Brian Lenihan Jnr (Dublin West, Fianna Fail)

The board strength of AIB prior to the introduction of the Government guarantee in September 2008 was 15. Only three of those who were in place at that time still remain, all three having joined the board in 2007. Prior to the recent State investment in the bank, the then managing director and executive chairman stepped down from their positions on the board in October and November 2010, respectively. Since September 2008, there have been six new appointees to the board, including the now interim executive chairman in October 2010 and the deputy chairman. One of the principal objectives of the new interim executive chairman will be to assist the group in its search for a long-term non-executive chairman and a group chief executive.

I have indicated previously that a wholesale change of board personnel at all of the covered institutions was neither desirable nor practicable. Our actions to date have been consistent with that policy of progressive replacements, which will continue. I have encouraged AIB and the other institutions to make progressive changes both in terms of new appointees and retirements which have resulted in substantial changes in the composition of their boards. In addition, the Central Bank issued new corporate governance rules for banks and insurers that are to apply with effect from 1 January 2011 and designed to ensure that proper oversight exists to avoid or minimise the risk of a future crisis. Section 48 of the Credit Institutions (Stabilisation) Act 2010 deals with the duties of directors of relevant institutions and requires them to take the public interest into account.

In December 2010, AIB received a net capital injection of €3.7 billion from the National Pensions Reserve Fund, NPRF, as part of its revised capital requirement of €9.8 billion which must be raised by the end of February. The remaining €6.1 billion capital requirement is expected to be met through a combination of fresh capital from the State, the execution of a liability management exercise in respect of existing subordinated debtholders and other capital generative measures by the bank.

The Central Bank is in the process of conducting a revised PCAR exercise regarding AIB. At this stage, it is premature to speculate on the outcome of this analysis. As to the extent to which the exercise identifies additional capital requirements for the bank, the most appropriate method by which this capital will be provided will be decided at the time in consultation between my advisers, the Central Bank and board of directors of AIB.

As part of the agreement with the EU, the IMF and the European Central Bank, the State has agreed to adopt deleveraging measures and implement restructuring of the banking sector. To this end, target funding ratios for 2013 will be established for each of the banks, non-core assets will be identified and an adjustment path to these targets based on specified non-public annual benchmarks will be set.

The 2011 PCAR is being conducted with the assistance of various external advisers, as announced on 6 January. The metrics and various possible structures are being examined and will be included as part of the process scheduled for completion by 31 March. It is expected that the capital requirements will be met shortly after completion of the exercise, but a definitive date has not been set.

I am aware of the comments made by the Financial Regulator last week that restructuring of our banks could involve sales of good assets by the banks. However, I must point out that the analysis of all the options that could be used in a restructuring exercise is still ongoing. Proposals arising from such an analysis would of course need to be considered by the Government before they could be adopted.

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