Irish Bank Guarantee Plan Approved, Scope Widened

Irish President Mary McAleese is expected to sign off on legislation guaranteeing the liabilities of Irish banks on Thursday in a move designed to bolster confidence in the Irish financial system.

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The legislation, which has already triggered inflows of cash from Britain into Irish banks, was unveiled by the government on Tuesday in the wake of a panic-stricken day for Irish financial stocks, and approved by parliament early on Thursday.

The bill, which has raised questions in Brussels and London about competition and state-aid rules, was approved by the lower house of the Irish parliament in the early hours of Thursday by 124 votes to 18 before passing to the upper house where senators voted 39 to five in favour.

The president is expected to sign the bill into Irish law later on Thursday.

The plan, which guarantees the deposits and debts of six Irish-owned banks totalling some 400 billion euros ($557.9 billion) for the next two years, has angered many in neighbouring Britain who say the move is anti-competitive.

In an editorial on Thursday, the London-based Financial Times accused Ireland of "economic nationalism." "The government has behaved anti-competitively and the protection it is offering could even destabilise other banks," it said.

As pressure mounted the Irish government said late on Wednesday it may extend the scheme to foreign banks with retail units in Ireland and that applications would be considered on a case-by-case basis.

British bank HBOS Plc, which is due to be taken over by rival Lloyds TSB Group Plc as part of a government-backed bailout, said it would apply to join the scheme.

HBOS has retail and business banking operations in Ireland under the Halifax and Bank of Scotland (Ireland) brands.

"Whilst it is clear that the government recognises our strong financial position in designing this scheme it is important that there continues to be a level playing field so that customers enjoy equal choice from all Irish licensed banks," Mark Duffy, chief executive of Bank of Scotland (Ireland), said in a statement.

Credit Crisis

Ulster Bank Group, which is part of Royal Bank of Scotland Group Plc, has also requested inclusion in the scheme.

"We intend to apply to go into the scheme and expect to be successful," a spokeswoman for RBS said.

Other foreign-owned retail banks include National Irish Bank, which is owned by Denmark's Danske Bank.

Irish banks have so far survived the credit crisis, avoiding the massive writedowns on toxic assets seen at foreign rivals, but a simultaneous collapse in the country's property market has seen their share prices dive over the last year.

Pressed by lawmakers to put a cap on bank executives' pay, Finance Minister Brian Lenihan said the terms and conditions of the state guarantee would also address remuneration issues, which he said had been among the main causes of global financial turmoil.

"For the future, sensible and long-term sustainable remuneration policies must be part and parcel of how financial institutions go about their business in Ireland," Lenihan told deputies.

He also said he intended to appoint independent people to the boards of banks covered by the guarantee to represent the public interest.

On Wednesday, the country's Financial Regulator acknowledged the guarantee plan had been beneficial for Irish banks.

"The measures taken have had a positive impact for the funding profiles of Irish banks. However, this is against the background of an international money market that remains tight," a spokeswoman said.

The Irish Times reported on Thursday that one Irish bank had received a single corporate deposit of 500 million euros ($697 million) following the announcement of the guarantee.

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