UK banks say Irish plan distorts competition

UK banks are seeking talks with the Government about its plan to guarantee bank deposits, saying the proposals will distort competition.

“The guarantee has clear consequences for firms competing to win retail deposits," the British Bankers' Association said in an e-mailed statement last night.

“While we support proposals aimed at reintroducing stability to the financial markets, we need fair play for financial institutions across Europe.”

Banks, particularly those in Northern Ireland, will be hurt by the Irish plan, the BBA claimed.

This has “distorted competition,” the statement added. Ireland's move comes as British banks have restricted lending to one another, causing a seizure in money markets and triggering the biggest downturn in the British housing market in at least 25 years.

British bank customers may also be lured to Irish banks by the guarantee, analysts said. The UK's deposit protection plan covers a maximum of £35,000.

“We can borrow more cheaply now because we have the benefit of an Irish government guarantee,” Denis Casey, chief executive officer of Irish Life & Permanent, told RTE radio yesterday morning.

The Dail passed the emergency bank legislation early this morning following an overnight debate and it is now before the Seanad. The Seanad will vote at around noon for the President to sign the Bill into law.

The law will apply to six Irish-owned lenders.

Royal Bank of Scotland Group, the UK's second-biggest bank, said it was lobbying for the inclusion of its Ulster Bank Ireland and First Active units under the Irish plan.

The Irish plan is open to British and other EU citizens, who can open accounts at branches of Irish banks in London and elsewhere.