NTMA chief Michael Somers: the National Pension Reserve Fund, overseen by the NTMA, no longer to be source of Anglo funds

The Government has decided to source the €4bn needed to recapitalise Anglo Irish Bank from the cash balances put aside for financial contingencies by the NTMA late last year.

The Department of Finance has been told the money cannot come from the National Pension Reserve Fund.

The cash balances raised late last year are in reality short term borrowed funds raised in the markets via commercial paper and certificates of deposits.

The National Pension Reserve Fund has a strict commercial mandate which means it cannot invest in companies unless they can deliver an "optimal'' return, the department has been told.

The Sunday Tribune understands the department has been advised that Anglo cannot provide such a return and as a result other options have to be considered.

The options are to borrow the money in a fresh bond issue or use some of the €20bn of "cash'', put aside for events like a sovereign debt crisis or a banking liquidity crisis.

These cash balances were raised late last year by the NTMA in a move which was widely praised as prudent at the time. While legislation passed earlier this year allows the Minister for Finance to direct the National Pension Reserve to invest in listed credit institutions in certain circumstances, Anglo no longer is a quoted entity.

The Government is loathe to enter the bond market later this year with yet another request for funds when its already trying to raise about €25 for general exchequer purposes.

As a result the use of the cash balances is now considered the "policy of choice'', a senior government source told the Sunday Tribune.

Commercial paper is a form of short term funding which normally runs for about 270 days before it needs to be paid back or rolled over again. However governments are able to get this funding for longer periods and this allowed the NTMA to bolster the national balance sheet late last year ahead of a series of bond issues this year.

"The build up of exchequer cash balances towards the end of 2008 has assisted in the timing of borrowing in 2009, ensuring that the NTMA can raise funds as opportunities arise without having to enter the market at particularly turbulent times,'' the Department of Finance said.