Joan Burton (Dublin West, Labour)

These foreign venture capitalists who lie behind some of the recapitalisation proposals, if allowed to take control of significant sectors of the Irish banking industry, pose an extreme danger. I can understand that the Minister is in some difficulty but this is a Parliament and he should not have refused to answer questions on this matter if, as he suggests, he has a plan.

Perhaps the most striking aspect of the banking crisis has been the complete lack of accountability at the highest levels. It beggars belief that the same CEOs and board chairmen are in place almost three months after the Government threw them a safety blanket guarantee. We were then first movers, for which the Minister claimed advantage and acclaim. However, the Government's first-mover status and advantage has long been eroded by its pussy-footing around and entertainment of any and all-comers. It has sent out the wrong signals. It has sent out signals that it is dithering rather than acting with due consideration, diligence and speed.

We are now considering injecting billions of euro into these banks. The Minister referred earlier to the Labour Party request at the time of the debate on banking that the Government deal with the adequacy of the banks' capital. He poopooed that proposal on that occasion because he said it was liquidity and not recapitalisation of the banks that was at issue. The reason the Labour Party focused on recapitalisation is that the banks' core problem is the unknown levels of bad debts on their balance sheets. This unknown level of bad and potential bad debts is what is poisoning the banking system in this country. It is when these bad debts come to be written-off that the level of capital impairment will go way below that to which the Deputy Governor of the Bank of England referred. The Bank of England recognised way back that bad debt impairment in the UK banking system needed to be addressed. It is what caused the complete destruction of the Icelandic system.

Let us be clear on what it is the Labour Party is talking about in terms of recapitalisation. Recapitalisation arises because banks here have built up unsustainable levels of bad debts largely related to the property construction boom. There is no evidence, as yet, that they have addressed this issue in a manner that is convincing to the capital markets or bankers in other banks not affected by this issue.

There has been a gross failure of oversight. I am baffled that the Financial Regulator continues to insist all is well in Irish banking and that all capital adequacy ratios have been met. It appears all regulations have been complied with and all the boxes have been ticked. This comes from the cat's milk school of auditing, namely, checking if the €100 one spent on the cat's milk is accounted for while all enterprises are in peril of sinking. As I said before, this is akin to saying that the State rooms in the Titanic are in perfect order, clean and refurbished while the ship is going down.

The regulator, from what the Minister said, is insisting that Irish banks are adequately capitalised. However, as I stated earlier, the arbiters in the markets, who do not get everything right but nonetheless play an extremely important role in this, are saying that is not the case. The Minister showed through budget 2009 that he can be tough on pensioners and school children. When does he propose to get tough on bankers and people in the regulatory system who failed to do their job properly?

I wish now to raise an important issue which I raised privately with the Minister. We have had no explanation or discussion in this House in respect of what happened with the Financial Regulator and the Quinn Insurance Group and company. We know that the largest fine in the history of Irish regulation was levied and that the regulator acknowledged that the moneys of an insurance company to the tune of more than €200 million were used to assist in some way unidentified people in purchasing positions, via contracts, or shares in one of the banks most related to the construction industry.

We are told by the regulator that the insurance company is fine subject to the chairman standing down despite it being levied with the largest fine in the history of Irish regulation. On the other hand we are told the bank in which the share positions or the options through which CFDs were taken is fine also. That is a gravely worrying series of events in related financial institutions, which are regulated by the same regulator. No explanation has been forthcoming, except to say that the disciplinary approach that was taken is a private agreement. That is not good enough.

We, in the Labour Party, favour the Swedish model where the State seeks to have an equity investment in the banks, and that investment is available for sale when the bank shares recover and taxpayers can recover their money. We are afraid the Minister is opting still for the Japanese model, where bad banks were nursed along and allowed to limp along by the state by not recognising the level of loan write-offs they had to have.

I understand that the PwC report may have suggested levels of loan write-offs of approximately 2% a year for up to three years or five years. The Minister did not publish that report either, so we do not know what we are talking about, but we can guess it must be at least 2% a year for three years. That is a total of 6%. The banks are doing nothing like that. They are basically picking approximately half of that figure because they can deal with that by not paying dividends and through a variety of other devices. In the meantime they will starve the economy and businesses, large and small, of credit in order to assist that.

There is a law in economics called Gresham's law where the bad money drives out the good. Are we having an Irish version of Gresham's law where a number of bad banks that are hopelessly compromised by their level of bad debt, especially in respect of the construction industry, are going to drive out the good banks, which with reorganisation are capable of constituting a strong, competitive banking force with State equity? If the Minister is compromising his approach in order to hold up bad banks then he is not serving the national interest.

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