Brian Lenihan: strategic direction

The government is working on a far-reaching plan to entirely restructure the banking sector, including a reduction in the number of banks, as part of its Nama announcement on 16 September.

The government will now take substantial majority control of AIB, as the Department of Finance no longer believes the bank will attract any private capital and is not prepared to wait for earlier efforts to source private capital to pay off.

The position of Bank of Ireland is more complicated because the government believes there is still an outside chance that bank could do a rights issue, as it has a lower exposure to commercial property and development-land assets than AIB.

In an interview with the Sunday Tribune, the minister for finance Brian Lenihan said: "I will be making an announcement on 16 September and that will spell out the strategic direction of the banking sector for the future."

It is understood a section of Lenihan's speech will deal with each institution and its future.

The minister declined to say what scale of restructuring this will involve. But it is understood Irish Life & Permanent might end up with 45% of a new so-called "third force" in Irish banking.

The minister also revealed the current bank guarantee is set to end in September next year, to be replaced by a less "universal" guarantee.

In relation to private capital being injected into the banks after Nama takes over €90bn of loans, the minister said: "I've said throughout this banking crisis there is an onus on the banks to attract private investment. But they haven't been able to attract any private investment. I cannot wait forever."

Lenihan said he would publish an "estimate'' of the overall discount on property loans held by the banks.

But he pointed out that until each loan is valued there will be no final precise figure published. He said while he understood the need to protect the taxpayer and why it might be beneficial to use certain "risk-sharing" mechanisms, this could result in dangers.

"There comes a point where you leave so much contingency and risk in the banks that there is no confidence in them," he said.

It is understood that a levy on bank profits, designed to "claw back" any shortfalls arising from Nama is still being supported by the government.