Richard Bruton (Dublin North Central, Fine Gael)

Our idea is that one separates from within each of the banks a good bank. The good bank then purchases from the legacy bank the sound elements of the loan book, that is, the parts of the loan book that can be valued, including the mortgage book and the business book. The good bank pays a fair value, bearing in mind that those purchases will generate revenue streams for the existing banking operation. It pays a fair value but is then considered a clean bank with a clean balance sheet. That is where our capital should go.

The proposal would then leave in place a legacy bank, which would be the first in line to take a hit if it fails to recover all its money. First in line would be the shareholders and then the bondholders. It is possible that the bondholders could suffer, which may be painful. However, such people are grown up and have worked in the risk business. They invested in this activity with their eyes open. It is not the job of the taxpayer to extend the existing guarantee to cover those bondholders. The legacy bank would then have the time and the opportunity to work on the bad book and recover as much as possible from it. Of course, the State would have an involvement because it would still carry some guarantee deposits in that bank. This would allow liquidity to work down its balance sheet, but the taxpayer would not take the hit on the losses until the bondholders had taken it first. I believe that is a viable approach, which is gaining international recognition. The Germans are examining a version of this proposal.

There are arguments concerning the extent to which the State should support a legacy bank. I take the view that we should have very little support for a legacy bank other than to allow it liquidity under guarantee while it worked down its loan book. Others may hold a different view. The merit of this proposal is that we would have a clean bank capable of kick-starting the economy, from which even the legacy bank would benefit. There is a greater chance that the legacy bank would recover its assets if the economy is going again, if land values recover and if development begins again. There is a much better chance of this if there are clean banks with such capability. Even the difficult loans could be managed in an orderly way over a reasonable period of time and recover value for those who funded them. Those who recoup from such loans deserve the reward, but if they cannot it is not the taxpayers' concern to deal with the matter.

I am concerned that the proposed recapitalisation is not only putting this money into an unknown hole, the size of which we cannot estimate, but that the extent of the taxpayers guarantee is creeping beyond the line in the sand drawn last September by the Minister for Finance. It is extending to a greater group of people who should not be protected by the taxpayer.

I do not make this proposal for political gain. This is a model, the time for which is coming. Increasingly, other countries and commentators are examining this option and consider this as the only way. A policy of hoping for the best is not a good option. Unfortunately, we must anticipate the worst and create a model that is capable of handling the worst that comes our way. The model advocated by Fine Gael is more robust and capable of dealing with things getting worse than we hope. I wish to believe the Government's proposal will succeed and in no way do I wish it ill. However, I believe the Fine Gael option is better in that it protects us from circumstances which could get worse, rather than simple hoping the Government option works.

I refer to other elements of concern. We must know what the Government intends to do regarding caps on remuneration. The Minister stated he would write to someone to establish if it was possible to go beyond the 33% cut. The Minister for Finance should clearly signal that there must be cuts. The expectation is that €250,000 is sufficient remuneration while the State guarantee is in place. I am disappointed such a measure is not in place.

I am also disappointed with the weasel words in these commitments. Reference was made to a 10% increase in capacity for small business loans and a 30% increase in capacity for mortgage loans. What does this mean? Is it possible for a pool of funds to be made available, but from which nothing comes out? That would be of no benefit to anyone. We must see benchmarks. If there is a 10% pool, we must be able to see the number of applications and how many were rejected and drawn down. We must be able to see if there will be 4,000 new mortgages issued next month and the month following. These are the metrics we must be able to see. The use of vague words such as "capacity" sound as if they could allow a bank to take the position afterwards that it examined projects but took the view they were not very good. I realise the Minister intends to have a common committee examine this in a clearing house. I hope this extends not only to business loans, but to mortgages. We should be able to see that these commitments are realised. The handling of cases involving distressed loans is similar. We must be able to see monthly reports on these to have confidence in what is taking place. They should be in the public domain and available for inspection by the House.

I am disappointed at the Minister's vagueness concerning new blood in the bank. I listened to the Minister's interview this morning and I note he stated that it would be a very bad signal to send to the markets, and that if they thought the Minister for Finance could ring up and instruct a bank to get rid of its board and chief executive——

See this speech in context