Professor Patrick Honohan:

The Deputy made a number of points. On the geographical split, it is true that the Dublin area has experienced a big upturn in prices. There has also been an upturn in some of the other larger urban areas but to a much more limited extent. As far as our information is concerned, the number of high loan-to-value and loan-to-income mortgages outside the Dublin area is extremely small. People might ask why we are not just introducing what is proposed in respect of the Dublin area. Actually, it seems as if it will have little to no effect outside Dublin. This is presumably because property prices are lower and because the people who want to buy will be able to raise the higher percentage required in terms of their deposits and so forth.

I do not know that I can give much comfort in respect of the prospect of prices returning to where they were at the peak. The peak is the unusual aspect. In the context of where we are now, we have no evidence that prices are out of line. In other words, that they are either too high or too low. Nobody has a very precise indication in that regard. Previously, we would have had an indication. During the boom, for example, we would have stated "It is too high but we are not sure by how much". Now it is in the range where people say "It might be all right". I am not sure I can provide the Deputy with much comfort in respect of that matter.

I am in favour of new banks entering the market, as long as they are well run by proper people.

With regard to the question of the State starting a new bank, I hardly need to remind the Senator that the State owns two substantial banks at present. It is hard enough to fix the current problems. The problems, as the Senator said so rightly, are entangled with legacy business. A businessman coming to a new bank saying he would like a loan will first be asked what his current business is, and then he will be asked who he borrowed from before, thus bringing one back to the whole settlement. The banks are dealing with SME loans to some extent with split mortgage-type arrangements, similar to the half debt concept. Much of banks' processing of SME cases is in this category. They try to separate the property-related debt, which they regard as a separate loan, from the ongoing business debts. The Senator is correct in saying that is an important part of the solution.