MINISTER FOR Finance Brian Lenihan said he expected Irish borrowers to benefit from interest rate cuts.
"I welcome the European Central Bank's announcement of a cut in interest rates, which I expect our banks to pass on," he said. "In the case of tracker mortgages, they are obliged to do so."
The Minister said that, in terms of competitiveness, it would also be essential for the banks to pass on the cuts, not only to those purchasing properties on variable mortgages, but to small and medium-sized enterprises in need of credit.
Mr Lenihan, speaking during the Order of Business, said the Government's legislation provided a framework for a State guarantee.
"It does not provide for State assistance or participation in the banks," he added.
"For this reason, the State does not have a right of commercial interference. However, I anticipate that the cuts will be passed on to those most in need of them, namely the banks' customers."
Mr Lenihan said that there was no question of introducing a supplementary budget because the tax burden had been increased in last month's Budget.
"Accordingly, an additional supplementary budget next year, levying further taxation, would in all probability inflict further damage on the economy," he added.
Later, during Question Time, Fine Gael finance spokesman Richard Bruton said there was mounting evidence that credit to viable enterprises was drying up.
There were numerous examples where people had their overdraft facility cut back and were having to lay off staff. Mr Bruton said that the issue of the adequacy of the capitalisation of banks was now a in sharp focus and one of the reasons was they were finding it difficult to raise term-deposits externally.
Mr Lenihan said he had asked his department to liaise with the Central Bank, the financial regulator and the financial institutions to assess the reality of the many claims advanced relating to the shortage of credit for particular businesses.
He said that the question of the adequacy of capital ratios must be examined because of the position obtaining in other European countries.
"I have made it clear at all stages that my view, and that of the Government, is that capitalisation by the State must only be an ultimate and last resort," he added.
Mr Bruton claimed there was a worry that the Government "is sitting back on its oars when other governments have moved ahead with other actions".
Mr Lenihan said the Government had not rested on its oars in giving the guarantee in the first place. Its political difficulty in Europe was that it was ahead in giving the guarantee.
Replying to Labour spokeswoman Joan Burton, the Minister said the financial regulator had recently commissioned PriceWaterhouseCoopers to conduct a review of loan portfolios of the covered credit institutions.
"Given the general deterioration in the economic conditions, both national and international, the financial regulator has advised me that he would expect the current levels of impairment charges for particular institutions will be dependent on borrowers' financial position and the level of collateral provided," he added.
Mr Lenihan said that the extended international credit crunch had brought home the pivotal role of the financial system in the economy and in the day-to-day lives of ordinary people.
