in 2011 At the end of September 2010 the 2008 guarantee covering the six bailed out banks expired. Prior to the lapsing of the
Credit Institutions (Financial Support) Act 2008 the Credit Institutions (Eligible Liabilities Guarantee) Scheme 2009 (the "ELG Scheme") came into effect on 9 December 2009. The ELG Scheme provides for an unconditional and irrevocable State guarantee for certain eligible liabilities (including deposits over the €100,000 limit of the Deposit Guarantee Scheme) of up to five years in maturity incurred by participating institutions from the date they joined the scheme until the closure of the Scheme on certain terms and conditions. The NTMA was appointed by the Minister for Finance as the ELG Scheme Operator. Just before the expiry of the guarantee, the covered banks faced a huge set of bond repayments – a result of most lenders only lending to the covered banks within the period of the original blanket guarantee – which resulted in a rapid and massive resort to ECB financing. Government ownership, and thus responsibility, for the Irish domestic bank sector reached a high under the guarantee, with Anglo Irish nationalised early in 2009, and Allied Irish Banks(AIB) nationalised at the end of the guarantee. These proved in the long run to be the two most expensive banks to recapitalise, with Anglo accounting for €34.7 billion and AIB €20.7 billion of the bank bailout total of €62.8 billion (55% and 33% respectively). Much (€46.3 billion, or 74%) of the bank bailout was in fact completed by October 2010, but at the time the extent of any further recapitalisations were not known, and the nationalisations committed the government either to go on to cover whatever was needed or face the failure of the banks despite the amount already committed. By October 2010 Irish sovereign bond yields were above 7%, making further market borrowing unrealistic at a time when the government deficit was running at €16.7 billion. Although the government initially denied that there were any problems, and cited themselves as "fully funded well into 2011", in November 2010 the government had to seek a €67.5 billion "bailout" from the
EU, other European countries (via the
European Financial Stability Facility fund and bilateral loans) and the
IMF as part of an €85 billion 'programme'. On 28 November 2010,
European Commission,
European Central Bank (ECB) and the
International Monetary Fund (IMF), colloquially called the European
Troika, agreed with the Irish government in a three-year financial aid programme on the condition of far-reaching
austerity measures to be imposed on the Irish society in order to cut
government expenditure. The agreements were signed on 16 December 2010 by the Irish government and the European Commission. The Irish State assigned €17.5 billion to this 'bailout', an amount that was equal to the Total Discretionary Portfolio of the National Pensions Reserve Fund. The initial interest rates stipulated for the bailout loans were onerous, coming in at around 6% over all the lenders – although these were rapidly adjusted to well below market rates (averaging somewhere around 3% across all lenders). The severity of these initially proposed rates left a lingering shock. While it is generally assumed that EU/IMF bailout was mainly for the banks, this was not ever the intention, and not reflected in the facts. The original bailout agreement marked a portion of the loaned money for any bank recapitalisations – again, this reflects the uncertainty over whether the PCAR stress tests in early 2011 would reveal further large funding needs. However, the Irish government used none of the borrowed money for bank recapitalisation, at least directly. The close match between the amount of the EU/IMF loans (€67.5 billion) and the bank bailouts (€62.8 billion, but often cited as €64.5 billion) may foster this assumption. In fact, the bank bailout was funded through a combination of NPRF cash and promissory notes – the former required no borrowing, being cash to hand, while the latter was a promise to pay at a later date, which required no immediate borrowing. While the promissory notes were recorded on the national debt – because they would eventually require payment, and were thus a liability – they did not involve any expenditure at the time. The further re-capitalisations undertaken following the Prudential Capital Assessment Review stress tests in early 2011, amounting to €16.5 billion or 27% of the total bank costs, were met from a combination of Exchequer cash and National Pensions Reserve Fund cash, with the cost of the re-capitalisations defrayed by some €16 billion in haircuts on junior bondholders. While the government deficit was financed by the EU/IMF loans during the period of high market rates, the Irish banks also continued to be largely locked out of debt markets, and their liquidity was provided by the ECB and Central bank of Ireland. By August 2011 total liquidity funding for the six banks by the ECB and the Irish Central Bank came to about €150 billion; the largest and healthiest of the six, Bank of Ireland, then had a
market capitalisation of just €2.86 billion. In April 2012 the 99.8% state owned bank,
Allied Irish Banks, had paid one and a half billion Euro to unsecured bank
bondholders for which neither the bank nor the Irish state had no legal liability. On 26 February 2013 the Minister for Finance announced the closure of the ELG Scheme to all new liabilities from midnight on 28 March 2013. After this date, no new liabilities will be guaranteed under the ELG Scheme. This does not affect any liabilities already guaranteed as of 28 March 2013. On 15 December 2013, Ireland successfully exited the bailout programme, with market bond rates at a recent historic low. In August 2014 Ireland was considering early repayment of some of the outstanding €22.5 billion in IMF programme loans which would save it several hundred million euro in surcharges. In December 2014, Ireland's debt management body, the NTMA, repaid €9 billion in IMF loans, by borrowing that €9 billion at cheaper rates. ==Committee of Inquiry into the Banking Crisis==