Olivia Mitchell (Dublin South, Fine Gael)

Two weeks ago, I said we were only dealing with the symptoms of the problem and that the underlying problem would remain. The truth of these remarks was proven within 24 hours, with the markets very clearly telling us that even the comprehensive guarantee we gave did not restore confidence in our banks. What the guarantee has done — I realise it was and is absolutely essential — is to buy us time, but it has done no more than that. We must look now to a future strategy. The one thing the Minister does not want to wait for is the next call from the Governor of the Central Bank to tell us we have a disaster on our hands.

The Government must at this stage have some idea of a scenario in which it would make the next move. For example, has it set a benchmark fall in property prices which would inevitably trigger one of the banks to call in the guarantee or is it to be judged by the fall in growth rates in the economy? My belief is that we cannot wait for those kinds of indicators or for one of the banks to directly call in the guarantee before taking the next step or at least preparing for the next step. When it happens, it will happen rapidly and probably as part of an extreme market event whereby one bank goes, not necessarily in this country, and it will spread from bank to bank and gradually through each country.

This is why countries such as the US, the UK, France and Germany are recapitalising their banks. Undoubtedly, as the Minister said, each country has to do what it feels right in its own circumstances. However, just as in giving the guarantee we pushed other countries into doing the same thing, so too will their recapitalisation of their banks put pressure on us, as it has already done. The British banks are being recapitalised to the point where their tier 1 capital ratio is 9%, which in itself is reducing confidence in Irish banks by making them much less secure than the British banks. We have had guarantees of adequacy of our reserves from the Governor of the Central Bank and the Financial Regulator but while those guarantees may have been adequate last week, if we can believe it, they may not be adequate this week.

We must look at the real implications for us, our children and our children's children. I do not know if the Minister is aware that when Lehman Brothers was allowed to go to the wall and when all the money was counted and all assets sold, the recovery of liabilities was a mere 9%, which meant creditors got just $9 in every $100. If the same thing were to happen here and even one of the major banks went, taking one fifth of the guarantee, we might have to stump up €100 million. If the level of recovery was the same, the banks would produce €9 billion whereas the Government and we, the taxpayers, would have to produce €91 billion, which would be a total catastrophe. In the interests of every person in the country, there is a real imperative to avoid allowing that to happen.

Recapitalisation must happen now, hand in hand with the guarantee. Increasingly, it seems the only way to avoid having to pay out on the guarantee is to recapitalise. I realise the Government's position is that the banks should look first to private investors but the truth is that this is completely unrealistic. There are no private investors who will invest in Irish banks, not just because of the lack of confidence in Irish banks or because of possible restrictions that will be placed on the banks' ability to make a profit as a result of the guarantee we are giving, but simply because virtually every bank in the world is looking to recapitalise at present. Irish banks will be very far down the list from an investor's point of view.

If and when the call comes, it will be up to the Government to stump up the money. The Government at the least must at this stage prepare for the eventuality of needing to recapitalise by establishing, for example, precisely the level of capital required to bring each of the banks up to the tier 1 capital ratio which is comparable to the other banks we are competing with in Britain and elsewhere. Then the Government must prepare to have the funding ready and available as soon as the decision is made. We of course have the National Pensions Reserve Fund but even it needs notice to have liquidity available at short notice. If the Government has to go to the market during an extreme market event, it would be competing with other countries and it would be very difficult and expensive for us to access money in such circumstances.

Since the financial crisis began, Governments everywhere have lagged behind events and have always been caught on the back foot, unprepared for the crisis. We have to learn this lesson and act now.

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