A second former leader of Fine Gael has endorsed the government's Nama legislation, with Alan Dukes criticising the main opposition party's 'good bank/bad bank' alternative and calling on it to "rethink its position fundamentally".

Dukes' description of the Fine Gael proposal as "very risky, contentious and cumbersome" comes amid speculation that there are serious tensions within Fine Gael over its stance on Nama.

Speaking to the Sunday Tribune, Dukes – who is a state-appointed director of the nationalised Anglo-Irish Bank and who served as finance minister during the last economic crisis in the 1980s – said that neither the Fine Gael nor the Labour alternatives to Nama do "anything to affect the size of the [banking] problem", adding: "I don't see any of the other solutions having the advantages of Nama, but they have a lot of disadvantages."

Lenihan had "conclusively undermined the two opposition cases" during his appearance at the Oireachtas Fin­ance Committee last Monday, he argued.

Dukes said the Fine Gael proposal was "unrealistic" and could create "two zombie banks and two other banks".

He described as "highly optimistic" the funding proposals for the party's new bank. He also said that it would take considerable time to set it up and added that the suggestion that the banks could negotiate with bondholders ignored the reality that within a few months those same bondholders would have to be approached for funds for the new bank and they were "not likely to be disposed to lending money".

On Labour's nationalisation plan, Dukes said the nationalised banks would still have to mark down the loans on their balance sheets, adding that he did not like the prospect of three nationalised banks and that this would create "a very difficult situation for any government". He also described Labour's call for a list of the consolidated positions of developers as "political prurience" that would do nothing to solve the banking problem.

The one conclusion to be drawn from the banking crisis, Dukes said, was that "the size of the hole is the same. The question is how to fill it. The 4.2 million of us [in this state] will have to fill it and there is no way of avoiding that."

On the Nama legislation, he said there was a strong case for deferring a percentage of the payment to the banks; for inserting protections on developers looking to buy back land at lower prices and for increased provisions on scrutiny and transparency to help improve public confidence. But he said that under Nama, developers and banks would take the first hits. To suggest otherwise, as the opposition parties had been doing, "obfuscates the issue".

It is understood that many members of the Fine Gael parliamentary party privately believe the party would be better off attempting to improve the Nama proposal rather than pushing its own 'good bank-bad bank' ­concept.