BUSINESS OPINION:AT FIRST glance, the Government's decision to transfer day-to-day responsibility for managing its stakes in the banks to the National Treasury Management Agency seems eminently sensible, writes JOHN McMANUS

It puts something of a firewall between the two big banks – at least one of which is set to be majority-owned by the State – and the political system. Given the clientilist nature of our politics, the Government seems to be acting in a most far-sighted manner by effectively putting the sweets on a shelf that is beyond the children’s reach.

Can’t get a loan for your business? Don’t bother using your political leverage to lobby the Minister for Finance about it because he has delegated responsibility to the NTMA.

But look a little deeper and it becomes apparent that the Government may have also shot themselves in foot, with regard to ensuring that the banks play a full role in economic recovery by providing credit. Whether they did it deliberately or inadvertently is an interesting question.

As Pat McArdle argued in Business This Weeklast Friday, the boards of the banks set credit policy. They are also first and foremost the guardians of the interests of shareholders and every cent of credit extended to a troubled business is shareholder money at risk and every percentage point taken off interest rates represents profit forgone. Right now their priority is to husband capital and minimise the dilution of existing shareholders when they are recapitalised following the transfer of their land and development loans to the National Asset Management Agency.

It is pretty much accepted that the Government will end up as majority shareholder in AIB and the biggest shareholder – by some distance – in Bank of Ireland.

In theory, this could change the dynamic at the banks. If the majority shareholder or the largest shareholder indicates that it wants to see a loosening of credit, then the board would be under an obligation to do so.

However, the decision to transfer the management of the Government’s shares to the NTMA makes it unlikely that the boards of AIB and Bank of Ireland will get a mandate to increase lending.

The NTMA is really only concerned with one thing, the solvency of Ireland. Its role is not the management of the economy, it is the management of the national debt.

In the current context, its priority is ensuring that Ireland is able to borrow and after that it is about borrowing as cheaply as possible. Our own recent experiences and Greece’s current difficulties confirm that neither of these things can be taken for granted.

It follows then that the NTMA will manage the banks from this perspective. And this boils down to one thing: putting as little money as possible into them.

As a result, the NTMA finds its interests very closely aligned with those of the current shareholders, management and boards. All else being equal, the NTMA would also like to see the banks run in a way that minimises the amount of taxpayers’ money that will have to be injected post-Nama. This means clamping down on lending.

The upshot of all this is that the Government has voluntarily surrendered one of the few tools at its disposal for stimulating economic activity as the cycle turns; making credit available via the banks.

It seems a little lacking in ambition to say the least. But at the same time using your controlling stake in the banks to make them lend more is not as simple as it seems.

It could be a disaster and amount to little more than throwing good money after bad. The result would be an even bigger bill for the taxpayer, who is going to have some job paying the current one. It is also next to impossible, one suspects, to get any fix on how effective it would be – from the point of view of stimulating the economy – to order the banks to lend.

But against that, every job that can be saved at this point in the cycle will pay a huge dividend over the medium term.

Equally, much of the froth has been blown off the economy at this stage. The tide is well and truly out and the businesses that have been swimming around naked are exposed. As a result, it should be able to identify the companies worthy of credit.

The issue, however, would appear to be academic.

The Government has engineered a situation whereby the banks are out of the reach of both their backbenchers and their own economic policies.

Are they being fiscally conservative and just letting the credit cycle take its inevitable and indiscriminate toll on business or are they afraid to take decisions?