Irish government to have power to impose haircuts

Ireland’s government will have extensive powers to restructure its banking sector, including the ability to impose losses on lenders’ subordinated bondholders, under a new law published yesterday.

Ireland agreed to radically overhaul and shrink its banks as part of an €85bn (£72bn) EU/IMF rescue package designed to prevent future loan losses at its lenders tipping the economy over the edge and damaging the wider Eurozone.

“This bill will allow the minister to take the actions required to bring about a domestic retail banking system that is proportionate to and focussed on the Irish economy,” finance minister Brian Lenihan said.

“The banking system must play its role in providing the credit to the real economy to support our recovery.”

The law will allow the finance minister to transfer banks’ assets and liabilities and “take or prevent any actions in order to support the government’s banking strategy”.

The law, which applies to banks that have received state support, building societies and credit unions, will enable the government to force losses on holders of junior bank debt on a case-by-case basis.