18 months into the credit crunch, the Government has failed to fix the banks, making the recession here worse than in other countries.

Fine Gael’s National Recovery Bank would restore credit availability to struggling businesses.

• Total lending to small and medium-sized businesses decreased from €33.6 billion in February 2009 to €32.7 billion in September 2009 or by 2.6%, (Mazars Report, Dec. ’09).
• And the rate of decline of applications for credit reported by SMEs – at 28% - was up by 4 percentage points in six months.
  
   

As Fine Gael argued throughout last year, the repeated claims by Government that the banks would use the €54 billion in bail-out money to be paid over by NAMA to finance new lending to Irish businesses were always likely to prove false. This has now been confirmed by the banks’ chief executives themselves in a recent appearance at the Oireachtas Finance Committee.

The truth is that an incompetent Government was duped by the banks into bailing them out at massive long-term risk to the taxpayer, without any benefit in terms of supporting Irish businesses and households.

National Recovery Wholesale Bank
Instead of pumping billions more taxpayers’ money into an insolvent bank like Anglo Irish (which will never issue another loan to a new customer again and should be broken up and wound down by agreement with the European Central Bank), Fine Gael has proposed €2 billion in Government capital for a new National Recovery Bank.

This would be a wholesale bank, and would not have its own retail network. Borrowers would still go to their existing local banks to apply for loans. A €2 billion investment into a National Recovery Bank could raise at least €20 billion of new lending, funded by the ECB and private financial markets, which is more than enough to provide for the credit needs of the country while the other banks gets themselves sea-worthy again. In other words, it would be a direct shot in the arm for the economy and would substantially ease financial conditions.

The big advantage of the National Recovery Bank over NAMA is that new state funding for the banks would be directly linked to new lending into the economy.

This was what the French Government did when the credit crunch hit in Autumn 2008, having previously lost €15 billion of taxpayers’ money – 55% of their investment – in a NAMA type “bad bank” bailout of Credit Lyonnais in the 1990s. And their economy was the first to emerge from recession in 2009.

Banking Inquiry
The banking crisis and the resulting economic calamity that has occurred in Ireland in the last 18 months was caused by the biggest failures in Government, public administration and private sector governance in the history of the State. But the Government’s proposed Private Commission of Investigation into the banking crisis threatens to be an expensive whitewash. We reject the notion that those who must be investigated for their role in the banking crisis should determine the manner and terms of reference of that inquiry. We should not have a bank inquiry by insiders, of insiders, for insiders.

If we are to be able to move on as a country from this disaster, the Dáil must be seen to fulfil, in public, its responsibility demand transparency and accountability from those whose were in positions of trust and responsibility. We envisage an Oireachtas-led cross-party Committee inquiry comprised of experienced politicians from all sides of the House.