Brian Lenihan Jnr (Dublin West, Fianna Fail)

Such a regime would provide the authorities with an enhanced toolkit for the future, in line with best practice internationally, for dealing with distressed financial institutions.

However, it is important to be clear contrary to what is rapidly becoming the conventional wisdom that such a regime is not necessarily a panacea for minimising the fiscal costs to the State of our banking crisis particularly in light of various legal considerations in Ireland.

In Ireland's case, the major fiscal costs, which the State has borne as a result of huge loan losses suffered by the Irish banks, could only be reduced where some of these losses were imposed on creditors of the banks. The Government has already made clear its intention to secure appropriate sharing with holders of subordinated debt in Anglo Irish Bank and Irish Nationwide Building Society, and Anglo Irish Bank has launched a recent offer to buy back subordinated debt at a deep discount.

Discussions are ongoing at EU and international level on the mechanisms that may be available in the future to share the fiscal costs of bank resolution with senior creditors of banks other than depositors. However, this work remains preliminary and many important legal, financial and commercial hurdles will need to be cleared before there is any prospect of it becoming accepted market practice. It is important to draw attention to that because this debate in Ireland is not taking place in isolation from developments with our EU partners.

The recent substantial widening in Irish Government bond spreads since the end of October in response to market concerns relating to possible burden-sharing that might arise in circumstances that a eurozone member state accesses the proposed permanent crisis resolution fund and the requirement for a joint statement from the finance Ministers of Germany, France, the UK and Spain provides strong confirmation of the critical importance of exercising extreme care in asserting that costs can easily be imposed on senior creditors of banks. The current difficult funding position for both the Government and the banking system implies very strongly that we should be very cautious about even contemplating such a step in the current crisis, never mind whatever legal and constitutional obstacles would need to be resolved.

I welcome the support in recent days from my European colleagues as reflected in the statement issued by the eurogroup on Tuesday evening. We are aware that there is a European dimension to our considerations. We are part of a common currency within a broader European Union, which brings benefits but also obligations. We are now in a short focussed and intense process. It is crucial to complete this process before any decisions are made that could have implications for the taxpayer.

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