LEGISLATION TO allow the Government take €4 billion from the National Pensions Reserve Fund to recapitalise AIB and Bank of Ireland was introduced in the Dáil last night.

The Opposition described it as “little short of cataclysmic” and Olivia Mitchell (FG, Dublin South) said “we are being asked to allow the Minister direct the National Treasury Management Agency to invest in any bank up to any value. We do not know the value the Minister will direct the body to invest.”

She said that under this legislation, “the Minister, without further recourse to the Dáil, has full authority to order the purchase of any amount of shares in AIB or Bank of Ireland, which is a de facto nationalisation of the banks.”

But Minister for Finance Brian Lenihan, who introduced the Investment of the National Pensions Reserve Fund and Miscellaneous Provisions Bill, insisted the Government had consistently operated under two principles.

“The State will not let any systemically relevant financial institution fail and, second, any State involvement in financial institutions will protect the interests of the taxpayer and have regard to legal implications and European requirements.”

Under the legislation €4 billion will be taken from the pension reserve fund and the remaining €3 billion for the recapitalisation will be “front loaded” from the exchequer this year and next.

The Minister said funding the bank recapitalisation programme in this way “strikes a prudent balance between, on the one hand, addressing an urgent economic priority and, on the other, continuing to take account of long-term budgetary stability and the sustainability of our pension system.

“The recapitalisation will ensure the two main banks in Ireland are in a position to provide necessary commercial credit facilities to their customers and the economy generally.”

The Bill also enables further directed investment, but the Minister said this was being included “lest the need arises to have the National Pensions Reserve Fund Commission underwrite a capital raising issuance by a financial institution. I must emphasise this is not something I propose to do; I am merely taking the opportunity to include the provision on a contingency basis now that the NPRF legislation is being amended.”

But Kieran O’Donnell (FG, Limerick East) said his party opposed the legislation because “the Government’s recapitalisation strategy for AIB and Bank of Ireland has already been dismissed by the financial markets as lacking in credibility”.

He added that the Government has refused to provide an assessment of the superior ‘good bank’ recapitalisation model put forward by Fine Gael Finance spokesman Richard Bruton and the Government has not imposed an income cap on bank executives.

The Bill now goes to the committee stage.