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DUBLIN - IRELAND announced a two-year guarantee on savers' deposits in six major banks on Tuesday, in a bid to bolster the country's financial system amid global economic turmoil.
The move, announced by the finance ministry, came after a record share slump on Monday which saw the Irish Stock Exchange Index fall 13 per cent, with one bank plummeting by 45 per cent at one stage.
'This very important initiative... is designed to safeguard the Irish financial system and to remedy a serious disturbance in the economy caused by the recent turmoil in the international financial markets,' said the ministry in a statement.
It said the guarantee arrangement would safeguard retail and commercial deposits, as well as bonds.
The institutions involved are Allied Irish Bank, Bank of Ireland, Anglo Irish Bank, Irish Life and Permanent, Irish Nationwide Building Society and the Educational Building Society.
Financial expert Scott Rankin, in an analyst's note headed 'Irish government takes out its bazooka', put the value of the guarantee at up to 500 billion euros (S$1.03 trillion). Ireland's annual GDP is 190 billion euros.
Finance Minister Brian Lenihan said the decision to guarantee the lending of the banks meant that they would 'find it easier to access funds from world markets'.
He also told RTE state radio: 'It is extremely important for our economy that they can do so because since the collapse of several institutions in the United States it has been very difficult to access funds on international markets for Irish banks.'
'We must take action to secure the stability of our banking system.'
Asked what action would be taken if the guarantee did not work, Lenihan said that the government had 'drawn up contingency plans for every scenario'.
Ireland's economy, rocked by a property market meltdown and the global credit crunch, has entered a recession for the first time in 25 years after shrinking in the second quarter of 2008, according to official data last week.
Irish gross domestic product (GDP) contracted 0.5 per cent in the second quarter of 2008 compared with the previous three-month period when the economy shrank 0.3 per cent.
The 'Celtic Tiger' economy had not experienced a recession - defined as two successive quarters of negative growth - since 1983.
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