Brian Lenihan Jnr (Dublin West, Fianna Fail)

I propose to share time with Deputy Willie O'Dea. This is an essential first step and a prerequisite to economic recovery. It has been a successful first step because the Minister has built on the policies of the previous Government. Leaving aside the rhetorical party flourishes about who might have been to blame and what steps should have been taken, the Minister has outlined that the correct steps were taken as he has followed the policy of the previous Government. The outlines of this speech can be clearly derived from the EU and IMF agreement concluded last winter. There is nothing in that agreement, arranged with the previous Government, that is not implemented in the Minister's current policy. The various steps taken to implement the agreement, from the disposal of accounts in Anglo Irish Bank and Nationwide to other banks to the conducting of a stress test and undertaking to capitalise the institutions, were all expressly envisaged last December.

The Minister, by and large, takes a very constructive approach in proposing these measures. As he did last week he does today. There is an element of politics and he cannot absolve himself from making a few references to the alleged mistakes of his predecessors. I notice that last week he referred to the guarantee of 30 September 2008 but the Minister has now given a more extensive guarantee than occurred on that night. That guarantee lapsed on 30 September 2010 and when it did, a large amount of bank bonds became unguaranteed. The Minister has decided, through capital reassurance, that those bonds should be honoured and paid in full. That is the effect of the Minister's announcement last Thursday and it is confirmed today. We should not speak of disastrous guarantees when the Minister has given a broader guarantee than that given by the previous Government.

Throughout that period of great difficulty in the past two or three years, when a number of initiatives were taken, the Minister can hold his head high as one of those who took a very responsible approach on banking. That was not the case with all other members of his and the Labour Party, many of whom openly and consistently called for undermining the credit of the country's banking system. In its own way that contributed to the loss of confidence in the system; if we keep talking about burning bonds, as friends on my right like to do at regular intervals, we can hardly be surprised if depositors want to remove deposits from the Irish banking system or have very little faith or confidence in it. We all know that senior debt ranks at the same level of insolvency as a deposit. Depositors will not leave their money in the Irish banking system if we have a constant barrage and chorus of calls for the dishonouring of Irish senior debt.

Deputy Noonan never engaged in that practice and I give him full credit for doing so but many in this House have done so.

It does not help. Among the factors that have helped to build confidence in the Irish banking system since the Minister's announcement last Thursday, according to the preliminary signs he outlined, is one reported to me by market sources, namely, the fact that the main Opposition party is not engaging in a chorus of calls for the dishonouring of senior debt. To be constantly demanding the dishonour of debt, as some Deputies do, is not good for this country, does not help its interest and is a form of economic treason. They do not seem to appreciate this has a most negative impact on deposit holding in the Irish financial institutions. Clearly, any depositor faced with public opinion that demands the dishonouring of debt will ask, "Why do I leave my money there?" Or, to put it in blunter terms, if one sees one's neighbour burning down his house why would one stay in one's own? Deputies on all sides must recognise that if we are to restore confidence in the banking system there must be some assurance the system is not about to be torched, destroyed or subject to arson as mentioned by the Minister, Deputy Noonan, during the election campaign.

Of course, the Government finds it necessary to insert a narrative into its political discourse on the subject which suggests this is a radical new policy, different to the mistakes of its predecessors. In fact, it is the same policy and is the correct one. It will be implemented and I wish the Minister well in its implementation. When I say it is the correct policy that does not mean I agree with all the details. There are always details which are subject to argument and debate but the broad line of policy essentials is that we must ensure the banks are deleveraged, sustainable and in a position to support Irish businesses and consumers and those who want to lend to them for legitimate purposes, that the various core assets are separated from the non-core ones, as outlined by the Minister, and that the capital ratios are adequate and create international confidence.

As I noted last week, one of the major weaknesses facing this Government and the previous one - a crack which the Minister has attempted to paper over - is the lack of clarity on the part of the European Central Bank. The ECB is the lender of last resort for the Irish banking system within the euro system. Some of the comments made in the European Central Bank leading up to the EU-IMF arrangement last year were not helpful to the then Government or to this country. There are individual members of the governing council who give of their own opinions on these matters. The ECB is a central bank and normally when one deals with a central bank one deals with one person expressing in an authoritative way the views of that central bank. However, it appears to be a practice in this central bank that one gets a diversity of views expressed by a diversity of members of the governing council. That certainly does not help a small state such as Ireland which is coping with the vagaries and difficulties of world markets. Given that, I know the Minister and the governor will work at their relationships in that regard but it is a difficult relationship to manage when there is a European institution with a collective government as well as an individual president and chair.

I refer to specific matters that arise from the Minister's announcement today. First, there is the restructuring of the banks, with the suggestion of two pillar banks. It is not clear where the destination of Irish Life and Permanent lies in this arrangement. I want an assurance from the Minister that the private shareholders in Irish Life and Permanent will have to take the first hit as far as burden sharing is concerned in regard to this bank. We have talked a great deal about burden sharing yet no Deputy seems to acknowledge that the major burden sharing was already taken by the shareholders of the Irish banks who have lost very substantial moneys in their investments. That is the risk capital. When we talk about gamblers, to whom I often hear reference in this House, subordinated bondholders get a more attractive rate of interest for investing in what is a more hazardous investment. Again, that is why the previous Government insisted that subordinated bondholders should make a contribution, as provided for in the legislation.

Last Sunday we had the extraordinary spectacle of the Tánaiste trying to claim that this Government had decided that subordinated bondholders should take a loss. That was decided by the previous Government and does not require fresh legislation because the legislation to provide for it was enacted before Christmas. As far as senior debt is concerned, however, people who advance money on a senior basis are not gamblers but people who take a fixed rate of return, typically, a rather low one over a period. They are the same people who lend to the Irish sovereign. It has been suggested, repeatedly, by some Members that somehow these people, too, can be torched and burnt. If we go down that road that would have very serious consequences for this country. We need accuracy in our public discussion on these subjects.

On the matter of the pillar banks and Irish Life and Permanent, it is unclear to me which bank ILP will end up in or whether it will have an independent existence. This is of most considerable interest to the employees and those who work for it. We need some sense of strategic direction on this issue. There is nothing new in this strategic announcement. We have known since last November we were building the banking landscape around the two main banking institutions. It is now clear the Educational Building Society will be transferred to one of the pillars; I wish to know what will happen in the case of Irish Life and Permanent. Of course, before the Government took office the position in respect of Anglo Irish Bank and Irish Nationwide was made clear.

A further question of considerable importance in respect of the recapitalisation is how we will deal with the issue of those who owe very substantial moneys on foot of mortgages and are now very exposed and in a distressed position. The previous stress test did not factor into the bank recapitalisations the kind of sums now being factored in respect of mortgage loss. How will that be related to those who actually owe this money to the banks, and what relief will they be offered? I welcome the Minister's comments about the Credit Review Office, a valuable institution given the nature of the banking system we now have. However, that office is focused on business lending. I and my party are very concerned about home purchase lending. It seems the home purchase lending market is frozen. The banks are not advancing money and the issue must be raised with the regulator of the onerous requirements in regard to loan to deposit ratios. In some institutions these are running at 70% and 80%. The reality is that the value of the asset has fallen dramatically. A large number of people are in a position to purchase houses but the finance is not available. The Minister will have to recapitalise the banks again if he does not get the home property market going. A floor must be put under that market if his banking policy is to succeed.

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