MercoPress. South Atlantic News Agency

Ireland bail out plan rattles European banking system

Brits born love for the Irish...banking system

The European Commission said on Tuesday it is “in close contact” with the Irish government over its decision to guarantee all bank deposits. Concerns have been raised that Dublin's move may give Irish banks an unfair advantage over foreign competitors.

The EC has also called for stronger central supervision of government-led guarantee schemes. Separately, the EU has cleared the UK government's nationalisation of British bank Bradford & Bingley. The Irish government said on Tuesday that it would safeguard all deposits, bonds and debts in the Republic of Ireland's six biggest banks and building societies for two years. The institutions covered are Allied Irish, Bank of Ireland, Anglo Irish Bank, Irish Life and Permanent, Irish Nationwide Building Society and the Educational Building Society. With the scheme also covering any of the institutions' branches in the UK - be they in Northern Ireland or mainland Britain - some opponents of the move say it will unfairly make the Irish banks more attractive than their British counterparts. According to British reports there are fears that the Irish decision will precipitate a flood of money from the UK since at the moment UK depositors are only protected up to £ 35.000 through the Financial Services Compensation Scheme. Critics have said that PM Gordon Brown and Bank of England chairman Mervyn King should protect UK retail depositors 100% as in Ireland. There is nothing to stop a UK resident from opening an account with an Irish Bank – "it is not illegal" confirms Brian Capon of the British Bankers Association. Allied Irish Bank, which has £12 billion in UK deposit reports an increase in interest from new customers and said that its website had been swamped with inquiries. As UK depositors and others throughout the EU withdraw their funds to reinvest in Irish Banks, it seems likely that either all EU countries will have to guarantee 100% of retail deposits, or the EU Competition Commission will have to ban anticompetitive arrangements like that announced by the Irish Government on the grounds of illegal State aid. Lord Lipsey, the chairman of the Financial Services Consumer Panel in the UK, said it was, 'a national disgrace' that UK depositors might be worse compensated than their Irish counterparts in the event of a bank failure. EC President Jose Manuel Barroso said Europe needs stronger central supervision of government-led deposit guarantee schemes such as that in the Republic of Ireland. Competition Commissioner Nellie Kroes' office also said on Wednesday that it will investigate the state-led bail-out of German bank WestLB. In April EU approved a 5 billion Euro bail-out to the bank led by the state of Northern Rhine-Westphalia but it will now review this decision.