FACTBOX-Main Irish opposition party's banking strategy

Sun Feb 27, 2011 6:57am EST

Feb 27 (Reuters) - Ireland's main opposition party, the centre-right Fine Gael, looked set on Sunday to sweep up the final seats needed to lead coalition talks after an election victory that crushed its long-time rival Fianna Fail.

During the campaign the right-leaning party withdrew a previous threat to unilaterally restructure bank debt if it won power.

Here are some extracts from its banking strategy and recent announcements on the sector:

* EUROPEAN SUPPORT FOR BANK RECAPITALISATION:

-- The terms of reference of the European Financial Stability Fund (EFSF) and/or European Financial Stability Mechanism (EFSM) should be renegotiated to allow them to take equity and long-term debt investments in systemically important European banks such as Allied Irish Banks (AIB) (ALBK.I) and Bank of Ireland (BKIR.I).

-- A similar option is that Ireland could buy "insurance" from the EU against the risk (small as it is) that losses in Irish banks will be significantly greater than currently projected by regulatory authorities.

-- Either of these options would be appropriate for Bank of Ireland and AIB, and would cap the Irish state's exposure to further losses or so-called "tail risks" in the banking system, helping to restore confidence in the state's own financial health.

* RESTRUCTURING THE DEBTS OF TROUBLED BANKS:

-- Fine Gael in government will force certain classes of bond-holders to share in the cost of recapitalising troubled financial institutions.

-- This will be done unilaterally for the most junior bondholders (owners of preference shares, sub-ordinated debt and similar instruments), but could be extended -- as part of a European-wide framework - for senior debt, focusing on insolvent institutions like Anglo Irish [ANGIB.UL] and Irish Nationwide [IRNBS.UL] that have no systemic importance.

* MORE SUSTAINABLE FUNDING FOR IRISH BANKS:

-- Fine Gael will seek to collaborate with U.S. regulatory authorities to collate the dollar assets of Irish banks (up to $50 billion) that could be used as security to secure funding from the U.S. Federal Reserve.

-- Rather than selling assets at fire-sale prices with the losses covered by already over-stretched Irish taxpayers, Fine Gael would negotiate with the EU/ECB to fund, on a longer-term basis, the transfer at par value of relatively-secure Irish bank loan books -- such as tracker mortgages -- into a "warehouse" or Special Purpose Vehicle.

-- This might involve the EU funds buying long-term bonds to fund such entities.

* STOPPING FURTHER ASSET TRANSFERS TO NAMA:

-- Fine Gael does not believe that transferring the land and development loans of Irish banks of less than 20 million euros to the state-run National Asset Management Agency (NAMA) is in the best interests of the Irish economy, and will seek a mandate from the people to renegotiate this element of the programme of support from the IMF and EU.

-- As an alternative, Fine Gael will force Irish banks to take loss provisions against these loans similar to the haircuts that would have been applied by NAMA.

* SHUTTING DOWN DEAD BANKS:

-- Anglo Irish Bank and Irish Nationwide have no further role to play in the Irish economy. A Fine Gael government would wind up both institutions by the end of 2011, by transferring their remaining assets and deposits to other financial institutions or other asset recovery vehicles as appropriate.

-- Further losses incurred in this process will be shared with remaining unsecured bondholders.

(Reporting by Carmel Crimmins; Editing by Angus MacSwan)