The New Guarantee Scheme

Another important document today is the description of the new guarantee scheme: the details are here.

8 replies on “The New Guarantee Scheme”

Onl ‘dated subordinated debt (Lower Tier 2) or asset covered securities (including other forms of covered bonds)issued by a covered institution (as defined in the CIFS Scheme) ON OR AFTER the commencement date will not be guaranteed either under the ELG Scheme or under the CIFS Scheme.” have bin xcluded. New categor of deposits which r not guaranteed has bin introduced. Otherwise it’s business as usual or actualli madness as usual.

Credit institutions that are systemically important and solvent.
As some of these institutions are insolvent now, will their paper and deposits be covered

Look like the present Irish government could start reading the IMF … e.g. “Crisis-Related Measures in the Financial System and Sovereign Balance Sheet Risks” (31 July/15 Sep):

Risks/liabilities related to guarantees should be gradually transferred to the private sector.
The fee structure of guarantees, if market based, will help provide the right incentives for their use.
Thus, to avoid paying charges, it would be expected that the private sector will naturally cease using guarantees when they are no longer needed.
However, in many countries market conditions have necessitated low or no fees, thereby providing substantial subsidies; a schedule should be established to eliminate any subsidies.

Where feasible, guarantees should be (re)structured to minimize moral hazard.

This could imply shifting to partial coverage or gradually reducing the level of coverage.
For instance, 100 % insurance of deposits/borrowing eliminates savers’/creditors’ incentives to do due diligence on banks/borrowers and should be removed.
Likewise, guarantee beneficiaries may be asked to post collateral or maintain an ownership stake of a certain size.

Discontinuing wholesale guarantees could be guided by the use of and need for liquidity support measures.

However, some weaker banks may require support for a longer time, and possibly require a more extensive stabilization plan, involving further restructuring through liquidation or sale of specific parts of the bank. Resolving these weaker banks would then allow the guarantee scheme to be discontinued.

Budgets should reflect the full subsidy cost of the guarantee as it accrues over time—i.e., a reserve provision on the basis of expected losses. Even under cash accounting, governments should provision for potentially called guarantees.

Since quantification is difficult, fiscal management will be facilitated by building flexibility in the budget to respond to calls on guarantees. Mechanisms to improve flexibility include contingency appropriations, supplementary budgets, and guarantee funds.

To what extent does this extended guarantee underpin reported positive market sentiment? What’s the value of the guarantee and how will it be repriced?

Time to dismantle the guarantee now that NaaMaa is up and running?
Very disappointing, but entirely likely, that the banks will still find themselves insolvent over the next two decades. Even with 30Bn of NaaMaa.
The best corruption money can buy!

I am concerned by the use of the word “irrevocable” which I do not believe was used in previous regulations. It appears to me to be anti-democratic and possibly unconstitutional for the State to legislate irrevocably.

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