Belfast Telegraph

New bailout rules for failing banks

The Government will have powers to parachute special managers into banks under new laws to oversee the multibillion-euro bailout and reduce the size of troubled finance houses.

Legislation has been published on the 85 billion euro International Monetary Fund/European loan, with 35 billion euro earmarked to shore up banks.

The rules will impose so-called burden-sharing on global money markets, with some subordinated lenders forced to take a hit on loans made to Irish banks.

Finance Minister Brian Lenihan said the Credit Institutions Bill will allow the Government to create a banking system in line with the size of the economy.

"A comprehensive restructuring of the retail banking system in the state is a key pillar of the EU-IMF programme agreement," Mr Lenihan said. "The banking system must play its role in providing the credit to the real economy to support our recovery."

The Government plans to draw down 10 billion euro initially to pay into banks, with another 25 billion euro set aside as a contingency fund.

The Bill will also underpin Mr Lenihan's pledge that much-needed money will only be given to Allied Irish Banks if the controversial 40 million euro bankers' bonuses are scrapped.

The Department of Finance said the legislation allows the minister to issue directions or prevent actions in order to support the Government's banking strategy and to transfer assets and liabilities to facilitate restructuring.

It will also set in stone how the Government can make subordinated liabilities orders, on a case-by-case basis and under particular conditions, to achieve burden-sharing with international lenders.

It said a special manager will only be appointed to a bank "in limited and exceptional circumstances in order to achieve the objectives of the legislation".

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