'We had to act to save the entire system' (Irish Independent)

04 November 2011

Taoiseach Brian Cowen yesterday passionately defended the Government's multi-billion guarantee to the country's six banks.

An emotional Mr Cowen told the Dail that the greatest risk to the stability of Ireland's financial system was to do nothing.

Although accepting that urgent action was required, Fine Gael and Labour claimed the Government was effectively asking the taxpayers of Ireland to underwrite a €400bn guarantee, so that banks can chase their own losses.

The guarantee was the equivalent of up to €250,000 per taxpayer, they argued.

However, the Taoiseach stressed that the guarantee on all deposits and borrowings had not been "given lightly" and would come at a price for the banking sector.

"Regarding the risks, the greatest risk to the stability of the financial system of this country was, undoubtedly, on the basis of my very detailed discussions, looking at all the issues with the Minister for Finance and others yesterday evening after close of business, until the decision was made in the early hours of this morning, to do nothing," he said.

"In the office that I hold, I could not absolve myself from the responsibility of making the decisions. On the advice of the relevant people who have the competent authority in this area, I had to make that decision."

In what was one of his most robust and passionate Dail displays since becoming Taoiseach, Mr Cowen said the guarantee would ensure that banks have access to liquidity and funds to conduct their business, on the basis that they are banking institutions which have assets that exceed their liabilities.

"The state guarantee is provided at a price. It is not for free. The state guarantee will have a mechanism whereby a fee reflecting commercial realities will have to be paid by those banks which may access the liquidity provided by the Central Bank," he said.

Although broadly supportive of the government's move, Fine Gael leader Enda Kenny pressed the Taoiseach for more detailed information, and asked if the government would appoint representatives to the risk management committees of all the banks.

Such appointments would ensure that banks which involved themselves in profligate and risky lending will not double their bets guaranteed by the government, Mr Kenny said.

"What is in this for the taxpayer? What is the equity he or she will get? Will the Taoiseach say that, for the duration of this guarantee, there will be no more bonuses, dividends or derivative trading?" he asked.

"We do not want a situation where the gains are privatised and losses socialised."

Labour leader Eamon Gilmore claimed that yesterday's decision followed a decade of corporate greed, property speculation and irresponsible banking. While accepting that action was required to deal with the crisis in the banking and financial markets, Mr Gilmore said he had serious concerns about a guarantee which is almost three times Ireland's national income.

"It is a guarantee that, if it were called in full, would take 37 years of income tax receipts to clear," he said.

"I can see what is in it for the six bank chief executives, who between themselves earn €13m a year. I cannot see what is in it for the people or the taxpayers who may yet foot the bill."