Bobby Aylward (Carlow-Kilkenny, Fianna Fail)

The convulsions and the relentless turmoil in the banking system in recent months have left everyone reeling. Confidence has been very badly eroded and people are genuinely apprehensive about their capacity to make any real progress or even to continue to subsist in these dire economic times. The ordinary man and woman in the street do not claim to comprehend the very complex nature of how banks and finance operate or what exactly has caused these grave problems. It is an extraordinary maze and events have moved at an alarming pace to compound the problems which are emerging in the economy.

However, the ordinary man and woman understand that to a very great extent money indeed makes the world go around and that there is an important co-dependence between the real economy and the financial institutions. For those who rely on a steady flow of money and credit — and that is pretty much everybody in this day and age — the continued availability of money is crucial if the economy is to function actively and productively. It is also imperative that the source of that money is reliable and is not subject to any unnecessary interruption. Clearly, when the flow of money dries up, serious inter-related problems begin to emerge. These problems escalate and feed off one another. They interact and a bad situation is compounded even further.

There is a very clear synergy between the ability to acquire money or credit and general buoyancy in the economy. The regular, uninterrupted flow of money is the lifeblood of trade and commerce, and the lifeline of industry and of business. It is the indispensable lifeblood which sustains living standards for everyone. The consumer, the farmer, the businessman, the professional, the hotelier, the tradesman and the technician all bear the brunt when money becomes scarce. It is the typical domino effect that permeates into every single facet of the economy and, as we all know, it has devastating human affects in terms of the consequences it visits on quality of life and expectations. It becomes the proverbial vicious cycle into which everyone is sucked.

Of course, we are not unique here in Ireland. We have not been insulated against the forces of the international crisis which is gripping the world at the moment. As an open economy, Ireland's position is acute in the context of exposure to the effects of the global recession. We have experienced a truly terrible confluence of events and all of these, however remote they may seem, are hurting everybody on an economic, social and human level.

While we are striving to readjust our spending priorities and as we get used to a change in our lifestyle and living standards, it is imperative the Government acts prudently and responsibly. The very stability and future of our economy is at stake and the Government is forced to take the drastic measures which are vital if we are to sustain our brittle economy and recover over time from this biting recession.

Irrespective of whether we like it, a healthy banking system is integral to our economy and we have to ensure viability and stability is restored and maintained. We all know that money has a velocity of its own. The regular availability of money and of credit lines keep that momentum going in any economy and allows it to expand and prosper. In recent months, international and domestic circumstances have conspired to hamper the ready availability of money and this, in turn, has had a very dangerous and tangible impact on all our activity and our ability to do business. Individuals and businesses alike have been unable to secure credit, loans and mortgages. All of this, in turn, creates a huge impediment to normal business and enterprise.

I am aware of numerous cases where businesses have been forced to let staff go or reduce their number of working days because customers are unable to get the necessary finance to buy products, merchandise and goods. Naturally, this in turn diminishes further the various tax receipts to the State as business is stifled and depressed. In addition, it puts an added burden on the State in terms of more social welfare payments to those who lose their jobs as a result of business inertia. Manufacturers, wholesalers and distributors cannot engage in active business and so the awful cycle continues and spirals, and does untold damage to confidence and morale. All of this has a suffocating affect on the economy and stagnation inevitably sets in unless some sort of remedial action is taken to reverse the trend.

All the banks have taken a very heavy hit in the past six months or more, and we have all suffered the consequences to a greater or lesser extent. Trade, industry and commerce were all finding it very difficult to secure credit lines and loans anywhere and this has a crippling affect which trickles throughout the entire economy. The stark reality is that the whole economy could become paralysed if money and credit dry up. This is precisely why it has been necessary to recapitalise the two major banks in this country. These two banks represent a pivotal component in this economy and each of them is of enormous strategic importance in the effective functioning of the economy.

I am fully supportive of the Government's initiative to recapitalise these banks and to inject sufficient funds into each of them to ensure they can resume lending to their customers and to business generally. I fully support the Bill before the House. It enables the Minister for Finance to utilise moneys from the National Pensions Reserve Fund and to invest that money in the two major banks, each of which is integral to the country's financial and economic activities.

Naturally, we would all much prefer if this course of action was not necessary. Needs must, however, and I believe the Government has been absolutely correct in its approach to the recapitalisation issue, and that it is the right corrective action in this very hostile climate. In essence, the Government will inject €3.5 billion into Allied Irish Banks and the Bank of Ireland and the practical effect is that it will increase the level of capital or cash reserves to absorb any future losses on loans. It is the Government's intention to use €4 billion from the National Pensions Reserve Fund, which was valued at €16.4 billion at the end of last year. As the global economy crisis continues to worsen, losses on loans are expected to spiral and institutions have been unable to source investments privately as a result of the international banking crisis. Cash injections into the banks are necessary to shore up capital in anticipation of these heavy losses.

The Government proposes to take preference shares in the banks in return for the €7 billion recapitalisation. This means the Government will be paid dividends ahead of ordinary shareholders despite all the banks having cancelled dividends to shore up capital in expectation of severe loan losses. The Government intends to charge interest of 8% on the investment. This "coupon" effectively means that the State will receive €560 million in yearly payments from the two banks in question. This represents a good return on the State's investment in the banks. In the current negative environment, the upside potential is solid and the investment is guaranteed.

I commend the Minister on his action in recapitalising the banks for the future of the economy and people of this country.

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