Martin Mansergh (Tipperary South, Fianna Fail)

I thank Senators for their contributions on this most important policy initiative for the banking sector. I welcome the fact that Senators have generally been very positive in their comments, with many benefiting from discussions this morning in the Joint Committee on Finance and the Public Service, with the interim managing director, Brendan McDonagh, Dr. Peter Bacon and the Minister for Finance.

I assure Senators that the extensive preparatory work required, both legislative and practical, is progressing well and will be completed before NAMA is formally established on a statutory basis.

I would like to address a number of the points made by Senators throughout the course of the debate. First I reiterate in the strongest possible terms that the Government has at all stages in the process based its decisions on advice from the Central Bank, the Financial Regulator and the National Treasury Management Agency. The Government has also received technical, legal and financial advice as required.

The core concern has been the destabilising effect of risky assets on the balance sheets of Irish banks. The Government commissioned Dr. Peter Bacon to examine the potential approaches available to it in dealing with those risky assets. Following receipt of Dr. Bacon's report, the consensus among all stakeholders and advisers was that the establishment of an asset management agency was the most effective method of dealing with risky assets and ensuring the flow of credit to the real economy.

The State's primary interest is not to meet the needs of distressed developers or bankers but to ensure that householders can access credit for home loans and consumer credit, that small and medium size business can fund their enterprises, that deposit holders have confidence that their money is secure and protected and that international investors are satisfied about the stability of our banking system. That objective is best served by dealing quickly and comprehensively with the risky assets that are weighing down the balance sheets of our banks.

Senators queried the progress being made on the legislation necessary to establish NAMA and govern its operation. I noted in my opening contribution that a steering group had been established comprising the NTMA, the Department of Finance and the Attorney General's office. The group meets up to twice weekly to consider a range of issues that will need to be addressed as part of the draft National Asset Management Agency Bill. It is expected the draft heads of the Bill will be ready in the coming weeks and that the Bill, subject to Government approval, will be published in July.

The Bill will necessarily be complex, not least because of the potential difficulties that will need to be addressed from operational, legal and constitutional perspectives, but as has been emphasised by the Minister for Finance on a number of occasions, we will take the necessary time in our preparation stage to get it right.

Senator Twomey mentioned the number of staff that might be required by NAMA. This matter was dealt with by some of the other speakers but it is an important issue. Mr. McDonagh, the interim managing director of NAMA, is giving initial consideration to the proposal that NAMA should be a division within the NTMA of about 30 to 40 staff, possibly based around a core of senior managers supervising panels of external service providers. The core staff would include property asset managers whose job it would be to make recommendations as to disposal or development of any properties that NAMA ends up with. Their advice on how to achieve the optimal return on NAMA loan and property assets would be based on well informed knowledge of the markets.

The question of the valuation of transferred assets has also been discussed and there was much discussion on the discount, or hair cut, to be applied to the book value of such loans when they are transferred to NAMA. Senators should note that it is not possible at this stage to determine what that discount will be as it is dependent on such a wide range of factors and the fact that each loan will have to be assessed and valued individually. It is also expected that many of the loans will be distinctive, with differing legal documentation. Furthermore, European Commission requirements will have to be met.

An immediate priority for the steering group is to ensure that its proposals in regard to not only valuation methodology but also eligibility criteria for institutions and asset classes are consistent with EU rules. The Department of Finance continues to maintain a close dialogue with the European Commission.

Recruiting the necessary expertise for the NAMA project represents an important challenge to the steering group and the NAMA interim management. Senators may be aware that the NTMA recently tendered for banking and advisory services during the preparatory phase pending the establishment of NAMA on a statutory basis. There was a huge level of interest in this tender with over 600 expressions of interest. The NTMA will now assess the applicants and will have expert support in place in early June. Having the necessary expertise is a critical success factor for NAMA, ensuring that it meets its goal of ensuring a maximum return for the taxpayer.

Some speakers also referred to developers and borrowers and their likely treatment by NAMA. The Minister for Finance and the Taoiseach made clear on a number of occasions that borrowers will have to continue to meet their obligations as normal. Borrowers will owe NAMA the full amount they originally borrowed from the banks and there is no question of a bailout for any borrower. NAMA will work constructively and professionally with all parties and stakeholders to achieve its objective of ensuring the optimal return for the Exchequer. However, those unwilling to co-operate for whatever reason will face the full legal consequences available to NAMA to protect its interests.

None of us would wish to be in the unprecedented situation in which we now find ourselves. Failure to recognise and deal with the problems in our banking system is too costly to contemplate for this and future generations. The Government's response to the banking crisis has been structured and decisive. It is committed to taking whatever further steps are required to sustain the banking system and support economic recovery. The task is challenging but with borrowers, lenders, the Government and NAMA working in a spirit of co-operation and in a committed, commercial and professional manner, it is a task in which we are confident we can succeed.