The Minister for Finance (the “Minister”), Mr Brian Lenihan, yesterday welcomed EU Commission state aid approval to further extend the bank guarantee scheme provided for in the Credit Institutions (Eligible Liabilities Guarantee) Scheme 2009 (the “Guarantee Scheme”). The Guarantee Scheme, along with the earlier Credit Institutions (Financial Support) Scheme 2008 (the “Original Guarantee Scheme”, which has now expired), forms part of measures taken by the Irish Government to maintain the stability of the financial system in the State and rebuild consumer and investor confidence.

The Guarantee Scheme commenced on 9 December 2009 and is due to expire at midnight on 29 September 2015, subject to obtaining approval on a six monthly basis from the EU Commission that the financial support provided by the Guarantee Scheme continues to be necessary and is compliant with State Aid Rules. On 28 June 2010 and on 21 September 2010, the EU Commission issued approvals under the State Aid Rules resulting in the prolongation of the Guarantee Scheme to 31 December 2010. Approval was granted on 10 November 2010 to extend the Guarantee Scheme to 30 June 2011. The Minister proposes to place a Statutory Instrument before the Oireachtas (Parliament) shortly to enable the issuance period to extend to 31 December 2011, subject to a further State aid approval being obtained from the EU Commission in June 2011.

The institutions currently participating in the Guarantee Scheme are: Irish Life & Permanent p.l.c., Bank of Ireland, The ICS Building Society, Allied Irish Bank p.l.c., Anglo Irish Bank Corporation Limited, EBS Building Society, and Irish Nationwide Building Society together with certain named subsidiaries. Institutions covered by the Original Guarantee Scheme had 60 days from 9 December 2009 to apply to join the Guarantee Scheme, however institutions that were not covered by the Original Guarantee Scheme may apply at any time to join the Guarantee Scheme provided that they are a systemically important and solvent credit institution or a subsidiary of such a credit institution (including Irish incorporated subsidiaries of credit institutions authorised in other EU Member States) and recognised by the Minister as a credit institution requiring financial support.

Liabilities covered by the Guarantee Scheme

The Guarantee Scheme provides for an unconditional and irrevocable State guarantee for certain eligible liabilities (“Eligible Liabilities”) incurred by institutions participating in the Guarantee Scheme. The Eligible Liabilities may be any of the following:

  1.  all deposits (to the extent not covered by deposit protection schemes in Ireland or any other jurisdiction – In Ireland certain retail deposits of up to €100,000 are guaranteed under a deposit guarantee scheme which does not have an end date);
  2.  senior unsecured certificates of deposit;
  3.  senior unsecured commercial paper; and
  4.  other senior unsecured bonds and notes.

Certain subordinated debt and asset covered securities (including other forms of covered bonds) which were previously guaranteed under the Original Guarantee Scheme which expired on 29 September 2010 are not covered by the Guarantee Scheme.

In order to qualify as an Eligible Liability, the liabilities:

  1.  must not have a maturity date in excess of five years; and
  2.  must be incurred during an “issuance window” in the period which commenced on 9 December 2009 and which has now been extended to 30 June 2011.

In respect of Eligible Liabilities other than deposits, securities:

  1.  must not contain an event of default constituted by cross-default or cross-acceleration; and
  2.  must be single currency denominated in one of Euro, Sterling, or US Dollars or any other currency approved by the Minister for Finance (the “Minister”). An Eligible Liability issued under a programme may be issued in any currency permitted by the programme documentation.

Deposits

At present, on demand retail deposits which are covered under the deposit guarantee scheme are guaranteed (in respect of amounts exceeding the €100,000 threshold) under the Guarantee Scheme until 30 June 2011. In addition, retail term deposits taken out between the date an institution joined the Guarantee Scheme and 30 June 2011 are covered until maturity (up to a maximum term of 5 years) on the same basis.

The Minister may, at the request of a Participating Institution, limit the application of the guarantee to certain types or categories of deposits. As such, it may be open for a Participating Institution to take certain deposits on an unguaranteed basis. Otherwise a blanket guarantee will apply in respect of all deposits incurred or rolled-over by a Participating Institution regardless of their type, nature or identity of the depositor.

Other securities

In respect of Eligible Liabilities other than deposits, Participating Institutions must apply to the NTMA (as scheme operator) for a guarantee certificate (“Guarantee Certificate”) for each specific debt security it issues and wishes to be guaranteed under the Guarantee Scheme. A Guarantee Certificate may then be issued at the NTMA’s discretion. A Guarantee Certificate may also be applied to a security issued under a programme. Participating Institutions may therefore also issue Eligible Liabilities on an unguaranteed basis.