The National Asset Management Agency Bill 2009 was released on Thursday. Institutions wanting to participate will now have 28 days after the day Nama is established to apply. The finance minister, along with the Governor of the Central Bank and the Financial Regulator, will decide if an institution becomes a designated body.

Foreign banks that have lent to Irish developers can apply to become part of Nama, but the minister will consider things like the support these banks have received already and the support available to them from another country. With RBS, Lloyds Banking Group, KBC and Danske Bank all having received support from their own governments, it seems unlikely the foreign banks will be involved in Nama directly.

The bill doesn't give any indication of the discount that will be applied by Nama when purchasing the loans. It does state that each loan will be valued separately. The valuation of the underlying collateral will be based on current market value and will be adjusted "to reflect a longer-term economic value" it could achieve. The bill implies the government will not pay current prices for the assets, but it will not pay the maximum theoretical value for them either.

Nama will buy loans from participating banks; payment for these loans will be in the form of government bonds that will pay a floating rate of interest that can reset every six months. These bonds will enable a bank holding such bonds to repo the bonds with the ECB, improving its liquidity position.

The first loans will be transferred into Nama within weeks of the bill being passed in the Oireachtas. The top 50 exposures in the participating banks will be transferred by the end of the year, and the remainder by June of 2010. An indication of the haircut will become apparent in the debates on Nama as the government will have to indicate to the Oireachtas the level of debt issuance due to the agency.

The impact for Irish banks taking part in Nama will be positive, as it will remove the bad loans weighing down their balance sheets. It will reduce the risk-weighted Assets (RWA) and the loans books quickly. It will provide liquidity through the Nama bonds and increase investor confidence, enabling banks to access longer-term funding. The bill also eliminates any concerns that government would pay only current market prices, forcing the banks to accept "fire sale" values.

The government also stated in a release with the bill that it believes a "commercially-focused banking system" is best able to meet the lending needs of the economy. The statement says that if more recapitalisation of the banks is necessary due to Nama, further capital injections will be in the form of equity capital.

The government's aim is to remove uncertainty over the banks' balance sheets, allowing them to access liquidity and provide credit to the economy. While the government has stated it will provide capital to the banks if needed, the prospect of a full nationalisation of AIB and BOI has receded even further.

The release of the bill is a positive step for Irish banking. While there is still uncertainty over the banks, we now have a timeline on when Nama will finish moving assets from banks' balance sheets.

The government's comments on supporting the banks and avoiding nationalisation is positive for bond-holders. There is still a risk that equity will be diluted, but with the government against full nationalisation, Lower Tier 2 bonds of the banks are attractive.

Once Nama starts to remove loans from AIB and BOI, those banks' credit and liquidity problems will fall substantially. Their risk profile will come more in line with other European banks. And with the government willing to provide more capital via ordinary equity, this will only provide more support to Lower Tier 2 debt holders in the capital structure.