Bernard Durkan (Kildare North, Fine Gael)
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Question 145: To ask the Minister for Finance the undertakings he sought or received from the banking and financial services sectors to ensure the non-recurrence of the state of imprudent lending which has caused the current economic problems; and if he will make a statement on the matter. [6568/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The Government's Guarantee Scheme comprehensively sets out measures under which the commercial conduct of covered institutions is to be governed.

Section 36 of the Scheme regulates the balance sheet growth of covered institutions to ensure that it is not excessive. This function will be monitored by the Financial Regulator, who has recently confirmed to my Department that all the covered institutions are operating within the defined parameters as at 31 December 2008. The monitoring function has been aided through the allocation of additional staff to the banking supervision side of the Regulator.

Section 37 requires a covered institution to "conduct its affairs in a manner that progressively reduces the risk to the Exchequer under its guarantee" having regard for several criteria in particular, as directed by the Governor of the Central Bank and the Financial Regulator, after consultation with me.

Furthermore, section 39 of the Scheme requires a covered institution to limit its exposure to any sector, customer or connected customers where the Financial Regulator, after consultation with the Minister, considers it to be in the public interest, and in the interest of financial stability and confidence in the banking system.

It is also important to note that section 47 of the Scheme requires bonuses and other benefits deriving from performance to be "measurably linked to reductions in guarantee charges, reduction in excessive risk taking and encouraging the long term sustainability of the covered institution".

However, I would like to remind the Deputy that the objective of the Guarantee Scheme and the recapitalisation initiative was not to prevent banks from lending but to ensure that they continued to lend to individuals and SMEs, which is crucial for growth in the economy. In that regard, the recapitalised banks have committed to increase lending capacity to SMEs by 10% and to provide an additional 30% capacity for lending to first time buyers in 2009. If the mortgage lending is not taken up, then the extra capacity will be available to SMEs. Compliance with this commitment will be monitored by the Financial Regulator.