Conor Lenihan (Dublin South West, Fianna Fail)

In such cases when economic growth occurs there is a shortage of available zoned land to build houses. This has happened and there are parties which seek to have it both ways. Such parties seek more houses but not more rezoning for such houses. Thankfully, because of the surplus of property this will not be a problem in the short to medium term but it may be a problem in the Dublin area because if the Dublin area returns to growth it will require upwards of 6,000 houses per year and whatever surplus homes and units exist in the capital may be exhausted very quickly. This is something on which we must keep a close eye.

It is clear that, apart from cheap credit, there were new instruments, including hedge fund or derivative instruments and toxic loans which were wrapped up or bundled. These were made up of loans to people who simply could not afford to repay. This mainly took place in the United States and the only person who warned about these derivative and hedging instruments was the great Warren Buffet. He was one of the few people to indicate publicly that he would not be investing in funds or companies where such instruments were a strong feature. He stated that he simply did not understand them and when he spoke to people involved in them, it turned out they did not understand them either. There is a double failure to appreciate fully the level of risk of the toxic loans. American institutions, governmental in the main, assisted people to buy such homes. There was a poor appreciation of the risk these banks carried with these particular loans and an under-appreciation or knowledge of the instruments which were at the cutting edge of finance. Only a handful of mathematical people understood the risk being carried and many of those were, somewhat blissfully, prepared to ignore the risks involved because they were making a great deal of money from them. There are two issues involved. We must enhance the lending behaviour of banks. It is noticeable that in the boom years, not only in Ireland but also elsewhere, many who came to prominence in large global banks were not from the lending or credit side of the banks. It is noticeable that sales, marketing and sometimes technical people came to the fore. IT professionals became chief executive officers of banks. This is a bad practice which developed because of the expansion of global capital markets and the growth of huge investment banks. People with no great or in-depth appreciation of underlying lending principles came to the fore.

The previous speaker spoke about the situation in Ireland and how the property market had gone way out of control in value terms. There are two interesting aspects to this. At a domestic level, Anglo Irish Bank fuelled the competition to lend money to persons involved in speculative property ventures of one kind or another. It acted as a pressure point, pressurising AIB initially and then Bank of Ireland, although perhaps not to the same extent as AIB, to relax their traditional conservatism in property lending. A certain frenzied competition began which I argue was principally started by Anglo Irish Bank. From 2005 onwards, all of the Irish banking institutions faced further frenzied competition following the arrival of British banks in the Irish market. They added more liquidity and credit to the equation and increased the spiral of lending so much so that British and non-Irish banks leave a legacy of property or construction-related loans to a value of €40 billion. God only knows at what price they will be discounted, but, thankfully, that is not a bill which will arrive on the mat of Irish taxpayers because they are not substantially covered by the guarantee scheme.

We have come through a difficult period. When people look at these issues, they are inclined to look at the mistakes made and apportion blame. Blame has been apportioned. The reports produced in the past week or two are very important because they provide a proper explanation and analysis of where the blame should lie, how we can learn the lessons, correct what we have done wrong and close the gaps in regulation.

I hope the new Financial Regulator, Mr. Elderfield, will take a much more proactive role in the appointment of directors to banking institutions. There is a need for a much more robust system of character analysis and interrogation in appointing key personnel at director level and perhaps even below that level in lending institutions. I am confident Mr. Elderfield will take that approach. He has already begun a process, whereby people to be appointed to important positions where the level of lending can cause a systemic risk will be tracked and deemed to be appropriate for appointment to such important positions.

Towards the end of the boom, some banks, globally as well as domestically, belatedly appointed chief risk officers. We need to elevate the position of chief risk officer in a bank and I am not echoing the views of the Minister for Finance when I say this. Currently, they do not enjoy huge power of suasion over the other members of the bank team. The role needs to be elevated in the same way that in a previous period banks elevated the role of internal audit. The officer who performs the internal risk function within a bank needs to be elevated strongly. The people concerned should have appropriate qualifications to be able to police their own executive no matter what intense growth is being experiennced by the bank. That is an important point for the future.

It is important that we note that Professor Honohan, in particular, acknowledges in his report the value of introducing the bank guarantee scheme which has been a successful instrument. In terms of claiming credit, I do not claim the Government came up with the idea all by itself. In fact, it was because of the scrupulous and studious examination of what had happened elsewhere, Sweden in particular, that we were able to arrive at this vehicle, through which we were able to save our banking system from collapse.

We need to look at the more positive things that have happened and the way we have managed the crisis. It is to the credit not only of the Government but also of the people that we have managed to adjust our lifestyles and give appropriate responses. Many other countries in Europe have experienced the terrible situation we have faced, including rising unemployment, the collapse of banks and economic and financial chaos, but have not responded as well. There have been riots in some countries, while in others the banking system collapsed——