Credit Guarantee Programs
Following the failure of Lehman Brothers in September 2008, Irish banks found themselves unable to roll over their significant foreign borrowings on the interbank lending market. With the banks facing a liquidity crisis, the Irish government decided to issue a blanket guarantee of all liabilities of six banks through the Credit Institutions Financial Support Scheme (CIFS). As the crisis worsened, and it became clear that Irish banks were facing a solvency—not just liquidity—crisis, the Irish government was forced to provide additional support to the financial system, which took the form of capital injections and a national asset management company for troubled assets. Notwithstanding these measures, Irish banks continued to face significant liquidity pressures, with a substantial portion of their funding still with maturities under one month. In December 2009, Irish authorities introduced a new, narrower guarantee scheme, the Credit Institutions (Eligible Liabilities Guarantee) Scheme (ELG Scheme) intended to lengthen the maturities of banks’ funding. The ELG Scheme moved away from the blanket guarantee and created an opt-in guarantee for Irish financial institutions and their subsidiaries. The guarantee covered deposits not already covered by existing deposit protection schemes and certain eligible debt securities. Sixteen financial institutions participated in the ELG Scheme, which was extended multiple times before the issuance window expired on March 28, 2013. At its peak in 2010, the ELG Scheme covered around €150 billion in liabilities. The guarantee was triggered only once, upon the default and liquidation of IBRC, a new entity resulting from the merger of two nationalized banks. As of June 30, 2015, €934 million had been paid out to IBRC guaranteed bondholders and €138 million had been paid to depositors.
"Ireland's Credit Institutions (Eligible Liabilities Guarantee) Scheme (Ireland GFC),"
Journal of Financial Crises: Vol. 2
Iss. 3, 773-792.
Available at: https://elischolar.library.yale.edu/journal-of-financial-crises/vol2/iss3/40