The Government could end up paying too much for bad loans from banks, it was warned today.
The National Asset Management Agency (Nama) is beginning talks with lenders about taking over borrowings which were worth €90bn at the height of the property boom.
But two university academics today warned the Oireachtas Finance Committee that Nama may be used as a vehicle to over-pay for risky assets.
The state body, which was announced in last month’s supplementary Budget, will pay for the loans through the issue of Government bonds to the lenders.
Prof. Karl Whelan of UCD said: “Nama may well be used as a vehicle to over-pay for bad assets.”
Prof. Whelan claimed that the €7bn injected into Bank of Ireland and AIB earlier this year was very bad value for the taxpayer.
The Government said profits from the eventual sale of the bad loans will be given to the state and may be used to service the €54.2bn national debt.
Prof. Patrick Honohan of Trinity College warned that Nama could give back-door access to taxpayers’ funds, without Oireachtas scrutiny.
“The proposed scale of Nama is unprecedented on an international scale,” he added.
“There has never been one as big as this relative to the size of the economy. And I worry about this,” he told the Committee.
Prof. Honohan said Government-owned banking systems usually serve their economies poorly.
“They tend to have higher interest rates and less credit to give out,” he explained.
Fine Gael finance spokesman Richard Bruton asked: “Has enough analysis been done of the pros and cons before we roll the dice.”
If Nama makes a loss, the Government said it will apply a levy on banks to recoup the shortfall.
The agency is also expected to have the power, if required, to buy up loans against the will of lenders.
The EU was closely consulted on the set-up of Nama, which will be officially established in coming weeks when legislation passes through the Oireachtas.