MINISTER FOR Finance Brian Lenihan asked the National Treasury Management Agency (NTMA) in February 2009 to assess a proposal from the banks as an alternative to a so-called “bad bank” plan to deal with toxic assets on their balance sheets.
In a letter to Dr Michael Somers, then chief executive of the agency, Mr Lenihan also asked the NTMA to assess the possibility of establishing a new “good bank”, similar to an alternative suggested by Fine Gael to the Nama plan.
These options were among a range of possibilities that Mr Lenihan sought to have evaluated in his February 27th, 2009 letter.
The Minister made the request nine days after appointing economist Dr Peter Bacon as a special adviser at the NTMA on a three-month contract to report back to him on his favoured option.
The letter was released to The Irish Times following a request by this newspaper under the Freedom of Information Act.
Dr Bacon recommended to the Government the following month that it establish the National Asset Management Agency (Nama), which Mr Lenihan accepted as the best option to remove toxic assets from the domestic banks.
The Government announced that it would establish Nama in the supplementary budget last April.
Mr Lenihan’s February letter requested that the agency assess a range of options. “I am now requesting the NTMA to carry out a full assessment of the asset support scheme options available, to assess the advantages and disadvantages of the main options and to make recommendations,” said Mr Lenihan.
“Your recommendations should be consistent with the ECB/EU guiding principles for bank asset support schemes. The NTMA assessment should include an evaluation of the pros and cons of an asset insurance solution versus an asset removal solution.”
The Minister said that of particular interest to the State would be “the potential exposure of the exchequer, the timing of any call for State financing and the impact on our national debt”.
Mr Lenihan said the agency should examine a proposal from the banks relating to insuring losses on assets where the first loss would be borne by the banks, 80 per cent of any loss on the remaining balance would be borne by the banks and a 2.5 per cent premium of any assets covered would be paid to the State by the banks.
On the option of removing assets from the banks, the Minister asked the agency to assess “the various approaches to establish a so-called ‘bad bank’, to include a State bank, separate bad banks linked to each bank, a company set up by the banks to manage stressed assets, etc.
“The alternative option of . . . creation of a new ‘good bank’ should also be considered.”
Mr Lenihan suggested that the agency consider international models from Sweden, Germany, Japan and France as “potential solutions” for the Irish banks.
The Minister asked for the NTMA’s assessment to be completed as quickly as possible “in view of the continuing stress in our financial institutions. I should say that I know your staff has already been working on these issues . . . I am appreciative of the assistance and advice of your staff in the present difficult period.”
