Brian Lenihan Jnr (Dublin West, Fianna Fail)

It is important to remember that the Government's support for our banks has not been unconditional. Financial benefits have accrued to the State from the fees related to the guarantee, which will amount to €1 billion. The State also holds warrants for a 25% shareholding in AIB and Bank of Ireland, which have gained significant value since the investment. Operational restrictions have been imposed on the banks. Executive pay has been limited. New rules have been imposed on the banks in their dealings with business customers and residential mortgage holders. Nor has State support saved the banks from losses in this crisis. Shareholders, many of them ordinary citizens saving for their future, have suffered from enormous falls in share values and banks have taken large losses on their loan books. Subordinated bondholders have also been hit, with a large amount of subordinated debt being bought back by the banks in recent months at a significant discount. The outcome of these transactions was a loss representing approximately €4 billion to these bondholders and a material contribution to the capital required for the institutions.

I want to reiterate that in all our actions over the past year, our sole concern has been the best interests of the wider economy. The simple fact is that credit remains the lifeblood of any economy. It allows businesses to source funding for productive developments and to foster creativity and innovation so that we can become a more competitive, export-orientated economy. It allows individuals to access mortgage funding and finance the purchase of consumer goods. The only way to restore the flow of credit is through a cleaned up banking system.

That is precisely why the Government has decided to set up the National Asset Management Agency. NAMA will facilitate the speedy removal of higher risk property related assets which are clogging up the banks' balance sheets and greatly hampering their ability to lend to creditworthy individuals and households and thereby support economic activity. This general approach to dealing with distressed assets has been supported and recommended by banking experts across the globe. The model has been successfully implemented in a number of countries in the past where similar issues with problem loans have arisen. Countries such as Germany and the UK are also introducing asset relief schemes. Indeed, the European Commission has issued state aid guidance in this area specifically to assist member states that have chosen to take steps to establish asset relief schemes. International agencies such as the IMF and the ECB have commented favourably on the approach. In other words, this is a proven policy response which has been successful elsewhere and will be successful in Ireland.

As we rebuild our banking infrastructure we must reform our oversight mechanisms so that our regulatory and supervisory system ensures we have a banking system that is fit for purpose, supports economic recovery and will prevent the economy from being undermined by rogue and undisciplined actions within the sector.

Turning to how NAMA will operate, individual institutions must apply and be accepted as participating institutions. The Bill includes fair and objective criteria for the selection of the institutions that would participate in NAMA consistent with the EU state aid guidelines. As I made clear at the discussion with the Joint Committee on Finance and the Public Service on the draft National Asset Management Agency Bill on 31 August, under the legislation any credit institution in Ireland can apply for participation in NAMA and each application will be assessed strictly in an objective and non-discriminatory manner in accordance with the statutory criteria included in the Bill and EU state aid requirements. With this in mind, I will be proposing a Committee Stage amendment to section 60 of the Bill to increase from 30 to 60 days the period of time that credit institutions have to apply for designation as participating institutions in NAMA to facilitate the application process.

The figures I am presenting today relate to five institutions, namely, Allied Irish Banks, Anglo Irish Bank, Bank of Ireland, EBS and Irish Nationwide Building Society. These are the institutions in which we have had the opportunity over the past year to carry out the necessary due diligence, analysis and stress testing. The agency will buy the land and development property loans and certain associated loans from the banks at prices well under the current book value. It will then manage these loans over time to achieve the best possible financial return for the taxpayer. NAMA will start with the largest systemic exposures across the institutions and it is expected that by the middle of next year most of the loans will be transferred. NAMA will leave behind smaller, cleaner and better funded banks that can focus their resources on their core function of lending to the productive economy.

It is likely that some institutions will require additional capital in order to absorb the losses arising from the transfer of their impaired assets to NAMA and in order to maintain appropriate levels of capital. I want to make it clear that the Government would expect such an institution to explore all available options for raising such capital. It is the Government's preference that private market solutions are found and implemented. The banks and building societies will be expected to increase the equity component of their capital base as the NAMA asset transfers are implemented. To the extent that sufficient capital cannot be raised independently or generated internally, the Government remains committed to providing such banks and building societies with an appropriate level of capital to continue to meet their requirements. This will be done in a manner consistent with EU state aid rules and the credit needs of the Irish economy. Any recapitalisation of a credit institution in such circumstances must be followed by restructuring in a manner which complies with EU state aid requirements. Not only is this a bare EU requirement, it is essential that restructuring takes place side by side with capital investment.

It is expected that NAMA will purchase loans with a book value of approximately €77 billion. The approximate breakdown is as follows: Allied Irish Banks, €24 billion; Anglo Irish Bank, €28 billion-----

See this speech in context