Áine Brady (Kildare North, Fianna Fail)

The banking measures announced last week were a necessary and timely intervention by Government to ensure the overall restructuring of our banking system succeeds and that our banks can meet the real needs of our economy as we move forward. The Minister has previously stated on several occasions that our banks lent recklessly and that is now painfully obvious to all of us. Continuing uncertainty as to the ultimate cost of this reckless lending was proving to be very damaging to confidence in our banks and indeed to confidence in the capacity of the sovereign to meet our funding needs.

We are at last able to put figures on the final cost. For this, the Minister extends his appreciation to the Governor of the Central Bank, Professor Patrick Honohan, the Financial Regulator, Matthew Elderfield, the NTMA and the Department of Finance and to the NAMA management team for the work they have done.

There is no denying the size of the problem. The considerable losses in our banks have been built up over the course of several years when financial institutions set aside the fundamentals of prudent banking and became dangerously over-exposed to land and development and related lending. It is only normal that people would feel frustration or anger at what has happened and would seek to find easy solutions, but these do not exist.

This debate is an opportunity for the House to consider our future banking sector and the Minister welcomes the many constructive contributions made. Although the situation is very serious, it can and will be managed. Difficult though it is has been, we have had to take steps to ensure that we continue to have a functioning banking system with banks soundly capitalised and providing normal banking services such as safeguarding deposits and prudently lending money to real people in the real economy. Our road to recovery as a nation depends on our capacity to grow, to export and to create jobs. Whatever the past sins of our banks, and they are many, it is an inescapable fact that they have a fundamental role to play as we move into the future.

Shareholders in the banks have already suffered very significant losses and now the subordinated bondholders in Anglo Irish Bank and INBS will be expected to share the burden too. Deputy Noonan raised the issue of burden-sharing by all bondholders. Both the State and the banks rely on bondholders, the same bondholders who continue to invest in our banks and in the State. We live in a small and very open economy. We cannot attempt to simply turn our back on the world. Default is not an option the Minister will countenance and anyone who advocates default needs to realise that this is not a game. We cannot gamble the future of our country and risk the consequences of debt default.

A number of Deputies have asked why a statement leading to certainty could not have been issued sooner. The fact is that NAMA was established little more than ten months ago and in the short time the agency has been operating it has built up staffing levels, established procedures and issued codes of conduct, and has already purchased loans of over €27 billion. The NAMA process which includes loan-by-loan valuations could not have progressed any faster. This process ensures that all of the institutions recognise the full extent of their losses as each loan is assessed, valued and transferred, and the process has been approved by the European Commission.

It was only by building on its experience in the transfer of loans in tranches one and two, and through the assessment by NAMA of the remaining loans to transfer, that NAMA has been able to refine its estimates of the discounts on the remaining loans to a high level of accuracy. NAMA will now utilise this information to ensure that all remaining assets will transfer to the agency as swiftly as possible and in one final tranche for each institution. It is a measure of the success of NAMA that it has been able to bring this level of accuracy to the calculations of discounts so quickly.

The further State investment for AIB which the Minister announced is absolutely necessary to sustain its capital, which is crucial given the central role that AIB plays in the Irish economy and in the Irish financial system. With the benefit of this support and following the sale of its overseas operations, AIB will now have a renewed focus on the Irish market. AIB in the years ahead will have a major role to play in providing normal banking services and prudent lending to real people in a real economy, and in so doing will support our economic recovery. It is also a positive indicator that Bank of Ireland will not require any further capital from the State.

There is no denying the size of the problem. The money committed to the recapitalisation of our two main banks is structured as an investment by the National Pensions Reserve Fund Commission and the State will receive a commercial return on the money invested. The objective of the State is to maintain AIB as a fully listed entity post-completion of the capital raising necessary to meet its revised PCAR. This will maximise the chance of attracting private capital for the capital increase and also facilitate future disposals of shares by the State.

It is important that we differentiate the investments made in credit institutions with a viable future from the money going into banks which clearly do not have a future as independent entities. The cost of capital resulting from losses in Anglo Irish Bank and Irish Nationwide Building Society combined will be €34.7 billion. This is a lot of money but it is also a long way short of the €50 billion widely reported as the total cost of rescuing the banking system from collapse. This money was not lost on the day of the Minister's announcement two weeks ago. Rather it was lost over the course of several years when all of our financial institutions set aside the fundamentals of prudent banking and became dangerously over-exposed to land and development and related lending.

It was alleged by some Deputies that the deferral of bond auctions suggests that bond markets were somehow now closed to us. This is not the case. The NTMA advised the Minister that it decided not to proceed with the bond auctions scheduled for October and November because the Exchequer is fully funded until late June 2011. The NTMA will return to the bond markets in the normal way in early 2011. In the meantime investors will have had the benefit of the affirmation in the budget that Ireland continues on its planned path of multi-annual fiscal consolidation up until 2014. The Minister believes that, in time, Thursday, 30 September 2010 will be remembered as a turning point; as the day we finished quantifying the full extent of the work we must do. The finality we have achieved on measuring the cost of our banking crisis enables us to draw a line under that and to move on.

Our efforts must now be dedicated to restoring sustainability to our public finances and to achieving a general Government deficit of below 3% by 2014. The Government remains fully committed to meeting this target.

As the Minister outlined two weeks ago, work is underway on a four-year budgetary plan that will set out the annual measures required to ensure that target is met. The four-year budgetary plan will be published in early November. Many contributors to this debate, including Deputies Kenny and Burton, questioned the Government's proposal to introduce a four-year plan. Ireland, like all other member states, has for some time been asked to give more of the details underpinning our multi-annual consolidation plans. The plan will show a credible path to achieving our targets of having a deficit below 3% of GDP by the end of 2014 as well as setting out the Department's assessment of the short and medium-term macroeconomic outlook.

The budgetary plan will also highlight structural reform measures and in so doing, demonstrate reforms that will underpin future economic growth. It is only through adopting policies that enhance our economic growth prospects and improve our competitiveness that we will achieve the necessary targets. In order to ensure that the targets as set are delivered, reforms to the budgetary framework will also be a part of the plan.

The announcement of the four-year plan and the renewed commitment to tackling our public finance deficit has been generally well received by the international financial markets. The plan will be a pathway towards renewed fiscal sustainability. Budget 2011, which the Minister will present to the Dáil on 7 December, will be a first, but important, step on the road to achieving this goal, now that we are coming out of recession and addressing our banking issues.

The price of underpinning our banking system is far higher than any of us would have wanted. The cost is high but it is manageable. We must not forget what we as a people are capable of achieving. We should be positive in our ability to meet the challenges ahead. As former United States President Bill Clinton, speaking on his visit here just after the announcement, stated:

All the talents, all the abilities, all the incentives, they are still there. I have utterly no doubt that the country will come back and that you will come back with a more diversified economy, less vulnerable than what just happened to you.

The Government believes we will emerge from this experience the better for it. We will be strengthened through the lessons we have learnt on regulatory structures and banking supervision and through efficiencies in the way in which we run the State as we redress the balance between what we take in and what we spend.

The Minister appreciates the positive contributions made in the course of this debate on the banking system and wishes to thank all the Deputies who spoke on the matter. The banking measures announced two weeks ago represent the final staging post in the journey to bring certainty and clarity to the projected costs for the State for the resolution of our most distressed institutions. It is a key milestone in ensuring that a broader scale restructuring of the banking sector overall is successfully achieved in order that we have for the future a banking system that is firmly focused on meeting the needs of the real economy - sustainable employment creation and the savings, investment and credit needs of regular individuals, households and businesses in our society. It is an issue of the greatest significance to our country, and the willingness of this House to engage constructively in helping to achieve resolution is very welcome.

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