Fine Gael calls for creation of 'good banks' with clean balance sheets into which the taxpayers' recapitalisation would go.

Acccording to FG 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."

Enda Kenny urges Euro leaders to explore EU 'Bad Bank' option and boost business lending

'Nothing less than the credibility of our shared currency and survival of Economic and Monetary Union is at stake'

Speaking at the meeting of the Bureau of the European People's Party in Brussels, Fine Gael Leader Enda Kenny TD said 2009 will be a defining year for the EU. Proposals being put forward by Deputy Kenny include the creation of an EU 'bad bank' and increased European Investment Bank lending to businesses.

"In the face of the greatest economic crisis faced by the Union since its establishment over five decades ago, will we stand together? Or will each Member State prioritise its own short-term national interests, and try to remedy its own economic problems in a way that worsens the problems of others, and thereby expose smaller and weaker Members to the whims of financial speculators?

"It is true that some individual Member States, such as Ireland, have mismanaged their domestic economic affairs by encouraging unsustainable debt-fuelled booms. Clearly, Ireland and other countries need to put their own houses in order. But now is not the time for mutual recrimination among Member States. Nothing less than the credibility of our shared currency and survival of Economic and Monetary Union is at stake. It is in all of our interests to make sure that no country has to leave the eurozone.

"This is why I am working with my fellow leaders in the European People's Party to articulate a clear statement of solidarity among EU members, and to set out ideas that should be considered by the EU Heads of Government when they meet in March for an orderly working out of the vulnerabilities and imbalances that threaten the EU's economic achievements over the last generation.

"Options I would like the EU Heads of Government to explore are:
- The establishment of an EU Bank Resolution Corporation, or 'bad bank', to help accelerate the restoration to health of European banks, without which economic recovery will not happen. In the United States in the 1980s after the Savings & Loan scandal, a similar approach was adopted.- A significant expansion of the level of resources available to the European Investment Bank to support lending to European businesses, and in particular to small and medium-sized enterprises;- Removing restrictions on the European Central Bank to pursue the types of anti-deflationary policies now being pursued by the Bank of England and the US Federal Reserve;- Commitments to avoid 'beggar-thy-neighbour' exchange rate adjustments that export unemployment and deflation from one EU country to another."(Fine Gael)