February 4, 2011 / 4:36 PM / 9 years ago

FACTBOX-Main Irish opposition party's banking strategy

DUBLIN, Feb 4 (Reuters) - Ireland’s main opposition party warned on Friday that it could unilaterally restructure bank debt if it wins power this month, unless the burden on the country from an EU/IMF bailout is eased. [ID:nLDE71318V] [ID:nLDE7131DZ] Here are some extracts from its banking strategy:

* 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 our 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 our banking system, helping to restore confidence in the state’s own financial health.

RESTRUCTURING THE DEBTS OF TROUBLED BANKS

Fine Gael in government is committed to forcing certain classes of bond-holders to share in the cost of recapitalising troubled financial institutions. This can be done unilaterally for the most junior bondholders (owners of preference shares, sub-ordinated debt and similar instruments), but should be extended - ideally as part of a European-wide framework - for senior debt for institutions like Anglo Irish and Irish Nationwide that no longer have any systemic economic importance.

MORE SUSTAINABLE FUNDING FOR IRISH BANKS

We 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, we will 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.

RE-NEGOTIATING AT THE HIGHEST LEVEL

Should some credible combination of these (above) options prove not to be available from Europe, the next Irish Government would — in order to restore its own credit worthiness — be left with little choice but to unilaterally restructure the private debts of those Irish banks in greatest need of recapitalisation.

STOPPING FURTHER ASSET TRANSFERS TO NAMA

We do not believe that transferring the land and development loans of Irish banks of less than 20 million euros to NAMA is in the best interests of the Irish economy, and will seek a mandate from the Irish people to renegotiate this element of the programme of support from the IMF and EU.

As an alternative, we 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 will wind up both institutions by the end of 2011, by transferring their remaining assets and deposits to NAMA, 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

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