Kieran O'Donnell (Limerick East, Fine Gael)

I welcome the Minister's amendment. In the current circumstances, the amendment needs to be prescriptive.

The guidelines should be agreed with the financial institutions before their loans are transferred to NAMA. The guidelines will not work if they are agreed after the transfer of loans. During the debate on Report Stage, the Minister assured the House that the guidelines were not merely a threat but that they would be implemented. He subsequently confirmed that he would implement guidelines. I would like clarification on that matter. Guidelines must be agreed and implemented before loans are transferred.

The purpose of NAMA, and our objective since 29 September 2009, is to restore credit to the economy. If NAMA does not cause that to happen it will have failed. A sum of €54 billion is being provided, of which a maximum of €30 billion will be available to the economy. Approximately €24 billion will go into Anglo Irish Bank, Irish Nationwide and the Educational Building Society, which is, effectively, a black hole. It is unlikely that money will ever again be seen by small businesses or the taxpayers.

I wish to deal with the two issues of small and medium enterprises and owners of principal private residences. The forthcoming revised Mazars report on lending to small and medium enterprises must be able to distinguish new loan applications from applications for the continuation of existing loans. If it does not, we will not know the number of declined applications and the criteria for declining them. The previous Mazars report spoke about cases that had been declined but I suspect that many more credit inquiries were declined, perhaps before they reached the stage of actual application. I have no problem with laying out the various stages of loan applications so long as we have full transparent disclosure.

The guidelines must apply to the renegotiation of existing credit lines and the terms that have been applied. Fine Gael is going around the country at present meeting business people. The issue most frequently raised by them is that of credit to new and existing small businesses. Businesses are going to the wall because they cannot access their existing credit facilities. Small businesses employing fewer than ten people are the lifeblood of the economy. There is nearly a quarter of a million of them and they employ between 700,000 and 800,000 people. We must protect them. They are entitled to have that protection in legislative form.

My amendment proposes that there be guidelines for limitations on the use of the new liquidity for purposes other than extending credit. We cannot allow a situation where the banks are getting €54 billion from the taxpayers and using the money to expand their enterprises and pay off bond holders. NAMA must be used to ensure credit flows to small businesses.

There must be ongoing protocols between the banks and the Minister. I note that the Minister will issue guidelines relating to a review of decisions to refuse credit facilities. The Minister can do that on an ongoing basis. I welcome the Minister's amendment and section 127 but they do not go far enough.

The issue of home owners is critical. They are worried about repossession. They must be given legal assurances regarding mortgages. Two days ago the Irish Banking Federation, which represents 11 institutions, issued voluntary guidelines undertaking to review mortgages on a six monthly basis. FLAC, the free legal aid body, said this code was not worth the paper it was written on unless it had a legal basis. There must be protocols to prevent mortgage holders getting to a point where they face repossession. Sub-prime lenders fall outside the banks' voluntary code. We need an amendment to legislation to protect home owners so that if a mortgage holder is taken to court, the judge will have a legal basis on which to make a ruling. If a judge could make a legal ruling which is fair and reasonable the balance would shift in favour of the home owner. At present, that is not the case and people are losing their homes as well as their security and dignity.

We are here to legislate for the common good. My amendment to the Seanad amendment would allow that to happen. It would not encumber the banks in carrying out their day-to-day business but it would apply to sub-prime lenders, who are extremely aggressive in giving people loans at exorbitant rates and in repossessing their homes when they cannot keep up repayments. Many of these borrowers are young couples who have been given 100% mortgages. If there had been proper rules in place they would probably not have qualified for mortgages. These mortgages have become a noose around their necks and, what is more, they are now losing their homes.

The Seanad amendment says that guidelines should be laid before the Houses of the Oireachtas as soon as is practicable. The Minister has made reference to his own guidelines. If the flow of credit is not facilitated, the legislation will have failed. The banks and their representative body want to retain the status quo. We need to move from a principles based regulatory system to a rules based system. This amendment would be part of that process. If the banks are genuine in their determination to protect home owners and are committed to ensuring that credit flows through the economy, they should not fear this measure. They should give full disclosure of new and existing loans to the Mazars team as they compile their current report. The previous Mazars report stated that €32 billion had been provided to SMEs in February 2008 and that the same figure was provided in June 2009. Much of that may have been rolled up interest. We have no figures for overdraft facilities withdrawn or renegotiated. Credit for start-up businesses is critical.

The renegotiation of existing credit lines is placing enormous pressure on businesses. If a person must go to the bank for a review of his or her facilities, whether an overdraft or a term loan, the bank is upping the rate of interest and, in many cases, it is restricting the amount of credit available. For many businesses, interest payments on facilities from banks can be the third highest expense after labour and energy costs, which is frightening. It is incumbent on us to include prescriptive details in terms of the guidelines for lending to small and medium sized enterprises and to place the issue of banks' dealings with homeowners on a legislative basis.

I welcome the amendment on Report Stage in which the Minister included guidelines to facilitate the availability of credit for classes of borrowers or potential borrowers, including small and medium enterprise, and to the review of decisions of participating institutions to refuse credit facilities. However, it did not go far enough.

Our amendment would, in no way, inhibit the operation of the banks but it would ensure we get value for the €32 billion of the €54 billion going into the two main banks which will be available, although the figure might be as low as €25 billion. Effectively, NAMA, in terms of funds flowing to small business, is really about AIB and Bank of Ireland and none of the other institutions.

I was not surprised by the attitude of the Irish Banking Federation to the change in regulation. We can never go back to the way things were. We must go for a rules based system, which applies in the UK and the United States. France, England, Canada, Australia and New Zealand all have rules based systems and none of them have the same problems we have. Our banking institutions have the lowest core tier 1 ratio of capital in Europe. The reasons for that are reckless lending and lack of proper bank regulation by the Government and the Central Bank of Ireland. If proper regulation had been in place and if the banks had been required to keep higher capital ratios from 2003, I have no doubt we would not be here discussing this Bill. That is an indictment on regulation and the recklessness of banks in terms of lending.

Of the €54 billion we are putting into the banks, at least €25 billion or more of it which is going to the two main banks — it will probably be €28 million — must be a fiscal stimulus for the economy and for small and medium sized enterprises. A legal protection must be put in place for mortgage holders. That is a major worry for ordinary people who risk losing their homes. Some 25,000 people have distressed loans with the financial institutions. Up to 200,000 mortgage holders potentially have negative equity. When they see €54 billion of their money going to the banks, they will ask what they are getting in return. They are getting nothing.

Of the €7 billion over market value, the banks will take €2.7 billion of that but they should take all of it. I understand the Green Party was looking for subordinated debt — the difference between the market value and the value of the assets being taken over. In this context a sum of €2.7 billion is a sop.

To go back to the core of my amendment, we have a duty to ensure we have a sound banking system. No one disagrees with that. However, we also have a responsibility to ensure that the €54 billion of our money going to the banks goes back into the economy and that it does not sit on the banks' balance sheets, go to pay off bondholders or be used for an acquisition trail. We have a responsibility to the hard-pressed mortgage holders who are paying interest to the banks. I have in mind the sub-prime lenders because the voluntary code produced by the Irish Banking Federation does not apply to them. They are forcing most of the repossessions.

If we put this on a legislative basis, it still allows the banks to function in terms of getting repayments on their loans. They can then put in place a six month cycle. If a case goes to a court of law, the judge will have a legal basis and a reference point to shift the balance towards the mortgage holder and to ensure everything possible is done to ensure people do not lose their homes.

On Committee Stage, we tabled an amendment that if NAMA takes over delinquent loans from developers, there should be a facility for a relatively small number of people who face repossessions. NAMA would step in and purchase what would probably be far better assets than those it will purchase from the banks. It would be like the shared ownership scheme operated by local authorities. A mechanism could be found whereby people could stay in their homes and buy them back from NAMA over a number of years. That is a reasonable proposition.

We want legislation for the common good and that ensures a sound banking system, that we look after the small and medium sized sector and homeowners and a viable economy in which the banks play their part.

The banks are getting all the gravy here without providing anything of substance in return. These guidelines must be put in place before the assets transfer. Mortgage holders must be dealt with before loans are transferred because the banks are resisting change. It is incumbent on us to set the benchmark.

If, over the past ten years, Fianna Fáil-led Governments had imposed regulation through the Governor of the Central Bank of Ireland in regard to proper, stringent capital ratio requirements, we would not be debating this Bill. I ask the Minister to accept this reasonable amendment which builds on his one and takes the small and medium sized sector and the hard-pressed home owners into account.

See this speech in context