Seán Ardagh (Dublin South Central, Fianna Fail)

I wish to refer to two matters, in particular, first, the capital requirements of AIB and Bank of Ireland and the new form Central Bank regulation will take and, second, the unwinding of the NAMA intervention and the macro-economic consequences of NAMA.

In the supplementary information document, the green book, it is indicated that AIB has stated in its accounts that it has a provision for impairment on property and construction loans of €2.2 billion. On the basis of NAMA purchasing loans of €24 billion from AIB, and, as the Minister stated, a possible 30% discount or impairment provision, an amount of €7.2 billion would be more appropriate for the provision rather than €2.2 billion. Effectively, there is a €5 billion shortfall in the provision in the accounts as presented in the supplementary information document. That €5 billion shortfall will also impact on core tier 1 capital.

The Bank of Ireland today suggested the discount would be closer to 24% rather than 30%. On the basis of what the Minister for Finance stated yesterday, on loans totalling €16 billion, the shortfall in the provision is of the order of €3 billion. There is a need for core tier 1 capital in terms of either senior debt or equity or both. The Minister has stated there is a preference for private investment to shore up the difference, on which I agree with him. If the bank is a commercial entity and in private hands, it will operate better on the international stage and be better able to finance the amount of money it needs to be able to continue to operate effectively.

With the increase in the banks' share prices overnight, there is the possibility of a rights issue to enable existing shareholders to have an opportunity to invest in the banks. I understand the Canadian Imperial Bank of Commerce has indicated an interest in investing in one of the banks. I would welcome an external private institution investing in the banks to strengthen and bolster their balance sheets, as this is needed. However, if a private investor does not come forward and there is not an offer of a rights issue, I would envisage the State intervening. Currently, it has an option on 25% of the shares. Another significant fraction of the shares should be taken up, with any warrants they may issue, on which a high coupon should be demanded. I would prefer if the State level of participation remained less than 50% on the basis that it appears from international commentary that a bank that is state controlled tends to have less of an option on the international stage in getting other types of senior debt onto its books.

The question arises as to who is responsible for ensuring this core tier 1 capital is put in place. I congratulate and wish Professor Patrick Honohan well in his job as the Governor of the Central Bank. I have great admiration for him. It is a tough job he has taken on, particularly in the circumstances that apply.

The DIRT inquiry took place almost ten years ago and I was a member of the committee. At the time we questioned Central Bank personnel and the associated banks about the cosy arrangement between one and the other. I vividly remember a person I questioned taking umbrage at the thought that there might be a cosy arrangement between these organisations. It turned out to be a pretty good television moment. That was part of the reason in the period immediately after that people took more seriously the questions they were being asked and the tune of the people responsible in the Central Bank and the associated banks changed dramatically at that stage.

We have now the question of this new core tier one money that is needed. I expect that Professor Honohan will insist that timely action is taken by the banks to attain that level. It is his responsibility and I expect he will complete that task speedily.

There is also a need to set out a code of lending. The Taoiseach stated today that a statutory code of lending would be put in place not only for the SMEs and corporate lending, but also for mortgages. There is a need to put codes in place for consumer lending and property and commercial lending. We cannot have a system again whereby 100% loans can be given on property to first-time borrowers, especially at a time when interest rates are so low that such people will be caught in a terrible squeeze as soon as interest rates go up.

The Canadian banking system came out pretty well from the turmoil that was created, in particular by the Lehman's situation. To a great extent there was a large down payment and the loan to value ratio was at approximately 75% or lower. In hindsight, which gives 20:20 vision, it was crazy to have a loan to value ratio of 100% or higher.

The establishment of a central banking commission has been proposed. I hope we will never again be in a position where we question that commission in terms of any cosy arrangement between it and the banks. I hope it will take a fully independent stance and act above anyone's business interests and politics and only in the interests of the country.

The second matter to which I wish to refer is the unwinding of NAMA. This is the redemption of the bonds to be issued by the Government. I would like that done in a manner that will give rise to little or no economic perturbation in the course of the unwinding. That will take a number of years. The Minister has stated that it will take up to ten years, and I agree. I was looking at a report from the International Monetary Fund recently, dated 31 July this year, which includes a graph suggesting that it will take ten years. More than half of the disposals will be in the years eight to ten. We are looking at a very slow build up of the unwinding of the NAMA loans over a lengthy period of time. That is to ensure that it does not in any way disturb the prevailing economic conditions and that there is no spike in the economy as a result of that unwinding.

The other interventions by the Government in the banking sector include the guarantee, the nationalisation of Anglo Irish Bank and the recapitalisation of AIB and Bank of Ireland. It would be expected that those interventions would be unwound earlier than NAMA. In regard to the guarantees it was suggested that it would happen in September 2010 but I understand now that additional years have been added. I am not sure of the details but I expect that it will be between five and seven years in total.

I am delighted the Bank of Ireland has raised funds which do not come under the scope of the guarantee, as the Minister announced yesterday. That means the Bank of Ireland will be paying less fees to the Government for that guarantee and the other banks involved in the guarantee will over a period try to get the debt they borrowed out from under the guarantee so that the amount of fees that are paid are minimised. As far as the Government is concerned, while we are grateful for the fees that arise on account of the guarantee, we would like to see that get down to zero as quickly as possible.

I would like the Minister to set out the likely phase out programme of the four major interventions. I would also like him to set out the projected cost-benefit to the Exchequer of these interventions. Just as I mentioned the fee in regard to the guarantee, in terms of the recapitalisation we have the 8% coupon on the warrants and, as I mentioned last night, if the options were converted from preference shares to ordinary equity, even at this point in time on the basis of the market capitalisation at 5.30 p.m. yesterday I reckoned that approximately €1.3 billion would be made on the €7 billion that was put in, but that would have increased by another €0.5 billion overnight because of the increase in shares. There is significant potential gain to the Exchequer from the recapitalisation scheme. We are just wondering when that will happen.

It is incumbent on the Minister to give some indication to the public on his intentions regarding Anglo Irish Bank and whether it will remain forever as a nationalised bank or if it is the Government's intention to turn it into a good bank again and sell it off on the market. It is important that those interventions and the results of them are set out.

I acknowledge that the phase out will depend very much on the economic recovery progress in the years ahead also, in so far as when a phase out takes place will depend on how far advanced we are in the recovery process. People wish to know that there is light at the end of the tunnel. It would also help people to manage their expectations and perhaps change their mood from pessimism to optimism, from a savings mode to a spending mode, with the result of bringing forward economic recovery and creating jobs. It is important to set out the final plan to show that the Government is giving leadership. Economic circumstances will change and when they do, the basis on which the plan is predicated will change. The people are aware of that. A revised plan based on the changing circumstances should be then produced as soon as possible. It is important to set out the longer term macroeconomic situation in regard to those interventions based on the best estimate of the economic recovery over the timescale of the plan. That would redevelop trust in the Government. That is something the Government needs and is due.

I congratulate the Minister for Finance, Deputy Brian Lenihan, the Attorney General, Paul Gallagher, and all of the other people who have worked so diligently and put in so much time, effort and hours into producing a formula that will return the banking system to a situation whereby it will have a credit mechanism in place so that it will be able to develop and lend money and thus fix the banking system. With all of the interventions to date, the banking system is now fixed. We have to get on with the public finances, the Lisbon treaty and the other matters to ensure that this country is back on an even keel and is growing at a reasonable rate in the not too distant future.

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