Michael Noonan (Limerick East, Fine Gael)
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Question 65: To ask the Minister for Finance if he will explain the statement by the EU Commission that Anglo Irish Bank will receive a guarantee covering certain off balance sheet liabilities in addition to the payments to recapitalise the bank; the duration and estimated cost of this guarantee; and if he will make a statement on the matter. [1442/11]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I refer Deputy Noonan to my reply of 7 December 2010 concerning this matter. In November 2010, following a request from Anglo Irish Bank, the State provided a guarantee to the bank's derivative, repo and clearing type counterparties. These counterparties did not have the benefit of support under any other existing guarantee arrangements.

As with all banks, Anglo Irish Bank is exposed to a number of risks and uncertainties in the normal course of its business activities. I would stress that these exposures relate solely to normal activities of the bank. The bank's balance sheet exposure to these risks, taken together with the risk mitigation provided by derivatives, are managed within risk limits which are approved by the bank's board of directors.

Anglo Irish Bank indicated in late 2010 to the authorities that owing to the bank's financial position and recent rating actions, unguaranteed counterparties required the provision of such a guarantee if they were to continue transacting with the bank. The bank has committed to entering only into arrangements which are to manage balance sheet risks and the bank does not take positions outside the limits approved by the board of directors. The bank has committed to keeping the NTMA regularly informed of the potential exposures arising under the guarantee and the NTMA monitors these exposures to ensure that any risk to the Exchequer is minimised.

The State has incurred no cost arising from this guarantee. The guarantee is a continuing guarantee and can be terminated by the Minister on 90 days' notice.

The European Commission's approval was necessary under state aid rules since the institution was benefiting from a guarantee and hence the reference by the Commission to this matter in its approval of the injection of capital to the bank in December 2010.

Michael Noonan (Limerick East, Fine Gael)
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What is the cash value of these additional liabilities which are being covered by the guarantee and which were brought to the public's attention on the EU website when the Government had to proceed in camera in court to put extra capital into one of the banks?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I will need to write to the Deputy on that matter and I undertake to do so. Giving a precise cash value on a guarantee, which is a contingent exposure, is a very difficult exercise, as, I am sure, the Deputy is aware, and would require evaluation, but I am sure an approximate figure can be given. As the Deputy knows, this bank is wholly owned by the taxpayer and we have a duty to ensure the bank can continue in the ordinary course of its business to transact the amount of business it is permitted to transact.

Michael Noonan (Limerick East, Fine Gael)
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Would it not be reasonable to ask the potential liability the Government is covering with this guarantee? For the Minister to offer to write to me does not give me a good answer. The public in general were unaware that there were additional liabilities the Government was covering in December. This was brought to the attention of the public on the EU website and it was repeated on the Anglo Irish Bank website. I will put the question again: the Minister is the man who issued the guarantee and so what was the quantum he was guaranteeing?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The guarantees is for certain derivatives, repo and clearing-type counterparties. As noted previously, the bank is committed to entering only into arrangements which are to manage balance sheet risks and the bank has confirmed that it does not take positions outside the limits approved by the board of directors, and the bank keeps the NTMA informed. The vast majority of the derivatives are covered by collateral support agreements, which require the posting of collateral in the event that the derivative is out of money - in other words, if it becomes a liability. The collateral is netted against the State's exposure in the event that the guarantee is called. The guarantee has not been called. The Deputy asked me to give the House an estimation of what it would cost and I said it was not possible to give such an estimation. The Deputy sought a market value cost of the guarantee which I could not give him. In terms of the maximum net exposure were all the derivatives to arise as a liability, assuming the guarantee was called, it would be less than €10 million.

The other exposures relate to collateral valuation movements for repos, intraday balances on clearing accounts - these accounts are cleared to nil each day - and a backstop facility for the bank's commercial to paper programme. To take an exemplary week, the total maximum net exposure to these transactions during the week ended on 31 March 2010 was €600 million. That would have been the total exposure were there a call on any of those that week. Those are the figures I can give the Deputy. However, I cannot give a market price for the guarantee, which he asked me originally, although I outlined the reasons it was difficult to do so. We could attempt the exercise and provide him with the information if he wishes.