Fine Gael's 'good banks' alternative must now be considered - Bruton

[JohnCallaghanWill]

Fine Gael's 'good banks' alternative must now be considered - Bruton


Danger that taxpayers may be left exposed to enormous bad debts
The Government's recapitalisation plans may leave taxpayers' dangerously exposed to massive bad debts and the Government should urgently consider other options, including the creation of brand new 'good banks' with clean balance sheets, Fine Gael Deputy Leader & Finance Spokesman Richard Bruton TD said today (Monday).

"It is time to look at other alternatives to the present proposal for recapitalisation.

"Fine Gael has huge concerns that the taxpayer is being asked to put money into banks without knowing the full extent of the hole in their balance sheet. There is a real risk that the only result will be to allow the existing banks to nurse along their dodgy property lending while continuing to starve viable businesses of access to the credit they so badly need.

"The taxpayers' interest is to kick-start new lending. It is not to protect the existing banks or those who knowingly took on the risk of funding their impaired lending policies.

"It is now time to look at a different model, which would create 'good banks' with clean balance sheets into which the taxpayers' recapitalisation would go.

"This would involve separating from within each bank a new bank which would hold all the state guaranteed deposits and which would buy those parts of the loan book such as residential mortgage loans and business overdrafts which can be easily valued from the existing parent bank. This would constitute a new good bank with a clean balance sheet. Its capital base would be provided by the taxpayers' recapitalisation, hopefully with other private capital, and some small shareholding could be given to the existing shareholders. These new banks would then be well capitalised with a clean balance sheet and fully open to resume lending.

"A legacy bank would be left behind in each case which would no longer engage in any lending. Its role would be to manage the remainder of the loan book and recoup maximum value from it over time. It would be managed entirely in the interest of the existing capital owners and non-guaranteed creditors. Fine Gael believes that this alternative model deserves serious assessment and could offer a much better use of scarce taxpayers' resources."

[JohnCallaghanWill]

The Tier 2 capital investment are a big issue

To avert a collapse of our banking system, Fine Gael supported the guarantee of the bank's short-term liabilities last September, and has been calling for an ambitious bank recapitalisation plan since October when it became clear that tightening credit conditions were destroying thousands of jobs.

Since then, financial markets' estimates of the both banks' non-performing loans have worsened significantly, as have perceptions of the State's own credit worthiness. Before the Government pours billions of euros of scarce taxpayers' money in to a pit that we don't know the depth of, he has asked to meet with the Taoiseach, the Governor of the Central Bank and the Financial Regulator to discuss;

* The latest estimates by PwC for the Financial Regulator of the scale of potential loan losses in each of the banks;

* The current liquidity situation in each of the banks;

* What steps the Government has taken to guarantee that, before the tax-payer is asked to bail-out these banks, owners of at least €30 billion of so-called Tier2 Capital instruments and long-term bonds (which have not
been guaranteed by the State) share in losses in the event that the banks
are found to be insolvent, given that these professional investors funded their reckless practices.

This is the type of essential information that Fine Gael will need to have before backing the Government's bank recapitalisation plan. In addition, as stated previously by Fine Gael, the rescue of Irish banking will not be led by the management teams that brought our banking system to the edge of collapse. Allied to that is an absolute need to freeze pay and bonus awards in the banking system and see a significant reduction in the salaries paid to senior executives in these institutions.

Finally, if we cannot guarantee that Irish taxpayers are not simply bailing out reckless professional investors then other means of recapitalising Irish banks must be considered.

[David Cochrane]

I'd have paid attention to this if it wasn't sent to the press and embargoes, I assume in favour of Morning Ireland having Bruton on.

Good ideas shouldn't need embargoes.

[SPN]

Much better idea to create completely new Banks that are Mutually Owned and have a clean break with the old system.

Let AIB and BOI go down when the guarantee expires in 2010, and take all the toxic waste with them.