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if they nationalised them, they might not have to guarantee the debt on top of the deposits

I agree, ironically; if the government "nationalizes" the 6 "national" (charter, i.e. licensed) banks, meaning purchase equity or bonds, the government will in deed own the banks' debts. The government need not "guarantee"; it is obligated to repay the banks' debts. In general, in legal terms, any "guarantee" otherwise is not executable.

Irish Times:

Tuesday's guarantee offered by the Irish government to its six national banks to safeguard €400 billion of deposits and bank debt

The ratio of deposits (retail plus commercial) to debt is not given. I assume there is a government sponsored agency that reports this aggregated data to the public.

The correspondent implies two distinct insurance mechanisms. One guarantees the banks' demand depositors in the fashion of the FDIC; premiums paid by banks may be calculated to some ratio of non-borrowed level of funds. The second guarantees the banks' debts,  their borrowed funds, in the fashion of the Bailout Bill or commercial, monoline insurance of third-party transactions.

It is the latter case rather than the former, I imagine from which arises claims of competition, especially "first mover" advantage across the pond. As you know, all depositors, foreign and domestic, to US FDIC-insured banks are protected, so to speak.

I'm embarrassed to say that I am surprised that EU banks don't offer depositors insurance. As for debt (bond) insurance, is it possible the government merely means to imitate the US Bailout Bill by offering an extra-layer of protection and incentive to firms to preserve their deposits in Ireland?

Diversity is the key to economic and political evolution.

by Cat on Thu Oct 2nd, 2008 at 08:31:08 AM EST
[ Parent ]
Each EU country has its own guarantee scheme.
Until Northern Rock, the UK was probably the most lousy of all: only 2k£ fully covered, then a 10% haircut up to 30k£, then barenaked.

Most EMU countries have a simple cap at 20k€.

France has a cap at 70k€, I think it's the highest in the EMU. It doesn't need changing I think (and actually sarko has only done talktalktalk, no actual legislation or decree has passed that would raise the cap).


by Pierre on Thu Oct 2nd, 2008 at 08:42:59 AM EST
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Irish Times:

Britain still does not have a comprehensive system of deposit insurance for retail depositors, let alone some temporary guarantee for wholesale depositors as announced yesterday in Ireland

So this PR is a truly about legitimizing insurance for brokered deposits and €400B is estimated flow of money markets through these banks?

Diversity is the key to economic and political evolution.

by Cat on Thu Oct 2nd, 2008 at 09:26:16 AM EST
[ Parent ]
The ratio of deposits (retail plus commercial) to debt is not given.

I think it's about 2:1.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Migeru (migeru at eurotrib dot com) on Thu Oct 2nd, 2008 at 11:35:36 AM EST
[ Parent ]


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