A new era dawns for the Republic of Ireland’s banking sector after last night's £21bn cash injection.
The move to radically reform the Irish banking sector — bringing the total cost of bailing out its banks to £62bn — is designed to win back confidence from international money markets who have been nervous about funding Ireland’s financial institutions.
In a joint statement, the EU, the ECB and the IMF said it was “a major step towards restoring the Irish banking system to health” and said they could provide whatever money was needed “comfortably under the program supported by the EU and IMF”.
Investors rushed to buy bonds in Irish banks after the new government in Dublin signalled bondholders would not be hit, as it set out a new banking landscape focusing solely on two main banks, AIB and Bank of Ireland. Taoiseach Enda Kenny said that this “burden sharing” had been ruled out because AIB and Bank of Ireland needed to be able to raise money in the markets again in the future.
All eyes will be on the markets today as they react to the changes.
But the Irish government was dealt a blow when its attempt to get a long-term deal to fund the banks from the European Central Bank failed.
And fears were expressed about the exposure of the banks to heavy future mortgage losses.
Details of the restructuring include:
- EBS building society will now be forced together with AIB, the country's second largest bank.
- Bank of Ireland must raise £3.7bn by mid June or it will be nationalised like AIB.
- Irish Life & Permanent has two weeks to draw up a plan to sell its life business and shrink the group into a small bank.
- AIB/EBS and Bank of Ireland must lend £10.6bn to small and medium sized businesses.
- No bank bonuses to be paid in the future.
Under the reform plans, however, thousands of jobs were under threat.
Central Bank Governor Patrick Honohan said the pumping of more Irish taxpayers' cash into the banks “doesn't score highly on fairness”, but the State was left with no choice but to rescue the banks once more.