Brian Lenihan Jnr (Dublin West, Fianna Fail)

All banks publish their gross and net derivative trading and hedging positions in their audited financial statements. The NAMA derivative position is included in NAMA quarterly reports that are laid before the Houses of the Oireachtas.

Banks utilise derivatives as part of their normal risk management hedging operations, primarily to control their exposure to interest rate and foreign exchange risk. The net exposure to hedging derivatives in each of the financial institutions at the most recent published annual account date at AIB was €777 million, at Bank of Ireland €145 million, at INBS €88 million, at Anglo Irish Bank €83 million, at EBS €39 million and at Irish Life & Permanent €433 million.

I am advised by NAMA that it does not enter speculative derivative positions but utilises derivatives to manage to the greatest extent possible, the balance sheet foreign exchange and interest rate exposures arising from the transfer of assets from participating institutions. For example, NAMA has to use currency derivatives to hedge the foreign exchange exposure which arises on the purchase of foreign currency loans with euro denominated NAMA securities. In addition, NAMA uses interest rate derivatives to assist in hedging interest rate risk arising on NAMA securities and borrower derivatives which transferred to NAMA.

I am informed that EBS, INBS and Irish Life & Permanent do not use derivatives for trading purposes. Anglo Irish Bank no longer uses derivatives for trading purposes. The other banks take proprietary trading positions in derivatives with a view to earning a profit. Where such activities are carried out, it is within pre-defined trading limits set by the bank's board and monitored by independent risk management functions within the banks.

In the case of Bank of Ireland the fair value of trading derivatives at the time of their last published annual accounts was a net liability of €358 million. This total includes derivatives entered into with economic hedging intent but classified as held for trading under international accounting rules. The same applies for AIB, which had a net liability of €226 million.

It is important to note that any profits or losses on traded derivatives are fully recognised in the banks' annual accounts. The information for NAMA is contained in the quarterly reports produced by the agency, the latest one of which I will shortly lay before both Houses of the Oireachtas.

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