The unprecedented banking packages announced by the EU in the past few days have put it up to the minister to inject huge amounts of cash into the Irish banks in return for equity.
At this stage, buying straight equity with taxpayers’ money would be the wrong thing to do. There are also calls for the Irish banks to merge as soon as possible; this too would be wrong.
Nationalising banks, despite the spin from London that everyone seems to have swallowed, is not smart.
There are many more creative ways of recapitalising banks and getting the best deal for taxpayers. Again, like the bank guarantee, Mr Lenihan, should look for an Irish solution to an Irish problem, rather than a cheap import from abroad.
It would be far smarter to lend money to the banks and charge them for it.
Most analysts say that Irish banks will probably need somewhere in the region of €10bn in new capital to cover the bad loans on their books and to begin to be able to lend again.
We could use the pension reserve fund for this. There is around €18bn in the fund and if this isn’t a rainy day, I don’t know what is. But most importantly, we could get the economy moving again, recapitalise the banks and make money out of such a move.
The State could inject €10bn into the banking system and charge the banks 9pc for the cash for a five year period. They are not going to get cash anywhere else at the moment so they would go for this option. This would imply the State would get €900m every year in interest income from the banks to pay for future pensions.
In addition, the State could negotiate a preferred share deal of 25pc of total bank equity, giving us, the taxpayers, huge upside.
The repayment schedule for the banks would be strict, so that if any bank failed to meet its payments to the Government, the State would take 70pc of the shares at a deeply discounted price.
In addition, the Government – as the most secure creditor of the banking system – could lay down terms, such as debarring Irish banks from lending abroad, limiting their exposure to property, forcing them to maintain a higher ratio of tier one capital and – most crucially in terms of democratic fairness – forcing the resignation of all the boards and senior management who got us into this mess in the first place.
The reason these individuals have to go is simple: to do otherwise would mean rewarding the guilty and by extension, punishing the innocent.