AIB and BoI owe over €100bn to foreign investors and fear another run on deposits could destroy them
The Irish Central Bank is keeping them afloat after ECB said: ‘We won’t lend you any more’ Collapse would trigger €440bn bank guarantee... but IMF has option of locking the banks’ doors
Sunday Mail, 21 November 2010
Ireland's biggest banks are facing collapse this week unless an immediate international bail-out package can be agreed, senior insiders have revealed.
Allied Irish Banks and Bank of Ireland have each suffered a multibillion-euro ‘run’ as foreign investors withdraw their cash amid fears that both institutions are effectively bust.
It was this secret ‘run’ that brought the IMF and EU bail-out teams to Ireland in an effort to prevent the banks collapsing entirely. If they do, it would trigger Ireland’s €440bn blanket bank guarantee – potentially leaving the State unable to pay the debt.
One option available to the IMF would be to ‘lock down’ the Irish banks until a deal is agreed to recapitalise them. In an IMF-led bail-out in Argentina in 2002, banks were shut for 10 days to halt the flight of deposits.
The Government is desperate to play down the scale of the banking crisis because even talking about it could panic personal depositors into withdrawing their cash – even though it is guaranteed by the State.
But some bank insiders fear that ministers – many of whom spent the day canvassing in Donegal yesterday – have simply failed to grasp how close they are to the abyss.
The Irish Mail on Sunday has learned that a colossal €18bn in deposits was withdrawn from Irish banks during September alone.
On Friday, AIB admitted that since June, €12bn had been withdrawn – around a fifth of its entire deposit base. BoI admitted it had lost €10bn in corporate deposits over the August/September period, while Irish Life & Permanent lost about €600m.
The ‘secret run’ forced the banks to borrow tens of billions from the ECB to stay afloat. When Frankfurt recently refused to lend more cash, the Irish Central Bank stepped in with loans of some €28bn to keep them afloat.
However, the ECB is now insisting on withdrawing these loans – which is why the IMF and EU are being asked to step in and take their place.
