Tony Killeen (Clare, Fianna Fail)

I am grateful to the Deputy for trying to help me with an extraneous matter.

Another question people frequently ask is how it is possible to invest money in the banks at a time when investment must be cut in many other areas, including services and so on. Gradually, as the debate has advanced, people have come to realise that while all elements of an economy are interconnected, the provisions being made in the NAMA legislation, specifically to rescue the banking sector and to ensure we have a working banking system, are being done through a system which operates independently of the national finances. The figures put forward by the Minister for Finance last week show very clearly that NAMA is so designed not to be a burden in that regard. The question of dealing with services and the national finances is a somewhat separate one and is also very difficult to address.

It is frequently believed, and not adverted to, that bondholders, for example, suffered no losses in the banking crisis in Ireland up to now. The reality, which may have been pointed out by the Minister, is that they have lost in excess of €4 billion in very recent times. They put their money in and there was some risk. Ultimately, if the Irish banking sector was seen as a complete basket case which could not be depended on, it would be impossible for the banks to attract any kind of finances and bondholders and others who normally lend to the banks would not be prepared to do so. That is why it is very important at this point that the banking sector is put back on a strong footing.

Bank shareholders, many of whom purchased their shares for €20 or, in some cases, the high twenties, found them dropping in value to less than €1. Shares in the two main banks are now worth approximately €2. It is tempting to say shareholders had much spare cash lying around, that they were taking a punt and that was the risk they took. Anybody who saw the coverage of the annual general meetings of the main banks cannot but have noticed that the vast majority of shareholders attending were elderly people who had worked hard all their lives and who had put a certain amount of money into bank shares in the belief that their pensions or, in some instances, a top-up for their pensions would come from that source. The distress caused to those people was certainly very evident.

Some of the bondholders investing in banks in Ireland are pension funds, including non-Irish pensions, although many are Irish pension funds. That has had the same impact on elderly people. Therefore, some of what has been represented in regard to the losers in the banking sector is entirely inaccurate and quite unhelpful in terms of trying to address the situation.

It is important the banking sector is able to operate in such a manner that it is capable of lending to business and of generating jobs and activity in the market. There are some signs of green shoots in the US economy and there are certainly modest signs of recovery in at least two European economies. There are pretty encouraging signs in regard to Irish export figures. What we tend to forget in regard to export figures is that regardless of how high a standard to which one may produce one's goods and services, one needs a market into which to sell them and it must be able to pay for them. When economic depression and difficulties are being experienced pretty much worldwide, it is very difficult to do that and competitiveness and other issues come into play. However, there are some positive indicators. A functioning banking sector is vital to ensure we can build on the fairly encouraging export figures.

It is important to consider the fact the International Monetary Fund and the European Central Bank support the NAMA plan because if they did not, this legislation could not be considered since most of the borrowing required to sustain the banks over the next ten years or so will come from the European Central Bank. In the run up to the referendum on the Lisbon treaty on 2 October, it is important to remember the ECB is supporting Ireland in its time of need. There is no doubt that the European Union has been good for Ireland in terms of access to markets and so on. In a time of difficulty in the economy, it must be acknowledged that the ECB is playing a very central role.

One of the interesting developments of recent months, even in advance of this legislation, was the response of the market to the willingness of the Government to address the difficulties and the drop of 1.5% in the cost of ten year State borrowing, which is very significant in terms of the kind of challenges we face.

There is no doubt that the drop in receipts from taxation from approximately €60 billion per annum to approximately €33 billion or €34 billion will have to be bridged, to a very large extent, by additional borrowing. It is important we can access that borrowing and get it at the best rate possible.

We need to reflect on the fact that cheap credit and inadequate regulation were global factors, as was very clearly shown by the collapses of Lehman Brothers. Some people ask: "Why not let several Irish banks collapse?" The collapse of a bank in the US has quite different implications from the collapse of a bank in a small open economy which must do up to 90% of its business abroad. The kind of message that would send would be devastating for the Irish economy - even if a bank like Anglo Irish Bank had collapsed. Many of us deep in our hearts would have liked to have seen that outcome but we knew it was not feasible and that interventions had to be made to ensure it did not.

The income stream to banks dried up and they were no longer able to lend or function. That has been a common occurrence pretty much across the western world. Simultaneously, property values inevitably collapsed. Even if there were willing purchasers, which there were in some instances, they were unable to access finance.

I referred to competitiveness. A substantial element of competitiveness is the capacity to access bank lending and the cost at which it is available. This element of doing business is very important and can only operate when there is a functioning banking system.

One element of the Government bank guarantee scheme introduced in September 2008 that was overlooked by many including the media was the charge in excess of €1 billion on the banks for the guarantee. At the time the one question all Members would have encountered from constituents was whether their savings were secure. Even though it was only a year ago, that question was exercising the minds of a great many ordinary people. The bank guarantee got over that difficulty. At the time the guarantee was seen as a drastic and unusual step because it has not been introduced in other European countries. Other governments subsequently introduced similar schemes resulting in the dissipation of the inflow of funds into Irish banks which had occurred immediately after the guarantee was introduced. This is also another reason more long-term action, such as this legislation, needs to be taken.

It is important to remember that several variations of the NAMA model have worked successfully elsewhere. Variations arose because the problems to be addressed were somewhat different. In the case of Credit Lyonnais, there was a large insurance element hanging over its problems. In Sweden's case, slightly different challenges had to be faced. The basic model, however, worked successfully in all the cases. NAMA is much more than an issue of bank guarantees. It is an asset management agency which involves capitalisation and property portfolio management.

Taxation policy is often blamed for the emergence of the property bubble. The impact of taxation policy on development was modest compared with the availability of cheap credit, high wages and high rates of employment. It must be remembered that other countries had property bubbles too with similar factors involved. If any government intervened in the property market place or tried to reduce wages, it would have seen a considerable and immediate drop in employment in the construction industry. While I accept it occurred eventually, if it had happened earlier in Ireland it would have cost the country a huge amount, particularly when one considers 280,000 people were directly employed in construction.

Another question which has caused some difficulty and debate is how much should be paid for the assets in question. We have all been forced to become experts in this in a short time. Several weeks ago I saw a report from an international economist who claimed it would be better to do nothing rather than pay too little. He argued the effect of paying the notional amount at which banks are valued would in the first instance cripple the banks, leaving them unable to lend to business. Such a move would also mean the recapitalisation of the banks would become an immediate charge on the taxpayer. Such a charge could not be found from the sources from which NAMA could provide and would be a direct debit on the State at a time when it is an enormous challenge to meet the costs of public service provision.

We tend to forget the Bill contains a provision for a levy on the banks if NAMA happens to be in deficit at the end of its term . This is an important provision and I expect it to be enabled in the legislation. It will be the call of the Government of the day as to how it may happen. Confidence in the legislation is increased if there is a fund from which any losses might be recovered.

All that is required in the next ten years is an increase of approximately 10% in the current level of property values. Considering increases in the past ten years have been in excess of 250%, this is a not a large asking. It is not even a requirement that property values return to the levels they were at in 2006. If they come to within 45% of 2006 values, they will reach a sufficiently high level to enable NAMA to clear its debts. There is a reasonable expectation that property prices will do much better than that.

After the legislation is enacted, we need to follow up quickly to ensure the banks function properly and credit is made available for business. We must also ensure the regulatory shortcomings discovered are addressed for the future.

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