Brian Cowen (Laois-Offaly, Fianna Fail)

-----and it is unfair to working families facing financial difficulties to continually suggest that this is the case. Of course, difficulties must be monitored and worked through, but I do not agree with the contention that was made yesterday.

There have been moves in a number of countries to remove the impact of impaired loans or other toxic assets from the balance sheets of banks so that they can more easily secure funding and, hopefully, equity investment. One of the main approaches has been what is sometimes called the "bad bank" model - although in reality it could better be called an asset management model - where a special vehicle is set up to hold damaged assets and seek to recover value.

The option that my Government has agreed on goes further as it also includes performing loans. It is projected that 36% of the assets will be land, 28% development property and 36% associated commercial loans. The estimate is that 40% of these loans are cash-flow producing. The cash flow produced will be sufficient to cover interest payments on the NAMA bonds and operating costs. Therefore, citizens will not have to pay for the running of NAMA on a day-to-day basis.

The asset management agency is the next step in ensuring that we have a banking system that is fit for purpose and can support economic recovery. NAMA will buy the land and development property loans and certain associated loans from the banks at significantly reduced prices. It will then manage these loans over time to achieve the best possible return for the taxpayer. The asset management agency 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 but stronger banks that can focus their resources on their core function of lending to Irish business.

It is important to point out yet again that the Government's decision to establish this agency was taken following expert advice from at home and abroad and before we made our decision, we listened in detail to the advice of the NTMA, the Financial Regulator, the Central Bank and our financial and legal advisers.

The Government is convinced that the asset management agency approach is the most appropriate to the Irish situation. Moreover, since the decision to establish NAMA was announced, it has received endorsements from many different quarters, including bodies such as the International Monetary Fund and the European Central Bank.

All that said, there is an understandably high level of anger and dismay among the public at the way in which some of our financial institutions have operated in recent years. People naturally look at the significant financial supports that the Government has had to put in place to address the difficulties in the banks. The Government shares this sense of dismay and disappointment and is determined that enhanced financial regulation should stamp out bad practices for good in future.

If there is one message I want the House and the citizens of this State to be absolutely clear about it is that NAMA is not designed to be or will not be permitted to operate in practice as a bailout mechanism for anybody who has operated irresponsibly. In relation to those who took out these development related loans, the agency will continue to treat them as borrowers who continue to owe the full amount of their loan. Under the Bill the agency will have a duty to maximise taxpayer returns and the Government expects the agency will use the range of powers available to it under the Bill to meet that objective. To be clear on this point, anyone whose bank loan is purchased by this agency will have to repay NAMA just as he or she would have had to repay the bank originally.

In relation to the banks, the Bill includes a risk-sharing mechanism with the banks that will protect the taxpayer from over-paying for the assets to be transferred to the agency. The Bill provides that if the agency should make a loss in any given year, it will have the option of not paying any interest or coupon payment on the debt concerned. This has the effect of encouraging the financial institution involved to work to ensure that the agency does not finish up in a loss-making position.

The Minister for Finance has dealt in detail with the valuation of the loan assets but I propose to say a few words on this important issue. Every loan will undergo a detailed assessment in accordance with the valuation methodology set out in the Bill and this method of valuation must be approved by the European Commission. The Opposition seems unable to understand, or unwilling to acknowledge, that not all loans will be paid for at a premium to market value. The Minister for Finance has repeatedly explained that some speculative land purchases will now have reverted to agricultural value and the loans on these lands are unlikely to be worth more than agricultural value even over the seven to ten years that we expect NAMA to operate. I assure the House that no premium will be paid on these loans. As I have said, the loans will be individually valued and the question of whether a premium is appropriate will be considered on a case-by-case basis.

Our preliminary aggregate estimates outlined by the Minister for Finance yesterday indicate that the asset management agency will pay €54 billion for loans with a book value of €77 billion. This represents a substantial discount and ensures that only a modest recovery in property prices is necessary for the agency to break even over time. The success of the agency is in no way dependent on a return to so-called bubble prices.

I want to tackle head on this notion being peddled by the Opposition that we are mortgaging our children's future. This is a misrepresentation of the facts and is using fear for political gain.

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