Fitch downgrades Irish banks citing uncertainty of Irish government guarantee and central bank funding

The real question that one has to ask is when Ireland bails out Irish banks, shouldn't the banks have the same likelihood of default as the Irish government.  When the European Financial Stability Facility (EFSF) steps up to bail out Ireland, shouldn't Ireland get the same AAA credit rating, which measures likelihood of default, as the EFSF. Well then why are Irish banks being downgraded?  And why doesn't Ireland get the same coveted AAA as the EFSF?

They downgraded Anglo Irish, even though it's got a shamrock guarantee which ultimately goes back the the EFSF.  Via Fitch:
Fitch Ratings has downgraded Anglo Irish Bank Corp's (Anglo) and Irish Nationwide Building Society's (INBS) Long-term and Short-term Issuer Default Ratings (IDR) to 'BB-' and 'B' from 'BBB-' and 'F3', respectively, and maintained them on Rating Watch Negative (RWN). Anglo and INBS's Support Ratings have also been downgraded to '3' from '2' and maintained on RWN.

At the same time, the agency has placed all support-driven ratings of Allied Irish Banks (AIB), Bank of Ireland (BOI), and Irish Life and Permanent (ILP) on RWN and maintained EBS Building Society's (EBS) ratings on RWN.

The RWN on the support-driven ratings of AIB, BOI, and ILP reflects the greater uncertainty regarding the implementation of the previously announced recapitalisation plans and the higher political risk in relation to further support available from the Irish authorities to the Irish banking sector and specifically to senior unsecured unguaranteed creditors of the Irish domestic banks.

Overall, Fitch continues to believe the risks of the sovereign and the domestic banks are strongly interlinked, not least given the banks' extensive reliance on government-guaranteed and central bank funding. A senior debt default or coercive debt exchange, particularly at AIB or BOI, could have expensive ramifications for sovereign finances due to the potential implications for funding stability and unintended legal consequences. It would also likely have negative repercussions for the fragile euro zone bank funding markets beyond Ireland's border, meaning it would probably also be undesirable at a 'higher' European level.

Fitch notes that Anglo and INBS need to be capitalised banking institutions to be able to continue to access the central bank funding that is so critical to their orderly wind-down and to minimising potential further costs to the Irish taxpayer. The Irish authorities have a meaningful presence on both sides of these banks' balance sheets by way of guaranteed and central bank funding and, on the asset side, about EUR31bn of government promissory notes injected as capital.

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