Peter Mathews (Dublin South, Independent) | Oireachtas source

I must get straight to it as time is against me. An overall calamity has hit Ireland, and it is a shameful episode of ten years, with four years after 2008 and six years leading up to that time. The banking sector - not just here but abroad and everywhere - has acted disgracefully, crushing and distressing households and indigenous businesses. I can explain mathematically how this was done.

Unfortunately, the media does not seem to understand the following. Loan-to-deposit ratios are the centripetal prudential force of a bank's balance sheet and if bank boards waver from that idea, they endanger deposits and lead to a financial collapse. Yesterday, the chief executive of AIB, Mr. David Duffy, reminded everybody here that a mortgage is a loan secured on an asset. If the banking sector for six years abandons in a cumulative fashion the prudential principles of keeping loans to deposits at 90% and a fractional reserve of 10%, they create the credit asset bubble. How dare a banking sector think it is entitled to collect all the loan secured on the asset which it consistently helped to pump up for six years. That would be wrong, and that is why Deputy Higgins is correct. As Deputy Donnelly mentioned, it is wrong for loans to be manufactured and recalculated over a longer period.

There should be a concerted effort by the two big banks. They are zombie banks. The households are crushed but the bank is still a zombie, and I will show how. Go to page 10 of the loans and provisions. There is nothing personal in this; I am just superbly frustrated for the last five years by the denials of the truth of the situation. Bank of Ireland has a loan book of €95 billion in four categories, three main categories and a little one called "consumer". The bank has provisions of €8.1 billion on €95 billion. That is 8.5%. The sister bank with a loan book of €88.9 billion has €17 billion of provisions, or 18.5%. It is the same size as Bank of Ireland's loan book and is probably not unalike in geographical dispersion. It is in the same economy with roughly the same number of employees. Yet Bank of Ireland is saying it is 2.2 times better than AIB in terms of what is collectable.

If one reruns the provisioning, and I suggest the bank do that, at 15% provisioning on the €52.2 billion for residential mortgages, at 10% on the €22.5 billion of non-property SMEs and a modest 25% on the property and construction loans, one arrives at a figure of €14.68 billion of required provisions, but the bank only has €8.1 billion. That indicates the bank needs between €6.5 billion and €7 billion more capital. That is why groups such as Fitch and Moody's say the banks are under-capitalised. If the banks did have the right capital, they would get on with the job of recalibrating households and businesses to what their maintainable, reasonable incomes will be able to service. That is what is required.

Deputy Higgins was right when he told Mr. Barroso that it is wrong to have €70 billion of private sector losses by speculators, which is technically the right word to use, in an economy. They are the people who put money in. In March 2009, Bank of Ireland had €45 billion in senior secured debt on its balance sheet. That was down from €61 billion in March 2008. The huge number of speculator, high yielding bond guys got out. They did that with the help of Central Bank of Ireland advances as well as ECB advances.