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Document Type

Case Study

Case Series

Blanket Guarantees

JEL Codes

G01, G28

Abstract

The Global Financial Crisis exposed fragilities in the Irish banking system and led to widespread runs on Irish banks. Irish authorities attempted to address the runs on September 22, 2008, by increasing the country’s deposit guarantee limit from EUR 20,000 to EUR 100,000 (USD 28,800 to USD 140,000) and raising the coverage of deposits from 90% to 100%. When the runs continued, the Irish minister for finance announced a blanket guarantee of bank liabilities on September 30 without consulting European Union authorities. The announcement specified the blanket guarantee would be effective immediately and remain in effect for two years. The blanket guarantee would cover all deposits, covered bonds, senior debt, and dated subordinated debt for six systemically important banks. The minister for finance later confirmed that the guarantee would also cover five subsidiaries of foreign banks with a significant domestic presence. The government’s recapitalization, nationalization, and restructuring of guaranteed banks ultimately cost Irish taxpayers EUR 41.7 billion. Ireland borrowed EUR 85 billion from the International Monetary Fund in November 2010 to support the Irish banking system. The guarantee was very controversial, both inside Ireland and abroad, and many commentators have criticized Irish authorities for underestimating the size of the problem they faced early in the crisis.

Date Revised

2022-12-22

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