Dáil Éireann debate -
Thursday, 12 Feb 2009

Vol. 674 No. 3

Recapitalisation of Allied Irish Banks and Bank of Ireland: Motion.

Minister for Finance (Deputy Brian Lenihan)

I move:

That Dáil Éireann:

commends the recapitalisation terms to be offered by the Government to Allied Irish Banks and Bank of Ireland, with €3.5 billion in capital to be provided to each bank, with an 8% annual coupon payable to the State;

notes and commends the bank customer package which has been negotiated with the banks in the context of the recapitalisation, which provides for commitments by the banks for the mortgage and business sectors; and places the code of practice on mortgage arrears on a statutory basis;

also notes that the banks have agreed that total remuneration for all senior executives will be reduced by at least 33%; that no performance bonuses will be paid for these senior executives and no salary increases will be made in relation to 2008 and 2009; and that the two banks have accepted that, for non-executive directors, fees will be reduced by at least 25%; and

believes that the recapitalisation package for Allied Irish Banks and Bank of Ireland will secure the position of these banks, providing for a well-capitalised banking system, able to maintain the flow of credit to the economy.

I am pleased to present to the House the details of the Government's recapitalisation package for Allied Irish Banks and Bank of Ireland. This recapitalisation of our two largest banks is a central element in the Government's broader strategy for addressing the financial crisis, ensuring our two major financial institutions remain sound and stable and in a position to fulfil their vital role in the economy. The Government has also progressed the other main elements of its approach to securing our financial system, including the package to address the concerns of ordinary customers of the banks, and I will later take the opportunity to outline to Deputies the position on these other measures.

I do not want to labour the point but in introducing the recapitalisation package to be offered to AIB and Bank of Ireland and the substantial State funds this involves, we must remember the unprecedented conditions which persist on international financial markets and in the international economy generally. These conditions have seen sources of funding for banks put under significant pressure globally, while the expectations of international markets on the levels of capital that should be held by banks to cover potential losses have increased. At the national level, the contraction in economic activity seen in the past year and the related fall in property price values places pressure on the asset side of the banks' balance sheets. All of these pressures, national and international, have come to the fore at a time when the need to maintain the flow of credit to the wider economy is more vital than ever. We need to ensure that funds are available for sound businesses and entrepreneurs to enable them to provide the employment and output which will be the base of our economic recovery.

The Government's strategy to address these various financial and economic pressures in the banking sector has been comprehensive. It was in a context of fear and uncertainty which beset international funding markets that the Government moved swiftly last September to introduce the guarantee of Irish bank liabilities which has provided certainty to depositors and investors alike in regard to Irish banks and which was successful in securing the liquidity requirements of our banks. The Government's recapitalisation programme announced in December addresses both the expectations of international markets on Irish banks' capital levels and the needs of our major financial institutions in covering potential loan losses in the coming years. Following the announcement of this recapitalisation programme, the Government initiated further intensive discussions with Allied Irish Banks and Bank of Ireland with a view to securing the position of our two largest banks. As a result of these discussions, the Government has decided on a comprehensive recapitalisation package for the two banks which will reinforce the stability of our financial system, increase confidence in the banking system here and facilitate the banks involved in lending to the economy.

The Government will provide €3.5 billion in core tier one capital for each bank. The capital to be provided was determined following detailed engagement with the banks themselves and with the benefit of survey information of the bank's loan books, which was conducted on behalf of the Government by PricewaterhouseCoopers. A careful assessment was made of the potential losses that the banks' face on their loan books in the coming years, taking into account the impact of likely trends in property values and various stress scenarios for the economy. While I was criticised in some quarters for taking too long to proceed with a recapitalisation of our major financial institutions, the time taken to assess as accurately as possible the capital requirements of each bank is worthwhile in terms of the assurance that can now be offered markets on the levels of capital in the two largest banks and the fundamental strength of their position in the coming years.

The level of capital being provided by the State will boost the core tier one capital ratio of AIB to 8.5% and that of Bank of Ireland to 9%. It is important to note these are high capital ratios by international standards and the banks will therefore be in a strong position to raise the funding they require on international markets and withstand loan losses arising.

In return for the substantial investment being made, the State will hold preference shares which have a fixed dividend of 8% of the total sum invested, payable in cash, or with ordinary shares in lieu in the case where the banks do not have profits to pay a dividend to its shareholders. The banks can redeem the preference shares to the State at par value within the first five years, or at 125% of face value thereafter. Also, warrants for the purchase of shares give the State an option to purchase in five years' time up to 25% of the ordinary share capital of each bank at predetermined strike prices based on the current market share prices. These warrants effectively provide the State with access to the future upside of the investment it is now making in the banks, as this will be reflected in future increases in the banks' share prices.

As part of the terms of the investment I will have the right to appoint 25% of the directors to the board of each bank. As Minister, I will also hold 25% of the total ordinary voting rights in the two banks in respect of certain key functions, including decisions on change of control and board appointments. These terms provide for an adequate degree of State representation in the corporate structure of the two banks given the substantial investment it is making. However, the Government has made it clear that it does not intend to take control of these banks and the terms of the recapitalisation carefully provide for this. Following this recapitalisation, the State will not hold ordinary shares in either bank other than existing NPRF holdings, while the option to exercise warrants in the future is capped at a defined level of shareholding.

Furthermore, the terms of the recapitalisation provide that each bank will have the possibility of redeeming up to €1.5 billion of the State's investment by raising privately sourced core tier one capital prior to 31 December 2009. In this case the warrants held will be reduced pro-rata to that redemption to an amount representing not less than 15% of the ordinary shares of the bank. I have made clear on a number of occasions that the Government encourages the banks to access private sources of capital where possible and the banks are therefore incentivised to do so under the terms of this recapitalisation. Equally the terms of the deal convey a clear message internationally that the State will not inhibit private investors now or in the future in the Irish banking sector. As a small open economy, Ireland is by its nature dependent on the investment it can attract internationally and the key task now for the two banks is therefore to raise funds to enhance their funding and capital position and expand the contribution they make to our economy. The terms of the recapitalisation provide a clear path for the two banks to remain privately run and privately owned institutions, not least because this is by far the most efficient way to organise the vital role played by the banks in the economy.

While the State is clear in not seeking to take control of the banks, the terms of the recapitalisation provide an appropriate return to the State for the investment it is making in the context of current financial market conditions, while avoiding the mistake of placing overly stringent costs on the banks which would impede them from lending. The capital investment, therefore, brings a clear return to our economy. Our two largest financial institutions are in a strong position to withstand losses arising on their loan books and equipped to maintain the flow of credit to our economy. I will outline presently the commitments the Government has secured from the two banks in terms of their lending to the real economy.

The recapitalisation programme will be funded from the National Pensions Reserve Fund. Some €4 billion will come from the fund's current resources and €3 billion will be provided by means of a front-loading of the Exchequer contributions for 2009 and 2010. The necessary amending legislation to the National Pensions Reserve Fund Act 2000 will be introduced shortly.

The recapitalisation package for the two banks has been recommended to me by the Governor of the Central Bank, the Financial Regulator, my financial advisers and the National Treasury Management Agency. The Financial Regulator has confirmed that the preference shares qualify as core tier one capital, meaning that such funds are of maximum utility to the banks in terms of the buffer provided against loan losses. The recapitalisation package is subject to the approval of the ordinary shareholders of each bank at general meetings which will be convened without delay. The Government's proposals on recapitalisation have also been designed having regard to the European Commission recapitalisation communication and are subject to EU state aid approval.

With regard to the other banks, the Government is continuing its discussions with the other covered institutions, namely, Irish Life & Permanent, EBS and INBS, concerning their respective positions and capital is available where such is required. However, any possible requirement for these institutions would be of course substantially less than that for the two main banks. As Deputies are aware, Anglo Irish Bank is now under full public ownership. It will continue to trade as a going concern with appropriate Government support as necessary, following consultation with the EU authorities, to ensure its viability.

I will now address the other aspects of the Government's strategy for addressing the impact of the financial crisis in Ireland. The Government is committed to underpinning its recapitalisation proposals with further measures to strengthen and secure the Irish financial system. In that context and within the six month review of the guarantee scheme to be completed by mid-April 2009, the Government will examine how the guarantee scheme could be revised in ways which include supporting longer term bond issuance by the banks. This review will be subject to European Commission approval and consistent with EU state aid requirements and will be in line with international and EU trends where the average term of state cover for bond issues extends beyond 2010.

The Government is conscious that in current market circumstances there is a need to bring greater certainty and transparency to the operations of systemically important financial institutions, in particular in regard to specific asset classes currently perceived as carrying a higher than average risk. Irish institutions have engaged in lending for land and property development, which exposes them to specific risk at a time of falling property prices and difficult economic conditions.

In line with developments internationally where the UK and US have put forward specific proposals, and current discussions at EU level, the Government will examine proposals for the management and reduction of risks within financial institutions with respect to specific land and property development exposures. Ongoing work at European Central Bank level and in the EU will inform this process.

I have already outlined to Deputies the conditions attached to the recapitalisation proposals to protect and ensure a return for taxpayers. I would now like to highlight further measures committed to by the banks regarding credit supply and their interaction with customers. A continued flow of credit is vital for our economy. To establish the exact position regarding the availability of credit, the recapitalised banks have agreed to fund and co-operate with an independent review of credit availability which will be managed jointly by the banks, Government and business representatives. The recapitalised banks have agreed to work closely with the IDA, Enterprise Ireland and with State agencies to ensure the supply of appropriate finance to contractors engaged on major projects sponsored by them, to engage in a clearing group to identify specific patterns of events or cases where the flow of credit to viable projects appears to be blocked and to seek to identify credit supply solutions. They have also agreed to provide €15 million each to a new seed capital fund.

Statutory codes of practice on business lending and mortgage arrears have been finalised and will be published this week by the Financial Regulator. The codes to be put in place will ensure all banks operating here deal in an honest way with customers and that consumers in particular are treated in a reputable and respectable fashion. The business lending code will require banks to offer annual review meetings to inform customers of the basis for decisions made and to have written procedures for the proper handling of complaints. Where a customer gets into difficulty, the banks will seek to agree an approach to resolve problems and provide reasonable time and appropriate advice.

Under the mortgage arrears code, where a borrower is in difficulty, the lender will make every reasonable effort to agree an alternative repayment schedule and will not commence legal action for repossession until after six months from the time arrears first arise. The two recapitalised banks will not commence court proceedings for repossession of a principal private residence until after 12 months of arrears appearing, where the customer continues to co-operate reasonably and honestly with the bank. In addition, the recapitalised banks have assured Government that in the normal course of events they will make every effort to avoid repossessions, as has been evidenced by the low level of repossessions by them to date.

It is important that I address the issue of remuneration in banks. The Government is of the view that significant reductions in the remuneration structures of banks is required. The banks benefiting from State capital, AIB and Bank of Ireland, accept that pay restraint is important in the overall context of the economy and the supports being provided by the taxpayer, and will act accordingly. As a step in this direction, they accept that the pay of senior executives will be curtailed. Total remuneration for all senior executives will be reduced by at least 33% and no performance bonuses will be paid for these senior executives and no salary increases will be made in relation to 2008 and 2009. The two banks have also accepted that, for non-executive directors, fees will be reduced by at least 25%.

The report of the Covered Institution Remuneration Oversight Committee, CIROC, is expected shortly. As Deputies will be aware, the role of this committee is to consider the remuneration plans of each of the institutions covered by the Government guarantee. I will be writing to the chairman of the committee, Mr. Eddie Sullivan, to ask him to examine whether an overall cap on executive remuneration can be introduced for the banking sector in light of the significant State support that is now being provided to the sector and the pay restraint which is now a feature of other sectors, including the public sector.

The banking sector, along with other sectors, will need to play its part, in reducing our cost-base to ensure our competitiveness in the years ahead. I will, therefore, bring forward proposals regarding remuneration in the banking sector on receipt of the CIROC's report. These proposals will be in addition to those I announced yesterday evening.

The Government's recapitalisation package for AIB and Bank of Ireland and the associated measures which I have outlined represent the taking on of a significant, and indeed unforeseen role by the State, in the securing of the banking sector. There have been important issues for the Government to address in taking on this role at a time when we have also to ensure fiscal prudence and make difficult decisions to ensure our competitiveness internationally. The proposals presented by Government crucially provide for an adequate return to the taxpayer which is making the investment, appropriate representation for the State in the banking sector and, most important, for the future health and viability of our banking sector.

A priority for the Government has been to ensure that all intervention in the banking sector has as its ultimate goal benefiting and securing the position of the customers of the banks, including account holders, mortgage holders, businesses and entrepreneurs. The Bank Customer Package will ensure that the interests and concerns of consumers are to the fore. In all, the Government's recapitalisation proposals for AIB and Bank of Ireland represent a comprehensive commitment by the State to maintaining the two main banks as strong, forward-looking, confident institutions, able to play their part as the primary financial services and credit providers in this country.

Prior to the making of the decision by Government, the Taoiseach and I welcomed the opportunity to consult on and discuss with the Leader of the Opposition, Deputy Kenny, and the Fine Gael spokesperson on finance, Deputy Richard Bruton, the issues that arose on the recapitalisation of these institutions. Likewise, yesterday morning before Government made its decision, I took the opportunity to brief the Leader of the Labour Party, Deputy Eamon Gilmore and the Labour Party spokesperson on finance, Deputy Joan Burton, on the Government's plans.

I appreciate that given the global financial and banking crisis, there can be dispute and argument within the House about many matters relating to banking. However, I believe we all agree it is of fundamental importance that we place these two institutions on a sound basis. The recapitalisation proposals accepted by Government put these institutions on a sound basis in so far as their capital is concerned. I appreciate that other ideas may be brought forward, in terms of the guarantee or the minimisation of the risks, and I will, of course, examine any such proposals in a constructive manner. As outlined in my speech, I am prepared to engage with the banks on these issues to see how we can move forward while fully protecting the taxpayers' interests.

It is important that, as a House, we work together to protect the position of these two institutions which are of fundamental systemic importance to our economy. The investment made by Government is a substantial one. As some Deputies commented, it is well in excess of their current market value. The Government could have gone down the route of full nationalisation. I do not believe that would have been in the interests of the country as it would have placed the substantial borrowing requirements of these institutions, which are far in excess of our national funding requirements, onto the risk of the sovereign State of Ireland. It is important that these institutions continue as private institutions as they need to develop and enhance their fund-raising capacity to enhance the liquidity of the Irish banking system.

As I stated, these two banks are of fundamental importance in our system. That does not mean we will not work to address the problems of other financial institutions. As far as these institutions are concerned, the Government believed it of vital importance to put their durability beyond doubt through the decision which it arrived at yesterday. It is of fundamental importance to Ireland that we remain as members of the European Monetary System through our participation in the European Central Bank which, throughout our financial crisis, has been a source of tremendous stability and strength in our banking system. It is important that message goes out around the world where on occasions unfavourable comparisons are made between Ireland and other countries. We are part of one of the strongest monetary zones in the world and the central bank of that system is a bulwark of support for our banking system.

Deputy Richard Bruton

I move amendment No. 1:

To delete all words after "Dáil Éireann" and substitute the following:

condemns the regulatory failures that facilitated a deception of shareholders and the public at large;

expresses concern that the recapitalisation proposal of Government will be insufficient to restore a strong banking system able to maintain the flow of credit to the economy;

calls on the Government to consider other options that would put taxpayers' money for recapitalisation into new banks with clean balance sheets;

calls on the Government to defer its decision on recapitalisation until a full set of proposals that addresses the management of impaired loans has been developed;

calls on the Government to introduce a flat cap on remuneration of senior executives at no more than €250,000 until the Government's capital is repaid; and

calls on the Government to publish clear performance benchmarks on loans to business, on new mortgages issued and on the handling of distressed loans on a monthly basis so that the public can see how commitments are being fulfilled.

It comes as little consolation to the House that once again yesterday we were plunged into yet another regulatory failure, where a major financial institution was involved in transactions that were clearly designed to give a deceptive public perception of that company. It appears to have had the involvement of another financial institution in that activity.

This should not have come out in the way it has done. It is quite extraordinary that the first inkling we learned of this occurring came from the board of Anglo Irish Bank. It did not come from the Department of Finance or the regulator, which knew four months ago of this transaction. It did not come from action being taken, although we are told decisive action had been taken to deal with it and that appropriate changes have been made both in personnel and practices. Instead, it came out with the Minister apparently unaware of its implications. Indeed, at the very time he was proposing that money be put into Anglo Irish Bank as a going concern, his Department and the regulator were aware it was involved in practices that would clearly disqualify it from being the sort of institution into which we would put €1.5 billion and allowing the continuing operation of the management and the approaches they were undertaking. That is a serious situation.

A further serious issue arises today in that it would appear Irish Life & Permanent believes it had cover for this from the Central Bank. It is important that the Minister in the course of the debate clarifies exactly what was the situation in this regard. What was the nature of communication between Irish Life & Permanent and the Central Bank? Were the Department of Finance and the Minister informed of the communications and what was sanctioned in terms of inter-bank transactions? Was the manner of presentation in the books of Anglo Irish Bank, which of course is the core element that is the source of real concern, a matter of which the Central Bank, the regulator or the Minister for Finance were aware? These are very important questions that need to be answered.

There is equally a concern as to what exactly the regulator and the Central Bank were doing from the date the State moved in with guarantees. Surely, we would expect the regulator was daily watching the level of customer deposits and that it would be seen whether customer deposits would come back following the guarantee. We would expect the regulator would immediately see an unusually large transaction of this nature and that this would have triggered some questions as to what exactly was involved.

It is very hard to believe that the regulator, which we believed was day and night watching the liquidity base of the banks, in particular Anglo Irish Bank, was not watching its customer base and its customer deposits as distinct from its inter-bank lending. This would have been a matter of very immediate scrutiny on a daily basis. It is very hard to understand how this slipped through and how those within the Minister's Department and the regulator's office allowed a period of drift from October right through to December, when the State was still intending to put money into this bank as a going concern. They were in possession of this information but did not seem to be aware of its potential seriousness. That question has been asked and will continue to cause concern. I do not believe by any means that this concern has been dispelled by what we have learned to date.

I would like to turn to the next element of our concern. In our amendment, we expressed concern that the recapitalisation proposal will be insufficient to restore the banks to a position where they are able to lend again. I have not heard from the Minister any hard evidence to suggest this move will resolve the problem. He is expressing hope that it will happen. He at times suggested in his statement that our banks are very strong. One quote is worth recalling, namely, that he believes "our two largest financial institutions are in a strong position, able to withstand losses arising on their loan books, and equipped to maintain the flow of credit to our economy".

There is very clearly a difference of opinion about that. Many believe that the scale of the impending loan losses are much greater than has been admitted by the Minister or the banks. Bank of Ireland today increased its expectation of loss from €3.8 billion to €6 billion, so €2.2 billion of what we are putting in is already admitted as having to be written off. That is a very substantial 60% increase in its expectation of loss. Is this the end of the line, people ask? There is no solid evidence-based explanation either from the Minister or the banks to establish that this is the end of the line. There is a very serious concern that the true extent of these losses is much deeper than anyone is willing to face up to. While the Minister is giving these assurances today, there is not much confidence that those are shared widely and there are many who say the hole is much deeper.

We would want to see hard evidence to contradict those who say the hole is much deeper but we are not seeing it, which is causing a great deal of concern. There is a real worry that we will be revisiting this well again. We have put in our €7 billion but we may find it sinks below the surface and we still do not have a bank that is able to lend again. This will continually dog us. The Minister is saying he will have to come back again with proposals, which he has not yet decided upon, to deal with some elements of bad loans. If he had the confidence he asserts here, that would not be an issue but, clearly, there is a belief we have not resolved the problem in this move today.

One must look elsewhere to find whether recapitalisation of this nature has succeeded where it has been attempted elsewhere. One can see in other countries that it has not. Countries which moved rapidly with big recapitalisation programmes have not succeeded in getting their banks back lending again. The Minister may say the nature of their loan books was different and circumstances are different, which may be the case. However, we still have not seen strong evidence to reassure us that this is the bottom or that there is a proper evaluation that gives us confidence we are there.

The greatest danger to Ireland from the Minister's approach is that we continue to have, after this decision, banks that are nursing along dodgy property loans and which are starving real businesses of the capital and investment they need. Many, looking at the stream of revenue coming from the banks, would believe that those streams of revenue will be under pressure, that they will not be in a position to meet both the loan losses that are materialising and the €280 million they must pay in their preference shares each year, and that, even on fairly conservative assumptions about the prospects for the economy, they will be losing money and draining capital for the next three years.

If that bleak assessment of what is out there is realistic, which is my view, they will not be in a position to restart lending because they will remain financially too weak to do so. They will be concerned mainly with protecting their independence and the independence of the existing management and shareholders. They will be circling the wagons, trying to protect their own skin, not focusing on viable business plans and the need to make money available to business. That is a very serious situation.

We are also putting in our capital to be on an equal footing with shareholders. In the order of priority, we are moving ahead of the bondholders. We will now be at greater risk than the bondholders who have been funding the lending practices in recent years. If the picture is worse than the Minister hopes is the case, the taxpayer will be there to take a hit. The taxpayer is now moving ahead of those bondholders, which is a concern.

The Government is discussing alternatives such as the concept of a bad bank or insurance and this suggests that we are not yet at the end of the road, which undermines confidence. Fine Gael has proposed an alternative model. I discussed the matter with the Minister for Justice, Equality and Law Reform this morning. He suggested that he discussed the matter with the banks and it seems they did not like our idea. I do not care what the banks think of our idea, because its purpose is not to rescue the banks.

Deputy Brian Lenihan

It is a very expensive idea.

Deputy Damien English

It is a good safeguard. I do not understand why the Minister is not in favour of it.

Deputy Richard Bruton

It is not an expensive idea.

Deputy Kieran O’Donnell

The banks are still dictating matters.

Deputy Richard Bruton

Our idea is that one separates from within each of the banks a good bank. The good bank then purchases from the legacy bank the sound elements of the loan book, that is, the parts of the loan book that can be valued, including the mortgage book and the business book. The good bank pays a fair value, bearing in mind that those purchases will generate revenue streams for the existing banking operation. It pays a fair value but is then considered a clean bank with a clean balance sheet. That is where our capital should go.

The proposal would then leave in place a legacy bank, which would be the first in line to take a hit if it fails to recover all its money. First in line would be the shareholders and then the bondholders. It is possible that the bondholders could suffer, which may be painful. However, such people are grown up and have worked in the risk business. They invested in this activity with their eyes open. It is not the job of the taxpayer to extend the existing guarantee to cover those bondholders. The legacy bank would then have the time and the opportunity to work on the bad book and recover as much as possible from it. Of course, the State would have an involvement because it would still carry some guarantee deposits in that bank. This would allow liquidity to work down its balance sheet, but the taxpayer would not take the hit on the losses until the bondholders had taken it first. I believe that is a viable approach, which is gaining international recognition. The Germans are examining a version of this proposal.

There are arguments concerning the extent to which the State should support a legacy bank. I take the view that we should have very little support for a legacy bank other than to allow it liquidity under guarantee while it worked down its loan book. Others may hold a different view. The merit of this proposal is that we would have a clean bank capable of kick-starting the economy, from which even the legacy bank would benefit. There is a greater chance that the legacy bank would recover its assets if the economy is going again, if land values recover and if development begins again. There is a much better chance of this if there are clean banks with such capability. Even the difficult loans could be managed in an orderly way over a reasonable period of time and recover value for those who funded them. Those who recoup from such loans deserve the reward, but if they cannot it is not the taxpayers' concern to deal with the matter.

I am concerned that the proposed recapitalisation is not only putting this money into an unknown hole, the size of which we cannot estimate, but that the extent of the taxpayers guarantee is creeping beyond the line in the sand drawn last September by the Minister for Finance. It is extending to a greater group of people who should not be protected by the taxpayer.

I do not make this proposal for political gain. This is a model, the time for which is coming. Increasingly, other countries and commentators are examining this option and consider this as the only way. A policy of hoping for the best is not a good option. Unfortunately, we must anticipate the worst and create a model that is capable of handling the worst that comes our way. The model advocated by Fine Gael is more robust and capable of dealing with things getting worse than we hope. I wish to believe the Government's proposal will succeed and in no way do I wish it ill. However, I believe the Fine Gael option is better in that it protects us from circumstances which could get worse, rather than simple hoping the Government option works.

I refer to other elements of concern. We must know what the Government intends to do regarding caps on remuneration. The Minister stated he would write to someone to establish if it was possible to go beyond the 33% cut. The Minister for Finance should clearly signal that there must be cuts. The expectation is that €250,000 is sufficient remuneration while the State guarantee is in place. I am disappointed such a measure is not in place.

I am also disappointed with the weasel words in these commitments. Reference was made to a 10% increase in capacity for small business loans and a 30% increase in capacity for mortgage loans. What does this mean? Is it possible for a pool of funds to be made available, but from which nothing comes out? That would be of no benefit to anyone. We must see benchmarks. If there is a 10% pool, we must be able to see the number of applications and how many were rejected and drawn down. We must be able to see if there will be 4,000 new mortgages issued next month and the month following. These are the metrics we must be able to see. The use of vague words such as "capacity" sound as if they could allow a bank to take the position afterwards that it examined projects but took the view they were not very good. I realise the Minister intends to have a common committee examine this in a clearing house. I hope this extends not only to business loans, but to mortgages. We should be able to see that these commitments are realised. The handling of cases involving distressed loans is similar. We must be able to see monthly reports on these to have confidence in what is taking place. They should be in the public domain and available for inspection by the House.

I am disappointed at the Minister's vagueness concerning new blood in the bank. I listened to the Minister's interview this morning and I note he stated that it would be a very bad signal to send to the markets, and that if they thought the Minister for Finance could ring up and instruct a bank to get rid of its board and chief executive——

Deputy Brian Lenihan

Not the chief executive.

Deputy Richard Bruton

I do not share that view. The taxpayer is investing a large amount of money and we could set preconditions. It would not be unfair of the Minister to do so. It would be unusual, but it would not be an abuse of his position for the Minister to say the State is investing this money and conditions are attached surrounding fresh management in the company and a new approach, or that fresh boards, fresh management and a fresh approach were necessary. I regret the Minister's timidity in this regard. Even the international markets wish to see fresh blood, fresh faces and a fresh start.

This morning, the Minister for Finance made a significant admission. He admitted, correctly, that the regulatory system is simply not up to it. Even now, having seen the mistakes made, the system is still not up to it. It is extraordinary that those studying regulatory failures are the regulators. It is ridiculous that they have commissioned consultants to examine their failures. If anyone else failed and stated the solution was for that person or organisation to review how it failed, it would not be credible. If a person employs a consultant and pays money to explain how he failed, such a consultant will not conclude that person should be sent out the door. It is not enough. If the Minister is serious, then there should be a proper external examination. We must have confidence that every stone is being turned, that no one's reputation is being protected, that there are no golden handshakes to nudge people to one side and that there will be a no holds barred investigation of regulatory failure. The people will not have confidence in anything short of that.

Deputy Joan Burton

I thank the Minister for Finance for an answer to a parliamentary question provided last night, which I will share with the House. I asked the Minister for Finance:

. . . if, in view of the nationalisation of Anglo-Irish Bank, it is intended to proceed with the sponsorship of the Anglo-Irish Novices Hurdle at the Cheltenham Festival 2009; the amount of sponsorship involved; if it is intended to provide corporate hospitality at the meeting in connection with the race;

The Minister stated:

Anglo Irish Bank is being run on an arm's length commercial basis. Accordingly, normal commercial decisions, which include decisions on corporate sponsorship, are a matter for the board of Anglo.

Notwithstanding this I am informed that Anglo is not sponsoring the Novice Hurdle at Cheltenham this year, nor will there be any corporate sponsorship.

So there we are, "goodbye to all that".

Deputy Brian Lenihan

Will members of the Labour Party be there? Would the Deputy like me to reopen it?

Deputy Joan Burton

Maybe Labour Party members and people like me, now that race meetings are not infested with corporate tents and Fianna Fáil party political funding efforts,——

Deputy Eamon Gilmore

It will depend on the tote.

Deputy Joan Burton

——can go back to the race track without being offended by the sight of Fianna Fáil and its pals with their noses deep in the trough. If the tent had been closed down a long time ago we would not be where we are now.

Yesterday's revelation that the Minister for Finance did not read in full the report of the €7 billion deposit, shocked everybody in the country. This ironically is the same figure as the recapitalisation figure, as others have pointed out. The revelation may have even shocked the Minister himself. Sight has been lost of a second even more major fact, that the Minister indicated that the Taoiseach had not read or been given the report either.

Deputy Brian Lenihan

Certainly not.

Deputy Joan Burton

He had not read or been given the report?

Deputy Brian Lenihan

No. Certainly not.

Deputy Joan Burton

I find that even more shocking. To some extent the Minister is an apprentice Minister for Finance. We know that he has worked very hard on this issue but until six or seven months ago the Taoiseach had been Minister for Finance for several years. He was regarded as somebody with a great deal of expertise, insight and knowledge of his portfolio and brief. He is also the Taoiseach. I do not understand the operation of a Government where this report was not read, analysed, commented on, where people were not briefed and the matter was not discussed by the Taoiseach, the Minister for Finance, the senior advisers making presentations and senior Ministers such as the Tánaiste and Minister for Enterprise, Trade and Employment, if not the whole Cabinet. I can understand that the Minister might have been afraid it would leak. Did the Green Party Members even hear about it? It makes one wonder. This indicates a breakdown in what should be the normal working rules expected of a Cabinet, as in Chubb and Farrell’s description of how Seán Lemass ran his Cabinets. This was one of the most important decisions in a series of decisions which have been so important and so difficult in the context of what has been happening here since late last August.

The Minister said yesterday that he has been working day and night on this since then. I accept that but it is unbelievable that the apprentice Minister's master who is only one step above him, having been elevated to the key job, does not get the report. He is not here today.

Deputy Brian Lenihan

He gets a summary of the report.

Deputy Joan Burton

I hope he is away doing important business for Ireland on the EU or connected with jobs and not out canvassing. Government can no longer be business as usual with members of Fianna Fáil canvassing every corner, every GAA club, every race meeting and football match. They have no time to read reports because they are out there canvassing for the next election and the election after that. The actions of the Minister, the Taoiseach and their Cabinet are the equivalent of short selling on the Stock Exchange which was properly banned recently. The Minister should stop short selling Ireland. His Cabinet and Government should get down to trying to restore this economy in the time remaining to them. It is a difficult and challenging job. The answers are not easy. Nobody on the Opposition benches has all of the answers but the revelations yesterday were stunning and depressing.

I received the summary of the Bank of Ireland statement this morning. The Minister's address to us did not address either the important points brought forward by the Fine Gael spokesperson or the content of this statement which makes several points. The provision for bad debts up to 30 March is €1.4 billion, and approximately 45% of the increase arises from property and construction. It has revised its forecast for the three years to March 2011 from €3.8 billion to €4.5 billion and, in case of additional loan impairments, adds another €1.5 billion. That brings the total to €6 billion. Unfortunately, the Minister did not give us this information to analyse the quality of his €7 billion proposal. Allied Irish Banks is significantly bigger than Bank of Ireland. There are suggestions, particularly from the bank itself, that it is stronger because it has overseas investments which yield good returns. If the €6 billion in the Bank of Ireland statement, which the markets are parsing and analysing, is true, it is not unreasonable to suggest that the AIB figure for the same period could be €7 billion to €8 billion. I do not know whether the Minister agrees or whether his officials have given him suggested figures. Those figures come to €13 billion or €14 billion. The Minister is putting in €7 billion and tells us that he will look at the balance.

Deputy Brian Lenihan

They are pre-provision figures.

Deputy Joan Burton

I know that but the markets are working on them. The Minister is not setting out the problem and is short selling the country.

Deputy Brian Lenihan

The Deputy is short selling the country now by giving pre-provision figures. She should not do that.

Deputy Joan Burton

The Minister must stop short selling the country. Perhaps this should be done by way of a committee.

We saw the spectacle yesterday, and the day before, of chief executives of banks going to the House of Commons and the US Congress and 'fessing up. They told their parliaments they were sorry. They did not quite use Obama's term, "I screwed up", but they did go in and face the people's representatives and apologise. The people whom the Minister is bailing out here are using the Seánie FitzPatrick line, "thanks a million", but are not saying sorry.

I do not know where the absolute anger of some people in this democracy will take them. The Minister must understand, as a democrat, that these executives must come in here and respond to the elected representatives and explain themselves. That is an important cathartic point that the Government, partly because it is still in denial, has missed.

I do not know on what planet the Taoiseach is living. According to the business pages of The Irish Times yesterday at the Institute of Engineers “Mr. Cowen took issue with ‘commentators in the public debate’” — I suppose that is us and all the media and journalists — “who blamed the current crisis entirely on an over-reliance on revenues from the construction industry. He described that analysis as ‘futile and facile’.” Bank of Ireland has stated that the 45% increase in impairments in the year to date are down to the construction industry. The Taoiseach’s statement denies reality.

The Government's recapitalisation is effectively nationalisation without national control. The Minister is putting €3.5 billion of tier one capital into each of the banks, but he is doing it by means of preferred stock. He then has a "get out of jail" clause for the taxpayer by stating that some of this may be converted into a 25% ordinary share stake at a later date. There would be downsides to nationalising the banks, but the cost and the return to the taxpayer would be potentially far more significant.

I would also like to disagree with a fatuous statement that the Minister continuously makes on radio and television. He continuously states that this costs us nothing, and that not a penny of taxpayers' money has gone into bank recapitalisation, or the guarantee in September. Who does he think he is codding? I hope he does not believe this himself and that this is not about failing to read the report. Part of me still hopes that maybe he did read the report, but that there might be other stuff that he does not want to know, because there is more bad stuff waiting in the wings. In his reply to me last week, the Minister stated that there has been an increase of €544 million in the cost of servicing the national debt. As the Minister knows, most of that is due to the increase in the number of basis points for Ireland when compared to the German rate or even the European average. To suggest that what the Government has done so far is free of cost is not true. The actual cost, per the Minister’s own answer last Thursday, is €544 million. In addition, the National Treasury Management Agency has advised me that the expected cost of financing the national debt in 2009 is €4.5 billion, which represents an increase of €2.401 billion. I ask the Minister please to stop telling us that these events are cost free to the Irish taxpayer. Irish taxpayers, and possibly the grandchildren of the these taxpayers, will have to repay this.

He should not suggest to the people, who are getting increasingly incensed, that he has some magic formula. As the leader of the Labour Party pointed out yesterday, the Government's approach to this is like being at a racecourse with a three card trick. We are being asked to believe several mutually impossible and inconsistent things. We need to get to the level of debate where we can actually analyse the different options.

Deputy Rabbitte suggested the other day that an expert committee of the House could examine some of these issues as they do in other parliaments. Many people like the bipartisan approach that operates from time to time in the States. People would have seen the House of Commons select committee at work yesterday. One of the bankers at that committee stated that instead of being a master of the universe, he felt that he was not even a corporal. Where does that leave our bankers? Where does that leave the eight point programme policy that the Labour Party gave to the Minister? I thank the Minister for taking the time to read it, because he discussed it with me and Deputy Gilmore at great length yesterday.

We must get credit flowing to business. The 10% increase in lending to businesses that has been provided in the Minister's document for small and medium enterprises is welcome. However, he will have to ride herd on it to make it happen. He will have to work hard and think up imaginative ways for that to happen. The Minister also spoke about a 30% increase in loans to first-time purchasers, but given the current state of the market, I am not quite sure what measures he has in mind to make that happen. If we had a question and answer session, he could explain this to us. This is potentially important in order to get the market moving, but we need to know the details of how the Minister proposes to do it. We also heard about the €100 million for green projects in the guarantee programme last autumn, but I do not know to what extent that has been followed through.

The Labour Party discussed with the Minister how it might be possible to identify the scale of bad assets and write down impaired assets. He has been silent on this. From the media, I understand that he is now thinking of some kind of insurance system. The problem with an insurance system is that old bad debts are being insured, when the insurance system should go into new lending. We want to get credit flowing to existing businesses who may be having difficulty accessing lending. The Minister's insurance scheme being mentioned in the media——

Deputy Brian Lenihan

Not by me.

Deputy Joan Burton

We must have a way to quarantine the bad debts. There is a big differential in what the market is going to factor in between the Government's €7 billion and the amount the banks are thinking of, having read today's statement by the Bank of Ireland. I acknowledge that the banks will provide some of that by cutting back costs and by not paying dividends. I do not suggest that the State must provide all of that, but there is a big gap.

We also suggested the establishment of a top level Irish banking commission, composed of the best people with experience here and abroad. Our regulation system has failed abysmally. I do not want to get into any personal comments on individuals, but the Minister answered a question I asked a few days ago about the "leaving" package of the former regulator. I do not know if he appreciates how angry people are at the notion that the regulator, on retirement, received an additional bonus payment of eight months, which the Minister claims was due to legal advice. I do not know if the Government is thinking about the political reaction of people to this decision. We want a banking commission to take over and reform the regulation. We need to remove the title of "Financial Regulator", as it has been damaged. We also need to identify the role of the Central Bank in this matter.

We want regime change in the banks. We do not believe that any bank executive in the covered institutions should earn more than the Minister, which is around €250,000 when salary and expenses are included, as well as a car. That is serious income as far as 99% of people in this country are concerned. The Minister should bite the bullet and cap executive pay.

Finally, we also need an inspector for Anglo Irish Bank. An article in this morning's Financial Times, written by the newspaper’s Ireland correspondent, included a short, sharp summary of the different investigations into Anglo Irish Bank. Basically, it is the cancer at the heart of our banking system. We own it now — it is our bank. The Financial Regulator is undertaking investigations. We have no confidence in the regulator, however. The regulator can make inquiries until the end of time. There is no confidence in this country’s system of regulation. I ask the Government to appoint an inspector, as the Labour Party has requested. That should happen soon so that we can start to clean up this mess.

Deputy Arthur Morgan

I would like to share time with Deputy Ó Caoláin.

An Leas-Cheann Comhairle

Is that agreed? Agreed.

Deputy Arthur Morgan

I would like to move my amendment to the Government motion.

An Leas-Cheann Comhairle

I am afraid that is not possible because there is an amendment before the House. The Deputy can speak about his amendment if he wishes.

Deputy Arthur Morgan

Okay.

Deputy Caoimhghín Ó Caoláin

I did not hear any other Deputy move an amendment.

Deputy Arthur Morgan

Deputy Bruton moved an amendment.

I would like to make a few general observations at the outset. It cannot be denied that we are in a catastrophic mess at the moment. That mess was made by the Government, in the first instance, and made worse by speculators, who were not reined in, and by bankers. It smacks of the era of Haughey, Lawlor and Burke. I hope I am wrong in that regard, but that is what it looks like to me and many others. It is worrying that the Government is not showing any direction in dealing with the current crisis. I have been saying for many years that we need a State bank that can be trusted. People need to have confidence that a bank will behave as good old-fashioned bankers, whose word was their bond, used to behave. Bankers should confine themselves to making an honest return from the work they do with their clients. I do not see that happening in any of the modern banks, which is most unfortunate.

I would like to pay particular attention to three aspects of the recapitalisation of Allied Irish Banks and Bank of Ireland, which is the issue at hand. First, we need to focus on the need to protect people's homes. The best the terms of this scheme can offer us is a one-year moratorium on efforts by the banks to repossess people's homes. The Government must expect that people who are losing their jobs, getting into financial difficulties and therefore unable to make their mortgage payments will be back in work and in a financial position to start making mortgage payments once more within 12 months. The terms and conditions of the recapitalisation deal, which state that 12 months will have to pass before the banks can make a move to repossess, are clearly based on an expectation that is pie in the sky. There is not even a remote chance that what is expected will come to pass. The moratorium period should be at least two years, with a review at that stage to see how people are getting on. Another aspect of the deal is the introduction of a regulatory code to protect customers. The voluntary code that has been in place for many years is worthless and meaningless. If that code, which was written by the banks, is to apply in this instance, it will have no value. I see no point in adopting a code that is the preserve of the banks.

The second leg of the scheme to which we should pay attention is the absolute need, for a number of reasons, to ensure that a proper financial stream is available to small and medium-sized enterprises. As we know, many businesses are having significant cash flow problems. They may wish to maintain their competitiveness by upgrading their processing systems, buying new machinery or modernising their structures. It is crucially important that those running shops and other enterprises can refit their premises from time to time. We are depending on such people to maintain jobs. If they do not have a steady financial stream, what chance do we have of retaining jobs? In these or any other times, surely job retention is at least as important as job creation. I am concerned about the scheme that is in place to make this happen. Will it happen? The clearance group that is in place, as a result of the Government's negotiations with the banks, has no teeth. It will debate certain matters with the banks as an honest broker. To date, the banks have had to be brought screaming and kicking to the table at every stage. It worries me greatly that the banks, rather than the Government, have been calling the shots. The clearance group has a huge job to do if the confidence of businesses is to improve. I am concerned about it.

The third element of the scheme about which I am concerned relates to the terms and conditions it sets out for executives. I do not want to rely too much on this important point. It is a question of public confidence. We have been told that certain characters, who are being paid approximately €3 million per annum, will take a salary cut of approximately one third. Should we prostrate ourselves before these great people who have agreed to earn just €2 million per annum at a time when public sector workers are being mugged by the Government on a daily basis? People on lower and middle incomes are being mugged every time they open their wage packets at a time when, back at the ranch, executives are having to humble themselves by getting a mere €2 million per annum. Do we really owe executives such a great deal? Why do we tolerate such nonsense? It demonstrates to me that the Government is out of touch with reality. I wish representatives of the Government would occasionally walk into the newsagents or stop to talk to people on the street. When people come to the constituency offices of Government Deputies, they should ask them what they really think and what is being said among the public. Most people think the Government has no perspective on what is going on, or even on reality. Are we supposed to laud a person for accepting a wage cut from €3 million to €2 million?

The former Financial Regulator is walking into the sunset with a €630,000 pay-off and a pension of €142,000 per annum at a time when the pensions of the workers of Waterford Crystal are at risk. One group of people may not get a cent, but this other character is being looked after. A complete realignment across every stratum of the State is needed, rather than merely an adjustment, as the Government is calling it, of the wages of public sector workers on low and middle incomes. I suggest that we adopt an approach equivalent to that of the new US President, Mr. Obama, who has capped bankers' wages at $500,000. I suggest that the salaries of bank executives be linked to those of Ministers. That is an adequate scale for anybody. I am concerned about the huge bonuses and salaries the executives received over the past three years, in particular. During a period of turbulence, they were messing about with our money and our institutions. They should be forced to hand back the bonuses they were paid in respect of each of the last three years, along with at least 50% of the salaries they were paid over that time. We should start on an even footing from there. Nobody in this House can claim that the salaries in question were earned. The scheme, which is tokenistic in the extreme, falls on all three of the aspects I have highlighted.

During this crisis, many Deputies have spoken about public service. I will give the House a brief example of public service in the private sector. Last night, I attended the wake of a man who was the milkman in my home village for almost 50 years. One could depend on one's life that he would turn up and provide an excellent service in any weather. He never overcharged anyone. He dealt honestly and fairly with me and everyone else. That level of service is what public service should be all about. Over recent years, the man in question was receiving an old age pension that, unlike the pensions given to certain characters, did not amount to €142,000 per annum. The public commitment of the proud milkman I have mentioned is an example of what we should expect from bank executives, Ministers and everyone else. We should get that kind of public service from everybody, particularly people in the public sector. Some Ministers have up to six civil servants working for them in their constituency offices, or on behalf of their constituency offices. They should have one staff member, at best; the wages paid to the other five staff members are equivalent to paying five nurses. I appreciate that Ministers are hugely committed to that work and I do not object to them being assigned one civil servant to do it. However, the current position pertaining is equivalent to five nurses, five gardaí or five other public servants having been robbed from the public service. It is scandalous and unacceptable.

The key question is: will this proposal work? Many economists are rightly sceptical about it. People say that the level of recapitalisation should have been of the order of 8% to 10% of GDP. I certainly would not like to see that level of commitment to the recapitalisation scheme. I put on record that I want it to work. I hope the recapitalisation project entered into by the Government, on behalf of taxpayers throughout this State, works and I wish it a fair wind because, if it does not, we are serious trouble.

However, I have concerns about it. It was stress-tested by the Department of Finance. I hope Members will forgive me for being cautious about forecasts from the Department of Finance. In the good times, it got its forecasts brilliantly wrong and in the bad times, it got them spectacularly wrong. It has an extremely poor record on forecasts. I look forward, unfortunately, with some trepidation to this project and hope it has got it right on this occasion.

On the issue of inter-bank loans and the messing that went on in that respect, I have sympathy for the Minister for Finance at one level because we all appreciate the huge volume of reports, reviews and correspondence that arrive on our desks. I readily acknowledge that we cannot read all the material. When the Minister was undoubtedly under pressure in his portfolio in terms of all these matters, I, as finance spokesperson for Sinn Féin, tried to keep abreast of matters, inform myself and cover the research as best I could. I also burned the midnight oil and worked way beyond midnight on many occasions. However, I cannot understand how the PwC report was not read diligently, every fraction, semicolon and full stop in it. I do not know why the Minister did not give attention to that. I question if it is a case of Ministers not reading parts of a report because it is convenient for them not to do so. The Minister of State, Deputy Barry Andrews, did not read a HSE report recently. I do not know if that is the case in this instance. It certainly raises suspicions in my mind and serious suspicions in the minds of the public. It looks poor.

In regard to the rogue loans between these institutions, according to today's edition of The Irish Times, Irish Life & Permanent is now claiming it informed the Financial Regulator of its dodgy deal, the €7 billion transfer in September from it to Anglo Irish Bank, within days of it being carried out. That is a serious charge. We need to know if that is true. If it is, it completely undermines confidence in the Financial Regulator. Let us be clear, Anglo Irish Bank undoubtedly falsified its accounts. There is no question about that at this stage. Anglo Irish Bank transferred money from Irish Life & Permanent, IL&P, and then got it to transfer that money back so that Anglo Irish Bank could falsely present it in its accounts as a customer deposit. I understand the Department knew about this in October. When did the Financial Regulator first know about it? That is a crucial question. Why did the Minister for Finance, who knew about it at the time of the passing of the legislation to nationalise Anglo Irish Bank in January, not inform this House that was the case when he had that knowledge? A further question mark hangs over the head of the Minister for Finance for that failure.

We are asked by the Government and the Minister for Finance to accept a significant number of issues of a very dubious nature. Where were the Greens in all of this? When was the Green Party informed about these rogue loans? Was it aware of them before the nationalisation of Anglo Irish Bank took place? If it was informed about them, what was its view in regard to them? Why did it not require that this House be informed of them? If it was not informed about them, it should let us know about that.

Deputy Caoimhghín Ó Caoláin

I thank my colleague, Deputy Morgan, for sharing time with me. On the day that taxpayers are asked to put €7 billion into the Bank of Ireland and Allied Irish Banks, parents, children and teachers across this State are devastated that special needs teachers will be withdrawn from children who desperately need them and all for a paltry so-called saving of €7 million. It speaks volumes of the mentality of the Government that it should impose such a cut on the most vulnerable children in our education system. To put this saving in context, the chief executive of the Bank of Ireland was paid €3 million in 2007. How many multiples of the so-called €7 million saving has he and others like him pocketed in salaries and bonuses over the course of their bank careers, yet we are expected to applaud his virtue and that of his cohorts for taking a pay cut? We will have to be forgiven if there is not a loud cheer.

What has been happening yesterday and is happening today is almost unbelievable. We are being asked to trust the Government and the banks as €7 billion of public money is poured into the two largest financial institutions in this State. This is being asked of us by the Minister for Finance the day after he made the extraordinary admission that his Department knew last October of the fraudulent €7 billion transaction between Irish Life & Permanent, that he did not read the relevant section of the PricewaterhouseCoopers report and, most bizarre of all, that, when he did know, he did not tell the Dáil about it on 20 January when he asked us to nationalise Anglo Irish Bank.

I find it extraordinary that the Minister sought to justify this by saying that to tell the Dáil about the €7 billion merry-go-round transaction would have been to undermine confidence in banking as it would be revealing customer detail. It was as if we were talking about a citizen and his or her meagre savings account. What he withheld was the truth about what can only be described as a — I have used this language already — fraudulent transaction involving the very same amount of money that we are being asked today to pump into Bank of Ireland and Allied Irish Banks.

That fraudulent transaction between Irish Life & Permanent and the Anglo Irish Bank raises another very serious question. Was it a one off or did that end of year cooking of the books happen before with these or other financial institutions? Has it been a practice in Irish banking that has yet to be exposed? We need to know this. We also need to know the position of the regulator in all of this and I emphasise "all of this". Either the regulator did not know, which was bad, or else he knew and did nothing about it, which was even worse.

As I pointed out on the Order of Business and as Deputy Morgan said in his contribution, Irish Life & Permanent is now claiming in this morning's edition of The Irish Times that it informed the Financial Regulator of its dodgy deal, the €7 billion transfer in September between it and Anglo Irish Bank, within days of it being carried out. In our view, this is a very serious matter that warrants address by the Minister and warrants it quite quickly — today. We need to know if what Irish Life & Permanent is claiming is factual. If it is true, it completely undermines confidence in the Financial Regulator. Let us be clear, Anglo Irish Bank falsified its accounts; it transferred moneys to IL&P and then got it to transfer the moneys back so that Anglo Irish Bank could falsely present its accounts and that transaction as a customer deposit. We need the Minister to answer those questions.

As I stated yesterday, when the Central Bank and the Financial Services Regulatory Authority Bill was debated on Second Stage in this House seven years ago, I pointed out then that not only did the Central Bank allow the DIRT fraud to flourish, it lobbied the Government of the day not to intervene, claiming such action would cause a flight of money out of the economy, or so it told us. If the Central Bank was prepared to turn a blind eye on that matter what other matters was it equally prepared to overlook? What other failings were in its operations?

Here we are, seven years later, obliged to ask the same question about the very regulatory regime that was brought in as replacement during the course of that 2002 legislation. This was the new regime that was trumpeted and lauded and was going to change everything. However, it is clear that it has failed miserably. Yesterday the Minister indicated a promised tightening of regulation. I have no confidence in this Government's real intent in this regard. There is no evidence to show that it is sincere, or that its traditional bonhomie with those captains of the financial institutions is any different today than it has been at any time in the past.

Deputy Seán Ardagh

I am happy to speak on the motion on the bank recapitalisation. Unlike Deputy Ó Caoláin, I have great confidence in the Government and I commend the Taoiseach, Deputy Brian Cowen, and the Minister for Finance, Deputy Brian Lenihan, for taking action on the two main issues that currently affect our economy. On the one hand there are the country's finances; on the other is the bank situation from which confidence in the business community and growth can be accelerated. The country is in a precarious economic situation and if action is not taken over the next five years to get the finances into equilibrium it will be in a far worse position. The country's ability even to pay wages will be in question.

Over two years, if one takes the beginning of 2008 to the end of 2009, the Exchequer will be down by €25 billion in taxes. The actions to be taken this year, initially to save €2 billion, are only the start of a €16.5 billion programme of expenditure cuts and tax increases over the next five years. Action taken this year will impose hardship on those in the public sector who have secure jobs and pensions. Others in the private sector may have lost their jobs or taken pay reductions. They have insecure pensions. Next year, unfortunately, there will be further impositions with which none of us will be happy. Everybody's standard of living will reduce significantly over the five years to 2013. It will take that time to come out of the difficulties we are in as a result of the recession, the international banking situation and the devaluation of the UK pound.

By the end of 2013 our financial situation should place us back once again on an economic growth trajectory. That will come about because the banking situation will have been righted through the recapitalisation of the two major banks, thereby allowing the commercial and business world to start moving again. Now there is great difficulty in getting loans and money and in moving cash, the lifeblood of business.

As we all know, the problem with the banks started with the sub-prime problem in the United States, followed by the US Government allowing Lehman Brothers Bank to go, effectively, into liquidation. That had a huge ripple effect throughout the entire financial world. In Ireland we had an over-dependence on the construction industry. Property values were at an unsustainable level. As a result, banks had loans on their books which were subsequently valued at much less than the value of the loans. As far as the banking situation is concerned, it is very important that we put a value on those loans. I am pleased that Bank of Ireland has issued a figure of a €6 billion downward valuation on those loans. I do not believe that Allied Irish Banks was as intensively invested in those types of loans but something of that order will probably pertain in its case too.

Deputy Ó Caoláin mentioned the sum of €7 million with regard to the costs of paying for teachers of children who are somewhat disabled, and for the help these children receive in the classroom. That help will continue, not in special but in mainstream classes. That is an expenditure item and is entirely different from what we are considering in this motion, which is an investment of €7 billion in Allied Irish Banks and Bank of Ireland.

Deputy Arthur Morgan

It is an investment.

Deputy Seán Ardagh

It is an investment of €7 billion in Allied Irish Banks and Bank of Ireland on which we will get a return of 8.5%, 8% of the total sum.

Deputy Arthur Morgan

It is an investment in the children.

Deputy Seán Ardagh

In addition, in five years' time we will have an option to take up 25% of the ordinary share capital of that bank. I presume the idea is that the Government will take up ownership when the economy is in a position for that 25% to go to market. It can then be sold, with the proceeds coming to the Government. That option will be taken up at the current share price, whatever it may be, at the date of the recapitalisation. Making an investment in a bank is very different from expending money. In the former case we expect a return that will be of benefit to the people into the future.

Bank salaries feature regularly in discussions. All Deputies have had e-mails over the past while, especially from people in the public service sector. I received over 60 e-mails addressed, variously, to "Deputies", to my constituency and personally. I have also received e-mails that were addressed to every Member of Dáil Éireann. These are innumerable. I do not know how many of those there are. I replied specifically to the 60 and read the ones addressed to me personally. In almost every one the writer asks why the public service must take the cut while the bankers who caused the problem do not. In the recapitalisation programme we note that bankers are now in the first phase of the first cut, as far as mega-salaries are concerned. The total remuneration for all senior executives will be reduced by at least a third, no performance bonuses will be paid for senior executives and no salary increases will be made in respect of 2008-09. Non-executive directors' salaries are to come down immediately, by 25%.

Deputy Arthur Morgan

It is not enough.

Deputy Seán Ardagh

It is not enough. I agree with the Deputy.

I refer to Mr. Eddie Sullivan, the former Secretary General of the Department of Finance, who was Secretary General of the Department of Social and Family Affairs during my time on the Committee of Public Accounts. He did a marvellous job there. In great part, the way in which Deputy Morgan and I receive answers from the Department of Social and Family Affairs, the way its computers are set up and the efficiency and effectiveness of that Department reflect what Mr. Sullivan did while he worked there.

I have great respect for Mr. Sullivan and I expect his report in a few weeks' time will put levels on executive remuneration comparable to what President Obama has done in the United States. We are concerned here not only about Bank of Ireland and Allied Irish Banks but about Anglo Irish Bank, Irish Nationwide Building Society, Educational Building Society and Irish Life & Permanent. All six of those institutions are subject to the guarantee and will be taken into account in the report.

More than anything, from this recapitalisation we want confidence brought back into the life of business. We want to see people getting finance to buy cars, mortgages being given out such that the construction industry can get a lift and employment, which is suffering so much, increasing by a quantum step. Whatever agreement is reached on how the banks deal with business people and consumers, I want to see it take fully into account the idea of increasing employment. In a recent speech, the Taoiseach, Deputy Cowen, said he was concerned about, as he put it, "jobs, jobs, jobs". I want the Minister for Finance to tell the banks that as well as getting a good, strong, stable banking system of international repute from the recapitalisation, we want to get "jobs, jobs, jobs".

Deputy Kieran O’Donnell

I wish to share time with Deputy O'Dowd. I want to bring the debate back to the Fine Gael amendment to the motion on the regulatory failures of the system. We have had much uncertainty on Anglo Irish Bank and the Minister for Finance will have to clarify a number of points. It appears that Anglo Irish Bank gave €4 billion of an inter-bank loan to Irish Life & Permanent when the bank guarantee scheme was put in place. Irish Life & Permanent passed this on to a non-bank subsidiary company. That company invested it as a deposit in Anglo Irish Bank. Anglo Irish Bank reflected that €4 billion in its financial statements as a customer deposit, which it was entitled to do because the subsidiary company of Irish Life & Permanent was not a bank. However, Anglo Irish Bank also had a €4 billion inter-company loan to Irish Life & Permanent on the balance sheet at the same time.

That is window dressing. That €4 billion deposit was a repayment of the inter-bank loan. That must be clarified. This gave a false impression. I would like to know if that inter-company loan will disappear when Irish Life & Permanent's consolidated accounts are produced. That €4 billion may appear nowhere in the consolidated accounts of Irish Life & Permanent but appear as an asset, an inter-company loan for Anglo Irish Bank and also as a customer deposit, when it is a repayment of an inter-bank loan. It was done in that form to give a false impression to the financial markets that Anglo Irish Bank had €4 billion extra deposits when it was nothing more than a repayment of an inter-bank loan, which appeared above and below the line. That is deception and must be examined.

The Financial Regulator has been investigating this since last October. Were any other issues referred to the Financial Regulator on foot of the PricewaterhouseCoopers report involving the other banks? We understand from reports that this was done with the knowledge of the Central Bank. Irish Life & Permanent stated that. What specific knowledge did the governor of the Central Bank have on the form in which this was done? Anglo Irish Bank had its own money accounted for as both an asset and a liability. It routed the money out through Irish Life & Permanent, which facilitated it. This must all be clarified.

A number of points on the Government's proposed scheme will have to be clarified. The Government speaks about 10% extra capacity for small business and 30% extra capacity for first-time buyers. What is meant by "capacity"? We need to know what specific level of extra funding they will provide. We need to know what specific level of extra funding they will provide. Does "capacity" mean a bank which offers it to a small business person who might not be able to take it up can claim it made the offer? We need to know how many people they offer it to, the amounts they offer, whether the person receives it and the amount.

Last night the Minister announced that of the €7 billion that is being put into the banks, €4 billion is coming directly from existing resources in the National Pensions Reserve Fund while approximately €3 billion will come from front-loading of the Exchequer contributions for 2009-10. That means the Government will borrow at the expense of taxpayers to put money into the two main banks. Does that mean if any further recapitalisation is required, the Government will borrow? It will not come from the National Pensions Reserve Fund. There will be €3 billion of fresh borrowing at the expense of the Irish taxpayer. In addition, €7 million is being taken away from special needs assistance while Mr. Patrick Neary receives a €630,000 pay off. People watching are saying this is madness. Why is the Government accepting this? It should take Mr. Neary's claim to the courts. We cannot reward people for incompetence. The financial regulation system in this country has failed.

On the radio this morning the Minister for Justice, Equality and Law Reform, Deputy Dermot Ahern said the Government went to the banks with the Fine Gael proposal and they did not like it. The banks are in no position to pass judgement. They got us into this mess. We propose an initial cap on executives' remuneration of €250,000. The Government proposes a 33% reduction in salaries and no increase in salaries or bonuses up to 2009, but the Government guarantee scheme is in place until 2010. The cap of €250,000 should be in place until the capital advanced by the taxpayer is repaid.

The PricewaterhouseCoopers report should be brought into the public domain. Bank of Ireland speaks of increasing its bad debts provision by nearly 60% to €6 billion. That has been backed up by a firm of independent risk consultants the bank brought in itself. I see no mention of what was provided for in the PricewaterhouseCoopers report. That is supposed to be in the independent review commissioned by the Government and that report should be published.

Fine Gael proposes we take AIB and Bank of Ireland and establish a new AIB and Bank of Ireland alongside them. We transfer the good assets to the new banks, leave the toxic assets in the existing banks and allow them to wind down as we proposed for Anglo Irish Bank. Suppose one bought a box of oranges at the market and the oranges on the top layer all looked pristine. If one took the box of oranges home and found that many of the ones underneath were rotten, would one not want to pick out all the good ones, leaving the rotten oranges in the existing box? If not, they will fester and infect the other good oranges. It is the same with loans. The biggest problem is that we are playing Russian roulette with taxpayers' money. We do not know how much bad debt is within the banks. We still have not been given an idea about the PricewaterhouseCoopers report.

We want the Government's scheme to work. I would be delighted if it worked, but it cannot work. We are paying out €7 billion of taxpayers' money when we do not know the full extent of the situation. Perhaps the Government knows from the PricewaterhouseCoopers report. The time has come to restore trust in our banking system. We need to ensure we have full transparency, which we do not have at the moment. The problem is that we have a system of regulation that has not worked and is not working now. With regard to what has happened at Anglo Irish Bank, Irish Life & Permanent has major questions to answer. It would appear to have facilitated the routing of €4 billion through its books so that Anglo Irish could give the impression it had higher customer deposits than it actually had.

Acting Chairman (Deputy Seán Ardagh)

There is less than a minute left in the slot.

Deputy Kieran O’Donnell

I am sorry; I will finish on that point. The Ceann Comhairle said he would let me know when I had five minutes left. I advised him previously that Deputy O'Dowd was to speak. Can we facilitate him?

Deputy Billy Kelleher

In one minute.

Acting Chairman

There was supposed to be one minute, so I will give some flexibility.

Deputy Kieran O’Donnell

I thank the Acting Chairman. Finally——

Acting Chairman

The Deputy is running out of time.

Deputy Kieran O’Donnell

I ask the Minister to review the Fine Gael proposal and give it consideration.

Deputy Fergus O’Dowd

People want the old order to change. Under this Government nothing has really changed. Yesterday we saw the evidence of the brass-necked Fianna Fáil Minister for Finance who had not read a critical report on our financial health and what was going on in our banks. He failed miserably in that test. We see no sign of Fianna Fáil's brass band, the Green Party, whose members were here earlier, mute and silent. Probably none of them will appear before the evening. Let us have facts. Things are rotten in the Irish banking system. The Government has failed to act until now. We are expected to accept, the morning after, the incredible circumstances in which one banking institution deposited money in another bank as a customer rather than as an inter-bank loan. Around the world our Government is being ridiculed because it failed to act.

We need a change in the regulations and in the law. We need to protect whistleblowers in the banking system — people such as Eugene McErlean, the internal auditor who told AIB in 2001 that there was serious overcharging of their customers, to the tune, it turned out, of €65 million. He was a decent and honourable man. He went to the Central Bank and later to the Financial Regulator, and spent four years bringing this issue to the attention of the authorities. This man was not protected in his place of employment. He is not protected today. He is not free to say what he wants to about what went on in AIB. We are now bailing out a rotten system while failing to protect the whistleblowers in that system who will tell us, factually and truthfully, what is going on. They put everything they have on the line to make sure there is probity and integrity within our banking system.

Everybody wants this recapitalisation to work. Small businesses and small employers need the money. Let us hope it does work. The Government should listen to what Deputy Bruton is saying. We need a bad bank so we can put the bad debts into one location and let the good banks lend to the good people out there. However, we need to police the system and protect those people within the system who want to tell us the truth by making known facts they cannot legally make known.

Minister of State at the Department of Enterprise, Trade and Employment (Deputy Billy Kelleher)

I welcome the opportunity to speak on this important issue. There is much anger out there among the public and among commentators about the behaviour of individuals in the banking system and the culture that was quite prevalent in certain aspects of banking. This has done untold damage in the sense that it has undermined confidence and credibility, not only in the banking system but in the regulatory system overseeing it. Everybody accepts that. What we need now, however, is action to address the fundamental problem of the lack of working capital which can filter down into the real economy. That is why today's decision is of fundamental importance.

A key principle of the recapitalisation package is the recognition of the importance of business lending, particularly with regard to small and medium-sized enterprises. They are central to our economy, and the provision of bank credit to the sector is a primary target of the overall package. The package contains a range of initiatives which will directly assist our enterprise sector. The recapitalised banks have committed to increasing their lending capacity to small and medium-sized enterprises by 10% over 2008 figures. This should ensure that sound businesses will receive support from their banks, which have committed to public campaigns to actively promote lending to small and medium-sized enterprises. There is also scope for increased levels of lending to SMEs if mortgage lending is not taken up. Compliance with this commitment will be monitored by the Financial Regulator. The banks have agreed to make quarterly reports to the financial regulator, with the first report to be submitted by the end of April 2009.

Small and medium-sized enterprises are also covered by the proposal to have a code of conduct on business lending to SMEs. This will be introduced by the end of the week by the Financial Regulator. The intention is that this code will extend beyond the recapitalised banks and embrace the key credit providers. The code will have the effect of law and its objects will be to facilitate access to credit for sustainable and productive business propositions; to promote fairness and transparency in the treatment of SMEs by banks; and to ensure that when dealing with arrears cases the aim of the bank will be to assist borrowers in meeting their obligations or otherwise deal with the situation in an orderly and appropriate manner. The code should strengthen the bank-client relationship and result in the development of greater trust and confidence in the bank's lending practices. Lenders covered by the code will be required to offer their customers the option of an annual review meeting to include all credit facilities and security, including collateral. They also will be required to inform customers of the basis for decisions made and to have written procedures for proper handling of complaints. Where a customer gets into difficulty the banks will seek to agree an approach to resolve problems and provide reasonable time and appropriate advice. That is an important aspect of the recapitalisation plan.

There is no doubt small and medium-sized businesses are being squeezed through not having enough working capital to function properly in the current climate. This is having major ramifications in terms of undermining competitiveness and the subsequent loss of jobs. As Minister of State with responsibility for labour, I am acutely aware, as are most Deputies in the House, of the impact of the global recession in the context of the downturn in the broader economy and its impact on employment prospects. In recent months we have seen a haemorrhaging of jobs. I do not think I need to tell anyone in the House that this is to continue for some time. We must be resolute in how we deal with these issues. The central requirement in addressing the difficulties in the broader economy is to have a vibrant banking sector that is capable of lending to small and medium-sized enterprises and to individuals in the form of mortgages. This might give some stimulus to the broader economy.

There is another area on which I would like to see the banks focus. Many companies are struggling and I am concerned that too much emphasis is put on start-up businesses rather than the support of existing business. Banks need to have regard to businesses that are struggling or are not as viable as they were in previous times. It is more often than not easier to retain employment than to create it in difficult times. I hope the banks will be conscious of that.

We on this side of the House have made a difficult decision on the introduction of the pension levy, which places a burden on ordinary working families. I accept that. We know why we did it and we have tried to explain it. Equally important, however, if we are serious about having a social solidarity and partnership pact, it is fundamental that we address the issue of remuneration of executive and non-executive directors in the banks and broader corporations. I believe the remuneration package of a reduction of salaries and bonuses to executive and non-executive directors of 33% and 24% that has been announced is not enough. A surtax should be placed on the salaries and bonuses of executives and non-executives. Let us be honest, there are many other perks that go with these——

Deputy Kathleen Lynch

Did the Minister say tax?

Deputy Billy Kelleher

Yes, a surtax.

Deputy Kathleen Lynch

It is the first time a Minister has mentioned tax.

Deputy Billy Kelleher

I will explain. They are already paying their income tax; this would be a surtax. We should be serious about this. If it can happen in the heart of capitalism, Wall Street in New York, in the context of President Obama's announcement, we too should consider having a surtax on remuneration to executives. I would propose a very steep one of 75% on people earning over €350,000. If they wish to reward themselves, they can do so but we will end up taking it from them. This is a matter we should re-examine. When discussing remuneration we should also realise that the Irish taxpayer, who is being asked to support this capitalisation, looks in absolute anger at the bonuses that were paid over a period of time. There are undoubtedly many fine people in the banking institutions. However, if they do not wish to work for €350,000 and a surtax, I am sure there are many other people who would be competent, willing and capable of replacing them. The choice is theirs.

The people, the Government and the lending institutions have entered into a new arrangement or relationship. The banks have an obligation to ensure that they live up to the various codes of practice with regard to lending to small and medium enterprises and lending to mortgage holders and people who find themselves in distress and falling into arrears. It would be morally unacceptable to have people brought before the courts for failing to meet repayments when they are trying to do their best after being laid off or even where there is a double income loss in the family home. We must be conscious that there are many people who are hurt and feeling the full whirlwind of this international global recession. It is time other people stepped up to the plate and carried some of the burden as well.

The broad thrust of the debate in this House over the past few months about capitalisation and the difficulties in the banking sector has ranged from populist rhetoric to genuine, sensible proposals. Most commentary in the House is in the interest of the broader economy. Social welfare queues are lengthening, the number on the live register is rising rapidly and a quarterly household survey is due to be produced quite soon which will give an accurate reflection of the increase in unemployment. A sum of €7 billion is being put into the recapitalisation of the banking system, which is a huge figure, while there is also the possibility of the unemployment figure reaching 400,000. We tend to forget that each of those figures represents an individual, the breadwinner who has lost their job and a family in distress.

Acting Chairman (Deputy Wall)

The Minister has one minute left.

Deputy Arthur Morgan

The Minister is an orator.

Deputy Billy Kelleher

We must be conscious of our position. Many of the unpalatable decisions this side of the House must make are made for the right reasons, in the context of trying to stabilise the public finances and ensuring we have an ability to go into the international markets to borrow for our national development plan. That is equally true of the decision to put money from the National Pensions Reserve Fund into the banks. There is a myth — I know it is not put forth disingenuously but by accident — that we are bailing out the banks. Nothing could be further from the truth. We are trying to ensure there is a stable, vibrant banking sector that will allow working capital to flow into small and medium sized businesses as well as larger corporations, which will create employment in the future.

I commend the motion. However, the issue of a surtax on the remuneration of senior executives should be seriously considered given the pain and anger of ordinary people. This is not retribution. It is about social solidarity and a recognition that everybody must carry their fair share of the burden in these very challenging times.

Deputy Seán Barrett

I am sharing time with Deputy Shatter. The first part of our amendment to the motion condemns the regulatory failures that facilitated a deception of shareholders and the public. I refer to the report of the proceedings of the finance committee, of which I am a member, of 15 July 2008. Mr. Hurley, the Governor of the Central Bank, made the following statement to the committee:

Significant inspections are carried out by the Financial Regulator under our structure. The regulator has significant powers to go into institutions and to inspect and examine their books. On that basis, we can say the banks are well capitalised. We analyse our liquidity arrangements with them on a weekly basis and this suggests there are not issues currently. Arrears on assets are low but one would expect them to increase in a downturn.

This is part of what has been happening on this issue for the last 12 months — misleading information being given to Members of this House, the Government and the public. The Governor of the Central Bank told the Oireachtas joint committee that the Financial Regulator could go into banks and examine their books. If the Financial Regulator had done that, would he not have found the rotten things in our banking system that we are now discovering? Last July, the Governor told us the banks were well capitalised, yet today we are discussing investing €7 billion of taxpayers' money into our two major banks. What is going on? We are being misled on a daily basis. That is a fact, and it is in the record of the proceedings of the committee of which Deputy Fahey and I are members.

The Opposition has been asked on numerous occasions by various Ministers to play a responsible role in dealing with this crisis. I have no problem with doing that because this is our country, and I have as much interest in the success of this country as any other Member of the House. However, how can one help when one is being misled and not given the facts? Today, we are again being asked to accept a Government proposal without any information. It has been hinted that there is more trouble to come from Anglo Irish Bank. Why are we not told? Why do we not know about it? Why are we not told about the other things happening in other banks? Let it all come out on the table and let us try to deal with it.

Who will invest in the banks? What private individual or institution will invest in banks if they do not know the facts about the balance sheet and debts? Nobody would do it. Would anybody in this Chamber invest in a company without knowing the debts or assets of the company? Of course not. However, here we are blindly putting €7 billion into a structure that has not worked in other countries. At least my party, through its spokesperson and leader, has come forward with an alternative suggestion. Let us examine and debate it before rushing to invest €7 billion in something that has not worked to date. If the Government is doing this to try to attract outside investment, it will not work. It can find that out from the Stock Exchange results; they will soon tell whether the system works. We will be dependent on outside investors and the sad thing is that the Government will not give the proposal genuinely put forward by my party a chance to be examined before proceeding with this investment. I recommend strongly to those on the other side of the House that we stop for a moment, think about it and perhaps talk about our proposal to see if there is merit in it.

Deputy Alan Shatter

The great difficulty in addressing an issue such as this in five minutes is there is much one wants to say that one will not get an opportunity to say.

Deputy Seán Barrett

Exactly.

Deputy Alan Shatter

As everyone knows we are confronted by an unprecedented economic and banking crisis. It affects every walk of life, every person in this country, and there are many who currently believe themselves to be immune who will discover as we go through the devastating effect of what is happening during 2009 that it is knocking on their front door and back door, and impacting on them, their family or their relations.

Over the past six months I have despaired of the manner in which both the Government and the banks approached the crisis with which we are confronted. It could be best described as being met with arrogance, hubris, greed and incompetence, and I would apply each of those to both the Government and banks in turn.

It seems that the Government is incapable of owning up to its mistakes and recognising that not only do we have a global crisis but there has been a total failure of economic policy and direction by, in particular, Deputy Cowen, as Taoiseach and when he was Minister for Finance, by the Government led by the previous Taoiseach, Deputy Bertie Ahern, and a similar failure by this Government. One of the reasons we are in difficulty internationally is not simply that the banks lack credibility. There is a lack of international confidence in the competence of those in government managing the economy.

The same applies to our banks. They have made decisions that were intended to generate unsustainable and enormous profits to the benefit primarily of directors and bank employees at executive level, to generate fees and to make loans available in circumstances where, I suspect, people had a far closer eye on the so-called "compensation" or bonuses they were to receive than on the viability of the projects for which money was being loaned.

It seems that neither the Government nor the banking sector has the capacity to accept responsibility and recognise their accountability. As in the words of the song, "sorry seems to be the hardest word", but it should not be.

The first thing to which the general public is entitled is an apology from the Government and an apology from those in charge of our banking system, and from the bank regulatory system which has utterly failed the public interest in the context of events now being disclosed. There is a credibility deficit, a competence deficit and a confidence deficit. We need to restore confidence in our governing system, in our regulatory system and in our banking system, and we need to restore competitiveness to our economy.

I do not believe that the Government has the capacity to do that. I have no faith in any of the information we are being told about our banking system, indeed, no faith in the Minister's speech today. There is one sentence I want to quote from that. In the context of dealing with the AIB and Bank of Ireland recapitalisation, he stated: "A careful assessment was made of the potential losses that the banks face on their loan books in the coming years, taking into account the impact of likely trends in property values and various stress scenarios for the economy." It is on the basis of this careful analysis that this recapitalisation programme is before this House. This very day Bank of Ireland indicated that it has increased its forecast of possible losses on its property loans to €6 billion over the three years to March 2011. The previous estimate was €3.8 billion. I want to hear in the reply to this debate whether it was the €3.8 billion or the €6 billion on which the Minister relied in the context of the "careful assessment" that was undertaken.

In most other democracies those responsible for the economic policies that have contributed to the destruction of a state's economy would have long since resigned.

Acting Chairman

The Deputy has one minute remaining.

Deputy Alan Shatter

A Minister who ran a Bill on nationalisation of a particular bank through this House who failed to read a crucial part of a report prepared on that bank would not have been tolerated to remain in office for 24 hours. In Japan, he would have fallen on his sword. In Westminster, he would have departed the scene. In Ireland, however, no matter how incompetent one is, he or she toughs it out.

The same applies to the directors of banks. They are uniquely responsible for decisions that have destroyed our banking system and imposed a legacy on future generations in this country which will cause them pain and difficulty and may result in tens of thousands of our people, when finally there is a recovery in Europe and America, having to take the emigration trail to seek jobs elsewhere.

To restore confidence in our banking system there should be an absolute clearout of those boards of directors who presided over the disaster which we are now confronting and by those in chief executive positions who sought to maximise profits, to ignore warnings from the ESRI and to ignore, indeed, what I would describe as the muted warnings that came from the Central Bank about their loan policies. They should depart the scene. It is only when they depart the scene and are replaced by appropriate people who have a different view of the world, and who are not interested in maintaining their salaries at the obscene present levels, that confidence will be restored in our banking system.

Acting Chairman

The Deputy should conclude.

Deputy Alan Shatter

I will conclude on this. The general public finds it sickening that those responsible for the position in which we find ourselves are the recipients of golden handshakes and large salaries that, under the Government's proposal, will continue.

Acting Chairman

Deputy, please, you are a minute over your time.

Deputy Alan Shatter

I do not care if someone on €1 million gets a 33% reduction. No one in our banking system, no matter what executive post he or she holds, should receive a salary in excess of that received by a Minister.

Acting Chairman

Deputy, please conclude.

Deputy Alan Shatter

The time has come for them to put their hands up and acknowledge their responsibility, and move themselves away from the greed and hubris which has marked our banking system in recent years.

Deputy Frank Fahey

Listening to Deputy Shatter reminds me that the shock tactic approach being adopted by Fine Gael, and exemplified by Deputy Shatter's call for everybody to be run out of the banking system, will not solve any problem. While there is certainly need for reform and for changes at many levels in the banking system, it is important that we adopt a responsible and reasonable approach, which is exactly what the Minister for Finance has done.

In today's announcement the Minister will address the issue of the international markets and Ireland's banks' capital levels and he will also address the significant and urgent needs of this economy in regard to our two main financial institutions.

He has been criticised for taking time since December to announce this recapitalisation programme. If one looks at the experience of the British Government and the British Treasury, one will see that they have made fundamental and far-reaching mistakes in the way in which they put approximately £60 billion into the banks without much consideration of the impact of doing so. I am informed by Irish people who are doing significant business in Britain that it is much more difficult to get credit from the banking system in London than from that in this country.

The Minister for Finance carefully dealt with this issue and considered the situation following much discussion with the two banks involved. He has now come up with a package that I believe will be successful. It will give a core tier one capital ratio of 8.5% to AIB and 9% to Bank of Ireland.

On the issue raised by Deputy Shatter where Bank of Ireland's present possible liability is €3.8 billion and may rise to €6 billion by March 2011, that is the reality for every banking institution around the globe. Obviously, it will depend on the economic situation that exists over the next number of years. The one major difficulty for this country and for the Department of Finance, just like all its counterparts, is that probably for the first time in modern history nobody can say what is coming down the track in terms of the global economic outlook. Therefore, if matters continue as in the recent past we shall see an increase in the value of loans and so on.

If any of us had to sell our house today, we would surely do much worse than if we could hold on for a number of years until the economy begins to lift. I do not believe it is fair to simply make the comment that Deputy Shatter has made. We can get through this economic recession if we act responsibly and, as the Taoiseach has said, have confidence in ourselves to work our way through this difficulty.

I must take issue with one or two matters regarding the banks. What is emerging in terms of deposits between institutions is deplorable. That gives a very bad image of Ireland on the international markets and as the Minister said this morning, there is need for significant improvement in our regulatory regime. This type of activity cannot continue. The approach taken by the two major banks to businesses is very difficult to understand. I met four of Galway's leading business people last Sunday, at their request. These would be very successful businesses with significant asset backing. They wanted me to tell the Minister of Finance, which I have, that it is impossible for them to continue to work because Allied Irish Banks and Bank of Ireland have refused to give them any kind of working capital, notwithstanding the fact that it would be fully secure. This means that those companies will be forced to make many hundreds of people redundant in the coming weeks if there is not a change in attitude by the banks.

It will be very difficult to understand after today's recapitalisation if these two main banks are not in a position to provide the working capital required for successful small businesses throughout the country. I met a person in the construction industry recently who had a signed contract with the State for a major development, for 20 years of rent. That person was refused by one of these two institutions for the capital needed to build the office accommodation. Surely that makes no sense.

I know another instance of a builder who has won the contract to build an IDA Ireland factory in the Dublin area. The IDA brought in an American multinational and the leasing is agreed, with significant rents to be paid over the years of the agreement. Again, the banks have refused that company the capital required to build the factory. That makes no sense. We must immediately see the Irish banking system make money available, as promised by the Minister, to successful businesses, where there is no question of risk.

From my conversations with bank managers I am aware they are concerned about the risks involved with companies that are continuing to have serious trading difficulties in the present recession. It is clear, however, that many successful and viable small companies with significant asset backing are not being given the essential working capital they need to continue in business and maintain employment.

With regard to the decision to insist that banks provide mortgages, particularly for first-time buyers, when I mentioned to first-time buyers in Galway that as of today, they can borrow €200,000 and that the repayment per month, after taking the significant tax-free allowances announced in the budget into account, is €699, most of them said it could not be that low. That is what it is, without taking into account the expected 0.5% fall in the ECB interest rate in the next couple of weeks. A person can buy a first-time house or apartment for €220,000 or €230,000 and repay €699 a month. One cannot rent a property for less than that. I believe that the present housing overhang can be dealt with if people have the courage to buy.

Where a person buys a unit in a development, the builder should be prepared to guarantee that in the event of his or her selling a similar unit at a lower price, that reduction will be passed on to the first buyer. I hope the CIF and the construction sector generally adopts that proposal. The only thing holding people back at present is the fear that prices will drop further. In Galway, certainly, I do not believe that prices can drop much further. If we can have a guarantee from builders that in the event of a drop, people buying over the next few weeks will receive that benefit, then many people will buy.

I believe the present overhang will be dealt with relatively quickly. I ran a seminar in Galway recently at which almost 300 people attended to hear about the first choice mortgage. Now the banks are telling people who look for a letter for the first choice mortgage not to bother, assuring them they will be looked after. The situation is changing. We shall now see development, but it is essential that the banks go back to the type of approach that was taken formerly. They should offer up to a 92% of a mortgage to first-time buyers who have the capacity to repay. In saying this I do not suggest that those who do not have that capacity should be offered a mortgage.

Deputy Seán Barrett referred to the responsible role of Opposition. It is essential that the Opposition play such a role in this crisis. I firmly believe the electorate will be much more supportive of an Opposition which takes that approach——

Deputy Simon Coveney

Why, then, does the Government not listen to us?

Deputy Frank Fahey

——as opposed to some of the populist type of opposition that we have seen. If my good friend, Deputy Michael D. Higgins is becoming concerned, the result of the last poll, where the Labour Party's rating was static while the Green Party standing increased by 3%, was a response to the type of "all things to all men" approach being taken by Deputy Higgins's party leader. I hope he will stop it.

Deputy Kathleen Lynch

I am laughing when I remember Deputy Fahey in Opposition.

Deputy Michael D. Higgins

I wish to share my time with Deputy Kathleen Lynch.

Acting Chairman

Is that agreed? Agreed.

Deputy Michael D. Higgins

I agree with those who have said that it is very difficult to deal in five minutes with what has been proposed. I hope we shall have an other opportunity to look at the inter-parliamentary arrangements, in discussing topics such as this. Such a time allocation is insufficient for anybody who wants to deal with the matter.

In the time available, I want to make a few points that I believe are important. People are talking about changing personnel at these banks. That is an obvious course of action in dealing with those who have let down the country and behaved in a way that has seriously damaged Ireland, so that it may take generations to recover.

There is much more at stake, however, in terms of a change in culture. There is no evidence that anybody wants to break the circle or the culture that exists. I shall put it simply because I only have a few minutes. When I started in politics, one of the first issues I recall dealing with was the pension funds in CIE, where there were separate wages and salaries pension funds. As the years go on, in terms of the discussion we are now having, the people on wages will be the first to be let go by county managers around the country because they are in the front line. In this regard there is a disgraceful attempt to set up a false enmity between public service and private sector workers. Private sector workers on salaries will, in fact, have lost their jobs, but they are allies, not the enemies, of public service workers who have been scandalously described as being asked to pay for their pensions as if this were for the first time. They will have to pay an additional element on top of the contribution they already make to their pensions.

The next category comprises people who receive compensation rather than wages or salaries. As it is indelicate to say a director of a bank receives a salary, he or she is described as receiving compensation in the form of share transfers, bonuses, etc., which can amount to more than €3 million.

It was assumed in this culture that people in various professions could serve as non-executive directors in the banking system. I challenge anybody to show me a paper describing what is done by non-executive directors. I taught commerce briefly as an academic and I understand the descriptions of the respective roles of executive and non-executive directors. However, people parked themselves on these boards and took the attitude that little people did not understand banking. This attitude was taken to those who earned salaries, not to speak of the scruff who were on wages. It was apparently easy to move €7 billion from one bank to another but if Deputy Fahey, who is very experienced in these matters, tried to move money from his current account in AIB to the Bank of Ireland he would have to physically take the money out of the bank and walk across the street with it, risking a mugging in the process.

Deputy Frank Fahey

I would only be moving my overdraft.

Deputy Michael D. Higgins

Nobody will mug those who are shifting money between the banks.

Deputy Kathleen Lynch

They are the muggers.

Deputy Michael D. Higgins

We need to break the culture and now is a good time to do so. This has happened in the United States and Britain and it is happening in Europe. I do not have time to develop that argument other than to note that the issue involves more than persons or personalities. We need to break an arrogant circle of people who never justified their remuneration.

For those who want to make a connection between this culture and the real economy, the analysis has been hopeless and our instruments are equally dangerous and blunt. For example, a cleaner in this House who is a public servant will pay the new levy, whereas a cleaner working for a contract firm will not do so. This is a proposal for war among the poor. We have not touched the €500 billion in tax relief given to private landlords or the many millions that lazy directors, including those who operate within the diseased culture of banking, fork into their pension funds.

I have spoken for five minutes but IBEC has failed in all its months of air time to utter one word about Seán FitzPatrick or the culture of banking. However, every hour it makes new attacks on public service workers. Shame on its cowardice. It represents that which has to be replaced.

We need a new culture of banking which is attached to the real economy. I concur with Deputy Fahey that we should stop this nonsense of refusing loans to people who are trying to retain jobs and remain in business. That is the practice at present in every city and town in Ireland.

Deputy Kathleen Lynch

I am loth to interrupt Deputy Higgins's flow because he is, as always, very interesting and worth listening to. I agree with him regarding the culture of banking in this country. This Government is breathing new life into something we should allow to die. We clearly need a banking system for the sake of small businesses and people who want to purchase cars and homes. Few of us can take that sort of money out of our pockets. We all borrow for major expenditure. Do we seriously believe, however, that our banks currently enjoy the confidence needed to get the economy back on its feet? We must reassure people that they can spend and that their jobs will survive because the banks will lend money to their employers. Do we expect small savers to trust a banking system in which we no longer have confidence?

We need to get rid of the people who remain embedded in the banking system because they allowed matters to continue as if nothing had happened. Until ten years ago, we had the most conservative bankers in the world. They insisted on being given a house as collateral for a loan on a car. That was a case of conservatism gone mad. However, matters really went wrong when those bankers decided to become developers.

Deputy Michael D. Higgins

Gamblers.

Deputy Kathleen Lynch

Even though they gambled with our futures and our money, homes and jobs, they are still in place. We are going to breathe new life into a critical patient without even demanding the changes that would ensure people have confidence in this country. Confidence requires a finite commodity, that is, competence. People will have confidence when they see the Government acting competently.

Yesterday, the Minister for Finance informed us that he did not read a section of a report which I am sure his Department had awaited with bated breath. He was cowardly in blaming civil servants on the one hand while protecting them on the other, as if it was their fault, but he did not want to dwell on the matter. I do not believe him for one minute. He read every part of the report because he could not have done otherwise. He preferred to be thought an incompetent than a liar. He knew exactly what was in the report but he chose not to tell us about it.

People elsewhere in the world who do our jobs lack confidence in the Irish banking system. Bank shares continue to fall. AIB's share price has dropped 15% and Bank of Ireland is down 9%. The markets do not believe the Government's plan will work, and that is important. As long as this Government is perceived as being incompetent, it cannot restore confidence. We need to tell the Irish people that things will get better because competent people are working on the problem. It is about time that competent people were put into the banking system and into Government.

Deputy Charlie O’Connor

Deputy Kathleen Lynch was sensitive about taking up the time allocated to Deputy Higgins, but I would have been happy to share my time with her on this important debate. We are all going in the same direction even if our perspectives may differ. We should not be afraid of this debate.

Today as always, my business began in my constituency. I later walked the old streets from which I come. It may come as a surprise to Members who believe I am from Tallaght to learn that I come from the streets surrounding these Houses. This morning, I started in Tallaght and went to Firhouse before coming into town to walk these streets to a fair trade reception with my colleagues, the Minister of State at the Department of Foreign Affairs, Deputy Peter Power, and Deputy Chris Andrews. I took the opportunity to listen to what people had to say. I will not stand on the Government benches and say people are happy; they are not. A person in Firhouse said to me this morning that if we were back in 1789 the guillotine would be used. I am sure some banker will be upset to hear me say that.

Deputy Simon Coveney

It would be used on Government too.

Deputy Dick Roche

It is always good to have a scapegoat.

Deputy Charlie O’Connor

Deputy Coveney is entitled to his opinion. It would not be appropriate for a little known Fianna Fáil Deputy from Tallaght to say that.

People are upset and they are angry. People in my constituency, as in every other constituency, are concerned. I am not looking for sympathy in regard to the pressure I am under as a result of the number of angry and upset people coming to my clinic. I have had a normal life and have always tried to do normal things. I lost my job three times. I have often said — I am not afraid to say it — that it was a difficult time for me and as such I understand the concerns of those who come to my clinic. I do not mean to be virtuous or patronising but people are expressing to me their concerns in regard to losing their jobs, the threat of losing their jobs and the pressures they are under in terms of meeting bills and so on. I am sure, like everybody else in the House, I owe the banks more than they owe me. A statement I received this morning in respect of a car loan showed I am overdrawn, something about which I felt quite comfortable. I would rather owe money to the bank than have money in it.

There was a great deal of negative reaction to the RTE interview with the chief executive of Bank of Ireland who, when pressed by the interviewer about his salary, did not appear happy he would earn only €2 million this year. I can only imagine the fall-out from that for politicians. We are entitled to our political perspective and I have no problem with that, but this is an issue about which people are concerned. To keep my feet on the ground, this morning I studied the unemployment figures for Tallaght — the third largest population centre in the country — where currently, more than 7,200 people are unemployed. As I said earlier, I have experienced unemployment. Many people are raising with me issues such as loans and the need to obtain funding from banks, a point raised by many speakers today. I received a call this morning from a businessman who is being hassled by his bank in regard to a loan on a van. If this man's van is repossessed he will have to close his business which employs approximately five people.

It is fair for Members from all sides to point out to Government that people are expecting it to instruct the banks, who are answerable to their shareholders, to accept we are in difficult and different times than ever before. I am old enough to remember other times. I recall as a small child my grandmother speaking to me about the 1950s and 1960s and her unhappiness at the time with the banks. Nothing has changed. I am sure if she were here now she would be smiling, given the current situation with the banks.

During the 1970s, which were difficult, I emigrated to England. The 1980s were difficult too but the current situation is different and more worrying. We did not have people like George Lee in the 1950s, 1960s and 1970s. I hope he does not mind me saying that. People have more information now and they know more, which is fair enough. I am not suggesting that is a difficulty. People know far more now about the recession and the state of the country than in the past. They are aware that it is not only Ireland that is in recession. They hear on Sky News about what is happening in Britain and Germany and on CNN what is happening in America. People are worried about what is happening in the world and to the global economy.

I listened for a while this morning to "Morning Ireland" and then turned off the radio to listen to a CD by Hot Chocolate which I got free in a newspaper given to me by my sister. I needed to clear my head. I accept I have a responsibility as a Deputy to work through these issues, to represent people and to support what is being done. I am aware that the Minister for Finance, Deputy Brian Lenihan, is under a great deal of pressure. I was glad to hear him on the airwaves this morning. Deputy Creighton also gave a good performance on radio this morning. I have no problem with political debate. At the same time, the Minister has a job to do. As Harry Truman said, the buck stops with him and he must deal with the issues. I am glad he put on record this morning that the Government's recapitalisation package for Allied Irish Banks and the Bank of Ireland is a central element in the Government's broader strategy to address the financial crisis, ensuring, as the Minister said, that the two major financial institutions remain sound and stable and in a position to fulfil their vital role in the economy. The Minister also stated that the Government progressed the other main elements of its approach to securing the financial system, including, as he described it, the package to address the concerns of ordinary customers of the banks.

I take the view in regard to the economy that one must carry on. The former Taoiseach, Deputy Bertie Ahern — I hope he does not mind me putting this on record — told me some weeks ago when I met him going to a football match that the best way for me to deal with critical business is to keep my head down and to continue to represent and help people in my constituency. It is important we remain confident. It would be easy for anyone listening to this debate to become despondent. Deputy Beverly Flynn made an interesting comment last week when she said that, while people in this House have different perspectives — I have no trouble with that — we must try to remain positive as people are watching what is happening here. They do not want what is happening in the Dáil to add to their anger and concern. That is a challenge for all of us. I am sure my colleagues opposite will have a different view in that regard. However, it is important that when in a recession we continue to go about our business.

When coming up the stairs to the Chamber I had in my hand my credit union book which reminded me that this is about people trying to access funding and their savings. People, whether in Cork, Dublin city, Kildare or Tallaght in south-west Dublin, want Government to address this issue. There always will be issues across the floor about which we will disagree. However, it is important we remain positive. I am not afraid to say to the Minister — Deputy Roche will know this — that people are not happy, that they are angry, concerned and frustrated.

Deputy Simon Coveney

They want Government to do something.

Deputy Charlie O’Connor

Yes and we are doing that. I do not disagree with anything Deputy Coveney has to say as he is entitled to his perspective. I will represent my constituents as best I can. I have taken many calls this week from public sector workers throughout the State. I have received e-mails from everywhere, which as Deputies will be aware was organised. I am taking as many calls as I can. I have spoken with public sector workers in South Dublin County Council, in Tallaght Hospital, the local arts centre, library and local office of the Revenue Commissioners. We have a number of Government buildings in Tallaght. I am listening to what people are saying. If people want to come in large numbers to my clinic in Tallaght on Valentine's Day, I will welcome them with open arms and will listen to them. I will then come into this House and represent to Government what people are saying to me.

I wish my colleagues a happy Valentine's Day.

Deputy Simon Coveney

I wish to share time with Deputy Lucinda Creighton.

Acting Chairman

Is that agreed? Agreed.

Deputy Simon Coveney

I say to my Government colleagues, who have been lecturing us today on the need for responsible Opposition, that Fine Gael has been calling for bank recapitalisation for months. We accepted the need to invest public money to ensure the survival of our banking system even at a time when Government and bankers were rejecting the concept out of hand. A senior banking leader memorably dismissed the need for recapitalisation saying, "Over my dead body". Like so many other figures in Irish banking, he now has no credibility whatsoever in seeking the confidence of markets or the public.

Despite consistent calls by Fine Gael for recapitalisation, we cannot support what the Government is proposing today. Recapitalisation must go hand in hand with fundamental reform of our banking and regulatory systems. Without that reform, investing billions of euros is like pouring water into a broken bucket in an effort to keep it full.

This is not Fine Gael playing politics. We supported the Government on the bank guarantee scheme because we felt it was an immediate and urgent crisis that needed a response. In truth, it was a crisis response foisted upon the Government at short notice but, since then, the Government has had the time and opportunity to fundamentally reform and build confidence in a new financial regulatory model and banking generally. It has not done that. In fact, by Government incompetence, inaction and indecision, it has added significantly to an already burning banking crisis.

Even yesterday, on the eve of what should have been a good news story today, the Minister allowed another bombshell to undermine confidence in his ability and banking generally. We now know the Government has covered up the falsification of accounts in Anglo Irish Bank and has kept it from this House and from the public. The Minister for Finance did not even read the full text of a report he commissioned to establish the extent of bad debts and risk in Irish banks. The Taoiseach did not even have a copy of the PricewaterhouseCoopers report before making enormous decisions on behalf of the State. The regulator was asked to examine a €7 billion lodgement in Anglo Irish Bank by another bank's subsidiary to give a false impression of financial health, yet we had no results from that examination before making colossal decisions.

I regret to say I no longer have confidence in the Taoiseach or the Minister for Finance being either qualified or able to make the necessary decisions to ensure a viable future for Irish banking. It is not just from this House that confidence in Government has evaporated because the markets are making the same statement this morning. As the State proposes to invest €7 billion of our money in the two big banks, their share prices have dived by 10% and 15% so far today.

This has nothing to do with international factors and everything to do with the Government's mishandling of a crisis. We are a laughing stock among the financial investment community outside Ireland and the Government is directly responsible for this. We need AIB and Bank of Ireland to succeed. The State cannot afford to nationalise them. The economy needs a viable banking system, lending money to businesses and consumers to allow our economy to breathe again. Currently, our banking system is choking the very life out of many businesses that could survive with the oxygen of credit.

The Fine Gael amendment to this motion is clear. We are insisting on a new banking model that separates toxic assets and their management from profitable banking operations to create a healthier banking model with clean balance sheets in which to invest before committing billions of euro of public money. We want to see published clear benchmarks on loans to businesses, on new mortgages and on handling of distressed loans. We want statements on a monthly basis so we can see if commitments are being fulfilled.

Assurances and voluntary codes of behaviour within the banking system do not cut it any longer. We want a clear, flat cap on salaries of senior executives at no more than €250,000 until the State's capital is repaid in full plus interest. Percentage cuts in salaries are much more difficult to quantify and are not acceptable to Fine Gael. It is not acceptable that the salary of a chief executive of a significant bank in Ireland would go from €2 million to €1.3 million. As the Minister says the banks did not respond positively to Fine Gael's proposals, perhaps that is a good place to start. I commend the Fine Gael amendment to the House.

Deputy Lucinda Creighton

From the contributions I have heard, the context of the debate on this motion has been skirted over by the Government, certainly by the Minister for Finance in the speech he delivered earlier today. It is clear we desperately need to restore confidence in the banking system in this country. It is equally obvious the banking system is fundamentally important to the general economy and the two cannot be separated or divided.

The problem is that the issue of confidence in our banking system is inextricably linked to the mismanagement, incompetence and bumbling we have seen from the Government benches, particularly from Cabinet and specifically from the Taoiseach and the Minister for Finance over the past six months.

As Deputy Coveney pointed out, the Fine Gael party stepped up to the plate last September when the scale of the banking crisis began to emerge. We put our faith and trust in the word, commitments and assurances given to us by Government at that time. We did so because we believed that by restoring some faith in the banking system, we were doing the right thing, the patriotic thing, and doing what was necessary to ensure an entire breakdown of the system did not occur.

However, it has become evident in recent months, particularly in the past few weeks, that we did not get any clarity from the Government at that time. We were essentially being kept out of the loop and we were not seeing full disclosure of the seriousness and gravity of the situation and the extent of the toxic debt that was and is present in those banks. While "duplicitous" is probably too strong a word, it was certainly a breach of faith from both the Government side and specifically from the perspective of the banks, which had at that point been asked to provide full disclosure to both the Government and the public. That did not happen.

Now, we are being asked to invest — as the Government chooses to call it, although I am not sure it is an investment — or at the least to spend public money to the tune of €7 billion in order to recapitalise the banks. This is something the banks and the Government assured us before Christmas was not necessary and would not arise in the context of the Irish banking system, which was clearly incorrect.

I have concerns on two points specific to the scheme. First, the 8% dividend which is to be committed on an annual basis to the Government will amount to approximately €600 million per annum from Bank of Ireland and AIB. I seriously question how this will achieve the freeing up of credit for small businesses and mortgages which we have been assured will happen by both the banks and the Minister for Finance. I do not see how this will be achievable when that level of money is being committed in a dividend return to the Government on an annual basis. The banks are clearly not in a healthy state and it is very difficult to understand how this will be viable.

Deputy Coveney pointed to the issue of the failure of the Government to separate toxic debt from the good loans which are and potentially will be on the books of the Irish banks in the coming years. This is a major mistake on the part of the Government.

The scheme does nothing to break the culture which has become pervasive in Irish banking. It has shown the Government to be weak and unable to confront and stand up to the banks and demand transparency and openness. We have not seen disclosure of the type of information that is required to justify this expenditure of €7 billion on the Irish banks.

Minister of State at the Department of Foreign Affairs (Deputy Dick Roche)

I thank the House for the opportunity to address this serious issue. This problem is not uniquely Irish, but there are aspects within the banking system which are uniquely Irish. There is no doubt practices have developed in the banking system which, regrettably, reflect the culture which used to be known as "cute hoorism". Let us get to the point. This is not a uniquely Irish problem, although there are aspects of it which are uniquely Irish, but we must move forward. We must escape from the blame game and stop pointing the finger at each other. It is easy to look for scapegoats but it is critical to look for solutions, which we must do now.

The concerns of people on the streets, in businesses and in houses are not unique. In the most recent Eurobarometer poll, citizens were asked what they considered to be the two most important issues at present. The issue of the economy was reckoned to be the most critical throughout the European Union. It is easy to understand the public anger regarding bankers and the banking system, and it is easy to understand why people are angry with the failure of regulation in the country. The matter of the dog that did not bark always raises questions.

There is no doubt that some senior figures in banking have betrayed the country, their profession and the thousands of workers in the banking system who carried on with their jobs each day and who were not crooked, bent, indolent or greedy. As a Deputy from the Opposition stated, the image of Irish banking was once one of staid but solid institutions. That image is now sullied and damaged to a degree such that it will take a good deal of time to repair. Serious damage has been done to our reputation internationally. The real tragedy is that the damage has been done by people who have been at the top of banking circles for years. Some people wisely say such people have been in that position for far too long. This hubris-ridden group have operated with an arrogant disregard for the normal conventions of even their own business.

It is extraordinary to look back over the newspapers in recent months and to read the comments of some who are now in the spotlight. It is intolerable to read of senior bankers suggesting that their actions were not criminal, and that this is in some way an exoneration of those actions. This suggests that there was a complete lack of moral compass at some levels in Irish banking. Logic went out the door and greed was the motivator. This must stop.

I refer to regulation. Bankers in recent times, especially some of the leading personalities, argued that we were in some way over-regulated. Tragically, we know from events in recent months that the opposite is the case. The suggestion was made that over-regulation was preventing progress, but we now see the truth. These were self-serving deceptions, delusions from people who thought that they could walk on water, and that they alone were the holders of wisdom on banking issues. There is a lesson for the State in this regard. We should not be cowed by special interests, because we understand and know from the political reality in which we live that regulation is a requirement.

There was within the banking sector a grotesque inflation of salaries. Salaries and bonuses were based on what was termed "performance". The measure of performance was the number of loans one could get out the door, rather than the return for the banking system or shareholders. The measure of performance was basically the same measure of performance which caused toxic loans to become a reality in the United States of America.

Undoubtedly, we have witnessed a bonfire of the vanities in Ireland. One can understand the temptation to say, "A plague on all your houses". Let us be honest about it, if I sat on the Opposition benches I would probably be doing just that. It is certain there are people within political circles who play to the gallery, but I do not suggest this is the case throughout the Opposition. People will argue that the bailout of the banks is wrong. Such arguments are self-serving. Whether we like or loathe it, banking is something we need. We cannot survive as a trading nation without a banking system, or conduct normal business, or get on with our daily lives. It seems those who wish to play the political game or play to the political gallery do a dangerous job at this time.

I accept the arguments that there is a rot at the very heart of banking and I accept the argument that there have been serious problems in the regulatory system. The chief executives of lending banks have been careless and reckless. The regulatory system has not operated as it should or as the House envisaged. Some in banking and regulation have been guilty of gross incompetence. Others acted in a way which, although not necessarily illegal, was certainly highly improper and undoubtedly immoral. Others have been careless or complicit. The boards of the banks have been asleep. Earlier, a point was well made that too many people were from the same circles in the banking business. There have been revelations in newspapers in recent times about relations between the Dublin Docklands Authority, DDA, and a particular bank. The relationship in that case is too cosy. I agree their actions must be investigated and they must go beyond the gentle probings of a detailed audit. In time, the question of criminality must be examined.

However, the understandable anger and frustration on the streets should not allow us to believe this matter can simply be dealt with by seeking scapegoats or punishing those in banking or politics. Mr. Brendan Keenan, in a remarkably perceptive article some weeks ago in the Irish Independent, summarised the position: “If someone burns down your house, you would still need somewhere to live. But you might want to have a strong word with the arsonist.” We wish to have a strong word with the arsonists.

I refer to the point made by Deputy Simon Coveney. The arrangements for recapitalisation are not the end, but the beginning of a process. New regulation must be put in place. Speaking before the most recent revelations, Mr. Keenan raised the obvious question of why we should be expected to risk billions of euro to rescue the banks following the shocking revelations of how senior bankers misled shareholders and regulators. He is correct to do so. We must do this not because we wish to feed the fat cats, but because we must recapitalise the banks to continue the business of running the State and if we are to continue to make progress as a nation.

On the matter of regulation, Mr. Keenan suggested that not least of the concerns of potential investors in Irish banks must be the standards of bank regulation. He points out that, ironically, the controversial decision by the then boss of the Financial Regulator to keep the matter confidential was probably inspired by fear of the damage publicity would do to the reputation of Anglo Irish Bank and to Irish banks in general. I appreciate the point made by Mr. Keenan. He is illustrating the necessity of having a better system and we must have such a system in future.

Mr. Keenan also refers to the lack of transparency and makes a very good point. He suggests the lack of transparency is very damaging, especially when transparency is needed. I do not imply it is precisely what Deputy Coveney suggested, but doing nothing is not an option. I agree with Deputy Coveney that further steps are necessary. No one in the House doubts as much. However, we are discussing the issue of recapitalisation. Decisions and an actions are necessary to assure investors that Ireland is still a place in which to do business.

I agree with Fine Gael's analysis on recapitalisation and I have done so for several weeks. If we do not proceed with the recapitalisation of the banks, such confidence as may continue to exist will be gone. Through the recapitalisation scheme, new capital will allow the banks to take the risks associated with lending into the economy. We have all seen in our constituencies instances of small business which need relatively small amounts of capital being denied that capital. The work does not stop with the job we are doing today. This is a vital step, but it is not the final step. The leading Opposition party made the point that recapitalisation is vital at this stage.

Deputy Billy Timmins

I wish to share time with Deputy Noonan.

In recent weeks, if anyone from the Opposition or any commentator questioned what was taking place or the practices of the banking sector, there appeared to be a very insular approach from Government, which suggested that it was irresponsible and unpatriotic to put such questions. I heard the Minister for Finance challenge an interviewer on "Morning Ireland" saying this was a dangerous question to ask. Both sides of the House have a role in protecting the public interest and we should question these issues. We are required to do so. The markets showed long before us that they had lost confidence in the system. We have lost confidence too.

I do not welcome the recapitalisation as constructed. The motion put forward by Fine Gael is very constructive, as have been all our deliberations on this issue since the beginning when we supported the initial State guarantee, although we did not have all the information. If we knew then what we know now we might not have been as willing to support it. The Bank of Ireland estimated its bad loans at €4.8 billion and revised that figure up to €6 billion by 2011.

The Minister, or his representative, the Minister of State, must answer certain questions before the end of this debate. On what underlying assumptions has the Bank of Ireland based that claim? I would like to see a breakdown of the figure because I believe it will be revised upwards. I say that because what I have heard today has proved inaccurate. Unless we can see the underlying assumptions for that prediction, I cannot have confidence in the figure. Bankers still treat the Oireachtas and the Department of Finance with a certain amount of contempt and tell us what we want to hear rather than what is the case.

I listened to Mr. Sheehy a few months ago and hope I am not misquoting him but, if memory serves correctly, he said he would rather die than take recapitalisation. He took recapitalisation today and sounded very confident on the radio.

Deputy Joan Burton

He changed his mind.

Deputy Billy Timmins

If one took him at face value one would agree with him but history has shown that what he says is not accurate. Expressing confidence today does not give me confidence in the future, based on what has happened in the recent past.

The Minister said this morning that one of the conditions of the recapitalisation was that the financial institutions would outline their future loan liability. Has Allied Irish Banks, AIB, outlined its projected loan liability over the next few years? I do not think so. This morning the Minister stated that was one of the requirements but it has not happened. It should be addressed before the end of this debate.

Banks have a value at risk, VaR, policy whereby every risk they take will prove to be between 95% and 99% okay. Banks say they operate at the 99% level but very often they operate at 95%, and between that and 99%. If something goes wrong it will go seriously wrong and the banks will bail it out, which might happen every ten or 20 years. This policy must cease. There must be a system to establish how much collateral a borrower must give. We know the expression that banks mug old ladies. They can mug vulnerable people and many have got away with this. There must be a template for giving loans and returning collateral.

The interests of the bankers and the common good are misaligned. That must be corrected. What did Irish Life & Permanent get in return for the money it gave Anglo Irish Bank? What was the pay back? How much over the interbank rate did it achieve for that loan? It is important that the public know why it took such an unethical step albeit that there was no risk. What financial incentive did it get to do that? The Minister said yesterday that there were no other such transactions from the Bank of Ireland and AIB. I hope that is true. He did not read this report. If Ministers were not touring around the country, opening chip shops, take-aways and flying to Leitrim in helicopters to open off-licences they might have a little more time to read documents they should read.

Deputy Michael Ahern

I congratulate Deputy Timmins. I agree with him.

Deputy Dick Roche

The Deputy was being rude about us. Deputy Ahern should not listen to him.

Deputy Billy Timmins

The Minister of State can check the record.

Deputy Michael Noonan

I hope the Minister's scheme will work. We live in a very small country. Our families and friends live here too. Without a viable banking system the economy will be in ruin. I do not believe the proposals before us will work. They are too little too late, and are too tentative in taking on the vested interests in the banks and will not restore a dynamic banking sector. The stated purpose of the proposals is to save the banks. The real objective, however, should be to save the country from the banks. They will not do this.

Bad debt is the core of these proposals. There is growing acceptance internationally that to sort out the banks requires facing the toxic assets on the banks' balance sheets. At a two-day meeting of EU finance ministers this week, with which the Minister of State would be familiar, the debate centred on the good bank-bad bank concept and the desirability of insurance schemes to protect banks from excessive bad debts. The US Government has taken the bad bank route. The UK and Dutch Governments have launched variations on the insurance scheme. A report from the European Central Bank this week advised that Governments should consider combining bad banks and asset insurance as the most cost-effective remedy for the crisis. They were addressing all eurozone banks and the wider banking system in the 26 EU states. Our Government, however, has ignored the advice of the people in Frankfurt. It has adopted a more tentative approach, and has shied away from the bad bank concept and ignored the recommendations on insurance. In a passing reference the Minister said it might be considered in the future. We do not have much time left.

The Government has ignored best international practice and the advice of the European Central Bank and has brought forward a recapitalisation proposal. It proposes to recapitalise to increase core tier one capital for each bank in the hope that this increased tier one ratio will provide the necessary bulwark against bad debts. There will be one of two results, either the Minister will be back in the House before summer with another proposal and a variation on the bad bank or insurance solution, or the banks will move to protect their jobs and assets and play around with their bad debts and not operate as active banks in the interests of the economy. If the latter happens we are at risk of having a series of Japanese type ‘zombie' banks, as was the practice in the 1990s, with the economy bedded for ten years in a no-growth situation and a banking system in name that is inactive in addressing the real needs of the economy. I hope I am wrong because I intend to continue living here, as does my family, and we need a dynamic operational banking system.

Will the Minister of State confirm how much bad debt is being covered? The core tier one ratio in AIB and Bank of Ireland already covered a significant tranche of bad debts and it is not true that the cover being provided for bad debt is €7 billion. That should be added to what is already covered by the core tier one ratios. If that is correct €16 billion or €17 billion is being covered, rather than €7 billion.

It is difficult to deal with this in the short time we have. It makes a nonsense of the House. I thank the Minister of State.

Deputy Michael Ahern

I am delighted to have the opportunity to speak on the Government motion regarding the recapitalisation of our banks, especially the Bank of Ireland and AIB. The background to this decision needs to be reiterated again and again as many seem intent on blaming what has happened here on the Government and have effectively said we have brought down the world financial system, which is stretching the point.

The collapse in the housing market had an effect on growth in our economy. That was recognised in the 2008 budget, when it was estimated that there would be a reduction in GDP of between 4% and 5% due to the reduction in the number of houses being built. The other collapse was in the financial markets, led by the banks in the United States, while there was also an appreciation of the euro against sterling and the US dollar. Around 20% of our exports are to Britain, so the 33% appreciation of the euro against sterling had a severe effect on exports to that country.

We have had to listen to the Opposition Deputies cry that money is being poured into the banks, with the insinuation that it is going to individuals in senior management at the banks. There is not a word of truth in that. Not one penny to date has been allocated to the banking system.

Deputy Pat Rabbitte

That was changed in the word processor earlier.

Deputy Joan Burton

What about the €544 million?

Deputy Michael Ahern

When the Government agreed to guarantee the banks, it steadied the banking system here. The reaction from banks and from Governments in Europe, especially in Great Britain, was very serious as money came flowing back into the Irish banking system. That was a sign that a wise move was taken by the Government. The Government is trying to ensure that Ireland has a sound, solid financial sector to service the needs of the economy. It must service small, medium and large businesses, the mortgage business and the individual members of the public, which include our families and our neighbours.

The return on the pension fund in the past year was 0.9%. The Government return under this agreement will be a fixed dividend on preference shares of 8% per annum, which is much better. The shares can be purchased at par up until the fifth anniversary, and at 125% of the price thereafter. This is a positive return for an investment to ensure that our banking system can service the needs of this economy.

It is also worth remembering that in 1986, the then coalition Government bailed out Allied Irish Banks for its involvement in the ICI situation. We are still paying a 2% levy today as a result of that decision by that Government. We are being preached at today by some of the members of that Government. A senior official of Allied Irish Banks was allowed his bonus that year, but that is not happening under the decisions taken by the Government today.

Concern has been expressed over the last few months about the lack of cash flow by mortgage seekers and people involved in small and medium enterprises. The agreement announced today by the Government sets out a statutory code of practice on business spending and mortgage arrears, which have been finalised and which will be published by the Financial Regulator later this week. The code will be put in place to ensure that all banks operating here deal in an honest way with customers, and that consumers are treated in a reputable and respectable fashion. It is important that there is public confidence in our banking system. The decisions being taken by the Government and by the Minister will bring back confidence in the system and will make available finance that is badly needed by small and medium businesses, and by individuals looking for money to build extensions or buy a car. It will be vitally important to bring about a change in mood among the people.

We have also heard that there has been a mishandling of the crisis. Every country across the world has had difficulty in grappling with what has occurred over the last six to nine months. There was a meeting in Brussels this week of European committee chairpersons. We have had a report back from one of the Deputies at the meeting, who told us that representatives from every country were asking what could be done about the same problems. I gather that no consensus came out of that meeting. That is the problem with which we are still grappling across the European banking and financial system.

The decision by the Government not to rush in and throw money at the problem without a detailed plan, as was done in other countries that have since had to revisit their plans, was a wise thing to do. The Minister's announcement will bring back that confidence and will allow our cash flow situation to return to some form of normality. In the future, we will again have the sound system that we had for many years.

Deputy Pat Rabbitte

When this series of debates started at the time of the bank guarantee, I stated in the House that recapitalisation was really the issue, so I must say that I hope it works. I hope that what the Government has done with the €7 billion actually works. It is very difficult to answer the question on whether it is enough. Until we know the extent of the bad loans, we will not be able to answer that question. However, I suspect the question asked outside of this House is whether it will start normal credit lines flowing again. Will the credit lines be unfrozen for businesses that require overdraft facilities in order to keep people in employment and generating wealth?

It is not helpful when one looks at what has happened in other countries. Recapitalisation has not caused that to happen so far. It is profoundly worrying that the precedent is not good. Is that because insufficient capital was put in originally? Is it because deleveraging is going on not just in the banks but in the business sector as well? Is it because banks are reducing their reliance on the wholesale market and on capital markets, and that there is a return to old style banking in which they finance loans out of deposits? If that is the situation and if that retrenchment in lending is happening, then our last stage is arguably worse than our first. If the banks' priority is to manage half-hidden dodgy loans and husbanding the capital they have, rather than getting lending moving again, then we have a real difficulty.

What kind of bargain did the Government strike with the banks? The impression is that since 29 September, the Minister has been obstructed at every turn. He seems to have had to fight for every minor concession won. When one examines the bargain that has been struck, as outlined in the Minister's speech, one has to ask whether it contains hard and precise commitments to assist small and medium-sized enterprises. Is there any money in it for start-up companies? Does it deal with executive pay? Does it require the banks to face up to the losses that have resulted from the write-down of bad loans? If one goes through each section of the document setting out the bargain, one will find that it does not contain hard and precise commitments. There is a commitment to enhancing a certain "lending capacity"? What does "lending capacity" mean in this context? If a certain percentage is being provided under the heading of "lending capacity", can it be accessed and drawn down according to sound business criteria? I do not know. We have been told that a fund of €15 million is being provided for start-ups, but the credit unions provide more than that to start-ups.

What has been done in respect of executive pay? I just listened to Mr. Goggin on the radio. He took €2.9 million last year. He said on the radio that he will take a great deal less this year. When he was pressed, he said he thinks it will fall below €2 million. In the name of God, on what kind of alternative planet are these guys living? Mr. Goggin's predecessor, Mr. Soden, came on the radio after him to say he would have been gone — he would have handed in his badge because he could not have continued — as soon as the shares dropped below €5 or €6. He said that senior management would have had to do likewise. That has not happened. Next year, we will maintain a level of executive pay of €1.9 million to Mr. Goggin.

The concessions that have been won are limited. The critical concession would involve a demand on the banks to face up to their reckless lending in the past. We will not get out of this crisis unless we are given a clean sheet. As Deputy Timmins said, we have not heard from Allied Irish Banks about its estimated write-down. We have heard from Bank of Ireland on its worst case scenario. We will monitor it to see if it comes to pass. At a cost of €6 billion, it is frightening. Deputy Burton has inferred that the relevant figure in the case of Allied Irish Banks will be more than €7 billion. That bank will not come out and tell us what will happen.

I wish to speak about regulation. I have great sympathy for the Minister for Finance, who is being pushed and pulled as he tries to deal with a range of extraordinarily serious issues. I suspect that the number of people advising him who are of the calibre that is necessary is quite small. Those advisers who are of the sufficient calibre are overstretched. We need to deal with the issue of regulation and the role of the Financial Regulator in the context of what was revealed yesterday. During the DIRT inquiry, Deputies asked the banks about their responsibilities to consumers. The Acting Chairman, Deputy Ardagh, was a member of the relevant committee. The representatives of the banks said that consumer care was not their problem. They claimed their only task was the prudential supervision of the banks. I will remind the House of what happened thereafter. We put in place a new architecture of regulation. I argued at the time that it was a mistake to leave it within the mindset and structure of the Central Bank. In this debate, I have to ask whether a blind eye was turned to certain practices to maintain the stability of the banking system. How can a man of the intelligence and training of the Minister for Finance have failed to read the critical section of the report? I do not think we know the answer to that yet.

In an extraordinary and obscure three-line statement, Irish Life & Permanent has claimed that "during a period of unprecedented turmoil in global financial markets there was an acceptance that financial institutions would seek to provide each other with appropriate support where possible". What does that mean? What is "appropriate support"? Does the kind of carry-on that was revealed yesterday constitute "appropriate support"? Where was the "acceptance" that is mentioned in the statement? On the part of whom was there "acceptance"? Was it "acceptance" on the part of the authorities? Was it "acceptance" by the regulator? Is that the reason the Minister was not told about the critical section in the report? Was a decision made not to tell the Minister to make sure he was not implicated? Was a blind eye turned to the practices that were exposed yesterday? I refer to the lodging of moneys on the final day of the financial year, six hours after the guarantee was given by the Government.

I cannot accept that the 388 intelligent people who work for the Financial Regulator, at a cost of €58 million, did not see the Seán FitzPatrick business or the Irish Life & Permanent business. I do not think it is as simple as that. I think a blind eye was turned to some of these practices. That is part of the reason for the absence of confidence in the Irish banking system on the part of the international investment community and others who know more about these matters than the average person on the street. If that is the case, it is a sad day. We need to get to the bottom of it. An all-party commission of this House should be established to examine what has gone on in the banking system and to make recommendations for the future.

Minister for the Environment, Heritage and Local Government (Deputy John Gormley)

The Government has decided to invest €3.5 billion of taxpayers' money in each of the country's two biggest banks, Allied Irish Banks and Bank of Ireland. I stress the word "invest" because the aim of this measure is to reinforce the banking system, to restore confidence, to boost lending to business and to support and create jobs. The Green Party has worked hard with its Government partners to ensure that taxpayers get value for money and that this action is in the best interests of workers. It has always deplored the reckless and nakedly self-interested behaviour of some bankers, whose short-term greed has led us into a deep world crisis. My party, from its foundation, has stood aloof from the banks. Unlike most other political parties, the Green Party has shunned donations from the banks. On several occasions over recent months, I have said that I have been appalled by the revelations emanating from some banking establishments in Ireland, notably Anglo Irish Bank. I am heartened that the affairs of Anglo Irish Bank are being investigated by the Director of Corporate Enforcement, Mr. Paul Appleby. I am further encouraged by the presence on the board of the bank of two new directors, Mr. Alan Dukes and Mr. Frank Daly, who will look out for citizens' interests at all times.

The Government has been faced with stark choices in the past six months. The Green Party has made a clear decision to put the people of this country first. We are not shirking the challenges we face. It would be easy to play the Opposition's game of sniping from the comfort zone of the sidelines. The Green Party's main focus in government is to fix the huge problems this country now faces by restoring stability to Ireland's banks. At all times, we will continue to push for tougher supervision and real penalties for any bankers found to have engaged in wrong-doing.

Deputy James Reilly

Now would be a good time to start doing that.

Deputy John Gormley

Before Christmas, I criticised the Financial Regulator. At that time, the Green Party predicted that there would be resignations in the banking system. That has happened.

Deputy Seymour Crawford

They are still well paid.

Deputy John Gormley

I predict that the latest revelations from Irish Life & Permanent and Anglo Irish Bank will result in further resignations. I absolutely agree with the Deputies opposite that the support that was given to Anglo Irish Bank was not appropriate. There must be and will be root and branch reform of our banking system. We need a general crackdown on corporate crime in this country. In the United States we have seen white collar criminals being led out in handcuffs. I want to see the same regime in this country and I believe we will get such a regime here——

Deputy Seymour Crawford

It could be close to home.

Deputy John Gormley

——as a result of these latest revelations.

Deputy Pat Rabbitte

Has the Minister established if a blind eye was turned?

Deputy John Gormley

No blind eye will be turned as long as the Green Party is in government.

Deputy James Reilly

As long the Minister is awake.

Deputy Joan Burton

The Minister did not even get a memo.

Deputy Pat Rabbitte

The Minister's phone was not working and his bike was locked up.

Deputy John Gormley

A stable bank system is the cornerstone of the economy. It is a must for business and jobs, but this is an investment, not a bailout.

Deputy James Reilly

This is rhetoric, not action.

Deputy John Gormley

The banks will pay interest of 8% per annum for the funds. The Government will appoint four directors to each board, a quarter of the board membership in each case.

Deputy Joan Burton

Will there be a green director——

Deputy John Gormley

I will now outline some aspects of the package. First, in regard to the environment, the Green Party welcomes especially the creation of €100 million for the environmental and clean energy innovation fund, which is part of the package.

Deputy Joan Burton

On a point of order, is that the same €100 million that was announced at the time of the bank guarantee or is it an additional €100 million?

Acting Chairman (Deputy Seán Ardagh)

That is not a point of order.

Deputy James Reilly

It is a point of clarity.

Deputy John Gormley

Here again we have evidence of opportunities being taken even in difficult times to mainstream pro-environmental initiatives. The Green Party worked with its Government partners to ensure that this bank initiative would ease the availability of funds to small and medium-sized businesses and to first-time home buyers. There is to be 30% extra lending capacity for first-time home buyers and 10% extra lending capacity for small businesses. It is my belief that this will help people in business to stay in business. It will help to keep the economy moving and help sustain and create jobs.

We have also worked with our partners to ensure that there will be guarantees on a humane and sensible code of conduct for people unable to pay mortgages on their homes. Banks will not take legal action for 12 months where they know problems are genuine. That code will be published in the coming days and will come as a relief to many who now find themselves out of work.

I said previously, and agree with the comments of some Deputies opposite, that there were banking executives who lived in a parallel universe when it came to their own remuneration. The Green Party has long called for a realistic and fair scheme of payment. We have persistently said that the old crazy pay and bonus regime fuelled the reckless speculation which caused untold damage to the country and to working people.

Deputy James Reilly

Absolutely.

Deputy John Gormley

The Minister for Finance, Deputy Lenihan, said last night that he expects that, in practice, a 50% cut in bank executives' income will happen.

Deputy Joan Burton

A 50% cut would only reduce their incomes to €1 million.

Deputy John Gormley

He is advocating caps on executive incomes on the same style promulgated by the US President, Barack Obama.

Deputy James Reilly

The Minister, Deputy Lenihan, should not expect but demand that. Who is in power, the banks or the Government?

Deputy John Gormley

The two banks concerned are imposing a 33% executive remuneration cut immediately. Bank board directors are to have fees cut by 25%

Deputy Joan Burton

That is not sufficient.

Deputy John Gormley

No bank bonuses will be paid from 2008 to 2009. A committee looking into the pay issue is to report shortly.

Deputy Seymour Crawford

Another committee.

Deputy John Gormley

The Minister, Deputy Brian Lenihan, will write to the head of this committee pushing maximum cuts and pay caps. The Green Party will continue to keep pressure up on this issue.

Deputy Rabbitte

Hear, hear.

A Deputy

It is some pressure.

Deputy John Gormley

The Green Party has always said that the law must be applied. We have continually said that the laws must be toughened and there must be closer bank supervision.

Deputy Seymour Crawford

It needs to change them.

Deputy John Gormley

We strongly believe there must be changes in management at the top and a totally new attitude and philosophy must be applied.

Deputy Joan Burton

In government.

Deputy John Gormley

This will take time. The Deputy is harping on; we did not take a cent from the banks, her party did. Her party took money from banks so she should keep quiet.

Deputy Brian Lenihan

The Labour Party bailed out a bank for nothing.

Deputy Joan Burton

On a point of order——

(Interruptions).

Deputy John Gormley

The Green Party is in government.

Deputy Joan Burton

——I admit to having a bank account. Is that what the Minister is talking about? I got my house by taking out a mortgage. I think he did too unless he inherited one.

Deputy John Gormley

The country faces an unprecedented recession amid the world's worst ever economic downturn. The key aspect of our current malaise is an unstable banking system. People would not thank us for shirking the challenges ahead. We are working inside the system to have the current rules and procedures applied as fairly as possible in the interests of ordinary workers.

Deputy Seymour Crawford

The Minister's party is inside the system all right.

(Interruptions).

Deputy John Gormley

We are working for longer-term change to ensure Ireland never again repeats these drastic errors.

Minister for Finance (Deputy Brian Lenihan)

I thank Deputies for their contributions on the Government's recapitalisation plans for Allied Irish Banks and Bank of Ireland. I re-iterate the sentiment of my earlier remarks when I stressed that underpinning the stability of the financial system of the State, given its importance to the economy, is vital. The measures announced yesterday are intended to secure the stability of our financial system, increase confidence in the banking system and, above all, facilitate the banks involved in lending to the economy.

I will first address comments made by some Deputies regarding the sufficiency of the Government's investment given Bank of Ireland's recent announcement on impairments and statements made by certain commentators. The State's investment will significantly strengthen the core tier one capital of these banks, bringing it well up in excess of regulatory limits. It is intended to bring their core capital to €12 billion for Allied Irish Banks and to almost €11 billion for Bank of Ireland. In addition, observers should be aware that the existing reserves will be supplemented by ongoing profits and, therefore, the banks are more than adequately equipped to deal with expected losses. It is not correct to suggest, as I fear Deputy Burton did, that the sums invested by the State will be eaten up entirely by losses.

Deputy Joan Burton

I did not say that. I said they were unlikely to be adequate and I outlined my analysis of why.

Deputy Brian Lenihan

Very good.

The structured process undertaken to arrive at the current proposals gives me confidence that the investment will succeed in building market confidence and kick-start lending to the economy. The amount to be invested was determined following consideration of likely trends in property values and various stress scenarios for the economy. Confidence can now be offered to markets on the levels of capital in the two largest banks on the fundamental issue, namely, the strength of their position in the coming years.

Deputy Kieran O’Donnell

For how long?

Deputy Brian Lenihan

Second, contrary to the impression created in certain quarters, I want to make it absolutely clear that this is not simply money being given to banks but rather an investment by the State. This is an investment that will generate strong return in the current environment. Specific conditions are also attached, including warrants that provide the State with access to the upside when the value of bank shares recovers. The measures announced by the Government include a review of credit supply, a clearing group to review credit supply issues and specific credit initiatives such as the environmental and clean energy innovation fund.

In addition, statutory codes for mortgage holders and business lending have been finalised. This will ensure that all banks operating here deal in an even-handed way with customers. The codes will ensure that consumers are treated in a reputable and respectable fashion, for example, where faced with mortgage arrears. Taken together, these initiatives will serve to stimulate credit supply and consequently economic recovery and renewal.

The recapitalisation proposals include restrictions on remuneration in the banks. The reduction of one third in overall remuneration for senior executives is a strong signal in this regard. This reduction indicates the commitment of the banks and Government now to achieving wage restraint for the benefit of the economy. The Government will not stop at this however. I have indicated that I will write to the Covered Institutions Remuneration Oversight Committee to suggest an overall cap on remuneration for executives.

In discussions with AIB and Bank of Ireland the question of the management of the banks was raised. As I have mentioned previously, the proper forum and method for effecting any management changes deemed necessary is through the annual general meetings of the banks, and this is where the State can exercise voting rights it will now hold. If the State were to intervene arbitrarily in the management structures of the banks, this would send a very unhelpful signal internationally on our approach to our institutions. It is also important to note that the terms of the recapitalisation provide that — in any event and apart from the voting rights at the annual meeting — I, as Minister, can appoint 25% of the directors, in total, to both of the banks. This representation at board level helps to ensure an appropriate State participation in the oversight of the operation of the banks.

Various options for addressing the pressures that are on the asset side of our banks' balance sheets, including the idea of a bad bank, or a legacy bank as Deputy Bruton chooses to describe it, a good bank and the option of a form of insurance of bank assets were raised and debated by Deputies today. For its part, the Government has made clear that it is conscious that in current market circumstances there is a need to bring greater certainty and transparency to the operations of important financial institutions, in particular in regard to specific asset classes currently perceived as carrying a higher than average risk. For Irish banks, in current economic circumstances, these higher risk classes relate to lending for land and development.

The Government will examine proposals for the management and reduction of risks within banks with respect to these particular exposures, having regard to international developments and work at European Central Bank and EU level. I emphasise to Deputies that I will be carrying forward this work and will produce proposals as a matter of priority. I will certainly take into account constructive proposals made on the other side of the House in that regard.

There has been comment here today and in the media regarding our regulatory system. I agree that the nature and thrust of Ireland's regulatory regime must adjust to new realities. Lessons must be learned from our own experience and from the international experience of the recent period of worldwide financial disruption. We need a regulatory regime which fosters probity. I welcome the review now being undertaken by the authority to that end. We are not alone in this process. Work has begun on forging a new model to govern the conduct of the financial sector both here and internationally. I can assure the House that Ireland will play its part within the EU and internationally in seeking to ensure that the re-design of the financial system and, in particular, of financial regulation is consistent with the objectives that underlie a strong, stable and functioning national banking system.

I believe Deputies will agree it is disappointing that questions over corporate governance practices at Anglo Irish Bank and Irish Life & Permanent are overshadowing what is a crucial step in ensuring the financial stability and future success of the Irish banking system. The transaction in question is the subject of a number of investigations, including one by the Financial Regulator and the Office of the Director of Corporate Enforcement.

The matter is, in the first instance, a prudential one and was brought to the attention of the Financial Regulator by the Department of Finance. It was one of the corporate governance concerns that resulted in the Government's decision to nationalise Anglo Irish Bank. At that stage it would not have been appropriate for the Minister for Finance to publicly disclose confidential information which was and remains the subject of an investigation by the responsible statutory authorities. The new board is reviewing all the corporate governance practices of the bank and will put in place arrangements to guide the bank in the future. The bank's annual accounts will be published in the coming weeks and will provide appropriate details on this transaction. When the annual report of Anglo Irish Bank is published I propose to publish, by way of supplement, a shareholder's statement outlining the concerns I have about the different matters that have arisen in that bank and how they will be addressed.

In conclusion, the Government is committed to protecting depositors, creditors and taxpayers in its interventions in the banking system. We are committed to ensuring that our two main banks as well as the other covered institutions can discharge effectively their role.

Question put: "That the words proposed to be deleted stand."

The Dáil divided: Tá, 73; Níl, 64.

Tá

• Ahern, Dermot.
• Ahern, Michael.
• Ahern, Noel.
• Andrews, Barry.
• Andrews, Chris.
• Ardagh, Seán.
• Aylward, Bobby.
• Blaney, Niall.
• Brady, Áine.
• Brady, Cyprian.
• Brady, Johnny.
• Browne, John.
• Byrne, Thomas.
• Calleary, Dara.
• Carey, Pat.
• Conlon, Margaret.
• Connick, Seán.
• Coughlan, Mary.
• Cregan, John.
• Cuffe, Ciarán.
• Curran, John.
• Dempsey, Noel.
• Devins, Jimmy.
• Dooley, Timmy.
• Fahey, Frank.
• Finneran, Michael.
• Fitzpatrick, Michael.
• Fleming, Seán.
• Gogarty, Paul.
• Gormley, John.
• Grealish, Noel.
• Hanafin, Mary.
• Harney, Mary.
• Haughey, Seán.
• Hoctor, Máire.
• Kelleher, Billy.
• Kelly, Peter.
• Kennedy, Michael.
• Kirk, Seamus.
• Kitt, Michael P.
• Kitt, Tom.
• Lenihan, Brian.
• McEllistrim, Thomas.
• McGrath, Finian.
• McGrath, Mattie.
• McGrath, Michael.
• McGuinness, John.
• Mansergh, Martin.
• Martin, Micheál.
• Moloney, John.
• Moynihan, Michael.
• Mulcahy, Michael.
• Nolan, M. J.
• Ó Fearghaíl, Seán.
• O’Brien, Darragh.
• O’Connor, Charlie.
• O’Dea, Willie.
• O’Flynn, Noel.
• O’Hanlon, Rory.
• O’Keeffe, Batt.
• O’Keeffe, Edward.
• O’Rourke, Mary.
• O’Sullivan, Christy.
• Power, Peter.
• Power, Seán.
• Roche, Dick.
• Ryan, Eamon.
• Sargent, Trevor.
• Smith, Brendan.
• Treacy, Noel.
• Wallace, Mary.
• White, Mary Alexandra.
• Woods, Michael.

Níl

• Allen, Bernard.
• Bannon, James.
• Barrett, Seán.
• Breen, Pat.
• Bruton, Richard.
• Burke, Ulick.
• Burton, Joan.
• Byrne, Catherine.
• Carey, Joe.
• Clune, Deirdre.
• Connaughton, Paul.
• Coonan, Noel J.
• Costello, Joe.
• Coveney, Simon.
• Crawford, Seymour.
• Creed, Michael.
• Creighton, Lucinda.
• D’Arcy, Michael.
• Deasy, John.
• Deenihan, Jimmy.
• Doyle, Andrew.
• English, Damien.
• Feighan, Frank.
• Flanagan, Charles.
• Flanagan, Terence.
• Gilmore, Eamon.
• Hayes, Brian.
• Higgins, Michael D.
• Hogan, Phil.
• Kehoe, Paul.
• Kenny, Enda.
• Lynch, Ciarán.
• Lynch, Kathleen.
• McCormack, Pádraic.
• McEntee, Shane.
• McGinley, Dinny.
• McHugh, Joe.
• McManus, Liz.
• Mitchell, Olivia.
• Morgan, Arthur.
• Naughten, Denis.
• Neville, Dan.
• Noonan, Michael.
• Ó Caoláin, Caoimhghín.
• O’Donnell, Kieran.
• O’Dowd, Fergus.
• O’Keeffe, Jim.
• O’Shea, Brian.
• O’Sullivan, Jan.
• Penrose, Willie.
• Perry, John.
• Rabbitte, Pat.
• Reilly, James.
• Ring, Michael.
• Shatter, Alan.
• Sheahan, Tom.
• Sherlock, Seán.
• Stagg, Emmet.
• Stanton, David.
• Timmins, Billy.
• Tuffy, Joanna.
• Upton, Mary.
• Varadkar, Leo.
• Wall, Jack.

Tellers: Tá, Deputies Pat Carey and John Cregan; Níl, Deputies Emmet Stagg and Paul Kehoe.

Question declared carried.

Question put: "That the motion be agreed to."

The Dáil divided: Tá, 74; Níl, 66.

Tá

• Ahern, Dermot.
• Ahern, Michael.
• Ahern, Noel.
• Andrews, Barry.
• Andrews, Chris.
• Ardagh, Seán.
• Aylward, Bobby.
• Blaney, Niall.
• Brady, Áine.
• Brady, Cyprian.
• Brady, Johnny.
• Browne, John.
• Byrne, Thomas.
• Calleary, Dara.
• Carey, Pat.
• Collins, Niall.
• Conlon, Margaret.
• Connick, Seán.
• Coughlan, Mary.
• Cregan, John.
• Cuffe, Ciarán.
• Curran, John.
• Dempsey, Noel.
• Devins, Jimmy.
• Dooley, Timmy.
• Fahey, Frank.
• Finneran, Michael.
• Fitzpatrick, Michael.
• Fleming, Seán.
• Gogarty, Paul.
• Gormley, John.
• Grealish, Noel.
• Hanafin, Mary.
• Harney, Mary.
• Haughey, Seán.
• Hoctor, Máire.
• Kelleher, Billy.
• Kelly, Peter.
• Kennedy, Michael.
• Kirk, Seamus.
• Kitt, Michael P.
• Kitt, Tom.
• Lenihan, Brian.
• McEllistrim, Thomas.
• McGrath, Finian.
• McGrath, Mattie.
• McGrath, Michael.
• McGuinness, John.
• Mansergh, Martin.
• Martin, Micheál.
• Moloney, John.
• Moynihan, Michael.
• Mulcahy, Michael.
• Nolan, M. J.
• Ó Fearghaíl, Seán.
• O’Brien, Darragh.
• O’Connor, Charlie.
• O’Dea, Willie.
• O’Flynn, Noel.
• O’Hanlon, Rory.
• O’Keeffe, Batt.
• O’Keeffe, Edward.
• O’Rourke, Mary.
• O’Sullivan, Christy.
• Power, Peter.
• Power, Seán.
• Roche, Dick.
• Ryan, Eamon.
• Sargent, Trevor.
• Smith, Brendan.
• Treacy, Noel.
• Wallace, Mary.
• White, Mary Alexandra.
• Woods, Michael.

Níl

• Allen, Bernard.
• Bannon, James.
• Barrett, Seán.
• Breen, Pat.
• Bruton, Richard.
• Burke, Ulick.
• Burton, Joan.
• Byrne, Catherine.
• Carey, Joe.
• Clune, Deirdre.
• Connaughton, Paul.
• Coonan, Noel J.
• Costello, Joe.
• Coveney, Simon.
• Crawford, Seymour.
• Creed, Michael.
• Creighton, Lucinda.
• D’Arcy, Michael.
• Deasy, John.
• Deenihan, Jimmy.
• Doyle, Andrew.
• Durkan, Bernard J.
• English, Damien.
• Feighan, Frank.
• Flanagan, Charles.
• Flanagan, Terence.
• Gilmore, Eamon.
• Hayes, Brian.
• Higgins, Michael D.
• Hogan, Phil.
• Kehoe, Paul.
• Kenny, Enda.
• Lynch, Ciarán.
• Lynch, Kathleen.
• McCormack, Pádraic.
• McEntee, Shane.
• McGinley, Dinny.
• McHugh, Joe.
• McManus, Liz.
• Mitchell, Olivia.
• Morgan, Arthur.
• Naughten, Denis.
• Neville, Dan.
• Noonan, Michael.
• Ó Caoláin, Caoimhghín.
• Ó Snodaigh, Aengus.
• O’Donnell, Kieran.
• O’Dowd, Fergus.
• O’Keeffe, Jim.
• O’Shea, Brian.
• O’Sullivan, Jan.
• Penrose, Willie.
• Perry, John.
• Rabbitte, Pat.
• Reilly, James.
• Ring, Michael.
• Shatter, Alan.
• Sheahan, Tom.
• Sherlock, Seán.
• Stagg, Emmet.
• Stanton, David.
• Timmins, Billy.
• Tuffy, Joanna.
• Upton, Mary.
• Varadkar, Leo.
• Wall, Jack.

Tellers: Tá, Deputies Pat Carey and Cregan; Níl, Deputies Kehoe and Stagg.

Question declared carried.