Credit crunch sees Ireland’s banking UDI

Ireland’s parliament has passed all stages of a bill to guarantee the loans of all Irish Banks as the international credit crunch bites. Ireland’s lower and upper houses (Dail & Seánad) sat through the night for the first time in over 30 years to pass the legislation before 8 AM this morning. The controversial legislation was signed into law by President McAleese this afternoon. The legislation commits the state to reimburse bank customers in the event of a banking collapse. It was brought in after shares in most of Ireland’s main banks plummeted in value earlier this week.

The legislation allows the Minister alone to approve mergers in the banking industry. It also allows the Financial regulator to appoint members ot the boards of banks covered by the scheme. It allows Irish owned banks to raise funds in the money market safe in the knowledge that the state will guarantee repayment. This could cost the Irish tax payer up to €400B and would set the already declining economy into a downward spiral were the guarantee’s to be called in. Irish banks with branches in the UK have seen a notable increase in accounts being opened as a result of this decision. The move has also been welcomed by the Irish construction sector which recently experienced liquidity problems in funding their investments. This sector is a strong financial supporter of the main government party Fianna Fail. Ireland’s economy is now officially in recession after a building boom collapsed resulting in property prices slumping.

British Chancellor for the Exchequer Alistair Darling had contacted Ireland’s Finance Minister Brian Lenihan to outline his concern that British owned banks operating in Ireland would not be covered by the guarantee. Minister Lenihan now says he’ll consider applications by foreign owned banks for cover under the scheme. French President Sarkozy who is the President of the EU Council of ministers is hosting talks in Paris to seek a Europe wide approach to the parliament. The minister also dismissed the Labour opposition amendment to the bill seeking to cap salaries of Senior Executives in the banks concerned.

The legislation was backed by the Government and the main opposition party Fine Gael as well as Sinn Fein. This move on Sinn Fein’s part is surprising and it provides further evidence of a move towards more pragmatic positions as favoured by the northern leadership rather than a left wing stance.

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