John O'Mahony (Mayo, Fine Gael)
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Question 75: To ask the Minister for Finance the reporting arrangements he has put in place to ensure that banks honour commitments in relation to handling distressed loans and providing new lines of credit. [6279/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The recapitalised banks have committed to increase lending capacity to small to medium enterprises by 10% and to providing an additional 30% capacity for lending to first time buyers in 2009. In order to monitor these commitments, the banks are required to make quarterly reports to the Financial Regulator and the Department of Finance. The first report covering the period to end March 2009 is to be submitted by end April 2009.

A Code of Conduct for Business Lending to Small and Medium Enterprises was published by the Financial Regulator on the 13th of February. This code will apply to all regulated banks and building societies and will ensure that they assist borrowers in meeting their obligations, or otherwise deal with an arrears situation in an orderly and appropriate manner. Where a customer gets into difficulty the lenders will give the customer reasonable time and seek to agree an approach to resolve problems and to provide appropriate advice. This is a statutory code and compliance with the code is monitored by the Financial Regulator.

A Code of Conduct for Mortgage Arrears was also published by the Financial Regulator on the 13th of February. Under the code where a borrower is in difficulty the bank will make every reasonable effort to agree an alternative repayment schedule and will not commence legal action for repossession until after six months from the time arrears first arise. This is also a statutory code and compliance is also monitored by the Financial Regulator. In addition, the two recapitalised banks will not commence court proceedings for repossession of a principal private residence until after 12 months of arrears appearing, where the customer continues to cooperate reasonably and honestly with the bank.

Liz McManus (Wicklow, Labour)
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Question 76: To ask the Minister for Finance if he is considering mechanisms by which the impaired assets of financial institutions covered by the bank guarantee could be quarantined; the options being considered; his views on whether such isolation of these impaired assets is essential, if the banking system here is to be put on a sound footing, able to channel credit to credit worthy consumers and viable businesses; and if he will make a statement on the matter. [6322/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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As the Deputy will be aware the level of impairment of assets in financial institutions has, from the outset, been a key consideration in the assessment of the risks and the appropriate interventions by Government required to address and correct the particular difficulties being faced by financial institutions in Ireland. The Financial Regulator engaged PricewaterhouseCoopers to examine the capital position of the institutions covered under the Guarantee Scheme. This examination included an assessment of the level of impairment of assets under various stress scenarios. A further assessment of the market values of land and development assets was carried out by Jones Lang LaSalle to complement this work.

It is clear from international experience and from our knowledge of the issues in the national context, that there is no single solution to the problems faced by financial institutions. The provision of the Guarantee stabilised the liquidity position for the covered institutions and provided confidence to depositors in the institutions. The recapitalisation of AIB and BOI addresses both the expectations of international markets on the Irish bank's capital levels, and strengthens the ability of the institutions to cope with impaired loans in conjunction existing reserves and retained profit from performing loans and other trading activities.

I will examine various proposals, such as risk insurance, for the management and reduction of risks within financial institutions with respect to these specific exposures, having regard to international developments and to the best interest of taxpayers. Ongoing work at the level of the European Central Bank and in the EU will inform the process. I will be carrying forward this work to produce proposals as a matter of priority.

Furthermore, in the context of the six month review of the guarantee Scheme to be completed by mid-April 2009 the Government will examine how the Scheme could be revised subject to European Commission approval and consistent with EU State aid requirements, in ways which include supporting longer-term bond issuance by the covered institutions. This would be in line with international and EU trends where the average term of State cover for bond issues extends beyond 2010.