I would like to draw attention again to the fact that I agreed to withdraw my amendment to the section because of a promise by the Minister that the necessary steps would be taken immediately after the passing of this Bill to have trustee status conferred on building societies. That statement by the Minister for Local Government was supported by the Minister for Finance, who had just come into the House around that time, and I would be hopeful therefore that in a relatively short space of time after the passing of this Bill the necessary steps will be taken to ensure that trustee status is conferred on building societies in order to ensure a steady inflow of money to the building societies.
Building Societies Bill, 1975 [ Seanad ]: Committee Stage (Resumed).
I did point out that that was not what I said. The Minister for Finance is responsible for trustee status and what I said was that I expected that as soon as the Bill was passed the Minister for Finance would confer trustee status on the building societies. Arrangements are being made to have that done. The Minister for Finance did not say anything in the debate.
The Minister for Local Government promised the necessary steps would be taken and appealed to his colleague, the Minister for Finance, and he said he could not have stated it better than the Minister for Local Government had done.
That wassotto voce.
I am sure, since they are in full agreement, steps will be taken immediately.
Steps. That is right.
I do not want to repeat what was said but the Minister can have a look at the Official Report.
I do not want to give the impression I was going to confer trustee status since I do not have that kind of authority.
The necessary steps would immediately be taken were the exact words used. Now, on section 22 what exactly does "from time to time" mean in subsection (1)? Has it a legal connotation?
The Deputy will remember that in his time as Minister he must have come across this phrase. It is a well-known phrase used in legislation. It means as the occasion arises. There is nothing sinister about it.
I accept there is nothing sinister. I just wanted an explanation of it because it says here that a society may from time to time raise funds for the purposes of the society. I would assume they would be trying to raise funds all the time.
If it was simply "a society may raise funds" then it could only be done once. From time to time means it can be done when necessary.
Subsection (4) provides:
A society shall not accept any deposit except on terms enabling the society to require notice of not less than one month before repayment or withdrawal.
Is this similar to the position that exists at the moment?
It is a re-enactment of section 15 (1) of the 1894 Act and it is considered desirable to continue this requirement so that a society will have reasonable notice of intent to withdraw deposits and take the necessary action.
I accept it is reasonable. I was wondering is it similar?
With regard to subsection (2), the Minister will remember that on Second Stage I pointed out I found some difficulty in understanding the difference between a person who holds shares and the person who deposits money with a building society. Is there a difference? Would the Minister also state whether there is a similar ratio between shareholders and depositors in the various societies?
Subsection (2) does not deal with that. It is a new requirement on the lines of section 20 of the Central Bank Act. It is designed in the interest of investors so that they will be aware of the financial state of the society in which they are investing. The contents of the statement required by section 61 will be determined by the registrar and will contain details similar to those in the society's balance sheet. The cost to the society of implementing this section will not be significant. That is what is dealt with under subsection (2).
I appreciate that but the matter arises here and that is why I would like an explanation of the difference between shares and deposits.
As I explained fully on the last occasion, a shareholder is a member with voting rights while a depositor is a creditor. That is the difference.
From the point of view of getting a loan, has one precedence over the other?
Yes, of course. Deputy John O'Leary raised this question. If someone investing money or saving money in a building society applies for a loan at the same time as someone who is not investing money or saving money, and there is only a limited amount available, naturally the person who is saving or investing would be entitled to priority.
The question raised by Deputy O'Leary was related to those who had money in the society in one form or another versus those who had no money in the society. The point here is some people will have their money in the form of shares and some in the form of deposits.
There is no difference at all there.
That is the point I wanted to get clear.
That was not Deputy O'Leary's point.
Would the Minister not agree that the vast majority of building societies insist on a person taking out a share even at the time of the allocation of a loan, if the person has not already done so? That person then has an interest in the society, can turn up at the annual general meeting and vote. There is a vast difference between shares and deposits. A shareholder has the right to vote at the annual general meeting but a depositor has not the same right.
I think the Deputy is missing the point and what he is suggesting would not be very popular. If a depositor wants to borrow money to build a house naturally that person has established hisbona fides with the society, but if someone who has not deposited money with the society wants to borrow and if money is available, as it has been practically all of this year, he will be able to borrow the money. What the Deputy is suggesting is that the person should be asked to take out some shares or to invest money even at the time of withdrawal. Is it suggested that such a person should borrow £500 from a bank and then borrow the £6,000 or £7,000 necessary from a building society? That would not make any difference and it would not make him have much more interest in what he was doing.
The present system is working very well. If a person wants to borrow money he goes to a society. If a society had a considerable amount of money to lend, as has been the case, they will give it to the person concerned if they are satisfied with hisbona fides. It would be a pity if a person could not borrow money unless he was a depositor.
The Minister does not understand what I said. I did not make any suggestion, I merely asked a question. Is it not a fact that the vast majority of building societies ask or even insist that a person who is getting a loan should take out even one share with that society?
That is not so.
With regard to the matter of shares and deposits, I understand that a person who invests money or who has shares can vote in respect of certain matters in relation to the society while a person who has money on deposit cannot do so. Neither of them has any rights over the other with regard to obtaining loans. Why have we a situation where some people are investing in shares and others are simply depositing their money with a society? I should like the Minister to tell us if there is a fixed ratio so far as the societies are concerned between the number of shares issued and the deposits. I do not think there is any such ratio but I wonder why we have a situation where we have shares and deposits neither of which confer any advantage over the other but where both persons invest money in the society.
There is no fixed ratio. It is a question of choice whether a person becomes a shareholder or a depositor. People have the right to vote as investors, not as shareholders.
They do not receive anything extra on their money and they do not have any more rights in relation to obtaining a loan. I wonder why the societies bother having the two different categories.
A depositor gets a lower interest rate but he has first charge if the society is wound up. He has greater security but he gets a lower interest rate. That is the only difference.
Is the Minister saying that a depositor gets a lower interest rate than a shareholder?
He gets a lower interest rate than a normal investor.
Is it the position that a shareholder gets a lower interest rate than a depositor?
I am not trying to be awkward.
I have given the Deputy the information he required. A depositor gets a lower interest rate on his money but he has greater security. In the unlikely event of the society being wound up he would have first charge. That is the difference.
(Dublin Central): Is there much difference in the interest rates between the two categories?
It is marginal.
(Dublin Central): The shareholder stands the risk of losing his capital if the society winds up?
It is a very unlikely risk but that is so.
I should like to be a little more clear on this matter.
Perhaps if I give the Deputy a note explaining the position that would help?
Yes. I thank the Minister.
(Dublin Central): This concerns the merging of building societies. Is there any restriction with regard to the minimum number that will be allowed to do so?
No. The next four sections deal with the arrangements that will apply in the case of a merger of two or more societies or a takeover of one society by another. In the building society law a merger is described as a union of societies while a take-over of one society by another is described as a transfer of engagements of one society to another. In all cases the consent of each society is necessary. Section 25 provides that two or more societies may unite and become one society and it sets out the procedure to be followed. A union of societies must be approved by a special resolution of the members of each society involved. There is no limit.
(Dublin Central): I am not disputing the matter of rationalising societies but I wonder if we are reaching the situation where we could have only one society?
(Dublin Central): I am not discussing whether that is desirable. We may have a Bill dealing with mergers before the House very soon but this may not come within the ambit of that Bill.
It would have to be approved by the registrar and members would have to agree. It is fairly well copperfastened. I think the Deputy is talking about the situation where smaller societies might be gobbled up by bigger societies but I do not think there is any danger of that. One of the biggest problems may be that, in common with other organisations, the same people may be running each organisation.
Does the Minister not appreciate that when this Bill becomes law fewer building societies will be formed? We could have the situation where a powerful society could go ahead and over a period of time absorb all the other building societies. There is nothing in the Bill to prevent that happening.
The members would have to be satisfied that it was the right action to take. They would have to be persuaded and I am quite sure it would be impossible to "con" all of them. The majority of people would look after their own interests.
I am envisaging a situation where some outside society succeeded by way of normal procedure in making themselves strong and therefore absorbed all the smaller societies.
If I tell Deputy Moore the legal position, it might help. The registrar, having considered an application to confirm a union, as it is called, transfer or undertaking and any representations made to him under subsection (3), may either confirm the union, transfer or undertaking or he may refuse to do so. This is the number one guarantee. Secondly, when he is not satisfied that section 28 has been complied with, that is that a statement of the financial position of the society has not been made available, or where in his opinion confirmation would not be in the public interest or in the interest of the ordinary and proper regulation of building societies' business, he may refuse. It is well covered there.
It is well covered but there is one phrase used "in the public interest". How would the registrar decide what is in the public interest on that issue?
We must trust somebody. We are appointing somebody to do this job. We have to give him trust. All the regulations having been gone through, the members having agreed or disagreed, the final choice would rest with him. If he is not empowered to do it, who would do it?
(Dublin Central): I am fully in agreement with this, but there are other sections where the Minister does not give such power to the registrar.
I note that some members of the Opposition are objecting to the powers which are being given here.
We are not objecting. We are querying the Minister. He may well find that some EEC regulation would perhaps curtail the power of a registrar even.
A member or representative society can always go to the court if they are dissatisfied. They have that right. This is fairly copperfastened. It may not be perfect but it is the best that can be done in this case.
(Dublin Central): If a society can transfer a certain part of their business to another building society, does that mean that they are running short of funds? Is that what this section means?
It does not necessarily follow that that would be so. The section provides for the following procedure in relation to a proposal to transfer the engagements of one society to another or to undertake to fulfil the engagements of another society. Their proposal must be approved by a special resolution of each society, so it would have to be in the interest of the society that was making the transfer, and in addition they must either obtain the consent in writing of the holders of not less than two-thirds of the total value of shares in each society or be confirmed by the registrar under section 27. Here we have a double thing. Either the registrar agrees or two-thirds of the shareholders who have not less than two-thirds of the value of the shares in the society.
When the proposal is approved by the members at a meeting and obtains the written consent of two-thirds of the shareholders—subsections (1) (a) and (b) (i)—the society undertaking to fulfil the engagements shall notify the registrar, and the registrar shall register the transfer and issue a certificate of registration in a prescribed form. As in the case of a union of societies under section 25, this procedure is in effect a re-enactment of the 1874 and 1894 Act provisions, except that a special resolution calling for a simple majority is substituted for a three-fourths majority in those Acts.
Where the proposal is proposed at a meeting and the written consent of two-thirds of the shareholders is not sought, an application may be made to the registrar to confirm the transfer or undertaking in accordance with section 27. This is in line with section 2 of the 1974 Act.
Amendment No. 10 has already been dealt with and disposed of.
I have already indicated in relation to amendments Nos. 2, 10 and 11 that I would consider putting down an amendment to this section on Report Stage.
Subsection (3) (c) of this section states:
All expenses of and incidental to the investigation or meeting shall be defrayedel as the Registrar may directel
It states in this paragraph "whether by the applicants". Would the registrar have to be satisfied that the applicants were capable of defraying the expenses before he would agree to an investigation?
It is a re-enactment of section 5 (2) (c) and 5 (2) (d) of the 1894 Act. Section 5 (2) (c) provides that the registrar shall require security to be given. I think that is the point the Deputy was making. The proposal in the Bill is that the registrar may require security of such amount as he considers reasonable for payment of the cost of the investigation or meeting. The proposal in the Bill is on the lines of section 165 (2) of the Companies Act, 1963, except that the Companies Act specifies a sum not exceeding £50. The proposal in the Bill is more flexible. We, in fact, do what Deputy Faulkner wants.
I felt that might be necessary.
I agree that it is important.
In relation to subsection (13), if the inspector is also investigating another body corporate under section 29 (6), would banking information not be essential? Subsection (13) of this section appears to prohibit the inspector from having that information.
We are keeping in line with the Companies Act, 1963. The provision is the same as in section 173 of the Companies Act. I am sure Deputy Faulkner will agree that it would be wrong to have two different rules for building societies and companies in this question of disclosures. I believe this is the better way of dealing with it.
I am not objecting. I just wonder if the inspector would be able to carry out his functions properly in relation to the case I made if he had not permission to get the information. However, I accept it would create other problems.
Subsection (3) states:
Where he considers that it would not be prejudical to the members or creditors or to the orderly and proper regulation of building society business, the Registrar may give the society and every director of the society not less than 14 days' notice of his intention to issue a direction under subsection (1)el
If it is not prejudicial to the members or creditors or to the orderly or proper regulation of the building society business, why have we not got "shall" rather than "may" in the subsection?
This is a very important section. I am glad Deputy Faulkner has given me an opportunity of elaborating on it. This section empowers the registrar in certain circumstances to direct a society to suspend, for a period not exceeding two months, the acceptance of any funds or the making of any payments which have not been authorised by him. The registrar may exercise this power where a society is being investigated under section 29 or where he is of opinion that abuses are taking place or a society is running into financial difficulties. The section sets out the procedure to be followed in the issue of such a direction, and various other consequential matters.
In view of the gravity of the measure, a limit of two months is being placed on the period of operation of such a suspension, but provision is being made in section 33 whereby the registrar may apply to the High Court to have this period extended. Provision is also being made to enable a society to appeal to the High Court against a direction. The purpose of the section is to protect both the general public and a society's members where it appears that the society is running into financial difficulties or abuses may be taking place.
Section 21 of the Central Bank Act confers similar powers on the Central Bank in relation to the issue of a direction as are contained in section 31 (1) and also empowers the bank to seek an order extending the period in which the direction may remain in force. Similar provisions are contained in the British Building Societies Act, 1962 with the difference that the British Act does not specify a limit of two months, and the direction requires the consent of the Treasury.
It has been the policy throughout the Bill to give the registrar as much discretion as possible in the exercise of his functions, consequently the approval of the Minister for Local Government to the issue of a direction is not provided for.
The section also sets out the conditions in which the registrar may give advance notice of the issue of such a direction, requires the publication of notice, and sets out the rights of members, shareholders and depositors and the duty of a society to which a notice has been issued. How it is done is set out in the various subsections. Does that answer Deputy Faulkner's question?
To some extent. The only reason I raised it was that it appeared to me rather strange that, if the registrar considered what he could do in these circumstances would not be prejudicial to the members or to the creditors or to the orderly and proper regulation of building society business, why it should not be "shall" rather than "will".
It is a question of giving the registrar power to decide one way or the other. We all agree there must be somebody who has the overall control in most of these issues. This is an issue on which we believe the registrar would have a better idea. We are giving him the right to decide. He will decide whether or not it will be in the best interest of the society to issue the notice. There could be urgent circumstances in which he would have to do it immediately. If that were so, to lay down that he must give notice would prohibit him from doing so and might cause the collapse of a society. If he is doing his job properly, that will not happen.
The word "shall" would not prohibit him. It would ensure that he would do it. The note on the side of the section reads: "Power of Registrar to suspend raising of funds, etc.". Everything in subsection (3) relates to the fact that what he does in these circumstances will not be prejudicial in any way.
He is the responsible official and he has complete discretion here. The British Act says he must give 14 days' notice, but if he knows that if he gives 14 days' notice irreparable harm will be done, under this he can give less than 14 days' notice or no notice at all.
Section 31 (8) reads:
The Registrar shall cause to be published inIris Oifigiúil, and in such other way as appears to him expedient for informing the public, notice of the issue on a direction and of its revocation.
Is there any section which provides that a member must be informed about the direction being given? Must each depositor, each shareholder be informed?
There could be 50,000 members. It would be far too involved. To do it that way would mean he would have an impossible task. We considered that very deeply.
Some gullible member might go on paying in money.
There are none of them left.
(Dublin Central): Do I take it the assets of the company would be frozen if this notice is given?
He would already have taken action under section 29.
This is a very important section and with the permission of the Leas-Cheann Comhairle I should like to offer a few comments on it. This section empowers the registrar, in certain circumstances, to issue a direction to a society in relation to its advertising. The circumstances in which the registrar may exercise his powers under this section are identical to those in which he can exercise his powers under section 31 to prevent a society from accepting any funds or making any payments. The purpose of the section is to enable the registrar, on his own initiative, to exercise effective control over the advertising of a society where the society is being investigated under section 29 or where he is of opinion that abuses are taking place or that the society is running into financial difficulties. As in the case of section 31, provision is made in section 33 for an appeal to the High Court against a direction issued under this section. It is important that this should be written into the Bill so that a society which was in difficulties could not continue to solicit funds through high powered advertising.
This is where the appeal to the High Court operates.
(Dublin Central): There is no control over the amount of advertising? It is not specified in any way.
Generally, this section confers powers on the registrar to control the matter and form of advertising or other means of soliciting deposits or subscriptions for shares in the interests of accuracy, fairness and propriety of advertising. The powers conferred by this section are separate from those contained in section 32. That section enables the registrar to issue a direction to a particular society in the specific circumstances, whereas the powers contained in this section are of a general nature. Any question regarding expenditure on advertising will come under section 76 dealing with powers to make regulations relating to management of societies. The section is based on section 57 of the British Act.
Section 35 (1) (a) provides that "the Registrar may give directions relating to the matter and form of any advertisement or other means of soliciting depositsel" What would he do there? Would he say the advertisement must be only four inches by 10 inches or whatever it should be? Would he prescribe the content of the advertisements?
He could say: "You cannot do this." It would be more negative than positive. In the past societies advertised offering fantastic rates of interest, for instance, which they were not entitled to offer. When you looked for the small print you discovered it related to something else. That is misleading and the idea is to prevent that sort of thing from happening. It has been known for societies to advertise very high rates of interest to investors without stating in their advertisements that these rates apply only to funds invested for up to two years; advertising that money is "withdrawable on demand" when, under rules, notice may be required; or advertising appearing to advertise fixed rates of interest when there is no such thing and the rate quoted is that currently paid. A number of societies did that sort of thing and caused a certain amount of embarrassment.
I remember one evening seeing in a window an offer of 15 per cent interest. The whole window contained an advertisement for a building society. There was very big lettering on the top left hand corner showing 15 per cent interest. I went to the trouble of checking it and I found the 15 per cent interest referred to something entirely different, to another business. The ordinary person passing by who had a few pounds to invest might be taken in and, having gone into the society's office, might consider it embarrassing to go out again when he found he had been fooled, or he might not discover at all that he had been fooled until the rate of interest came along much later. The contents is the important thing, to say that they cannot do that sort of thing.
Would they have to submit the matter to the registrar?
No. Unless there was a complaint made he would not enter into it.
They advertise first and then if he objects——
So long as they keep within the rules the actual form or content of the advertisement is the business of the society?
That is so, unless somebody complains, and even then the registrar might not intervene. If he did, he would have to look at the advertisement and see if he considered it was correct. If he considered it was incorrect he would then have the power under this section to say they could not display it and they would have to withdraw the advertisement.
(Dublin Central): This section is desirable because this is a deception I have seen practised for a considerable time in regard to the lending of money not alone in building societies but in many other financial institutions. We have seen such notices as: “10 per cent payable over two years.” We all know that 10 per cent payable over two years is equivalent to 21 per cent, in effect. That type of deception should be shown up. Many people are under the impression that they are getting £200 repayable weekly over two years at 10 per cent, but the real charge is much higher. As the Minister says, if a society advertises a rate of 15 or 20 per cent for a particular time it may be for £5,000 or £10,000 over two years. Therefore it is right that this provision should be inserted.
It is a pity we cannot have regulations in this Bill to control the small print in some other advertisements.
This is the best way to keep control.
We are in full agreement with this.
I move amendment No. 12:
In page 27, subsection (1), to delete lines 40 to 42 and substitute the following:—
"37—(1) The Registrar may, after consultation with the Minister for Finance, require a society to maintain".
Amendments Nos. 12 and 15 and 13 and 14 are cognate; No. 19 is consequential on No. 16; and No. 17 is related. All these amendments may be taken together.
I would prefer to deal with section 37 on its own.
If the Deputy withdraws the amendments he can do that.
When the amendments are disposed of we can deal with the section.
The Minister, in his Second Reading speech, stated that this was not a political Bill and that the objective of discussing it here was to improve the Bill. I agree fully with that. I doubt very much if either one side or the other here could race out and expect to get an enormous change of heart in the electorate in relation to this Bill, although it is a very important measure. However, I hope that the proposals we put forward here will be considered in a nonpolitical light, particularly in relation to sections 37 and 38, where the amendments we have submitted highlight our objections to certain facets of the Bill, facets which we feel will inhibit growth and will ultimately result in less rather than more money being subscribed by the public to the building societies, to the disadvantage of would-be borrowers and to the disadvantage of the construction industry generally.
This is a particularly important matter at present. In 1974 there was a considerable fall in the intake of money into the building societies. It increased considerably over the past couple of years due to external reasons, and in more recent times it has been in difficulties again. What we want to ensure is that when the Bill becomes an Act it will be such that more money rather than less will be subscribed.
I found it somewhat disconcerting, in listening to the Minister's Second Reading speech on this Bill, when he said there were particular aspects of the Bill on which he proposed to stand fast even before he knew what amendments we were likely to put down or what arguments we were likely to put forward in support of these amendments. This was an unusual procedure. I would like to stress that our only interest in putting down the amendments we are now discussing is to improve the Bill and to ensure that the building societies will continue to grow apace and to ensure that they will fulfil the objective of housing more and more of our people.
The figures given by the Minister in his opening statement of the huge increase in income and housing activities of the societies over the years underline, in my view, the great public confidence in them as financial institutions, and it reflects credit on the management and on the direction of the building societies at a time when they worked very largely on their own and when State interference or State control and direction were minimal. Looking at this record, would it not be reasonable to say that we should continue to keep State interference at a minimum, while at the same time ensuring, through the participation of the Government, that the building societies, now that some of them have become enormous financial institutions, should be so supervised to ensure that both their members and the State as a whole will benefit from their activities?
One of the main purposes of the Bill is to control the formation of building societies so as to protect the public. I think it is true to say that all the present building societies accept the need for this and agree that stringent measures should be taken to ensure that control in this field is exercised by the Government to this end. On the other hand, when we look at the phenomenal growth of the movement here over the years, I think we must accept that, so far as commercial activities are concerned, they have been a success.
We must concern ourselves with that aspect of the Bill and try to estimate whether extra State interference would be to the advantage of the future growth of the building societies. Nobody questions the right of the State to ensure that the management of the building societies is above board, that the money is utilised for the important social purpose of housing and that rogue societies are investigated. But one is entitled to question whether the control to be exercised by the Minister will be to the advantage of building societies and their members and to the realisation of their objectives, which are our objectives. We believe that it will not, and it is for that purpose we have put down our amendment.
I am not concerning myself with particular complaints, such as interest charges to mortgagees and other controversial matters. I am concerning myself with the commercial aspect of the Bill and the right of Ministers to interfere excessively in the commercial life of the societies, a pursuit for which neither Ministers nor civil servants are trained. It is not enough for the Minister to say that Ministers will not be able to involve themselves in the day-to-day business of building societies. It has already been proved that forced changes in policy can alter the day-to-day administration of the societies without appearing to interfere with them.
Section 37 provides for the control of ratios by the Minister for Finance. The heading on this section has been changed from "Control by the Minister for Finance" to the more innocuous "Ratios and Investments". The detailed amendments introduced, although welcome, do not remove the detailed control by the Minister and the Department of Finance. We accept that some form of financial control is necessary in the interests of depositors and borrowers. We question whether this control should be exercised directly by a Minister of State. The financial world is notoriously influenced by irrational factors. We would not like to see building societies' funds being affected by irrational factors, or the irrational fears of the investing public. In an operation such as this, stability is of prime importance. There could be some withdrawals of funds from building societies because of fears of action by a Minister for Finance, and that type of withdrawal would not be in anyone's interest. For this reason we have proposed amendments which would retain public control and remove it from the political arena.
When we first discussed this Bill we had two ideas in relation to it, both ideas involving a considerable increase in the powers of the registrar. In one case the financial overseeing of the societies was to be entrusted to the Central Bank, which plays a similar role in relation to other financial institutions. In the other case we felt that the financial policing should be the duty of the registrar. The amendments which we have now put forward relate to the latter case. These amendments grant the power to the registrar of requiring realistic ratios between assets and liabilities, though they do require consultation with the Minister for Finance, which is a reasonable protection. In this case no regulations are involved. Therefore the argument in favour of retaining the power of the Minister for that purpose does not hold water. The amendments reduce the amount of consultation and bureaucracy in the administration. There is no reason for the Minister for Local Government, who is not directly involved with financial matters, or the Central Bank to be consulted because our amendment states that the Minister for Finance should be consulted. There is nothing to prevent the Minister for Finance from consulting the Central Bank or the Minister for Local Government should he consider it necessary to do so. In some circumstances the registrar might consider it necessary to consult the Minister for Local Government or the Central Bank, but I do not see why he should be tied to it on every occasion, particularly when he must consult the Minister for Finance. If we follow the line I am suggesting we will have an opportunity of establishing an executive with the proper power, status and responsibility.
The text of the Bill involves so much intrusion by Ministers and Departments in executive roles that no initiative is possible. The formation of building societies must be controlled by the State in the public interest. The commercial aspect of building societies has been well managed in the past. The fact that they have grown so much in recent years is proof of this. While fully accepting that the State has the right to see to it that the objectives and so on of the building societies and of the State are carried out in relation to the money collected by the building societies, the commercial activities of the societies should be completely outside the political scene. The form of my amendments may not be satisfactory from the draftsman's point of view. However, if we could come to some arrangement under which there would be less possibility of influence on the political side, we would be ensuring in the long term a better flow of money into the societies and in that way serving better the purpose for which the building societies were established.
I hope I have made a reasonable case unemotionally. We could make this a much better Bill if we could reach some agreement, particularly on the commercial side of societies' activities, to have appointed a registrar, with sufficient power and well-qualified staff, who would control building societies activities in the administrative and financial spheres. I hope I have made a reasonable case in relation to the development of building societies activities in the point of view. They have done well and are serving a real purpose. The Bill, in its entirety, is a worth-while one and serving a real purpose. But we would be more assured of the future of building societies and of a regular inflow of money to them were investors to be certain that there would be no political intervention in the future. I am not accusing the present or any Minister of political intervention, but it can happen. I may have been somewhat lengthy in my comments on the first amendment but I felt it necessary to outline my point of view.
Deputy Faulkner's arguments were advanced in the Seanad. The reason I said at the beginning of the Second Reading that I was not prepared to change my mind on this was because this matter was very fully discussed in the other House. Indeed, I would compliment Senators on the detail they went into in making the case Deputy Faulkner has just made. It is a point of view, but one that has to be decided by the House. I quite agree with Deputy Faulkner; I said it was not a political Bill. Of course, it is not; but somebody must decide. If we were in agreement on this, as we were on all other matters, then it would be plain-sailing. But we come to a point where we believe that one set of circumstances is different from others. In this case we believe that what we propose in the Bill—following certain changes made at the request of Deputy Faulkner's colleagues in the Seanad—is the way it should be dealt with.
The building societies themselves must be protected, but so must investors and borrowers. It would be very foolish of us to pretend that activities should proceed, that the Government had no interest at all in them and should stay out of them. I do not think that is the way to do it. For that reason the Bill, which necessitated a tremendous amount of work, was introduced and debated fully in the Seanad. Most certainly I would not say in this House that I did not propose to accept any amendments had we not had the discussion in the Seanad already. The Bill has already passed the Seanad, an unusual but not an entirely new procedure.
As far as the question of security is concerned, I think Deputy Faulkner missed out on one thing. If we are to give status to the societies, then there is no way in which what Deputy Faulkner suggests could happen. Possibly he overlooked that fact.
The seven amendments and two sections are bound up together. In order to make the case properly I would have to touch on the other amendments and section 38 as well as section 37, so that we might know what we were talking about. The seven amendments relate to the two sections. They are important sections whose purpose and intent make explanation necessary in order to appreciate the overall position.
Section 37 deals with liquidity and reserves. I do not have to stress the importance of adequate liquidity and reserves to an organisation which operates on a technique of borrowing short and lending long. The purpose of this section is to enable the Minister for Finance, after consultation with the Minister for Local Government, the registrar and the Central Bank to require a society to maintain a specified ratio between its assets and liabilities. It is reasonable to expect that any prudent and properly-managed building society would maintain a reasonable level of liquidity and reserves. However, it is necessary to lay down minimum standards in the interests of the building society movement as a whole, and I consider it only reasonable that the authority for laying down these standards should be the Minister for Finance, who has responsibility for and the information about the financial institutions of the country.
The Minister will appreciate that we are discussing sections 37 and 38 at present. Are the Opposition agreeable to that?
I am not terribly happy about it, but I will agree.
As long as the House is agreeable to a discussion on both sections together.
The same principle arises in relation to the two. Therefore, it is necessary that they be dealt with in this way. There is one point I should like to make, again not a political one. Members of the Seanad, when discussing the Bill, referred in a number of cases to what happened under the 1962 Act in Britain. They asked over and over again: "Why can we not do this? ". In this section we are giving a lot more freedom to the societies and the registrar than in Britain. In Britain they had to refer to the Treasury for practically everything, even any minor move they wished to make. We are not doing that; we are making it far more flexible. That is a point that should be appreciated.
Section 38 deals with the way in which a society may invest surplus funds. This is very important. In this connection "surplus funds" is a misleading phrase in that such funds are far from being surplus in the sense of not being needed. They are a society's funds which have not been given out in the form of mortgage loans. They are essentially liquidity assets it must have available while loan approvals mature and in anticipation of demands for payments or in anticipation of demands for withdrawals by investors. They normally comprise at least 10 per cent to 15 per cent of a society's total assets. Obviously a society could not afford to keep all such funds in cash in a non-interest bearing manner. The present position is that societies may invest these funds only in accordance with the provisions of the Building Societies Acts. Such a situation is considered to be too inhibiting on a society's freedom to invest its surplus funds to the best advantage of its members and to be too inflexible for future use.
The purpose of section 38 is to enable a wider field of investment to be available to societies by giving power to the Minister for Finance, after consultation with the Minister for Local Government and the Central Bank, to prescribe as necessary from time to time the appropriate investments in which a society may invest such funds they do not consider necessary to keep in the form of cash. The section, then, enables the registrar, after consultation with the Minister for Finance, the Minister for Local Government and the Central Bank, to fix the limit of investment in the various prescribed securities. I take the view that the section, as it stands, is a good example of how the old provisions have been updated. The section gives the power to the Minister for Finance to prescribe the range of investment. The registrar has the power to fix the limits of a society's holdings in the different types of prescribed investments. The prescribing of a range of authorised investments in this way by the Minister for Finance is a logical extension of his powers under the Trustee Acts. If we are to achieve trustee security status, this seems to be the proper way to have the matter dealt with. The registrar's day-to-day involvement with the societies gives him the expertise to fix the limits as between the various investments.
The objective of the amendments before us is effectively to transfer the power under both sections from the Minister for Finance to the registrar and, in addition, to eliminate any statutory requirement for consultation with either the Central Bank or the Minister for Local Government. I hold strongly to the view—for the reasons I have given—that matters of liquidity reserves and disposal of surplus funds are of major importance in the affairs of building societies, requiring the involvement of the top level financial authority in the country, acting on the advice of the experts involved in other financing spheres. For this reason I consider that the Minister for Finance is the appropriate authority to take decisions in both these sections and his nomination in this respect is in line with the principle on which the Bill is constructed, which gives the policy making functions to the appropriate Ministers while it gives the registrar wide powers of supervision. For these reasons I cannot accept the amendment.
Who was responsible for the control of ratios between assets and liabilities or prescribed investments in which the societies may hold their surplus funds up to date?
There was no control and it was not necessary. It is necessary now because under trustee status it must be controlled. Since there was no trustee status before, it was not considered necessary under the 1894 Act.
I have already pointed out in relation to commercial activites that the building societies had been successful. I do not know if a registrar controlling these matters would be acceptable in relation to trustee funds. The Minister appears to think they would but I have no guarantee. The societies themselves controlled these two aspects up to now and, except for a couple of unfortunate incidents, they have carried out their functions in a reasonable manner. Many of the views that I have expressed in relation to section 37 could apply, perhaps, in greater measure to section 38 which gives power to the Minister for Finance to prescribe investments in which a society may hold its surplus funds. I am not convinced of the ability or the expertise of a Minister or of civil servants to prescribe investments for building societies. I feel it would be reasonable for somebody looking at this from the outside to assume that the decisions made by the Minister and the Department of Finance could relate more to their own financial problems than to the interests of the societies. A decision to invest surplus funds in a particular line is basically a commercial decision made by the society based on the society's evaluation of its expected yield, the risk and on when it might need funds for its lending mortgages. This section limits the freedom of the societies to exercise their commercial judgment. It also opens up the possibility of a Minister for Finance who is having difficulties with filling the national loan taking the easy way out by prescribing that building societies should invest in his particular loan against, perhaps, the better commercial judgment of the societies themselves. This could be a dangerous clause which could affect the outlook of investors in building societies and that is part of the reason why I have put forward this amendment. If this clause affected the outlook of investors in building societies, it would equally affect the ability of the societies to attract funds particularly if they had to compete with other less restricted institutions. Our proposal is that the registrar would prescribe investments. If the registrar had a properly trained staff and had the opportunity of consulting with the Central Bank, the Minister for Finance or anybody else he felt necessary, he would be the appropriate person to prescribe investments.
It is worthy of note that compared with the Bill which was originally introduced the Minister has given the registrar a new role in subsection (3) of this section in the fixing of limits for certain types of investments. If the registrar is judged competent to do this, he should also be regarded as competent to prescribe investments. I appeal to the Minister to reconsider this situation. The Minister mentioned that the reason the new sections were introduced was that certain conditions must be fulfilled if trustee status is to be conferred on building societies. I believe that a competent registrar assisted by a competent staff would ensure that the ratios were in keeping with what the Government would expect. The registrar would be much better placed to assist and give advice if necessary or at least to appreciate the problems related to the investment of surplus funds. There is a danger particularly in relation to section 38 that there is a possibility of political intervention in the sense that a Minister wishing to fill a national loan and not being able to do so might insist on the building societies investing their surplus funds in this not because he felt it was to the advantage of the societies but because of the financial problem which faced him at a given time. Our main concern here should be that the investors in the building societies will have confidence that there cannot be any intervention in a form which will dilute the value of their investment. People suffer from irrational fears in relation to the investment of money and I am convinced that we must assure the public that there will be no intervention in the commercial aspect of the operations in the sense that there can be in the Bill at the present time.
I made a comment which Deputy Faulkner picked up. I am afraid I misled the House. The Deputy asked who controlled the situation at the present time with regard to investment and I said that there was no control because trustee status was not involved. That is not correct. At present they can only invest in trustee securities and these are specified by the Minister for Finance so this takes away some of the arguments that Deputy Faulkner has made. I am sorry for my mistake. In fact, the present position considerably widens the scope for investment and while it is true that the Minister for Finance can decide, the registrar is the person who decides what proportion can be invested in what securities. The Minister for Finance is the person who must lay down the criteria for trustee status. The present position is that a society may invest funds in trustee securities only when it is ruled so permitted. This situation is considered to inhibit unduly, a society's freedom to invest surplus funds to the best advantage of its members and the purpose of the section is to make a wider field of investment available to the societies and to break away from total dependence on the list of authorised trustee investments.
The term "surplus funds" is somewhat misleading since the funds to which the term refers are not only far from being surplus but constitute one of the critical elements in a building society's financial structure. Surplus funds are those funds which are held by a society to enable them to meet withdrawal demands, loan payments and other capital commitments. If a society devoted too high a proportion of their funds to mortgage loans, neglecting to hold on to an adequate level of so-called surplus funds, the stability of the society would be very much in danger in the event of a sudden drop in the level of investment in the society or a high demand for withdrawals, either of which circumstances could be brought about merely by ill-founded rumour. Comment in this House, too, could result in that sort of situation. A society obviously could not afford to keep all their surplus funds in a non-interest-bearing manner. Provision is being made, therefore, to make a range of suitable investments available to societies. A society's surplus funds normally constitute 10 to 15 per cent of their total assets.
Subsection (1) provides that the Minister for Finance, after consultation with the Minister for Local Government and the Central Bank, may prescribe the investments in which a society may invest their surplus funds. This provision replaces section 25 of the 1874 Act and section 17 of the 1894 Act which are being repealed. Under those provisions a society, if permitted by their rules, may invest surplus funds in trustee securities. The range of authorised trustee securities is set out in section 1 of the Trustee (Authorised Investments) Act, 1958 and amending regulations made under that Act by the Minister for Finance. The full list is as follows:
(a) securities of the Government, including savings certificates;
(b) securities guaranteed as to capital and interest by the Minister for Finance;
(c) stock of the Bank of Ireland;
(d) securities of the Electricity Supply Board;
(e) securities of the Agricultural Credit Corporation Limited;
(f) securities of Bord na Móna;
(g) real securities in the State;
(h) securities or mortgages of a county council, the corporation of a county borough, the Corporation of Dún Laoghaire, the Dublin Port and Docks Board, the Cork Harbour Commissioners, the Limerick Harbour Commissioners, and the Waterford Harbour Commissioners;
(i) subject to certain conditions, debentures or debenture stock quoted on a stock exchange of any industrial and commercial company registered in the State;
(j) Bank of Ireland loan stock;
(k) shares of Allied Irish Banks Limited;
(l) in an interest bearing deposit account with the Bank of Ireland, Allied Irish Banks Limited, Guinness and Mahon, the Post Office Savings Bank or a trustee savings bank in the State;
(m) in British Government securities inscribed or registered in the State.
The view that co-operative bodies such as building societies, trade unions, industrial and provident societies, should be allowed invest only in trustee securities dates back to the 19th century, a period when it was considered that Government stocks ensured maximum safety and steadiest income. Ordinary shares were regarded as carrying a considerable degree of risk. At a time when inflation was not a major factor and when regulation of the stock exchange and investment media was less developed than now, these views were probably well-founded. The effect of these legal restrictions at present, however, is to inhibit unduly the freedom of building societies to invest their surplus funds to the best advantage of their members. In periods of rapid inflation and when the gilt-edged markets are under heavy pressure, societies face the risk of capital loss as happened, for example, in 1974.
The purpose of the subsection is to break away from dependence on the list of trustee authorised investments. The Minister for Finance, who is in close touch with the institutions and the financial markets, is being given power after consultation with the Minister and the Central Bank, which also has considerable expertise in this field, to specify a range of investments suited to the particular needs of building societies.
Therefore, the registrar can decide on the question of proportion. There is no element of risk here. On the contrary, it is a tightening up of the existing situation. Also, the matter has been discussed with the societies and they have not raised any objections in regard to it. In fairness to everybody I should point out that a good deal of research has been put into this question. It would be wrong at this stage to opt for something that would be entirely unproven.
Subsection (2) provides that if a society do not invest their surplus funds in securities they may keep them in cash or in current or deposit account with the Central Bank, a bank licensed by the Central Bank under the Central Bank Act, 1971, the Post Office Savings Bank, a Trustee Savings Bank in the State, the Agricultural Credit Corporation Limited or the Industrial Credit Company Limited.
This subsection provides an immediate and significant widening of the powers of societies to invest surplus funds to the best advantage. Under existing legislation societies can deposit funds only with an associated bank, the Post Office Savings Bank, a trustee savings bank and one or two other banks operating in the State. The new proposal will enable a society to avail of a much wider range of institutions offering a wide range of deposit facilities at varying maturities and attractive interest rates.
The right to place funds with the Central Bank will extend to building societies a privilege heretofore only enjoyed by banks. Its exercise would, of course, be subject to the agreement of the Central Bank, which has approved the making of the provision in the Bill. The Central Bank provides a wide range of deposit facilities at varying periods of notice. The placing of funds with the bank by societies should help bring them into closer relationship with the Central Bank and this is considered desirable.
Subsection (3) provides that the registrar, after consultation with the Minister for Local Government, the Minister for Finance and the Central Bank, may specify limits on the proportion of surplus funds held in various types of investments.
Under the subsection the registrar would be able to classify investments into various categories and would have the power to specify different limits for different classes of societies. This would enable him to take account of the different size and financial resources and activities of the various societies.
It is considered desirable that there should be less supervision of the actual distribution of investments held by societies. Building societies are now major financial institutions disposing of a substantial volume of funds. Surplus funds are required to meet future commitments and it is important that every possible step be taken to avoid depreciation or loss. It is also important that they should be readily realisable. It is necessary therefore that a society should have a suitable spread of investment which would take account of all these requirements. In this connection the report on building societies issued by the National Prices Commission in 1974 showed that building societies in Ireland have tended to invest more in longer-dated securities; the effect of this is to give them a somewhat unbalanced portfolio and increase the risk of loss when the stock markets are under pressure.
It would be more appropriate that financial institutions like building societies should hold a larger part of their portfolio in short-dated securities and it is the intention that the registrar should use his powers under this section to secure in time a better balance in the societies' investments. This would be done in consultation with the societies and there would be no precipitate action.
Subsection (4) provides that building societies may invest in Central Bank reserve funds provided the bonds are specified by the Minister for Finance under subsection (1) and that the Central Bank consents to such investment.
Central Bank reserve bonds were instituted under section 48 of the Central Bank Act, 1971. They are securities which the bank may issue only to licensed banks and the banks may dispose of them only to other banks or to the Central Bank. The terms of issue including issue price, conditions and rate of interest are determined by the Central Bank. In general the Central Bank has issued bonds with a maturity of up to three years, which would make them suitable for building societies provided the other terms are satisfactory. There are a number of bonds on issue to licensed banks at present.
Subsection (5) provides that a society may continue to keep their funds invested as at present even though the 1874 and 1894 legislation is being repealed. Similar provision is being made in the event of changes in investments authorised under subsection (1) of this section from time to time. There is a similar provision in the Trustee (Authorised Investments) Act, 1958 for the benefit of trustee funds. A provision of this type is necessary as a trustee or a society should not be required to change investments suddenly and thereby risk loss just because particular investments had ceased to be authorised.
In view of all the circumstances involved I would ask the Deputy to withdraw the amendment. We have copperfastened the position so that regardless of which party may be in power there will have to be consultation on these matters between the Ministers for Finance and Local Government, the Central Bank and the registrar. The registrar is the person who will decide on the amount that may be invested.
As Deputy Faulkner has said, this Bill has merit but it would be more meritorious if the Minister were to accept the Deputy's amendments. The Minister has told us that he is copperfastening securities in this legislation but as I see it there is an element of over-kill here.
It is the other way around. We have widened the situation.
I would like to think that there remains at least some of the simple idealism that was present in regard to building societies at the time of their foundation 100 years ago. We must allow for the changes in our society and we have decided certain safeguards are needed and we have them here but I feel that the Central Bank Act, 1971 also has merit and this subsection is very much influenced by that Act. This, however, is in an entirely different context, the Central Bank being the supreme financial structure of the State dealing with national finances, whereas this Bill deals with certain forms of savings which we hope people will practise. Therefore, we must look at it in a different way.
Saying that we copperfasten safeguards here reminds me of a previous section under which the advertising of societies is controlled by the registrar. The Minister does not suggest to the registrar that he should have the Minister for Justice examine all the advertisements being issued by societies to attract funds to see if they are false or misleading or otherwise objectionable. It is left to the good sense of the registrar to decide this. The Minister might also leave to the registrar in co-operation with the Minister for Finance the task of examining the ratios of the societies. The fact that building societies have done so much since 1894 under that ancient piece of legislation and were able to become, as the Minister said, major financial institutions at present, and did this without too much State interference, speaks for itself. It is suggested in subsection (1) that : "The Minister for Finance may, after consultation with the Minister, the registrar and the Central Bank require the society to maintainel" I believe that this is clumsy State interference. We should certainly have the Minister and the registrar and we might even substitute the Minister for Finance for the Minister for Local Government to ensure that the Government have some say in the matter but we do not have to drag in the Central Bank.
We should try to preserve the early idealism which inspired the progress of the building societies. I believe in private enterprise with certain safeguards. This Bill has any amount of safeguards in it. I suggest the Bill will be better legislation if the Minister accepts Deputy Faulkner's amendment which is far more in keeping with the spirit of building societies than subsection (1) of section 37.
I wish to support Deputy Faulkner's amendment to sections 37 and 38. Up to now in this Bill the registrar has been the chief figure but in sections 37 and 38 the Minister for Finance appears to become the chief figure when it comes to the control of ratios between assets and liabilities and prescribing for the investment of surplus funds of building societies. The registrar will be a most trusted official. He should have, as the Minister said previously, wide discretionary powers. He is undertaking substantial duties and responsibilities under this Bill in relation to building societies. We should go the whole way as far as he is concerned and give him power as regards control of ratios and prescribing where surplus building society funds should be invested.
There is a danger that with sections 37 and 38 as at present worded the registrar may be hindered in initiative in regard to building societies. In their present form these sections could affect the flow of money to the societies. There is always a fear among the public about investing money when there is wide discretionary power in the hands of the Minister for Finance as there is in these sections and the public may shy away from the building societies to some extent. I hope this will not happen but there could be fears that the funds of building societies could be used under these sections for other purposes in an emergency.
We definitely detract from the role of the registrar and from his functions under these two sections. It is quite likely that in relation to building societies this Bill will provide the basic legislation into the next century and, as the Minister said, it is a matter for this House to decide what form the Bill should take. The registrar should be given the key role in sections 37 and 38. Acceptance of Deputy Faulkner's amendment would certainly strengthen the power of the registrar and also improve the standing of building societies and their ability to attract funds.
Investment of surplus funds is a very important matter but I believe that a good registrar who is well qualified and has good experience in commercial life could easily decide, in consultation with other people, how these surplus funds should be invested. There is nothing in the Bill to prevent him from investing these surplus funds in the authorised trustee investments listed by the Minister, nothing to prevent him from investing in the very same way as the Minister for Finance could invest after consultation. Building societies have been successful in this country to date, mainly perhaps, as a result of the experience, commercial knowledge and business acumen of their executive staffs. There is certainly a difference of opinion between the Minister and this side of the House as regards the role of the Minister for Finance. The vital role in this section should lie with the registrar and if we give him the powers and functions we are giving him we should go the whole hog and give him the key and vital roles and functions under sections 37 and 38.
I would like to say a few words on these two sections and the amendments. I have no doubt of the sincerity of Deputy Faulkner's amendment and his desire to see the position of the registrar strengthened, and I yield to none in my desire to see the registrar being a person who has power, who has ability and who has an adequate and highly trained staff with him to act as watchdogs for the public and indeed to help the building societies if such should be necessary on occasion.
However, I support the Minister in these two sections because it is impossible to legislate exactly for what may happen far in the future. As has been said, this is non-political. I have been connected with this Bill from the early stages and I have felt that one gets down almost to the philosophical or medical reason as to why the registrar should be there and what exactly he should do. In this case I think that, whilst I have said that I wish to see a powerful and competent registrar in existence, he will be a man—unless he happens to be a woman——
I was going to say that.
I did not consider that until I uttered those words. Finance and investment are what we are dealing with in these two sections; we are not dealing with legal questions, we are dealing with financial questions. That person chosen for the job could not and never will have the financial ability which is backing up the Minister for Finance and the Central Bank. Therefore, the building societies would be put under a very less strong team if the amendment was accepted and the arbiter of the investments of the building societies was just one individual and his staff, no matter how competent, compared with the two Ministers concerned, the Minister for Finance and the Minister for Local Government, and the Central Bank.
Governmental interference may not be necessary but in so far as it is necessary, the Minister in this Bill does not make it mandatory on the Minister for Finance to prescribe. It is permitted; he "may prescribe". The Bill does not say he has to prescribe. He may not, in fact, prescribe to the extent that we think he might. When I say "we" I mean those Members of the House at this moment who are nervous of such prescriptions on the part of the Minister for Finance. He may not make them, but if he does he will make them in the full light of day, in consultation with the most skilled people that this country can offer in the realms of finance and of investment of large sums of money and investment of funds which are in the nature of trustee funds. The Minister for Finance and the Central Bank are doing that in the ordinary course of their business all the time. The registrar will not be. He may happen to be a very skilled financial person. Lots of individuals are but still more individuals do not enter into that field. The week before last when we were on Committee Stage I think I heard the Minister or somebody across the floor of the House say that the registrar would probably be an accountant. Accountants are skilled financial people but not necessarily skilled financial investors and advisers in exactly that field. Therefore these functions should be carried out by the two Ministers and the Central Bank in the full light of day with the full backing of the Government.
If they are going to try to force the building societies into some form of investment which the building societies think they should not invest in, they in that unlikely event could appeal to the House with the full power that this House has to control Ministers and/or the Central Bank on certain occasions. That is a matter that could become highly political and it simply could not happen except by what used to be called a Russian imperial ukase when the Russian Government said a long time ago, "You do it; mind what we say". That does not and could not happen in a democratic country such as we have here.
On balance we are going to do better with the Ministers and the Central Bank than we would with the registrar because the registrar would be in behind, sheltered by the anonymity of his office and by the civil service regulations which would make it more difficult to investigate. The Ministers could be answerable in this House if they were felt to be pressurising any building society. The building societies will be in a stronger position if they are advised by the two Ministers.
(Dublin Central): I believe that a building society trying to operate a separate business will be weakened by this. Subsection (1) says:
The Minister for Finance may, after consultation with the Minister, the Registrar and the Central Bankel
When decisions have to be made these people will have to be consulted. We all know how long it takes to get a decision from a Department. We also know that certain rivalries exist between Departments.
(Dublin Central): Maybe not so much between Ministers but there may be other people involved. First, the Departments of Local Government and Finance must agree when the commercial enterprise tries to take decisions, some of which might be short-term and should be reached quickly.
As the Minister and Deputy Dockrell said, there are many competent people in the Department of Finance, I do not dispute that, but those in the Department of Local Government do not specialise in investments and ratios. These people are very well qualified in their own field but finance is a different field. I believe this will slow down the expansion of companies that have done exceedingly well in the private sector.
The Minister said there is a guideline laid down as regards where they should invest and once they abide by that they have a free field. I am against the infringement of too many Departments on private enterprise. I do not disagree with the fact that if trustees status is coming to building societies, certain standards would have to be upheld. I cannot see why we must have two Departments trying to find a common denominator. Then there is the Central Bank. They have all the qualifications and experts on investments and ratios and have been operating successfully in the associated banks down through the years.
I can see reports being issued by the Central Bank which are in conflict with Government policy and taking a stand as regards certain ratios with which Ministers might not agree. This is the type of problem in which some building societies might find themselves. They will be caught in the middle.
The registrar should be given powers because he will be a qualified man. When he is selected he will have all the qualifications necessary to deal with the type of investments the company wish to invest in. By extending this we are introducing something new with which building societies were not confronted previously. They had guidelines as regards investments but they did not have to take on the Central Bank or the Ministers for Finance and Local Government when carrying out their duties. This is too much of an infringement on the financial institutions and does not contribute to a flourishing business, or enhance the status of the building societies.
Of course we must protect investors' money. There are many insurance companies who have invested millions of pounds of policy money. They are protected to a certain degree by legislation but this type of restriction was not put on them. I cannot see why a decision may not be taken by the society without the consent of both the Minister for Local Government and Finance. This will slow down proceedings. Building societies can be prepared for hundreds of letters to pass between those mentioned here. The Minister did qualify that by saying that the registrar would be in a position to invest money. Everybody knows that short-term investments are counted by the day for interest purposes. Surely these companies will not have to get decisions from the Ministers for short-term investments? I sincerely hope the registrar will be in a position to invest this money in trustee funds.
I believe we should try to give these companies as much autonomy as possible. The majority of building societies have proved themselves. There is a section in this Bill which tells how difficult it will be in future to establish a new building society. That is a safeguard on which I congratulated the Minister. All the safeguards in this Bill are desirable.
As I say, under this section there will be too much interference by Departments in a private enterprise. We do not want a building society to be another semi-State body which does not take any responsibility. That does not lead to an expanding business. That is what we are doing by bringing in the Ministers for Finance and Local Government. In my view this type of regulation does not contribute anything to the Bill. I would like the Minister to explain why he could not modify that considerably and still be in a position to give building societies trustee status.
I understood the Minister to say that we needed these regulations before they could qualify for trustee status. I doubt that. I often wonder how these investments will go in the future. Gilt edged may have been all right in the past but there are some insurance companies which have done very well by putting some of their funds into equity. If profits are to be made in this way the building societies might as well invest there as some of the biggest insurance companies in this city. I am aware that this is not their line of business but I can see nothing wrong with them buying shares of equity and making capital gains on them if it means that interest rates are reduced. It is possible that it is illegal for them to do it, but with inflation raging at almost 20 per cent they probably will have a rethink with regard to their outlook and have a look at the other fields insurance companies are operating in.
We are concerned to see that building societies are not slowed down in their activities, and this could happen if they must wait for decisions from two Departments. I agree with Deputy Faulkner's amendment which suggests that the registrar should be given more powers. The guidelines will be laid down for him and I would rather see him consulting with the Central Bank than with the Departments of Local Government and Finance as to how he should invest money. We are having too much of Government infringement on private enterprise. The less of this we have the more businesses will expand.
Somehow or other we have turned completely away from the matters under discussion. Deputy Fitzpatrick talked about the right to invest in equities and this is what we are trying to do, because at present they cannot.
(Dublin Central): It is not necessary to have two Departments interested.
This will give them the right to do that. They cannot do it now. Is anybody suggesting that if a building society wishes to invest an amount of money they must first go to the Department of Finance, on to the Department of Local Government, then to the Central Bank before going to the registrar? As I said before, a list will be drawn up and the registrar will decide how much can go into any of the suggested investments on that list. It is possible that once a year that list will have to be revised, upwards or downwards. Building Societies may leave the money they have in existing investments even though the investments are not covered by the list. They have the option to leave their investments as they are. I cannot understand what has happened to the discussion because it has gone completely off the rails. Deputy Fitzpatrick seemed to suggest that civil servants would not have the expertise to do certain things.
(Dublin Central): I did not say that.
The Deputy suggested it. The registrar will be given a lot of authority and he will decide where the funds will be invested. The only time the Central Bank, the Minister for Local Government and the Minister for Finance would come in to it would be when a list of suggested investments would be drawn up. I can see no great socialist plot to go in on private enterprise in this. The money we are talking about is money invested in the main by people with small amounts to invest throughout the country. Deputy Dockrell, who knows a lot about building societies, confirmed what I said earlier. The societies see nothing wrong with this.
Deputy Moore was not comparing like with like. He related section 35 controls to those under sections 37 and 38. Section 35 covers matters of routine day to day administration and is appropriate to control by the registrar. Sections 37 and 38 deal with highly important matters impinging on national housing and financial policies in which Ministers, answerable to the Dáil and Seanad, must concern themselves to the limited extent proposed in the Bill. We are considering financial institutions which will lend this year about £100 million of the savings of Irish investors and will finance the purchase of about 12,000 houses, new and old. It could not be accepted that important issues should be subject only to the control of a public official whose decisions cannot be reviewed or influenced by the Dáil or Seanad or by the Minister responsible for these houses, for national financing and housing policies. We have put in this section for the purpose of giving a wider range to the societies, and nobody objects to that. We have also agreed that there will be a list of investments and we give the registrar the right to decide the amount which can be put in each. What are we arguing about here? I am sure everybody agrees that there should be somebody other than the registrar to select where the investment should go? The registrar will decide the amount.
This matter was fully discussed in the Seanad and most of my explanations were acceptable. I introduced certain amendments and I do not see why we should have the same thing again. I am not saying that Deputies have not the right to raise these matters. Deputy Faulkner faulted me for saying that I would not be prepared to accept amendments. The reason is that I am sure the way we are doing this is correct. I am sure the Opposition, when they consider this, will agree.
The fact that this matter was discussed in the Seanad does not preclude us from discussing it here. If we feel we can elaborate and clarify our views on this matter, we are entitled to do so. Deputy Dockrell has a simplistic approach to it. He thinks that, because the Minister for Finance, with due financial advice, operates the control of ratios between assets and liabilities and the investment of surplus funds, everything will be all right. That Deputy is aware that, if the Minister was short of funds at any time and made a regulation whereby certain changes to his advantage could be made in relation to financing of projects, that regulation could be discussed here but not changed. The majority would troop in behind the Minister.
This cannot be done. No Minister for Finance will have the right to direct where the funds go. That will be done by the registrar.
I should like to return to the point in relation to the control of ratios, the proportion of the liquid assets as against total assets. These liquid assets include Government stocks. The Government could insist on a higher ratio and demand that the extra money should be invested in their stocks. This might help the Minister in the short term but it could create considerable problems for building societies. What the Minister said in relation to our amendments and the sections would pertain irrespective of whether the Ministers were involved or whether the registrar was in charge. He said the building societies had not objected to this provision. That was a rather negative way of putting it.
After Deputy Dockrell spoke the Minister said that his contribution was proof that the societies were satisfied but, so far as I am aware, that is not in accordance with the facts. The building societies were from the beginning totally opposed to the amount of interference which would result from the Bill. They were concerned that so many different bodies— the Minister for Finance, the Minister for Local Government, the registrar, the Central Bank and, through the registrar, I suppose the Minister for Industry and Commerce—were involved. Understandably that was causing them very considerable concern. I asked initially why all these Ministers and so on needed to be concerned. The Minister said the Minister for Finance lays down the conditions for trustee funds. I accept that that is true, but I cannot see what difference it would make if the registrar in charge saw to it that the conditions were fulfilled. I cannot see why all these other Ministers and the Central Bank should be involved.
We should get back to basics and ask ourselves what is our purpose in regard to this Bill? What is one of the most important purposes, apart altogether from ensuring that rogue building societies and societies which cannot stand on their own are refused permission to continue in operation? Our purpose ought to be to ensure that the inflow of money is such that we can attain the objective we have, namely, that the societies should play an even greater part in the provision of housing. Money is a very sensitive article and the fact that the Minister can intervene or interfere, even if he does not do so, could result in investments being made which were not as good as the society might believe they should be and this will affect those who are investing and less money will inevitably be invested. It is very important that we should ensure that there will not be any interference and, irrespective of what the Minister may say, I still believe that the Minister in one way or another will be able to influence to whatever extent he may desire in difficult financial circumstances the investment of the surplus funds. He will also have too much power in relation to the control of ratios between assets and liabilities.
We are not trying to score political points. I do not think that would be possible in regard to this Bill. What we are trying to do is impress on the Minister that we have very strong feelings in relation to these two sections and we believe it would be wise to take that fact into consideration and try to meet the points we have made. The amendments we have tabled may not be as perfect as they should be but if we can reach a situation where we can be assured that the registrar will be the person in control of the administration, with considerable control in relation to financial matters, subject to the Minister for Finance, and that there will not even be a suspicion that the Minister for Finance could intervene or interfere as the exigencies of his own situation arose, then we would have a better Bill and a more satisfactory Bill where the building societies are concerned, where we on this side of the House are concerned and, I am sure, on the other side also, and also where those who will be anxious to borrow money to build houses for themselves are concerned.
Deputy Faulkner is on the wrong argument. The Minister for Finance cannot dictate where the funds go. If the Deputy reads the section again he will realise this is so. It is, of course, a matter of opinion. Deputy Faulkner and his colleagues may feel they have the right of it. At the outset I said this is not a political Bill. This is a matter of opinion and the House must decide. I would be shirking my responsibilities if I said I would amend this because I believe this is the right way to deal with this matter. I am sorry I cannot meet the wishes of Deputy Faulkner and his colleagues but I believe the right decision has been taken and I must stand over it. I have gone into this as fully as I can. I showed I was prepared to improve the Bill, but to do what is suggested would make it not a better Bill but a worse Bill, and so I cannot possibly accept the amendment.
Look at section 38. Subsection (1) provides:
The Minister for Finance, after consultation with the Minister and the Central Bank, may prescribe the investments in which a society may invest such portion of its funds as are not immediately required by it for the purpose of the society.
That very clearly specifies that the Minister for Finance, while he consults the others, makes the decision and prescribes the investments in which the society may invest. This circumscribes the situation. We would regard the two sections as being the extreme from the Minister's point of view and possibly he would regard the amendments as the extreme from our point of view. Could we not meet somewhere in the middle and reach a conclusion which, while not entirely satisfactory to both, would be at least satisfactory to some extent?
No. I agreed to modifications in the Seanad and those modifications are now in the Bill. Deputy Faulkner is missing the point completely. Subsection (3) provides that the registrar, after consultation with the Minister, the Minister for Finance and the Central Bank, may fix limits in respect of investments in securities or in a specified class or classes of securities and the registrar will be able to classify the investments with regard to different limits for different classes of securities. Someone must say what the money may be put into and, after consultation, the Minister for Finance specifies what this will be and the registrar then decides what proportion of the money can go into a particular investment.
(Dublin Central): Is that how it stands at the moment?
No. It can only be invested in trustee securities.
(Dublin Central): But prescribed by the Minister for Finance?
Yes. The only major change is the amount will be specified and the securities in which investments can be made are very much wider than at present.
Would the Minister deal with the control of ratios between assets and liabilities?
The Minister for Finance must lay down the ratio of control. That is the only reason why it is there. That is why I mentioned it did have an effect on the trustee status of the societies.
The Minister mentioned several times that building societies did not object to certain things and I accept that.
They were satisfied that the amendments made in the Seanad met their point of view as far as was possible.
I would encourage any building society to make known their views on the matter. However, subsection (4) states:
The investments which the Minister for Finance may prescribe under subsection (1) may, with the consent of the Central Bank, include Central Bank Reserve Bonds and in such a case section 48 of the Act of 1971 shall, notwithstanding subsection (3) of that section, apply to a society as if it were a bank.
To the man in the street the Central Bank reserve bonds will be regarded as a Government issue.
A list will be supplied and they will be included in that list.
The registrar will decide the amount but I should like to know why he cannot decide the entire matter.
We do not consider the registrar the right person to decide which investments should be included in the list.
I do not agree but I accept that the Minister is entitled to his point of view. It would be a simpler and a better Bill if the amendment were accepted.
I am sorry but I do not agree with the Deputy.
It is clear from subsection (1) that the Minister for Finance, after consultation with the Minister for Local Government and the Central Bank, may prescribe the investment in which a society may invest their funds——
The Minister for Finance consults with me and with the Central Bank and he then stipulates——
The Minister for Finance takes the initiative.
He makes the declaration as to what is included and what is not included after consultation with others. The registrar decides what money goes into it.
It is the Minister for Finance who takes the initiative——
It will be decided perhaps once a year——
My point is that under this section the Minister for Finance takes the initiative. Why could the registrar not take the initiative?
Somebody makes a decision and the registrar decides what money will be put in. If the registrar made the decision he would be taking all the action, exactly what Deputy Faulkner is suggesting in his amendment and which I do not think is right. The section states that after consultation with the Minister for Local Government and the Central Bank the Minister for Finance makes a decision. The registrar, taking that list, decides where the surplus funds can be invested and the amount that can be invested. This will not be done in a day. The declaration may be made once a year or it might not be made for two years. The Minister will simply update it and that is the only reason for the change. I cannot understand the objection to this.
Would the Minister not agree that occasionally surplus funds could accrue to a building society and that it would require some initiative on the part of somebody? Would not the registrar be in a better position to deal with the surplus than anybody else? I know the Minister will say that the Minister for Finance will have laid down for the registrar how the investment should be made but what will happen if the registrar has knowledge of a better investment?
If a better form of investment comes to light, it will be considered by the people responsible and it will be added to the list. If it was laid down that the registrar, without consulting anybody, could invest surplus funds in something that was not included the result could be that he might invest in something he considered good but which the Central Bank and the Minister for Finance knew was not worthy of such investment. If the undertaking went wrong, the registrar would have more than a red face.
I will withdraw the amendment with the proviso that I will study what the Minister has to say.
I have no objection to that.
Perhaps the Minister would think about the matter.
I have already given it a lot of thought.
I move amendment No. 18:
In page 28, line 25, to delete "prescribed" and substitute "fixed".
The purpose of the amendment is simply to correct a drafting error in the text. To use the word "prescribed" in this subsection would mean prescribed by the Minister for Finance in accordance with the definition in section 2. The powers under the subsection are intended to be exercised by the registrar and it is necessary to correct the matter by the substitution of "fixed" for "prescribed".
This section provides that a director of a society who is in any way, directly or indirectly, interested in a contract or proposed contract with the society shall declare the nature of his interest at a meeting of the board of directors. The section details how and when the declaration is to be made and provides for the keeping of records of declarations made by directors. This is a new provision and follows closely the lines of section 194 of the Companies Act, 1963.
I support this section. It is somewhat on the lines of disclosures in relation to the Planning Bill and the same principle applies. It is worthwhile and I support it.
Is this provision in any previous Bill?
This is the same as section 41, the same principle applies.
Subsection (1) states:
Every annual return of a society submitted to the Registrar under section 70 shall contain particulars showing the amount of any loan made by the society during the financial year to which the return relates to—
Is this the section one would look to to get details of loans, whether issued for housing and so on?
This section deals only with loans to directors. Section 70 covers the area the Deputy has mentioned.
Subsection (1) states:
It shall not be lawful for a society to pay a director remuneration (whether as director or otherwise) free of income tax or otherwise calculated by reference to or varying with the amount of his income tax or to or with the rate of income tax, except under a contract which was in force on the 5th day of December, 1975 el
Obviously, the Minister regards the payment in those circumstances to be anti-social. If so, why is it being continued for certain individuals?
The reason for it is that it prohibits payment of remuneration free of tax to a director or otherwise. The main objection to the tax free payments is that the tax element has to be borne by society and it is inevitable that the cost to be borne by society for a director's services should vary with the director's income from other sources. Furthermore the members may be unaware of the real cost, including tax, of a director's services where a tax free scheme of remuneration applies. It is new to building societies legislation but it is similar to section 185 of the Companies Act, 1963. Subsection (1) provides that it shall be unlawful for a society to pay to a director a remuneration free of tax except under a contract which was in force on the 5th December, 1975, the date of the publication of the Bill.
It is continued in such circumstances.
Yes, because the contract must have provided expressly for such payments and was not dependent on the rules of the society. There is a similar provision to that in section 186 (1) of the Companies Act, 1963. It is a legal contract which it is not possible to alter at this stage.
Would the Minister please give the explanation for subsection (2)?
Subsection (2) provides that any rule of the society or any contract other that a contract referred to in subsection (1) provided for payment of a director's remuneration tax free shall in future be interpreted as if it provided for payment as a gross sum subject to tax of the net sum mentioned. This does not apply to existing contracts coming under the scope of subsection (1). It is similar also to section 185 (2) of the Companies Act, 1963.
Will a remuneration which was in force on the 5th December, 1975 go on?
It would have to because it would be assumed it was a legal contract entered into before that date and could not be altered before that date.
I agree entirely with subsection (1) of this section but I would like the Minister to spell out the special circumstances he has in mind in relation to cases where the registrar could dispense with this subsection.
A case arises where a society had a very long list of directors and due to death, retirement or otherwise the reprint of stationery which would have at all times a correct list of directors would cause an unusual burden on the society. It would be exceptional.
Does subsection (1) of this section mean that a person who was a member at the end of the previous financial year before the date of the meeting can vote even though he may not at the specific time the meeting takes place be a member?
No. He must continue to be a member. He must continue to hold shares. He must have been a member before the end of the previous year.
If he got the shares in the interim he could not vote.
That is correct.
It says a "member" here. Should it not say "shareholder"? An ordinary depositor would not have the right to attend a meeting.
It is a member with voting rights.
A depositor would not be allowed into the meeting.
A person entitled to attend the meeting of the society shall be a member who at the end of the last financial year held shares.
I know that but I wanted to clear the matter, in relation to certain comments made over the weekend, that a depositor has not voting rights.
Is there no way of checking a proxy vote? The Minister brought in a provision last year in relation to proxy votes at a general election. Is there any procedure to be gone through in relation to proxy votes?
There is a better chance of ensuring that the person who is entitled to the proxy vote or to the written vote votes.
They have to be lodged 48 hours before the meeting.
Does anybody check them?
They would be checked in the society.
If I found a paper could I mark it and send it on even though it might not be mine?
It could happen but it is not likely to happen. The people who run building societies have fairly sharp eyes about those things and it would be in their own interests to ensure that they did not fall into the wrong hands. Might I suggest that sections 54 to 69, inclusive, are entirely non-controversial? They deal with procedural matters, holding of meetings, keeping of records, passing resolutions, the formulation of annual accounts, directors' reports and the appointment of auditors. We might be able to get over those fairly quickly.
We have got reasonably quickly over some of those we have met since section 38.
Must all members be notified about the annual general meeting?
We have to go back to section 51 to get that. The provision is made. All members must be notified. The fact that they do not get it was one of the matters raised in the Seanad. With the big number of people involved there is no way in which it would be possible.
They are supposed to be notified.
This is the question of displaying a notice. It is the same as in the Central Bank Act, 1971.
I pointed out to the Minister that I had seen some of the accounts of the building societies and they seemed to be fairly difficult to decipher. Will the registrar have them put into a form which will be easily understandable by the ordinary member?
Section 2 of the 1894 Act empowered the chief registrar to direct the form of the annual account and statement, either generally or with respect to any society or class of societies. It required that the account should include particulars of mortgages.
In the interests of flexibility, it is proposed that the registrar will have power to direct the form of the accounts rather than have them prescribed in regulations. He may give directions either generally or in relation to a specified class or classes of societies.
In fixing the form of accounts the registrar will have available to him the particulars called for in the Sixth Schedule to the Companies Act as well as recent recommendations of the consultative Committee of Accountancy Bodies—Ireland. I think we can take it in future accounts will be more readable.
I take it that the auditor will be a qualified person?
Yes. Sections 66, 67 and 68 deal with the appointment, removal and qualifications of the auditor. The Deputy can take it that he will have to be the bee's knees.
This section provides that a society shall submit an annual return to the registrar and shall submit such other information and returns as the Minister or the registrar may require from time to time. A society will be required to submit the annual return within 21 days of its annual general meeting and to attach an auditor's report on the contents of the return. Every member and depositor of a society shall be entitled to receive a copy of the society's most recent annual return and the auditor's report on it.
It will be noted that annual accounts under section 60 are prepared by a society chiefly for the information of its members and depositors. The annual return to be submitted to the registrar under this section will be on the lines of the annual accounts but will contain much more detailed information. The annual return will constitute the most important source of information available to the registrar to enable him to exercise practical supervision over societies.
Does this mean the society will take responsibility for an offence committed by an officer of the society?
The section precludes the rules of a society from exempting or indemnifying an officer or auditor of a society against liability for negligence, default, breach of duty or breach of trust. Any such indemnity now in existence will apply only in respect of things done or neglected to be done prior to the commencement of this section. The purpose of the section is to ensure that an officer of the society bears the proper penalty for his own negligence or default and that the funds of the society are not used for that purpose. The section is based on section 200 of the Companies Act, 1963.
Would section 71 (1) in any way involve an officer who vetted a loan on a house and a defective house was sold to a person?
The Deputy is referring to two different things. We are talking about the rules of the societies. Many people make this mistake. The provision of the fund to purchase the house has nothing to do with the state of the house. A bank or a local authority who provided money for the purchase of a house could not be deemed to be responsible for the state of the house purchased with the fund made available.
He would be an officer of a society who had vetted the house and said it was worth £x.
I do not see any of these people knocking around who would do so if the house was not up to the mark. Usually these people are very exact about these things.
I appreciate that.
For the purposes of this section an auditor of a society is deemed to be an officer of the society by definition. Subsection (1) provides:
Any provision (whether contained in the rules of a society or in any contract with a society or otherwise) for exempting an officer of a society from, or indemnifying him against, any liability which by virtue of any rule of law would otherwise attach to him in respect of any negligence, default, breach of duty or breach of trust of which he may be guilty in relation to the society shall, subject to subsection (2), be void.
This is as provided in section 200 of the Companies Act, 1963. It is the practice in drafting rules for a society to provide for the indemnity of officers or auditors against costs, losses and expenses incurred in the discharge of their duties. The purpose of the subsection is to ensure that they are not protected in the case of negligence, default, breach of duty or breach of trust. If somebody inspected a house and charged the person borrowing the money for a report, this would be a different situation altogether. The person Deputy Moore is talking about is called a surveyor.
That is right.
A surveyor is dealt with in section 79.
This section provides that a register of the names and addresses of members must be kept by the chief officer of the society. If a member should request the list from the society, must the society make the list available to him?
No. It is provided that he would not do that.
Is he entitled to go into the principal office and take a note of the names?
The section provides, briefly, that a society shall keep a register of the names and addresses of its members. Any member may provide a communication relating to the affairs of the society and request the secretary of the society to issue the communication to all members. If the secretary is satisfied that the application is made in good faith, he shall comply with the request. The secretary may refuse to comply with such a request but must give the member the grounds for such refusal. The member may then refer the matter to the registrar as a dispute. Provision is made so that the registrar may, having heard the representations, direct the secretary to comply, subject to such limits or conditions as the registrar thinks fit.
It will be noted that the purpose of the section is to provide a formal procedure to enable a member to communicate with other members. In practice, however, it is almost certain that the members would simply place an advertisement in a newspaper and thus avoid the formalities and cost of printing and postage of, possibly, thousands of notices.
If this were not provided, somebody could go in just to be a nuisance. The societies had to be protected against that, and this is being done.
This section requires information to be kept on other directorships held by the directors of a building society. Would information on holdings not be more appropriate?
This section places an obligation on a society to keep a register containing specified particulars relating to the directors of the society and also makes provision for the inspection and obtaining copies of the register by members and other persons.
Since building society directors act as the custodians of the savings and deposits of the public, it is only right that existing and potential investors should be able to obtain reasonable particulars of the persons who manage the affairs of the society.
These provisions, which are new to building society legislation, are based generally on section 195 of the Companies Act, 1963. The following particulars must be kept: his present surname and forenames and any other former names, and his present residential address. It will be noted that this section requires not only the current name and address of a director to be included in the register, but any other former names as well. It is not considered necessary to make exemptions in the case of certain former names as is done in section 195 (12) (d) of the Companies Act, 1963.
Subsection (2) provides that a register under this section shall also contain the following particulars relating to each director: his business occupation, if any; and any other directorships held or bodies corporate incorporated in the State. That is what Deputy Faulkner is talking about. They must also keep those.
A record of holdings as well as directorships?
Not a record of holdings. It would be desirable that persons looking at the list of directors should be in a position to ascertain the names of other bodies corporate of which they are directors. Requirements similar to the above are contained in section 195 (2) (d) and (e) of the Companies Act, 1963, except that to be in line with EEC requirements, the requirement that the nationality of directors be stated is omitted.
Section 75 (1) prohibits the giving of commission in consideration of or in connection with the introduction of mortgage business to societies. Does this stand on its own? Is it apart altogether from the rules of the society or does a society provide for such requirements in its rules?
It stands on its own. Section (1) provides that a society shall not give commission in consideration of, or in connection with the introduction of, or an undertaking to introduce, mortgage business. The purpose of this subsection is to prohibit a society from paying commission to any person, such as a broker, for introducing mortgage business or for undertaking to do so. In the normal course of events, demand for mortgages exceeds the supply and it is therefore not necessary for a society to pay commission to attract customers for that sector of building society business.
It is not unusual that somebody would set himself up and that a person looking for money to build a house would go to this person who would introduce him to a society and get a commission for doing so. That commission does not come from the society. It comes from the unfortunate person who is buying the house or borrowing the money. Since he or she could do that simply by going to the society, it is not considered a good idea that somebody should use what could be referred to as his influence to get it for the borrower.
Section 75 (6) says that an officer, solicitor or surveyor shall not accept any commission and so on. It would appear to me that the definition of an "officer" in section 2 does not clearly cover staff. I am just wondering if a branch manager, for example, would be included in "officer". Could he, for example, receive commission?
It would depend on the facts of his case, whether he was or was not an officer. It includes a manager or a secretary. The section prohibits an officer, solicitor or surveyor from accepting commission in connection with the effecting of an insurance policy, including life assurance when the policy is used as additional security for a loan, where the society makes an addition to a loan to enable payment to be made of a premium on the policy, where the policy is taken out to comply with the terms of the mortgage. This is in line with section 74 (3) of the British Act of 1962. That Act stipulated that the prohibition applies if the policy was effected through the society or if the society nominated or selected a person by whom the policy is to be issued. The idea again is to prevent people cashing in on those who are borrowing money, getting money which should not be required.
Does the word "officer" include the ordinary branch manager?
In general, no, but the structures of the societies are not always the same, and it is a question of deciding where his standing was in the society. I think it is covered, but I am not quite sure in what section. Deputy Faulkner referred to the definition section and said it is not quite covered. I think it is covered.
I did not say "not quite covered". I said "not clearly covered".
Normally a branch manager would not be covered but there would be exceptions, where he might be a branch manager plus something else.
I am accepting this because of the changes that were made in it in the Seanad.
I move amendment No. 21:
In page 46, lines 24 to 29 to delete subsection (1), and substitute as follows:
"(1) The Minister may, in the interests of the orderly and proper regulation of building society business and having regard to the demand for loans for house purchase, on the recommendation of the Registrar, make regulations in relation to the purposes and amounts of loans by societies.".
Section 77 is, in my view, very controversial, and I think the building societies themselves are concerned about it. It proposes to give the Minister power to regulate the purposes and amounts of the loans made by societies. Specifically he could regulate the maximum amount of a loan, the purposes for which loans could be made, and the maximum amount which may be lent to a body corporate. These powers are new. As far as I could gather, the Minister had intended going somewhat further by regulating the conditions on which loans could be offered.
I suppose in one sense—it depends on the way you look at it—the new powers could be looked on as a back door to nationalisation; in another sense they could be regarded as a necessary response to abuses which have crept into the operations of building societies in recent years. I would like to emphasise that we deplore as much as the Minister or anyone else the granting of loans on business premises, of loans to companies or, in fact, of any loan which does not help to house a family. We also have sympathy with the view that the resources of societies could be spread a bit wider by giving more loans for smaller houses.
However, we have learned, and I think the Minister has also learned, of the pitfalls of endeavouring to regulate loans too closely. When the Minister, because of the power given to him over the societies for the granting of the subsidy, regulated closely the amounts and the types of loan, at one stage, a completely false housing market was created, where the demand for secondhand house collapsed and this had a severely damaging effect on the market for new houses, because many prospective buyers could not sell the houses in which they were living.
I think this was a mistake and that it is now recognised as a serious blunder which had a detrimental effect on the building industry. The interference referred to earlier was not in the best interests of the societies, the investors and the buyers, although a small number did benefit. To avoid the risk of a recurrence of such decisions this section should be amended by placing the initiative with the registrar who will not be motivated by short-term political considerations. During the passage of the Bill through the Seanad the Minister conceded something similar. We did not oppose section 76 because of the Minister's concession. I would ask the Minister to consider the amendment which reads:
The Minister may, in the interests of the orderly and proper regulation of building society business and having regard to the demand for loans for house purchase, on the recommendation of the Registrar, make regulations in relation to the purposes and amounts of loans by societies.
The amendment was specifically framed to overcome the objections to amendments in the Seanad in that only the Minister can make regulations. We would prefer to have the regulations made by the Minister so that they could be discussed in the House. It is very important that it should be seen that the Minister cannot interfere in the manner in which he could interfere under the Bill as it stands and that the registrar should make recommendations and the Minister make the necessary regulations.
The effect of the amendment proposed by Deputy Faulkner would be to delete all reference to the Minister for Finance and to secure that any regulations under the section were made "on the recommendation of", rather than "after consultation with", the registrar. The amendment would also seem to imply that these regulations would be a more common feature of building society business than I had in mind. It is fair to say that in drafting the amendments Deputy Faulkner took a look at section 76 where he found that regulations under that section would be made "on the recommendation of the registrar".
It is a simple matter to justify the position of the registrar in section 76 because that section deals with the administration of the societies themselves and it is the registrar's function to oversee these matters. Section 77 is a different matter, where we are concerned with the availability of funds for the housing programme. The section has been drafted in a very deliberate way so as to give due weight to the authorities that are involved. The Minister for Local Government is empowered to make regulations with the consent of the Minister for Finance and after consulting the registrar regarding the amounts and purposes of loans. I should say here that I do not envisage a permanent requirement for regulations of this nature. They would only be made in the circumstances outlined at the commencement of subsection (1)—when the Minister considered it expedient and when the interests of the orderly and proper regulation of building society business and the demand for loans warranted it.
Deputy Faulkner referred to the period when interference by the Minister for Local Government dried up the secondhand house market. If Deputy Faulkner was as close to it as I was at the time he would realise that it was necessary action. When it became possible to change the regulation it was done with very good effect. If the situation had continued, the money being given to the societies for house building would have wound up financing houses for those who were not as badly in need as those who actually benefited. The Minister for Local Government is the Minister charged with responsibility for the housing programme and in discharging that responsibility he has to have regard to its financial implications and to the contributions which will be required from the various financial sources if the programme is to be implemented.
The Minister for Finance is involved since he is the person with responsibility for the provision of State funds for all services including housing. As regards the registrar, he will be in close touch with the societies and will have readily available to him a steady flow of information on the affairs of the societies. He will know, for instance, the pattern of the societies' lending programmes, the level of inflow to societies, the extent of the demand for loans, the extent to which they make loans for new or previously occupied houses, the percentage of the purchase price which the average loan represents and other information relevant to the consideration of whether it would be expedient to consider the making of such regulations at any time. To adopt Deputy Faulkner's amendment would require the registrar to be an expert not only on building society affairs but on the overall housing programme and its financing. We have heard a great deal about the need for a strong and independent registrar and I am fully in agreement with that, but to burden him with responsibility for the housing programme as a whole is going too far.
I would ask Deputy Faulkner to withdraw his amendment. The type of regulations to be made under this section might include regulations to ensure that a society did not, for instance, have a high proportion of their mortgage assets tied up in a small number of large loans or devote an unduly high proportion of funds to business lending. The intention is to ensure that commercial lending policies are not adopted by societies but that due regard is had to the demand for home loans of moderate amounts.
During Committee Stage debate in the Seanad I stated that the societies have in the main been very conscious of their social responsibilities in regard to the amounts and purposes of loans, and I stand by that statement. The present Bill is intended to last a long time and to cater for almost any foreseeable circumstances. I feel that justice would not be done to this comprehensive legislative measure if the provisions of this section were not included. I am strengthened in this conviction by the inclusion in the British Building Societies Act of 1962 of the very elaborate provisions relating to special advances. Those provisions were intended to limit the making of large loans and the making of loans to bodies corporate to within 10 per cent of a society's total lending. Although the method adopted in the British Act has come in for some criticism, the purpose of the provisions is obvious.
Prior to March, 1973 no controls were exercised over the lending policy of building societies in this country. As from 23rd March, 1973, controls have been exercised administratively in conjunction with the operation of the composite tax arrangement and the payments between May, 1973 and February, 1976 of the special subsidy on shares and deposits.
Deputy Faulkner said that the building societies were very much opposed to this. We have no evidence that that is so. We have been in close contact with the building societies during the preparation of this Bill. The Bill was not drafted for the purpose of pleasing building societies. We want to ensure that the building societies will be able to work within the regulations. To be fair to them the building societies are now doing a good job in regard to providing money. Up to £100 million will be provided this year. To say that the building societies would not be pleased with a particular section is no argument for deleting that section. On reflection, Deputy Faulkner will agree with this.
I should like to refute any suggestion that the building societies were responsible for my contribution.
I did not say that.
It was suggested that I was acting for the building societies because I said that the building societies would not like it.
I did not say that.
The Minister may not have used those words but the interpretation is obvious.
The Deputy is entitled to his interpretation.
I could not accept the reasons given by the Minister for the manner in which he interfered with the provision of loans. His point was that, if he had not interfered, people who were already housed would get houses rather than those who were in need of houses. This action so upset the market that there was total confusion. A change had to be made in order to introduce some regularity.
If the Minister wants to start that I will ask him how he managed to build as many houses in 1976 as in 1974 with 12,000 fewer workers? If the Minister would like to go into the political aspect of it, we will deal with that too.
It might be very useful.
The Minister said he could not unload the whole responsibility for the housing programme on to the registrar. That is not what is intended here at all. The Minister said that if he were to do so it might happen that all the money would be poured into a few very large houses. I would take it that the registrar appointed would be a fully qualified and intelligent person, one who would recognise the function of the building society, that its business was to get in as much money as possible in order to loan it to people for the building of houses. I have no doubt but that he would perform that function. He would know what were the objectives of the building societies and would ensure that the money was expended in the manner one would expect. I want to underline the fact that there was interference by the Minister and, as the Bill stands, he can do it again. Perhaps, for the purpose of housing statistics, he might feel it more important to have a number of houses built rather than ensuring a steady flow of house building.
To get away from the political aspect of it, I put forward this amendment for the same reasons as those put forward in relation to sections 37 and 38, that is, to have as little State interference as possible. We recognise the need for control. We recognise the right of the State to control to a considerable extent the activities of building societies. But we felt it was overdone in this Bill, that the Bill would be much more effective—one in which the public would have much more confidence— were there to be less control exercised by various Ministers. We would not have tabled the amendment had we not thought it would make the operation of the Bill more effective.
Deputy Faulkner and his colleagues have been quite reasonable in their approach to this Bill so far. But I am quite sure he will agree with me that we could not allow a situation to recur which did obtain when I first took an interest in these matters officially, when there was at least one building society lending more money for the purpose of purchasing land, hotels and pubs than for house building. Nobody would suggest that this should be the situation. Although it is most unlikely that anything like that would happen again—certainly I am sure present building societies would not become involved—they, like myself, will not be there forever. I believe it necessary that we have this type of control, that we have it in this way and that it will be administered in a reasonable manner. We would not be doing our duty if we allowed a loophole in the Bill which permitted that type of thing to recur. There is no question at all that the registrar will not be consulted. But the registrar will not be somebody sitting, waiting day and night to advise building societies on every facet of their business. There will have to be some means devised by which a general policy will be handed out, that will operate in the normal way and I believe that the section as drafted, does that. The amendment suggested by Deputy Faulkner would weaken the section and it would be a mistake if it were accepted.
Surely Deputy Faulkner's amendment rather than weakening the section would strengthen it. I believe building societies have a very important role to play in the housing drive. I agree with the Minister that these regulations are necessary to ensure that they do so. We do not want to weaken the Bill in any way.
If one looks at amendment No. 23, to section 78, one will see that it would tie building societies down to giving loans only on residential property. I believe that Deputy Faulkner's amendment would achieve what the man in the street wants to see done—designate the type of loan, the amount, and ensure that every possible penny is loaned for house building only. Certainly we would never advocate loans being given for the building of hotels, publichouses, supermarkets and so on. We want building societies to play the role intended for them, that is, to help in the housing drive. Deputy Faulkner prepared his amendments after long consultation and study of the deliberations in the Seanad. The Minister has said that we have been very reasonable. I suggest that the Minister might take another look at this if not now then overnight. I know the Minister will contend that he did so in the Seanad but the Bill would be strengthened in its passage through this House by the inclusion of these amendments and prospective householders' interests also would be better safeguarded. I am sure the Minister will agree with me that our whole purpose for being here is to push the housing drive. Therefore, we cannot miss an opportunity on any Bill of ensuring that every possible penny goes into housing. I assure the Minister of the sincerity of this side of the House in relation to these amendments.
I am anxious to be co-operative about this, but, before the Bill ever saw the light of day, there was a great deal of work and research put into it, and discussions were held with various people involved in building societies, with the whole provision of housing and so on. Then, in the Seanad, we had a very useful debate, on which I have already complimented Senators. Nothing new has been introduced here this evening. Since that is so it would be a mistake for me—having told Senators I could not accept their amendments—to decide now that I could accept an almost similar change to that suggested by them. I am not being unreasonable but I believe that the section, as it stands, is a better one than if Deputy Faulkner's amendment was accepted.
Is the amendment withdrawn?
I will withdraw it and will consider the possibility of another on Report Stage.
I move amendment No. 23:
In page 46, after line 56, to insert the following:
"(3) A society may make loans only on residential property."
I do not think this is an amendment with which anybody could disagree. It sums up our total commitment on this Bill, that of seeking to provide more dwellings. Despite what the Minister said about having built so many houses in the past few years— and I have always felt we should take housing out of politics—here is an opportunity for this House to endorse the wishes of most of our citizens who are interested in housing. We could ensure that the building societies will direct their considerable assets on to the housing drive and this would supplement to a great degree the great part being played by local authorities and housing agencies. This would surely strengthen the Bill and would be a very popular amendment. Despite the many houses that have been built over the years, we are still very short of houses and the private sector which accounts for most of the building needs every incentive that can be given and every penny we can spare. To invest in housing not alone brings financial reward but it brings satisfaction to a person when he knows that he is making his money do the most good. I can see no objection to this amendment. I strongly recommend it.
The Minister in opposing the previous amendment stated that one of the problems was that one building society had issued loans for various things apart from housing and, therefore, if the Minister is anxious to tie up that situation this amendment offers the opportunity.
The situation is that the last section having been passed there is no necessity for this. Another objection to this amendment is that at the present time as Deputy Moore said, and for some considerable time to come, we have a situation where all the money that can be provided from building societies will be necessary for house building but we could reach a stage before the end of the life of this Bill when more money would be available than would be necessary. The last Building Societies Bill lasted nearly 100 years so within the next 100 years who knows what is likely to happen? Deputy Faulkner's amendment would mean that in the event of such a thing happening no money would be spent on anything except as the amendment says "a society may make loans only on residential property". Under the previous section the regulation will be made that that is what must be done. We would be right to say that in 30, 40 or 50 years' time if there was a surplus of money in building societies which was not required for housing they should have to hold on to the money, that they could not spend it or loan it on anything else except residential property. I would ask Deputy Faulkner to look at that aspect of it.
I cannot imagine a situation in future where we may have too much money for houses. The fact is that the Minister wanted to refuse the previous amendment on the basis that it might be used for purposes other than the purpose of residential property and now the Minister is changing foot by not accepting this amendment. Having listened to the Minister's argument, I must say I am not thoroughly convinced.
This section states:
A loan made by a society shall not exceed the valuation in accordance with section 79 on the freehold or leasehold estate offered as security for the loan.
I understand that it has happened in Britain that people who had good salaries but had no capital were given a grant which was higher than that but I do not know whether I can make a very strong argument on that.
Subsection (1) provides that a loan made by a society shall not exceed the valuation of the property on the security of which the loan is made. Subsection (2) provides that, in determining the amount of a loan, a society may take into account the value of any additional security other than freehold or leasehold estate offered in respect of the loan. This is a re-enactment of section 3 of the Building Societies Act, 1942.
Subsection (3) empowers the registrar to issue a direction in relation to the classes of additional security, other than freehold or leasehold estate which may be taken into account by a society in determining the amount of a loan, and to direct the conditions or arrangements which shall apply to the taking into account of a specified class or classes of additional security. Existing law does not lay down any requirements regarding the classes of security that may be taken as additional security. In the British Building Societies Act, 1962, the permitted classes of additional security are set out in the Third and Fourth Schedules to the Act. Powers are conferred on the chief registrar in section 26 (5) of that Act to extend or vary the classes of additional security. The proposal in the subsection is more simple and flexible and is so worded that it can take account of the types of security and arrangements that are within the ambit of the British Act. That meets Deputy Faulkner's point of view.
Is there any difference between this and the 1942 Act?
It is a re-enactment of section 3 of the Building Societies Act, 1942.
There is not a great deal of change?
There is no change.
One of the most important functions in the management of a building society is the assessment of the adequacy of the security offered for a loan. The purpose of this section is to ensure that satisfactory arrangements exist for the valuation and assessment of the security being offered for a loan and that such a valuation and assessment is carried out in an impartial manner. This section will place a responsibility on every director to satisfy himself as to these arrangements.
There are two distinct elements involved in the arrangements: firstly, a written valuation report on the property involved must be prepared by a person who is not an officer of the society and, secondly, the assessment of the adequacy of the security must be carried out by an officer or officers of the society, by reference,inter alia, to the written valuation report. A valuation report prepared by a person who has a financial interest in the disposal of the estate may not be accepted.
Deputy Moore asked about this earlier and Section 79 is where it comes in. Existing legislation is silent on the detailed arrangements to be made in connection with assessment of the adequacy of security taken by a society and of the persons who may report on the value of such security.