BANKS' CAPITAL:MINISTER FOR Finance Brian Lenihan said he has not reached any conclusion on whether Allied Irish Banks (AIB) will require additional State capital after its property and development loans are moved into the National Asset Management Agency (Nama).

Before an Oireachtas committee as Opposition members questioned the Nama plan, Mr Lenihan said he was obliged to make it clear at home and abroad that the Government had a thought-out approach to the banking crisis. While providing no further detail on AIB, he said Bank of Ireland’s capitalisation was such that it may not need new capital when its loans are transferred into Nama.

Mr Lenihan said the outright nationalisation of the big two banks would not be in the interests of the Irish State. “Many of the difficulties relating to managing impaired loans, cleansing the balance sheets of the banks and dealing with legal challenges will also arise in the context of a nationalised banking system and perhaps even to a greater extent.”

Fine Gael TD Richard Bruton questioned the “Napoleonic scale” of the plan, saying taxpayers needed to have confidence that the project was stress-tested by more than one consultant. Mr Lenihan said Dr Peter Bacon’s plan was examined within the Department of Finance, the National Treasury Management Agency, the Financial Regulator and the Central Bank.

Asked if there would be statutory provisions to levy participating lenders for any losses incurred by Nama, Mr Lenihan said the scheme will allow the Government impose levies whenever the bad bank finishes its work in 10 or 15 years’ time. Mr Lenihan said the appropriate place for the provision of any such levies was in the Finance Act so the legislation governing Nama would not encompass bank levies.

One reason for this was that lenders would not be able to take risk-weighted assets from their balance sheets if a levy mechanism was in the Nama legislation.

Questioning how Nama would value assets, Labour TD Joan Burton said she heard development land in Co Sligo recently sold for 8 per cent of prior value while bank buildings in Ballsbridge sold at a 44 per cent discount to prices fetched a couple of years ago.

This implied an IMF estimate that Nama would cost some €24 billion was correct, she said. Mr Lenihan made the point, however, that the first loss was to borrower equity, often amounting to 35 per cent of loan value.