Can someone explain something about the Anglo Bailout?

clairefontaine

Why is it necessary? What would have happened if they were not bailed out?

How legally were they able to make private debt public? It's not as if you can get your mother in law to pay your debts so how was the government able to transfer debt from from the hands of one to another?

Maybe this has already been explained, but whatever explaining has been done - its still very confusing and I know these are naive questions, but I'm perplexed.

Thank you for reading.

squod

clairefontaine wrote: »

Why is it necessary? What would have happened if they were not bailed out?

How legally were they able to make private debt public? It's not as if you can get your mother in law to pay your debts so how was the government able to transfer debt from from the hands of one to another?

Maybe this has already been explained, but whatever explaining has been done - its still very confusing and I know these are naive questions, but I'm perplexed.

Thank you for reading.

It wasn't necessary in the case of Anglo. I'm sure this has been covered several times since 2008. Why do you ask now??

http://www.rte.ie/news/2011/0425/economy.html

clairefontaine

That link doesn't offer any explanation. It only says that Burton wanted an inquiry.

I would have thought that transfer of private debt to public was illegal.

I guess no one knows.

squod

There has been court challenges to these bail-outs. Are you posting from outside the country or whats the story?

Geuze

The Govt decided to guarantee the liabilities of several banks.

I'm assuming that they passed laws in the parliament to do this.

hmmm

clairefontaine wrote: »

Why is it necessary? What would have happened if they were not bailed out?

The fear at the time was that there would have been a run on Irish banks which would have caused them all to collapse. That would have meant everyone (including depositors) losing, and the loss of what is a critical public service. It would have untold knock-on effects to the economy.

Why Anglo was bailed out is still debated. The government of the day would say that they were advised that they couldn't pick and choose which banks to guarantee, so they guaranteed the whole system.

How legally were they able to make private debt public? It's not as if you can get your mother in law to pay your debts so how was the government able to transfer debt from from the hands of one to another?

They guaranteed the debt, in the same way as a parent might go guarantor on a child's mortgage. In this case, the children were the developers and the property owners and whoever else had debts with the bank.

Again the government of the day argue that they were unaware of the real problems in the Irish banks - they thought it was a liquidity problem, not a solvency problem - i.e. the problem was cash flow related, whereas the assets of the banks were just fine.

Anyone with half a brain in 2007 who could see the property bubble knew this was wrong, but most of the country were too busy counting their fortunes in "equity".

GCU Flexible Demeanour

hmmm wrote: »

They guaranteed the debt, in the same way as a parent might go guarantor on a child's mortgage. In this case, the children were the developers and the property owners and whoever else had debts with the bank.

I think its fair to point out that the people actually guaranteed were the depositors and bondholders, who would be the ones who gave Anglo the money to lend. What the guarantee amounted to was a statement that, should Anglo be incapable of repaying any depositors or bondholders, the State would do so instead.

On the legality aspect, I think it is important to remember that the Guarantee was voted on in Dail Eireann. The Government could not commit State funds without Dail approval - but they got it, so it's lawful.

antoobrien

clairefontaine wrote: »

How legally were they able to make private debt public?

That is not what happened. The rescue of Anglo is to pay back money that they had borrowed from the Irish Central bank (who happen to be a far bigger creditor than the bondholders), so the taxpayer was going to lose out regardless of whom it is perceived as benefiting.

If the money was written off (illegal due to EU competition law) the taxpayer was losing the 30+ billion it had already loaned to Anglo through the ICB. This would also have damaged the ICB's ability to do one of its primary jobs and act as a lender of last resort - helping to keep the financial system alive. And we'd have had to recapitalise the ICB instead of Anglo (which is the actual purpose of the PNs).

All the rescue of Anglo did was shift the perceptions around the failure of ango and its impact - the taxpayer was always going to fund it.

GCU Flexible Demeanour

antoobrien wrote: »

The rescue of Anglo is to pay back money that they had borrowed from the Irish Central bank (who happen to be a far bigger creditor than the bondholders), so the taxpayer was going to lose out regardless of whom it is perceived as benefiting.

Interesting aspect, and I'm not particularly disputing it as I do recall comment on the extent to which EU Central Banks accepted dodgy collateral from banks in exchange for liquidity.

But what I think is also interesting is how, when posed a straightforward question in the OP, we've come up with different answers - or, at least, answers that highlight very different aspects.

So, indeed, a good question that highlights how we still don't really have an agreed narrative, that everyone knows and understands.

NAP123

clairefontaine wrote: »

Why is it necessary? What would have happened if they were not bailed out?

How legally were they able to make private debt public? It's not as if you can get your mother in law to pay your debts so how was the government able to transfer debt from from the hands of one to another?

Maybe this has already been explained, but whatever explaining has been done - its still very confusing and I know these are naive questions, but I'm perplexed.

Thank you for reading.

The answer is, nothing would have happened.

Anglo was a private merchant bank. It had no impact whatsoever on the actual Irish real banking industry.

The only reason it was saved was because all of the banks had become Anglos and the cretins running these banks convinced the cretins running the country that the country would collapse if Anglo/them were not saved.

Of course the country would be far better off today if it allowed Anglo and the other banks to collapse.

The banks would have been liquidated or saved, every shareholder would have been burned, every bondholder would have got 10 cents for the euro, as would every depositor and the Govt could then have come up with a scheme to re imburse deposit holders for a certain amount and over a desired amount of time.

Bondholders would have suffered a deserved loss and depositors would have suffered a time lapse and a possible 10% loss.

Ireland would have not have entered into a bailout, it would not have lost the faith of the sovereign lenders and would not be in thrall to the gangsters in the EU/ECB.

AlmightyCushion

NAP123 wrote: »

The answer is, nothing would have happened.

Anglo was a private merchant bank. It had no impact whatsoever on the actual Irish real banking industry.

The only reason it was saved was because all of the banks had become Anglos and the cretins running these banks convinced the cretins running the country that the country would collapse if Anglo/them were not saved.

Of course the country would be far better off today if it allowed Anglo and the other banks to collapse.

The banks would have been liquidated or saved, every shareholder would have been burned, every bondholder would have got 10 cents for the euro, as would every depositor and the Govt could then have come up with a scheme to re imburse deposit holders for a certain amount and over a desired amount of time.

Bondholders would have suffered a deserved loss and depositors would have suffered a time lapse and a possible 10% loss.

Ireland would have not have entered into a bailout, it would not have lost the faith of the sovereign lenders and would not be in thrall to the gangsters in the EU/ECB.

http://www.rte.ie/news/2012/1115/deposits-in-irish-covered-banks-up-1-5bn-business.html

Deposit levels in the banks are currently at €155 billion. I don't know what they were at when the bailout happened but I can't imagine it was significantly lower. Where do you propose the government would get this money? Also, losing the banks and deposits, even if only temporarily, would cause mayhem. Just look at all the hassle caused when Ulster bank were having problems with their system's. Combine that with losing access to deposits/credit would kill a lot of SMEs.

NAP123

AlmightyCushion wrote: »

http://www.rte.ie/news/2012/1115/deposits-in-irish-covered-banks-up-1-5bn-business.html

Deposit levels in the banks are currently at €155 billion. I don't know what they were at when the bailout happened but I can't imagine it was significantly lower. Where do you propose the government would get this money? Also, losing the banks and deposits, even if only temporarily, would cause mayhem. Just look at all the hassle caused when Ulster bank were having problems with their system's. Combine that with losing access to deposits/credit would kill a lot of SMEs.

The Govt/taxpayer has no obligation to pay the debts of private banks.

The fact that the Govt/taxpayers guaranteed the debts of private banks has bankrupted the country and a lot of taxpayers that never even had a deposit worth losing or a mortgage.

Where did the Govt get the money to save the Banks?

If the Govt had agreed a plan to reimburse deposit holders a certain amount over a period of time, it would never have had to go bankrupt.

People with money on deposit do not expect to get it tomorrow.

As for your silly comparison of Ulster Bank, it just goes to show how the rest of the world can survive without banks. It was merely an inconvenience, nothing more.

The world did not end.

Scofflaw

AlmightyCushion wrote: »

http://www.rte.ie/news/2012/1115/deposits-in-irish-covered-banks-up-1-5bn-business.html

Deposit levels in the banks are currently at €155 billion. I don't know what they were at when the bailout happened but I can't imagine it was significantly lower. Where do you propose the government would get this money? Also, losing the banks and deposits, even if only temporarily, would cause mayhem. Just look at all the hassle caused when Ulster bank were having problems with their system's. Combine that with losing access to deposits/credit would kill a lot of SMEs.

At the time of the bailout the total of deposits in the covered banks was €356bn. That breaks down as €239bn Irish deposits, €8bn eurozone deposits, and €108bn rest of world.

The standard deposit guarantee scheme would have covered about 60% of those deposits at the time - the rest would have been covered (still are) by the ELG. The amount of money in the deposit guarantee scheme funds is some paltry amount by comparison, which means that paying back the deposits would have required calling in the banks' assets (loans) or selling them to the highest bidder at some discount. The resulting shortfall would probably have been at least as large as the bank bailout, and would have been accompanied by an enormous amount of economic disruption.

cordially,
Scofflaw

NAP123

Scofflaw wrote: »

At the time of the bailout the total of deposits in the covered banks was €356bn. That breaks down as €239bn Irish deposits, €8bn eurozone deposits, and €108bn rest of world.

The standard deposit guarantee scheme would have covered about 60% of those deposits at the time - the rest would have been covered (still are) by the ELG. The amount of money in the deposit guarantee scheme funds is some paltry amount by comparison, which means that paying back the deposits would have required calling in the banks' assets (loans) or selling them to the highest bidder at some discount. The resulting shortfall would probably have been at least as large as the bank bailout, and would have been accompanied by an enormous amount of economic disruption.

cordially,
Scofflaw

Can you prove that or are you just guessing?

Every economic expert, including our own Governor of the Central Bank reckons the bank guarantee was an unmitigated disaster.

The only people that do not are Brian Cowen, Brian Lenihan, the Bank Executives and Indecon.

Which one are you?

Scofflaw

NAP123 wrote: »

Can you prove that or are you just guessing?

The amount of deposits in the covered banks is available on a month by month basis from the Central Bank. The coverage of deposit schemes is in various studies (here, for example) and in the details of the ELG scheme (see here).

The rest is pretty logical - if the banks didn't have the cash to cover the deposits, and they didn't, then they'd have to call in or sell their loan books. As to the disruption - AIB and BOI between them cover 70%+ of transactions in the country, banks like Ulster are tiddlers.

NAP123 wrote: »

Every economic expert, including our own Governor of the Central Bank reckons the bank guarantee was an unmitigated disaster.

The only people that do not are Brian Cowen, Brian Lenihan, the Bank Executives and Indecon.

Which one are you?

None of the above - I'm not even talking about the CIFS.

cordially,
Scofflaw

hinault

Scofflaw wrote: »

At the time of the bailout the total of deposits in the covered banks was €356bn. That breaks down as €239bn Irish deposits, €8bn eurozone deposits, and €108bn rest of world.

The standard deposit guarantee scheme would have covered about 60% of those deposits at the time - the rest would have been covered (still are) by the ELG. The amount of money in the deposit guarantee scheme funds is some paltry amount by comparison, which means that paying back the deposits would have required calling in the banks' assets (loans) or selling them to the highest bidder at some discount. The resulting shortfall would probably have been at least as large as the bank bailout, and would have been accompanied by an enormous amount of economic disruption.

cordially,
Scofflaw

According to the Central Bank of Ireland at September 2008, there were €616
billion of liabilities, of which €232 Billion belonged to Irish Residents in the form of deposits throughout the 6 covered lenders (see Table A 4.2 Covered banks liabilities September 2008 http://www.centralbank.ie/polstats/stats/cmab/Pages/Money%20and%20Banking.aspx)

Victor

NAP123 wrote: »

The banks would have been liquidated or saved, every shareholder would have been burned, every bondholder would have got 10 cents for the euro, as would every depositor and the Govt could then have come up with a scheme to re imburse deposit holders for a certain amount and over a desired amount of time.

Bondholders would have suffered a deserved loss and depositors would have suffered a time lapse and a possible 10% loss.

While it may have depended on the exact mechanism of the bond, the bond holders and ordinary depositors had to be treated the same.

Scofflaw

Victor wrote: »

While it may have depended ont eh exact mechanism of the bond, the bond holders and ordinary depositors had to be treated the same.

So the government said throughout:

Deputy Brian Lenihan: The Attorney General provided advice with regard to legislative arrangements in respect of the treatment of bondholders in resolution law. His advice is that in the context of such resolution regimes, it is possible — in appropriately drawn circumstances — to give priority to the investment of taxpayers over subordinated debt in a distressed institution. In the case of senior bondholders, however, it is not possible to give such a priority because, in our legal tradition and that of the United Kingdom, the holders of these instruments rank equally with deposit holders. In other words, they rank as general creditors. I do not want to use the Latin word lawyers always use in this context. I prefer to say that they rank equally or rateably with each other.

...

Apart altogether from the legal considerations, there are also policy considerations that come into play in respect of why the State should not and cannot countenance any suggestion of coercion or default with regard to senior debt.

http://debates.oireachtas.ie/dail/2010/09/30/00013.asp (at the expiry of the CIFS).

cordially,
Scofflaw

NAP123

Victor wrote: »

While it may have depended ont eh exact mechanism of the bond, the bond holders and ordinary depositors had to be treated the same.

Only by the Bank.

The Govt was under no such obligation. Parri Passu only applies to the treatment of deposit holders and bondholders in the event of a liquidation.

The Govt can decide post liquidation to reimburse or not whoever and whatever it decides.

GCU Flexible Demeanour

NAP123 wrote: »

The Govt can decide post liquidation to reimburse or not whoever and whatever it decides.

Would it be relevant to point out that the Deposit Guarantee Scheme only covered retail depositors, and not bondholders?

http://www.finance.gov.ie/viewdoc.asp?DocID=5466

The Deposit Protection Scheme currently covers:
• current accounts;
• demand deposit accounts;
• term deposit accounts; and
• share accounts with building societies (other than shares which fall within the definition of own funds)
held with banks, building societies and other types of deposit-taking institutions (other than credit unions) regulated by the Financial Regulator. It is now being extended to include share and deposit accounts in credit unions.

antoobrien

NAP123 wrote: »

Only by the Bank.

The Govt was under no such obligation. Parri Passu only applies to the treatment of deposit holders and bondholders in the event of a liquidation.

The Govt can decide post liquidation to reimburse or not whoever and whatever it decides.

Not true & dangerously naive to boot.

Parri Passu applies within tiers - i.e. in the event of bankruptcy all senior bondholders would get the same (relative) payment, all depositors would get the same (relative), etc but a lower ranked creditor tier would not be entitled to the same deal as higher ranked tier.

The Irish (and afaik most international) ranking of debt is:
senior bonds
retail deposits
various junior & subordinated bonds

AFAIK Ireland do not distinguish between the various types of senior bondholder (guaranteed, unguaranteed secured & un-un), so the government may not only have under an obligation to honour senior debt,
also may have been open to litigation under Irish and EU law had they not done so. As it is they were sued over the various classes of junior & other subordinated debt that was given a haircut.

Scofflaw

NAP123 wrote: »

Only by the Bank.

The Govt was under no such obligation. Parri Passu only applies to the treatment of deposit holders and bondholders in the event of a liquidation.

The Govt can decide post liquidation to reimburse or not whoever and whatever it decides.

Sorry - pari passu applies "in the event of a liquidation", but the government can decide "post liquidation" who to reimburse? Do you mean that the government can liquidate the company, treating bondholders and depositors equally, and then, once the company has been wound up, separately decide to reimburse the depositors but not the bondholders?

That's not going to work. If the government subsequently reimburses the depositors because they were depositors, then the bondholders have clearly not been treated equally at the time of liquidation, because no such further arrangements were made for them. The government could in theory pretend that it was simply giving people some money just, you know, because it liked them and was sad they'd suffered, but the moment the money is in any way related to their deposits - whether by amount or by who gets money - the fiction breaks down, and the bondholders have a clear case.

cordially,
Scofflaw

squod

It was pretty clear from day one that a small bank like Anglo with massive debts shouldn't have been included in any scheme like the guarantee scheme of 2008.

Godge

squod wrote: »

It was pretty clear from day one that a small bank like Anglo with massive debts shouldn't have been included in any scheme like the guarantee scheme of 2008.

Yes, but FF and the Greens did not do so. We must never forget that.

GCU Flexible Demeanour

Scofflaw wrote: »

Sorry - pari passu applies "in the event of a liquidation", but the government can decide "post liquidation" who to reimburse? Do you mean that the government can liquidate the company, treating bondholders and depositors equally, and then, once the company has been wound up, separately decide to reimburse the depositors but not the bondholders?

But isn't this exactly what the Deposit Guarantee Scheme does? I still don't get where the requirement to treat both bondholders and depositors comes in, when the law quite clearly does and did distinguish them at the time. AFAIK, the way the Deposit Guarantee Scheme would work is by compensating depositors, with the assumption that the Scheme will recoup what it can from the liquidation of the bank. It contained no similar provision for bondholders - and the scheme is based on an EU Directive; in other words, this is how deposit protection works in every EU country.

Scofflaw

GCU Flexible Demeanour wrote: »

But isn't this exactly what the Deposit Guarantee Scheme does? I still don't get where the requirement to treat both bondholders and depositors comes in, when the law quite clearly does and did distinguish them at the time. AFAIK, the way the Deposit Guarantee Scheme would work is by compensating depositors, with the assumption that the Scheme will recoup what it can from the liquidation of the bank. It contained no similar provision for bondholders - and the scheme is based on an EU Directive; in other words, this is how deposit protection works in every EU country.

That's a good point, and clarifies something I was making muddled by focusing only on bank assets - I was using pari passu at face value there, because the discussion seemed to be about using the assets of the banks to pay off bondholders and depositors, whereas Deposit Guarantee Funds aren't part of the assets of the banks, but a separate fund that the banks pay into, and which has been established for that purpose.

So, yes, as long as the government is using money that isn't bank assets, the government can, as NAP123 says, decide afterwards who to compensate, and can therefore make up the shortfall in deposits. In the event of liquidating the banks and fire-saling their assets, that strikes me as an even more expensive option than the one that was chosen.

cordially,
Scofflaw

GCU Flexible Demeanour

Scofflaw wrote: »

In the event of liquidating the banks and fire-saling their assets, that strikes me as an even more expensive option than the one that was chosen.

Possibly, and certainly I'm not suggesting that it would all be easy peasy if only the State didn't give a guarantee. However, liquidations don't necessarily require a fire sale of assets.

And, bear in mind, the OP is about Anglo. Would I be right in saying that people, at some level, accept that the State needed to take some action to keep AIB and BoI going, as the payments systems belong to them. There would be a very immediate and noticeable problem if most of the country suddenly couldn't operate their current accounts.

Isn't this that whole debate around Brian Lenihan describing Anglo as "systemic"? Anglo didn't have any significant role in providing payments services. It mostly made property-related loans.

Again, I do appreciate these issues are complex, and I do accept its all easy to say in a post. But don't folk say that some alternative approach could have been taken with respect to Anglo, as it wasn't "systemic" in any meaningful sense. For instance, the Bank could have been given to the bondholders, so that they would effectively have to pursue the developers for repayment of their loans instead of NAMA doing it.

Scofflaw

GCU Flexible Demeanour wrote: »

Possibly, and certainly I'm not suggesting that it would all be easy peasy if only the State didn't give a guarantee. However, liquidations don't necessarily require a fire sale of assets.

Under the circumstances of the time, and considering the rather pressing need to get the depositors as much as possible as soon as possible, the choices strike me as either fire-sales of assets or putting state money in to fill the gap to make better sales later. Again, neither strikes me as cheaper than what happened.

GCU Flexible Demeanour wrote: »

And, bear in mind, the OP is about Anglo. Would I be right in saying that people, at some level, accept that the State needed to take some action to keep AIB and BoI going, as the payments systems belong to them. There would be a very immediate and noticeable problem if most of the country suddenly couldn't operate their current accounts.

Isn't this that whole debate around Brian Lenihan describing Anglo as "systemic"? Anglo didn't have any significant role in providing payments services. It mostly made property-related loans.

That's very much the case - and Anglo is also the biggest single portion of the money:

AIB/EBS: €20.7bn
BOI: €4.7bn
IL&P: €2.7bn
Anglo/INBS: €34.7bn

Without Anglo, our bank bailout would have been half its current cost. As far as we know, Anglo was included for a couple of basic reasons - that it was systemic to the other banks, that allowing any bank to fail might have brought others down by contagion, and that the estimated maximum risk was somewhere around €8bn (from memory).

My problem has not been so much with the actual inclusion of Anglo, although I'd obviously rather that hadn't happened, but with the fact that the government didn't know not to include Anglo - that is, that they entered into the whole process with a deficient appreciation of the actual position of the banks, and the risks involved in their strategy. And that, in turn, seems to have been the result of regulatory failures over years beforehand - excessive reliance on self-regulation, a regulator with conflicting roles, groupthink and regulatory capture.

GCU Flexible Demeanour wrote: »

Again, I do appreciate these issues are complex, and I do accept its all easy to say in a post. But don't folk say that some alternative approach could have been taken with respect to Anglo, as it wasn't "systemic" in any meaningful sense. For instance, the Bank could have been given to the bondholders, so that they would effectively have to pursue the developers for repayment of their loans instead of NAMA doing it.

Well, you wouldn't have given it to the bondholders particularly, since the covered banks tended towards a 5:1 ratio of deposits to bonds - but handing it over to the creditors to get what they could out of it might have worked.

cordially,
Scofflaw

GCU Flexible Demeanour

Scofflaw wrote: »

Under the circumstances of the time, and considering the rather pressing need to get the depositors as much as possible as soon as possible, the choices strike me as either fire-sales of assets or putting state money in to fill the gap to make better sales later. Again, neither strikes me as cheaper than what happened.

Oh, I'm sure there would be implications. Am I right that, in some places, they've dealt with this kind of thing by placing limitations on the ability of people to withdraw deposits. And, to an extent, that raises a question that I don't think gets much attention. We hear a lot about bondholders. But, as you say, a huge amount of the money is in the form of deposits. So, it seems fair to say, quite an amount of the 'bailout' is about giving depositors back their money. Arguably, if I put my money into a bank and didn't ask too much about how they could afford to give me interest, I should have to wait around until they manage to sell the last house in some estate in Longford before making a withdrawal. I don't remember anyone commenting, every, on the possibility of depositors taking a haircut.

Scofflaw wrote: »

My problem has not been so much with the actual inclusion of Anglo, although I'd obviously rather that hadn't happened, but with the fact that the government didn't know not to include Anglo - that is, that they entered into the whole process with a deficient appreciation of the actual position of the banks, and the risks involved in their strategy.

This is a fair point, and I think it could probably be observed that a decision to exclude Anglo would have effectively closed it down on the spot - and that might have seemed like mad talk on the night.

Scofflaw

GCU Flexible Demeanour wrote: »

Oh, I'm sure there would be implications. Am I right that, in some places, they've dealt with this kind of thing by placing limitations on the ability of people to withdraw deposits. And, to an extent, that raises a question that I don't think gets much attention. We hear a lot about bondholders. But, as you say, a huge amount of the money is in the form of deposits. So, it seems fair to say, quite an amount of the 'bailout' is about giving depositors back their money. Arguably, if I put my money into a bank and didn't ask too much about how they could afford to give me interest, I should have to wait around until they manage to sell the last house in some estate in Longford before making a withdrawal. I don't remember anyone commenting, every, on the possibility of depositors taking a haircut.

Heavens, no! That's mad talk right there - after all, bank deposits are something we all have, so we might get caught up in any sort of writedown of those. Bondholders, as we all know, are some quare sort of alien species, and we know we're not them, so hitting their pockets is pain-free.

When you think about it, though, bondholders aren't any kind of reason for propping up a bank - they can't withdraw their money from it before the maturity date. Deposits, on the other hand, can flow away overnight. And the guarantee stabilised the deposit situation for its duration - but when it ended, deposits crashed:

GCU Flexible Demeanour wrote: »

This is a fair point, and I think it could probably be observed that a decision to exclude Anglo would have effectively closed it down on the spot - and that might have seemed like mad talk on the night.

It probably did - there's an interview with David Drumm somewhere, which makes it clear he thought the problem was very much a temporary one, which could be papered over by something like the guarantee.

cordially,
Scofflaw

NAP123

GCU Flexible Demeanour wrote: »

Would it be relevant to point out that the Deposit Guarantee Scheme only covered retail depositors, and not bondholders?

There was also a guarantee that covered bondholders, so no it would not be relevent.

NAP123

Scofflaw wrote: »

Sorry - pari passu applies "in the event of a liquidation", but the government can decide "post liquidation" who to reimburse? Do you mean that the government can liquidate the company, treating bondholders and depositors equally, and then, once the company has been wound up, separately decide to reimburse the depositors but not the bondholders?

That's not going to work. If the government subsequently reimburses the depositors because they were depositors, then the bondholders have clearly not been treated equally at the time of liquidation, because no such further arrangements were made for them. The government could in theory pretend that it was simply giving people some money just, you know, because it liked them and was sad they'd suffered, but the moment the money is in any way related to their deposits - whether by amount or by who gets money - the fiction breaks down, and the bondholders have a clear case.

cordially,
Scofflaw

No. The Govt does not have to get involved until after the private bank is liquidated.

Even after a nationalisation the Govt is under no obligation to honour previously acquired debt, although it is obligated honour parri passu any debt acquired post nationalisation.

antoobrien

NAP123 wrote: »

There was also a guarantee that covered bondholders, so no it would not be relevent.

There are two, the original announced in 2008 and the newer scheme announced in 2010.

GCU Flexible Demeanour

NAP123 wrote: »

There was also a guarantee that covered bondholders, so no it would not be relevent.

Apologies, I'm not being clear. I mean the deposit guarantee scheme that Ireland, in common with all EU States, was obliged to establish on foot of an EU Directive in 1994, long before any crisis. It only applied to deposits - and even allowed certain kinds of deposit to be excluded from protection

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31994L0019:EN:HTML
ANNEX I
List of exclusions referred to in Article 7 (2)
1. Deposits by financial institutions as defined in Article 1 (6) of Directive 89/646/EEC.
2. Deposits by insurance undertakings.
3. Deposits by government and central administrative authorities.
4. Deposits by provincial, regional, local and municipal authorities.
5. Deposits by collective investment undertakings.
6. Deposits by pension and retirement funds.
7. Deposits by a credit institution's own directors, managers, members personally liable, holders of at least 5 % of the credit institution's capital, persons responsible for carrying out the statutory audits of the credit institution's accounting documents and depositors of similar status in other companies in the same group.
8. Deposits by close relatives and third parties acting on behalf of the depositors referred to in 7.
9. Deposits by other companies in the same group.
10. Non-nominative deposits.
11. Deposits for which the depositor has, on an individual basis, obtained from the same credit institution rates and financial concessions which have helped to aggravate its financial situation.
12. Debt securities issued by the same institution and liabilities arising out of own acceptances and promissory notes.
13. Deposits in currencies other than:
- those of the Member States,
- ecus.
14. Deposits by companies which are of such a size that they are not permitted to draw up abridged balance sheets pursuant to Article 11 of the Fourth Council Directive (78/660/EEC) of 25 July 1978 based on Article 54 (3) (g) of the Treaty on the annual accounts of certain types of companies (1).

You'll appreciate, the fact that specific and binding EU legislation demanded that every Member State had a deposit guarantee scheme, and even allowed for discrimination between certain classes of depositor, does not sit well with the contention that the State had no discretion in deciding who to protect. There was a specific obligation, under that Directive, to give protection to retail depositors up to €20,000. After that, it seems to have been entirely discretionary.

NAP123

GCU Flexible Demeanour wrote: »

Apologies, I'm not being clear. I mean the deposit guarantee scheme that Ireland, in common with all EU States, was obliged to establish on foot of an EU Directive in 1994, long before any crisis. It only applied to deposits - and even allowed certain kinds of deposit to be excluded from protection You'll appreciate, the fact that specific and binding EU legislation demanded that every Member State had a deposit guarantee scheme, and even allowed for discrimination between certain classes of depositor, does not sit well with the contention that the State had no discretion in deciding who to protect. There was a specific obligation, under that Directive, to give protection to retail depositors up to €20,000. After that, it seems to have been entirely discretionary.

Yes it was discretionary.

The blanket guarantee, guaranteed all of the banks deposits and bandholders. Even the subordinated bondholders feel that they have a case good enough to take to court.

The Govt had guaranteed deposits up to 100k before the blanket guarantee, but seemingly all retail deposits were guranteed to an unlimited amount post guarantee.

It always struck me as odd that the advice of financial experts was not to have any more than 100k on deposit with an individual bank, yet you can have billions in bonds. Yet deposits and bonds were considered parri passu.

But of course as I have explained, parri passu only applies to a bank in liquidation and does not apply to Govt Guarantees.

Something the Govt, have not been totally honest about.

I wonder why?