Thursday, 7 February 2013

Liquidating Anglo Irish Bank

Last night the Oireachtas (Irish parliament) held an extended sitting lasting into the night to pass emergency legislation to liquidate the Irish Bank Resolution Corporation, the successor to the Anglo Irish Bank.

The legislation was sprung on lawmakers when news of a possible deal with the ECB over the billions of debt bound up in promissory notes to the bank was leaked. (You can read more on the background to the promissory notes here). The ECB board is scheduled to meet tomorrow and will decide on a deal on some of the Irish banking debt. This sparked concerns over the bank (that its assets would be at risk and that the state would be exposed at a time when creditors and debtors knew that liquidation was coming), leading to the government launching the bill through the Oireachtas under a guillotined procedure - the Irish president flew home from a visit to Italy on short notice to sign the bill into law.

The Irish Bank Resolution Corporation Bill 2013 (the Bill couldn't be amended so the wording is identical to the Act) was passed by the Dáil (lower house) by 113 votes to 35 just before 3am before going to the Seanad for approval. It empowers the Minister for Finance to order the liquidation of the IBRC, to order National Asset Management Agency (NAMA, Ireland's bad bank) to take a number of actions, including bidding for the assets of IBRC (i.e. swap assets for NAMA bonds), and to create or issue securities under a number of circumstances, including in return for release from liabilities. The Act will also fire all of the employees of the IBRC - while NAMA will rehire some of these, it will be a particularly shocking and disruptive time for them.

The deal on the promissory notes (if any) is not yet known, so the Oireachtas had to decide on half of the deal before the ECB agreed to anything. The speculation is that the promissory notes will be turned into long term government bonds by the Minister for Finance, turning the banking debt into government debt in return for the debt to be paid off over a longer period, lessening the need for budgetary cuts. The retention of responsibility for the overall debt, with no debt write-down, will be unpopular and it will be difficult for the government to present the deal as a victory in the fight for the separation of banking and sovereign debt. However there could (should) be savings when it comes to the interest on the debt. The final deal may end up having a different shape to it, but, whatever the detail, once the deal is accepted it is highly unlikely that further concessions should be negotiated.

There is no guarantee that the ECB will arrive at a decision on this today. The order of events means that it will be difficult to know whether, whatever deal is reached, a better deal could have been possible. But unless the deal includes a write-down on the debt, it will still be seen as cementing public responsibility over private debt.

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