Liam Twomey (Fine Gael)

It seems as if we are just going to have to wait for the guidelines.

The purpose of NAMA is to sort out the banks. However, the scale of the problem must be examined from the people's view. Loans in this country total approximately €390 billion, many of which were backed by interbank loans made by Irish banks with their international counterparts. The feeling is that when the Government gives the €54 billion worth of bonds to the Irish banks, they will exchange them for cash from the European Central Bank. In turn, they will replace their interbank loans with these ECB loans to tidy up their balance sheets.

Some argue we should leave the banks on their own as this is a free market. The market dictates what happens. However, this is not a normal recession. In such a recession, banks change their lending criteria, restrict lending and reduce their exposure to bad debts. However, the added factor in the Irish banking problem is that the banks do not have access to cash, meaning there are greater restrictions than there were in past recessions.

The banks are not just evaluating the risks of the businesses they are dealing with but actually reducing their exposure to any type of lending, both good or bad. I know, and I am sure the Minister does too, of good businesses with full order books but the banks are trying to reduce their overdraft facilities. This factor is not typical of the free market. The Irish banks simply have no access to cash.

The Government hopes that pouring €54 billion into the banking sector will solve this problem, allowing the banks to go back to how they work in a recession, simply evaluating risk, and ensuring credit flows. If that does not work, however, some pressure will have to be put on the banks to lend. This could be through the guidelines in question or Fine Gael's option of a good bank. The latter would be a wholesale bank that would simply back new loans while the banks would be left to deal with their old loans. It would allow new money into the economy to let businesses work.

The Government may end up having to back this Fine Gael proposal because next year it will have to pour between €10 billion and €15 billion into the banks to recapitalise them. That is after paying €54 billion for these toxic loans. When the Government is discussing the guidelines with the Oireachtas, it should not blind itself to the good bank concept just because it came from Fine Gael. If the banks are keeping their lending criteria strict and running the risk of putting good businesses out of work, the Fine Gael option may need to be taken.