Skip to main content
Normal View

Dáil Éireann debate -
Tuesday, 12 May 2009

Vol. 682 No. 2

Banking System: Motion.

I move:

That Dáil Éireann:

deeply concerned at the severe contraction currently taking place in the Irish economy, which is expected to be the worst in any developed country since the 1930s and the severe impact that the crisis in Ireland's banking system is having on the real economy, by restricting credit to viable businesses, which has contributed to the loss of almost 200,000 jobs in the past year;

determined to restore the flow of credit to Irish Business, to protect employment, to restore Ireland's financial reputation abroad, and to accelerate the recovery of the Irish economy;

noting the likely scale of losses that will be incurred by the Exchequer arising from the mismanagement by the Fianna Fáil led Government of the banking crisis, and the enormous risks to the Exchequer posed by the plan to purchase bad loans from the banks at undetermined prices; and

believes that a rapid resolution of the banking crisis, at minimum expense to the Exchequer, is in Ireland's vital national interest;

therefore calls on the Government to:

bring the institutions covered by the Bank Guarantee Scheme into temporary public ownership, as the least expensive, and most effective means of dealing with the banking crisis;

establish a Banking Commission made up of persons from Ireland and abroad of the highest reputation, to oversee the appointment of the boards and senior management of the banks, and to approve their business plans;

replace the present boards and senior executives of these institutions, under the supervision of this Banking Commission as a means of beginning to restore Ireland's reputation abroad;

ensure that the banks operate on an independent basis, under commercial mandate while under public ownership;

establish a trust or other mechanism which would give shareholders the option of retaining an interest in the bank, which would be translated into shares in the bank when it is returned to private ownership, the value of which would be set in relation to the true value of the banks at present and the cost to the State of dealing with the bad debts during the period of public ownership; and

set out a policy and mechanism for ensuring the continued presence of mutual banks in Ireland once temporary nationalisation is ended.

I wish to share my time with Deputies Rabbitte and Morgan.

An article in today's The Irish Times states:

[This is] the most important debate, declaration of war aside, in which members of Dáil Éireann will ever participate . . . At stake is €90 billion of taxpayer's money — three years' tax revenue — the international reputation of Ireland as a haven of cosy crony capitalism, the cost of international borrowing and the future health of the economy.

Those are the words of Professor Brian Lucey of Trinity College, taken from what he wrote in an article in today's edition of The Irish Times describing the debate on this motion. Such is the sheer scale of the problem in our banks, the implications for our economy and the losses that will be inflicted on our children and our grandchildren for decades to come by the Government’s bailout plan.

This House is faced with a stark choice. Will we live up to the principle set out in Article 45 of the Constitution where it states, "That in what pertains to the control of credit the constant and predominant aim shall be the welfare of the people as a whole," or will we pursue a course that risks imposing untold costs on the people as a whole?

Throughout this economic crisis, there are two features that have distinguished Labour's approach to the economy. First, we have made jobs our number one priority. Again and again we have made the point that it is the real economy, and not just the public finances, that is the central issue. Second, we have sought to protect the taxpayer from the consequences of Fianna Fáil's mishandling of the banking crisis. Labour stood alone to vote against the banking guarantee. We took some criticism for that decision, but events have proven that we were correct to do so.

The motion before the House brings together these two central concerns. Its purpose is to protect the real economy, as far as possible, from the effects of the banking crisis. Our objective is to re-establish the flow of credit to the real economy — to jobs and businesses — in the fastest, most effective manner and, crucially, at least cost to the taxpayer. We are not advancing bank nationalisation as part of an ideological agenda, but as an essential emergency measure. This is not a decision to be contemplated lightly, but it is a necessary decision.

Such is the scale of the economic calamity facing our country and such is the extent of damage done by Fianna Fáil's mismanagement of the economy, that we are left with no option. The alternative — NAMA or an bord bailout — is a proposition that will burden our children and our grandchildren for decades to come.

This motion proposes the temporary nationalisation of the institutions covered by the reckless banking guarantee as the quickest, most effective and least costly means of dealing with the banking crisis. Its purpose is to ensure the restoration of credit to the Irish economy, which is vital to ensuring the survival of jobs and businesses. The banks would be taken into public ownership for a limited period, during which time their balance sheets would be cleaned up, before being re-privatised at the earliest possible date. This would involve substantial State investment but the amount would be far less than the NAMA approach.

This is the solution to the banking crisis that is favoured by economists and banking experts from across a wide spectrum of opinion. The case for temporary nationalisation was articulated clearly and convincingly by a group of 20 economists representing a wide range of political views. It is also an approach that is gaining increasing international support. This is not a matter of ideology — it is about brass tacks and how people will survive in the real economy. It means putting aside vested interests and ideological blockages to deal with an economic emergency.

Ireland is experiencing an economic contraction of unprecedented proportions. Not since the 1930s has the economy of a developed country contracted to such an extent. Unemployment is set to hit 17% next year — equivalent to a live register of more than 500,000 people. Everywhere I go I hear again and again about the problems businesses are having getting access to credit. Viable businesses and good jobs are being lost for the want of basic bank lending.

The IMF has not only warned that Ireland's banking crisis will cost the State more than any other country, it has also pointed out that recessions associated with banking crises are generally deeper and longer lasting than any other downturns. We must take this extremely seriously. A decline of one tenth in national income is an enormous shock but our capacity to recover from it and to begin to grow again and to create new jobs will depend on having a functioning banking system. We must address the banking crisis urgently and coherently. In March alone, lending by the banks to non-financial corporates fell by approximately €1 billion. This is a clear indication of how the banking crisis is having its impact on business. Business needs credit to function. It needs working capital. It also needs to bridge the gap between dispatching an order and getting paid. It needs to be able to pay suppliers and to have funds to meet its payroll. It also needs credit to engage in international trade.

We are eight months on from the banking guarantee but, instead of a coherent strategy, what we have had from Fianna Fáil is a series of blunders and U-turns. The worst of these was the banking guarantee put in place on 30 September last year. What was painted by Fianna Fáil as bold and decisive action was in fact the worst economic policy decision made by any Government since the economic war. It tied the hands of the State in its dealings with the banks and it was implemented without the terms and conditions that should have been included. Neither has this Fianna Fáil-led Government ever explained why Ireland's guarantee had to be so much wider than the guarantees offered by other countries. Why, for example, was dated subordinated debt guaranteed in Ireland but nowhere else? Why was the guarantee put in place instead of nationalising Anglo when that proposal was, I understand, on the Cabinet table that evening?

Since that night, it has been the banks and not Government that have driven economic policy. Whereas in the UK where the chairpersons and CEOs of the re-capitalised banks were gone overnight, in Ireland the same failed boards and management teams were left in place for months. As Ireland's international reputation sank and our sovereign debt was downgraded, Fianna Fáil attacked pensioners but protected bankers. It has only been through a process of scandal, revelation and attrition that senior bankers have stood down. Even today, many remain in place.

For months now, the Labour Party has been demanding regime change in the banks — the replacement of boards and senior management teams. This is not a matter of personal attack but a matter of credibility. It is simply not credible to say that the people who brought the banks to this position can get them out of it. As a simple matter of managerial credibility, there should by now have been a comprehensive clearout, not just to satisfy the public but to show a level of seriousness to the international financial markets.

Our proposal is that this process should be supervised by a banking commission. This would be made up of people of the highest international reputation; people whom the international markets would trust to oversee the process and whose reputation would assist in rebuilding ours. Instead, Fianna Fáil has invented an bord bailout — NAMA — an agency that will buy up property developers' loans from the banks and make the taxpayer liable for their losses. It will do this without insisting on regime change in the senior management of the bank and expose the taxpayer to potentially enormous losses.

Once the bank guarantee was put in place, the Irish State effectively became responsible for the bad debts of the covered banks. That is a reality and we have to face up to it.

Unless action is taken to deal with the bad loans, Ireland risks the zombie bank syndrome, where banks attempt to nurse their bad loans, avoiding write-downs and lack the capacity to engage in lending that would support productive activity.

As the Labour Party has consistently argued, therefore, it is necessary to find a means to deal with the bad loans, so that they do not act as a drag on the rest of the financial system. How this is achieved, however, has potentially enormous consequences for the taxpayer and the economy. A key issue is how the losses are apportioned between the taxpayer and the banks. In the "Bord Bail-out" model, the loans are bought from the banks at some unspecified discount from their nominal value. Given the state of the Irish economy and the property market in Ireland and overseas, it would be extremely difficult to achieve a fair assessment of the value of the loans. The higher the price paid by an Bord Bail-out, the greater the loss carried by the taxpayer. The lower the price paid, the greater the loss borne by the bank, but this would be likely to trigger the need for further investment by the State in the bank. Since the Government says it is committed to obtaining ordinary shares in return for further recapitalisation, the State could eventually end up owning a majority of the banks. Given the pattern of events so far, there are grounds for believing that the State will simply overpay and enormous losses will be transferred to the taxpayer.

It is difficult to avoid the conclusion reached by the 20 economists who wrote on this issue in The Irish Times. The article states:

There is . . . a fundamental internal contradiction in the Government's current position. The Government is claiming that it can simultaneously: (a) purchase the bad loans at a discount reflecting their true market value; (b) keep the banks well or adequately capitalised; and (c) keep them out of State ownership.

These three outcomes are simply mutually incompatible, and we are greatly concerned that the NAMA process may operate to maintain the appearance that all three objectives have been achieved by failing to meet the first requirement. This would arise if NAMA purchases the bad loans at a discount — but still well above market value.

With €90 billion in loans to be purchased, the consequences to the taxpayer of overpaying for bad assets by 10 to 30 per cent are truly appalling.

Knowing what we know about the Fianna Fáil record on this issue, and its determination to favour the banks over the taxpayer at every opportunity, we have every reason to fear that the economists' prediction will be proven correct. The alternative approach is to temporarily nationalise the banks. This avoids the requirement to value the bad loans in this highly uncertain environment. The State would take ownership of the loans and the banks. The process of writing down the bad loans would be vigorously pursued and the normal lending would be resumed.

I would envisage that units would be established within the banks to deal with the bad loans. That would be sensible business practice. As many of the loans are likely to be syndicated, a clearing house mechanism may also be required to deal with them and to minimise the legal costs involved in dealing with them. If a developer owes money to a number of institutions, all owned by the State, it makes sense that they be dealt with on an integrated basis. Ultimately, there could be a transfer of outstanding loans to a clearing house, or transfer of loans between State-owned banks. This would be a transfer from one State-owned institution to another, removing the risk to the State of having to value the bad loans. Once the banks' balance sheets had been cleaned up, the State would return the banks to the market. The return to the State from the resale of the banks would significantly offset the cost of bad loans that the State is required to pick up.

One point which the debate on the banking crisis tends to miss is the importance of avoiding delay. The longer it takes to achieve a resolution, the more businesses and jobs will be lost. While Fianna Fáil is attempting to set up an Bord Bail-out on an interim basis, it will in fact be extremely difficult for it to start work without a legislative framework to underpin it. Without a legislative basis for NAMA, the bank will be obliged to have regard to customer confidentiality. A non-statutory State agency cannot simply send people into the banks to start picking over loan documents unless they have adequate authority to do so. Indeed, it is questionable whether the Financial Regulator would even be in a position to hand over the PWC report to a non-statutory NAMA, without adequate supporting legislation.

There is a clear legal risk that the Bord Bail-out model will be dragged out and delayed in its implementation. Yet, until a solution is put in place, normal lending activity will remain on hold. Indeed, there may be areas where banks delay making sensible and viable loans because they believe that the loan might be transferred to NAMA and all the time, businesses are going to the wall, and jobs are being lost.

When Anglo Irish Bank was nationalised, the State initiated an assessment of the value of the bank and is committed to compensating shareholders for the value of the business, if any, that it took over. Of course, the State cannot simply seize the banks' shares. Shareholders have suffered through the poor management of the banks and it is appropriate to examine ways in which those losses can be mitigated. The State should establish, therefore, a trust or other mechanism, which would allow shareholders to retain an interest in the bank. Instead of cashing the cheque for the value of their shares, they could be given the option of putting their money into trust, to be converted into shares in the bank when it is reprivatised. The State should be proactive in looking at ways of giving shareholders some potential upside if they leave their investment with the banks. This could be as simple as an option to receive shares later or there may be other ways in which shareholders could enjoy some future upside.

Fianna Fáil is currently arguing that the State cannot directly run banks. No one is proposing that it should. The banks would continue to operate in a commercial environment and with a commercial mandate. The Taoiseach is arguing that nationalised banks would be subject to political interference. I see no reason this has to be the case, even with Fianna Fáil still in office. Rules and structures can be put in place to avoid political interference in the day-to-day running of the banks and the aim will be to return the banks to private ownership as soon as possible.

The Labour Party has proposed the establishment of a banking commission that would appoint the boards of the banks. The banking commission would be independent of Government and would be made up of people of the highest international reputation — some of whom should not be Irish. By bringing in people of calibre to oversee some key banking functions, we can contribute to the painstaking task of rebuilding our reputation abroad.

Fianna Fáil has also argued, or rather it has spun the line, that international markets will not lend to nationalised banks but it has yet to produce evidence to support this claim. Fianna Fáil is effectively arguing that the banks would not be able to borrow without State support and they will not be able to borrow with State ownership. How does that possibly make sense? The idea is also foreign to the IMF which argued in a recent report:

Insolvent institutions (with insufficient cash flows) should be closed, merged, or temporarily placed in public ownership until private sector solutions can be developed. While permanent public ownership of core banking institutions would be undesirable from a number of perspectives, there have been numerous instances (for example, Japan, Sweden and the United States), where a period of public ownership has been used to cleanse balance sheets and pave the way to sales back to the private sector.

Is Fianna Fáil saying the IMF is wrong on this also? There is a need for honesty here. We need to face up to some realities, politically and as a country. The guarantee is in place. Fianna Fáil brought it in and I regret to say that Fine Gael and Sinn Féin voted for it. It effectively means that the State has to deal with the bad loans of the banks. We can do that through NAMA, or we can nationalise. One is slower and more expensive than the other but as a country, we have to demonstrate that we recognise this, and are ready to deal with it. We have to stand up, admit that there is a problem, fire the people who were directly responsible for it, and start dealing with it. That is what this motion proposes.

In any crisis, no matter how severe, there is always a road to recovery. There are always critical first steps that can and should be taken, to face up to the problem honestly, to take the first decisions that, even if painful, mean that we are moving in the right direction again. For the Irish economy, sorting out the banking crisis is one of those critical first steps. As the IMF has pointed out, recessions related to financial crises are generally longer and deeper than recessions caused by other factors. Restoring the flow of credit in the Irish economy is essential to protect jobs, create new ones, and stop the ongoing destruction of businesses that are otherwise viable. That is why we in the Labour Party have put action on the banking crisis at the heart of our jobs action plan.

This motion is not advanced on ideological grounds but in the interests of protecting jobs. I appeal to all the parties in this House to face up to the consequences of their actions last October and to begin to deal with this problem now by supporting the Labour Party motion for the temporary nationalisation of the banks.

Deputies

Hear, hear.

I appeal to the Government to rethink its latest decision on the banking crisis. I repeat my conviction that the NAMA, in the context announced, is wrong for the economy and the taxpayer. Surely the Minister for Finance must wonder why not a single independent commentator of any stature has come out in support of his position. Yet, as Deputy Gilmore said, a substantial body of independent commentary advocates temporary nationalisation of the two big banks rather than going down the NAMA route as proposed by the Government.

The Government's failure to rebut the case for temporary nationalisation is very worrying. The ministerial arguments for the NAMA are merely assertions and do not engage with the case set out by different academics and banking experts. Most worrying of all was the piece in The Irish Times a couple of weeks ago by Dr. Alan Ahearne, who is now advising the Minister. Dr. Ahearne’s only substantial argument is the assertion that, if nationalised, the two big banks may not be able to source money on the international inter-bank markets. He produced no evidence for this somewhat extraordinary contention that banks backed by the State would be less likely to source funds than private banks of doubtful solvency. We know that State owned banks already successfully access funding on the international markets. Is it seriously being suggested that a nationalised bank would be refused funding by international banks but a bank that is owned 70% by the State would be successful?

Neither has the Minister told us how, in the present environment, it is proposed under his model to price the assets being stripped out of the banks. The prospect of the usual suspects being let loose on €90 billion worth of taxpayers' money will eventually, when understood, bring people onto the streets. The Government is playing with almost three times the annual tax take. The men in sharp suits will do what they always do, and this time with knobs on, because the trading will be underwritten by the taxpayer. Already some of the shakers and movers are removing the "good" bad assets from the covered institutions and placing them with banks not headquartered in this jurisdiction. There is nothing to prevent them doing this and further disadvantaging the taxpayer. They are also engaged in restructuring the ownership of some built and half built developments to enable the NAMA to be stymied and obstructed when it comes to take over these assets.

The Bacon proposals are a nightmare for the taxpayer, the economy, employment and, eventually, for the Government. Mr. Peter Bacon has made a very poor fist of defending his proposals. It appears as if he had been given instructions that whatever he came up with, he was not to suggest nationalising AIB and Bank of Ireland. That appears to have become an article of faith with the Government although it is not clear why. Is it because Bank of Ireland has about 80,000 share holders and AIB 90,000, approximately 76,000 of them in the Republic? The Labour Party is not arguing for the confiscation of the shareholders' stake and clearly, as Deputy Gilmore said, some acceptable provision would have to be made for their interest. However, fear of the electoral wrath of shareholders is not an especially strong argument for persisting with a formula that will squeeze the Irish taxpayer for the next generation.

The Minister for Finance must know that the challenge of pricing the bad assets where frequently there is no market while the banks remain partially in private ownership is fraught with pitfalls. If the bad assets are overpriced the taxpayer pays the price. On the other hand, if the bad assets are properly diluted, the banks will require further recapitalisation and the taxpayer will again have to pay up. In contrast, temporary nationalisation offers the prospect of the taxpayer benefiting from the upside when normality returns. The challenge of acquiring the bad assets and tangling with the banks and developers to do so is the most difficult task yet undertaken by the State. It is a task, according to one writer in The Sunday Business Post that would require 700 specialist staff. The whole thing is unthinkable.

The Labour Party leader has already today drawn the Taoiseach's attention to the truth that temporary nationalisation is not a proposal from the Labour Party alone. The IMF, for example, has said:

Insolvent institutions (with insufficient cash flows) should be closed, merged, or temporarily placed in public ownership until private sector solutions can be developed. While permanent public ownership of core banking institutions would be undesirable from a number of perspectives, there have been numerous instances (for example, Japan, Sweden and the United States), where a period of public ownership has been used to cleanse balance sheets and pave the way to sales back to the private sector.

That is the view not of the Irish Labour Party only, but of the IMF. Other agencies at home and internationally have expressed similar views. Some 20 academics from the Dublin universities with no vested interests have vehemently contested the NAMA approach as structured and argued for temporary nationalisation. Neither the Taoiseach nor the Minister for Finance can reach for any independent approval of the Government's approach.

Today the Taoiseach made the odd statement that he did not believe in assuming any more responsibility than is necessary at the time. But this is not a pay-by-instalments scheme. If we give legislative underpinning for the road embarked on by the Government, much of the damage will be done and much of the cost will have been borne by the time nationalisation becomes inevitable. It is always interesting that the Government has not ruled out temporary nationalisation. It is just that, like our former colleague, Dinny Foley, the Government is "hoping against hope" that it will not happen. The problem is that if nationalisation is forced on us, and most experts think it will be, we will already have borne a huge part of the cost.

Nor can I see the merit in the Fine Gael amendment which similarly seeks to avoid what it calls "early nationalisation" on the basis that it would essentially extend the guarantee beyond 2010. Surely we have to admit that, whether we like it or not, the guarantee will inevitably be extended beyond 2010. The back-up notes to the budget effectively signalled as much when it was recorded that,"The Government also intends in line with its previous indication to put a State guarantee in place for the future issuance of debt securities with a maturity of up to five years." This may or may not add to the overall stock of guaranteed liabilities but it must inevitably extend the guarantee for at least part of that stock. I fail to see how the fear of extending the guarantee beyond 2010 is a reason for not facing up to the big question now.

If I have only one minute, will the Ceann Comhairle permit me to put on the record a quote from the Taoiseach, which fits in with his incremental approach today about not accepting responsibility for something until one has to? On 30 September 2008 he told the House:

The point I am making and the commitment I am giving is that in the event of having worked out whatever had to happen in relation to those banks, and if a deficit emerged, the sector would pay, not the Irish taxpayer. That is my commitment to the House.

I repeat the Minister's word, "That is my commitment to the House, that the sector would pay, not the taxpayer".

We know the truth now. The sector is not able to pay and the taxpayer is being squeezed to death. The road the Government has embarked on with the NAMA approach will squeeze the taxpayer further.

I thank the Labour Party for sharing time with me and, on behalf of my party, I support the motion before the House today.

An extract from an article in the Financial Times of 25 April reads:

The problems of banks are much deeper than were then acknowledged and the destabilisation of the economy has happened anyway. Government now provides taxpayers' money to financial businesses in previously unimaginable quantities. But there is no control over the use of the money, no insistence on structural reform or management reorganisation, no safeguarding of the essential economic functions of the financial services industry and no accountability for the damage that has been done.

This was written by John Kay of the Financial Times about the British Labour Party’s love affair with the banks across the water but his description of the British Government’s approach sounds remarkably similar to the approach taken here by Fianna Fáil and the Green Party. Since the time of the so-called “cheapest bailout” in the world last September, the Government has made five attempts to deal with the banking crisis and has failed on each occasion. Between botched recapitalisation last December, the infamous nationalisation of the toxic Anglo-Irish Bank, or the most recent adventure in the form of NAMA, the Government is pouring away billions of euros of Irish taxpayers’ money, without any accountability, any clear direction and without a plan, in an attempt to reorganise the banking system.

However, this is not Monopoly money with which the Government can play around but is based on our public finances, namely, the taxes of the next generation of working people. The Government has cut back on numerous programmes such as special needs teachers, temporary workers in our health services and, recently, early child benefit, in an attempt to balance the books. While it is doing this and reminding us of the difficult times we face, it is giving unprecedented quantities of public money to our zombie banks, those same banks that told us they would die before accepting recapitalisation. These are the banks that refuse to provide credit to our SMEs, that ignore requests to return their billions of euro in pensions and bonuses, that dragged their heels in bringing wholesale changes in personnel. The Government has prioritised this sector and the clique that controls it over our children with special needs, our pensioners who are dependent on their Christmas bonus and over patients in our hospitals. Many of this clique are now taking their retirement. Even today, there was Ulster Bank's chief economist who will now go off with his pals to play golf and meet people for lunch while we are left with the devastating mess the banks created.

The public's confidence in this Government's ability to address the financial crisis is at rock bottom. The public, very many independent economists and the Members on this side of the House are opposed to the establishment of NAMA because the taxpayer will be made to pay for the reckless lending and borrowing of bankers and property speculators. The Government’s approach, namely, to buy distressed assets while ensuring that our banks are adequately capitalised while resisting full nationalisation, is contradictory. By paying too little for the bad assets in the banks’ loan books, the banks will require further recapitalisation which will inevitably lead to further public ownership of the banks. By paying over the odds for assets that have rapidly decreased in value, the taxpayer will assume major losses. Twenty senior economists recently stated, “With €90 billion in loans to be purchased, the consequences to the taxpayer of overpaying the assets by 10 to 30 per cent are truly appalling”.

Even if the Government has its way in creating NAMA and buying bad debt with public money, we will still be left with little or no stake in the banks at the end of this fiasco. The Government has provided no real justification for resisting nationalisation. The truth is that it is opposed to public ownership of our banks because of ideology and ultra-conservatism. There is no evidence that public banks will be denied interbank liquidity yet the Government insists that the banks should not be nationalised. What makes this all the more alarming is that, while it opposes public involvement in the banks, it is more than willing to use public money to bail them out.

The Minister has not been given a mandate to do whatever he likes, thereby crippling this country with massive debts. He never mentioned this in his election manifesto in 2007. The Taoiseach abused his position by fuelling the property bubble which led to the collapse in this market in the first place.

Although a change in direction would look like another U-turn I urge the Government to listen to the Opposition and scrap the NAMA project once and for all. I hope I am wrong, but I truly believe that NAMA will be the worst mistake we have ever made. If my fears are realised the Government will go down in history as the worst Government in the history of the State. The backbenchers and the Green Party — who are now nothing more than Progressive Democrats who like trees — must recognise that they are just as responsible for this mess as the Government is. The Green Party can no longer deny responsibility for this economic crisis. It now presides over a regime of cutbacks matched only by those made by the former Tánaiste, Michael McDowell, and his colleagues in the Progressive Democrats. The Green Party has changed its policy completely from that it adopted when it was on this side of the House claiming to aspire to social justice. Its true colours are coming out now and they are certainly not green.

While the Minister allows our banks to cripple us and occupy all of the Government's focus, the real economy — our SMEs and working people — is being ignored. These people are going to the wall and workers are being laid off. The dole queues resemble those of the 1980s. All of us in this House can remember those terrible times.

The Government should deal with the banking issue once and for all. It must broaden its focus to include retention and creation of jobs. It must take on board some of the proposals made by parties on this side of the House. I refer in particular to the Sinn Féin pre-budget submission which set out a strategy for helping SMEs to retain jobs. It is obviously much easier to retain jobs than to create them. The Government has shown no inclination to do this. It is little wonder that people outside this House are disillusioned with politics and political leadership here.

The Government, which is charged with administering the State in this Parliament, totally ignores the Opposition. This is a time when I would have expected the Government to declare it would discuss these matters openly and sensibly and come to a type of consensus on what we can do to resolve this matter, if that is at all possible. Instead, we have a situation where the Government does not even accept a simple amendment to its Finance Bill.

I look forward to the debate on that Bill tomorrow. I commend the Labour Party on bringing this motion before the House today and giving us an opportunity to debate it on the floor of the House.

I propose to share time with the Minister of State, Deputy Martin Mansergh and Deputy Michael McGrath.

Is that agreed? Agreed.

I move amendment No.1:

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

"affirms the importance of a functioning and well regulated banking system as a necessary requirement for the protection and development of the economy;

notes that the proposed wholesale nationalisation of the banking system does not address the problems of funding or bad debts in the institutions;

supports the Government's actions to stabilise and protect, in a structured and measured way, the financial system, while at the same time protecting the interests of savers and taxpayers; this approach includes:

the provision, at a charge, of a State guarantee for deposits and other covered liabilities of the banking system up to September 2010, in order to stabilise the funding position of the banks and add a further level of protection for depositors;

the recapitalisation of Bank of Ireland and Allied Irish Banks;

the establishment of the national asset management agency to take over, at an appropriate write-down, the land and development and other eligible loans of the covered institutions with the objective of cleaning and strengthening the balance sheets of the banks and thereby further assist them in fulfilling their primary objective of extending credit to sound business and personal customers;

the provision of a guarantee framework beyond September 2010 for future debt securities issuance by covered institutions with a maturity of up to five years; and

the reform of the financial regulatory system which will place the Central Bank at the centre of financial supervision and financial stability oversight;

expresses its confidence in the Government's actions, as set out above, to stabilise and revitalise the banking system as a necessary pre-condition to tackle the economic downturn and to restore the economy to sustainable growth."

I am glad of the opportunity to address the very serious issues raised by this motion. I am also glad of the opportunity to correct some very mischievous and politically motivated rhetoric emanating from various quarters on the subject of our banks.

First, I wish to repeat that at all times in its approach to the banking crisis, the primary concern of this Government has been to stabilise and support our banking sector so that it can ensure a flow of credit into the economy which will allow business to flourish and workers to stay in their jobs. Like governments all over the world, we have intervened promptly and decisively to maintain our banking system. In the wake of the collapse of Lehmans Brothers we introduced the bank guarantee scheme and we did so in the teeth of sustained opposition from the Labour Party, which has sponsored this motion.

We have continued to support our banking system through the nationalisation of Anglo-Irish Bank, the recapitalisation of our two main banks and most recently through the proposal to establish the National Asset Management Agency. Every country in the world has had to make repeated interventions in response to this evolving banking crisis. That is what the situation has demanded. I have heard time and again Labour Party spokespersons denounce us for our repeated interventions as if there was one single piece of wizardry to deal with this most intractable crisis in the history of modern banking. I know Deputy Burton suffers from no lack of self-belief but I suggest a little self doubt in this instance would not go astray.

Nationalisation of the whole of the Irish banking system, which is what is being proposed in the motion, will not be the short-term panacea that some envisage. Wholesale nationalisation would do absolutely nothing to resolve to the banks' bad debt problems and get credit flowing again to support economic recovery and jobs. Nationalisation may change the brass plate, but it does not provide the individual institution with any additional funding or any resolution of the bad debt problems which cripple our financial institutions. While I accept that many in this House will have different political views on a question relating to banking, the Government believes that it is important, where possible, that the banking sector maintains a market presence and that it operates within market disciplines and constraints.

The Government's objective is to ensure that the lending needs of the real economy are met. A commercially focused banking system, which includes banks having a market presence, operating within market disciplines and constraints, is best equipped to achieve this aim. This is not a position held no matter what the cost, but is rather a balanced approach to the existing circumstances. Indeed, we have nationalised one of the three main financial institutions and have taken 25% public ownership in the Bank of Ireland. Tomorrow it may be the case that we will have taken 25% of Allied Irish Banks into public ownership as well, following its extraordinary general meeting. It is not a simple matter of suggesting that there is a stark contrast between the total nationalisation of the institutions concerned and the continued private ownership of them. The reality is that in the case of the three main institutions the State has already nationalised one of them, and in the case of the other two, it envisages 25% public participation in each.

I made it clear in my recent Supplementary Budget Statement that any further State capital introduced into these institutions would require the issuance of ordinary shares, which would, inevitably mean a greater degree of public participation in these financial institutions. Indeed one of the more careless features of the motion before the House is that it suggests the nationalisation of mutual building societies, which are covered institutions, and which do not require that type of approach. The Government's objective is to ensure that the lending needs of the real economy are met. A commercially focused banking system, which includes banks having a market presence, operating within market disciplines and constraints is best equipped to achieve this aim. It is not a position being held no matter what the cost, but is a balanced approach.

The Labour Party is ignoring clear international evidence that wholly wholesale nationalised banking systems serve their economies poorly. The evidence shows that compared with commercially focused banking systems, nationalised banks charge higher interest rates to businesses and households, provide less credit to the economy and discriminate against small and medium sized businesses. Higher interest rates and less credit are not what our banking system needs. Banks all over the world are struggling with damaged balance sheets, yet no country is currently adopting a policy of wholesale bank nationalisation in this banking crisis except Iceland. I presume the Labour Party does not want me to repeat the name of that country in the course of this debate. There is no immediate reason for Ireland to adopt such a policy. If Ireland was uniquely to proceed down that route it could, from an international perspective, be very damaging to its reputation and attractiveness to international investors, not only from the perspective of the provision of funding to the banking sector but from that of international investment more generally.

We have, of course, nationalised Anglo Irish Bank because of the weakening of its funding position and critically, because of the damage done to its reputation by the reprehensible actions of some of its former directors. Unlike the other covered institutions, recapitalisation alone could not have secured the viability of this bank. It is crucial to note, however, that nationalisation of Anglo Irish Bank has not meant that its funding and capital position has been any better than it would have been had it not been nationalised. The fact is that now, the burden of funding this bank rests exclusively with the State.

While the range of measures the Government has already introduced have gone a long way to supporting the banking sector and ensuring its stability, it has become clear that Ireland, like many developed countries around the world, will need further measured and appropriate action. That is why the Government decided that the asset position of the banking system must also be addressed. Accordingly, the Government decided to establish the National Asset Management Agency on a statutory basis, under the aegis of the National Treasury Management Agency.

I note press reports today that the German Government will tomorrow announce details of plans to set up asset management companies in Germany to take illiquid assets off banks' balance sheets. The German asset management agencies will share many features of the NAMA. Indeed, Ireland and the Federal Republic of Germany have a similar policy in relation to this issue and we are acting on the best advice not alone of the Central Bank and our professional advisers, but also on the advice of best international practice.

The objective of the National Asset Management Agency is to strengthen the banks' balance sheets which will considerably reduce uncertainty over bad debts and as a consequence ensure the flow of credit on a commercial basis to the real economy, to protect and grow employment while also protecting the interest of taxpayers. The potential book value of loans that will be transferred to the NAMA is in the region of €80 billion to €90 billion, although the amount paid by the agency will be considerably less than this. It is important to emphasise that the State will not take all of the risk in the acquisition of such assets. The price of the assets will have regard to current and expected market value of the relevant assets and what is sustainable for the taxpayer. In the longer term, if the agency were to fall short of recouping all of the costs, the Government intends that a levy should be applied to recoup any shortfall incurred.

Many commentators and Deputies on the other side of the House who have criticised the NAMA, have acknowledged that the crucial issue here is the valuation of the assets. I am not going to rush into devising a formula for the valuation of these assets. I shall seek the widest possible expert advice on this subject. Indeed, I would welcome the views of those on the other side of the House and commentators on the appropriate method of valuing the assets. The valuation of the assets is the most crucial decision that will have to be taken in respect of the national asset management agency. It is not a decision to be rushed into. Yes, there is urgency about cleaning up the banks' balance sheets and restoring credit to the economy, but great care must be exercised in devising the formula for the valuation of the assets.

Significant further detailed work and extensive due diligence on the loans books will be needed to ensure that the appropriate categories or portfolios of loans are transferred and that the banks are cleared of the identified riskiest loan portfolios. The riskiest identified loan category for banks in Ireland is "Land and Development" and the largest related aggregate exposures across the institutions. Entire portfolios of loans will be transferred to the agency. This will provide the banks with stronger balance sheets and considerably reduced uncertainty over bad debts.

The Government has received expert financial, economic, legal and valuation advice at every step of its measured response to the recent turbulence in the banking sector. Specialist expertise will be procured by the National Asset Management Agency in all relevant areas to ensure that the agency is established in the most efficient manner so as to safeguard the interest of the taxpayers. I want to nail the lie that this agency is some form of bail out for bankers and developers. Make no mistake, developers will continue to be required to repay their loans in full. Where borrowers have made losses, they will have to recognise and take such losses and it will certainly not be the function of the agency to go easy on them. The agency will operate on a full commercial basis and will be determined to recover monies owed to it to the fullest extent possible. We will not be deterred by legal strategies which may be adopted by some of those affected. The Government must act in the best interests of the economy as a whole.

That requires that we up-front these losses. I have heard Deputies on the other side of the House talking about zombie banks and the experience of Japan. If we want to avoid that experience we must ensure that the losses are absorbed up-front by the financial institutions so that, in the fastest possible period, they can be restored to clean balance sheets and be in a position to lend as normal banks. The degree of risk to the taxpayer bears an obvious relationship to the amount of the losses concerned.

It also involves the banks being truthful and coming forward to tell us the full extent of the bad news.

Indeed. However, our examination of the banks has gone beyond that. Of the three largest institutions, we now wholly own one and we either have or are about to have a substantial participation in the other two. I accept that we have gone far beyond where we envisaged we would be when the guarantee was issued last September. There has been a global banking crisis and the State has intervened dramatically in the Irish banking sector. To date, no plausible alternative policy has been advocated on the other side of the House as to how we should address these issues.

It was important to intervene to protect depositors and to restore confidence in the Irish banking system by giving a guarantee for a defined period. It was also important to examine the loan portfolios and decide that a certain level of capital was required in them. In the case of one institution, it was important that we nationalise it and it is important that we set up an agency to clean the balance sheets, while protecting the interests of the taxpayers.

As Deputy Rabbitte indicated, the question of valuation is crucial in this exercise. It is we who will have to fix that valuation. It cannot be a matter of negotiation with the institutions concerned. That is why legislation will be required to back up the work of the agency. In the interim, a great deal of practical work can be done.

The stream of income from the assets and the proceeds from the eventual sale of the underlying asset or the repayment of the loan will accrue to the agency. This will be used to pay interest on the bonds issued to pay for the assets and eventually to repay these bonds.

The agency will be developed and implemented within the common EU framework detailed in the European Commission guidance on the treatment of impaired assets, working closely with the European Commission to obtain prior State aid approval. By drawing on the best advice and experience available, we are committed to ensuring that this very significant measure will be an example of best practice and meets all of the objectives that the Government has set for it. We have always been guided by the need to protect the taxpayer. This will also be the case in the implementation of the National Asset Management Agency. In developing its actions and supports to date, the Government has earned an appropriate return from the banking system.

The charge for the guarantee will realise a fee income of around €1 billion over the two years of the existing scheme. The annual dividend on the €7 billion preference shares will be 8% which will return €560 million in a full year to the National Pensions Reserve Fund. Furthermore, if the preference shares are not redeemed within five years, they will subsequently be redeemed at 125% of par value. The preference shares also have warrants attached, giving the State an option to buy shares in five years at a predetermined price thus providing it with the potential for a significant return. Given the recent rise in bank shares, the State already appears to be capable of making such a return on the warrants associated with the capitalisation. In addition, the Government's recapitalisation proposals include various measures on credit supply and requirements on the banks to deal in an appropriate manner with their customers.

Stabilising the banking situation is necessary but in itself it will not be sufficient to restore the economy to its previous health. We must address the issue of the public finances and the wider issue of competitiveness. The actions which have been taken in order to stabilise the public finances have ensured that the general Government deficit does not exceed 10.75% of GDP in 2009. That is a rowing back from a figure of 15%. It is still at a high level but it is the most appropriate target for the year, given the current conditions in the Irish economy.

The recent supplementary budget sets out a medium term plan and this strategy has received the backing of the EU Commission. These difficult measures are necessary to protect the future growth of the country. In taking these decisive steps the Government has taken into account not just short term needs, but the fact that the measures introduced this year and over the coming years are of fundamental importance to the future of the country.

One can only contrast the eagerness of Opposition parties to debate at every opportunity the huge economic challenges facing the country with their reluctance to dwell on the economy, if it could be avoided, a couple of years ago in the run-up to the last general election. It strongly suggests that the wisdom now available in hindsight was not as obvious to parties opposite then. Their programmes bought into standard growth projections and most of their criticism then took the form of repeating endlessly that the country was awash with money and that Government should be spending and investing more and taxing less.

The Government is, today, trenchantly criticised by many commentators, including some in the print media, which played a full part, in colour supplements, in hyping up the property boom, a principal cause of our banking difficulties. They are now facing some of the same problems as the State, namely, the yawning gap between falling revenue and an over-ambitious level of expenditure.

The principal objective of the Government is to stabilise the economy, employment, the public finances and the banking system. Two US Democrat state senators paid a courtesy call on me in my office yesterday. They commented that the media coverage here was just like at home and that their critics, like ours, underplayed the global factors in the crisis and wanted, in the same simplistic manner, to heap all the blame on — in their case — the state majority.

Before speaking more specifically on the banks I wish to declare an interest. One of my daughters is in middle management in AIB, albeit on maternity leave since last December.

Since last September, we have had to take an array of measures to protect our banking system, including the nationalisation of Anglo Irish Bank. As a general rule, nationalisation should be a last resort. We have gone rapidly from a situation where our main banks were among the most profitable and deemed to be among the most dependable of our private commercial institutions. I have no doubt that despite the traumatic and chastening developments of the last six months, they can become profitable and dependable again without ever returning to recent excesses. As a condition of guaranteeing deposits and recapitalising the banks, the State, as set out in detail by the Minister, will earn a significant return on its investment and, indeed, has the potential of gaining substantially from the acquisition of the assets that represent bad debts at this time.

Nationalisation means taking over uncritical responsibility for bad debts without first settling a price for them. It means having to fund all the institutions in question. It will create far greater financial pressure for amalgamations and redundancies. It would not provide any short cut to easier credit, given that the State needs to maintain its financial credibility. Small business is under great pressure from bankers and from both debtors and creditors. Nationalisation is not a short cut for solving these problems, addressing which is built into the Government's approach to its role vis-à-vis the banks.

While I accept that the alternative policy to the Government's, of wholesale nationalisation even if temporary in intent, is advocated by people coming from a wide range of directions, the Labour Party and those trade union leaders who share the same view are motivated in part by this unexpected opportunity to validate a democratic socialist ideology. I am not suggesting that the Labour Party would, necessarily, follow that if it were in Government. While I have as little time as the Labour Party for cavalier capitalism and ultra forms of neoliberalism that, in their folly, were until recently propagating the notion that the State, now so visibly needed, was practically redundant, the answer is not a reversion to 1970s style socialism. We need a healthy, balanced, social market economy with neither adjective, social or market, deleted. If we were to depart from this, it would represent a major change in direction and damage investor confidence. As the Taoiseach and the Minister for Finance stated, only Iceland has adopted the path advocated by the Labour Party in this crisis and we are not in that category.

Humanity has a regrettable tendency to extrapolate, indefinitely into the future, either boom and bloom or doom and gloom. The reality is that we are in the most severe phase of an economic cycle and we should not do anything to prolong the day when recovery begins for us. There will always be economic cycles. Some weeks ago I was much cheered by a businessman in his late 60s who owns several retail shops when he stated outside church, "Please God, we will live to see the next depression."

I welcome the opportunity to contribute to the debate. Everyone in the House accepts there is a need for a properly functioning banking system which meets the needs of the economy. We also accept that resolving the current issues in the banking system is a prerequisite to economic recovery taking root. However, we seem to differ in the best way to achieve that goal.

The backdrop to the motion is an unprecedented crisis in the global banking system. However, there is nothing in the motion dealing with the substantive problems in the banking system, that is, the overhang of property related loans and the need for major capital injections into the banks. The motion does not address these issues because it would be politically unpopular for the Labour Party to do so.

Recently, I heard the leader of the Labour Party on local radio in Cork during a visit. He put out the simplistic, populist and misleading line that Fianna Fáil had plundered people's pockets to bail out the banks and the developers. We have heard variations of this line from various Labour Party spokespersons in recent weeks as part of a clear communications strategy designed to damage the Government. The reality is that when the banking system was on the brink of catastrophe last September, it was the Government, supported by Fine Gael and Sinn Féin, which had the courage to address the imminent danger. The Labour Party took the easy option at the time and said "No." A collapse of our banking system would have brought down the whole economy. Although the situation seems to be bad, it would have been a good deal worse if the banking system had been allowed to implode. Does the Labour Party really believe the top bankers wanted to come on bended knee with cap in hand to the Taoiseach and the Minister for Finance last September and put themselves and their colleagues at the mercy of the Government for many years to come? No, they did not. They came to the Taoiseach and the Minister for Finance because they had to. They had no choice and were facing an urgent and immediate crisis. It is because of the decision we took to guarantee the banks that no Irish banking institution has collapsed, unlike developments in many developed economies throughout the world.

I wish to address the second populist suggestion consistently made by the Labour Party, that is, that we are in some way bailing out the developers. The next contributor from the Labour Party should explain the allegation and charges made. The impression is being created that developers will in some way have loans written off, which is simply not the case. Developers are not being bailed out by the NAMA proposal. In fact, developers are fearful of NAMA because it will force them to face up to their loans. They will either have to repay their loans in full to NAMA or face the possibility of having the underlying security provided for the loan seized by the agency and put to use by the State.

To date, the banks have largely taken a softly, softly approach towards large-scale developers with sizeable loans. They have allowed interest to roll forward to avoid having to crystalise very substantial losses on the property loans on their books. The NAMA approach will address that issue comprehensively. If this were such a good deal for developers, why were there media reports last weekend of meetings between property developers to co-ordinate their strategy to oppose the NAMA proposal? There were also comments from the Construction Industry Federation expressing its concerns about the NAMA plan.

The bad loans are paralysing the banking system and must be dealt with quickly. They are clogging up the banking system and need to be removed to an asset management company as a matter of priority. The Government announcement of the establishment of NAMA has forced the hand of the banks. Yesterday, there was an announcement by Allied Irish Banks that it had increased its bad debt write-off this year to €4.3 billion. That increase is a direct result of the Government forcing the banks' hand, putting pressure on them to face up to these loans and not allowing the bad debts to continue to sit on the books and clog up the banking system.

Nationalisation of the banks would do nothing to deal with these impaired assets and would not address the funding issue in the banks. Deputy Gilmore called for the immediate nationalisation and cleaning up of the banks. Presumably, he was referring to the need for the banks to face up to the bad property loans and write them off. However, if this were done without recapitalising the banks, the capital base of the main Irish banks would be absolutely wiped out. To suggest otherwise is to blatantly mislead the people. At least, Deputy Gilmore had the honesty to admit tonight that the Labour Party motion would result in very significant State investment in the banking system. He should go further and quantify the extent to which immediate, temporary nationalisation, without recapitalisation, would result in State investment in the banks. That point should be clarified.

The Minister for Finance has shown real courage in dealing with the banking crisis. He averted immediate danger by guaranteeing customer deposits and certain bank liabilities last September, recapitalising Allied Irish Banks and Bank of Ireland, nationalising Anglo Irish Bank when its practices had sapped the confidence of the markets and it clearly required immediate nationalisation, and announcing the establishment of the National Asset Management Agency to clean up the balance sheets of the banks. The call for temporary nationalisation shows no regard for the implications for existing shareholders, including institutional investors and pension funds, and does not take into consideration the devastating signal such a move would send to the international markets.

We all recognise that the banks engaged in excessive lending, that they over-extended themselves during the Celtic tiger years and that they recklessly exposed themselves to the property market. It is also clear the regulatory system for banking must be overhauled. In this regard, I welcome the Government's move to establish a central banking commission such that the prudential regulation of the banking system can be properly controlled. Is is clear the relationship between the behaviour of individual banks and consequent implications for the wider economy must be at the centre of the new regulatory system.

Catchy one-liners will not resolve the issues in the banking system. Clear and decisive action by the Government will ensure a banking system which serves the needs of the economy. That is why the priority of the House should be to immediately move to set up the National Asset Management Agency and deal with the legislation as soon as it is introduced in the House. The establishment of NAMA will result in a level of write-offs and the principal Irish banks will require further capital injections by the State in the form of ordinary share capital. The Government has indicated its willingness to meet that need. It is true the State may become the majority shareholder in such banks. However, it is important that these banks remain market based, subject to the full rigours of the Irish Stock Exchange and open to the eyes of the international markets.

The valuation of assets purchased by NAMA from the banks will be critical and should be handled professionally by independent valuers with checks and controls in place. We all wish to see credit flowing again in the economy such that it is accessible to small, medium and large Irish businesses. That is not the case at present. Temporary nationalisation of the banks without addressing the issue of bad property loans or the need to recapitalise the banks will simply not fulfil that function or achieve our shared objective.

I am delighted to contribute to the debate on this Labour Party motion. Everyone agrees we have major problems in our banking system. The issue at hand is how to move forward. Resolving the situation with the banks is fundamentally about getting funds flowing to small businesses and those who seek mortgages. To date, that has not happened. The next step we take will be the critical one. Above all else, we must be conscious that we are spending not our money but taxpayers' money. I am not certain the Government would be as enthusiastic as it is about NAMA if it was spending its own money.

The creation of NAMA involves buying toxic debt. We have enough land zoned for development to build 1 million residential units, or 50,000 units a year for 20 years. Some €60 billion of the €90 billion Peter Bacon and the Government have outlined as necessary to deal with the banks relates to land for development, so the bulk of the land that is zoned for residential development, but is as yet undeveloped, is tied up in debt. The Government is buying something that does not have value. If it values the asset too highly, it will cost the taxpayer a significant amount of money because there will be major losses, but if its valuation is too low, the banks will have to get funding from the State, so the taxpayer faces double jeopardy. Either way, the situation will cost the taxpayer money.

Our amendment proposes that:

. . . early nationalisation of the banks increases the risk that, by essentially extending the guarantee that the State will guarantee all liabilities of the banks beyond September 2010, the taxpayer will become fully responsible for the unknown, but potentially massive, banking losses that will materialise over the coming years.

The Minister of State at the Department of Finance, Deputy Mansergh, and the Minister for Finance, Deputy Brian Lenihan, said the Opposition is not coming forward with proposals, but our amendment includes a reasoned, cogent proposal that the Government should:

. . . work with the Regulator to conduct detailed loan by loan stress tests in the covered banks to identify the true potential scale of losses under different scenarios, to present these findings to the Oireachtas within six weeks, and, based on these findings, to carry out negotiations with all providers of capital and long-term funding to the banks on the sharing of these losses and to present the results of these negotiations to the Oireachtas within three months.

The matter is so significant that it should be brought back to the Chamber. We also propose that the Government develop in the meantime "a State-sponsored wholesale bank, funded by the European Central Bank, to provide liquidity to the banks by acquiring good assets from the covered banks and thereby underpinning new business lending and mortgage lending from existing banks".

The difference between our position and the Government's is that, unlike the Government, we believe the bondholders should share in the risks and losses. When the Government nationalised Anglo Irish Bank, the bondholders, in effect, were fully bailed out. Bonds are being traded on the international markets at prices significantly lower than their value when they were taken out with the banks. Bondholders should take a share of the loss. The taxpayer should not take the full burden.

The State-sponsored wholesale bank we propose would provide funds to the existing banks. The banks that deal with the public would go to the State-sponsored wholesale bank looking for funds to provide good loans to small businesses and those who seek mortgages. The banks would get a return in the form of a management fee for administering the loans.

We criticise Peter Bacon's analysis because he considered only two propositions — NAMA and the insurance model. Other models need to be considered. Fine Gael's fundamental point is that we want funds to flow to small businesses and those who seek mortgages. The model the Government proposes will only burden hard-pressed taxpayers with long-term debt they cannot afford. At present there is huge uncertainty, as the Minister for Finance said, and the situation is not simple. We could give the banks, say, €50 billion under NAMA, but the Government might have to recapitalise the banks again through ordinary shares. There is also concern about the levy attached to the banks at the end of the scheme, because if the banks cannot afford it, the cost will fall to the taxpayer.

I was elected to represent the people of Limerick but also to be accountable to taxpayers for their money. The scheme the Government has come up with is academic in orientation. The French equivalent to NAMA, CDR, which was established in 1995 and kept going until 2007, lost €18 billion of the €28 billion that was contributed, or 65% of the value of the assets it took over. The history of NAMA-type agencies is not good.

We must certainly consider the state of loans within the banks. A few months ago, when AIB issued its results for 2008, it stated its bad debt write-offs for 2009 would total €2.9 billion to €4 billion. Today, it stated the total would be €4.3 billion. Fianna Fáil is taking credit for AIB coming out with that figure. The three directors of AIB said they were resigning, but I note they are going up for re-election tomorrow. The Government is providing €3.5 billion of taxpayers' money and has given the bank a State guarantee scheme. Why is the Government allowing the situation to continue? The tail is wagging the dog.

The Government is losing sight of the fundamental point that we need to get funds flowing to small businesses and those who seek mortgages without burdening the taxpayer with enormous debts. We could provide €50 billion, but further recapitalisation might be required and we might need to bail out the banks at the end with an income levy. The Government is telling the international markets it will clean up the banks, yet the markets see that the banks, after the bail-out from NAMA and recapitalisation using taxpayers' money, will still have the contingency of the bank levy hanging over them, so the markets might still be unwilling to provide funds to the banks.

Our proposal is simple. The Government should leave the toxic debts with the banks, set up a wholesale bank, and allow it to access funds through the ECB. The wholesale bank will give the existing banks funds for good loans to small businesses and those who seek mortgages. The banks will get a return in the form of a management fee. As the Minister knows, the lack of access to cash is killing small businesses. I was a chartered accountant practitioner for many years before I went into politics. The key feature with small businesses is working capital. If they do not have working capital, they cannot function, but they will not getting working capital from the banks at present. In fact, it is the reverse; their overdrafts and loan facilities are being cut and all of their existing facilities are being renegotiated at higher interest rates. While the Government is considering the NAMA project, which is effectively taking over developer loans, people are asking what measures are being put in place for the small businessman or fixed rate mortgage holder who is under pressure at present.

What measures were introduced in the budget? There was a VAT scheme for second hand cars and a measure in regard to intellectual property but, apart from that, nothing was introduced. With regard to restructuring loans, why is the Government not considering a guaranteed loans scheme for small businesses? Why did the Government not set up a fund to deal with small businesses? Why did it not give a reward or incentive for small businesses to retain employees until the end of the year? All that would appear to have happened is that small businesses are coming under constant pressure.

Dr. Peter Bacon has brought out a report which suggests a structure to effectively take over all the toxic debts from the existing banks while the ordinary taxpayer, including the small business person and ordinary mortgage holder, is picking up the tab. Business people and mortgage holders are clearly cynical and sceptical, with justification, because all they see is the Government spending large sums of money on debt. If the Minister seriously considers it will get a return on these toxic debts, he is not living in the real world. There are debts of €50 billion and these assets have lost value by perhaps 50% or more. The Minister claims he will get a return when a similar project in France had losses of 65%, or €18 billion out of €28 billion. If €50 billion is the figure, there could be a loss of €25 billion to the taxpayer.

What the Minister fails to take into account is that in borrowing money on the international markets to bail out the banks, the taxpayers will ultimately end up paying higher tax taxes over the years, and they will ask why they are doing so. The model we suggest will allow time for a proper assessment of the loans for each bank. The review by the Financial Regulator should be brought back into the Houses of the Oireachtas where we are accountable for taxpayers' money. That would be done within the next six weeks and negotiations would then be carried out with the providers of capital and long-term funding, in particular the bond holders. The results should be presented to the Oireachtas within three months.

The Minister referred to Anglo Irish Bank, which is not doing business and my understanding is that it has up to €30 billion of non-performing debt. Yet, the Minister states that nationalisation has worked for Anglo Irish Bank. It should not have been nationalised because there was no justification for it. It will cost the taxpayer an unquantifiable sum because we have taken over a bank that has huge non-performing debts. We put forward a proposition at the time that Anglo Irish Bank should be wound down and should become a debt collection agency in its own right. It would not have to meet capital ratio requirements internationally and would not put taxpayers' money at risk. We have effectively nationalised a pig in a poke and it is costing the ordinary taxpayer money.

I hope this talk about the Opposition not coming forward with proposals will end. We are coming forward with practical, straightforward proposals that will work and I hope the Minister will take them on board. I hope we will get a coherent response from Government which shows it has analysed the proposal and will take it on its merits.

The key element of our proposal in terms of getting funds flowing is that the Government would establish a State-sponsored wholesale bank funded by the ECB to provide liquidity to the existing banks by acquiring good assets from the covered banks. I will explain in layman's terms how it would work. If the banks have good customers to whom they wish to extend credit, such as people wanting to buy homes, they would sell that asset to the State-sponsored wholesale bank. The bank itself would retain perhaps a 15% stake but the Government and the State-sponsored wholesale bank would have the majority stake of 85% or more. The ordinary banks — Allied Irish Banks, Bank of Ireland and the other banks — would continue to do business with the customer but, effectively, they would just manage it on behalf of the State-sponsored wholesale bank. The funds would flow because the moneys would only be given to the State-sponsored wholesale bank on the basis of providing funds to small business.

The Government has gone into the banks much deeper than it ever expected to. How does it allow a situation to continue where three directors of AIB state they will resign and yet they will go forward for reappointment tomorrow? How has a situation arisen where there is not full control over the appointment of a CEO of AIB? That CEO should come before the Joint Committee on Finance and the Public Service in terms of his or her credentials because, ultimately, the banks will get €3.5 billion of taxpayers' money in addition to the guarantees in operation up to 2010.

NAMA is an unfair burden on the taxpayer. It is ill thought out and we still do not know how the assets will be valued. If the Government was to bring back Deputy John McGuinness or any business person to examine what the Government is proposing, they would not touch it with a 40-foot pole because it is not good value for the taxpayer and it does not deal with the basic requirements of recapitalisation. What is the function of the banks from a State perspective? The function of a bank from our perspective as representatives of the people is that it should provide funds to the economy to enable it to function, and working capital to enable small business to flourish and allow first-time buyers and people moving house to access finance.

What is happening here is that the Government is putting the banks and the developers first and the taxpayer last. That cannot continue. Will the Minister take good Opposition proposals on board? I hope he will give them due consideration and use them. We are all seeking to deal with the banking crisis in the national interest.

Debate adjourned.
Top
Share