Brian Lenihan Jnr (Dublin West, Fianna Fail)

Deputy Burton has raised the issue of the serious financial consequences to the State arising from the guarantee scheme to banks and credit institutions. In the course of her contribution she raised a number of issues which do not arise within the terms of the Adjournment matter. However, I will be pleased to deal with these by way of a reply to a parliamentary question.

There can be no doubt as to the extent and depth of upheavals in international financial markets. The objective of the credit institutions guarantee scheme is to reinforce the strength of the Irish economy and the financial sector and, in particular, to protect the long-term interests of the taxpayer. Maintaining a stable banking system is at the heart of the functioning of our economy and the daily lives of everyone living in our country. The scheme is not about protecting the interests of the banks; it is about safeguarding of the economy and everyone who lives and works in this country. This support is being provided in the public interest to maintain the stability of our financial system and hence to protect the real economy from the consequences of the severe financial disruption that would otherwise arise.

In accordance with the principles of the legislation, the scheme is designed to safeguard the interest of taxpayers. The guarantee to covered institutions is being made available at a significant charge to the institutions that avail of it. The terms of the scheme will also allow the State to reclaim from a covered institution any payments under a covered institution's guarantee.

It is currently estimated that the State will be remunerated by the covered institutions for the guarantee by an amount of at least €500 million per year for each of the two years of the guarantee. The charge is risk-adjusted and is set at a level that is based on the long-term cost to the Exchequer of providing the guarantee. Moreover, the scheme is designed to be self-financing and any financial support under the relevant legislation is intended to be recouped from the institution concerned.

The charge has taken account of Government funding costs. The giving of the guarantee is assumed to increase the cost of borrowing by the State by between 15 and 30 basis points. This is estimated to amount to approximately €1 billion on the cost of ten year funding. If the cost to the Exchequer were to exceed €1 billion, the charge to the covered institutions will be adjusted accordingly.

It is clear, therefore, that the Government scheme is structured to cover taxpayer costs. This is not a free lunch for the banks. However, it is in no one's interest to impose a charge at a prohibitive level that undermines the long-term sustainability and commercial viability of our financial institutions. A balance must be struck between ensuring that the Exchequer is reimbursed for the cost of the scheme and the financial sector is safeguarded at a time of extraordinary financial upheaval. The scheme strikes the necessary balance.

The charge on covered institutions will be substantial but not prohibitive, and will be differentiated to reflect the realistic level of risk in different covered institutions. The covered institutions also indemnify the Minister for Finance in respect of any payments made as a result of claims made under the guarantee and in respect of any costs, claims, losses or liabilities incurred by the Minister for Finance as a result of providing the guarantee. The principle as stated in the scheme is that any costs would be recouped from the sector by the State over time in a manner consistent with its long-term viability and sustainability.

I note that there has been some inaccurate comment in regard to the scheme in recent days. The scheme agreed by the Oireachtas has not been changed. The market notice published by my Department stated that no legal guarantee was required under the scheme from one covered institution in respect of any other outside its group.

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