Brian Lenihan Jnr (Dublin West, Fianna Fail)

The Government also believes that further radical action is necessary to stabilise the banking system and ensure the supply of credit to the real economy. Cleansing and repairing the banks' balance sheets is fundamental to achieving a sustained recovery of the banking system and the sustained provision of credit for this economy. The Government has decided to bring forward measures to address the issue of asset quality in the banking system. A national asset management agency will be established on a statutory basis, under the aegis of the National Treasury Management Agency. Assets will be transferred from the banks to the new agency with the purpose of ensuring that banks have a clean bill of health, their balance sheets are strengthened and uncertainty over bad debts is reduced. This will ensure a sustained flow of credit on a commercial basis to individuals, households and businesses in the economy. The agency will have a commercial mandate and will have the central objective of maximising over time the income and capital value of the assets entrusted to it.

As it is clear that the principal uncertainties about asset quality in the Irish banking system lie in the banks' land and development loans and in the large aggregate associated exposures, these will be transferred to the agency. These assets pose the main systemic risk to the banking sector in Ireland and the most significant obstacle to the recovery and restoration of lending by credit institutions.

The agency will purchase the assets through the issue to the banks of Government bonds. This will result in a very significant increase in gross national debt, to be offset of course by the assets taken in.

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