Feargal Quinn (Independent)

I welcome the Minister of State to the House to debate the scheme. I wish to share my time with Senator Bacik and ask to be told when three and a half minutes have elapsed.

The Government took a correct decision on 30 September when it solved the liquidity problem. It avoided the danger of running short of money during that week, a move that was well done, as was the speed at which this move took place, overnight and in the following few days. Within days, however, that action was no longer enough. Once the United Kingdom and other countries took their steps liquidity and cash were no longer the problem. Capital became and remains the problem and of course we have not solved it with this scheme.

Senator Fitzgerald said the Minister for Finance would return to the House and that this was only an initial scheme. Of course it is, because the marketplace will not accept merely a solution to the liquidity problem but requires the capital problem to be solved. During the past two weeks matters changed after the British Government put not only a guarantee but investment into its banks. This scheme is another guarantee that covers the liquidity problem, but capital is required. The Government must ultimately take equity in the banks. However, liquidity is no longer the problem. Capital is needed, which means the Government will be eventually forced to acquire equity in the banks. Should the scheme have provided for such a step? Given that the State will have to do so at some point, it should have intervened in the past two and a half weeks .

The question of where the State will get the money to buy equity in the banks is a matter for debate. A number of options are available, although none is attractive. Investors in the marketplace will answer the question because when they decide they are no longer satisfied, the issue will no longer be in our hands. Trust and confidence are needed in our banking institutions because without them we will all lose.

On the question of what went wrong in the banks, I understand the Financial Regulator was castigated at a recent meeting of the Joint Committee on Economic and Regulatory Affairs. To what extent was the regulator constrained by a lack of resources and management support or hostile lobbying on the part of the banks? An even more important question arises regarding an earlier checkpoint, as it were, namely, the non-executive directors of the banks. Where were they when they were needed in recent years? Their function is to oversee management strategy and policies and examine issues such as excessive leverage, disproportionate reliance on property related lending and the advancing of dangerous percentages of value. These practices do not appear to have been stopped. Some non-executive directors are long-serving and had ample access to comparisons with earlier years. They should have been alarmed by the changes taking place and risks being taken by the banks. We must ensure this failure is not repeated.

This morning, the values of Allied Irish Banks and Bank of Ireland are approximately 90% lower than 12 months ago and it is unlikely, given the current outlook, that a dividend will be paid to shareholders in the next two years. Those who argue the State should invest in the banks on the basis that they will make substantial profits are being optimistic. One should not be too confident in this regard.

The reason the State should take equity in banks is to protect our financial institutions and create public confidence. The large falls in the values of the banks will have major implications for future pensioners and pension funds because bank stocks are the largest holdings of many pension funds. Practically everyone who has a pension that is not guaranteed by the State will be affected. Even those with State guaranteed pensions must be asking questions.

Moreover, for many Irish citizens, mainly older people, the dividends paid out by Irish banks are an important part of income. Politically, this will be the next shoe to drop. We have not gone far enough to address the challenge we face. We must go much further to create confidence and trust in the banks, which will require changes in bank capital as well as liquidity.