New Irish Bank Deposit Guarantee Scheme

By Eoin Fahy , Thursday, 17th September 2009 | 0 comments

One of the aspects of the NAMA announcements yesterday that has got little attention is the significant changes to the current bank deposit guarantee scheme.  The guarantee on all deposits will generally be extended for another five years.  But some bonds and other debt of the banks will not be guaranteed in future.

The announcement of the new scheme came at the same time as the Minister was announcing the details of the NAMA plan.  It is to be called the Eligible Liabilities Scheme (ELG), and so far is only in draft form.  The key differences from the current guarantee scheme are as  follows:

  • Deposits, senior commercial paper, senior certificates of deposit ("CDs")  and other senior liabilities will be guaranteed for five years (the current guarantee expires at the end of September, 2010).
  • Subordinated debt and asset covered securities will NOT be covered by the new guarantee, if the debt is issued after the commencement of the new scheme.  (These securities were covered by the old guarantee, and if they were issued under the old guarantee they will continue to be guaranteed).  This is of relevance to institutional bond investors but not to corporates or individuals who would very rarely invest in these securities.
  • "Senior" bonds and debt will be guaranteed, as in the case of deposits, for five years from the date of issue, if issued before September 2010.
  • Banks can fully or partially opt out of the government guarantee scheme if they wish to do so (in the US and some other countries, banks have opted to issue non--guaranteed debt to prove to the markets that they are 'back to normal' and no longer need government assistance.  This aspect of the new scheme may be designed to facilitate this type of arrangement, although it applies only to deposits).

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