Michael McGrath (Cork South Central, Fianna Fail)

I welcome the opportunity to contribute to the debate. Everyone in the House accepts there is a need for a properly functioning banking system which meets the needs of the economy. We also accept that resolving the current issues in the banking system is a prerequisite to economic recovery taking root. However, we seem to differ in the best way to achieve that goal.

The backdrop to the motion is an unprecedented crisis in the global banking system. However, there is nothing in the motion dealing with the substantive problems in the banking system, that is, the overhang of property related loans and the need for major capital injections into the banks. The motion does not address these issues because it would be politically unpopular for the Labour Party to do so.

Recently, I heard the leader of the Labour Party on local radio in Cork during a visit. He put out the simplistic, populist and misleading line that Fianna Fáil had plundered people's pockets to bail out the banks and the developers. We have heard variations of this line from various Labour Party spokespersons in recent weeks as part of a clear communications strategy designed to damage the Government. The reality is that when the banking system was on brink of catastrophe last September, it was the Government, supported by Fine Gael and Sinn Féin, which had the courage to address the imminent danger. The Labour Party took the easy option at the time and said "No." A collapse of our banking system would have brought down the whole economy. Although the situation seems to be bad, it would have been a good deal worse if the banking system had been allowed to implode. Does the Labour Party really believe the top bankers wanted to come on bended knee with cap in hand to the Taoiseach and the Minister for Finance last September and put themselves and their colleagues at the mercy of the Government for many years to come? No, they did not. They came to the Taoiseach and the Minister for Finance because they had to. They had no choice and were facing an urgent and immediate crisis. It is because of the decision we took to guarantee the banks that no Irish banking institution has collapsed, unlike developments in many developed economies throughout the world.

I wish to address the second populist suggestion consistently made by the Labour Party, that is, that we are in some way bailing out the developers. The next contributor from the Labour Party should explain the allegation and charges made. The impression is being created that developers will in some way have loans written off, which is simply not the case. Developers are not being bailed out by the NAMA proposal. In fact, developers are fearful of NAMA because it will force them to face up to their loans. They will either have to repay their loans in full to NAMA or face the possibility of having the underlying security provided for the loan seized by the agency and put to use by the State.

To date, the banks have largely taken a softly, softly approach towards large-scale developers with sizeable loans. They have allowed interest to roll forward to avoid having to crystalise very substantial losses on the property loans on their books. The NAMA approach will address that issue comprehensively. If this were such a good deal for developers, why were there media reports last weekend of meetings between property developers to co-ordinate their strategy to oppose the NAMA proposal? There were also comments from the Construction Industry Federation expressing its concerns about the NAMA plan.

The bad loans are paralysing the banking system and must be dealt with quickly. They are clogging up the banking system and need to be removed to an asset management company as a matter of priority. The Government announcement of the establishment of NAMA has forced the hand of the banks. Yesterday, there was an announcement by Allied Irish Banks that it had increased its bad debt write-off this year to €4.3 billion. That increase is a direct result of the Government forcing the banks' hand, putting pressure on them to face up to these loans and not allowing the bad debts to continue to sit on the books and clog up the banking system.

Nationalisation of the banks would do nothing to deal with these impaired assets and would not address the funding issue in the banks. Deputy Gilmore called for the immediate nationalisation and cleaning up of the banks. Presumably, he was referring to the need for the banks to face up to the bad property loans and write them off. However, if this were done without recapitalising the banks, the capital base of the main Irish banks would be absolutely wiped out. To suggest otherwise is to blatantly mislead the people. At least, Deputy Gilmore had the honesty to admit tonight that the Labour Party motion would result in very significant State investment in the banking system. He should go further and quantify the extent to which immediate, temporary nationalisation, without recapitalisation, would result in State investment in the banks. That point should be clarified.

The Minister for Finance has shown real courage in dealing with the banking crisis. He averted immediate danger by guaranteeing customer deposits and certain bank liabilities last September, recapitalising Allied Irish Banks and Bank of Ireland, nationalising Anglo Irish Bank when its practices had sapped the confidence of the markets and it clearly required immediate nationalisation, and announcing the establishment of the National Asset Management Agency to clean up the balance sheets of the banks. The call for temporary nationalisation shows no regard for the implications for existing shareholders, including institutional investors and pension funds, and does not take into consideration the devastating signal such a move would send to the international markets.

We all recognise that the banks engaged in excessive lending, that they over-extended themselves during the Celtic tiger years and that they recklessly exposed themselves to the property market. It is also clear the regulatory system for banking must be overhauled. In this regard, I welcome the Government's move to establish a central banking commission such that the prudential regulation of the banking system can be properly controlled. Is is clear the relationship between the behaviour of individual banks and consequent implications for the wider economy must be at the centre of the new regulatory system.

Catchy one-liners will not resolve the issues in the banking system. Clear and decisive action by the Government will ensure a banking system which serves the needs of the economy. That is why the priority of the House should be to immediately move to set up the National Asset Management Agency and deal with the legislation as soon as it is introduced in the House. The establishment of NAMA will result in a level of write-offs and the principal Irish banks will require further capital injections by the State in the form of ordinary share capital. The Government has indicated its willingness to meet that need. It is true the State may become the majority shareholder in such banks. However, it is important that these banks remain market based, subject to the full rigours of the Irish Stock Exchange and open to the eyes of the international markets.

The valuation of assets purchased by NAMA from the banks will be critical and should be handled professionally by independent valuers with checks and controls in place. We all wish to see credit flowing again in the economy such that it is accessible to small, medium and large Irish businesses. That is not the case at present. Temporary nationalisation of the banks without addressing the issue of bad property loans or the need to recapitalise the banks will simply not fulfil that function or achieve our shared objective.

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