BANKING GUARANTEE:THE EMERGENCY legislation guaranteeing the banking system could make borrowing more expensive, Minister of State for Finance Martin Mansergh told the Dáil.
"The Minister has stated that higher funding costs for the Government should have input into an assessment of the charge imposed on those benefiting from the scheme," said Dr Mansergh.
"Certainly, there may be an increased cost of borrowing due to higher funding costs which have added eight basis points."
The Minister of State was speaking during a debate on the amendment to the Credit Institutions (Financial Support) Bill 2008 which was agreed earlier by the Seanad.
The amendment, requiring that any agreement for support of a financial institution be approved by the Oireachtas, was passed by the Dáil.
Kieran O'Donnell (FG, Limerick East) said that the guarantee offered was effectively like insurance. Therefore, the State should be looking for a return.
"We are providing a facility for the banks and should be looking for a return for the State, not necessarily a return that would involve breaking even but a return nevertheless," he added.
"We must seek the recapitalisation of the banks. We are dealing with the liquidity issue and must also deal with solvency.
"The banks must not indulge in reckless trading."
The key factor, Mr O'Donell insisted, was that the financial regulator and the Central Bank had failed. "They were like a referee at a match who did not blow the whistle," he added. "If one does not blow the whistle, players will commit fouls." Mr O'Donnell said that the institutions very much looked out of control. "I hope the Minister will take this on board," he added.
Dr Mansergh said it was important to put on the record that a number of important steps were taken by the regulatory authority in response to the very rapid growth in credit.
These included the introduction of the consumer protection code to safeguard the interests of consumers and the stress-testing of loans to plus 2.75 per cent above current lending rates and increased capital provisioning for riskier loans, such as property development.
Dr Mansergh said the scheme would not affect the general Government debt or borrowing unless liability was realised.
Sinn Féin Dáil leader Caoimhghín Ó Caoláin said his party did not take its position in supporting the Bill lightly.
"We have our concerns and reservations, but we decided to support the passage of the legislation because we believed it is about more than the banks," he added.
"It is about offering security to ordinary citizens, to investors and Irish businesses and means, in turn, the protection of Irish jobs."
Labour leader Eamon Gilmore said his party's concerns about the Bill had not been adequately addressed by the Government, "which is why the Labour party stood alone here last night in opposing the passage of the Bill".
At no point, said Mr Gilmore, had the Government been able to reveal the level of exposure to the State.
Fine Gael finance spokesman Richard Bruton said his party wanted issues about pay, bonuses, dividends and lending practices regulated to the maximum effectiveness.
