Mattie McGrath (Tipperary South, Fianna Fail)

Our banking strategy is working. Yesterday's announcement that Bank of Ireland would be able to meet its capital requirements through private investment shows the market has confidence in our strategy. The State will receive a significant return from the transaction with a higher rate of interest on its preference shares which will come to €180 million per annum. The State will also receive €550 million in cash and hold shares equivalent to 36.5% in the bank, which will return profits in the form of dividends and share sales. We are in the ultimate phase in the resolution of our banking crisis.

We cannot, however, get away from the costs involved in resolving the banking crisis. We have acknowledged the scale of our problems and taken the necessary actions to solve them. The National Asset Management Agency, NAMA, is up and running. It has determined the price for the first tranche of loans, after rigorous loan-by-loan analysis. An aggressive approach to the banks loans was taken with the discount averaging about 47%. NAMA has forced the banks, finally, to acknowledge reality and recognise their losses.

In addition, the Financial Regulator and the Central Bank have set prudent capital requirements for the banks comprising 8% of core tier 1 capital requirements, of which 7% must be equity. This is for the benefit of consumers so that banks will never again be able to engage in such reckless lending as in the past.

Banks need additional equity to meet their new capital standards. Bank of Ireland requires €2.7 billion, which will be raised through private capital and a State commitment to convert part of its preference shares into ordinary equity. AIB needs €7.4 billion, for which it must submit a detailed capital plan by the end of April. Due to the massive scale of its losses, Anglo Irish Bank requires capital of €8.7 billion, a figure which may increase. There is simply no alternative to meeting the bank's unavoidable obligations at a lower cost. This is necessary to maintain the hard-won stability of the banking system.

The Financial Regulator has determined that Irish Nationwide Building Society will need an injection of €2.6 billion to remain compliant with its current regulatory capital requirements. This is a very large bill for the taxpayer but, as in the case of Anglo Irish Bank, it is the least costly solution. The EBS will need €875 million to meet its capital requirements. It is exploring the availability of private market capital and has had an expression of interest from a private party.

At every turn, the Labour Party opposed the bank State guarantee in September 2008. If its strategy had been adopted then, the banks would have collapsed that night and with it our economy. The Labour Party has long since advocated a policy of temporary nationalisation for all our banks, an action that is estimated may cost more than €70 billion. The proposal would have made the taxpayer liable for all of Bank of Ireland's capital and funding requirements, as is the case with Anglo Irish Bank. We have seen with Anglo Irish Bank that nationalisation is not a panacea for all its ills.

Our strategy makes private sector capital possible. The private sector investment in Bank of Ireland is a significant vote of confidence in the bank and the wider economy. The Government's proposal will lead to an immediate cash return of €550 million and medium and long-term returns, whereas the Labour proposal would require years for a return to the taxpayer as this would only occur when the Bank was sold off through a complex reflotation on the Stock Exchange.

The burning question for all households and small and medium-sized enterprises is how NAMA will increase credit flow. NAMA has put the banks in a better position to access funding and provide credit to viable businesses and households because it will increase investor confidence in the banks through the removal of risky assets and will improve liquidity through the exchange of illiquid assets, loans, for more liquid assets, bonds. We all know the banks have curtailed lending because they are finding it a challenge to get funds. The providers of funds are reluctant to deposit their money in banks, the quality of whose balance sheets are questionable. That is why we are recapitalising the banks.

NAMA will remove this uncertainty, allowing the banks to attract sufficient funding again. Without NAMA, there would be no credit flow in our economy. Having set up NAMA to cleanse the banks, the Government is determined to ensure, through the guidelines provided for in the NAMA legislation and through the credit review system, that the banks will begin to perform their proper role in this economy, that of supporting viable and sustainable businesses and households. That is a role they have not fulfilled since they got carried away with their big dreams and left us all behind.

The guidelines will set out how credit should flow to sustainable businesses. I am delighted €2 billion of the €3 billion in funding for Bank of Ireland and AIB will be ring-fenced for SMEs as many banks are not even providing overdraft facilities for many companies. The successful implementation of NAMA is essential for the renewal of our economy as it will lead to smaller, cleaner and better funded banks that can focus their resources on lending to the real economy and play their part in our economic recovery. Business cannot flourish in an economy where cash is scarce. That is why the Government has taken such aggressive steps to fix our banking system.

See this speech in context