Michael McGrath (Cork South Central, Fianna Fail)

The people responsible for those transactions must be held accountable. This is not the only matter at Anglo Irish Bank which is the subject of such investigations. The concealment of directors' loans over a number of years is an extremely serious matter which relates in particular to the former chief executive of Anglo Irish Bank, Mr. Seán FitzPatrick. These loans were not reported for many years, were deliberately concealed from the market and had a distorting effect as a result.

A third aspect currently the subject of investigation relates to the lodgment of up to €7.5 billion from Irish Life and Permanent to Anglo Irish Bank, the sole purpose of which was to massage and distort the picture at Anglo Irish Bank at the end of its financial year. There can be no more serious abuse or distortion of the market than these transactions. The sole purpose of that transaction appeared to be to improve the appearance of Anglo Irish Bank's balance sheet.

As a result, the State has nationalised the bank and has had subsequently to inject €4 billion to keep Anglo Irish Bank afloat. This is money we will certainly never see again. There is no question but that AIB and Bank of Ireland can and will recover but only a hopeless optimist would believe that Anglo can recover, such is the legacy of damage from its former executives. Deputies from across the floor of the House will argue that the bank should be allowed go under and the losses should be crystallised as being a better outcome for the State. This would not be the case. That option was examined but the result for the taxpayer would have been far more devastating than investing that €4 billion, even with the prospect of having to invest further moneys in Anglo Irish Bank which now seems to be avoidable. There has to be accountability. Justice must be done and must be seen to be done in respect of those who managed Anglo Irish Bank in particular in such a reckless manner. Shoddy practices and reckless lending were not the sole preserve of Anglo Irish Bank but based on the information in the public domain, the lowest standards in financial institutions applied in Anglo Irish Bank. It would be timely for the Director of Corporate Enforcement, Mr. Paul Appleby, to make a statement outlining the progress he has made on the investigation into these transactions at Anglo Irish Bank. Last February, officers attached to the Garda fraud squad entered the bank's premises and seized certain documents but there has been no update since then. The public are furious to see those who were responsible for bringing the bank to its knees swanning around and seemingly immune from the justice system. This issue must be dealt with if we are to have any prospect of restoring public confidence in the banking system. I call on the Director of Corporate Enforcement to make a statement, even if only in general terms, about the progress to date of the investigations into Anglo Irish Bank.

Since September 2008 the actions taken by Government have worked well. The guarantee scheme was introduced in September 2008. This helped to stabilise the banking system and the banks are now beginning to raise funds on the international markets independently of that guarantee. This is the first important step in a gradual process of the banks removing themselves from sole reliance on the State guarantee as a means of accessing credit. The State will receive €1 billion from the banks further to the guarantee scheme. None of the Irish banks has defaulted on any repayments and the guarantee has not been invoked in that respect. AIB and Bank of Ireland have also been recapitalised and the State is receiving €560 million per annum on foot of the recapitalisation of those institutions in respect of the 25% warrants the State has taken. The State has made significant gains from those warrants because of the increase in the share price since that time.

It is important to point out that none of this has been painless for the banks either. The share prices of the main banks have effectively collapsed despite a small recovery in recent times. In addition, subordinated bondholders have also been hit with a large amount of subordinated debt bought back by the banks in recent months at a significant discount. The outcome of these transactions was a loss representing approximately €4 billion to those bondholders and a material contribution to the capital required for the institutions that would otherwise have had to come from the State and, by extension, the taxpayer.

There is no easy way of dealing with this crisis, no panacea and no painless solution. We must identify what is regarded as the best solution, move on and implement it as quickly as possible because the reality is we must get funding flowing through the banking system again. It is an essential component of economic recovery and it cannot happen quickly enough.

The Minister took a very positive step in publishing the draft Bill at the end of July. It allowed a robust public and political debate in August and September, prior to the resumption of the Dáil, and I believe we will end up with a better NAMA Bill at the end of this process as a result. The Minister appeared before the Joint Committee on Finance and the Public Service at the end of August to go through the Bill. Since the Bill was published the cost of borrowing for Ireland vis-À-vis Germany, regarded as the benchmark country, has narrowed in recent months, which is welcome. We could have endless academic and political debate and we should debate the matter at length given the seriousness of the issue but we also need action and we must move ahead with whatever agreed solution is to be put in place. There is a direct contradiction in complaining about businesses having a lack of credit on the one hand and criticising the Government for bailing out the banks on the other hand. Without support for the banking system those businesses have no prospect of accessing new streams of credit.

From the outset and the publication of the draft Bill the Minister for Finance has stated he is open to constructive amendments relating to the Bill put forward by the House on Committee Stage, which is welcome.

The fundamental issue to which we must face up is the overhang of property related loans. The banks are not confronting this problem in a meaningful and serious way. They have allowed the overhang of those loans to remain on their books and, as a result, are unable to lend to the real economy or to give businesses access to credit which they so earnestly crave. NAMA is not a bailout for bankers and builders. If people wish to portray it as a bailout, then it is a bailout of our banking system which is necessary and essential and I would defend that in any debate because of the importance of the issue.

There is risk inherent in NAMA. There is no risk-free solution to resolving the difficulties in our banking system. Much has been said about the risk of proceeding with NAMA but very little has been said about the risk of doing absolutely nothing, the risk of allowing the banking system to continue to be paralysed by the overhang of these property related loans. It is in the collective interest of all sides of the House to have a banking system that functions normally. There has been severe criticism of the banks for not lending to businesses in recent times. However, the banks simply do not have the money to lend. This is borne out by the facts. Everyone will have seen the vast amount of money banks have spent on advertising deposit accounts and savings products in recent months in an effort to rebuild their balance sheets, because they do not have access to credit and are unable to pass on credit to the real economy and to the businesses which so badly need it.

NAMA will represent an injection of funding into the banking system. It is structured in such a way that the banks will be able to bring the bonds to the ECB and cash them in at 0.5% above the ECB base rate, representing a real stimulus to the economy. Each loan purchased by NAMA from the banks will be valued individually and it is important to recognise this. I welcome the fact that the levy, which is the final safeguard in the event of NAMA making a loss over the course of its lifetime, will be imposed on the financial institutions to recoup any loss to the taxpayer. Such a levy will now be built into the legislation, an important safeguard.

Much of the public debate has been characterised by a choice between either NAMA or nationalisation. In reality they are not mutually exclusive because the nationalisation of the banks would not in itself solve anything. An asset management agency vehicle would still have to be established to clean the banking system of all the toxic loans. The ECB, on which we rely so heavily, is not in favour of full nationalisation of the banking system. In such an event the existing shareholders would have to be compensated by taxpayers too. Many experts have predicted that full nationalisation would result in Ireland's sovereign credit rating being downgraded and would increase the cost of servicing the national debt. Another proposal from the other side of the House related to defaulting on bondholders. That is simply not an option either because many of the bondholders are pension funds or investment managers and credit unions invest in bonds and so forth. Defaulting on these is not an option either nor is it painless or risk-free.

To varying degrees the IMF, the ECB and the European Commission have all supported the NAMA type approach the Government intends to pursue. I am not suggesting the Bill cannot be improved because I believe it will be improved in the coming weeks and the Minister is open to amendments which will improve the Bill. I also believe if Second Stage is passed tomorrow, it is the responsibility of every Member to seek to refine the Bill to improve it and to safeguard the taxpayer in every way possible. There are risk sharing mechanisms built into the scheme. Much of the public debate has centred on the issue of the premium being paid for the loans. This is associated with the long-term economic value, the €7 billion premium or uplift. The State has warrants equating to 25% of AIB and Bank of Ireland. We fully own Anglo Irish Bank and the building societies are mutual societies and it is certain we will end up investing further equity into the two principal institutions as well.

In effect, €4 billion of the €7 billion premium is covered through State ownership and control. The State is on both sides of the transaction to the extent of €4 billion from the €7 billion. Subordinated bonds are being issued to the tune of €2.7 billion, bringing the total to €6.7 billion of the total of €7 billion. We have the final safeguard related to the levy which will be in the final statute once approved by the House. The Minister has negotiated a very good deal with the ECB, related to the facility for cashing in these bonds at the base rate, currently at 1%, plus 0.5%. If the process is managed correctly on a cash flow basis the income received from the performing loans will more than pay the interest on the bonds. Over time, the proceeds from the loan repayments and the sale of the underlying assets will fund the repayments of the bonds in full.

Another key issue raised is whether the funding in the amount of €54 billion will be lent on by the banks. There will be a real commercial incentive for the banks to put that money to work. If they merely hold on to the bonds they will receive 1.5% interest from NAMA but if they cash in the bonds they can put the money to work, lend it out at interest rates of a multiple of the 1.5% they would receive in the event of not putting the money to work. It would be helpful in the interests of public confidence to put a clause into the legislation to ensure that money is lent on.

My final point is related to the area of Oireachtas oversight, which we all agree is fundamentally important. There are several relevant provisions in the Bill including section 52, relating to the annual accounts; section 53, relating to the biannual report; section 55, relating to the audit of the accounts by the Comptroller and Auditor General; section 56, which states the chief executive and the chairman will be accountable to the Committee of Public Accounts in respect of the audited accounts; and sections 218 and 219, which relate to the review of NAMA's progress. It is essential that the chairperson and chief executive officer of NAMA should be brought before the appropriate Oireachtas committee at regular intervals, not just to discuss the accounts, which will only tell us so much, but also to discuss the progress NAMA is making towards achieving the objectives set out in this legislation. If that requires an amendment, and I believe it may, then it should be done.

Clearly, lessons must be learned following all of this. There are lessons for bankers, regulators, politicians, developers and consumers. As a member of the Select Committee on Finance and the Public Service, I look forward to discussing the Bill on Committee Stage.

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