Kieran O'Donnell (Limerick East, Fine Gael)

I am delighted to contribute to the debate on this Labour Party motion. Everyone agrees we have major problems in our banking system. The issue at hand is how to move forward. Resolving the situation with the banks is fundamentally about getting funds flowing to small businesses and those who seek mortgages. To date, that has not happened. The next step we take will be the critical one. Above all else, we must be conscious that we are spending not our money but taxpayers' money. I am not certain the Government would be as enthusiastic as it is about NAMA if it was spending its own money.

The creation of NAMA involves buying toxic debt. We have enough land zoned for development to build 1 million residential units, or 50,000 units a year for 20 years. Some €60 billion of the €90 billion Peter Bacon and the Government have outlined as necessary to deal with the banks relates to land for development, so the bulk of the land that is zoned for residential development, but is as yet undeveloped, is tied up in debt. The Government is buying something that does not have value. If it values the asset too highly, it will cost the taxpayer a significant amount of money because there will be major losses, but if its valuation is too low, the banks will have to get funding from the State, so the taxpayer faces double jeopardy. Either way, the situation will cost the taxpayer money.

Our amendment proposes that:

...early nationalisation of the banks increases the risk that, by essentially extending the guarantee that the State will guarantee all liabilities of the banks beyond September 2010, the taxpayer will become fully responsible for the unknown, but potentially massive, banking losses that will materialise over the coming years.

The Minister of State at the Department of Finance, Deputy Mansergh, and the Minister for Finance, Deputy Brian Lenihan, said the Opposition is not coming forward with proposals, but our amendment includes a reasoned, cogent proposal that the Government should:

...work with the Regulator to conduct detailed loan by loan stress tests in the covered banks to identify the true potential scale of losses under different scenarios, to present these findings to the Oireachtas within six weeks, and, based on these findings, to carry out negotiations with all providers of capital and long-term funding to the banks on the sharing of these losses and to present the results of these negotiations to the Oireachtas within three months.

The matter is so significant that it should be brought back to the Chamber. We also propose that the Government develop in the meantime "a State-sponsored wholesale bank, funded by the European Central Bank, to provide liquidity to the banks by acquiring good assets from the covered banks and thereby underpinning new business lending and mortgage lending from existing banks".

The difference between our position and the Government's is that, unlike the Government, we believe the bondholders should share in the risks and losses. When the Government nationalised Anglo Irish Bank, the bondholders, in effect, were fully bailed out. Bonds are being traded on the international markets at prices significantly lower than their value when they were taken out with the banks. Bondholders should take a share of the loss. The taxpayer should not take the full burden.

The State-sponsored wholesale bank we propose would provide funds to the existing banks. The banks that deal with the public would go to the State-sponsored wholesale bank looking for funds to provide good loans to small businesses and those who seek mortgages. The banks would get a return in the form of a management fee for administering the loans.

We criticise Peter Bacon's analysis because he considered only two propositions - NAMA and the insurance model. Other models need to be considered. Fine Gael's fundamental point is that we want funds to flow to small businesses and those who seek mortgages. The model the Government proposes will only burden hard-pressed taxpayers with long-term debt they cannot afford. At present there is huge uncertainty, as the Minister for Finance said, and the situation is not simple. We could give the banks, say, €50 billion under NAMA, but the Government might have to recapitalise the banks again through ordinary shares. There is also concern about the levy attached to the banks at the end of the scheme, because if the banks cannot afford it, the cost will fall to the taxpayer.

I was elected to represent the people of Limerick but also to be accountable to taxpayers for their money. The scheme the Government has come up with is academic in orientation. The French equivalent to NAMA, CDR, which was established in 1995 and kept going until 2007, lost €18 billion of the €28 billion that was contributed, or 65% of the value of the assets it took over. The history of NAMA-type agencies is not good.

We must certainly consider the state of loans within the banks. A few months ago, when AIB issued its results for 2008, it stated its bad debt write-offs for 2009 would total €2.9 billion to €4 billion. Today, it stated the total would be €4.3 billion. Fianna Fáil is taking credit for AIB coming out with that figure. The three directors of AIB said they were resigning, but I note they are going up for re-election tomorrow. The Government is providing €3.5 billion of taxpayers' money and has given the bank a State guarantee scheme. Why is the Government allowing the situation to continue? The tail is wagging the dog.

The Government is losing sight of the fundamental point that we need to get funds flowing to small businesses and those who seek mortgages without burdening the taxpayer with enormous debts. We could provide €50 billion, but further recapitalisation might be required and we might need to bail out the banks at the end with an income levy. The Government is telling the international markets it will clean up the banks, yet the markets see that the banks, after the bail-out from NAMA and recapitalisation using taxpayers' money, will still have the contingency of the bank levy hanging over them, so the markets might still be unwilling to provide funds to the banks.

Our proposal is simple. The Government should leave the toxic debts with the banks, set up a wholesale bank, and allow it to access funds through the ECB. The wholesale bank will give the existing banks funds for good loans to small businesses and those who seek mortgages. The banks will get a return in the form of a management fee. As the Minister knows, the lack of access to cash is killing small businesses. I was a chartered accountant practitioner for many years before I went into politics. The key feature with small businesses is working capital. If they do not have working capital, they cannot function, but they will not getting working capital from the banks at present. In fact, it is the reverse; their overdrafts and loan facilities are being cut and all of their existing facilities are being renegotiated at higher interest rates. While the Government is considering the NAMA project, which is effectively taking over developer loans, people are asking what measures are being put in place for the small businessman or fixed rate mortgage holder who is under pressure at present.

What measures were introduced in the budget? There was a VAT scheme for second hand cars and a measure in regard to intellectual property but, apart from that, nothing was introduced. With regard to restructuring loans, why is the Government not considering a guaranteed loans scheme for small businesses? Why did the Government not set up a fund to deal with small businesses? Why did it not give a reward or incentive for small businesses to retain employees until the end of the year? All that would appear to have happened is that small businesses are coming under constant pressure.

Dr. Peter Bacon has brought out a report which suggests a structure to effectively take over all the toxic debts from the existing banks while the ordinary taxpayer, including the small business person and ordinary mortgage holder, is picking up the tab. Business people and mortgage holders are clearly cynical and sceptical, with justification, because all they see is the Government spending large sums of money on debt. If the Minister seriously considers it will get a return on these toxic debts, he is not living in the real world. There are debts of €50 billion and these assets have lost value by perhaps 50% or more. The Minister claims he will get a return when a similar project in France had losses of 65%, or €18 billion out of €28 billion. If €50 billion is the figure, there could be a loss of €25 billion to the taxpayer.

What the Minister fails to take into account is that in borrowing money on the international markets to bail out the banks, the taxpayers will ultimately end up paying higher tax taxes over the years, and they will ask why they are doing so. The model we suggest will allow time for a proper assessment of the loans for each bank. The review by the Financial Regulator should be brought back into the Houses of the Oireachtas where we are accountable for taxpayers' money. That would be done within the next six weeks and negotiations would then be carried out with the providers of capital and long-term funding, in particular the bond holders. The results should be presented to the Oireachtas within three months.

The Minister referred to Anglo Irish Bank, which is not doing business and my understanding is that it has up to €30 billion of non-performing debt. Yet, the Minister states that nationalisation has worked for Anglo Irish Bank. It should not have been nationalised because there was no justification for it. It will cost the taxpayer an unquantifiable sum because we have taken over a bank that has huge non-performing debts. We put forward a proposition at the time that Anglo Irish Bank should be wound down and should become a debt collection agency in its own right. It would not have to meet capital ratio requirements internationally and would not put taxpayers' money at risk. We have effectively nationalised a pig in a poke and it is costing the ordinary taxpayer money.

I hope this talk about the Opposition not coming forward with proposals will end. We are coming forward with practical, straightforward proposals that will work and I hope the Minister will take them on board. I hope we will get a coherent response from Government which shows it has analysed the proposal and will take it on its merits.

The key element of our proposal in terms of getting funds flowing is that the Government would establish a State-sponsored wholesale bank funded by the ECB to provide liquidity to the existing banks by acquiring good assets from the covered banks. I will explain in layman's terms how it would work. If the banks have good customers to whom they wish to extend credit, such as people wanting to buy homes, they would sell that asset to the State-sponsored wholesale bank. The bank itself would retain perhaps a 15% stake but the Government and the State-sponsored wholesale bank would have the majority stake of 85% or more. The ordinary banks - Allied Irish Banks, Bank of Ireland and the other banks - would continue to do business with the customer but, effectively, they would just manage it on behalf of the State-sponsored wholesale bank. The funds would flow because the moneys would only be given to the State-sponsored wholesale bank on the basis of providing funds to small business.

The Government has gone into the banks much deeper than it ever expected to. How does it allow a situation to continue where three directors of AIB state they will resign and yet they will go forward for reappointment tomorrow? How has a situation arisen where there is not full control over the appointment of a CEO of AIB? That CEO should come before the Joint Committee on Finance and the Public Service in terms of his or her credentials because, ultimately, the banks will get €3.5 billion of taxpayers' money in addition to the guarantees in operation up to 2010.

NAMA is an unfair burden on the taxpayer. It is ill thought out and we still do not know how the assets will be valued. If the Government was to bring back Deputy John McGuinness or any business person to examine what the Government is proposing, they would not touch it with a 40-foot pole because it is not good value for the taxpayer and it does not deal with the basic requirements of recapitalisation. What is the function of the banks from a State perspective? The function of a bank from our perspective as representatives of the people is that it should provide funds to the economy to enable it to function, and working capital to enable small business to flourish and allow first-time buyers and people moving house to access finance.

What is happening here is that the Government is putting the banks and the developers first and the taxpayer last. That cannot continue. Will the Minister take good Opposition proposals on board? I hope he will give them due consideration and use them. We are all seeking to deal with the banking crisis in the national interest.

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