Fine Gael continue to flog the dead horse that is the National Recovery Bank - Fahey

Fianna Fáil TD for Galway West and member of the Oireachtas Finance Committee Frank Fahey has said that Enda Kenny's speech this week to the London Irish Business Society(18 February) on NAMA and banking only serves to highlight how little he understands about the banking sector and how flawed the Fine Gael plan to set up a National Recovery Bank is. ‘Why does he persist on flogging this dead horse?’ he asked.

Deputy Fahey said "On Thursday Enda Kenny highlighted his lack of understanding of what is needed to resolve the banking crisis and once again tried to sell his party's alternative to NAMA, the National Recovery Bank. Once again Deputy Kenny tried to claim their bank is based on what a successful French model but the truth is France has not established a Fine Gael type bank. The French scheme is, in effect, a Government Guarantee scheme, along the lines of what was put in place here. No country in the world has established a the type of bank Fine Gael is talking about, because it is impossible to set up a bank that cannot fund itself".

“He claims that his new magic bank would be able to draw in new funding. This is simply incorrect as the good loans it is supposed to buy from the banks are already being used by the banks as collateral for funding from the ECB and international markets. If the banks were to lose this funding, they would collapse. So Fine Gael are proposing a new bank that cannot access funds will be able to lend to the real economy -- truly a "magic" bank. Deputy Kenny goes on to explain how their "National Recovery Bank would use their branch and customer networks and credit skills" It is supposed to be a new bank, so where does it get a branch and customer network from? And where do the credit skills come from? “

"Deputy Kenny seems to pick a figure of thin air with regard to how much money the NAMA should be pay for bank loans. The valuation process will be audited by the EU Commission to ensure it places the correct valuation on each loan which will protect taxpayers. Given that Deputy Kenny has no idea on what is the bank's loan books how can he make wild guesses as to the value of the loan portfolio.?", continued Deputy Fahey

"He demands that unsecured bondholders should absorb all future losses and calls on the banks to default on unsecured bonds. This would include unsecured senior bonds. What exactly does he mean by this? It appears he is failing to distinguish between senior debt and subordinated debt as Richard Bruton did earlier in the year."

"The error of this approach has already been pointed out by Former Taoiseach and Party leader Garrett Fitzgerald who commented in the Irish Times (29 August 2009) that "an attempt to resile from our commitment in respect of [senior debt] could prejudice our capacity to continue to borrow from international markets. Who would want to lend any more to us if we repudiated the senior bonds of our banks?" The reality is defaulting on senior bonds would mean putting the banks into liquidation. Does Deputy Kenny really want to liquidate AIB and Bank of Ireland or does he simply not understand what he is proposing?,” asked Deputy Fahey.

"Finally a significant portion of banks funding is short term and expires before the Guarantee ends. Any attempt by the banks to default on short-term debt would lead to a situation where the funds are left with the banks until the last day of September and then withdrawn just before the Guarantee expires. We would be back in the same situation as in September 2008".

"Fine Gael's magic bank plan has not been endorsed by any international organisations or economists unlike NAMA which has the support of the European Commission, the IMF, the ECB and former Fine Gael party leaders Garrett Fitzgerald and Alan Dukes. It’s time that Fine Gael stopped flogging a dead horse. Enda Kenny accepts "that Ireland needs a strong, fully functioning banking system" if so why is he persisting with a policy that would bring down our banks and the Irish economy along with it” concluded Deputy Fahey.