The finance minister has many problems. He must frame an incredibly difficult budget, reduce public expenditure, increase taxes, raise finance to fund the deficit and recapitalise the banking system. Unfortunately many of the problems affect each other. With rising unemployment, falling tax revenues and a disenchanted electorate, there are no easy options.

One particular worry is the damage done to the reputation of Irish banking. The initial concerns related to the banks' exposure to domestic and UK property lending. Since there appears to have been minimal exposure to the US subprime market, Irish banking could and should have remained strong, if property lending had been controlled.

The over-lending by banks has led to an increase in the cost of raising funds for Ireland after the government guarantee of deposits. The maximum exposure of €440bn equates to over €100,000 per head of the population and very much more per taxpayer. Already, following the nationalisation of Anglo Irish Bank, it is clear there will be serious claims under the guarantee.

With the rising cost of government borrowing and threats of downgrades to our standing among the ratings agencies, the damage has been huge. It is therefore vital that steps are taken to restore our good name as quickly as possible.

The concerns of foreign investors relate to the way the banks have been controlled. Clearly the Financial Regulator must accept some of the blame for the mess. Light-touch regulation was not unique to Ireland, but the country needs to counter the accusation that we represented the 'Wild West'.

The minister has made it clear he wishes to avoid nationalisation of the remaining banks. He has also refrained from imposing strict conditions on how they are to be managed, as the banks themselves do when providing rescue finance to customers. Clearly, since the two major banks are capitalised at much less than €1bn each and are each receiving an injection of €3.5bn, control could have been demanded. If the banks were subject to political control and lobbying, international confidence would be further eroded. However, it is incumbent on them to prove they can manage themselves.

Guaranteeing deposits can always lead to moral hazard. There must be some concern that, if impaired property loans are transferred into a 'bad' bank, efforts to pursue defaulting borrowers might be reduced. But it is not only foolish loans which give rise to moral hazard. Bonuses and pensions are also open to criticism.

It is accepted that the rescue of the banks is vital for the economy. But it does not follow that public funds should be used to augment the massive pay packages of departing executives. Whether or not there was a strange contract to pay bonuses irrespective of performance, they need to be repaid. The most serious case in Ireland is that of Irish Nationwide CEO Michael Fingleton. It is unclear how the board can have granted him a bonus of €1m or his incredibly expensive pension, given the disastrous lending performance.

The minister has stated that he wants to tackle crony capitalism. Generous pension gifts are particularly hard to justify, when banks already have serious deficits in their pension funds. If boards are to grant excessive rewards, they jeopardise their independence.

Tim McCormick worked for 17 years at the investment banking subsidiary of Northern Bank, subsequently National Irish Bank