This week, Ireland announced a bank recapitalization program of up to €10 billion. Ireland’s “objective is to ensure the long-term sustainability of the banking sector in Ireland and to underpin its contribution through the availability of credit to individuals and businesses in the real economy.” The statement acknowledged that “even fundamentally sound banks may require additional capital to respond to widespread market perception that higher capital ratios are appropriate for the sector internationally.” Ireland’s decision followed the Minister for Finance’s November 28, 2008 statement confirming Ireland’s “willingness to supplement and encourage private investment in the recapitalization of credit institutions in Ireland with State participation.”

Ireland’s investment “may take the form of preference shares and/or ordinary shares and the State may where appropriate participate on an underwriting basis. In principle existing shareholders will be expected to have the right to subscribe for new capital on the same terms as the Government.” Any government investment will be consistent with EU state aid guidance and “assessed on a case-by-case basis in an objective and non-discriminatory manner, having regard to the systemic importance of the institution, the importance of maintaining the stability of the financial system in the State, and the most effective and economical use of resources available to the State and each credit institution’s particular requirement for capital.” Institutions are being asked to submit their proposals by early January. The statement also confirmed that Ireland’s guarantee scheme remains in place.