Willie O'Dea (Limerick East, Fianna Fail)

As the Acting Chairman will know, it is sometimes easier to move billions of euro than to move cows.

I thank Senators for their comments on the Government's recapitalisation plans for Allied Irish Banks and Bank of Ireland. I reiterate the comments of my colleagues when I say the measures announced today are intended to reinforce the stability of our financial system, increase confidence in the banking system and facilitate the banks involved in lending to the economy.

There has been some comment regarding the sufficiency of the Government's investment. The investment will significantly strengthen the core tier 1 capital of these banks, well in excess of regulatory limits. It is estimated that it brings the core capital to €12 billion for AIB and to almost €11 billion for Bank of Ireland. These figures are very high by international standards. The structured process undertaken to arrive at the current proposals gives the Government confidence that the investment will succeed in building market confidence and kick-starting lending to the economy.

As mentioned, the amount to be invested was determined following consideration of likely trends in property values and various stress scenarios for the economy. Assurance can now be offered to markets on the levels of capital in the two largest banks, and the fundamental strength of their position in the coming years.

I want to reiterate that this is not simply money being given to banks but rather an investment by the State generating a strong return in the current environment with various other conditions attached, including warrants that provide the State with access to the upside when bank shares recover. The recapitalisation also provides a tool for the Government to address many of the credit-supply issues in the economy. The measures announced by Government include a review of credit supply, a clearing group to review credit supply issues and specific credit initiatives, such as the environmental and clean energy innovation fund.

Statutory codes for mortgage holders and business lending have been finalised. The codes will ensure all banks operating here deal in an even-handed way with customers. In particular, the codes will ensure consumers are treated in a reputable and respectable fashion, for example, when facing mortgage arrears. Taken together, these initiatives will serve to stimulate credit supply and, consequently, economic recovery.

The recapitalisation proposals also include restrictions on remuneration in the banks. The reduction of at least one third of overall remuneration for senior executives is a strong signal in this regard. Moreover, the reduction indicates the commitment of the banks and Government to wage restraint in the economy. The Government will not stop here, however. The Minister for Finance has indicated he will write to the covered institutions remuneration oversight committee to suggest an overall cap on remuneration for executives.

In discussions with AIB and Bank of Ireland, the question of the management of the banks was discussed. As the Minister for Finance has mentioned, the proper forum and method for effecting any management changes deemed necessary in the banks is through the annual general meetings of the banks, with the State exercising the voting rights it holds. If the State intervened arbitrarily in the management structures of the banks, it would send a very unhelpful signal internationally on the State's approach to our financial institutions. It is important to note that the terms of the recapitalisation provide that the Minister for Finance can appoint 25% of the directors, in total, in both banks. This representation at board level will ensure an appropriate State role in the oversight of the running of the banks.

Various options for addressing the pressures on the asset side of our banks' balance sheets, including the idea of a bad bank, a good bank, and the option of a form of insurance of bank assets, were raised and debated by Senators today. For its part, the Government has made clear that it is conscious that, in current market circumstances, there is a need to bring greater certainty and transparency to the operations of systemically important financial institutions, in particular in regard to specific asset classes currently perceived as carrying a higher than average risk. For Irish banks, in current economic circumstances, these higher risk classes relate to lending for land and development.

The Government will examine proposals for the management and reduction of risks within banks with respect to these particular exposures, having regard to international developments and work at ECB and EU level. I reiterate to Senators that the Minister for Finance will be carrying forward this work to produce proposals as a matter of priority.

There has been comment here today and in the media regarding our regulatory system and I agree the nature and thrust of Ireland's regulatory system needs to adjust to the new realities. Lessons must be learned from mistakes made and from the international experience of the recent period of worldwide financial disruption. We need a regulatory regime that fosters probity. I welcome the review now being undertaken by the regulatory authority to that end. We are not alone, however, in this process. Work has begun on forging a new model to govern the conduct and behaviour of the financial sector both here and internationally. I assure the House that Ireland will play its part internationally, particularly at EU level, in seeking to ensure the re-design of the financial system and in particular of financial regulation is consistent with the objectives that underlie a strong, stable and functioning national banking system.

Senators will agree it is disappointing that questions over corporate governance practices at Anglo Irish Bank and Irish Life & Permanent are overshadowing what is a crucial step in ensuring the financial stability and future success of the Irish banking system. The transaction in question is the subject of a number of investigations, including by the Financial Regulator and the Office of the Director of Corporate Enforcement.

The matter is, in the first instance, a prudential matter and was brought to the attention of the Financial Regulator by the Department of Finance. It was also one of the corporate governance concerns that resulted in the Government's decision to nationalise Anglo Irish Bank. At this stage, it would not have been appropriate for the Minister for Finance to disclose publicly confidential information which was and remains the subject of an investigation by the responsible statutory authority, the Financial Regulator, and also by the Office of the Director of Corporate Enforcement. The new board is also reviewing all the corporate governance practices of the bank and will put arrangements in place to guide the bank in future. The bank's annual accounts, to be published in the coming weeks, will provide appropriate details on this transaction.

All parties agree that underpinning the stability of the financial system of the State, given its importance to the economy, is vital. The Government is committed to protecting depositors, creditors and taxpayers in its interventions in the banking system. We are committed to ensuring our two main banks, in addition to the other covered institutions, can discharge effectively their essential role in the economy.