Proposals being studied to fund small firms - Lenihan

MINISTER FOR Finance Brian Lenihan said he was considering bank proposals for the funding of small and medium-sized businesses.

Denying an Opposition claim that he was complacent on the issue, he said he had numerous meetings with the financial institutions and, at his request, they had submitted different plans.

Mr Lenihan warned against "the implicit assumption that the capitalisation of the banking sector, whether by the State or otherwise, will automatically lead to an increase in lending in the real economy".

That had not been the experience in the UK, where an extensive state-sponsored capitalisation had taken place, he said.

The Minister insisted that there was no delay in the ongoing discussions with the financial sector about the "reflection" which he had invited the banks to make about their capital provisions.

Fine Gael finance spokesman Richard Bruton said that it was 2½ months since the bank guarantee was introduced.

He challenged the Minister to say where his strategy was. "You say there is going to be a credit flow and you are saying that other strategies have failed in the UK or elsewhere. What is your strategy to get credit flowing? That is the question everybody is waiting to hear. If it is not recapitalising the banks, what is it?"

Mr Lenihan said Mr Bruton was not in a position to say there was no solution, adding that the plans were submitted in the last 10 days.

He said that the liquidity of the Irish banks had been repaired in October. "So let us not talk about 2½ months. I have had the Pricewaterhouse report for a far shorter period than that," he added.

After the bank guarantee was issued, the first step was a detailed analysis of the asset quality of the Irish banks. That report was only available in November and since then, he had been talking regularly with them to ensure they were in a sound position for the months and years ahead.

Earlier, Mr Bruton wondered if the Minister was supporting an approach which allowed the banks to string out the process.

"I am very deeply concerned that the experience of other countries is that, where the necessary action is delayed, the impact of a banking crisis becomes deeper and more profound on real businesses," he said.

"I am worried that the Government's approach is talking about last resorts . . . It is leaving this credit freeze-up to continue to persist with serious consequences for jobs." Mr Bruton said that he found the Minister's complacency in the face of the statistics quite alarming.

He said that people outside the finance and the development-land area were having their credit squeezed.

"Undrawn overdrafts are actually cut by 25 per cent, and I can give you examples of businesses with overdrafts which have been curtailed and they are now having to lay people off," he added.