Martin Mansergh (Tipperary South, Fianna Fail)

I thank the Senator for raising very legitimate issues. Like him, I am also a customer of the Bank of Ireland and I, too, pay tribute to the staff there who deal with me. By way of declaration of interest, I have a daughter who works for the other main banking group.

At the outset the Senator will, I am sure, accept that Ireland's full integration into the global economy and financial system has brought us significant benefits in trade and investment and has helped underpin the most sustained period of economic and social progress we have ever experienced. However, we must recognise that as a small, open economy with a financial system that has achieved an international standing and profile, it is inevitable that the uncertainty and disruption of global financial markets that has emerged over the past year and has had a significant adverse effect on world economic performance will also impact adversely on our own financial system.

Internationally, wholesale credit markets, where banks access money for onward lending to business and individuals, have tightened considerably. Liquidity has become more expensive and less available. While Irish banks have insignificant exposure to the sub-prime products that initiated the change in financial market conditions, they cannot be immune from its broader effects any more than the insurance industry was some years back in the aftermath of the tragedy of 11 September 2001.

Within this overall changed financial environment, it is important that banks and other lending institutions adopt a prudent approach which focuses on long term interests, taking account of the increased cost of money and the more challenging international economic circumstances. Notwithstanding several authoritative assessments of the robustness of the Irish banking sector based on our economic success of recent years, it is vital that banks and other lenders adapt their lending criteria to meet these changed circumstances. It is also important that lending proposals meet the twin tests of being economically sustainable in the current circumstances and borrowers being able to meet their repayments. I note that in the first quarter of 2008, banks extended 28,500 new mortgages with a value of €6.3 billion, 75% of which went on new purchases. While the level of mortgage lending is down compared with 2007, it still represents a very significant level of credit provision at a time when the residential property sector is undergoing an adjustment that is widely recognised as being necessary and appropriate.

We should recognise also that there has been significant growth in competition in the banking sector in recent years, with new entrants to the sector and the introduction of new and innovative products. While we all have to seek out the best deal to meet our needs, I expect neither the Senator nor borrowers would proffer thanks for lending that did not have regard to present realities.

I am well aware that access to credit is an essential requirement for large and small businesses, especially in the start-up phase. Although important, it is not the only requirement or the most important one. Details of a recent survey for the Small Firms Association, which ranked concerns of small businesses for 2008, listed finding finance to grow as No. 8, coming after concerns such as economic uncertainty, managing costs, and increased competition. Overall credit growth since the beginning of the year has amounted to €9.5 billion, underlining the fact that credit continues to be made available where sound business cases are advanced. One senior banker recently remarked that banks are not in the business of closing down profitable companies for short-term gain.

The Senator will be aware from the appearance of the Central Bank and Financial Services Authority of Ireland at a meeting of the Oireachtas Joint Committee on Finance and the Public Service that the Central Bank and the Financial Regulator are actively engaging with banks to make certain they act quickly and prudently to ensure the effective functioning of the financial system through the current period of uncertainty. The Senator will note that the banks are themselves to appear before the Oireachtas in the coming days. I hope that dialogue will be a positive one where the important and sensitive issues in question can be discussed, recognising the importance of maintaining financial stability and responding to the credit needs of the country.

We are in a period of almost unprecedented international financial dislocation. However, by keeping up a shared commitment to maintaining economic and financial stability and responsible management of credit, we can ensure our long-term economic prospects are maintained and assured.