Brian Lenihan Jnr (Dublin West, Fianna Fail)

I am pleased to have the opportunity to respond to this debate. Before I do so, I refer to Deputy Kenny's wildly inaccurate claim this morning that Irish banks were exposed to some €7 billion of Greek debt. For the record, the total exposure of the covered banks to Greek sovereign debt is negligible, less than €40 million. It really is not in the interests of this economy - nor does it reflect very well on this House - that grossly inaccurate and perhaps mischievous figures of this nature are thrown around at a time of elevated stress in the international markets.

This week, the first of our banks emerged from the banking crisis. Bank of Ireland's plans to attract money from private investors to meet the stringent capital requirements set out by the Financial Regulator represent concrete evidence of the growing international confidence in Bank of Ireland and our economy. Our policies are delivering a cleaned up, well capitalised and better funded bank. It is in a position to provide the vital credit that, as Deputy Jan O'Sullivan has said, is needed to support economic recovery and job creation. This arrangement will also provide a handsome return to the taxpayer. The State will obtain €540 million from its previous investment in the bank - the warrants that were taken out last year, together with further administrative payments - and will own approximately €1.8 billion of preference shares, which will yield approximately €180 million in cash to the Exchequer each year, at a coupon cleared by Brussels in excess of 10%. The State will own up to 36.5% of this valuable bank, a stake it can sell in the future to the benefit of our pensioners.

This outcome is a vindication of the Government's banking strategy, which involved the pursuit of an institution-by-institution solution. The policy of blanket nationalisation, which was advocated by some parties, would have deprived Bank of Ireland of the considerable private sector funds it is now raising, leaving the taxpayer to foot the entire Bill. The Fine Gael proposal to split the bank into a good bank and a bad bank, and to default on certain bonds after next September, would have destroyed this 200 year old institution. It would also have meant that the institution would not be functioning now. If one takes the most optimistic assumptions about the Fine Gael proposal, it would not begin to function until after the conclusion of the guarantee next September. As a result of this week's announcement, a bank with a long tradition in this country will be in a position to provide credit to Irish businesses and households as the economic recovery begins to gather pace. Within the next few weeks, the bank will produce its plan to meet the lending targets I have set out. This plan will be monitored by Mr. John Trethowan, who is also leading the credit review process under which small and medium sized companies, sole traders and farmers who have been refused credit, or have had credit withdrawn, can apply for an independent review of the banks' decisions.

The interesting proposal before us tonight involves the establishment of a strategic investment bank. According to the Labour Party leader, it is modelled on the German investment bank, KfW, which was set up for the purposes of the reconstruction of Germany after the Second World War. It is proposed that the bank will be capitalised by the National Pensions Reserve Fund and that its critical role will be in funding infrastructural projects. Public spending on infrastructure is important in boosting the competitiveness of the economy. The Government has maintained capital spending at more than 5% of GNP, despite our fiscal difficulties. There has been some reprioritisation in light of the changed economic circumstances. The question that arises is whether we need a State bank to invest in infrastructure. We do not need some type of "funny money" arrangement to disguise the true extent of Government investment in the economy. The Government already has a mechanism available through which infrastructural investment for a return can be channelled in the National Pensions Reserve Fund. The fund has provided funds to major infrastructural projects - Terminal 2 in Dublin Airport is a notable example - and is committed to further investment in public projects that will give a good return on its investment. Potential investment opportunities for the fund are expected to arise later this year. This well-established mechanism is backed by the commercial experience of the National Treasury Management Agency. I have no great confidence that the State bank model would do a better job. On the contrary, there is considerable evidence, including a study by Professor Honohan, who is the current Governor of the Central Bank, that State banks with the best will in the world do not maintain a commercial focus and that political pressures on Governments tend to interfere in the lending decisions of such banks.

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