ensure savers' deposits were totally safe for two years if a bank collapsed.

But the terms and conditions governing the scheme are still to be finalised by Finance Minister Brian Lenihan.

"A bank will not obtain a competitive advantage because of the charge for administering the scheme," the source said.

Potentially, this could lead to some banks deciding against being part of the guarantee scheme.

Banks' unrest

There are signs that some UK savers are considering moving their money to Ireland's banks, owing to the greater protection.

Some of the UK banks are unhappy that this would give the Irish banks an unfair advantage and the British Bankers' Association is writing to the Irish government on the matter.

Waiting around was a luxury I'm afraid we didn't have on this occasion
Michael McGrath, Fianna Fáil

Adrian Coles, director general of the Building Societies Association in the UK, said there had been no significant immediate effect of savers switching from UK building societies to the Irish banks, but he was concerned about the long-term effect.

"It [the scheme] should not extend to deposits in a different currency and outside of Ireland."

"A saver with an Irish bank in the UK should ask them how it is the Irish government, which cannot raise taxes in sterling and cannot print sterling, can protect deposits without limit."

But Michael McGrath, from Ireland's Fianna Fáil party and vice chairman of the Irish Parliament's Finance Select Committee, said: "We were facing a very serious crisis in Ireland. It may well have been the case that we were looking at an imminent collapse, that may well be the case.

"The minister was advised very closely by the financial regulator in Ireland and the central bank that this measure was urgently required.

"So waiting around was a luxury I'm afraid we didn't have on this occasion and that's why the government took this unprecedented, and indeed courageous, initiative."

A spokesman for the UK Treasury said officials were in touch with their European counterparts.

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