Financial Regulatory Forum

Ireland tweaks “bad bank” law to keep Green support

October 9, 2009

By Carmel Crimmins
DUBLIN, Oct 9 (Reuters) – Ireland’s government altered legislation creating its “bad bank”, the National Asset Management Agency (NAMA), to include the threat of a levy on lenders, to make the law more palatable to junior coalition partner the Green Party.

“The government has always made clear that in the event that NAMA were to make a loss over the long term, which is not expected, then a levy would be introduced on the financial institutions,” the Department of Finance said on Friday.

“The government has decided to make provision for such a levy, on a precautionary basis.”

A political source said the Department of Finance timed
the announcement of the levy to make it easier for the Green Party leadership to sell the law to its members.

Members of the leftwing organisation will vote on Saturday on the creation of the 54 billion euros “bad bank” to purge lenders of risky property loans that are compounding the worst recession in western Europe.

Prime Minister Brian Cowen needs the support of the Greens to get the NAMA law passed and if members of the party reject the plan, along with a new programme for government, at the special meeting on Saturday it could trigger a snap general election.

Analysts expect the Greens to give the thumbs up to both the bank plan and the programme for government, allowing the administration to continue and NAMA to be passed into law next month.

Cowen has already made concessions on the “bad bank” to the Greens including the introduction of a windfall tax on property speculation and using subordinated debt to pay for some of the loans it will buy off Bank of Ireland, Allied Irish Banks and other lenders.

The levy would be introduced if NAMA has made a loss on its eventual windup or after 10 years.

The agency is taking over development property loans with a nominal value of 77 billion euros but is controversially paying above the current market price, which is estimated at 47 million euros. (Editing by David Holmes and Simon Jessop) ((carmel.crimmins@reuters.com; Reuters Messaging: carmel.crimmins.reuters.com@reuters.net; +353 1 500 1529))

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