It is a week since emergency legislation was introduced to provide a State guarantee for the banks. Last week, we were told the Government would introduce a scheme this week to set down the conditions under which the guarantee was being provided. Yesterday, the Taoiseach told us the scheme is not yet finalised. From what we hear, it may be next week before we see the terms of the scheme. I understand the Minister for the Environment, Heritage and Local Government, Deputy Gormley, stated in an interview this morning that it has been delayed because of the scheme announced in the United Kingdom.

A week after the legislation was introduced, we are still unsure what exactly we have guaranteed. We do not know the terms or conditions of the guarantee provided and we do not know what will come back to the taxpayer in return for the guarantee provided. In the absence of the scheme we were promised what guarantee is now in place? Do I understand correctly that in the absence of a scheme, the guarantee is, in effect, the statement the Government issued on 30 September? If so, as of now does the guarantee only extend to the six banks named in the statement? How is the guarantee extended to the other financial institutions which I understood were to apply on the basis of the scheme? What exactly is the nature of the guarantee and what is its status as of now?

Will the Taoiseach clarify an aspect of the Government statement of 30 September? Reference was made to dated subordinated debt — lower tier two — being subject to the State guarantee. As I understand it, this debt is the arrangement whereby very wealthy people make money available to the banks, effectively as a loan, and receive far higher interest than a normal depositor because the understanding is that if anything goes wrong with the banks the money is gone.

The guarantee scheme announced by the Government last week provides a State guarantee for this form of debt. We have seen a number of schemes introduced by other states such as Germany, Denmark and the United Kingdom. None of these arrangements provides a guarantee or cover for dated subordinated debt.

Why was this form of debt included in the Irish scheme? Approximately how much of this debt exists? I am advised it could be in the order of €10 billion. It is high-risk money provided by high net worth people to the banks on very high interest rates. According to this scheme we have provided a taxpayers' guarantee for it.

With regard to the guarantee scheme, this has been an evolving situation. I want to make it clear to the House that work on the scheme being carried out by officials of the Department of Finance, the Central Bank and the Financial Regulator is continuing with a view to finalising it as quickly as possible. The boards of the Irish Financial Services Regulatory Authority and the Central Bank discussed the scheme on Monday evening and they will feed their recommendations into the finalisation of the scheme. It is important to stress the need for discussion on the draft scheme later this week between the Irish authorities and the European Commission with regard to EU state aids and competition requirements.

As the Deputy will be aware, the Minister for Finance met the EU Commissioner for Competition on Monday evening to discuss the Government's approach and contacts are ongoing as the work proceeds. The issues discussed at the meeting between Commissioner Kroes and the Minister for Finance currently are being factored into the drafting of the scheme. A particular priority in this regard is to ensure the scheme appropriately addresses the issues of subsidiaries of overseas parents operating in Ireland with a substantial retail main street presence.

I assure the Deputy that it is a priority to ensure the scheme will be laid before the House as soon as possible. The Minister, Deputy Brian Lenihan, and the Commissioner both agreed it was important to take steps to guard against any undue distortions of financial flows and the Minister indicated that such concerns would be addressed through the implementing measures currently being drafted, which will provide for controls and quantitative balance sheet controls. This is the up to date position and it is important to point out that the breaking situation in the United Kingdom also must be factored into our considerations here.

I make the point that as the House passed the legislation last week on foot of the statement given by the Government on the morning in question, it was setting out its preparedness to stand behind the banking system and the six main banks in the State. Subsequently, in the course of discussions, both inside and outside this House, suggestions were made as to whether it would be possible to incorporate into the scheme other banks that were not on the list for reasons already outlined by the Minister. Consideration of this issue continues and important questions must be clarified and addressed in respect of wider group liabilities in the event of anything happening to a subsidiary here.

What about the question?

I am answering the question.

The Taoiseach is not.

Please allow the Taoiseach to speak without interruption.

Deputy Stagg, I will answer the question.

While I thought the last Taoiseach was a waffler, the present Taoiseach is worse.

Is that right?

The Taoiseach is going around in circles.

The Taoiseach, without interruption.

Regardless of whether Deputy Stagg interrupts, this is a quite complicated situation——

I understand it.

——and I do not accept that one should be blasé about it, given what is being done. The Government must take account of what is developing. Developments took place yesterday and this morning in the United Kingdom of which we must take cognisance. I am being careful to ensure this State takes an appropriate, rather than an inordinate, risk. This is what I am trying to ensure.

That is the reason the Taoiseach is keeping on the bankers.

No. It is important to do so.

A steady hand.

We also were obliged to take account of the European Commissioner's views on these matters. We are having constructive and co-operative engagements with all those parties, including those who have indicated they may have an interest in applying for the scheme.

What about the question?

Deputy Stagg, this is the answer to the question.

I refer to the other specific matter raised by Deputy Gilmore regarding what debt is being guaranteed by the State. On the basis of the advice we have received from the Central Bank and the Financial Regulator, the assets of the banks to which the guarantee relates exceed their liabilities. We are not including tier one capital arrangements, which includes equity or equity-like instruments. However, all other liabilities are being guaranteed by the State on the basis of the advice from those who are competent to so advise the Government.

Members should remember the purpose of this guarantee is to ensure that our banking system has access to adequate liquidity, in order that we can obtain the time and space to ascertain the manner in which the banking system may be restructured over time or developed in a way that will overcome this problem. The immediate issue before the Government was the liquidity question and it had to be addressed very quickly. On the advice of those from whom the Government should take advice in this regard——

The banks.

——this was the arrangement to which the Government came. I believe this arrangement has helped to bring some stabilisation to the liquidity question. The further issue as to how the banks should move from here is an issue that must be dealt with by the sector, by regulation and by ourselves as we interact with them on the basis of the guarantee scheme when it comes before the House for approval.

While I would have liked to have thought we would have it by now, it was not and is not possible to finalise those arrangements until we take into account every aspect of this situation based on the arrangements that have been happening across the water. I note the Chancellor of the Exchequer has indicated it will take the British Government some time to work out the details on how it will proceed. It is clear, on the basis of its statement this morning, how it intends to proceed. That is its view as to how it should respond in its situation. The Government here decided how it would respond in our situation. I assure the House that every care is being taken to bring about a position whereby we will have a scheme that will meet the requirements of the situation we have announced ourselves and which will ascertain whether it is possible or appropriate for the Government to accommodate others that have a strong retail presence here. The Government has had ongoing and constructive discussions with those parties. In addition, we must ensure that on arriving at that point, the European Commission also is satisfied that we have met the considerations and issues it has raised with the Minister for Finance when he met Commissioner Kroes. This sets out the context and reason for our actions and I hope this constitutes a response to the specific questions raised by Deputy Gilmore.

First, the Chancellor of the Exchequer in the United Kingdom announced conditions attaching to the British package that have not been attached to the Irish package. I note the British proposals include conditions relating to taking an equity share in banks, to restricting payment of dividends and putting restrictions on the reward and remuneration packages of top executives of banks, all of which remain open-ended in Ireland. This is not helpful and I am becoming concerned by the delay in bringing forward the scheme because this delay is creating a degree of uncertainty again about what is happening in the banking world. In the meantime, we appear to have some kind of open-ended unqualified guarantee for the banks.

I wish to revert to the specific question I asked about dated subordinated debt. No other scheme to provide a rescue or support package for the banks in any other country has included this form of debt. This is the form of debt that comes next after equity if something goes wrong. Interest is earned on such instruments at a far higher rate than is earned on a normal deposit. The reason for this is the understanding that such money is at risk if something goes wrong. The scheme the Government announced last week, for a reason I cannot understand, has included this form of debt and has provided a guarantee for it. I have been informed that in the couple of weeks preceding the Government's announcement last week, a great deal of trading took place in this stuff. People were trying to off-load some subordinated debt at a discounted rate and one could purchase some of it for approximately 80% of what it originally was worth. Suddenly, an Irish guarantee scheme guaranteed it to the value of 100%. I am told, for example, that one of the six banking institutions listed in the Government's statement has something like €2 billion of subordinated debt. Why was it included in the Irish scheme? Who decided or recommended that it should be included in the Irish scheme?

The banks.

It would be interesting to find out who they are. Someone somewhere is pulling strings.

What is the state of the Central Bank's knowledge about trading activity in this form of debt in the weeks leading up to the Government's decision to provide the guarantee? This is a specific question. If something goes wrong, ironically this high risk stuff will be the first charge on the Irish taxpayer. As the taxpayer now is providing a guarantee for the banks, Members are entitled to know the reason this stuff was included and who it benefits.

The Deputy should not tempt people.

As I have explained, the advice in respect of all these matters and in respect of all policy decisions was taken from the appropriate bodies, namely, the Central Bank and the Financial Regulator.

The banks advised the Government.

Were the Deputy in Government, he would do the same. However he is not.

We have heard enough of that sort of nonsense. They are the bodies that provide advice.

As for the availability of liquidity in the banks, obviously every area of liquidity that can be obtained must be obtained and retained by the banks to the greatest extent possible. It related to capital inflows as a result of the guarantee being provided and whatever liquidity or capital they had in the banks themselves. It is important to make the point that this is the basis upon which the advice is given and taken.

The actions of the UK were mentioned and they must make their decisions as they see them under their circumstances. What they or we do depends on our respective circumstances. They already had nationalisation of banks and some guarantees being given to banks. The Chancellor of the Exchequer, the British Government and its Prime Minister do what they believe is the right thing. They must come up with £50 billion up front as part of a recapitalisation process at this time. They see it as appropriate, coupled with the availability of long-term debt to the tune of perhaps £200 billion. It is their intention to acquire preference shares as a result.

That is fine as it is their approach and business. I have no comment to make on that one way or another and I am sure they are well advised. We take our advice from our own people. I believed the way to deal with the issue, based on all the advice we received on that occasion, was to act in the way we did. It was essential to our national interest that we acted and we did on the basis of the advice available from the appropriate authorities. That is the basis upon which Government works, as the Deputy knows.

Why was this included?

The Central Bank and Financial Regulator indicated to us what areas would be covered and they put it forward.

Why?

We went with that advice.

The Taoiseach believes them.

With due respect to Deputy Gilmore I wish to make the Government position clear. There is no need for any suggestions to the contrary. The advice obtained by Government regarding policy matters in this area was from the appropriate authorities.

It was to keep on gambling.

Anything that can be done at that point to retain liquidity in the banking system — and obtain further liquidity as a result of our State guarantee — is the whole motivation behind everything we do in this matter. It comes from the appropriate advice we take.

How competent was that advice?