Ciarán Lynch (Cork South Central, Labour)
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Question 70: To ask the Minister for Finance his views on the net exposure of the National Asset Management Agency and the credit institutions supported by the Eligible Liabilities Guarantee to derivative instruments; the extent to which these exposures arise from hedging arrangements or from speculative positions; and if he will make a statement on the matter. [1372/11]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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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.

Joan Burton (Dublin West, Labour)
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This question arose because the Minister issued a blanket guarantee at the end of November before the budget on Anglo Irish Bank exposure to interest rate and foreign exchange transactions. The reason it became necessary, which may have been recommended to the Minister by the board of NAMA, was that Anglo Irish Bank went down to junk bond status and many of the derivative positions essentially became closed.

Based on what the Minister knows about the operations of Anglo Irish Bank before the fall, and in view of the kind of behaviour the bank was engaging in, what does the Minister know about the derivatives it had entered into? The derivatives of most Irish banks were related to hedging, foreign exchange swaps and so on - routine business. It is basically a form of insurance. Then there were the geniuses who ran Anglo Irish Bank. If one is clever in the markets, there is a lot of money to be made from derivatives.

Brendan Howlin (Wexford, Labour)
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A question, Deputy.

Joan Burton (Dublin West, Labour)
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Has the Minister reviewed the derivative positions of Anglo Irish Bank? He should take account of the fact that at the end of November he was forced to issue an extra guarantee for all the derivative positions of the Anglo Irish Bank. Does he have a chart showing when those positions expire and thus the risk ceases?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Taking the week ending 31 December last year-----

Joan Burton (Dublin West, Labour)
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Say 30 November 2010.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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No; I am referring to the information at my disposal about the derivatives of Anglo Irish Bank which required the posting of collateral in the event that the derivative was out of money, which is what Deputy Burton is talking about. In that case, the derivative becomes a liability. That collateral is netted against the State's exposure in the event that the guarantee is called in. Let us take as an example, for illustrative purposes, the week ending 31 December 2010. In that week, the maximum net exposure of the State to derivatives, assuming the guarantee was called in - which is was not - was less than €10 million. I have every confidence in the current management and board of Anglo Irish Bank. They are doing their job, and the approach taken in this matter was essential to stabilise the institution.

Joan Burton (Dublin West, Labour)
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Has the Minister reviewed all of the outstanding derivative positions of Anglo Irish Bank? Is he happy that has been done and that there has been due diligence? Has he spoken with the various parties now looking after Anglo Irish Bank? Is he satisfied that he has been advised of all potential exposures? Does he have a list of the dates on which the derivatives expire?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I do not have a list of those instruments before me this afternoon, and I would be surprised to be furnished with one.

Joan Burton (Dublin West, Labour)
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Why?

Joan Burton (Dublin West, Labour)
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It is commercially sensitive information.

Joan Burton (Dublin West, Labour)
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Why? This is the biggest risk the State has ever run.

Brendan Howlin (Wexford, Labour)
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Please allow the Minister to continue.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The Deputy is very good at identifying various risks, but this is not the biggest risk the State has ever run.

Joan Burton (Dublin West, Labour)
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Anglo Irish Bank?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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It is essential simply to stabilise this-----

Joan Burton (Dublin West, Labour)
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Anglo Irish Bank is the biggest risk the State has ever run.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I take it the Deputy was referring to the particular issue of derivatives, not Anglo Irish Bank in general, which is a different situation. I accept that.

With regard to the particular issue that is the focus of the Deputy's question, I am satisfied that my officials have checked the matter with the bank and ensured there is no undue exposure for the State.