Brian Lenihan's statement on Wednesday will be a defining moment for Irish banking. There is already much controversy about Nama. The greatest part of this centres around the pricing of the toxic loans which the state's proposed new 'bad bank' will be buying from the troubled banking system, and the consequences for the taxpayer.

The worry is that the taxpayer will overpay (more than the 'market price') for these loans. If Nama pays more for the toxic assets, there is a transfer of wealth to bank shareholders that can be recovered by extra taxation, a levy in the future or some other alignment system. We have a precedent in the case of AIB, following the collapse of its former subsidiary, the Insurance Corporation of Ireland (ICI).

But there is another way. The government, through the NTMA, has already provided €7bn in preference capital to support AIB and Bank of Ireland. This capital was injected in the wake of government guarantees on deposits conceived when our banking system was at risk of implosion last year.

The state receives from the two banks a coupon on the preference shares of 8% and warrants to convert into 25% of the equity on a future date if capital is not all repaid. Why should the state continue to hold all of these shares? Why not offer these shares, and attached rights, to the Irish PAYE taxpayer? Each taxpayer on the Revenue's database would be offered the right to subscribe for these bank preference shares owned by the state.

The amount of shares offered and the payment could be varied. For example, in phase one, €2bn could be offered with payments of 25%, say, each quarter for the following year. If this is a success more can be offered later. All taxpayers could be offered an incentive.

The Commission on Taxation recommended SSIA to encourage savings and suggested the state contribute €1 for every €2 contributed by the individual. Why not introduce this for banking investments at this time?

At the moment the government owes foreign holders of Irish government debt €7bn in respect of this preference capital subscribed. The government is being paid 8% interest (on the preference shares) by the banks and pays out somewhat less in interest on capital borrowed.

If the government succeeds in raising some capital from taxpayers through the sale of these shares, it can repay foreign lenders that amount. Put another way, if taxpayers buy these bank preference shares from the state, the extra taxation or spending cuts they will have to suffer between 2010and 2013 will be mitigated, or at least the 'premium' we have to pay for international money might be lower.

One of the advantages of this proposal is that it gets more Irish investors – including potential equity investors – putting capital into banking and maybe dealing with inevitable rationalisation in the future. In part it deals with the whole issue of loan pricing by Nama if more taxpayers are aligned. Again taxpayers have to recognise that the money was raised on their behalf by the government to fund the preference capital investment in the banks. Taxpayers would regain some control in this by direct ownership of the preference capital with warrants.

On the downside, investors could lose their investment if the banks are declared, at some point in the future, insolvent and the shareholders are not rescued by the government.

Balancing this in the short term are preference shares/ warrants, worth more than their par value. Preference shares are likely to be redeemed by the banks in the benign scenario.

The finance minister indicated to this newspaper last week that the "banks have not been able to attract private capital''.

Private sector initiatives by stockbrokers to raise equity capital from a large tranche of private investors (basically private investors already on bank registers) with State subvention have not found 'state administration' favour to date.

A mooted rationalisation of the banking system, which is necessary, needs to be balanced with getting Nama operating and credit flowing. The minister's statement in the next few days will be a defining moment for Irish banking.

We are struggling in the midst of a terrible, self-generated, financial crisis. Inevitably we must look ahead. We must ultimately redefine our banking policy, as well as creating a stable image to international markets to which we are over-indebted to for the foreseeable future. We need to demonstrate our ability to work our way out of this crisis. Maybe owning a stake in our banking industry, as proposed, is the first step.

Patrick Cunneen is the former general manager of AIB Investment Banking