Stephen Donnelly (Wicklow, Independent)

The Minister for Finance earlier laid out three stated objectives of the banking sector reform, namely, "to restore confidence in the banking system and in the economy of the country ... to recapitalise and restructure the banks and ... to restore credit to the economy in order that growth will rebound and jobs can be recreated". I put it to the House that there is really only one objective, the third, which is to restore credit and create jobs. Restoring confidence in the banking system through recapitalisation is simply an enabler of the ultimate goal which the Government has laid down. If we evaluate the Government's proposal according to that objective, namely, to get money flowing into the economy to create jobs, then it makes a lot of sense. We stuff money into the banks, we pay back all of their debts and, inevitably, over time, they will begin to lend money. Furthermore, we should have a group of people in the Department of Finance who force them to do so. That will work.

I put it to the House that there are three objectives to banking sector reform, two of which are being missed. The first, as the Government said and with which I agree, is to get adequate funding flowing to viable businesses as soon as possible. The second, which the Government does not address, is to minimise the current and future exposure of the Irish people to the bad debts of the banks, which is at the heart of the senior and subordinated bonds. The third is to ensure that Ireland can borrow as cheaply as possible on the sovereign debt markets to address our ongoing budget deficit. If we evaluate the Government's proposal against these three objectives, while there some good ideas, unfortunately, it falls short. Therefore, I would like to suggest some policy options to the Government.

On the first objective, which is to get money flowing, I welcome the sell-off of non-core assets to generate cash. It is a good idea and it must be done in a timely manner. I welcome the winding down of the banks with the result we will end up with the two pillar banks and, hopefully, this will mean more competition in the market. What is not included is the question of addressing some of the remaining bank liabilities, mainly the commercial debt, mortgage debt and developer debt which has not gone into NAMA. There are two obvious options in this regard, namely, to move these off balance sheet into a NAMA-type structure or to take out some large-scale insurance policies. I encourage the Government to consider both options in order to increase confidence.

One of the issues which concerns me is that the Government will be setting lending targets for the banks. We learned from the Minister that the Central Bank has estimated that between €11 billion and €16 billion will be required but that the Government target is €30 billion, and that the officials within the Department of Finance will target specific sectors. While I hope this works, it causes me great concern. We know the banks in Ireland were not very good at making lending decisions in the past few years and, similarly, the previous Government and the Civil Service fell asleep at the wheel. I am very concerned about the Government taking such an active role in lending decisions, which could lead to further poor lending decisions which bring us back to where we are now.

The second objective concerns minimising the current and future exposure of the Irish people. What the Government is doing is deleveraging the banks and making them smaller, which I welcome. What is not included, obviously, is the senior debt and all of the subordinated debt - we must remember we are not writing off all of the subordinated debt and we are still paying several billion euro of that. While I will not rehash all of that now as it has been much discussed in the past two days, it is a concern and a major failing of Government policy. Also not included is a specific failure regime so that, given this circumstance in the future, banks can fail. I hope to see Government policy on this in the future.

The third objective is that this policy makes it possible for Ireland to borrow on the markets so we are not subject to the IMF-EU-ECB conditions, as we currently are. By not pushing back on the bondholders, over the next three years we will move to a probable default, which the markets have already priced in and which economists here and abroad are suggesting will probably happen, while the EU appears to be gearing up for a multilateral restructure. The problem is that by the time this happens, all of the private banking debt will have been nationalised, which is of great concern.

To conclude, while I welcome some of these measures which move the banking system in the right direction, I am very concerned about other measures. My views on the senior bondholders have been expressed previously in the House. I hope the Government will consider some of the proposals laid out here.

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