THERE WAS no proposal to establish a “toxic bank” to deal with bad debts, Minister for Finance Brian Lenihan said.

“No such proposal is among the options being considered by the Government. The position of the Government is that the Cabinet has been briefed in an informal way about the nature of the options involved.”

The Minister was replying to Fine Gael’s deputy finance spokesman Kieran O’Donnell, who had asked if discussions had taken place about setting up such a bank.

He asked how the Minister intended isolating what was now familiarly termed “toxic debt”. He added that the Minister had not yet quantified what would be the cost to the taxpayer of dealing with such liabilities and ensuring funds flowed to small businesses.

Mr Lenihan said that toxic debt in banking discussion generally related to the kind of paper instruments which were generated in the United States and were common in the United Kingdom banking sector: derivative instruments and the like.

“They do not exist to any substantial extent and, in fact, exist to a minimal extent in the Irish banking sector.” Mr Lenihan said the exposure of the Irish banks related to property, which was not a toxic asset and had a residual value. The use of the word toxic did not characterise the nature of what was being dealt with.

Mr O’Donnell said that they could call them underperforming or non-performing loans. When one was talking about writeoffs of 60 per cent, they were highly toxic.