Brian Lenihan Jnr (Dublin West, Fianna Fail)

Everything we do must and will be done in accordance with EU state aid rules. This Bill is the centrepiece of the Government's plan to resolve the problems that have beset our financial and credit system. Before I deal with the details of how NAMA will work, I will set out the context in which the decision to establish the agency was taken. Just under a year ago, the banks in this country were on the brink of financial collapse. The well-being of our nation and our people was under threat. The State guarantee, which was introduced overnight on 29 September 2008, pulled us back from the brink. As a result, our banks and financial institutions were again able to raise from international markets the funds they needed to ensure their customers - big or small, young or old - could go about their daily business in the knowledge that their deposits were secure. In the year and, especially, the months before the guarantee, our banks were squeezed by the severe correction and withdrawal of funding that took place in the international markets. This correction followed a period of unsustainable cheap credit and inadequate regulation of the global banking system. The failure of the Lehman Brothers international investment bank and the decline in other global financial institutions further exacerbated the position. Smaller and more open economies like the Irish economy were particularly badly affected.

Having moved away from more traditional forms of funding, with balance sheets expanding by more than 100% in a few short years, Irish banks availed more than most of cheap credit. They borrowed in the short term to fund long-term assets and extensive property-based lending. When this cheap credit dried up overnight, the Government, like most governments in the developed world, had to step in. As other countries followed our example in the use of guarantees, funding conditions became extremely difficult for Irish banks and building societies once more. Large levels of speculative property lending left the banks exposed to a property market that had passed the peak of its cycle. The property industry shuddered to a halt. Sales of houses and other property stopped and repayments of interest and capital could not be met by borrowers. International providers of funding and capital recognised the risks, cut credit lines and, in some cases, stopped dealing with financial institutions. In this weakened state, our banks started to hoard capital to protect themselves. Stress on their capital and funding positions damaged their ability to provide an essential flow of new and existing lending to the economy. To address this problem and to further stabilise the system, the Government moved to recapitalise AIB and Bank of Ireland. As details of the shameful behaviour of some senior executives in Anglo Irish Bank began to emerge, that bank was taken into State ownership to prevent it from destabilising the rest of the banking system and the economy. As we know, these events are the subject of a number of investigations, which I hope will conclude sooner rather than later. It suffices to say that the damage done by certain individuals to the reputation of this country will take some time and much hard work to repair.

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