Ciarán Lynch (Cork South Central, Labour)
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Question 9: To ask the Minister for Finance the details of the formula used to derive the aggregate amount of the charge to banks and credit institutions covered by the credit institutions financial support scheme; and if he will make a statement on the matter. [38814/08]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The charge for the provision of the guarantee is based on an assessment of the additional funding costs arising for Government from the guarantee scheme.

It is estimated that the total aggregate charge paid by the covered institutions over the next two years will amount to approximately €1 billion. The thinking behind the charging model is set out in some detail in the annexe to the scheme.

The charge will be calculated separately each quarter for each covered institution having regard, inter alia, to the amount of its covered liabilities, a realistic assessment of the risks, the steps taken by the institution to reduce that risk, consistent with the objectives of the scheme, the long-term credit rating of the institution and also any material changes to its risk profile, subject to the estimated cost to the Exchequer being fully recouped.

Our intention in framing the charge to be made for the guarantees under the scheme was to protect the taxpayers' interest, while not imposing such charges as would add to the problems we are seeking to solve. At the same time, it was our intention that financial markets would continue to function normally and that no unfair competitive advantage would be given to the covered institutions.

Joan Burton (Dublin West, Labour)
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Did the Minister have an opportunity to read an article in yesterday's Financial Times, which said that Ireland needs high coupon rates to attract investors? It said Ireland "had to offer 25 basis points, or one-quarter of 1 per cent, over average European government bond yields, which was at the high end of expectations". Does the Minister agree Irish bonds are now priced in the same way and only slightly below the highest cost in Europe, which is Greece, and that effectively our bond rates are almost 1% over what they were a year ago when Ireland was one of the best risks? Ireland has gone from being one of the best risks on bonds to being the second highest, after Greece, within one year.

The Minister's scheme valued the cost to the taxpayer of the rise in borrowing costs as being €1 billion over ten years, based on an increased spread of 15 to 30 basis points. Already, as this week's bond issue shows — he was boasting about it in a reply to an earlier question — it is already 0.25% extra. It has gone up 54 basis points on the Financial Times bond index, as listed in yesterday's paper. The Minister keeps boasting about the scheme. It has addressed the liquidity, but done nothing to repair the holes in the banks' capital position or address the impairment of asset values. When we repay our national loan, it will now cost the Irish taxpayer an enormous extra percentage.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Deputies on all sides of the House will have to be aware that the conditions in the international bond market are not unique to Ireland. We are not in a unique position in international markets — far from it. We are operating in a climate where several sovereign states have been unable to access international liquidity in any form whatsoever. We are also dealing in international markets in which several European states have refrained from seeking to raise funds. It is in that context that I have pointed out that Ireland had successfully floated a loan.

As regards the position of the liquidity guarantee to the banks, which was given in late September, I agree with Deputy Burton that it has served the purpose of providing liquidity to the banks, but it does not address the longer term question of how they are to be restored as viable institutions, extending credit on proper terms to Irish consumers and businesses.

Arthur Morgan (Louth, Sinn Fein)
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Will the Minister review the charge scheme, and if so, when?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The charge scheme is set out and is now being implemented in the contractual arrangements arrived at with the different institutions. Provision is contained within the scheme for the review of the charging mechanism, when appropriate.

Joan Burton (Dublin West, Labour)
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Does the Minister agree that the €4 billion bond issue he referred to is equivalent to 10% of the national debt, borrowed just last week at much higher costs because of the banks scheme? He borrowed, in effect, one third of the Government's borrowing requirement for that scheme. He is basically giving the banks a free lunch because he is not charging them a price that reflects the extra cost taxpayers will have to pay for the borrowing. Did the Minister and the Taoiseach not keep saying that this was a type of cost-free scheme? What plans does the Minister have to recover the extra costs that the poor Irish taxpayer will have to pay? Is he not concerned, given the trend, that Ireland is now down with Greece as being the second worst country in Europe in terms of risk, having been the best? Does he believe Ireland will lose its AAA rating in 2009?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I do not accept the international comparisons made by Deputy Burton. The reasons for the increase in the basis points referred to by the Deputy are not related to the guarantee given to the banking system by the Government, but to the general international difficulties, which I have already put on the record of this House——

Joan Burton (Dublin West, Labour)
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That is absolute rubbish.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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——and which are clearly visible to any person who examines the financial literature for any extended period. As regards the question about the protection of the taxpayer, the whole basis of the charging mechanism is to ensure the taxpayer is protected against any increase in the basis points, which are attributable to the giving of the guarantee.

Kieran O'Donnell (Limerick East, Fine Gael)
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The ECB is dropping its interest rate. The Government, on behalf of the taxpayers, has given a gilt-edged scheme to the banks. Can the Minister ensure, through the scheme, that banks pass on the reduction in the interest rate to hard-pressed consumers?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I made it clear in replying to Deputy Kenny this morning that I anticipated that the Irish financial institutions would pass on the benefit of the interest rate decreased.

Kieran O'Donnell (Limerick East, Fine Gael)
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Can the Minister ensure this through the charge scheme?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Again, in relation to that, it is not a scheme in which taxpayers' money was invested in or spent on the banking sector. It is a scheme in which the State gave a secondary guarantee and——

Kieran O'Donnell (Limerick East, Fine Gael)
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The cost of money has gone up to the State.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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——-under the legislation governing the scheme, a right of commercial interference in the banks is not given to the State. However, it is in the banks' commercial interests to pass on the benefit of the interest rate.

Kieran O'Donnell (Limerick East, Fine Gael)
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With due respect, that is not happening.