Brian Lenihan Jnr (Dublin West, Fianna Fail)

Indeed. However, our examination of the banks has gone beyond that. Of the three largest institutions, we now wholly own one and we either have or are about to have a substantial participation in the other two. I accept that we have gone far beyond where we envisaged we would be when the guarantee was issued last September. There has been a global banking crisis and the State has intervened dramatically in the Irish banking sector. To date, no plausible alternative policy has been advocated on the other side of the House as to how we should address these issues.

It was important to intervene to protect depositors and to restore confidence in the Irish banking system by giving a guarantee for a defined period. It was also important to examine the loan portfolios and decide that a certain level of capital was required in them. In the case of one institution, it was important that we nationalise it and it is important that we set up an agency to clean the balance sheets, while protecting the interests of the taxpayers.

As Deputy Rabbitte indicated, the question of valuation is crucial in this exercise. It is we who will have to fix that valuation. It cannot be a matter of negotiation with the institutions concerned. That is why legislation will be required to back up the work of the agency. In the interim, a great deal of practical work can be done.

The stream of income from the assets and the proceeds from the eventual sale of the underlying asset or the repayment of the loan will accrue to the agency. This will be used to pay interest on the bonds issued to pay for the assets and eventually to repay these bonds.

The agency will be developed and implemented within the common EU framework detailed in the European Commission guidance on the treatment of impaired assets, working closely with the European Commission to obtain prior State aid approval. By drawing on the best advice and experience available, we are committed to ensuring that this very significant measure will be an example of best practice and meets all of the objectives that the Government has set for it. We have always been guided by the need to protect the taxpayer. This will also be the case in the implementation of the National Asset Management Agency. In developing its actions and supports to date, the Government has earned an appropriate return from the banking system.

The charge for the guarantee will realise a fee income of around €1 billion over the two years of the existing scheme. The annual dividend on the €7 billion preference shares will be 8% which will return €560 million in a full year to the National Pensions Reserve Fund. Furthermore, if the preference shares are not redeemed within five years, they will subsequently be redeemed at 125% of par value. The preference shares also have warrants attached, giving the State an option to buy shares in five years at a predetermined price thus providing it with the potential for a significant return. Given the recent rise in bank shares, the State already appears to be capable of making such a return on the warrants associated with the capitalisation. In addition, the Government's recapitalisation proposals include various measures on credit supply and requirements on the banks to deal in an appropriate manner with their customers.

Stabilising the banking situation is necessary but in itself it will not be sufficient to restore the economy to its previous health. We must address the issue of the public finances and the wider issue of competitiveness. The actions which have been taken in order to stabilise the public finances have ensured that the general Government deficit does not exceed 10.75% of GDP in 2009. That is a rowing back from a figure of 15%. It is still at a high level but it is the most appropriate target for the year, given the current conditions in the Irish economy.

The recent supplementary budget sets out a medium term plan and this strategy has received the backing of the EU Commission. These difficult measures are necessary to protect the future growth of the country. In taking these decisive steps the Government has taken into account not just short term needs, but the fact that the measures introduced this year and over the coming years are of fundamental importance to the future of the country.

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