BANKS IN Ireland will be forced to pay a levy to create a special fund to cover the future costs of failed banks, under legislation published yesterday to meet a condition of the EU-IMF bailout.
The Central Bank will be given sweeping powers to take over, run and break up banks under legislation aimed at protecting taxpayers from the cost of a bank failure.
Banks who refuse to contribute to the special resolution fund will face fines of up to €250,000 and can lose their banking licence.
Troubled banks and their directors can face further fines of €10 million if they fail to draft plans – known as “living wills” – to show how they can recover or resolve their financial difficulties.
Bank directors or managers can also face up to five years’ imprisonment for failing to draft the plans. The Central Bank and Credit Institutions (Resolution) Bill will cover all banks in Ireland, including foreign-owned banks and banks in the International Financial Services Centre (IFSC).
Depositors will be given a higher ranking over creditors of a failed bank, but there is nothing specific in the Bill to say that losses will be shared with bondholders.
The new legislation will pass through various amendments when it is debated by the next Dáil.
The Minister for Finance will decide how much banks must pay into the fund to cover the cost of an orderly wind-down of a bank. The powers in the Bill can only be used where an immediate liquidation of a bank would not be in the interests of taxpayers.
The law will supersede the controversial bank restructuring legislation, the Credit Institutions (Stabilisation) Act, which came into force last December, when that legislation lapses at the end of 2012.
Under the new legislation, the Central Bank can appoint a special manager to run a troubled bank and the manager can fire directors, officers, staff or consultants.
Once a manager is in place, the Central Bank must be given at least 90 days’ notice if any party wants to take an action against the bank to recover debts.
The Central Bank can also create “bridge banks” to take control of deposits and loans of a failed bank pending their transfer to another financial institution. It will be able to seek a court ban on media reports on any plans to take control of a bank.
Fines of €100,000 and three years’ imprisonment can be imposed on those who publicly disclose any direction under the law.
