Well, senior bondholders in Irish Bank Resolution Corporation will seemingly have walked away with 100c in the euro, but depositors will now take a hit on their accounts. Last week, Minister for Finance, Michael Noonan confirmed in response to parliamentary questions that at 31st January 2013, IBRC had €323m of deposits. Although not exactly confirmed in Minister Noonan’s response, it appears that €200m of these deposits are covered by the Eligible Liabilities Guarantee and will be repaid in full. However €123m were deposits that existed on 29th September 2008 and were only guaranteed until the end of September 2010. These depositors are now going to be burned, baby, burned. By at least €93m according to preliminary estimates from the Central Bank of Ireland, but that figure may grow.
You might ask why anyone would be stupid enough to keep money on deposit at Anglo and Irish Nationwide. It seems that many of the deposits may have been term deposits, perhaps for five years, so if you placed your money on deposit in June 2008, you wouldn’t get it back until June 2013.
In responses to parliamentary questions from the Sinn Fein and Fianna Fail finance spokespersons last week, Minister Noonan provided what is quite interesting information, because remember, this is the first time in Ireland that depositors have had to revert to the Central Bank to be paid their guaranteed protection portions of their deposits.
Some questions have been received on here asking how the Deposit Guarantee Scheme works. There is a fund held at the Central Bank which collects a levy of 0.2% per annum of deposits held by the banks. The Central Bank currently holds a balance of €388m to pay out should a bank fail, and should depositors seek their €100,000.
The full parliamentary questions and responses are shown below. Deputy Doherty’s is from 13th February 2013. Deputy McGrath’s from 14th February 2013.
Deputy Pearse Doherty: To ask the Minister for Finance if he will estimate the cost to the Central Bank of Ireland in compensating depositors at the Irish Bank Resolution Corporation for deposits up to €100,000; and if he will confirm if there is a pre-existing fund maintained by the CBI for such events;; and if he will make a statement on the matter.
Minister for Finance, Michael Noonan: I have been advised that the total deposits held by IBRC was €323 million at 31 January 2013.
The Special Liquidator submitted preliminary DGS information to the Central Bank of Ireland on 12 February which estimates eligible deposits of €123 million. If the threshold for DGS qualification is mechanically applied (i.e. €100,000 per person), the payment in respect of DGS-covered deposits would be just over €30 million. However, the total DGS pay-out is likely to be significantly lower than this figure after the Special Liquidator excludes accounts such as:
· Accounts that have been legally pledged as security against other liabilities (in IBRC, NAMA or possibly other third parties),
· Accounts of Large Companies (only Small Companies, as defined in the Companies Act 1986, qualify for DGS pay-out).
It will take some weeks before the final pay-out figure will be known.
The aim of the Central Bank is to pay compensation within 20 working days to depositors who have been duly verified as eligible.
The Central Bank of Ireland maintains a Deposit Protection Account which will be used to fund any Deposit Guarantee Scheme pay-out. The current balance on this account is €388 million and this is funded by credit institutions who contribute 0.2% of their total deposit.
Deputy Michael McGrath: asked the projected time horizon over which claims by deposit holders at the Irish Bank Resolution Corporation under the eligible liabilities guarantee would have been paid had the institution not been put in to liquidation; the potential maximum cost of such claims; and if he will make a statement on the matter.
Minister for Finance, Michael Noonan: I have been advised that the deposits held by IBRC at the end of January were €323m. Had IBRC not been liquidated I would expect that these deposits would have been paid in line with their expected contractual maturities. Eligible deposits are covered by the Deposit Guarantee Scheme and the Eligible Liabilities Guarantee schemes. Eligible deposits in IBRC of up to €100,000 for an individual or €200,000 for a joint account are protected by the DGS scheme. Eligible deposits above this are protected by the ELG scheme. The Special Liquidators will provide details of eligible depositors and account balances to the Central Bank. Payments will then be made by cheque within 20 working days of the appointment of the Special Liquidators and will be sent to depositors at the address held by IBRC. The Central Bank will keep customers of IBRC informed by providing regular updates on its website. Claimants covered by the ELG scheme must submit a claim to the NTMA. Claims forms can be found on their website at http://www.ntma.ie .
Deputy Michael McGrath: asked the expected costs under the deposit guarantee scheme of the liquidation of the Irish Bank Resolution Corporation; and if he will make a statement on the matter.
Minister for Finance, Michael Noonan: It is understood that the total deposits held by IBRC was €323 million at 31 January 2013. The Special Liquidator submitted preliminary DGS information to the Central Bank on 12 February which estimates eligible deposits of €123 million. If the threshold for DGS qualification is mechanically applied (i.e. €100,000 per person), the payment in respect of DGS-covered deposits would be just over €30 million. The total DGS pay-out is likely to be significantly lower than this figure, however, after the Special Liquidator excludes accounts such as:-
– Accounts that have been legally pledged as security against other liabilities (in IBRC, NAMA or possibly other third parties);
– Accounts of Large Companies (only Small Companies, as defined in the Companies Act 1986, qualify for DGS pay-out).
It will take some weeks before the final pay-out figure will be known.
The aim of the Central Bank is to pay compensation within 20 working days to depositors who have been duly verified as eligible.
The Central Bank of Ireland maintains a Deposit Protection Account which will be used to fund any Deposit Guarantee Scheme pay-out. The current balance on this account is €388 million and this is funded by credit institutions who contribute 0.2% of their total deposits.
NAMA Wine Lake 
The large depositors at AIB and PTSB will certainly be asking more questions to the respective treasurers.
This is difficult to believe. Billions have been paid to junior and senior bondholders, and we are to believe that now *depositors* will be burned ?
Something does not “smell” right here.
Two reasons come to mind.
1) The depositors are in fact largely or exclusively creditors of the bank(e.x. The Quinns may stillo have accounts with the bank).
2) The Irish Government is actively trying to precipitate a European-wide bank run.
There the general issue of incompetence, leading to an inadvertent European-wide banking run. This in fact would be in keeping with most major financial decisions, in Ireland and abroad, over the last 10 years.
Some banks often require deposit collateral or CD’s most likely it’s exiting “customers” locked up “cash”.
Given the feckin fire sale bout to happen,the history of shenanigans at the dump,they will claim an “offset” in refinancing or “buying” their loans at mindblowing discounts ..isn’t that bour right Dennis…..
Don’t waste a moment on whoever is caught up in this they big boys and girls.
Hi NamaWineLake,
Wonderful article and great investigation as always sir.
Okay, so there were €123m in deposits as at liquidation date.
I think 5 things can happen:
(1) A certain payment needs to be made by the CBI via the DGS.
(2) A certain payment needs to be made by the NTMA via the ELG.
(3) A ‘haircut’ may occur via loan/deposit netting.
(4) A haircut may occur via deposits over 100k formally covered by the CIFS that were opened pre September 2008.
(5) A haircut may occur via deposits of large companies as small companies are only covered by the DGS.
Therefore:
(1) €30 million compensation by the CBI.
(2) €200 million compensation by the NTMA.
(3) May not be defined as ‘haircut’ as it has been netted.
(4) The longest length of time that Anglo Irish Bank sold term deposits for was for a 5 year term. Anglo were not competitive in the market for long dated term deposits, even in 2008. Hence, a depositor would need to have (A) opened a 5 year term deposit as all other terms would have expired by now and (B) accepted a low rate and (C) opened the 5 year term deposit between 15 January 2008 and 28 September 2008 during the early stages of the crisis and (D) made no early withdrawal since then which you can do subject to exit penalties and (E) opened the deposit for over 100k. I find it really difficult to understand how anyone in 2008 would have opened a low rate long dated term deposit for a large deposit at Anglo during the crisis and not looked for their money back since then. Only the criminally insane.
(5) Interesting. What sane large company would keep excess deposits at IBRC in non protected accounts!
Thanks for drawing my attention further to (4) and (5), I had not fully considered the impact of these situations properly as I saw the risk of occurrence as being remote but clearly the reality is that the amounts in these categories are far from negligible.
Cheers.
(Typo above, I should have said €323 million as at liquidation date).
I wonder is any of the cash proper to the Credit Union Movement.