Michael Fitzpatrick (Kildare North, Fianna Fail)

I am delighted to have the opportunity to make a brief contribution on the problems besetting our country. The collapse of the global economic economy, as well as our own domestic economic problems, have had a devastating on this country over the past 12 months or more. We have seen thousands join the dole queues, businesses going under and people's savings being wiped out.

Over the past year, the Government has undertaken a series of measures to stabilise the banking sector, including the bank guarantee scheme, which was supported by Fine Gael, the nationalisation of Anglo Irish Bank and the recapitalisation of AIB and Bank of Ireland. As fundamental as these measures have been, they have not been sufficient to relieve us of all of our serious problems. Throughout the country, businesses and households are being starved of credit, with dire consequences. Without a properly functioning banking system, our economy will not function. This is why the Government is setting up NAMA to buy loans from the banks and thereby remove uncertainty about the soundness of banks.

All of the Government's actions in the past year have been centred on the common good. The common good requires, first, a return to economic soundness — getting the public finances back in order, restoring our competitiveness and having a good banking system to serve the needs of the entire community. NAMA must ensure that credit flows again to viable businesses and households by cleaning the balance sheets of the banks. We would all like to see viable businesses receiving the required funding. Nobody is asking that non-viable businesses be funded but it is imperative that businesses which are viable but struggling should be funded.

NAMA is not a bailout for the banks or their shareholders. It is buying loans at a discount and bank shareholders will have to accept losses. NAMA is buying loans not properties. The same applies with regard to builders. Borrowers are expected to pay back the full amount and they will not be bailed out.

The debt itself will be repaid through the repayment of loans from developers and other borrowers, or through the sale of the assets securing those loans. It is intended that a levy be applied if NAMA incurs any loss over its ten to 15 year timeframe. As I have stated, this is not a bailout for developers, as some have suggested. The Minister, Deputy Brian Lenihan, has confirmed that developers who are insolvent will be liquidated and NAMA will have the full range of remedies already available to the banking system, including repossession, enforcement of mortgages, the appointment of a receiver and the liquidation of companies.

Members on the opposite side of the House have argued that the Government is going to pay the banks too much for the bad debts. In the Minister's words, the success of NAMA is not based on any assumption of a return to the recent bubble prices for property, which none of us would like to see happen. It is not correct to state we will or would want to return to the bubble prices of the past. Every single loan will be assessed on its own merits and will take into consideration that some property prices are artificially depressed because the banks are not in a position to lend to prospective buyers. The value will be based on a realistic and prudent assumption about the recovery of property prices over the next five to ten years, or perhaps a little longer, and will be subject to European Commission approval.

Some land will never be developed and will return to agricultural use. NAMA will pay agricultural prices for such land. It is only fair to note that some of these lands are not held by millionaires but by ordinary working people. In other cases, the assets are more valuable. We must remember that there is no liquidity in the banks at present. They are not lending and there is effectively no market. The introduction of NAMA will get the market working again.

In addition, bank shares have been depressed. This means that the banks have an incentive to work with NAMA to achieve a profit for the taxpayer and they do not get to share in any profits, as originally put forward by the new Governor of the Central Bank, Mr. Patrick Honohan. A number of other risk-sharing mechanisms have also been put in place to protect the taxpayer. It will be a criminal offence to lobby NAMA and the agency and the Minister will be required to report on progress to the Oireachtas.

Since the financial crisis began a year ago, the Government has made a number of decisions to stabilise the economy. We are not alone in that. A series of measures have been taken in the United States, the United Kingdom and across Europe to do likewise. The crisis has highlighted that collective action is required as we now live in a global economy. Today the Central Bank revised upwards its forecast on how the economy will fare this year. It predicted a return to modest sustainable growth by 2011. NAMA will get credit flowing again to viable businesses and households. That is key for economic recovery and for the generation of employment.

Some asset prices are artificially depressed because the banks are not in a position to lend to prospective buyers. In those circumstances, the European Commission indicated the assets should be purchased at their long-term economic value. That value will be determined on the basis of realistic and prudent assumptions about the recovery of asset prices over the next five to ten years. NAMA will not be paying prices for the loans based on recent bubble property prices. Nor will bubble property prices nor the expectations regarding future property prices that prevailed during the bubble period be used to determine the long-term economic value. The means for calculating the long-term economic value of assets will have to be approved by the European Commission so that it does not violate EU state aid rules. The banks will suffer substantial losses on the sale of assets to NAMA. The amount of losses will differ across banks. If, as a result of the transfer of assets, some banks are under-capitalised, the Government will inject the necessary capital by increasing the taxpayers' shareholding in those banks. To date, the Government has ensured that any capital injections into the banks have had a substantial return to the State.

Nationalisation of the banking system would not of itself clean up the banks' balance sheets. Anglo Irish Bank proves that point. NAMA is the best mechanism for repairing the banks' balance sheets so that they can start lending again. However, the Government is prepared to take an additional, and if necessary a controlling shareholding in the banks following the sale of assets to NAMA. Providers of funds to the Irish banks are sceptical about their land and developments loans in general. Therefore, unless that entire category of loans is cleansed from their balance sheets, irrespective of whether individual loans are performing or non-performing, the banks will not be able to attract the funds they need to support lending to the real economy.

NAMA will not overpay for the assets it buys from the banks. The price NAMA will pay for the loans will, in general, be related to the current market value of the property, adjusted to the long-term economic value in accordance with the EU framework. This price will reflect the likely return to NAMA from the assets over time. Asset prices move in cycles. Analysts believe we are nearing the bottom of the cycle, where nobody wants to sell because it maximises the loss. Everybody is waiting for the economy to recover, including the banks. However, the economy will not recover unless the banks are able to lend again to businesses and households.

The Government wants to unlock this catch-22. The banks will sell their land, development loans and associated investment property loans to NAMA at their long-term economic value in return for Government bonds. The replacing of property-related loans with Government bonds will strengthen the balance sheets of the banks and that will increase their capacity to access liquidity in the financial markets and, if necessary, from the ECB.

The management of the top 100 exposures will be taken out of the banks and will be managed directly by NAMA. What remains with the banks will be managed under close supervision by NAMA and according to strict service level agreements. NAMA also provides for a mechanism to give incentives to the banks to maximise the performance on the repayment of the loans transferred to NAMA. Some institutions are likely to require additional capital to absorb losses and maintain appropriate levels of capital following the transfer of impaired assets to NAMA. To the extent that it cannot be raised independently or generated internally, the Government remains committed to providing the institutions with an appropriate level of capital to continue to meet their requirements.

Since the financial crisis began a year ago, the sole objective of the Government's actions has been the common good. That requires, first and foremost, a return to economic growth. Economic recovery is dependent on three key factors, namely, getting the public finances back in order, restoring our competitiveness by reducing our cost base and having a healthy banking system that will serve the needs of the wider economy. NAMA will ensure that credit flows again to viable businesses and households by cleaning the balance sheets of the banks. This is essential for economic recovery and the generation of employment.

When the Minister for Finance spoke in the Dáil on 16 September last he outlined that he expects that NAMA will purchase loans with a book value of around €77 billion for approximately €54 billion. The €77 billion is broken down between the following institutions: Allied Irish Banks, Anglo Irish Bank, Bank of Ireland, the Educational Building Society and the Irish Nationwide Building Society. It is projected that 36% of the assets for which the loans were used were for the purchase of land, 28% was for development property and 36% was spent on associated commercial loans. It is estimated that 40% of those loans are cashflow producing and that those will be sufficient to cover interest payments on the NAMA bonds and operating costs.

The ECB states that NAMA is consistent with its guiding principles on asset support schemes and it is designed to comply with EU state aid rules. The ECB states that "the preservation of private ownership is preferable to nationalisation", as that should prevent the high costs of nationalisation in both the short and medium term.

Everyone is in agreement that what is required is a healthy, working banking system. The course of action the Government has taken in establishing NAMA is based on advice it has received domestically, from institutions such as the IMF, and also the example of other countries taking similar steps. We are convinced that this response will ensure the safety, stability and capacity of the Irish banking system, all of which are key to supporting our economic recovery.

NAMA has requested 300 pieces of information about each loan that it will take over. Each loan will be valued separately and the actual amount of the discount to be applied will depend on a range of factors, including the location and quality of the underlying property and other collateral. The valuation method will have to be approved by the European Commission. It is impossible to estimate the correct value of the loans to be acquired without that type of detailed knowledge and anyone suggesting otherwise is being disingenuous.

Economic recovery is dependent on three key factors. Ireland has the strength to ride out this economic downturn. The economy will be well placed to benefit from the eventual recovery in the global economy because of its open nature.

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