Michael Noonan (Limerick City, Fine Gael)

Deputy Brian Lenihan was correct in saying that the stress tests were based on conservative assumptions. The BlackRock consultancy group, from the United States, which is the lead consultant in this regard, took a conservative approach, assuming, for example, a further 30% drop in property values over the test period, which is beyond what most domestic economists would say. They did so because Ireland has little credibility left across Europe and internationally and the last set of stress tests were blown out of the water so quickly that a more rigorous approach was required on this occasion, because, if a soft approach was taken, nobody would believe the results. These stress tests are credible. They might be overcooked or overdone, but there is provision in law, if a bank is over-capitalised, for access to the High Court to recover the extra funding. In addition, there is a specific provision in the EU-IMF bail-out that if banks turn out over time to be over-capitalised, they must be reduced to their proper capital level.

There is merit in Deputy Lenihan's criticism that the strategy seems to be to stuff the banks with capital so that the markets are calmed again. Some credibility is restored to the Irish banking system, the State and those who represent it abroad. That is one of the big problems we have found as an incoming Government — there is a credibility problem because of what has happened over the past three or four years. I am not blaming Deputy Lenihan for that, but there were other members of the Cabinet in which he sat whom I do blame. It will take a while to fix these credibility issues.

I remind Deputy Lenihan that this Government inherited the stress tests. BlackRock and the associated consultancy firms were not engaged by us but by the Central Bank in consultation with the Deputy and the outgoing Government. All the arrangements were made by them. If the Deputy is critical, he is critical of consultants in whose appointment he participated, at least at an advisory level.

Our approach is to take the situation as we find it. Rather than curse the darkness, we are doing something about it. We are saying that this country cannot work without a proper banking system. At present, the banks are not working because they have debt-to-deposit ratios that are far too large, and the overhang of impaired assets, many of which have nothing to do with the Irish economy, is forcing a situation in which bank managements spend their time, as far as I can see, concentrating on survival and on maintaining the balance sheets. There is very little headroom in the banking system to deliver credit to the economy, and without credit flowing, it is not possible to restore the economy, get it growing or provide jobs.

There is much detail in the plan I outlined this evening. It is hard, but we will provide full briefing documents with detailed explanations to everybody in the House as quickly as possible.

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