HAVING swallowed billions of euros of taxpayers' money in the last couple of years to stay alive, banks are now finding out that governments not only want their money back, but want to make them pay upfront for any future rescue plans.
The UK government last week became the latest to announce proposals to levy banks' risky liabilities. That followed on from the US government's plan in January to raise €95bn over 10 years from a levy on the balance sheets of financial institutions, while Germany and France are also considering similar measures to the UK. It now appears inevitable that the Irish government will end up charging banks in some way to ensure they reduce their risk profile.
The International Monetary Fund, in its latest assessment of the prospects for the Irish economy published last week, gave its support to any move by the government to consider the various "tools available" to deal with another financial crisis.
"Provision for bank levies of the sort being discussed internationally also needs to be considered," the IMF said in its report.
According to analysts, though, Ireland is unlikely to move unilaterally and immediately follow the UK's decision, which was introduced as much for its ability to raise revenue for the cash-strapped government as it was to punish reckless banks.
"The object of the levy is to create a fund to protect against future crises. But that has an impact on the cost of capital for the banking sector as it decreases future profitability," said Kevin McConnell, head of research with Bloxham Stockbrokers.
McConnell said that while inflicting pain on the banks may be publicly popular, the government would be wary of imposing anything that could damage the future earnings potential of Irish banks that already need to generate as much income as possible.
"They wouldn't want to create a more difficult environment on the earnings front for the Irish banks," he says. "You don't want the Irish banks in a detrimental position from the point of view of potential future investors."
Other analysts point out that the maximum amount that could be generated by a levy on Irish banks may not be sufficient in a crisis or to deter institutions from risk. Even the UK levy, announced by new chancellor of the exchequer George Osborne, is forecast to raise only €2.4bn a year. It is being imposed on banks that have liabilities, excluding their deposits, of more than €24bn.
According to Bloxham's McConnell, Bank of Ireland already faces a potential hit of about €20m on the €50bn of assets it has in the UK as a result of the levy there. AIB is likely to escape making any payments as its assets there fall under the €24bn threshold and are also up for sale.
The government, which has pumped more than €33bn into the banking sector so far, has yet to decide whether it will follow the UK's move. It is understood the Department of Finance is monitoring proposals being considered by the European Commission and the G20 group of the world's largest economies. Analysts believe that Ireland will ultimately accept whatever measure the EU proposes.
"You don't want to see the Irish banking sector in a position where they are sitting apart from what is happening internationally. If there was going to be a levy put in place it would have to put Ireland in a similar position. This will be EU-dictated," said another analyst.
In the Dáil last week, finance minister Brian Lenihan also pointed out that the banks here have already paid substantial fees to the government for the state aid they have received.
"In my dealing with the banks I have clearly maintained the principle that the banks will contribute to the cost of the state's support – the banks have been charged for the government's guarantee of their liabilities and the Nama Act provides for a levy on the banks should Nama result in a loss for the taxpayer," Lenihan said in a response to a parliamentary question.
"In the context of the enhancement of supervision and the restructuring of the banking sector underway in Ireland it is my intention to ensure that the sector contributes its appropriate share, thereby minimising as much as possible taxpayers' exposure to potential costs arising from state support of the banking sector."
So far Irish banks have coughed up €820m to the government for the blanket deposit guarantee and have also paid for the various recapitalisation schemes and the cost of loans going to Nama. In addition, the cost of issuing new debt under the government's Eligible Liabilities Guarantee is set to be substantially higher than the 2008 guarantee.
And there is another reason why the imposition of a levy, which was popular as governments tried to rein in "casino banking" that caused the implosion of the financial system, would be difficult to introduce. The ultimate cost is likely to be passed on to customers in the form of higher interest rates and charges.