Credit Institutions (Financial Support) Scheme, 2008

• Jurisdiction: Ireland

S.I. No. 411 of 2008 .

CREDIT INSTITUTIONS (FINANCIAL SUPPORT) SCHEME 2008

Notice of the making of this Statutory Instrument was published in

“Iris Oifigiúil” of 24th October, 2008.

I, BRIAN LENIHAN, Minister for Finance, in exercise of the powers conferred on me by section 6(4) of the Credit Institutions (Financial Support) Act 2008 (No. 18 of 2008), hereby make the following scheme with respect to which, pursuant to section 6(5) of that Act, a draft has been laid before each House of the Oireachtas and a resolution approving of the draft has been passed by each such House:

Citation

1. This Scheme may be cited as the Credit Institutions (Financial Support) Scheme 2008.

Scheme

2. The terms of this Scheme are as set out in article 3 and the Schedule.

Definitions

3. In this Scheme,

3.1 “covered institution” means a credit institution or a subsidiary of a credit institution—

(a) that stands specified by order by the Minister under section 6(1) of the Act of 2008; and

(b) that has joined this Scheme in accordance with paragraph 5 of the Schedule;

3.2 “Act of 2008” means Credit Institutions (Financial Support) Act 2008 (No. 18 of 2008);

3.3 “covered liabilities” shall be construed in accordance with paragraph 10 of the Schedule; and

3.4 “guarantee acceptance deed” means a deed referred to in paragraph 5 of the Schedule entered into between the Minister and a covered institution and, if required by the Minister pursuant to paragraph 5 of the Schedule, any of the covered institution’s subsidiaries or its parent or both.

SCHEDULE Terms of Scheme

Scope

1. The Minister makes this Scheme in the public interest because the Minister is of the opinion that:

1.1 there is a serious threat to the stability of credit institutions in the State generally, or there would be such a threat if he or she did not provide the financial support;

1.2 the provision of the financial support to a specific institution faced with financial difficulties is necessary, in the public interest, for maintaining the stability of the financial system in the State; and

1.3 the provision of the financial support is necessary to remedy a serious disturbance in the economy of the State.

This Scheme may apply to any covered institution where it is necessary to further the financial stability objectives in section 2(1) of the Credit Institutions (Financial Support) Act 2008 and including in particular the maintenance of the systemic stability of the banking sector in the State.

2. The Minister makes this Scheme having regard to the following objectives in particular:

2.1 maintaining financial stability in the best interests of the public and the economy of the State;

2.2 remedying a serious disturbance in the economy by safeguarding the financial system and economy of the State from the threat caused by the unprecedented turmoil in the international financial markets and the particular macro-economic conditions in the State;

2.3 providing lasting systemic stability in the banking system and ensuring its long-term sustainability;

2.4 preventing abuse of the guarantee;

2.5 ensuring compliance with the requirements of EU State aid and competition law; and

2.6 minimising the potential cost to the Exchequer and taxpayers; in particular where the guarantee is called upon and a payment is made but the financial support cannot be recouped in full from the covered institution to which it was provided, the principle is that it would be recouped in full from the covered institutions by the State over time in a manner consistent with their long-term viability and sustainability.

3. The institutions eligible under this Scheme are those systemically important credit institutions which the Minister specifies by order under section 6(1) of the Act of 2008 in the exercise of his or her powers under that Act as requiring financial support and fulfilling the objectives of the Act of 2008. The Minister may consult with the Governor prior to making any such order.

Where the Minister specifies a credit institution by order, the credit institution so specified will have a limited period of time as determined by the Minister to join this Scheme pursuant to paragraph 5 before it loses the opportunity to join the Scheme.

4. Each covered institution must comply with the regulatory requirements of the Regulatory Authority and the Governor.

5. A covered institution specified by order under section 6(1) of the Act of 2008 joins this Scheme by executing a guarantee acceptance deed in the form to be specified by the Minister. The Minister may also require that a parent or any other company within the covered institution’s group execute such guarantee acceptance deed in respect of itself or any other company within the group.

6. A covered institution and any group company party to a guarantee acceptance deed shall be required to comply with all the terms and conditions of this Scheme and the relevant guarantee acceptance deed and all directions given and requirements made by the Minister or the Regulatory Authority under this Scheme. The Minister will apply the terms and conditions of this Scheme and each guarantee acceptance deed on an objective basis: (i) taking into account the role of each covered institution in the State’s banking system and the overall economy of the State; and (ii) in a non-discriminatory fashion so as to avoid undue distortive effects on neighbouring markets and the internal market as a whole.

7. By entering into a guarantee acceptance deed, a covered institution and in certain circumstances a group company party to a guarantee acceptance deed, shall agree to:

7.1 pay the quarterly charge as referred to in paragraph 16 below;

7.2 indemnify the Minister in respect of any payments of covered liabilities made by the Minister following a claim made under the guarantee or any other liabilities incurred by the Minister in that regard; and

7.3 indemnify the Minister in respect of any costs, claims, losses or liabilities incurred by the Minister in connection with the provision of the financial support to the covered institution or a subsidiary;

together, in all cases, with interest accrued to the date of payment at a rate to be specified in the guarantee acceptance deed.

8. The Minister may review and vary the terms and conditions of this Scheme from time to time, at no later than six-month intervals, to ensure that it is achieving the purposes of the Act of 2008. At such a review, the Minister shall consider, inter alia, the continued requirement for the provision of financial support under this Scheme with regard to the objectives of this Scheme and section 2(1) of the Act of 2008. The results of any such review shall be provided to the European Commission.

9. Subject to the terms and conditions of this Scheme and the relevant guarantee acceptance deed, the Minister stands as guarantor of the covered liabilities of a covered institution for the period from 30 September 2008 to 29 September 2010 inclusive. No call can be made under the guarantee after 29 September 2010.

10. The covered liabilities are those liabilities existing from 30 September 2008 or at any time thereafter up to and including 29 September 2010, in respect of the following:

10.1 all retail and corporate deposits (to the extent not covered by existing deposit protection schemes in the State or any other jurisdiction);

10.2 interbank deposits;

10.3 senior unsecured debt;

10.4 asset covered securities; and

10.5 dated subordinated debt (Lower Tier 2),

excluding any intra-group borrowing and any debt due to the European Central Bank arising from Eurosystem monetary operations.

The Minister shall publish the total covered liabilities of the covered institutions in aggregate quarterly in Iris Oifigiúil.

11. The Minister shall impose specific restrictions on a covered institution in respect of dated subordinated debt (Lower Tier 2) covered by the guarantee, so as to prevent the unwarranted expansion of capital and lending activity during the guarantee period. Such restrictions shall include but not be limited to those set out at paragraphs 36 to 43.

In particular the Regulatory Authority shall require that where new dated subordinated debt is covered by the guarantee, the covered institution benefiting from such a financing will also maintain at least the solvency ratio initially obtained when this financing takes place during the whole duration of the guarantee period.

The details of the restrictions imposed by the Regulatory Authority on a covered institution benefiting from a guarantee on new subordinated debts will be transmitted each six months to the European Commission.

12. The covered liabilities of a subsidiary of any parent credit institution which is not regulated by the Regulatory Authority (being a subsidiary which is a covered institution) shall include only such covered liabilities of that subsidiary: (i) which relate to its own business; and (ii) in respect of which there is no recourse to any other entity within or outside its group and shall not include liabilities which, in the absence of the guarantee, would normally be those of other members of the covered institution’s group. The Minister shall monitor the use of this Scheme by such subsidiaries to ensure the purposes of the Act of 2008 and this Scheme are achieved and that the guarantee is not being abused, not being used in a manner irreconcilable with the purpose of the guarantee or not being used for the benefit of any entity other than the relevant covered institution. The Minister may, at any time during the period of this Scheme, impose specific obligations under this Scheme or the guarantee acceptance deed given by the covered institution or its parent or any subsidiary to appropriately ring-fence the activities of a covered institution from its parent to minimise the...