Labour Party's 'strategic bank' will need funds from markets
THE Labour Party's proposed investment bank would have to go to the international markets for funds -- despite the party looking to burn investors on Anglo Irish Bank losses.
The plan to set up a bank to lend to small businesses and to pay for infrastructure projects is a central plank of Labour's policy for economic recovery.
But party sources admit it will take over a year to start up and have not sorted out how many staff or branches required.
And there are question marks over setting up another bank when the Government's entire banking strategy is based around getting the existing banks to lend to small businesses.
Labour leader Eamon Gilmore's proposed new business bank would also be competing for funds with Ireland's two main banks -- already desperately struggling for survival.
Labour's 'Strategic Investment Bank' would need to sell bonds on the markets to raise the funds to give out loans.
But the party is calling for the Government to burn bondholders on their stakes in Anglo.
Finance Minister Brian Lenihan said it made no sense to negotiate a default on bonds, while also expecting international markets to lend money.
"You can't go to your bank manager and say I want to default and, at the same time, turn around and say give me more loans. If that's the underlying message coming out of Ireland, we're not going to flourish as a country," the minister's spokesman said.
But Labour finance spokeswoman Joan Burton said she disagreed with Mr Lenihan's analysis of the impact on the international markets of making Anglo bondholders take a hit.
"The point is there were risk elements taken by people on Anglo bonds," she said. Ms Burton added there would be "verifiable returns" to be made from bonds sold by Labour's bank.
NUI Galway's head of economics Professor John McHale gives Labour's proposals a mixed review. He said you must distinguish between the goals of funding large-scale investment and providing loans to SMEs.
"On the first, it has merit, especially as you're cutting capital expenditure so much. But it's very unlikely to be the way to fix smaller loans," he said.
"You should focus on fixing the banking system," he added.
Prof McHale disagreed with Mr Lenihan's view on the attitude of the markets to future investment as he says it "blurs the line between state obligations and bank obligations".
"They (the markets) understand the banks and State are different," he said.
The initial €2bn in capital for the bank would be taken from the National Pensions Reserve Fund.