Page last updated at 16:53 GMT, Tuesday, 30 September 2008 17:53 UK

Irish government guarantees banks

Irish Republic stock market - pic RTE news

The Irish government has acted to shore up its financial system.

It is guaranteeing all deposits in Irish banks and all money borrowed by the banks from other financial institutions.

On Tuesday, the Department of Finance said the state would safeguard all deposits, bonds and debts in six banks and building societies for two years.

The decision follows Monday's enormous slide in the value of the shares of Irish banks.

The banks covered are Allied Irish, Bank of Ireland, Anglo Irish Bank, Irish Life and Permanent, Irish Nationwide Building Society and the Educational Building Society.

Man walking past Bank of Ireland in Dublin, pic AP

It's very difficult to find any guarantees in the current climate, but at least there's some relief for people who have money in Irish banks.

Martin Cassidy
Consumer Correspondent

The Irish Department of Finance said all deposits, bonds and debts in the six banks and building societies would be covered by the state for the next two years.

But there will be terms and conditions.

That means that the Irish government has decided that the Irish taxpayer will now provide a guarantee for up to 400bn euro of liabilities.

The department said that the scheme would cover all UK branches of the financial institutions, but that negotiations were under way with the British authorities on safeguards that might be provided to any of the six banks' subsidiary companies in the UK.

The Irish stock exchange reacted favourably to the move with banks shares rising dramatically after big falls on Monday.

On Tuesday, Finance minister Brian Lenihan said: "If funds are not secured by the Irish banks, it will be a very, very serious matter for the economic life of this community.

"Every bank, every worker, everyone knows how short those funds have been in the last year.

"If they dry up entirely, then that is very serious for Ireland. We must take action to secure the stability of our banking system and that is what the government decided to do."

The Irish government hopes the move will remove any uncertainty that surrounds Irish banks.

Michael Fingleton, chief executive of the Irish Nationwide Building Society, said he accepted the move could give Irish banks a competitive advantage over their UK rivals.

"Other banks will lend to them, they will not be holding excessive liquidity. Therefore, there will be money available for the greater economy and productive purposes, and indeed for young people to buy their houses," he said.

The Northern Bank and Ulster Bank have moved to reassure depositors about their stability and credit-worthiness.

Neither are covered by the Irish government guarantee, but both have issued statements intended to reassure customers their money is safe.

The Northern, owned by the Copenhagen based Danske Bank, emphasises it is part of a strong and solid European banking group with a very strong credit rating.

Ulster Bank has pointed out that it is owned by the Royal Bank of Scotland - one of the largest banks in the world in which shareholders recently invested an additional 12bn in capital.

A guarantee to remove uncertainty
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