Michael McGrath (Cork South Central, Fianna Fail)

I welcome the opportunity to speak on this important Bill. We must recognise the integral importance to the economy of a properly functioning banking system. We cannot have economic recovery unless the banking system works for its customers and is in a position to lend credit to personal customers, to small and medium-sized enterprises and to large companies. The success or failure of this recapitalisation proposal will be measured by the extent to which it allows credit to move through the economy again. As part of the proposal, the lending capacity to small and medium-sized business is to be increased by 10% and an additional 30% capacity for lending to first-time buyers will be provided in 2009. It is one thing to provide capacity for extra lending but this does not necessarily equate with actual additional lending. I ask the Minister to ensure there is follow-through on the extension of credit to ensure the extra capacity translates into credit being extended into the market. Judging from the advertisements in the newspapers from institutions it is quite clear they are now more enthusiastic about taking in deposits than in providing credit and this has to change. It is to be hoped that this recapitalisation initiative will help to achieve that result.

I met a motor dealer recently who told me that a couple of years ago the refusal rate from car financing houses to personal loan applicants was in the region of 20% whereas now it is up to 65% to 70% refusal rate. Many of these applicants are legitimate with no bad credit history and would be in a position to meet the repayments but it is clear there has been a shift in thinking and in the practices among the institutions regarding the availability of credit. The recapitalisation of AIB and Bank of Ireland will have to result in credit being extended to our economy again so that we can work our way through the current recession.

There has been much comment as to whether €7 billion is sufficient and from reading the various articles which were provided by the research service of the Oireachtas Library it is clear there is a divergence of opinion as to whether €7 billion is sufficient and whether the entire principle will work. It is clear that the Minister has taken this decision very seriously and has consulted with the appropriate authorities such as the Central Bank and the Financial Services Regulatory Authority and has had extensive negotiations with the institutions over the past number of months resulting in the Government decision to proceed with this recapitalisation. I welcome the code of practice on business lending and mortgage arrears which is being finalised. I look forward to a more understanding attitude by the main banks towards personal customers who run into difficulties with repayment of mortgages which were secured at highly inflated values in recent years.

It is essential that confidence is restored in the banking system and this must be a national political priority. Since the outset of the global financial turbulence, the Minister and the Government have made it clear that the Government will stand behind the main financial institutions which are of systemic importance to our economy. The Minister has made it clear on many occasions, including in his speech on Second Stage, that the Government will not allow any institution of systemic importance to fail. This is an important statement from the Government and it will help to reassure investors and the markets that the Government is serious in its intentions.

Deputy Rabbitte referred to the hybrid regulation system where the Central Bank has certain functions and the regulatory authority has other functions.

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