THE PUBLICATION of the Bill to establish the National Asset Management Agency is the latest step in a process pivotal to any economic recovery. Nama, when it is up and running, will assume the land and property loans of the Irish banks which have a current book value of €90 billion. Many of them will never be repaid. In return the banks will receive Irish government bonds which they can exchange for cash at the European Central Bank which they will in turn start lending into the economy, underpinning recovery.
The extensive powers granted to Nama in the Bill serve to underline both the difficulty of the task facing it and the absolute imperative for it to succeed. The agency will have unprecedented rights to seize property and assets from delinquent developers. Considerable effort has also been expended to ensure that the agency’s work will not be disrupted by the inevitable legal challenges.
The Government has made a decision to proceed slowly with Nama in order, it says, to make sure that it avoids as many pitfalls as possible. Consideration of the legislation by the Oireachtas will not start until midSeptember, some six months after Nama was announced and over a year from the start of the most intense phase of the credit crisis. It seems an unnecessary delay given the latest economic data: this week’s figures for bank lending and the wave of receiverships and liquidations spreading throughout the property sector.
That said, the Opposition parties and other stakeholders should not squander the opportunity afforded to them to study the Bill carefully between now and September. Equally, the Government must not be partisan when it comes to considering and, if appropriate, making amendments. Already concerns have been raised about transparency and protection of the taxpayers’ interest.
But there comes a point after which the legislative process becomes redundant and action must commence. We will reach it some time in the autumn when Nama comes into existence.
By then the Government will have to reveal the estimated cost to the taxpayer of Nama, central to which will be the writedown taken by the banks on the loans they are transferring. Deciding the writedown will represent a juggling act between the need to price the loans realistically and not force the banks to accept losses on a scale which lead to their collapse into nationalisation, something the Government is determined to avoid.
If the Government does not get this balance right then all the hard work that has gone into this legislation will amount to very little. What was confirmed in this regard yesterday was that the Government has taken the decision to pay more than the market rate for the loans. The wisdom or otherwise of this will become apparent in time. But, in truth, any solution to the current banking crisis would by definition be untested and unproven and involve considerable risk. The Government has bet the taxpayers’ money on Nama and it is now in everyone’s interest that it works.