THE GOVERNMENT'S decision to invest in the country's three biggest banks will help to ease credit shortages for business, Taoiseach Brian Cowen has said.
He was speaking shortly after the Government had decided to invest €5.5 billion in Anglo Irish, Bank of Ireland and AIB, with the possibility that €2 billion more could be found.
"The purpose is to send a very strong signal to the markets about the stability of our financial system, Mr Cowen told journalists in Government Buildings.
"Secondly, the preparedness of the Government to ensure that we have a system that provides sufficient lending to business and individuals in the economy". The Government does not require the removal of any directors or executives as part of a price for the investment, he said. "We are not making that a precondition today," said Mr Cowen, who spent much of the afternoon and evening in talks with Minister for Finance Brian Lenihan.
He also discounted suggestions that the recapitalisation move would force the emergency recall of the Oireachtas to pass legislation.
"Emergency legislation is not required because of the model we are following tonight," he said, adding that the Bank of Ireland and AIB investment would not happen for three months.
The shortage of credit "is the most immediate and pressing issue for business and for the Government", said Mr Cowen, in a statement published.
"The future health of our economy is inextricably linked with the supply of credit and a situation where banks are unwilling or are perceived to be unwilling to lend is damaging not only for the economy but also for the banks themselves. Banks have an important part to play in addressing this issue and a key objective of the Government's recapitalisation initiative is to ensure the continued flow of funds through the banks to individuals and businesses in the real economy."
Banks will have to show "in a verifiable manner" that they are loaning out at least 10 per cent more money to small and medium-sized enterprises.
In addition, the banks will have to agree new rules with the Financial Regulator to guarantee that they do not change overdraft rules for businesses "without appropriate notice".
The three banks have also "confirmed" to the Government that "they will wait at least six months from the time arrears first arise" before enforcing any court judgement.
