Joan Burton (Dublin West, Labour)
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Question 64: To ask the Minister for Finance the current state of affairs at Allied Irish Banks; the implications of State ownership for members of the bank's board of directors; if he proposes to allow to continue in office those directors who remain in place since before the introduction of the original blanket bank guarantee in 2008; the position in relation to the proposed sell off of good assets by Allied Irish Banks to a new or expanded National Assets Management Agency vehicle, in view of comments recently attributed to the head of Financial Regulation, Mathew Elderfield; if he will estimate the likely capital requirements of AIB once the revised PCAR analysis has been carried out in early 2011; when he expects that these new capital requirements will have to be met; to the extent that the State will be meeting these capital requirements, the mechanism he intends to use to achieve this; and if he will make a statement on the matter. [1444/11]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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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.

Joan Burton (Dublin West, Labour)
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I thank the Minister for his reply. Before Christmas, he mentioned a figure of €6.4 billion as regards extra money for AIB. Others have suggested the figure will be almost €10 billion. Will he clarify what he now expects the figure to be? What is the State's net loss to date on its so-called investments in AIB? When the Minister introduced the bank guarantee, we were spun a story to the effect that such an investment in the banks would yield good returns. In fact, it has undermined the State disastrously, as the guarantee linked the debt of this and other covered institutions with that of the State. Does the Minister agree this is why the IMF came in to take over the country before Christmas?

How much are the further injections into AIB? Do they amount to €6.4 billion, bringing the total to almost €10 billion? What does the Minister intend to do with the cash balances of the NTMA? Will he take those balances and place them directly into the bank or will he use a mechanism for transferring support to the bank along the lines of promissory notes?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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As the answer makes clear, in December AIB received a net capital injection of €3.7 billion from the National Pensions Reserve Fund as part of its revised capital requirement of €9.8 billion, which must be raised by the end of February 2011. That is part of the revised capital requirement. The €3.7 billion was in any event a requirement since last March under the original requirement set by the regulator. Under the higher capital ratio now set in the EU-IMF-ECB agreement, the revised figure is €9.8 billion, of which €3.7 billion from the National Pensions Reserve Fund is part. The remaining €6.1 billion capital requirement, the difference between €3.7 billion and €9.8 billion, which will be outstanding until February, is expected to be met through a combination of fresh capital from the State; the execution of liability management exercises for existing subordinated bond holders and other capital generative measures that bank has ongoing.

I am trying to deal with all of the Deputy's questions.

Brendan Howlin (Wexford, Labour)
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I want Deputy Burton to be able to ask a brief supplementary question, we are already over time on this question.

Joan Burton (Dublin West, Labour)
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How much extra cash must the taxpayer put into this bank through the NTMA mechanism from its remaining cash balances? What figure does the Minister expect? He talks about an asset management exercise, which means the selling down of assets through a credit enhancement process, where the State would guarantee maximum losses for the buyers of those assets. Will the Minister specify how much he expects the asset management exercise to generate? Could he specify what other asset sales will take place and outline how much the State has lost on the investment in AIB so far?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Credit enhancement measures are separate from meeting the capital requirement; they do not arise as part of the answer to the Deputy's question. They are separate initiatives.

Joan Burton (Dublin West, Labour)
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They do arise because they have an effect upon who buys what assets.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I am trying to answer the question.

Joan Burton (Dublin West, Labour)
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I want to disagree with the Minister because if he thinks that, he is wrong.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I will endeavour to answer the Deputy's question and she can issue any statement she likes afterwards but I am entitled to answer the questions she asked. To date I have only been able to give partially complete answers because of a lack of time.

The Deputy pertinently asked how much actual cash will be required for the proportion of the total capitalisation. It is not possible to fix a precise cash figure because, as I indicated in my initial reply, it is proposed to conduct a liability management exercise with subordinated bondholders. When those subordinated bondholders take whatever pain is inflicted upon them, it will have a material bearing on the amount of cash involved. In addition, the amount of cash is further reduced by the fact that part of the capitalisation is being executed through the conversion of the existing preference shares to ordinary share status. Clearly the investment in the existing preference shares has already been made and those shares will be converted to ordinary risk capital as part of this publicly owned institution.

Joan Burton (Dublin West, Labour)
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So there are no figures?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I will give Deputy Burton as many figures as possible at this stage.

Brendan Howlin (Wexford, Labour)
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I will call Question No. 67 next and apologise for discommoding the Minister.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Question No. 67 can be grouped with the initial question tabled by Deputy Noonan, I think.

Brendan Howlin (Wexford, Labour)
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It is a matter for the Minister to decide.

Damien English (Meath West, Fine Gael)
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I agree.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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It deals with Commissioner Barnier's views.

Damien English (Meath West, Fine Gael)
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Question 67: To ask the Minister for Finance the input he has had into the endeavour of the International Market Commissioner, Michael Barnier, to assess sentiment on a proposal that, in future, bond investors would share the burden of any bank collapse; and if he will make a statement on the matter. [1443/11]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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As the Deputy is aware, the European Commission has the right of initiation for legislative proposals within the European Union legal framework. In that context, I welcome the Commission's consultation document, Technical Details of a Possible EU Framework for Bank Recovery and Resolution, published 6 January 2011, which includes an annex examining the issue of debt write-down as an additional resolution tool. The Commission is seeking stakeholders' views on possible mechanisms to write down the debt of a failing bank or to convert it to equity, as a means of restoring the institution's capital position and suggests that this tool would be for cases where the standard resolution tools are not suitable options or other tools would not be sufficient to achieve the objectives of a resolution. My Department will be responding to these issues on my behalf as part of its overall response to the Commission's proposal. It should be noted that this work is still at an early stage, as there is not a clear international consensus as to the specifics of how such bail-in tools would work in practice.

The Basel Committee on Banking Supervision, issued for consultation on 19 August 2010, is a proposal to ensure that all regulatory capital instruments are able to absorb losses in the event that the issuing bank reaches the point of non-viability. The consultation period is complete but the committee has not yet issued its assessment of the comments received.

In terms of my input to the Commission's proposal, it is the case that the crisis management has been the subject of detailed discussion by European Finance Ministers over the past number of years. I welcome the broad direction of the approach taken by the Commission and I have discussed the general direction of Commission policy on this matter with Commissioner Barnier.

In June 2009, the Economics and Finance Council, ECOFIN, called on the Commission to bring forward appropriate proposals to develop a comprehensive cross-border framework to strengthen the EU financial crisis management systems. Extensive discussions have taken place at ECOFIN of the Commission's work in this area including its communication and public consultation on an EU framework for cross-border crisis management in the banking sector which was published on 20 October 2009, its communication on bank resolution funds which was published on 25 May 2010 and its communication on a new EU framework for crisis management in the financial sector which was published on 20 October 2010. As well as these discussions at ministerial level, my Department also participates in the Commission's expert group established to assist the Commission in its development of legislative proposals for a framework for EU crisis management. I look forward to continuing my engagement with the Commission and other member states in the development of EU policy in this area.

I will conclude by making two further points. Future resolution mechanisms will only apply to a future insolvency or failing bank or distressed institution. They will not have application to the problems we in Ireland have already had to face and any proposals by the Commission have to be judged in that context.

Second, the general debate illustrates the fundamental truth of the proposition that if we are to make progress on this issue with regard to our current institutions - we endeavoured to make some progress during the recent EU-IMF discussions - it can only be made on a multilateral European basis.

Brendan Howlin (Wexford, Labour)
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This question is being taken as a stand-alone question and I will revert to Deputy Noonan's question subsequently.

Damien English (Meath West, Fine Gael)
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The Minister has until March to make his submission. Will this be discussed by the Joint Committee on Finance and the Public Service and will the Opposition have a say? Our view is slightly different from the Minister's, unless he has changed his way of how he does business. Up to now the Minister does not seem to want to go after the bondholders. This is a discussion paper about a fairer way of dealing with bank debts, not just the taxpayer taking the burden which has been the Minister's policy to date. Can I take it that the Minister might not necessarily agree with the Commission that bondholders should take on more debt-sharing in the future? We think they should. Will there be an opportunity to discuss this at the finance committee and will the Minister take advice on it? Will the Opposition have an opportunity to give its views to the Commission or will it just be the views of Ministers? This needs to be properly thought out and hopefully it will not be needed in the future, but it might be. If it had been in place, taxpayers would have been saved a lot of money.

Will the Minister be recommending that in future the bondholders will take more of a hit and the taxpayers a lesser hit? This is not his current policy and I ask him to clarify the position.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Any statements I have made to date on this subject have been in the context of the-----

Damien English (Meath West, Fine Gael)
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What actions?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Sorry, policies, actions, statements, whatever phrase the Deputy prefers-----

Damien English (Meath West, Fine Gael)
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They are very different.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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-----have been made in a context in which we have had to deal with actual distressed institutions. I have in no way prejudged in any statement what future policy should be in this matter. As I indicated in my reply, I am supportive of the Commission's approach. I would welcome a discussion by the Joint Committee on Finance and the Public Service and would be pleased to take its views into account when formulating a position on this issue.

Damien English (Meath West, Fine Gael)
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I thank the Minister for his willingness to discuss the issue but he was specifically asked for his views on dealing with the debts of banks. Will he recommend that in future bondholders will take a bigger hit than was the case under Government policy to date? I accept he will argue that he was unable to do this previously, although we think differently.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Yes, and in enunciating policy in recent years I have made it clear that Europe does not have legislation equivalent to that introduced in the United States in response to the savings and loans crisis. That has created a very different context for the domestic debate on bondholders and the degree to which they should contribute to the resolution of difficulties in institutions which are extremely distressed.

Damien English (Meath West, Fine Gael)
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That is the Minister's view.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Many of the arguments used in this jurisdiction were derived from sources in the United States, where an entirely different legal context applies. If the Deputy is asking me whether we should move towards the legal context of the United States, I think we should be open and positive about doing so but I would express the reservation that any proposals have to be judged in terms of the impact they will have on the capacity of institutions to raise funds.

Brendan Howlin (Wexford, Labour)
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We will now revert to Question No. 63. I apologise for chopping and changing and hope it does not disrupt Members.