Frank Fahey (Galway West, Fianna Fail)

Listening to Deputy Shatter reminds me that the shock tactic approach being adopted by Fine Gael, and exemplified by Deputy Shatter's call for everybody to be run out of the banking system, will not solve any problem. While there is certainly need for reform and for changes at many levels in the banking system, it is important that we adopt a responsible and reasonable approach, which is exactly what the Minister for Finance has done.

In today's announcement the Minister will address the issue of the international markets and Ireland's banks' capital levels and he will also address the significant and urgent needs of this economy in regard to our two main financial institutions.

He has been criticised for taking time since December to announce this recapitalisation programme. If one looks at the experience of the British Government and the British Treasury, one will see that they have made fundamental and far-reaching mistakes in the way in which they put approximately £60 billion into the banks without much consideration of the impact of doing so. I am informed by Irish people who are doing significant business in Britain that it is much more difficult to get credit from the banking system in London than from that in this country.

The Minister for Finance carefully dealt with this issue and considered the situation following much discussion with the two banks involved. He has now come up with a package that I believe will be successful. It will give a core tier one capital ratio of 8.5% to AIB and 9% to Bank of Ireland.

On the issue raised by Deputy Shatter where Bank of Ireland's present possible liability is €3.8 billion and may rise to €6 billion by March 2011, that is the reality for every banking institution around the globe. Obviously, it will depend on the economic situation that exists over the next number of years. The one major difficulty for this country and for the Department of Finance, just like all its counterparts, is that probably for the first time in modern history nobody can say what is coming down the track in terms of the global economic outlook. Therefore, if matters continue as in the recent past we shall see an increase in the value of loans and so on.

If any of us had to sell our house today, we would surely do much worse than if we could hold on for a number of years until the economy begins to lift. I do not believe it is fair to simply make the comment that Deputy Shatter has made. We can get through this economic recession if we act responsibly and, as the Taoiseach has said, have confidence in ourselves to work our way through this difficulty.

I must take issue with one or two matters regarding the banks. What is emerging in terms of deposits between institutions is deplorable. That gives a very bad image of Ireland on the international markets and as the Minister said this morning, there is need for significant improvement in our regulatory regime. This type of activity cannot continue. The approach taken by the two major banks to businesses is very difficult to understand. I met four of Galway's leading business people last Sunday, at their request. These would be very successful businesses with significant asset backing. They wanted me to tell the Minister of Finance, which I have, that it is impossible for them to continue to work because Allied Irish Banks and Bank of Ireland have refused to give them any kind of working capital, notwithstanding the fact that it would be fully secure. This means that those companies will be forced to make many hundreds of people redundant in the coming weeks if there is not a change in attitude by the banks.

It will be very difficult to understand after today's recapitalisation if these two main banks are not in a position to provide the working capital required for successful small businesses throughout the country. I met a person in the construction industry recently who had a signed contract with the State for a major development, for 20 years of rent. That person was refused by one of these two institutions for the capital needed to build the office accommodation. Surely that makes no sense.

I know another instance of a builder who has won the contract to build an IDA Ireland factory in the Dublin area. The IDA brought in an American multinational and the leasing is agreed, with significant rents to be paid over the years of the agreement. Again, the banks have refused that company the capital required to build the factory. That makes no sense. We must immediately see the Irish banking system make money available, as promised by the Minister, to successful businesses, where there is no question of risk.

From my conversations with bank managers I am aware they are concerned about the risks involved with companies that are continuing to have serious trading difficulties in the present recession. It is clear, however, that many successful and viable small companies with significant asset backing are not being given the essential working capital they need to continue in business and maintain employment.

With regard to the decision to insist that banks provide mortgages, particularly for first-time buyers, when I mentioned to first-time buyers in Galway that as of today, they can borrow €200,000 and that the repayment per month, after taking the significant tax-free allowances announced in the budget into account, is €699, most of them said it could not be that low. That is what it is, without taking into account the expected 0.5% fall in the ECB interest rate in the next couple of weeks. A person can buy a first-time house or apartment for €220,000 or €230,000 and repay €699 a month. One cannot rent a property for less than that. I believe that the present housing overhang can be dealt with if people have the courage to buy.

Where a person buys a unit in a development, the builder should be prepared to guarantee that in the event of his or her selling a similar unit at a lower price, that reduction will be passed on to the first buyer. I hope the CIF and the construction sector generally adopts that proposal. The only thing holding people back at present is the fear that prices will drop further. In Galway, certainly, I do not believe that prices can drop much further. If we can have a guarantee from builders that in the event of a drop, people buying over the next few weeks will receive that benefit, then many people will buy.

I believe the present overhang will be dealt with relatively quickly. I ran a seminar in Galway recently at which almost 300 people attended to hear about the first choice mortgage. Now the banks are telling people who look for a letter for the first choice mortgage not to bother, assuring them they will be looked after. The situation is changing. We shall now see development, but it is essential that the banks go back to the type of approach that was taken formerly. They should offer up to a 92% of a mortgage to first-time buyers who have the capacity to repay. In saying this I do not suggest that those who do not have that capacity should be offered a mortgage.

Deputy Seán Barrett referred to the responsible role of Opposition. It is essential that the Opposition play such a role in this crisis. I firmly believe the electorate will be much more supportive of an Opposition which takes that approach——

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