Finance Minister Brian Lenihan has told an Oireachtas committee that the success of the National Asset Management Agency is not based on any assumption of a return to the recent 'bubble' prices for property.
The Minister appeared before the Joint Oireachtas Committee on Finance to answer questions on the proposed legislation to establish NAMA.
He said it was a 'myth' that the amount NAMA would pay for troubled loans would compensate them for a recovery in values back to what he called 'the unsustainable peak property prices' of 2007. The Minister added that NAMA would not be paying anything other than current market value for some assets, where this was appropriate. But he said that NAMA would adjust the value of assets to reflect the fact that they were currently at 'crisis values'.
Mr Lenihan told the committee he was willing to look at mechanisms aimed at sharing the risks between the taxpayer and the banks.
The Minister also rejected suggestions that the banks' senior bondholders should consider taking a reduction in what they were owed, saying this would have 'catastrophic effects' for the funding of the State. He said these same investors also buy Government debt, and were covered by the State guarantee.
Mr Lenihan also said Labour's proposal for nationalisation contained risks, and could affect the banks' funding options. 'Nationalising the entire banking system would inevitably result in Ireland's sovereign credit rating being downgraded from AA,' he said. 'This would result in increased debt service costs on the national debt which the country can ill afford when it has so many other pressing calls on its resources.'
But Mr Lenihan repeated that - after transferring loans to NAMA - banks may need capital, and this could lead to the State's taking a majority stake.
Fine Gael's Richard Bruton said there was nothing in the NAMA proposals to challenge the potential over-valuation of assets.
Mr Bruton also said bank bondholders had a responsibility that could not be 'shuffled off'. He said Fine Gael wanted to take a harder line with professional investors, but this did not involve default.
Labour finance spokesperson Joan Burton said her party had a difficulty with the concept of 'long-term economic value' in the proposed NAMA legislation, fearing it was a way of over-paying the banks for their loans.
She also said that, as it stands, the NAMA legislation would give the Minister 'grossly excessive' powers.
