SENIOR DEBT would have to be repaid, Minister for Finance Brian Lenihan told the Dáil in the debate on the banking bailout.

“The position is that under Irish law, senior debt obligations rank equally with deposits and other creditors. I have no plans to change this position.

“There is, therefore, no question of seeking to impose losses on holders of such debt in Anglo Irish Bank or, indeed, in any credit institution in the State through any legislative measures.’’

Indeed, said Mr Lenihan, the Dáil’s legal competence to effect such changes was very much in doubt having regard to the provisions of the relevant EU directives which prohibited differentiation between creditors and the provisions of the Constitution protecting vested rights.

“I am not saying on the record of this House that it is not legislatively competent to impose haircuts on creditors, but were we to impose haircuts on senior bond holders, equivalent haircuts would require to be imposed on depositors.’’

Apart from the commercial and economic arguments involved in the location of Ireland as a centre of multinational investment, the dependence of NTMA on external funding and the dependence of the banks on external funding were major factors.

They should be weighed very carefully by members of the House and by commentators in assessing the desirability of policies advocated from time to time and pointed in the direction of default in regard to bondholders.

Mr Lenihan said the question of subordinated bondholders was separate and could be addressed through appropriate legislation. In any event, all the subordinated instruments in Irish Nationwide Building Society and Anglo Irish Bank did not mature for payment of their principal sums for a considerable period of time.

Mr Lenihan said the public was understandably and rightly angry about what had happened in the banking system. “I share that anger, but anger is not a policy on its own, and we must now turn to the resolution of our problems.’’

Minister for Communications Eamon Ryan said the figures were horrific and numbing in their scale and implications for every person in the State. There was a need for a change in banking culture.

“It is right that the culture is changing from the top down, and that we have new boards and management. The public lack of trust in Irish banks is serious. Banking requires trust. I have said for some time that we need new boards and management, and that it will take time to achieve this.’’

He said contracts were entered into giving depositors the exact same rights as the bondholders.

“Those rights cannot be taken away retrospectively. A court challenge from a bondholder would contend the deposit holder has the exact same rights as a bondholder and that one could not just attack a bondholder without attacking the deposit holder.’’

Mr Ryan said the Republic was a capable, skilled trading country.

“Having a balance-of-payment surplus again will help us out of our difficulties. I regret deeply the banking legacy we have had to manage, but our broad approach was the correct one.’’