Brian Lenihan Jnr (Dublin West, Fianna Fail)

There is a fundamental difference between nationalising Anglo Irish Bank, which by virtue of its size posed a systemic threat to the banking system and the finances of the State, and fully nationalising a bank such as Bank of Ireland or AIB, with their extensive branch networks. Does any Member of the House believe that were such an institution to be fully nationalised there would not be enormous political pressures on the Government with regard to matters as incidental as closing a branch or arranging credit for a customer? Serious doubts would arise in other countries about the independence of these institutions and the desirability of funding them in those instances. I do not underestimate the difficulties the Government faces in implementing the policy before the Seanad, in NAMA. I have always said there was a choice to be made on that issue, but the Government and I believed that the balance of the argument was in favour of the approach we have taken.

The issue of credit supply is fundamental, however. It has been raised by all the speakers, who asked, in effect: "Why does the agency not guarantee credit to the institutions?" The first point is that the institutions are incapable of generating the funds at present because of the degree of impairments on the assets in their balance sheets. Unless those assets are cleared, there is not going to be a sudden international recovery of confidence in them. The first step is to remove those assets and make the balance sheets of the banks look more attractive so that investors will lend to them. The National Asset Management Agency does just that.

Taking the most difficult bank we have had to handle, Anglo Irish Bank, the current size of its loan book is €72 billion, and the book value being advanced is €28 billion. The introduction of this operation will reduce the size of that loan book to €44 billion, which is an extraordinary large derisking of that institution. What replaces the loans will, of course, be bonds issued by NAMA or the Government which can be used, in the first instance by the particular institution to clear the emergency funding it has acquired from the European Central Bank and then have a presence of bonds on the balance sheet which are reliable and akin to cash, with a very small rate of interest. In terms of the taxpayer's interest, there is then in place an institution, which at present is of considerable risk and concern, substantially derisked. We can ensure the institution can attract funds in its own right and we can then make a strategic decision about its future, having stabilised it.

With regard to Bank of Ireland, AIB and any building society that emerges from this, the issuing of these bonds will put these institutions in a far better position to lend money into the economy. By removing the risky assets the balance sheet is made more attractive. Also, when these institutions present the bonds they obtain cash for them. They can present these bonds at the European Central Bank. The bonds are pitched at a very low interest which is a matter of deliberate choice in the policy because of course they have every incentive then to try to make money on the bonds by effective lending. That is why the rate of interest is pitched at half a per cent above the EURIBOR rate. It is not just a matter of repairing the shape of a balance sheet, it is a case of putting those banks in possession of an instrument that can be exchanged for cash and creating the capacity for a fiscal stimulus in this economy. That is precisely what has been done in the United States and in Great Britain. We can do that only through the European system of which we are a part.

That is the opportunity that NAMA, if well regulated and well run, affords us. It is important that we avail of that opportunity. That is why the Commissioner for Economic and Monetary Affairs, Joaquin Almunia, suggested, when he visited Dublin some weeks ago, that we proceed with NAMA with all haste. I do not suggest that the Seanad has not proceeded in all haste. In opening this debate I thanked Senators for the time they have given and the despatch with which they were prepared to attend to this legislation so I am not suggesting that Senators are not attending to this matter with despatch.

All the Senators raised the question of credit supply and it is important to understand that intrinsic to the concept is the idea of enhancing credit supply. Apart from that, and in order to provide further reassurance, the Government accepted on Committee Stage the views expressed by all the Deputies in the other House and worked on an amendment that would provide for some measure of ministerial power in this area. We have to be very careful about this. It has to be a ministerial power to support different sectors of the economy, not a ministerial power to interfere in individual lending and borrowing. It is a power that provides that the Minister can give directions on codes of practice and ensure there is an effective mechanism for policing them, and that an appeals structure, involving a pool of lending to which the banks contribute, or whatever structure is arrived at, can make a determination separate from the banking system about the validity of a particular credit decision.

That is written into the legislation because, understandably, Senators expressed the impatience which Deputies expressed, and which I share, about restoring the flow of credit to the economy. This is what this is all about. It is easy for us in every debate to talk about people being under great pressure. We know they are under great pressure but they will be under worse pressure if we do not sort out the banking system. We must understand that collectively and communicate it to the people. We all know what happened when governments decided in the past not to rescue the banking system. A deliberate decision was taken after the 1929 crisis not to rescue the banking system in the United States. We know what happened in the Great Depression and how unemployment rose to 33% as a result.

A subsequent generation of economists made up of men such as Galbraith and Keynes warned against the world ever taking that course again. I am amazed at how much time is given to those such as Professor Stiglitz and others who say that letting the banks collapse is the solution to this problem. It is not the solution. If we go down the road of that solution we will create not just the degree of distrust and lack of confidence we have already seen but a tsunami-like extension of that distrust and lack of confidence. The people who suffer from that banking collapse will not be the bankers in their boardrooms who have secreted their money elsewhere but the ordinary man and woman in the street who will have no job, shop or credit.