Arthur Morgan (Louth, Sinn Fein)

The Minister has said on many occasions that he would welcome and listen to them, talk and meet with them. He said that here. It is on the record of the House.

The involvement of those corporate raiders in the Irish banking sector has been described by even the most right wing economists as one of the worst things that the Government could do, yet even today we do not even have names of those private equity interests but it is pretty clear that the sharks smell easy prey and are circling ever closer. If the Government proceeds with inclusion of private equity investors, it will have used the guarantee, paid by Irish taxpayers, to subsidise a tiny number of investors making quick profits at the expense of our economy.

It is hard to see why we are not facing another Eircom debacle of five owners in seven years, with an ever increasing debt burden, large dividends for shareholders and a failure to invest adequately in the customer network. These vulture investors are only interested in high profits in very short periods and if they are successful in getting a controlling stake over any of our major banking institutions, we will be in a perilous situation.

Any involvement of private investors threatens the public interest as we will not be in a position to restructure the banking sector in a way that is necessary to secure our economic future. Again there is nothing in the Government's statement that suggests a radical overhaul of the banking business model which created the type of irresponsible and reckless lending behaviour that has brought our economy tumbling down. The culture of banking is going to have to change forever to ensure stability and if this is not addressed the banks may well go on acting irresponsibly and recklessly. Key to this is the replacement of those senior executives in certain banking institutions who have misled us as to the true nature of their debt problems and encouraged the type of behaviour which has contributed to the credit crunch.

The banks should not get a single penny from recapitalisation until there are wholesale changes in their senior management and those who are accountable for the mess that we are now in should be sacked, without any type of golden handshake, before they even commence their applications to be recapitalised. While this seems to be recognised as imperative by almost everyone, the Government's failure to achieve either of these demands at the time of the guarantee leads me to believe that very little will change with recapitalisation.

One of the most disappointing aspects to the Government's approach is its refusal to use the leverage of recapitalisation to protect the people who are paying for it. We have all heard this week that 13,391 mortgage accounts were three months or longer in arrears by June 2008. This was an increase of 11,252 from December 2006. The number of repossession orders being heard in the High Court is increasing at an alarming rate while there may a substantial number of voluntary repossessions that will never be heard about.

My party has been calling for a moratorium for the duration of the guarantee scheme for those who fall into financial difficulty. The Government missed the boat at the launch of the guarantee scheme to make this happen. However, there is another opportunity with recapitalisation to help the hundreds of thousands of families whose homes are now threatened. Another crucial measure which must be taken is to open up credit streams for the SME sector. When the banking officials visited the finance committee last Tuesday, I was disappointed, but not surprised, at their failure to appreciate how serious things have become for this sector. A couple of weeks ago an ISME survey showed that half of its members were being refused credit. These were not unknown companies, but well established businesses which have long established relationships with their banks. The result is that a large number of SMEs are now in serous financial difficulties, which has massive employment implications. Yesterday it was reported that almost half of all firms in the small and medium sector experienced a fall in employee numbers in the last three months. While all of this is happening the banks are continuing to sit back. The sector has moved at a snail-like pace in dealing with the credit crisis, negotiations are still ongoing with the EIB in relation to its small operational fund while the banks have done really nothing to capitalise themselves.

If we are really to place the public interest at the core of recapitalisation the issues of mortgage repayments and credit for our SMEs must be core conditions. There is no guarantee that the banks will lend out the funds as opposed to sitting on them. This was a problem that the US Roosevelt Administration faced when it stepped in to recapitalise the banks in 1933. For this reason, the Government will have to ensure that the State becomes a major shareholder in our banking institutions to get credit going again. This will have to be done through part or full nationalisation of our banking sector, with the Government retaining ownership of one of the major financial institutions to protect our national interest.

It is clear to even the most right wing of economists, who have suddenly decided that the State must intervene in our economy, that the public interest can only be prioritised if the State plays a leading role in our financial sector. There was a time when we had the solution to this problem in Ireland, known as the State banking sector. For business and industry we had the Industrial Credit Corporation, for farm business there was the Agricultural Credit Corporation and for insurance there was the State owned Irish Life. The Post Office had a savings bank, and building societies were only allowed to lend to prospective home owners, not into the buy-to-let market which now accounts for 36% of the housing market in Ireland. None of this was the glitzy banking sector of today. It was boring and solid, but it worked and it was trusted by the public, unlike the banks today. None of these banks ever made a loss, the profits were not enormous but business was done, money was lent, houses were built and some businesses grew. The model and scale was very limited but the principle was well-established. This cannot be done through any involvement of foreign private equity and my party will oppose any recapitalisation plans that support this.

Finally, I should mention an initiative I spoke about on last night's Private Members' business. The recapitalisation scheme may provide a golden opportunity to tackle the impending housing crisis. While speaking to an Oireachtas committee on 14 October last, Mr. Patrick Neary, CEO of the Irish Financial Service Regulatory Authority, told us that speculative lending to the construction and property sectors in the country amounted to €39.1 billion and that he anticipated "losses on property-related loans" and that "increased provisions and write-offs will be necessary". Mr. Neary also revealed that a PwC audit of the six largest Irish banks had found that €15 billion of property lending was secured on the properties alone. Can we learn anything from the Swedish experience in the early 1990s, where a similar case of ill-advised commercial lending in a property boom led to a collapse in its banking system?

As part of the Swedish bailout, the Swedish Government forced banks to write down losses and sell off the distressed assets. In the Irish case, some of the assets in question are the land banks amassed by speculators, the unfinished housing estates and commercial retail ventures that should be sold off as bad debts. The Swedish Government formed a new agency to supervise institutions that needed recapitalisation and another that sold off the assets, mainly property, that the banks held as collateral.

In Ireland, we have a unique opportunity to return control of the planning process and commercial development to local government, by breaking up the property cartels that have been holding Dublin and many other towns ransom to their own development strategy, wilfully thwarting local council development plans. As property prices fall and these assets are sold, local government could have a unique route to dealing with the growing housing crisis, and taxpayers can be given a better return for their investment in the banks, rather than allow cash-strapped developers sit on their assets now only to make more profits in decades to come.

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