Brian Lenihan Jnr (Dublin West, Fianna Fail)

As I stated in my Second Stage speech on the NAMA Bill on 16 September last, it is likely that some institutions will require additional capital in order to absorb the losses arising from the transfer of their impaired assets to NAMA and in order to maintain appropriate levels of capital. I made clear in the speech, to the extent that sufficient capital cannot be raised independently or generated internally, that the Government remains committed to providing such banks and building societies with an appropriate level of capital to continue to meet their requirements in a manner consistent with EU state aid rules and the credit needs of the Irish economy.

In the case of Anglo Irish Bank, based on the information provided by me in mid-September to this House, the scale of its NAMA-eligible loans are such that they will give rise to a further capital requirement for the State. I am currently assessing the scale of any further capital support for Anglo Irish Bank in light of the emerging accounting and end of year financial position of the bank, and the likely impact of the NAMA transfers over the course of 2010.

In general terms, the impact of any future bank recapitalisation on the Exchequer, the National Pensions Reserve Fund and the general Government balance will depend on the scale and source of the recapitalisation funds and the basis on which the capital is provided and, therefore, cannot be specified at this point. The recapitalisation of Anglo Irish Bank in 2009 was funded by Exchequer borrowing in 2009. Following consultation with EUROSTAT, the injection was classified as a financial transaction and, therefore, did not affect the general Government balance. As a general rule of thumb, each €1 billion extra borrowed is estimated to cost the Exchequer about €50 million per year in interest costs.

The recapitalisations of both AIB and Bank of Ireland were made by the National Pensions Reserve Fund from its existing assets and, as such, had no impact on Exchequer borrowing requirements. As these injections were also classified as financial transactions, there was no impact upon the general Government balance, and the National Pensions Reserve Fund used its existing assets to make the injection. As the nature of any future recapitalisation is as yet unknown, it is not yet possible to assess exactly the effect on the Exchequer balance and the general Government balance. I can assure the Deputy that the regulator is in constant discussion with the National Treasury Management Agency about these matters.

See this speech in context