Brian Lenihan Jnr (Dublin West, Fianna Fail)

No. The Deputy has asked a number of interesting questions. The Government took its initial decision on this issue on the night of 29-30 September last. I was not aware, until Deputy Burton mentioned it in the House this afternoon, that the date in question represented the end of the year, for auditing purposes, for a particular financial institution. Therefore, the fact mentioned by the Deputy was not a significant factor when the decision was being made. However, Deputy Burton is right to suggest that it was significant that the end of the month was approaching. Liquidity is often renewed in financial institutions at the end of the month. That was a significant factor on the night in question.

Deputy Burton concluded by asking a question about subordinated debt. The freezing up of international credit markets in September caused serious liquidity issues for banks in Ireland. It caused a significant mismatch between the institutions' asset and liability profiles. As a result, they relied significantly on short-term funding, such as commercial paper, inter-bank deposits and corporate deposits, to fund their long-term assets. The objective of the guarantee of dated subordinated debt in the lower tier 2 category was to give the covered institutions the ability to access at least two-year term funding to reduce their reliance on short-term funding and attenuate the liquidity squeeze. Investors in such securities have an expectation that their bonds will be repaid at their call date. If covered institutions are not able to re-finance dated subordinated debt, it will have a serious impact on their reputation and, therefore, their ability to access all wholesale finding markets.

As Ireland is a small economy, it is very exposed to global trends. Our banking system needs to be able to access funding of the type I have mentioned. The position of the Irish banking system is not comparable to the position of the systems in the UK or Germany. No necessity was found to introduce a guarantee element in such countries. The banks in those jurisdictions operate in a far vaster pool of liquidity in the first instance. I assure Deputy Bruton that the Government decision on the letter was arrived at after consultation with the Governor of the Central Bank and the Financial Regulator. I considered the matter carefully with the Taoiseach. I was concerned about the issue of subordinated debt. I assure the House that I did not make my decision lightly. At that point it needed to be made in the national interest. When we had an opportunity to prepare the scheme, we discussed these issues with the EU Commission. The Commission is naturally and rightly concerned to ensure there is not an improper flow of capital between member states. Therefore, certain restrictions on the possibility of re-financing subordinated debt in the future are imposed in the scheme. That is appropriate,

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