Brian Lenihan Jnr (Dublin West, Fianna Fail)

I move amendment No.1:

To delete all words after "Dáil Éireann" and substitute the following:

"affirms the importance of a functioning and well regulated banking system as a necessary requirement for the protection and development of the economy;

notes that the proposed wholesale nationalisation of the banking system does not address the problems of funding or bad debts in the institutions;

supports the Government's actions to stabilise and protect, in a structured and measured way, the financial system, while at the same time protecting the interests of savers and taxpayers; this approach includes:

- the provision, at a charge, of a State guarantee for deposits and other covered liabilities of the banking system up to September 2010, in order to stabilise the funding position of the banks and add a further level of protection for depositors;

- the recapitalisation of Bank of Ireland and Allied Irish Banks;

- the establishment of the national asset management agency to take over, at an appropriate write-down, the land and development and other eligible loans of the covered institutions with the objective of cleaning and strengthening the balance sheets of the banks and thereby further assist them in fulfilling their primary objective of extending credit to sound business and personal customers;

- the provision of a guarantee framework beyond September 2010 for future debt securities issuance by covered institutions with a maturity of up to five years; and

- the reform of the financial regulatory system which will place the Central Bank at the centre of financial supervision and financial stability oversight;

expresses its confidence in the Government's actions, as set out above, to stabilise and revitalise the banking system as a necessary pre-condition to tackle the economic downturn and to restore the economy to sustainable growth."

I am glad of the opportunity to address the very serious issues raised by this motion. I am also glad of the opportunity to correct some very mischievous and politically motivated rhetoric emanating from various quarters on the subject of our banks.

First, I wish to repeat that at all times in its approach to the banking crisis, the primary concern of this Government has been to stabilise and support our banking sector so that it can ensure a flow of credit into the economy which will allow business to flourish and workers to stay in their jobs. Like governments all over the world, we have intervened promptly and decisively to maintain our banking system. In the wake of the collapse of Lehmans Brothers we introduced the bank guarantee scheme and we did so in the teeth of sustained opposition from the Labour Party, which has sponsored this motion.

We have continued to support our banking system through the nationalisation of Anglo-Irish Bank, the recapitalisation of our two main banks and most recently through the proposal to establish the National Asset Management Agency. Every country in the world has had to make repeated interventions in response to this evolving banking crisis. That is what the situation has demanded. I have heard time and again Labour Party spokespersons denounce us for our repeated interventions as if there was one single piece of wizardry to deal with this most intractable crisis in the history of modern banking. I know Deputy Burton suffers from no lack of self-belief but I suggest a little self doubt in this instance would not go astray.

Nationalisation of the whole of the Irish banking system, which is what is being proposed in the motion, will not be the short-term panacea that some envisage. Wholesale nationalisation would do absolutely nothing to resolve to the banks' bad debt problems and get credit flowing again to support economic recovery and jobs. Nationalisation may change the brass plate, but it does not provide the individual institution with any additional funding or any resolution of the bad debt problems which cripple our financial institutions. While I accept that many in this House will have different political views on a question relating to banking, the Government believes that it is important, where possible, that the banking sector maintains a market presence and that it operates within market disciplines and constraints.

The Government's objective is to ensure that the lending needs of the real economy are met. A commercially focused banking system, which includes banks having a market presence, operating within market disciplines and constraints, is best equipped to achieve this aim. This is not a position held no matter what the cost, but is rather a balanced approach to the existing circumstances. Indeed, we have nationalised one of the three main financial institutions and have taken 25% public ownership in the Bank of Ireland. Tomorrow it may be the case that we will have taken 25% of Allied Irish Banks into public ownership as well, following its extraordinary general meeting. It is not a simple matter of suggesting that there is a stark contrast between the total nationalisation of the institutions concerned and the continued private ownership of them. The reality is that in the case of the three main institutions the State has already nationalised one of them, and in the case of the other two, it envisages 25% public participation in each.

I made it clear in my recent Supplementary Budget Statement that any further State capital introduced into these institutions would require the issuance of ordinary shares, which would, inevitably mean a greater degree of public participation in these financial institutions. Indeed one of the more careless features of the motion before the House is that it suggests the nationalisation of mutual building societies, which are covered institutions, and which do not require that type of approach. The Government's objective is to ensure that the lending needs of the real economy are met. A commercially focused banking system, which includes banks having a market presence, operating within market disciplines and constraints is best equipped to achieve this aim. It is not a position being held no matter what the cost, but is a balanced approach.

The Labour Party is ignoring clear international evidence that wholly wholesale nationalised banking systems serve their economies poorly. The evidence shows that compared with commercially focused banking systems, nationalised banks charge higher interest rates to businesses and households, provide less credit to the economy and discriminate against small and medium sized businesses. Higher interest rates and less credit are not what our banking system needs. Banks all over the world are struggling with damaged balance sheets, yet no country is currently adopting a policy of wholesale bank nationalisation in this banking crisis except Iceland. I presume the Labour Party does not want me to repeat the name of that country in the course of this debate. There is no immediate reason for Ireland to adopt such a policy. If Ireland was uniquely to proceed down that route it could, from an international perspective, be very damaging to its reputation and attractiveness to international investors, not only from the perspective of the provision of funding to the banking sector but from that of international investment more generally.

We have, of course, nationalised Anglo Irish Bank because of the weakening of its funding position and critically, because of the damage done to its reputation by the reprehensible actions of some of its former directors. Unlike the other covered institutions, recapitalisation alone could not have secured the viability of this bank. It is crucial to note, however, that nationalisation of Anglo Irish Bank has not meant that its funding and capital position has been any better than it would have been had it not been nationalised. The fact is that now, the burden of funding this bank rests exclusively with the State.

While the range of measures the Government has already introduced have gone a long way to supporting the banking sector and ensuring its stability, it has become clear that Ireland, like many developed countries around the world, will need further measured and appropriate action. That is why the Government decided that the asset position of the banking system must also be addressed. Accordingly, the Government decided to establish the National Asset Management Agency on a statutory basis, under the aegis of the National Treasury Management Agency.

I note press reports today that the German Government will tomorrow announce details of plans to set up asset management companies in Germany to take illiquid assets off banks' balance sheets. The German asset management agencies will share many features of the NAMA. Indeed, Ireland and the Federal Republic of Germany have a similar policy in relation to this issue and we are acting on the best advice not alone of the Central Bank and our professional advisers, but also on the advice of best international practice.

The objective of the National Asset Management Agency is to strengthen the banks' balance sheets which will considerably reduce uncertainty over bad debts and as a consequence ensure the flow of credit on a commercial basis to the real economy, to protect and grow employment while also protecting the interest of taxpayers. The potential book value of loans that will be transferred to the NAMA is in the region of €80 billion to €90 billion, although the amount paid by the agency will be considerably less than this. It is important to emphasis that the State will not take all of the risk in the acquisition of such assets. The price of the assets will have regard to current and expected market value of the relevant assets and what is sustainable for the taxpayer. In the longer term, if the agency were to fall short of recouping all of the costs, the Government intends that a levy should be applied to recoup any shortfall incurred.

Many commentators and Deputies on the other side of the House who have criticised the NAMA, have acknowledged that the crucial issue here is the valuation of the assets. I am not going to rush into devising a formula for the valuation of these assets. I shall seek the widest possible expert advice on this subject. Indeed, I would welcome the views of those on the other side of the House and commentators on the appropriate method of valuing the assets. The valuation of the assets is the most crucial decision that will have to be taken in respect of the national asset management agency. It is not a decision to be rushed into. Yes, there is urgency about cleaning up the banks' balance sheets and restoring credit to the economy, but great care must be exercised in devising the formula for the valuation of the assets.

Significant further detailed work and extensive due diligence on the loans books will be needed to ensure that the appropriate categories or portfolios of loans are transferred and that the banks are cleared of the identified riskiest loan portfolios. The riskiest identified loan category for banks in Ireland is "Land and Development" and the largest related aggregate exposures across the institutions. Entire portfolios of loans will be transferred to the agency. This will provide the banks with stronger balance sheets and considerably reduced uncertainty over bad debts.

The Government has received expert financial, economic, legal and valuation advice at every step of its measured response to the recent turbulence in the banking sector. Specialist expertise will be procured by the National Asset Management Agency in all relevant areas to ensure that the agency is established in the most efficient manner so as to safeguard the interest of the taxpayers. I want to nail the lie that this agency is some form of bail out for bankers and developers. Make no mistake, developers will continue to be required to repay their loans in full. Where borrowers have made losses, they will have to recognise and take such losses and it will certainly not be the function of the agency to go easy on them. The agency will operate on a full commercial basis and will be determined to recover monies owed to it to the fullest extent possible. We will not be deterred by legal strategies which may be adopted by some of those affected. The Government must act in the best interests of the economy as a whole.

That requires that we up-front these losses. I have heard Deputies on the other side of the House talking about zombie banks and the experience of Japan. If we want to avoid that experience we must ensure that the losses are absorbed up-front by the financial institutions so that, in the fastest possible period, they can be restored to clean balance sheets and be in a position to lend as normal banks. The degree of risk to the taxpayer bears an obvious relationship to the amount of the losses concerned.

See this speech in context