Ireland will soon have a banking system that is "fit for purpose" and which is no longer a driver of economic growth, according to Brian Lenihan's economic adviser Alan Ahearne.
Speaking to an audience of members from the Irish Auctioneers and Valuers' Institute (IAVI) in Dublin yesterday, Mr Ahearne said Ireland did not require a banking system that would be lending tens of billions of euros, but one that would support businesses.
He also said the European Commission would be coming back "fairly shortly" with its response to restructuring plans for Allied Irish Banks (AIB) and Bank of Ireland.
The Irish Independent has previously reported that the EC decisions are likely before the end of next month.
Mr Ahearne told delegates: "What we don't want and won't have is a return to a big huge explosion of lending here by the banks," he said.
"We want them to be able to contribute to the recovery. We don't want them to drive economic growth.
"That's what we had during property booms and busts," he added.
He added that the State's investment in the banks was helping to create a "properly functioning banking system" that was "absolutely crucial" to economic recovery.
He said the 8pc annual return, equivalent to about €560m, that the State was getting for its investment in preference shares in Bank of Ireland and AIB was a rate that was a "pretty decent return".
"The National Pension Reserve Fund would have been very happy with that return over the last year on a wider portfolio of assets," Mr Ahearne added.
UCD economist Colm McCarthy, who chaired the An Bord Snip Nua committee, said Ireland had suffered from an "old-fashioned banking collapse driven by bad lending".
He said the whole economy must deleverage and added that it would be better if housing transaction activity picked up at "even lower prices" than homes were currently selling for.
Aidan O'Hogan of Savills told the IAVI conference that it was likely the price of houses had fallen by about 50pc since the peak.
Mr McCarthy said that there was probably a case for the Government to examine the wisdom of continuing existing stamp duty rates on residential property purchases given the state of the market and the collapse in tax revenue from that sector.
He added that the revenue loss for the Exchequer from property-related taxes in the residential and commercial sectors had fallen by about €6bn within the past three years.
Mr McCarthy added that government spending had continued to rise despite cuts as more people availed of social welfare payments.
About 14pc of tax revenue would be used to service national debt in 2010, he said, up from 4pc just a few years ago.
"It will continue to rise even if the Government's tight fiscal targets are met," he forecast.