Brian Lenihan Jnr (Dublin West, Fianna Fail)

I will speak about Monday evening later.

On the other side of the equation, one has the option of nationalising one, two or three vulnerable institutions. Does anyone believe that if we had nationalised an institution, it would not have resulted in a run on all the institutions in a small country such as this? We must devise policy which is appropriate for our country. As far as Europe is concerned, and I am a strong European who is proud of our participation in the euro, we were on our own last Monday evening. People are complaining that only six institutions are covered by the proposed measure. The six institutions in question would have been orphans in the world if the sovereign Irish State had not supported them last Monday evening. All the other institutions which want recognition have other sovereigns behind them, some of which are much bigger and more powerful than this State. We had six institutions which had no one to turn to but the sovereign Irish State.

Senator Alex White is entitled to ask what happened last Monday evening and why it happened. I assure Senators that for some weeks my officials and I, the National Treasury Management Agency, the Financial Regulator and the Central Bank had been monitoring developments in the banking sector with great intensity. Following the collapse of Lehman Brothers, an act of default by the United States authorities, a huge shock wave went through the world financial system. Of course, particular banks are vulnerable and Senators identified some of the weaknesses in the asset balances of the Irish banks on the commercial book side, where one has lending for development in the context of a falling house price market and construction sector. These were weaknesses but the banks were working their way through them. However, the shock wave through the world financial system worked itself out in subsequent days and last weekend it worked itself out in all the European countries. A bank failure occurred in one of the largest banks in Belgium and the Belgian state, owing to the bank's extensive indebtedness, required the assistance of the Grand Duchy of Luxembourg and the Kingdom of the Netherlands to find a solution. A bank failure in a company associated with the financial services centre threatened in the Federal Republic of Germany last Sunday and a failure on Saturday night in Britain was dealt with overnight by the United Kingdom.

Given these international trends and local circumstances, our banking sector has shown immense resilience in withstanding the pressures of recent weeks. It continued to show this resilience but by Monday evening it was clear to the Government that the huge battering the Irish bank shares had taken on the Stock Exchange reflected a general collapse in market confidence in the whole Irish banking sector. This was a very serious situation.

The Government did not initiate any contacts with the banking industry. The Department of Finance has a constant discussion and is in constant liaison with the different banks and the Central Bank to monitor the position and determine what is taking place in the world of Irish banking. I was asked for a meeting by the chief executives of AIB and Bank of Ireland who indicated to me that they and the chairmen of their respective institutions were both interested in meeting me and the Taoiseach. A meeting was arranged and we convened the relevant parties.

While I do not propose to discuss the details of the meetings as they are not relevant for present purposes, the chief executives made clear to us that liquidity was drying up in the Irish banking system and the maturity dates for the various loans they need to fund their business were shortening all the time and reaching dangerous levels of exposure in terms of time limits. All these issues were spelt out to us. The Taoiseach chaired these meetings and acted with total propriety. He heard what the banking interests had to say and asked them to leave the room. He sequestrated them from the rest of those present in order that we could make decisions in what was in the best interest of the nation and State as opposed to private institutions. Six institutions were at issue and we had to consider the collective interest of the Irish banking sector and what measure we could adopt. Naturally, in light of the global position, contingency planning had been under way in my Department for some weeks and we had examined and evaluated various options.

In the circumstances, we consulted the Central Bank and Financial Regulator and the judgment we made was that the best course of action was that which is embodied in the Bill before the House. No course of action is free from risk.

I am very pleased at the international reaction, especially that of North America, to our initiative. The American people feel somewhat paralysed by the inability of their politicians to find a solution and I am glad they seem to be approaching one now.

In regard to our relations with our European partners, I could not advise the Commission prior to the announcement of the decision because of the sensitivity of the matters involved but, contemporaneously with the decision, I advised the Commission of the position. I am glad it has initiated a dialogue with us, it is examining the issues and, as the Commissioner said, she is delighted to assist us in every possible way. There are issues to be worked through. It is well established in European Union law that when there is a threat of systemic disturbance to a whole national economy, a member state is entitled to take action.