Dara Calleary (Mayo, Fianna Fail)

I am pleased to have the opportunity to address the House this morning on the final phase measures that the Government is taking to restore stability and certainty to Ireland's banking system. The banking measures announced by the Minister for Finance on Tuesday are the last in a series of successful measures taken to stabilise the banks, to protect the interests of the taxpayer and depositors and to put the economy in a position to benefit from the global economic recovery that is getting under way.

The decisive measures taken by the Government over the past 18 months mean that our international reputation is credible. Our efforts to restore stability have been positively received throughout Europe and around the world and we are now in a position to return to sustainable economic growth. With these latest initiatives, the Government has tackled the problems presented by the banking crisis head on. These measures will ensure that our banking system plays an important role in Ireland's recovery. There is no doubt that many of the decisions taken have been unpleasant, and are unpopular, but they will put us in a position to enjoy long-term stability.

In the Dáil on Tuesday night, the Minister for Finance, Deputy Brian Lenihan, stated that the initiatives he had announced provided a solid basis for fostering confidence in the future of our financial system. Despite the predictable negative response from the usual quarters, the wider international reaction has shown that the Minister was correct. In the international media, even the Financial Times, an organ that is never slow to criticise the policies of governments, has been most positive and commented that Ireland is managing the downturn well and beginning to claw back competitiveness. It went on to comment:

Taken together, and with the right policy tweaks, this could offer Ireland a route back to the authentically tigerish 1990s rather than the long recession of the 1980s.

Reports from our embassies also indicate positive international reactions. For example, in Germany there is praise that the Government is tackling the problems head on, and media articles note that the financial markets have responded positively and point to the reduced costs of Irish Government bonds compared to equivalent Greek bonds.

In the Seanad yesterday, Senator Fiona O'Malley correctly referred to the problems that negative domestic publicity can create with regard to attracting — and, indeed, retaining — foreign direct investment. Therefore, positive, independent, international reactions to our banking and economic policies are particularly welcome in this context. With regard to sovereign borrowing, the fact is that our spreads have been falling in response to positive views concerning our progress in grappling with our wide ranging problems. The international reaction to our policy mix is, therefore, positive but that is a message not a target. The key target is to deal with our domestic problems in such a way as to provide the most secure future for or people. We are all rightly concerned about the burden of the banks' recapitalisation on our citizens, but pretending that there are easier solutions does not ease the burden. The Minister's statement on banking represents a clear recognition of the problems that exist and it shows that this Government is determined to tackle the problems head on in order to ensure we get out of this crisis as quickly as possible.

I now want to deal specifically with NAMA. The House is aware that the first loans have transferred to the agency. NAMA must ensure the best possible return for the taxpayer and this is why it has taken such a careful approach to the valuation of the loans. The first tranche represents approximately 20% of the total amount to be transferred and comes from the ten largest borrowers. The banks will incur heavy losses on the loans which NAMA will acquire from them. This is as it should be and it is clear that NAMA is no bail out for the banks, nor indeed for the developers, who are still required to pay back their loans in full. The crystallisation of the loans has made the future of each of the institutions clearer and has forced them to deal with the resultant losses now.

The recapitalisation implications of these losses for each institution have been dealt with in detail over the past few days and I do not wish to restate them now. There is no doubt that recapitalisation requires substantial investment by the State in the banks, although payments will be structured in a way that eases the burden on taxpayers. These actions are being taken for a good reason, so that the banking system may return to its rightful role as provider of credit to the real economy. No other course of action would result in a swift return by the banking sector to its function as a provider of finance. By forcing the banks to recognise their losses upfront, we can rid the system of these speculative loans and end the mismanagement of the banking system.

The suggestion remains that the nationalisation option would have been less costly. The argument seems to be that if only we nationalised AIB and Bank of Ireland it would have eliminated the valuation risk around NAMA, and as a result there would have been no need for the concept of long-term economic value. As the Minister announced on Tuesday, if the Government had opted to do this, the losses crystallised at the two main banks would still have had to be fully recognised, and real capital would still have been required. As the full owner of these institutions, the State would have had to cover the totality of this enlarged capital requirement, with no prospect of new private sector funds contributing. All in all, I firmly believe that the option chosen by the Government is the most beneficial to the taxpayer.

The subject of benefits leads me to the proposals for credit and lending. Recapitalisation of the banks is not for the benefit of the banks but rather for the benefit of the Irish economy. The primary function of the banking system must be providing credit to the real economy. Well-capitalised banks are in a much better position to lend. In this regard, the lending targets outlined by the Minister for lending to small and medium enterprises this year and next will play their part. Furthermore, the banks will be required to realign their business practices with the needs of the modern Irish economy. Properly targeted lending to SMEs provides growth and employment. The Minister stressed on Tuesday that working capital for businesses is essential. Entrepreneurs must be facilitated and given the scope to expand and develop. The target set, of €3 billion each in new lending in 2010 and 2011 from Bank of Ireland and AIB will see this objective met. To ensure the proper management of these funds the two banks will be required to submit SME lending plans both by geography and sector for 2010 and 2011.

In addition to this and in recognition of the essential role played by small and medium enterprises in our economy, today marks the launch of the credit review office, which will provide a simple, effective review process for SMEs, including sole traders and agricultural enterprises, who have had requests for credit refused or reduced, or indeed who have had credit withdrawn. The outcome for the review process for the borrower will be an independent and impartial opinion on the credit decision. Banks will be required to comply with recommendations from the credit review office or to explain why they will not do so. Mr. John Trethowan will head the office, with administrative assistance from Enterprise Ireland. Mr. Trethowan will also be reviewing bank lending policies and the banks' SME lending plans as part of his remit. If the Minister deems that further action is required on the part of the banks, he and the Government will not be slow to act.

There is no question but that there are large costs to resolving Ireland's banking crisis. However, Ireland enjoys the confidence of the international markets because of the determined and successful steps the Government has taken to place our public finances and our banking sector on a more sustainable footing. It is clear that facing up to the problems presented by the severe downturn in our fiscal position has paid off. The actions announced on Tuesday will have the same affect on our financial sector by compelling the banks to face up to their difficulties too. The banks have been forced to recognise their losses and this Government, on behalf of the taxpayer, has committed the capital that will ensure we have a banking system to serve this economy as it recovers.

The closely co-ordinated approach to the policy initiatives on banking is a clear indication of the determination of the Government and of all the State agencies concerned to work in a co-ordinated manner to secure the future of the financial system and to build for the future. It has drawn a line under the inadequate oversight of the past and is a clear indication that only the highest standards will be tolerated in our financial services sector into the future. At the risk of repeating what the Taoiseach and the Minister have already said, the certainty provided by these latest announcements will further boost international confidence in this country and they will smooth Ireland's path to economic recovery.

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