Paul Coghlan (Fine Gael)

We all accept we are in very difficult and dangerous times with the economy and because of the banking situation. If our economy is to have any future success - which we all wish for - and if it is to get out of these doldrums, the stability of the banking sector is vital. While Fine Gael might not agree with the proposal outlined, we still hope it will be successful. My party's spokesperson on finance, Deputy Bruton, has outlined another model worthy of consideration and to which I will refer later.

The shocking situation was referred to briefly on the Order of Business and there have been daily revelations which have not been doing us any good. We thought that the difficulties were largely confined to the concealment between Anglo Irish Bank and the Irish Nationwide Building Society but now we have learned of the exceptional support offered by Irish Life & Permanent. I am not quite sure whether this was offered under the cover of the guarantee scheme as there seems to have been conflicting views but it had the effect of artificially boosting the deposit base of Anglo Irish Bank at a crucial time. The guarantee scheme is very important and the Minister of State referred to it in his speech. Investor confidence will be hindered unless the Government extends that scheme and I presume it has made provision to do this beyond 2010. It does not really matter what we think but the markets will not react properly unless they have trust and confidence. The Government has superior control and moral authority because the banks have their hands in the lion's jaw, so to speak, and the Government can oppose the appointment of directors and the scale of remuneration. This approach is supported by Fine Gael. However, it is crucial the Government takes further measures as necessary to extend the guarantee scheme beyond 2010.

The assistance given to Anglo Irish Bank by Irish Life & Permanent and the routing of this assistance through the investment management arm of Irish Life & Permanent is a practice upon which there has not been a word from the Irish Association of Investment Managers or from the Pensions Board. They have been strangely silent but they should have something to say. We thought this sort of malpractice had finished but now it seems to have extended to Irish Life & Permanent. It is to be hoped that Allied Irish Banks and Bank of Ireland were not involved in anything of that nature but if anything turns up in this regard, it will damage confidence further. The other three institutions were caught using practices which some would regard as fraudulent, which they may be. Is the appointment of an inspector required? The Government has appointed independent directors to Anglo Irish Bank and they are carrying out an investigation. I do not know the results of this investigation and other investigations and I do not know the timescale for the investigations. I ask the Minister of State to comment in his reply.

Following the putting in place of the guarantee scheme, the Minister spoke about the necessary recapitalisation and also about restructuring of the banks. He said that the six banks covered amounted to too many in number for this economy and I think he thought it desirable that this number should be reduced to two or certainly three. What is the Government's plan because we have not heard anything of late? I await the Minister of State's response on this matter. There is no doubt about the very cosy insider arrangements in place in all the interbank lending that took place and this damaged confidence and was the cause of our current problems. It would appear as though there was a golden circle in place to whom the normal rules did not apply and they thought they could make it up as they went along. This has been a sad event for the country and it has damaged our reputation abroad. However, this is the situation we find ourselves in and we have to get out of it.

Despite Fine Gael's reservations we welcome this proposal and wish it success. However, in our opinion there is another way of dealing with this issue and that is to set up new banks out of the old banks and leave behind a legacy bank. I know that Senator Butler and I are at one in this view. We have to stir things again and assist small and medium-sized businesses throughout the land. We know that these people are starved and choked at the moment because the ability of the banks to lend is impaired and we have to free this up. The Government's proposal to recapitalise the banks to the sum of €7 billion will not result in the banks making that amount available as they will just use it to improve their ratios. I agree they must be prudent in their lending policies but if Deputy Bruton's proposal had been adopted by the Government, we could have a new bank, pay the legacy bank for what it would undertake to buy and the banks could begin with a clean balance sheet and have capital available. This would better inspire investor confidence and perhaps bring in outside private funding. I ask the Minister of State to state his views on this proposal.