THE GOVERNMENT and Central Bank will seek up to €2 billion in charges from the Irish banks and building societies covered under the State's bank guarantee.
However, the banks will be pressing to cap the charges at about €1 billion, or €500 million over each of the two years of State protection cover.
Last night US president George Bush signed into law a controversial package that will enable his government to inject $700 billion into the financial system by buying "toxic" mortgage assets from vulnerable banks.
The House of Representatives strongly endorsed revised legislation yesterday which was expanded to include more than $152 billion in tax breaks. The original bailout package was voted down last Monday.
The Irish guarantee scheme, which will help banks raise money in the funding markets more freely and cheaply, is being designed by Central Bank and Department of Finance officials this weekend. The scheme, once agreed, will be presented to Minister for Finance Brian Lenihan early next week and is likely to be presented to Cabinet on Tuesday.
Central Bank governor John Hurley said yesterday the banks using the guarantee would pay a "substantial fee" and will be subject to conditions. He said the guarantee aimed to ensure financial stability at minimum cost to the taxpayer.
"The price should reflect a market-based assessment of the benefits to the banks covered by the guarantee and thereby minimise any impact on banks not covered by the guarantee," he said. Mr Hurley said the charge should "minimise moral hazard implications such that the banking system will not take on additional risks on the back of this guarantee".
AIB, Bank of Ireland, Anglo Irish Bank, Irish Life Permanent, Irish Nationwide and EBS building society are covered by the guarantee, while Ulster Bank, Bank of Scotland (Ireland)-Halifax, Danish-owned National Irish Bank and Belgian-owned IIB Bank have applied to be covered. Higher charges are likely to be applied to lenders which are regarded as higher risk and have a greater exposure to the declining commercial property markets.
Department of Finance officials have indicated to the guaranteed banks that they would be seeking an annual charge equal to 0.2 per cent of the €400 billion in deposits and debts covered under the scheme.
The liabilities could rise to about €500 billion if the foreign-owned Irish institutions which have applied to be covered are also protected. This would mean banks paying a total of €2 billion over the two-year period.
The banks will press for the annual charges to be set at about 0.1 per cent of liabilities, for each of the two years.
Taoiseach Brian Cowen last night warned the Government would not tolerate any abuse by the banks of its guarantee scheme. Mr Cowen said that the action of Michael Fingleton jnr, son of Irish Nationwide chief executive Michael Fingleton, in sending an e-mail which stated that the building society was now the "safest place to deposit money in Europe" was "not acceptable behaviour". "The whole purpose of providing the State guarantee was not to allow for predatory practice," Mr Cowen said.
