Are your Deposits Safe?
The risk associated with Irish banks is a worry for most investors. Irish bank risk goes hand-in-hand with sovereign risk i.e Government Bank Guarantees.
In addition to this many clients are also worried about the potential break with the Euro.
The expectation is that the new Irish currency would depreciate significantly against the Euro if it continued to exist or depreciate against the harder Euro economies currencies i.e. Germany in the event of a total break-up.
How an exit from the Euro would play out is unfortunately very open to debate.
The theory is that the Irish Government would impose exchange controls to prevent a rush of assets out of the country. This is speculation and it’s not clear that this would actually happen. But if that was the case, the follow through would be:
1. Irish deposits in Irish banks would most likely be re-denominated in “New Punts”, with no translational benefits if new currency depreciates. It’s not at all clear that this would happen, but it would follow on from an imposition of exchange controls.
2. By the same logic, holders of euro deposits in non-Irish banks based in Ireland are unlikely to benefit as the accounts would be redenominated in “New Punts”, with no translational benefits.
3. Investments in non-Irish assets would receive a translational benefit back into Irish “New Punts”. That means, holding non Irish assets, would receive a translational benefit, if repatriated into the new (assumed weaker) Irish currency. However, if the Government decided to automatically re-denominate euro deposits as Punt deposits, then this opens up the possibility of all sorts of other restrictions. This could possibly include some penalty on holders of these assets also.
4. Holders of euro deposits in non-Irish banks based outside of Ireland would potentially benefit from an exchange into a depreciated Punt. As for point 3, the possibility of a penalty cannot be ruled out.