Michael Noonan (Limerick East, Fine Gael)

I hope the Minister's scheme will work. We live in a very small country. Our families and friends live here too. Without a viable banking system the economy will be in ruin. I do not believe the proposals before us will work. They are too little too late, and are too tentative in taking on the vested interests in the banks and will not restore a dynamic banking sector. The stated purpose of the proposals is to save the banks. The real objective, however, should be to save the country from the banks. They will not do this.

Bad debt is the core of these proposals. There is growing acceptance internationally that to sort out the banks requires facing the toxic assets on the banks' balance sheets. At a two-day meeting of EU finance ministers this week, with which the Minister of State would be familiar, the debate centred on the good bank-bad bank concept and the desirability of insurance schemes to protect banks from excessive bad debts. The US Government has taken the bad bank route. The UK and Dutch Governments have launched variations on the insurance scheme. A report from the European Central Bank this week advised that Governments should consider combining bad banks and asset insurance as the most cost-effective remedy for the crisis. They were addressing all eurozone banks and the wider banking system in the 26 EU states. Our Government, however, has ignored the advice of the people in Frankfurt. It has adopted a more tentative approach, and has shied away from the bad bank concept and ignored the recommendations on insurance. In a passing reference the Minister said it might be considered in the future. We do not have much time left.

The Government has ignored best international practice and the advice of the European Central Bank and has brought forward a recapitalisation proposal. It proposes to recapitalise to increase core tier one capital for each bank in the hope that this increased tier one ratio will provide the necessary bulwark against bad debts. There will be one of two results, either the Minister will be back in the House before summer with another proposal and a variation on the bad bank or insurance solution, or the banks will move to protect their jobs and assets and play around with their bad debts and not operate as active banks in the interests of the economy. If the latter happens we are at risk of having a series of Japanese type 'zombie' banks, as was the practice in the 1990s, with the economy bedded for ten years in a no-growth situation and a banking system in name that is inactive in addressing the real needs of the economy. I hope I am wrong because I intend to continue living here, as does my family, and we need a dynamic operational banking system.

Will the Minister of State confirm how much bad debt is being covered? The core tier one ratio in AIB and Bank of Ireland already covered a significant tranche of bad debts and it is not true that the cover being provided for bad debt is €7 billion. That should be added to what is already covered by the core tier one ratios. If that is correct €16 billion or €17 billion is being covered, rather than €7 billion.

It is difficult to deal with this in the short time we have. It makes a nonsense of the House. I thank the Minister of State.

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