andMr. Blaney asked the Minister for Finance the steps he proposes to take to safeguard depositors in Irish merchant banks.
23.
Ceisteanna—Questions. Oral Answers. - Irish Merchant Banks.
22.
andMr. Keaveney asked the Minister for Finance the control or supervision that is exercised by the Central Bank over the licensed merchant banks.
With the permission of the Ceann Comhairle, I propose to take Questions Nos. 22 and 23 together.
A major purpose of the control and supervision exercised by the Central Bank over licensed banks, including merchant banks, is to safeguard the interests of depositors. The bank's powers and functions in this regard are contained in the Central Bank Act, 1971, principally sections 9, 10, 11, 17, 18, 21, 22 and 23. I would refer the Deputies also to a statement of the Central Bank's requirements and standards for the licensing and supervision of banks, published in the bank's annual report for 1975.
The adequacy and suitability of the supervisory powers are kept under constant review and I understand that the Central Bank are considering certain proposals in this regard. Any recommendations which may be made to me in due course will be considered as expeditiously as possible.
The various sections of the Act to which the Minister refers me would not be very enlightening to members of the public who had the misfortune to be caught by the malfunctions of some of the banks licensed by the Central Bank. Would the Minister agree that merchant banks, although carrying licences from the Central Bank, are not to be relied on or, if they are to be relied on and if the Central Bank licence means anything, we require more than merely a reference to several sections of the legislation governing these institutions?
Section 9 of the Central Bank Act, 1971, states clearly that the granting of a licence is not a warranty of solvency and that the bank are not liable in respect of any losses incurred through the insolvency or default of a licence holder.
If that is so, let it be declared clearly and publicly that the licence means nothing, that it is only a facade which allows certain people to go into operation, to knock the public and to get out, leaving the public with no redress.
It would be incorrect to describe as a facade the Central Bank Act, 1971, which states clearly the status of banking institutions holding licences from the Central Bank. The Act puts depositors on notice that the mere holding of a licence is not of itself a certificate of solvency. The Central Bank, by reason of the Act of 1971, requires that certain standards are observed and where there is reason to suspect a deviation from these standards they take action to rectify the situation. There was a recent case in which they saw fit to act.
However, it may help the Deputy if I give an indication of what is contained in the sections of the Act that I refer to.
Section 7 provides that in order to conduct banking business a person be licensed by the Central Bank and must maintain a deposit with the Central Bank. Section 9 empowers the Central Bank to grant or to refuse to grant a banking licence. Before a refusal is final, it must have the consent of the Minister for Finance. Section 10 provides that the bank may attach conditions to a licence either at the time of granting the licence or later. Under section 11 the Central Bank may, in certain circumstances or with the consent of the Minister, revoke the licence. Sections 17 and 18 stipulate that licence holders must keep such books and records as the bank specifies and must also furnish the bank with whatever information is deemed necessary. It is provided also that the bank may inspect books and records.
Section 21 provides that where the Central Bank is of opinion that the holder of a licence has become, or is likely to become, unable to meet his obligations to his creditors, they may direct the holder in writing to suspend for a period of two months the taking of deposits and the making of payments unauthorised by the Central Bank. It is provided that such a direction may be set aside, confirmed or extended by the High Court. Under section 22 the Central Bank may direct a licence holder in relation to the publication and content of advertisements while section 23 provides that the Central Bank may require licence holders to maintain certain ratios as between assets and liabilities.
I am satisfied that these powers are used properly by the Central Bank. I would point out also, although this may be of little relief to anyone who has been embarrassed in any particular case, that Ireland's record in the banking field is particularly good compared with that of other countries. In other places there have been a number of bank failures. Fortunately, we have not had these experiences here. But in the light of what has happened elsewhere and having regard to EEC requirements, the Central Bank updated the requirements of the 1971 Act. This updating was spelled out in their annual report of 1975 to which I referred the Deputy. All the conditions need to be reviewed from time to time and a review in that respect is proceeding at present.
Can the Minister, in simple terms, assure the public that the granting of a licence means more than merely the green light for somebody to set up a merchant bank and that the conditions attaching to a licence are directed towards the safeguarding of investors' interests? If they are not so designed, what is the purpose of the licence? Will the Minister tell us also where redress comes from in the event of default? The public would expect that it comes from the source which governs these banking activities—the Central Bank and that, therefore, there would be an absolute guarantee from this State institution in respect of defaults.
The value of a licence is spelled out clearly in the Central Bank Act, 1971. The disciplines which the Central Bank imposes on the banking system are as good as, if not more stringent than those which apply elsewhere.
Indeed, they are much more rigorous.
It is because of this that we have had such a comparatively good record during a period of extreme financial difficulty and at a time when in countries with a much longer banking experience quite a number of institutions have gone to the wall.
I am not concerned with the record but with the situation in which losses have been incurred by individuals as a result of default on the part of a bank.
We must have finality on this question. It has been going on for too long.
We accept that the record is good but this is what the public expect.
The Central Bank and this Legislature, too, will do everything possible to strengthen existing powers. This area is being examined carefully at present.
What about the losers?
I cannot anticipate there being losers.
There have been some already.