Richard Bruton argues correctly that:
"Under Labour's proposal the taxpayer will become fully responsible for all the unknown, but potentially massive, banking losses that will materialise over the coming years"He further argues that:
Under both NAMA and nationalisation, loan losses will only be shared between ordinary shareholders and taxpayers, while other providers of long-term capital and funding walk away scot free.
He criticizes proposals to waste taxpayers' money by propping up dodgy developer debt and bailing out international bond markets. He suggests that the Government should invest scarce taxpayers' money in clean banks with healthy balance sheets and an appetite to lend to struggling Irish businesses.
FG proposals to tackle Ireland's Banking Crisis:
Speaking during the Oireachtas debate on the banking crisis, Fine Gael Deputy Leader & Finance Spokesman Richard Bruton TD called for the establishment of a new State-run National Recovery Bank to drive new bank lending for investment and job creation, instead of the Government’s misguided National Asset Management Agency.“Eight months into the crisis, the Government has failed to get banks lending again. Thousands of jobs continue to be lost every month as credit facilities are withdrawn from viable businesses and financing remains scarce for new investment.“Fine Gael is deeply disturbed that the Government has rushed headlong into the NAMA scheme whereby the taxpayer will shoulder the responsibility for working out the losses on the massive €90 billion pot of loans on development lands and unsold or partially-built properties. This is an undertaking of Napoleonic proportions.“At a time of huge uncertainty when Governments the world over are cautiously groping towards solutions, this is not the time for a small country with a deep problem in the public finances to plunge into a project on a scale never before attempted. A similar, though more modest, approach adopted by the French Government in 1995 following the Credit Lyonnais crisis ended up costing taxpayers there €18 billion.“It is especially foolish to do this on the basis of a flimsy recommendation without any detailed evaluation of the potential hazards along the way. Huge concerns have been raised by many independent commentators about:
• The difficulty of pricing the loans to be purchased and the risk of taxpayers left shouldering huge losses;• The risk of long court battles with developers;
• The moral hazard of bailing out bondholders and other professional investors who created a banking bubble;
• The difficulty of managing an agency on this gigantic scale;
• The politicisation of loan recovery and write off.
“None of the many legitimate questions are being answered. Yet we learn that already a Chief Executive and an interim board is about to put this grand experiment into action.
“I can well understand why many favour nationalisation over this extraordinary gamble proposed by the Fianna Fáil Government. However we must also tread carefully regarding the option of nationalisation. It may not require the immediate injection of cash up front, but it does force the taxpayer to shoulder all of the problems created by the banks. It risks the taxpayer having to pay too much for the shares. It allows professional investors who funded highly risky activity by the banks to walk away scot free. And it politicises new lending decisions by the banks which in other countries have seen big powerful companies win out over smaller businesses.
“Fine Gael favours a different approach. The first step is to establish a National Recovery Bank. This would be a wholesale bank funded by the ECB which would stand ready to provide the necessary liquidity to the covered banks to get credit flowing. It would be willing to buy at a fair market price the small business lending books or the mortgage books of any bank. The key features of the National Recovery Bank would be as follows:
• The necessary capital would be provided by the State, and could initially be in the range of €2 billion;
• It would be set up under well-established Irish Asset Covered Security (ACS) legislation, allowing it to efficiently raise additional funding of €30-€40 billion, initially from the European Central Bank and over time from private markets when they re-open;
• It could be established and operational within four to six weeks, and inject new lending into the economy without delay.“The advantages of this proposal over the other options are several:
• It immediately gets credit flowing – a straight fusion into the blood stream of small business;
• It helps banks to strengthen their balance sheet by swapping parts of their loan book for cash;
• It creates a solid spine to underpin present and future banking for the economy at a time when existing banks are intent on shrinking their own balance sheets to protect their independence;
• It allows existing relationships between businesses with their banks to continue, but in a new prudent framework dictated by the State bank;
• It leaves toxic property-related loans in the hands of the private banks who made them, and who have better skills and incentives than any State agency to recover as much as possible from those loans;
• It allows the banks to refocus on restructuring their operations and on working out the losses that they have incurred in an orderly way.
“Fine Gael recognises that the establishment of this National Recovery Bank is just a first step. The problem of unwinding non-performing loans remains. However, it would be foolish for the taxpayer to rush into undertaking this huge responsibility, either through NAMA or through nationalisation, without a proper assessment of the landscape ahead and a system for sharing out the losses equitably. The taxpayer simply can’t save everyone in this situation. Other countries are also coming to recognise this and are developing ways in which professional investors share in the cost of adjustment. Ireland would be foolish to rush in to solutions that close off new thinking.”
