Brian Lenihan Jnr (Dublin West, Fianna Fail)

The Investment of the National Pensions Reserve Fund and Miscellaneous Provisions Act 2009 made the necessary legislative changes to the National Pensions Reserve Fund Act 2000 to enable the fund to be used for the purposes of bank recapitalisation. It empowered the Minister for Finance to direct the National Pensions Reserve Fund Commission to invest in listed credit institutions or to underwrite share issues by these institutions where, having consulted the Governor of the Central Bank and the Financial Regulator, the Minister decides such a direction is required, in the public interest, to remedy a serious disturbance in the economy of the State or to prevent potential serious damage to the financial system in the State and ensure the continued stability of that system.

On 30 March 2009, I directed the National Pensions Reserve Fund Commission to invest €3.5 billion in preference shares issued by Bank of Ireland and on 12 May 2009 I directed it to invest €3.5 billion in preference shares issued by Allied Irish Banks plc. On 25 April 2010, I directed it to convert part of its €3.5 billion holding of Bank of Ireland preference stock into ordinary stock as part of the capital raising exercise announced by the bank on 26 April.

In my statement on banking issued this morning, I announced, in order to afford every opportunity to AIB to raise as much as possible of its new capital requirement of €7.9 billion from the markets and to minimise further Government support, that it has been decided the bank's capital requirement will be met through placing an open offer to shareholders of AIB shares to the value of €5.4 billion. This transaction will be fully underwritten by the National Pensions Reserve Fund.

The use of the National Pensions Reserve Fund to recapitalise our main financial institutions on commercial terms is the most appropriate and prudent use of the fund to assist in meeting the financial challenges we are facing. With regard to the sovereign funding position, the NTMA has maintained cash balances of some €20 billion and the Exchequer is fully funded through the first half of 2011.

I have not instructed the NTMA to prepare an exit strategy for the National Pensions Reserve Fund or to have the fund liquidated at short notice to ease sovereign funding concerns. Neither has the NTMA drawn such a strategy to my attention.

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