Brian Lenihan Jnr (Dublin West, Fianna Fail)

Second, contrary to the impression created in certain quarters, I want to make it absolutely clear that this is not simply money being given to banks but rather an investment by the State. This is an investment that will generate strong return in the current environment. Specific conditions are also attached, including warrants that provide the State with access to the upside when the value of bank shares recovers. The measures announced by the Government include a review of credit supply, a clearing group to review credit supply issues and specific credit initiatives such as the environmental and clean energy innovation fund.

In addition, statutory codes for mortgage holders and business lending have been finalised. This will ensure that all banks operating here deal in an even-handed way with customers. The codes will ensure that consumers are treated in a reputable and respectable fashion, for example, where faced with mortgage arrears. Taken together, these initiatives will serve to stimulate credit supply and consequently economic recovery and renewal.

The recapitalisation proposals include restrictions on remuneration in the banks. The reduction of one third in overall remuneration for senior executives is a strong signal in this regard. This reduction indicates the commitment of the banks and Government now to achieving wage restraint for the benefit of the economy. The Government will not stop at this however. I have indicated that I will write to the Covered Institutions Remuneration Oversight Committee to suggest an overall cap on remuneration for executives.

In discussions with AIB and Bank of Ireland the question of the management of the banks was raised. As I have mentioned previously, the proper forum and method for effecting any management changes deemed necessary is through the annual general meetings of the banks, and this is where the State can exercise voting rights it will now hold. If the State were to intervene arbitrarily in the management structures of the banks, this would send a very unhelpful signal internationally on our approach to our institutions. It is also important to note that the terms of the recapitalisation provide that — in any event and apart from the voting rights at the annual meeting — I, as Minister, can appoint 25% of the directors, in total, to both of the banks. This representation at board level helps to ensure an appropriate State participation in the oversight of the operation of the banks.

Various options for addressing the pressures that are on the asset side of our banks' balance sheets, including the idea of a bad bank, or a legacy bank as Deputy Bruton chooses to describe it, a good bank and the option of a form of insurance of bank assets were raised and debated by Deputies today. For its part, the Government has made clear that it is conscious that in current market circumstances there is a need to bring greater certainty and transparency to the operations of important financial institutions, in particular in regard to specific asset classes currently perceived as carrying a higher than average risk. For Irish banks, in current economic circumstances, these higher risk classes relate to lending for land and development.

The Government will examine proposals for the management and reduction of risks within banks with respect to these particular exposures, having regard to international developments and work at European Central Bank and EU level. I emphasise to Deputies that I will be carrying forward this work and will produce proposals as a matter of priority. I will certainly take into account constructive proposals made on the other side of the House in that regard.

There has been comment here today and in the media regarding our regulatory system. I agree that the nature and thrust of Ireland's regulatory regime must adjust to new realities. Lessons must be learned from our own experience and from the international experience of the recent period of worldwide financial disruption. We need a regulatory regime which fosters probity. I welcome the review now being undertaken by the authority to that end. We are not alone in this process. Work has begun on forging a new model to govern the conduct of the financial sector both here and internationally. I can assure the House that Ireland will play its part within the EU and internationally in seeking to ensure that the re-design of the financial system and, in particular, of financial regulation is consistent with the objectives that underlie a strong, stable and functioning national banking system.

I believe Deputies will agree it is disappointing that questions over corporate governance practices at Anglo Irish Bank and Irish Life & Permanent are overshadowing what is a crucial step in ensuring the financial stability and future success of the Irish banking system. The transaction in question is the subject of a number of investigations, including one by the Financial Regulator and the Office of the Director of Corporate Enforcement.

The matter is, in the first instance, a prudential one and was brought to the attention of the Financial Regulator by the Department of Finance. It was one of the corporate governance concerns that resulted in the Government's decision to nationalise Anglo Irish Bank. At that stage it would not have been appropriate for the Minister for Finance to publicly disclose confidential information which was and remains the subject of an investigation by the responsible statutory authorities. The new board is reviewing all the corporate governance practices of the bank and will put in place arrangements to guide the bank in the future. The bank's annual accounts will be published in the coming weeks and will provide appropriate details on this transaction. When the annual report of Anglo Irish Bank is published I propose to publish, by way of supplement, a shareholder's statement outlining the concerns I have about the different matters that have arisen in that bank and how they will be addressed.

In conclusion, the Government is committed to protecting depositors, creditors and taxpayers in its interventions in the banking system. We are committed to ensuring that our two main banks as well as the other covered institutions can discharge effectively their role.

See this speech in context