Michael McGrath (Cork South Central, Fianna Fail)

I am pleased to have the opportunity to contribute to this Second Stage debate. We need to acknowledge the reasons our banking system is in such a sorry state and the reason an initiative on the scale and of the complexity of NAMA is required to assist the banking system in order that it may contribute to economic recovery.

Some of the factors are truly global in nature, such as the collapse of Lehman Brothers in September 2008. Those events are completely outside the control of anyone in this jurisdiction. However, the frailties of our financial institutions were merely exposed by what followed the Lehman Brothers collapse. The weaknesses were there but they were not apparent and those weaknesses were built up over a number of years, characterised by gross excessive lending, particularly to the property and construction sectors. It is clear that for many years the Irish banks were accessing cheap credit in a poorly regulated global financial system. The banks engaged in a frenzy of property-related lending and exposed the entire banking system and indeed the entire Irish economy to enormous risk which has now crystallised before us and is a risk which must be addressed.

There is no doubt that the banks became overly reliant on borrowing on the inter-bank wholesale market and moved away from the traditional system of banking whereby banks relied on the level of deposits on their books in determining their level of lending. The practices which prevailed in our banking system, coupled with the collapse of the global financial system, have resulted in the appalling vista we now face with regard to our financial system.

I wish to acknowledge the many thousands of people working in the Irish banking system, the hard-working officials, those working at the lower and middle levels in various financial institutions. They work hard and for modest pay and they are not responsible for the excesses and the gross mismanagement of the institutions which prevailed in recent years.

The blame is not solely with any single financial institution but the recent crisis has brought a particular focus on one institution, Anglo Irish Bank. In his contribution on Second Stage, the Minister for Finance referred to the shameful behaviour of some senior executives at Anglo Irish Bank.

I refer to the breakdown of the €77 billion book value of the loans which are to be transferred to NAMA. Of the €77 billion, Anglo Irish Bank accounts for €28 billion which is the highest amount among the institutions; the second highest loan amount is Allied Irish Bank at €24 billion; Bank of Ireland has a loan value of €16 billion; Educational Building Society has a loan value of €1 billion and Irish Nationwide Building Society has a loan value of €8 billion.

I refer to the article by Simon Carswell in The Irish Times entitled "The Anglo 10". He set out in clear terms the details of what happened and the consequences for the Irish taxpayer. The origins were in the unwinding of the contracts for difference arrangement between Seán Quinn and Anglo Irish Bank. This was an indirect stake of 25% of which he subsequently wished to acquire only 15% with the remaining 10% of shares threatening to flood the market, as feared by the senior executives of Anglo Irish Bank. They took action at that time to shore up the share price of the bank. It has transpired they loaned a total of €451 million to ten customers who are now known as the golden circle or the Anglo ten. Those ten individuals were loaned sums which, as of last January, stood at between €9.7 million for one individual and up to €56.5 million for another individual. The Irish Times article revealed that the ten loans totalled €392 million in January 2009.

The real scandal is that three quarters of the sum of money was borrowed on a non-recourse basis. The only security given for the loans was the shares themselves. The whole purpose of the transaction was to shore up the share price to prevent 10% of Anglo Irish Bank shares reaching the Stock Exchange with what the executives would have regarded as very serious consequences for the bank. Those shares are now worthless, given the nationalisation of Anglo Irish Bank. The bank has had to write off €308 million of that €451 million because the loans were given on a non-recourse basis with the shares themselves being the only security. By its failure to seek any other security or personal guarantees from those customers the bank was utterly reckless in its dealings. The sum of €308 million which has been written off is effectively money down the drain and is a direct hit on the Irish taxpayer. An artificial arrangement to buy shares in the bank to prevent them reaching the market is a distortion of the market and I look forward to the outcome of the investigations currently underway in that regard.

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