Jim Walsh (Fianna Fail)

In July, I attended a gathering where a former senior bank executive painted a bleak picture of the overall banking situation. It set off alarm bells when he referred to the fact that the global climate had all of the ingredients present in 1929-33 during the Great Depression. Given what has unfolded, it was an insightful analysis. If this were known to someone formerly with the banks, the regulatory authorities and the Department of Finance must answer questions. It is a global rather than an Irish phenomenon. The former executive put it all down to leverage, which has afflicted Ireland in the same way as many countries.

The Chinese have a saying, "May you live in interesting times". Anyone remotely connected with business, the economy or the Government would ask not to live in such interesting times in future. In late September, the Minister was justifiably complimented for taking a hands on role in a sure-footed way to meet the turmoil afflicting our and other financial institutions. His sensible approach in proposing the guarantee scheme restored confidence to the market during a time of serious challenges to the system. The situation has moved considerably since and other governments have pooled their expertise and resources to try to restore confidence. The EU and the US have been to the fore in this regard.

When we debated this issue some weeks ago, I mentioned a concern. While it is one thing to give a guarantee to domestic banking institutions, which are fundamental to the economy's lifeblood, it is an entirely different thing to extend the guarantee to foreign-owned banks, which the EU has prompted us to do. We must recognise that it adds a risk of exposure. Murphy's Law of what can go wrong, will go wrong applies to the global turmoil. One hopes that an element of confidence and improvement can be built into marketplaces, but we must recognise that the guarantee carries a risk. The scale has serious financial implications. If Murphy's Law acts here as it did in Iceland, we could be retarded financially and economically for many decades. I am not a banking expert, but I believe this is a common sense business approach to the issue. We must rely on the Government's expertise to ensure that the risks are managed in a way that will not lead to an unmanageable situation.

Other countries have tackled the problem by capitalising their banks, an issue that may need to be addressed in Ireland, probably sooner rather than later. Various advice has been given on how to see it done, but we need not look further than what Berkshire Hathaway Incorporated did through Warren Buffett. He came to the rescue of Goldman Sachs by placing $5 billion in preference shares and receiving a recoupment of 10% annually. He also struck a deal whereby he could inject a further $3 billion in shares by way of warrants during the next three or four years at a level set on current values. In the future, he will be able to buy ordinary shares at today's prices instead of buying them now. If share prices have increased, he will make a handsome profit. If we or the State agencies must tackle the issue, this model should be recommended.

Regarding covered liability, we have agreed on retail and corporate deposits. My question on dated subordinated loans is the same as Senator Hannigan's. Interbank deposits are of concern in that we may ultimately underwrite some of the foreign banks' deposits. They have branches all over the world, only some of which will be guaranteed by the states in which they can be found. This situation must be policed to ensure there is no transference of problems into the banks' Irish group companies. We are relying on the Central Bank and regulatory authorities. While this is not the time for recrimination, serious questions must be asked of them and international regulatory authorities. It might be prudent to conduct an independent analysis of the authorities' strengths and weaknesses. We rely on them to ensure that structural defects are set right. If they fail to monitor the scheme properly, difficulties may arise.

Unless appointed directors have statutory executive input into operational matters, I am unsure as to how effective they will be regardless of their calibre. They must be present day to day to monitor and control so that, if there is a drift to our disadvantage, it can be detected early instead of relying on information provided at board meetings, by which point they may not be able to rectify the problem.