Finding mechanism to get credit flowing difficult, Lenihan admits

THE SEARCH for a mechanism to ensure a supply of credit for the economy “is a difficult one” and Minister for Finance Brian Lenihan said “we are finalising our proposals in that regard”.

During the committee-stage debate of the legislation to introduce the National Asset Management Agency (Nama), Mr Lenihan described as a “fair point” a call by Fine Gael finance spokesman Richard Bruton that a date should not be set for the establishment of Nama “until we see the Minister’s proposals on reciprocal commitments by the banks on getting credit flowing”.

The Minister said that “central to the operation of this legislation is the whole question of credit supply and we are finalising our proposals in that regard”.

Richard Bruton said that “given that taxpayers have to stump up €54 billion, it is not good enough for the Minister to refuse to reveal anything to us by pretending he has a closed hand because he is in negotiations with the banks”.

He added that “the record does not speak of confidence in the way the public authorities have managed to get the banks to do what is in the public interest”.

The banks “have brought us to our knees” and they needed to see the Minister’s proposals before the committee-stage debate concluded.

“Now we are expending €54 billion without any mechanisms in place. A core issue that the Minister needs to address and has so far . . . avoided addressing is how he intends to get reciprocation from the banks to get credit flowing because all their instincts will be to do the opposite.”

Mr Lenihan insisted “the legislation should not put us in the position of making a once-off decision on credit supply immediately before Nama comes into operation because it is clear that the need can [depend] on the economic circumstances of the country.

“Where at present we can identify a clear and present need in regard to the small and medium-sized business sector regarding particular but not all financial institutions, equally in the future it is possible to envisage that difficulties could arise in other sectors. Whatever mechanism we design has to be flexible enough to cover future circumstances as well as existing ones.”

He was not satisfied that a recovery bank was a mechanism that would work “and I had advice in that regard. I don’t say that in any way impugning the good faith of Fine Gael.”