Brian Lenihan Jnr (Dublin West, Fianna Fail)

As I understand, opinions about the fiscal position have been conveyed and clearly the Government and myself, as Minister, will have to come to a final conclusion on all the opinions in this matter in the context of the formulation of the four-year plan.

I refer to the question of NAMA and why when NAMA individually valued the loans the discount was far higher than that originally envisaged. There are a number of factors, of course, but three in particular have been drawn to my attention. One was the poor level of security obtained by some institutions in respect of assets which should have been secured as part of the loan transaction and I understand that was a particular difficulty in the Irish Nationwide Building Society. A second factor was the optimism, indeed, the recklessness of the original loans themselves, in the context of the estimate which the institutions gave themselves of the loan to value ratio of the loan. A third factor was the extent to which the banks had rolled up interest as part of these loan arrangements. There were also other factors but those three were the significant factors in the deterioration of the original NAMA estimate to the final conclusion of the valuation and the figures given on 30 September.

The plan for Anglo Irish Bank envisages the bank being split into two banks, a savings bank and an assets recovery bank. Clearly, the assets recovery bank will still function as a bank in the sense that it will lend money to enhance the value of its own loan book but it will not engage in substantial additional or other lending. This is not what is envisaged in the case of Bank of Ireland or Allied Irish Bank, although, as the Deputy rightly says, it is the case that the threshold has been amended. It was decided that loans of debtors with a total exposure below a threshold of €20 million in Allied Irish Bank and Bank of Ireland, will not now be determined to NAMA. The threshold had previously been set at €5 million. These account for €6.6 billion of the aggregate €80 billion volume of NAMA eligible loans. The rationale for this new threshold is that loans of this size can be efficiently managed by the banks themselves through their network of local representation and relationships. The regulator will ensure that the banks put in place prudent provisioning for these loans. That is the position with regard to those loans.

The Deputy also discussed the issue of the loan guarantee scheme and the national recovery bank. It is important the Deputy understands what a loan guarantee scheme means.

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