London - The British government was under pressure Thursday to offer a cast-iron guarantee on bank deposits amid signs that consumers were switching funds to Irish banks which have been given such a blanket assurance by the government in Dublin. The controversial Irish scheme, which has raised concern on competition grounds in London and also at the European Union (EU) in Brussels, was passed by the Irish parliament Thursday.
The Irish scheme covers six domestic institutions - Allied Irish Bank, Bank of Ireland, Anglo Irish Bank, Irish Life & Permanent, Irish Nationwide Building Society and Education Building Society - to the tune of 400 billion euros (560 billion dollars).
The government in London confirmed Thursday that Britain's Chancellor of the Exchequer, Alistair Darling, had made clear British concern over the move to Irish Finance Minister Brian Lenihan, telling him "in no uncertain terms that the scheme was a problem for the UK."
Commentators in London said Thursday that the Irish move put additional pressure on the government in Britain to "take robust action to breathe life into the banking system."
"There is more and more pressure on the government to secure deposits," said one analyst. While there was "no rush" on so-called safe banks, people were "naturally" shifting deposits.
Britain is expected to raise its upper limit for the protection of savings to 50,000 pounds (90,000 dollars) early next week, but analysts say this will not be enough.
In a further sign of savers' nervousness, Britain's nationalized British mortgage lender Northern Rock Thursday withdrew some of its savings products for new clients following a consumer rush on safe placings for their deposits, the bank said.
The measure was aimed at preventing having an unfair advantage from state ownership, it said. British savers have sought out Northern Rock, and more recently other government-backed institutions, as "safe havens" to place their deposits.
These include the Abbey National, in the process of being taken over by Spain's Santander bank, and Bradford & Bingley, whose savings and mortgage business was nationalized on Monday in a deal that saw the bank's "non-toxic" business sold to Santander.
Northern Rock was in danger of exceeding a 1.5-per-cent limit on its share of British retail deposits, the bank said. It said the recent turmoil in financial markets had led to a "sizeable" inflow of deposits, particularly in recent days.
The British Banking Association confirmed Thursday that it had written a letter to the Irish government, complaining about the "distortion of competition" by Irish banks.
It said the move had put banks in other jurisdictions, especially in Northern Ireland, at a competitive disadvantage.
The French government and the European Commission in Brussels have also criticized the "unilateral" Irish move which is seen as harming competition" in an already troubled banking sector.
A spokesman for EU Competition Commissioner Neelie Kroes said Thursday the European Commission was in contact with the Irish authorities.
"We have not yet received all the details and once we have them we will analyse them in depth, first of all to check if there is any state-aid element and, if so, whether it is compatible with EU rules," he said.
"If the Irish banks are paying for the support they are getting at commercial rates, it could be argued that there is no state aid involved. However, without notifying the details to the Commission there is no legal certainty," explained the spokesman.
