Brian Lenihan Jnr (Dublin West, Fianna Fail)

-----and EBS, 37%. The weighted average haircut across these institutions is 47%. These discounts have been calculated following loan-by-loan assessments, including legal due diligence, detailed valuation processes and internal and external checking processes, including external audit. The doubters have been proved wrong. NAMA has carried out its valuations in a hard-headed commercial manner. The interests of the taxpayer are paramount in this exercise.

The fall in value of the transferred loans means the banks will now have to recognise these losses up front. Decisions on the appropriate capital requirements are a matter for the Financial Regulator in conjunction with the Central Bank. A robust recapitalisation exercise will ensure that the banks are not just adequately but properly and prudently capitalised so they can absorb these losses and foreseeable future losses that may arise on remaining loans. The banks will then be in a better position to attract funding. The regulator has advised me that he will require an 8% core tier 1 capital requirement, of which 7% must be equity. This is a prudent capital provision consistent with emerging best practice internationally. The regulator has performed a detailed assessment of the capital requirements, current and under a stress scenario, over a three-year time horizon and has determined the additional capital requirement of each institution participating in NAMA. The capital to meet these new requirements must be in place in each of the institutions by the end of 2010.

I fully agree with the regulator's view that we do not want institutions to get by on a bare minimum of capital. This only prolongs their difficulties. The capital requirements are set by the new regulator and are being imposed on the banks. I will now outline the implications for each institution of the regulator's decisions and give details of their capital needs, proposed solutions and the anticipated Government ownership for each institution.

Bank of Ireland will transfer €1.93 billion of assets to NAMA in the first tranche, which represents 16% of its €12 billion NAMA assets. NAMA has confirmed it will buy the loans transferred in the first tranche at an average discount of 35%. Taking account of this and his broader assessment of the bank, the regulator has determined that Bank of Ireland must raise additional equity capital of €2.7 billion by the end of the year to meet the new capital standards. I have been advised that Bank of Ireland expects to be able to raise private capital and is well advanced in its actions to address its capital needs, which I believe underlines the strength of the institution. I fully support the bank's objective to meet a substantial amount of its capital requirement from private sources. I believe Bank of Ireland has a strong future. In conjunction with this private capital raising and to support it, the State will commit to converting part of its preference shares in Bank of Ireland into ordinary equity. This process requires no new investment of State funds. This conversion will be executed on market terms and the State will achieve full value for its investment in the bank.

Based on the current envisaged structure, the State expects to remain a minority shareholder in the bank. In recapitalising Bank of Ireland, we will secure an institution that will maintain a presence in the international capital markets, provide loan finance to individuals and businesses and support our economic recovery. These proposals are dependent upon the agreement to the bank's restructuring plan by the European Commission. I have discussed the main elements with Commissioner Almunia and I am satisfied there is the basis for agreement between us on the overall framework of the bank's plan but further discussions are required on all the details.

Allied Irish Banks will transfer €3.29 billion of assets to NAMA in the first tranche, which represents 14% of its €23 billion NAMA assets. NAMA has confirmed that it will buy the loans transferred in the first tranche at an average discount of 43%. Taking account of this and his broader assessment of the bank, the regulator has determined that Allied Irish Banks must raise additional equity capital of at least €7.4 billion by the end of the year to meet the new base case capital standards. In view of the extent of capital to be raised, Allied Irish Banks will be required by the regulator to produce a detailed capital plan by the end of April this year.

The basic elements of this plan are already clear. Allied Irish Banks is in a position to raise capital through the sale of overseas assets. As the first step in meeting its capital needs, the bank will immediately commence the process of sale of assets in the US, Poland and in Great Britain. The sale of these assets will be completed this year, subject to regulatory clearances. The disposal proceeds will provide significant capital but it will not be sufficient to address the full requirement. To the extent that the gap is not filled by the private sector, the State is willing to convert some or all of its preference shares as required on terms to be agreed that will provide full value for the State. Depending on the structure of the capital raising and the extent of private participation, it may be that no new Exchequer funding is required but if additional money is required it will be provided by way of ordinary equity. Any additional capital requirement will be met from the National Pensions Reserve Fund.

The private sector will have an opportunity to participate in Allied Irish Banks' capital raising. If sufficient private capital is not available, it is probable that the State will have a majority shareholding in Allied Irish Banks as a listed entity but this is much more preferable than an undercapitalised or only adequately capitalised entity. These proposals are dependent on agreement with the European Commission in the context of the assessment of the bank's restructuring plan. Finding a long-term solution for Anglo Irish Bank is by far the biggest challenge in resolving the banking crisis. The sheer size of the bank means there are no easy or low cost options, as often suggested. Winding up the bank is not and has never been a viable option. As the bank's new management and board have estimated, an immediate wind up would lead to a fire sale of assets resulting in a permanent additional and unnecessary loss of upwards of €30 billion. In addition, the State would have to provide, immediately and up-front, the large sum of €70 billion to meet the deposits, bondholders and liabilities due to the Eurosystem.

Similarly, a longer term wind down is not in the taxpayers' interest. The new management has provided me with figures, assessed by independent financial advisers, indicating that in addition to the capital losses that would be sustained, a long-term wind down of the bank over ten years could expose the State to funding obligations approaching €30 billion. I understand why many want us to close this bank. I understand also the impulse to obliterate it from the system. However, I cannot, as Minister for Finance, countenance such a course. The realisation of the costs involved and the wider disruption to the financial system would generate enormous instability for the State, with unforeseeable but potentially long-lasting damage to the overall economy. The unavoidable reality is that the bank has incurred losses from its large-scale property lending and needs substantial further capital. Unpalatable as it is, only the taxpayer can provide that capital. It is the least worst option. For this reason, I am this week providing €8.3 billion to support the capital position of the bank to take account of the bank's losses to date. Additional capital support is likely to be required depending on the NAMA discount on the first tranche of Anglo Irish Bank loans transferred to it. The bank will provide comprehensive information on its financial position in its annual report for the 15 month period to end 2009 which will be published later this week.

The bank will need further capital to cover future losses and accomplish the restructuring of the bank and its balance sheet. The current estimate is that this could be of the order of a further €10 billion over time.

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