THE EUROPEAN Commission has approved plans to extend the term of the absolute bank guarantee to 2015. However, the scope of the guarantee will be more restrictive than the current protection, which expires next September.

The measure is designed to ensure that Irish financial institutions have access to financing in the market. It will replace the existing bank guarantee that provides protection to holders of bank debt and deposits until September 2010.

Under the new guarantee, the banks' subordinated debt will no longer be covered. However, other forms of debt will receive protection for a longer period - up to five years.

The guarantee will only cover debt issued between December 1st, 2009 and June 1st, 2010.

The measure will have to be contained in a Statutory Instrument, which the Government expects to bring before the Dail next month, before it can come into force.

Competition commissioner Neelie Kroes said: "The new guarantee scheme will give credit institutions in Ireland access to medium- term State-guaranteed financing and provide Ireland with an effective means of restoring confidence in the financial markets, while at the same time limiting distortions of competition.

"The measure, as amended, is limited in time and scope. The commission, therefore, concluded that the measure is an adequate means to remedy a serious disturbance of the Irish economy."

Irish banking sources welcomed the announcement yesterday.

Originally published by DOMINIC COYLE.

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