Brian Lenihan Jnr (Dublin West, Fianna Fail)

In the current international climate, it is highly dangerous to set a deadline for a full public discussion on the floor of the House about such a matter. First, one must recall that the Government put in place this wide guarantee and its effect was to restore confidence in the banking system in the context of liquidity provision. That has been a real success of the guarantee operation. It is interesting to note that although, as Deputy Rabbitte pointed out, the shares have remained under some pressure and have seen some decline in value in the light of international developments, the fact remains that the banks retain confidence and liquidity, notwithstanding such falls in share prices because the liabilities now are guaranteed. Clearly, this constitutes an important first step in restoring confidence to the banking system. Therefore, the legislative scheme setting out the terms and conditions for the guarantee is important to the viability of the banking system. The guarantee has worked by stabilising the position of the banking system and has been approved by the European Commission.

The key question, which was raised by many speakers, pertains to the capitalisation of the banks. Deputy Noonan mentioned the passage in my speech in which I referred to capital ratios. Under this legislation, the State will have far more power to intervene and to move in on the banking system and to ascertain a great deal more about it, which is very important. Many of the essential inquiries are under way and will be completed within a matter of weeks. As for capitalisation, however, it is important to bear in mind that the preferred policy of the State regarding the banking sector in the first instance is that the banks should raise the necessary capital. The preferred position of the Government in respect of capitalisation is that the banks should access capital from local and international markets to ensure that their capital base is sound. I use the word "sound" in the commercial, rather than the strictly legal or regulatory sense.

Deputies have canvassed various other options in respect of capitalisation and have mentioned the option of public participation. The option of public participation is contained in the legislation. Section 6(9) of the primary Act provides that the Minister can take shares in an institution to which financial support is provided. In the context of the guarantee I took the view that since it essentially was an interim measure, what we wanted was cash, which is the best form of payment available, rather than a promise of a share of the enterprise in the future. The question of capitalisation could be dealt with under that section at a future date as such an option is contained in the legislation. I cannot speculate on stock exchange movements.

Members referred to the capital position now being guaranteed by the United Kingdom Government, which has invested substantial sums by way of equity in the financial institutions there. It is worth noting that the United Kingdom guarantee is related to the capitalisation and in that country's scheme, some financial institutions are capitalising from private sources of funds. There is a variance in the degree of public participation in the different institutions and I understand that all of them are being exhorted to correspond to a higher capital ratio. However, some United Kingdom authorities have indicated to me that it is not what it seems and there has not been an actual increase in the capital requirements. Investors see that very substantial state investment is taking place in the jurisdiction nearest to us in its banking system. Many harsh words have been said about the banks in the parliamentary debates on the subject and some of them were well deserved. I say this to Deputy Michael D. Higgins specifically as he questioned me on this matter during his address. From a commercial point of view, the Irish banks have been very resilient to date in facing this crisis compared to banks throughout the world.

Many Deputies referred to toxicity, sub-prime assets and derivative assets. Deputy Higgins, in particular, referred to the toxicity of the paper dealings which took place in the banking system——

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