Larry Butler (Fianna Fail)

I support the Financial Services (Deposit Guarantee Scheme) Bill 2009 which complements important legislation enacted some time ago, the Credit Institutions (Financial Support) Act 2008. The Government's speedy intervention in introducing the latter Bill late last year may have saved the entire Irish banking system and prevented a major run on the banks. A collapse of the banking system would have caused much greater economic problems than those we are currently experiencing.

While banks are not supporting small businesses, the lifeblood of the economy, the relative strength of our banking system has been achieved as a result of heavy investment provided by taxpayers through the Government. We must ensure the banking system considers the interests of the taxpayers who support it. Many people with fixed interest mortgages are concerned about unreasonable conditions being imposed by the banks on those seeking to switch to a variable interest rate. I ask the Minister of State to examine this issue. In light of the use of taxpayers' moneys to support the banks, it is important to have a social dimension to the banking system.

The penalty for switching from a fixed rate to a variable rate mortgage should be reduced to a reasonable level. Rather than having money change hands between banks and their customers, these penalties should be added to the mortgage. This would have the effect of safeguarding people who are now on a fixed rate of 4.5% or 5% and who, assuming they are not able to break their fixed rate, may find themselves in difficulty in two or three years' time when they move to the increased variable mortgage interest rate. No doubt interest rates will go up because at present they are at an all-time low. It would be in the interests of the banks and the Government to ensure such people were able to fix at lower rates so that they would have less trouble in years to come when homes could be repossessed because of very high interest rates. I ask the Minister of State to look at options in that regard.

While many say the Government is bailing out the banks, we have decided consciously to make an investment in the banks. Let it not be forgotten that there is a payback to the National Pensions Reserve Fund. We must bear in mind that this is an investment. In the long term, it will be a good investment and a much better one than those made overseas by pensions funds in the past year or two which lost between 45% and 52%. We are better off investing at home where we get a reasonable return on our money and the banking system is a good place to invest our money.

At present there is a major liquidity problem between the banks and small businesses. Conditions should be laid down in return for our investment in the banks. The latter must look at how they will provide liquidity to small businesses. Restocking is a major problem being encountered by small business people who come to my clinics. There was never a problem before when they went to the banks seeking to restock or upgrade certain parts of their businesses, but they are finding it very difficult now. It is often the difference between letting some of the staff go or closing the business. That is how seriously small businesses are being affected. The Government should have leverage with the banks at this stage. I ask the Minister for Finance to ensure this is seen to soon because it is affecting small businesses.

I can understand that banks will have more leeway once the National Asset Management Agency, NAMA, is set up and non-performing debts are taken from them. The purpose of NAMA is to ensure there is a lending system in banks and to look after the long-term non-performing debts over ten to 15 years. NAMA will be important and it will help the banks return to normal lending. I note that more than €55 billion of the €90 billion considered to be bad debt is performing very well and interest is being paid on it weekly or monthly. Even though it is approximately 2%, it will give NAMA working capital when it starts up. While I do not suggest the Minister of State should rush the legislation -we must get it right - we should get NAMA up and running as soon as possible because it will help small businesses.

Small businesses employ 440,000 people. That is a significant number and we do not want to see any more people joining the dole queue. By helping these small businesses we will keep them in business and in some cases they will expand. There has to be a credit system that works for the banks and for small businesses. While I would not suggest the banks should lend to businesses that do not have the capacity to repay, it is unfair of banks not to look after small firms with a good track record of loan repayments over many years, especially when Government has invested so heavily in the banking sector.