Scheme faces problems over British subsidiaries

[Duke of Marmalade]

The big issue around this scheme is becoming the discrimination against British subsidiaries. From Enda Kenny to the BBA to the EU competition commissioner, the exclusion of Brit subs has come under attack.

But how to solve it?

Extending the scheme completely to Brit subs would lead to Brit bank headquarters routing all their wholesale funding through their Irish subs, surely we can't have that.

The obvious answer is to extend the guarantee to the Irish customers of Brit subs, but that is clearly in breach of single market rules. However this is a much more theoretical objection from the clearly unfair competitive disadvantage of the current proposal.

It will be interesting to see what comes of tonight's Dail debate.

 

[Towger]

The big issue around this scheme is becoming the discrimination against British subsidiaries. From Enda Kenny to the BBA to the EU competition commissioner, the exclusion of Brit subs has come under attack.

I don't see to difference of between our guarantee and their nationalisation of Northern Rock. We did not go moaning to the Queen. I think they are just anoyed they did not think of it them selves. I believe that the nationalisation of Northern Rock has cost the 'mainland' tax payer over half a billion stirling and counting.

 

[Bannockburn]

The UK has already given a de facto guarantee to all UK based banks as can be illustrated by the nationalisation of Northern Rock and Bradford and Bingley.

The current guarantee scheme for UK deposits is up to £50,000. This guarantee covers 96% of deposits.

This guarantee covers the UK banks Ulster Bank & First Active which have significant operations in the Republic of Ireland.

 

[OPTIMUM]

I totally agree with Towger...NRock have had an unbelievable, unfair competitive advantage since they were nationalised and continued to pay above ECB rates for their accounts. They have been sucking money out of the Irish savings market which was not being lent back into the system. Gordon Brown and Darling made their bed and can lie in it now as they didnt have any problem with having irish banks at a disadvantage up to now.

 

[Guest124]

Enda Kenny has made a very bad mistake calling for other Banks to be covered.

 

[darag]

I really don't get this undercurrent of national pride, mild xenophobia and/or defensiveness concerning this decision by the government. It sounds like if a Brit or other European criticised the decision of an Irish man to drink bleech, you'd weigh in supporting the paddy.

There is also the ludicrous notion that all this is some sort of zero-sum game; what's good for an Irish banks is bad for "foreign" banks and visa-versa and that we could survive this even if the UK system collapsed. Given that we have one of the most globalised economies in the world, the naivity is almost touching. We are a tiny country being buffetted around in a global maelstom. The same sort of idiotic childish egotism was apparent six months ago in the complaints of "us talking ourselves into a recession" as if the huge changes in the global economic system could be affected by the sentiments expressed to Joe Duffy to by the "ordinary man" in Ireland.

This is an appalling and deeply flawed response by the government to the problems faced by the banks and our neighbours have a right to express concern and dismay given that the government has not only potentially f*cked our country by blindly acquiesing to the bank execs' demands but the policy has negative effects on our neighbours' banks also.

As SPC100 points out, it would take very little to transform this guarantee into a massive bill. Property index futures in the UK are currently pricing in a 35% drop in residential property over the next 3 years - we could well be facing worse. If 60% of the 400bn of assets held by banks is in property, then the sums are simply terrifying. To put these figures into perspective, this money could easily be more than all the money spent on roads, rail and other transport infrastructure in the country over the last 15 years.

 

[Excession18]

The point here is that by protecting 6 institutions because they are "Irish" gives them a big advantage when competing in the market. When looking for somewhere to put his savings or get a mortgage surely the man in the street is going to go for one of the guaranteed institutions.

Be they British, Dutch or Danish owned these other banks have brought much needed competition to the Irish market which has been good for the consumer. I dont see how they could remain in the market under these conditoins so we end up with a financial system consisting of 6 institutions and their cushy government guarantee. Is that really what we want to see??

 

[Brownie10]

The irony is that of the 6 golden children, 4 are listed and the majority of the shares are owned overseas by various funds and pensions etc.

 

[QED]

I think an interesting point here is that it was very much a Brian Cowen move to issue the guarantee when he did and how he did.

He has always seemed the type to 'steam on' with what he believes to be right and does not seem to worry about falling out with others (this is a complement!).

Bertie Ahern on the other hand ...... I think he would still be waiting and making sure he had the agreement of Europe, England etc.

 

[darag]

I wondered about this too QED. It rings true in the way he has steamed ahead with it but I think initially it was simply a matter of the bank execs running rings around a couple of financially naive politicians. The poor reflection on Cowen is that given how bad a deal this is for the government and how unbelievably cushy it is for the banks which were run recklessly, I cannot imagine that he solicited the advice of properly independent outside expertise. And I mean real international banking heavyweight experts not some senior civil servants or Banker's Federation reps or central bank staff.