Renewing the ELG
This post was written by John McHale
The Sunday Business Post’s Money section has an article on the possibility of not renewing the Eligible Liabilities Guarantee (ELG) when it expires at the end of the year. (A FAQ on the guarantee is available here.) The article focuses on arguments made by Wilbur Ross for not renewing the guarantee.
Ross, who owns 7.7 percent of Ireland’s only privately-controlled bank and sits on its Board, told The Sunday Business Post that the extended liabilities guarantee (ELG) was “severely impeding the recovery of the banks” because of its high cost and should be scrapped.
“There is no reason for [the] government to extend the ELG,” he said. “Ending [it] will be viewed favourably by the markets as a major step toward the normalisation of Ireland’s financial system and will facilitate the sovereign’s access to international credit markets.”
Ross said that the low interest rate environment, combined with the high cost of the ELG, which will cost Bank of Ireland €400 million this year, was keeping the banking system from returning to profitability.
An aspect worth considering is that, even if the explicit guarantee is not renewed, past experience suggests that the liabilities in question will be implicitly guaranteed at zero cost to an 85 percent privately owned bank.