Paul Coghlan (Fine Gael)

I welcome my fellow county man, the Minister of State, Deputy Pat Carey.

I am delighted to have an opportunity to say a few words on this most important subject. There is no doubt that banks and bankers bear a heavy responsibility, as they are primarily responsible for the State's financial woes. They fuelled the greed but worse than this many at the highest level participated in it. They totally failed to understand and manage the risks inherent in the important business entrusted to their care. They exercised poor judgment, both in lending and investment. As many others have agreed, this was compounded by poor corporate governance. The truth is they destabilised the entire system. Many directors have since resigned, but not all. They should have resigned and shared the culpability of corporate boards. I thought the Minister was insisting on a proper clear-out but they have not all resigned. More importantly, top management in the banks that made the day-to-day decisions and signed off on the credit wrongly issued are practically all still in place. Nothing much has happened in that respect. It reminds me of the Roman empire when slaves manned the boats and masters cracked the whip and got them to row harder, if necessary. That is what happened. The people in question steered the ships onto the rocks and it now appears we are allowing them to man the lifeboats to try to get these ships off the rocks and the economy back in business.

We cannot have a functioning economy without a properly functioning banking system. The culture within banking which was right became totally flawed. Banking policy was totally driven by sales targets and bonuses were determined by such targets being achieved. The targets were issued annually to staff at branch level throughout the system. However, there was no proper assessment of needs or requirements; it was just a case of "Get that result, no matter how you manage it." The same people are still in place. In a sense, therefore, much of what is happening is cosmetic because the culture has not changed. We have not yet returned to proper, prudential banking. Customers must be dealt with on the basis of their needs and a proper assessment. However, those the top who are cracking the whip are still insisting on branch managers increasing mortgage sales, selling credit cards and insurance and getting the deposit numbers right. There are no bonuses, but that is how it happened. The Financial Regulator has an astute role to play because the principles of proper lending must be restored, as must integrity at every level of banking. The one-way traffic from the top must stop.

We are all concerned about credit. It is the lifeblood of the economy. Many of the international economic problems arose because of toxic loans but we did not have the complicated problems that arose in the United States and elsewhere. We just had a huge problem with development land and property loans. We went way over the top. Much of the activity in this regard was totally speculative, as we know.

Of course, the banks are going to protect the capital ratios. Senator O'Toole's contribution was rather good in this regard. The banks are very much concerned with recapitalisation. When the Minister responds on Second Stage, will he refer to his agenda on rationalisation? The levy, which I believed was a great guard to the knave, has been replaced by a surcharge, which I hope will achieve the same objective.

With regard to lending to SMEs, the Minister has said he will take on powers to issue guidelines, but he will not do so in the Bill. With respect, this is total window dressing. The Minister should not expect the banks to make bad loans in the present climate. They will have to assess applications properly. They will address their existing customers before engaging in lending to new customers. As Senator O'Toole stated, they will strengthen their positions and get their ratios right. AIB, for instance, is not thinking, in the short term, of going near its American or Polish interests.

The €54 billion that NAMA is to pay for acquisitions includes €7 billion to reflect long-term economic value. In the present climate there are indications that the values that will obtain will be more conservative than expected, perhaps correctly so. If the overall value is less than €47 billion, will the premium of €7 billion be scaled back to reflect the change in the long-term economic value? I presume it will.

I agree very much with the part payment in respect of subordinated debt. It will be an incentive to the banks to discharge their role in managing the loans more efficiently.

The EUROSTAT statement was a late entry to the field. I gather the Germans are responsible for our good fortune in that respect. It is important for the sake of remaining competitive internationally that the NAMA debt not be part of general Government debt. While the master SPV will be privately owned to the order of 51% and owned by NAMA to the order of 49%, as the Minister explained, there is an in-built veto. The vehicle will be a separate legal entity and this model is sanctioned by EUROSTAT. The NAMA board will have a veto on decisions. The Minister intends to give a direction to the board that not a single decision should be made or allowed to be pursued by the master SPV that shall not be in the best interest or in line with achieving the objectives and purposes of the NAMA legislation. Is there not a conflict in this regard?

Who does the Minister envisage will become a private investor? Will banks be involved or will investors comprise only pension funds and high net worth individuals? It is hard to envisage the banks not being involved. Will the Minister respond to this?

I agree very much with the idea of having an Oireachtas oversight committee. While the Minister is to set this up, he is not doing so through the Bill. Therefore, will he tell us more about it?

While confidentiality is important, and while the Minister has powers in this regard, accountability and transparency are equally important. Will the Minister respond on this subject?

One must consider the key question as to how NAMA can veto the decision of a board of a vehicle 51% of which will be owned privately. Will the Minister address this? Will the investors remain anonymous within a private company?

NAMA is not to act for one year or more on the assets being transferred. This is probably prudent but we understand the banks could be ready to pull the plug on many of the small developers whose assets involving loans of between €1 million and €5 million will not be transferred to NAMA. This could lead to class action on equity grounds by those developers. They will have a strong case. It could raise constitutional issues. Will the Minister comment on this?

Banks not involved with NAMA could be ready to take cases against Anglo Irish Bank for distorting the market. Anglo Irish Bank is now in State ownership.

Credit is the lifeblood of the economy, particularly for SMEs and other properly functioning companies and enterprises. It is important that there be a new code for the banks to treat customers in a fair and measured manner. We must understand the banks have moved totally from a speculative role to a traditional public utility role incorporating prudential banking. Their focus on the property and construction industries brought us to the state we are in.

We must hope, despite our wishes for a different model, that the banks will be renewed under NAMA and that we will return to a well capitalised system with the resources and expertise to support prudently businesses and individuals requiring finance. It is critical that NAMA does what it says on the tin, namely, clean up the balance sheets and ensure a flow of credit to SMEs. This will become even more critical as the world economy begins to pick up and businesses begin to fill their order books again, thereby increasing the demand for credit.

The composition of the board of NAMA and the oversight arrangements are key to securing and maintaining public confidence in the new institution. Will the Minister elaborate on this?

The detailed business plan for NAMA must be finalised quickly once the legislation is passed so we can have more clarity on key elements of its operations. There is much we do not know and which will only become known on the finalisation of the detailed plan.

NAMA must hold developers to account and ensure all loans are paid in full and on schedule. If not, the agency needs to get tough and take over the underlying security. This message needs to be clear from day one if we are to have equity vis-À-vis the developers in the €1 million to €5 million category, in respect of whom the banks could be very heavy handed.

It is important that we co-ordinate our activity, in so far as possible, with the British and Northern Ireland authorities regarding the loans affected by NAMA that relate to their jurisdictions.

The Opposition is interested in improving the Bill if it is to be passed but it needs to hear more on what is intended once it is passed and on the detailed business plan.