Richard Bruton (Dublin North Central, Fine Gael)

I move amendment No. 1:

To delete all words after "Dáil Éireann" and substitute the following:

condemns the regulatory failures that facilitated a deception of shareholders and the public at large;

expresses concern that the recapitalisation proposal of Government will be insufficient to restore a strong banking system able to maintain the flow of credit to the economy;

calls on the Government to consider other options that would put taxpayers' money for recapitalisation into new banks with clean balance sheets;

calls on the Government to defer its decision on recapitalisation until a full set of proposals that addresses the management of impaired loans has been developed;

calls on the Government to introduce a flat cap on remuneration of senior executives at no more than €250,000 until the Government's capital is repaid; and

calls on the Government to publish clear performance benchmarks on loans to business, on new mortgages issued and on the handling of distressed loans on a monthly basis so that the public can see how commitments are being fulfilled.

It comes as little consolation to the House that once again yesterday we were plunged into yet another regulatory failure, where a major financial institution was involved in transactions that were clearly designed to give a deceptive public perception of that company. It appears to have had the involvement of another financial institution in that activity.

This should not have come out in the way it has done. It is quite extraordinary that the first inkling we learned of this occurring came from the board of Anglo Irish Bank. It did not come from the Department of Finance or the regulator, which knew four months ago of this transaction. It did not come from action being taken, although we are told decisive action had been taken to deal with it and that appropriate changes have been made both in personnel and practices. Instead, it came out with the Minister apparently unaware of its implications. Indeed, at the very time he was proposing that money be put into Anglo Irish Bank as a going concern, his Department and the regulator were aware it was involved in practices that would clearly disqualify it from being the sort of institution into which we would put €1.5 billion and allowing the continuing operation of the management and the approaches they were undertaking. That is a serious situation.

A further serious issue arises today in that it would appear Irish Life & Permanent believes it had cover for this from the Central Bank. It is important that the Minister in the course of the debate clarifies exactly what was the situation in this regard. What was the nature of communication between Irish Life & Permanent and the Central Bank? Were the Department of Finance and the Minister informed of the communications and what was sanctioned in terms of inter-bank transactions? Was the manner of presentation in the books of Anglo Irish Bank, which of course is the core element that is the source of real concern, a matter of which the Central Bank, the regulator or the Minister for Finance were aware? These are very important questions that need to be answered.

There is equally a concern as to what exactly the regulator and the Central Bank were doing from the date the State moved in with guarantees. Surely, we would expect the regulator was daily watching the level of customer deposits and that it would be seen whether customer deposits would come back following the guarantee. We would expect the regulator would immediately see an unusually large transaction of this nature and that this would have triggered some questions as to what exactly was involved.

It is very hard to believe that the regulator, which we believed was day and night watching the liquidity base of the banks, in particular Anglo Irish Bank, was not watching its customer base and its customer deposits as distinct from its inter-bank lending. This would have been a matter of very immediate scrutiny on a daily basis. It is very hard to understand how this slipped through and how those within the Minister's Department and the regulator's office allowed a period of drift from October right through to December, when the State was still intending to put money into this bank as a going concern. They were in possession of this information but did not seem to be aware of its potential seriousness. That question has been asked and will continue to cause concern. I do not believe by any means that this concern has been dispelled by what we have learned to date.

I would like to turn to the next element of our concern. In our amendment, we expressed concern that the recapitalisation proposal will be insufficient to restore the banks to a position where they are able to lend again. I have not heard from the Minister any hard evidence to suggest this move will resolve the problem. He is expressing hope that it will happen. He at times suggested in his statement that our banks are very strong. One quote is worth recalling, namely, that he believes "our two largest financial institutions are in a strong position, able to withstand losses arising on their loan books, and equipped to maintain the flow of credit to our economy".

There is very clearly a difference of opinion about that. Many believe that the scale of the impending loan losses are much greater than has been admitted by the Minister or the banks. Bank of Ireland today increased its expectation of loss from €3.8 billion to €6 billion, so €2.2 billion of what we are putting in is already admitted as having to be written off. That is a very substantial 60% increase in its expectation of loss. Is this the end of the line, people ask? There is no solid evidence-based explanation either from the Minister or the banks to establish that this is the end of the line. There is a very serious concern that the true extent of these losses is much deeper than anyone is willing to face up to. While the Minister is giving these assurances today, there is not much confidence that those are shared widely and there are many who say the hole is much deeper.

We would want to see hard evidence to contradict those who say the hole is much deeper but we are not seeing it, which is causing a great deal of concern. There is a real worry that we will be revisiting this well again. We have put in our €7 billion but we may find it sinks below the surface and we still do not have a bank that is able to lend again. This will continually dog us. The Minister is saying he will have to come back again with proposals, which he has not yet decided upon, to deal with some elements of bad loans. If he had the confidence he asserts here, that would not be an issue but, clearly, there is a belief we have not resolved the problem in this move today.

One must look elsewhere to find whether recapitalisation of this nature has succeeded where it has been attempted elsewhere. One can see in other countries that it has not. Countries which moved rapidly with big recapitalisation programmes have not succeeded in getting their banks back lending again. The Minister may say the nature of their loan books was different and circumstances are different, which may be the case. However, we still have not seen strong evidence to reassure us that this is the bottom or that there is a proper evaluation that gives us confidence we are there.

The greatest danger to Ireland from the Minister's approach is that we continue to have, after this decision, banks that are nursing along dodgy property loans and which are starving real businesses of the capital and investment they need. Many, looking at the stream of revenue coming from the banks, would believe that those streams of revenue will be under pressure, that they will not be in a position to meet both the loan losses that are materialising and the €280 million they must pay in their preference shares each year, and that, even on fairly conservative assumptions about the prospects for the economy, they will be losing money and draining capital for the next three years.

If that bleak assessment of what is out there is realistic, which is my view, they will not be in a position to restart lending because they will remain financially too weak to do so. They will be concerned mainly with protecting their independence and the independence of the existing management and shareholders. They will be circling the wagons, trying to protect their own skin, not focusing on viable business plans and the need to make money available to business. That is a very serious situation.

We are also putting in our capital to be on an equal footing with shareholders. In the order of priority, we are moving ahead of the bondholders. We will now be at greater risk than the bondholders who have been funding the lending practices in recent years. If the picture is worse than the Minister hopes is the case, the taxpayer will be there to take a hit. The taxpayer is now moving ahead of those bondholders, which is a concern.

The Government is discussing alternatives such as the concept of a bad bank or insurance and this suggests that we are not yet at the end of the road, which undermines confidence. Fine Gael has proposed an alternative model. I discussed the matter with the Minister for Justice, Equality and Law Reform this morning. He suggested that he discussed the matter with the banks and it seems they did not like our idea. I do not care what the banks think of our idea, because its purpose is not to rescue the banks.

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