Lucinda Creighton (Dublin South East, Fine Gael)

I am somewhat bemused by Deputy Gogarty's contribution. From listening to him one could be left with the impression that the problems facing the economy and the banking sector are somehow related to the performance of the Fine Gael and Labour parties. I am unsure how the Deputy has managed to draw those conclusions, but each to his or her own. The Deputy is entitled to his opinions. As Deputy Noonan has stated I genuinely hope the recapitalisation scheme set out in the Bill can work.

We are all aware of the significant economic challenges facing the country. In my contribution on the Private Members' motion I referred to the contraction in the economy expected this year which will be an unprecedented 5% plus. The unemployment figures for January alone show 36,500 additional people signing onto the live register. We are all acutely aware of the challenges faced by small and medium-sized business in particular. Companies are closing their doors on a daily basis with people losing their jobs and all the ensuing problems faced by families up and down the country. I hope this scheme can in some way contribute to a resolution of some of the problems in the banking sector and, by extension, in the wider economy as the two are inextricably linked.

Like my party and our finance spokesman, Deputy Bruton, I too have major reservations about the scheme. The recapitalisation scheme for Bank of Ireland and Allied Irish Banks as set out in the Bill lacks credibility to a certain degree because it has already been proven to be inadequate in other jurisdictions over the course of the past few months. One obvious failing is the very clear need which has emerged in other countries to separate bad debt from good. This is evidenced in the response of the international system, yet the Government has chosen to ignore this by failing to introduce any element which would separate good and bad debt. This is unfortunate. The US has a scheme to create bad banks and the UK and other European countries have taken a similar route because their original recapitalisation schemes failed. The European Central Bank also set out certain guidelines to governments on how to deal with this crisis and issued recommendations on the establishment of bad banks or their separation from the existing banking system. I find it remarkable that the Government has not followed any type of procedure along those lines.

The Government has adopted a much more tentative approach and arguably one that has been unsuccessful in other areas. It proposes to recapitalise by increasing the core tier 1 capital for each bank and in my view this is in the vain hope that this will provide the necessary protection against the bad debts within the banks. My fear is that taxpayers will be left dangerously exposed to these massive bad debts and overdraft and borrowing facilities will be contaminated by them. This is a concern expressed by a number of Opposition Deputies over the course of the past few weeks since the scheme was announced.

The Government should consider other options and I refer specifically to the creation of new good banks with clean balance sheets. The Minister of State may recall in the past month Deputy Bruton proposed an alternative scheme which makes quite a lot of sense, particularly in light of what has happened in other countries. I have concerns that the taxpayer is being asked to put money into banks without knowing the full scale of the bad or toxic debts and about which all of us are in the dark to some extent. I am disappointed with the Government's failure to demand full transparency and full disclosure of facts by the banks. There is a real risk the result will be to allow existing banks cover up the extent of their dodgy, very questionable property lending while continuing to starve viable, honest to goodness, genuine businesses of access to the credit which they so desperately need. New lending to small and medium-size businesses is badly needed now. This is the sector which has suffered most in recent times as a result of the bad banking practices of the past decade and more.

The Government is making a mistake in failing to look at the different model which has been proposed and which would create good banks with clean balance sheets and to which the recapitalisation would be directed and separate from the toxic debt which currently exists in the banks. This would mean creating a new bank from which existing banks would hold all the State guaranteed deposits and would then buy those parts of the loan books such as the residential mortgage and business loans and overdrafts which could be easily valued by the parent bank, either Bank of Ireland or Allied Irish Banks. This could constitute the new bank with the clean balance sheet. This is a fairly simple and understandable proposal even to those of us who are not experts in banking——

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