Page last updated at 18:10 GMT, Tuesday, 30 September 2008 19:10 UK

Cowen defending Irish banks move

Brian Cowen
Brian Cowen said inaction was not an option

Ireland's prime minister has defended a radical 400bn euro (318bn) state move to shore up its financial system.

Brian Cowen said the government had to make the move, which safeguards all deposits, bonds and debts in six banks and building societies for two years.

"The option of doing nothing, of not making a move would put at risk the entire stability of the Irish financial system," he told the Irish parliament.

Labour leader Eamon Gilmore said the banks had been handed a blank cheque.

Mr Cowen insisted: "I have not handed over any money to any bank.

"I have provided the reputation of this state to the banks to get access to funds so the economic life of this country can continue. That is what was necessary."

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

"I could not as Taoiseach absolve myself of the responsibility of making the decisions."

Strict terms and conditions will be attached to the agreement, which will also carry a hefty charge for the banks, according to the government.

The deal, which will give the banks access to credit and lending across Europe, immediately shored up confidence among traders in the stock exchange in Dublin with the Iseq closing up 8%.

Opposition parties called for tight regulation under the scheme while Ireland's biggest union, Siptu, said the six banks should be charged a premium rate for the guarantee.

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.

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

The Republic of Ireland's Department of Finance 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.

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."

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.

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