Why is high-risk money covered by bank guarantee?
Posted on October 08, 2008 at 12:14 PM
It is a week since the emergency legislation was brought in to provide a State guarantee for the banks. When it was brought to the House we were told the Government would bring in a scheme this week to set down the conditions under which that guarantee was provided.
Now we find the scheme is not finalised and it could be next week before we see the terms of that scheme. This was the issue raised by Labour Leader Eamon Gilmore this morning during Leaders' Questions in the Dáil.
"We do not know what has been guaranteed, we do not know what the terms and conditions are and we do not know what is coming back to the taxpayer in return for the guarantee," he told the Dáil.
"I want you to clarify for me something that was in the Government statement from September 30th, that is the reference to 'dated subordinated debt, (lower tier two)', this we were told would be subject to the State guarantee. Covering this State guarantee could provide a major financial bonus for very wealthy individuals."
Speaking after the Dáil exchange Eamon said: "I am greatly concerned at the failure of the Taoiseach at Leaders' Questions this morning to clarify why dated subordinated debt has been included in the Government guarantee to banks. He was unable to provide a rationale for the inclusion of this form of quasi-equity in the Irish guarantee scheme."
Dated 'Subordinated' bank debts are bonds issued by banks which are subordinate to (ie rank after) other debts which the banks owes, should the bank fall into receivership or be closed. Another term used to describe it is 'junior debt'
You can view Eamon's contribution in the accompanying video and you can read the full transcript of the Dáil exchange later today on the Oireachtas website. More details about the 'dated subordinated debt' in our website's media centre.
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