The objective of the guarantee charging model is to put in place a sound, transparent and quantitative mechanism to remunerate the State appropriately for the financial cost and risk of granting of the guarantee provided to covered institutions. The model facilitates the adoption of a risk-adjusted basis based on objective criteria to distribute the charge and is intended to be aligned with the maintenance of the long-term viability of the covered institutions in view of the central importance of the banking system to the Irish economy overall.

The assessment of the guarantee charge is primarily based on the estimated increased funding costs for the Exchequer from the provision of the guarantee. Funding costs of Government Debt as a result of the guarantee are assumed to increase by between 15 and 30 basis points or 0.15% to 0.30% over time.

This approach is informed by the difficulty in determining a market rate for a guarantee of this nature and dimension in the absence of comparable benchmarks and taking into account the potential difficulties in the current circumstances for beneficiaries to bear the amounts that might be estimated should be charged particularly given that in normal economic and financial circumstances, the need for such a guarantee would not arise. The charge for the provision of the guarantee is therefore based on the Government funding costs on the basis that it comes as close as possible to what could be considered an appropriate price in the current financial environment. There is currently no indication that funding costs for the covered institutions have declined on account of the provision of the guarantee.