Richard Bruton (Dublin North Central, Fine Gael)

I agree with the Minister that we must be careful about this issue. Equally, it is a matter in which the Dáil must exercise careful scrutiny of what is occurring, but that position is inconsistent with the Government's decision to dismiss the Dáil for six weeks in the midst of this delicate and important business.

When the guarantee was offered on 30 September, I happily offered the support of the Fine Gael Party. The scheme was necessary and bought time for the Government to develop a strategy. In the intervening period, I have not seen the emergence of that strategy. Rather, I have seen 35,000 jobs lost, credit dry up, as evidenced by the Central Bank's statistics, and regard for Irish banks shrink more quickly after the guarantee than previously. Last Sunday was a positive move forward, in that the Government dropped its untenable position of viewing recapitalisation as a last resort. No other state regarded government involvement in recapitalisation in that way.

That said, I still cannot see a strategy emerging. We are expected to believe that the Government is working to some master plan, but the document produced was full of undecided options and demanded no new conditions, which would have given a sense that the Government was driving the process in a particular direction. The Government seems to be looking for someone else to come up with the answers and ideas as to how we can get out of this hole.

The Government's prevarication has become a part of the confidence problem, not its solution. It is not setting an agenda to which banks must respond. It is waiting for them. They were given ten days in which to revert with a plan, but we have heard nothing about how the Government rejected some parts of the plan and improved it. They were given another ten days to produce a remedy for small businesses. All that the Minister can do is tell the House that they announced things, most of which are regarded by the small business sector as PR operations. The sector informed Members that 54% of its members are being refused loans, but the Government is sitting back and telling us that those few announcements are somehow dealing with the issue.

The banks were given seven days to respond to the issue of mergers and consolidations, which the Government seemed to indicate would be necessary. Those seven days passed, but there were no mergers or consolidations and the issue disappeared from the agenda. I do not know where the proposal lies now. The Government is now giving them 20 days in which to revert with a proposal for recapitalisation.

We need a Government that sets the standards and tells every bank which new capital ratios are required of them, not just the banks seeking State support for recapitalisation. We want to know what requirements the Government will set on banks in terms of their behaviour, how they will manage their toxic loan books and the manner in which they will deal with the drying up of credit for small business. We need a Government that is clear and confident concerning the terms on which it will offer taxpayers' support. We have not been provided with information in that regard. We taxpayers are in this up to our necks. We have guaranteed liabilities of €400 billion and we need to know that the Minister, as our representative, is operating on the basis of a credible strategy that will extricate us from the position in which we find ourselves.

Time is not on our side. I accept that the Government must be careful but it has had two and a half months to examine the details of what is involved. The Minister must dictate what is going to happen and lay down the conditions under which private equity will be provided. How will the Minister protect the taxpayer when there is private equity involvement? What conditions will he impose with regard to the behaviour of banks after recapitalisation occurs?

At present, banks are reducing their loan to deposit ratios. They have indicated that they intend to solve their problems by raising further deposits. However, everyone knows that they cannot all do so. As a result, they are squeezing down credit. The banks pretend that this is not happening but the statistics prove otherwise. Due to the fact that they are not facing up to difficulties relating to properties on their loan books, they are using up the scarce money that is available in order to roll-over loans. Where credit is being issued, it is going to the property sector. Loans to that sector are non-performing in nature and are soaking up any ability to deal with this crisis.

The banks have axed overdraft limits. Last month's returns show that such limits were cut by 25%. I refer here to unused overdrafts that provide businesses that are under pressure with some wriggle room. The Minister did not indicate how businesses are supposed to access overdraft facilities. He is correct to state that capitalisation is not a magic bullet. Will he indicate, however, the ammunition he possesses to allow him to formulate a strategy to deal with this matter? We are all aware of the problems and we expect a response in respect of them.

People are looking on in horror at what is happening. The Minister stated that the banks are meeting the regulatory requirements relating to capital ratios. The truth is that the market values their capital ratios not at 5% or 6% but rather, in the best case scenario, at 1%. In the worst case scenario, the market valuation is probably less than 0.25%. That is where matters stand.

History tells us that allowing the banks to deal with this problem on their own will not result in the best outcome for either the country or the taxpayer. There are perverse incentives for banks to take a punt on and increase their exposure to bad loans in the hope that something positive might happen. When banks are short of capital, their behaviour changes.

One can already see that much of the discussion with regard to shunning new capital is designed to save the position of those within the existing management structures of the banks and avoid the possibility that shareholder interests might coalesce and demand change. That is what is occurring rather than a strong, authoritative response to the crisis in the banking sector. The banks are managing down their loan books rather than trying to protect credit lines for decent businesses. I am concerned that the banks will persist with the policies on bad loans and ration the credit available to good businesses, thereby forcing them to the wall. Those in charge of the banks are more interested in saving their own skins rather than trying to achieve that for which we put our money at risk.

I welcome the fact that the Minister has moved away from the position of last resort. However, he continues to state that the Government is awaiting the proposals which the banks are due to make.

See this speech in context