NAMA is the National Asset Management Agency. It has been set up by the Government to manage the bad debts of Irish banks. It will work as follows:

NAMA will buy bad loans from the Irish banks.

It will pay for these loans with Government Bonds, not cash. The banks will hold these bonds for a fixed period of time. During that time, the Government will pay interest on the bonds to the banks, and at the end of the life of the bonds, the Government will pay back the capital amount of the bonds to the banks.

The amount of Government bonds issued will be decided by a panel of international experts who have previous experience in dealing with the bad debts of banks.

The banks will take these bonds and place them with the European Central Bank. In return, the ECB will give the Irish banks cash. This cash will be used to recapitalise the banks so that they can start lending to business and consumers again.

In the meantime, NAMA will start to manage the loans it has bought from the banks. This will involve pursuing the people who took out the loads to ensure that they are repaid. In some case, this will involve acquiring the assets (land) against which the loans are secured, and re-using or selling this land in order to realise its value. This process will occur over a 10-15 year period. Any value realised will be used to pay interest on the bonds, and invested, so that NAMA has sufficient funds to pay back the capital amounts of the bonds.

At the end of NAMA’s existence, if it transpires that NAMA hasn’t realised enough value from the loans to fully pay back the banks, a levy on bank profits will be introduced to make up the difference.