Brian Lenihan Jnr (Dublin West, Fianna Fail)

At the outset I would like to thank Deputies for their many considered and useful contributions on Second Stage. I look forward to a constructive and informed discussion on Committee Stage. In the meantime, I will respond as much as possible in the time available to the points raised by Deputies. I agree with Deputy Seán Power that, in considering the Bill on Committee Stage, we must all pool our ideas about how this proposal can be improved.

Before moving on to address some of the specific points made about the Bill, I want to deal with some of the more general issues raised on the National Asset Management Agency and the banking system. We are all agreed that one of the key factors for our economic recovery is a healthy banking system to serve the needs of the wider economy. In the absence of a properly functioning banking system, economic recovery will not happen.

As I have outlined in the past, the Government has taken decisive steps to support the banking system. The overall objective of the Government has been to facilitate the flow of credit to business and to ensure that Ireland is best placed to take advantage of the global economic recovery when it occurs. We have also ensured that the interests of the taxpayer are protected to the maximum possible extent.

The agency builds on the progress made by Government to date and will ensure that we have a banking system that can support economic recovery. The establishment of NAMA removes the riskiest assets from banks' balance sheets, which frees them to restore the flow of credit to the real economy. Deputy Barrett asked me about the impact of NAMA on Anglo Irish Bank. The impact is to remove risk assets from its balance sheets and to reduce the bank's loan book quite dramatically. This, in turn, has an implication for the minimum capital ratio the bank will have to hold, which will be much less than its current ratio. Obviously, we will have to work on those figures in consultation with whatever directive the Central Bank and the Financial Regulator makes regarding capital ratios. The establishment of NAMA is the most cost-effective option from the taxpayer's perspective to ensure a properly functioning banking sector.

While the requirement for a NAMA business plan will not arise until the legislation is in place and a board has been appointed, questions were raised on Second Stage about the nature of the operation which NAMA will carry out. I consider it important that there should be as much clarity as possible on how it is intended to operate, on its organisational structures and on the extent of its impact. Such clarity will inform our debate as the Bill progresses through its various Stages. Therefore, I instructed the interim managing director to draw up a draft business plan setting out how NAMA will carry out its functions and duties. This draft business plan has now been submitted to me and I have arranged for copies to be circulated to all Deputies this evening. I must emphasise that a more detailed business plan will be prepared by the NAMA board once the legislation is in place. This is work in progress but I think it is worth circulating to Members of the House at this stage of the debate.

I want to commend the interim managing director and his small team for the extensive preparatory work done so far, as outlined in this plan. The plan anticipates that a NAMA core team of 30 will be required on establishment to manage the immediate loan valuation and transfer process, and this will rise to a core staff of about 75. It is essential that NAMA moves quickly to establish itself and has the resources immediately available to it to value and transfer the largest loan exposures. I have, therefore, written to the chief executive of the National Treasury Management Agency today asking him to ensure that the necessary staff resources are made available to the interim managing director of NAMA, in accordance with the projections in the draft plan.

The draft business plan outlines the scope of NAMA as set out in my opening Second Stage speech. It is envisaged that NAMA will pay approximately €54 billion for loans with a book value of €77 billion, implying an estimate aggregate discount of 30%. Furthermore, the plan confirms that the estimated recovery in asset prices required for NAMA to break even, taking subordinated debt into account, is 10% over ten years. This is achievable.

Tables in the draft plan provide further breakdowns of the agency's loan portfolio, geography and cash flow projections. A separate part of the plan outlines how NAMA proposes to value and transfer loans in tranches up to the middle of next year. I have taken the unusual step of releasing this plan in draft form as a confirmation of my intention to ensure to the maximum extent possible transparency and accountability in the way NAMA operates. Another part of the draft plan outlines the extent of the accountability and reporting requirements that will apply to NAMA.

While I have moved early to make this information available, I emphasise that the details on loan books provided in the draft plan are estimates in aggregate form and are based on an assessment of provisional figures provided by the institutions themselves. They will, therefore, be sensitive to assumptions made by institutions regarding those assets that will be designated as eligible and that are liable to be adjusted further as the detailed analysis and due diligence is carried out by NAMA upon the enactment of this Bill. While legislation can be broad in its application, I will have a further opportunity to clarify implementation or limitation conditions through guidelines, should this be necessary, to ensure consistency of application and administrative efficiency in the loan acquisition and management process.

The asset management approach has a proven track record internationally. The establishment of NAMA has been supported by institutions such as the IMF and the ECB as well as by the financial markets. Goldman Sachs welcomed the agency as just the latest in a "series of impressive steps by the Irish Government" to deal with our problems. As recently as last Friday, the European Commissioner for Economic and Monetary Affairs, Joaquín Almunia, said he wanted to see the Dáil pass the legislation establishing the National Asset Management Agency as fast as possible. This clearly qualifies as strong support for the Government's approach from the European authorities.

I refer to issues raised in the debate. Some Members have continued to argue the case for nationalisation and I have dealt with this repeatedly over the past few months. Total nationalisation is not the panacea that its supporters claim it to be. Apart from the fact that it does not address issues surrounding risky portfolios of assets on the banks' balance sheets, it has the rather obvious downside of requiring the State to compensate shareholders before putting additional capital into the banks to resolve their capital deficiencies arising out of these impaired assets.

A policy of total nationalisation could impact negatively on financial institutions' own funding, with wholesale money markets becoming less prepared to lend to an Irish banking sector that has been nationalised. It could impact also on the sovereign's funding since nationalising the entire banking system could result in Ireland's sovereign credit rating being downgraded. This would result in increased debt service costs on the national debt, which the country can ill afford when it has many other pressing calls on its scarce resources. In the context of the global funding crisis, these are risks no Government cannot afford to take. However, the Government is not, in principle, opposed to nationalisation where it is the best solution. This was acknowledged by Deputy Ruairi Quinn in a thoughtful contribution that he represented as not being too far from his party's position, which he clarified as not necessarily being in favour of blanket nationalisation but rather supporting public ownership in the region of 70%, with the banks remaining quoted on the stock market.

This brings me to another claim that has been made, most notably by Deputy Enda Kenny, which is that the Government is unwilling to facilitate consultation or debate on the subject of NAMA. Nothing could be further from the truth. I first announced our intention to establish an agency on 7 April. At that time, I made it clear I was very keen to engage in a proper debate over NAMA in order that the Government could deal with the issues involved as comprehensively as possible. Since then I have engaged in debate on the matter both with the media and, in particular, with Members. I have appeared on two occasions before the Joint Committee on Finance and the Public Service and engaged with members of the committee in a comprehensive discussion on both occasions.

A draft version of the NAMA Bill was published on 30 July, which was almost seven weeks before the formal publication of the Bill in order that Members could engage in a fully informed debate and make considered contributions. I will continue to listen to constructive comments and suggestions until the enactment of the Bill.

Another misplaced claim made during the debate is the legislation represents a bailout for developers. This is just not so. Let us be clear. NAMA is not designed to be, and will not be permitted to operate, in practice as a bailout mechanism for developers who have operated irresponsibly. The amount a borrower owes will not change because of the transfer of a loan from his bank to NAMA. The agency will have a statutory duty to maximise the taxpayer's return and will, therefore, be expected to use its entire means to this end. The Bill also provides the agency with the wide range of powers it needs to pursue borrowers and enforce security. In some cases, this will mean borrowers' personal assets will have to be assumed by NAMA and, in such circumstances, I cannot understand how the misconception that the agency will bail out developers continues to run other than pure political mischief making.

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