MINISTER FOR Finance Brian Lenihan has said he would consider creating a company to remove toxic property assets from the banks in a bid to eliminate risk from the financial system.
Speaking at the Oireachtas Committee on Finance and the Public Service, Mr Lenihan said that impaired bank assets “by and large related to property”.
“If there was some way of sequestering them and putting them in a separate place, it might be possible to create a property company which wouldn’t operate as a bank but which could be capitalised and be an attractive investment in due course.”
He said that removing bad bank assets through either the creation of a bad bank or a risk insurance scheme would involve “a substantial exposure to the taxpayer”.
A bad bank would involve the State buying assets from the bank upfront at “a very substantial cost,” he said, while the risk insurance plan would be “a time bomb” for the taxpayer in the future involving an “indefinite liability”.
The Minister also said that taxes overall may have to rise and that he was focused on a two-year plan to correct the public finances.
“You would want to be a cross between a prophet and a soothsayer and a clairvoyant to predict what will happen after 2011.”
Mr Lenihan said that the Government would break from convention and widen its search for a successor to Central Bank governor John Hurley to include candidates from the private sector as part of his reform of banking regulation.
The Government has chosen successive Central Bank governors from the ranks of senior civil servants since the bank was established 66 years ago.
Mr Lenihan said that he had “an open mind” on a successor to Mr Hurley who has agreed to stay on beyond his scheduled retirement next month.
“The traditional practice whereby it is axiomatic that a senior public servant should be appointed as governor of the Central bank will not be followed by me,” said the Minister.
“I propose to have a clear survey of the field and bring the most suitable candidate forward who will ensure the central bank will perform its role.”
Mr Lenihan said that the Central Bank warned of excessive bank lending in 2004, but had no power to take measures to curb it.
He said that the Government would seek to reform regulation so that the Central Bank can place “quantitative limits” on lending.
Mr Lenihan defended the appointment of internal candidate Richie Boucher as Bank of Ireland’s new chief executive, saying he was an “excellent” choice.
The Minister was criticised by Opposition politicians for not exerting influence on the bank to appoint an external candidate in an effort to “break from the past.”
“Bank of Ireland assessed candidates and came to a conclusion in a process which I am satisfied was transparent and proper,” he said.
The Minister said the bank had briefed him on the appointment, but that it was “a commercial decision arrived at by the institution”.
He said there was one well-qualified external candidate who did not express an interest in the job.
He said this was “hardly surprising”, given that the pay was subject to Government approval and that the bank had been “called into question in some circles”.
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