The Government should create "good banks" free from toxic debt as part of its recapitalisation plans, Fine Gael finance spokesman Richard Bruton said today.
Mr Bruton said the recapitalisation plan may leave taxpayers “dangerously exposed to massive bad debts” and the Government should “urgently consider other options”.
He said his party has huge concerns about taxpayers investing in the 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”, he added.
Minister for Finance Brian Lenihan's €7 billion recapitalisation plan is expected to be unveiled tomorrow at the earliest, as the Cabinet meets today to discuss the plan for the State’s two biggest banks, Allied Irish Banks and Bank of Ireland.
Mr Bruton said the Government should create "good banks" with clean balance sheets into which the taxpayers’ recapitalisation would go. He said they should be separated into a new bank which will hold the state guaranteed deposits and would buy parts of the loan book which can be easily valued from the existing parent bank leaving 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,” Mr Bruton said.
Labour finance spokeswoman Joan Burton said she is concerned that the Government is side-stepping the huge problem of bad debts in the banks.
She said: “Irish banking is at an impasse and there is a real risk of a Japanese-style scenario taking hold, whereby 'zombie' banks hide bad debts on their balance sheets.
“Unless the government gets this right, Ireland could be facing a lost decade.”
The Labour party proposes the Government attach the following eight principles to the recapitalisation plan to ensure its success.
* Get credit flowing to business
* Identify the scale of bad assets
* Write-down impaired assets
* Establish an Irish Banking Commission
* Regime change in the banks & cap executive pay
* Full investigation of Anglo Irish Bank
* Place a moratorium on family home repossessions
* Retain a presence for mutual (building) societies
“This will be the government's fifth attempt to deal with the banking crisis since the original bank guarantee scheme was announced at the end of September, it is essential that they get this one right.
“Part of the return for this must be real reform of the banking system to ensure that we never again have to face a crisis of this nature,” Ms Burton added.
Sinn Féin economic spokesperson Arthur Morgan said the Government should nationalise both AIB and Bank of Ireland to form a single public bank.
Mr Morgan said the banks should not get a “single penny” until a moratorium for mortgage defaulters and credit for small and medium sized enterprises has been secured. And he called on banking executives to pay back bonuses collected over the past three years as well as at least 50 per cent of their salaries.
He said: “Neither the banking sector nor Government have taken any action or indeed responsibility for the mistakes that have been made.”
“If this [recapitalisation plan] course of action fails to stimulate the desired economic activity by putting credit back into the economy the fall out for the taxpayer and the future economy will be a very dark place indeed,” he warned.
Speaking in the Dáil today, he also called on Government to ensure that bank executives hand back all bonuses and half their salaries received over the last three years.
