Brian Lenihan Jnr (Dublin West, Fianna Fail)

I know the argument is made that rents are adjusting and going down but even the impact of that rent adjustment is factored into our calculations. We are already allowing for the 16% decline in rents which we have witnessed in the past year and our plans anticipate a further decline in rents. That is factored into the business plan. If at the end of the day Senators cannot believe that the property market will increase by 10% over the next ten years from a base which is now at the bottom they have very little faith in the future or the history of property valuation of this country. That is what this legislation does. It makes cautious assumptions.

Senator Ross rightly asked how I arrived at these assumptions. I consulted the Governor and Governor-designate of the Central Bank which did its own modelling exercises on the property market and took the view that 30% would be a reasonable allowance for where it should be in ten years' time. However, both governors warned me that might be an optimistic assumption because there will be tighter credit conditions after what we have seen in the past 20 years. Regulation will be stricter in most countries. On that basis I took the view that 15% was a far safer assessment of the long-term economic value of these assets. In addition to that, we built in the subordinated debt element which eliminates the risk from 5% of that 15%. That is apart from the amount of State ownership we have and the ultimate imposition of a levy. I would not like to rely exclusively on the ultimate imposition of a levy to protect the taxpayer in this area.

Regarding the suggestion that the concept of long-term economic value is absurd or unique, it is the system recognised by the European Commission in its guidance note on this subject. It is now the system for valuing bank assets in the United States. As the assets are so distressed at present and as several Opposition Members said there is no effective market for them, it has been decided to establish an agency to hold the assets to maturity.

I will illustrate how that will work out in the context of valuations and address an important point raised by many speakers. Senators referred to land in rural areas which has been rezoned in excess of the immediate requirements of an area for the next ten years. Where there is land of that character established under this system, that land will not have any value beyond its agricultural value. One cannot give a valuation to an asset under the valuation process which will not realise the value after the ten years. The long-term economic value for the purposes of this exercise has to be the long-term economic value from which NAMA will break even.

Criticism was expressed that the NAMA business plan envisaged a profit. I have always made clear that it is my intention that NAMA should break even. It is not a good approach if one sets the ambition that it is only going to break even in the first place. It is far better for the agency to set itself the objective of making a reasonable profit if it wants to protect the taxpayer and break even. That is why a decision was taken that NAMA should plan for a profit. It must be remembered that this is an interim business plan and that later the board will have to set a proper one.

It is important to remember that in this financial crisis the only country that has attempted total nationalisation of its banks is Iceland. That was the last step taken by the Icelandic Government before the Icelandic state and its economic system became insolvent. It is a serious step for a small country to decide to engage in a 100% nationalisation of the banking sector. It would be noted in the wider world. In a previous banking crisis, the Norwegian authorities nationalised the country's entire banking system. None of the other Scandinavian countries effected a wholesale nationalisation during their respective crises. It must be remembered, however, that Norway rested on the security of very substantial oil reserves. It is a country that it so resource rich that it is in a position to refuse membership of the European Union. Ireland is not in the same position.

The Irish banking system is critically dependent on external funding, even leaving aside the bubble related mad lending of the recent decade. We will put the banking system on a sustainable basis but it will require funds from other countries. Ireland will not generate enough in the form of deposits and other liabilities to the banking system to enable the banking system to fund in an effective way those in the Irish economy who require to be supported. The reason for that is that we are a small country. A small country that announces to the great wide world that it will be the second country after Iceland to nationalise its entire banking system is not taking a wise step in the current financial crisis. I accept we are walking on ice and there are difficult balances to draw which does not make the implementation of the legislation any easier. Governments must, however, make those decisions and stand over them.

Senator Alex White, along with others, claimed that NAMA does not enjoy academic or international support. That is not correct. In the first instance both the IMF and the OECD have commented positively in the actions being taken by the Government in resolving the problems in the financial sector. Both of those institutions mentioned that temporary nationalisation should not be ruled out and neither have they advocated the type of temporary nationalisation that many in the Labour Party seem to favour. Deputy Quinn in the Lower House has not argued for 100% nationalisation but that we should preserve some shareholding presence in the banking system, with which I agree.

Senator Bacik claimed I ignored the downgrading by the rating agency Fitch. I did not. Fitch said Ireland has a stable position although it is downgraded.