Private Members' Business. - Central Bank Bill, 1980: Second Stage (Resumed).

Question again proposed: "That the Bill be now read a Second Time."

(Limerick East): When I moved the adjournment I had commenced quoting from an appendix to the Lafferty report International Private Banking: Ireland's Best Bet on the financial services proposals and the opportunities which Ireland has in this sphere of activity. I was referring to Appendix 1 which has a table which compares the advantages and disadvantages of Switzerland, Luxembourg, the Channel Islands and Ireland as locations for financial services. It begins with general concepts: that Ireland is a sovereign state; that is an advantage; that we are not involved in a military alliance, we are neutral; that is an advantage; that we are a member of the EC; that is an advantage. It goes on to say that our politics are not based on class or race; that is an advantage. We have an independent tax regime, and that is considered to be an advantage.

We come to the first disadvantage. It is considered that our local tax policy favours high tax rates and high tax takes, whereas in Switzerland they are described as average, in Luxembourg average and in the Channel Islands low. The next disadvantage is banking confidentiality. We have no legislation which ensures banking confidentiality. Switzerland, Luxembourg and the Channel Island have it.

"Financial services in the Community" is the next heading and under the category "economic importance" it is major in Switzerland, vital in Luxembourg and the Channel Islands and of minor importance in Ireland. Local market integration is complete in the other three competitors and non-existent in Ireland. There is a bi-partisan approach in the other three locations and this concept is unknown in Ireland. The services are official state policy in Switzerland, Luxembourg and the Channel Islands and not official State policy in Ireland.

Telecommunications are considered to be average in Ireland in this report while they are excellent in Switzerland and good in Luxembourg and the Channel Islands. Staff availability is considered to be excellent in Ireland, poor in the Channel Islands and good in the other two locations. Our office capacity is good. Official attitudes are supportive in Switzerland, keen in Luxembourg and the Channel Islands and unknown in Ireland. Legal-accountancy services and computer support services are good in Ireland.

Resident tax levels in Ireland are high. Non-resident tax levels are 10 per cent here, whereas they are nominal in the other three locations. The legal base is acceptable here. English trust law probably applies, according to this report. EC investor law is unknown, whether it applies or not. Physical communications are considered to be easy here while they are difficult in the Channel Islands and Luxembourg. The capacity of the existing market is nonexistent here while it is large in Luxembourg and the Channel Islands and enormous in Switzerland. There is expatriate staff availability. Housing here for staff is unknown according to this table. Bank establishment costs are unknown and banking image nonexistent. We are talking about banking image for financial services.

Direct air travel is good. Hotel rooms, number and quality, are good. Entertainment opportunities are good. Education facilities are good. Shopping facilities are good. Cultural background and general quality of life are good.

Overall Switzerland comes out at the top of the league table, Ireland next and the Channel Islands and Luxembourg are behind Ireland in terms of opportunities for financial services. I quote the report, page 2:

This paper argues that:

The necessary legal, physical and psychological infrastructure for the establishment within the Republic of Ireland of a financial services industry already exists in principle,

It refers then to a tabular statement comparison.

The establishment of a processing centre for an insurance company at Castleisland is a practical example of the unexploited potential.

The clearly defined State policy of the Republic of Ireland towards the financial services industry is lacking. This is most clearly seen in the decisions of both Bank of Ireland and Allied Irish Banks to search for growth outside Ireland.

Without a statement of intent about the role of the international financial services business within the Republic, it will be difficult for the State to attract sufficient number of Banks or other financial service companies to create the `critical mass' necessary for `take-off' as an international banking centre.

The four centres mentioned earlier each exploited a particular `window of opportunity' to kick-start their international banking business into above average growth. Such a `single window' has opened again, and could be exploited by the State given the necessary precondition of a development policy agreed by financial and banking authorities, some minor legislative clarification, and the passing into law of a banking confidentiality act.

The Dublin financial centre is a valuable, though not sufficient, precondition to the establishment of a large, economically significant, and profitable financial service industry within the State. Other centres succeeded because they recognised a market need, and allowed this to be exploited by the domestic financial industry jointly with international banking and financial companies attracted by the opportunity.

The Committee has the opportunity to propose the preconditions described above and ensure that recent competitive developments within what is now the global banking industry are grasped by the State and its financial and banking functions.

According to the introduction, the report was requested by the chairman of the Financial Services Committee who, of course, is the Minister. The report argues that the opportunity exists for a significant financial services industry in this country but that will not happen because, first, the Government have not got a clear policy. Secondly, one of the preconditions is a banking confidentiality Act and, thirdly, we are after the wrong end of the market on the bulk side and we are not going to where the window of opportunity is, the handling of personal accounts. The Minister has proceeded in the Central Bank Bill in a piecemeal fashion. Now the Central Bank is being put in place to control industries in the Financial Services Centre. Of course that is acceptable, but we have no overall statement of policy or attitude. We have no overall general approach and the financial services industry in Europe and the US is not very clear as to what our intent is.

Against that background I take exception to the kind of guff we get from the Minister where those of us in the House who raise these issues as matters of serious debate are given lectures about some Deputies for their own reasons being dismissive of our strength in this field. We need a serious discussion on the future of the financial services industry. It is extremely difficult to get information from the Minister's Department either by way of question or request.

We are still not sure whether the Minister intends to proceed with the proposal that some activities down there would be zero rated for tax purposes. Recently on the Order of Business I asked if this would be proceeded with in the Finance Bill and there was confusion in the benches opposite. The Minister for Finance seemed to be passing the ball to the Minister for Industry and Commerce who was reluctant to catch it. What is the position now? Is that going to go ahead? If so when, and will it be in the Finance Bill? If it is going ahead does the announcement of the Commission that they are proceeding to propose a common withholding tax for all financial institutions for money on deposit run counter to the idea of a zero rate on the profits of unit trusts being administered in the Financial Services Centre?

I do not want to dwell too long on it. Here we have a regulatory proposition with which I agree not only in connection with the new firms in the Financial Services Centre but also in regard to future trading in the areas of money broker as the Minister suggests. I maintain the right to continue to demand a serious policy statement from the Minister for Finance on financial services here and I will continue to demand the introduction of a Bill dealing with banking confidentiality. That is one of the real flaws we have at the moment when we are not attracting industry here to the degree that we might.

It is not good enough every time we criticise to wheel out the State agencies to ensure that the square footage of coverage in the newspapers got by the agencies praising the International Financial Services Centre obliterates any criticism which might be in the same editions of the newspapers. There is a paucity of information and to talk about the number of licences issued does not answer that. I accept that new licences are being issued every month but I also know that new licences are being issued in respect of the Shannon duty free zone, and have been for a number of years. However, there is little or no relationship between the number of start-ups and the number of licences issued. The latest figure for licences from the Minister's Department is somewhere in the high fifties or low sixties. I challenge the Minister to name one company that has got a licence and has set up, and is employing more than five extra people.

The test of the financial services proposal in the Custom House Docks site is whether extra incremental business is added or whether extra jobs will be created. The relocation of jobs from various parts of the city to the Custom House Docks site is not job creation. I had not intended to dwell on that project for so long but I was provoked into doing so by the Minister's remark.

I should like to refer to an omission from the Bill to which the Minister should give some attention. If we take the Bill and other significant Bills in allied areas, particularly the Building Societies Bill, as one corpus of legislation the idea of competition and the benefits of competition are coming through. We are allowing building societies, and other institutions, to get involved in banking activities and the presupposition is that the more people involved the better the service will be ultimately for the customer. That is the principle on which we are proceeding. It is time that the Minister had a look at the way in which the matrix of interest rates is drawn up by the Central Bank. If institutions can compete with each other, and the building societies after the passing of the Bill will be able to compete with the banks, then the banks and the building societies should be able to compete where they can on interest rates. As I understand the system, the reference rate is issued by the Central Bank each Friday. There is a fairly complex mechanism for drawing up the reference rate but we need not go into that. The maximum differential allowed between the reference and the prime rate is one half of 1 per cent. That is the trigger mechanism and it establishes the prime rate, which, in effect, becomes our "AAA" rate. The difference between that and the "A" rate for personal borrowing can be significant but there is an interest rate matrix applied which makes it very difficult for the bank to vary downward interest rates, for example to personal borrowers. I should like to ask the Minister to have a look at that.

I am aware that prior to 1985 each and every interest rate increase, or decrease, had to be negotiated and agreed with the Central Bank. That was not a good idea because there would have been times in term of office of all administrations where there was political pressure to time the announcement of a decrease or increase to suit the Government of the day. There were deferrals of increases and, indeed, there were deferrals of decreases or decreases brought forward. The introduction of the reference rate and the interest rate matrix was a major improvement on that system.

The arrangements introduced in 1985, and arising in the first instance from the 1971 Act, were to protect the borrower, so that the borrower would not be exploited. The borrower needed to be protected when the number of outlets was limited and there were no opportunities to shop around. If there were not price controls over interest rates a borrower in a weak position could be exploited, but if in future we are moving towards competition between the institutions it is time to look again at the way interest rates are fixed and the particular matrix of interest rates put on top of the reference rate. I suggest to the Minister that he have a look at the system that operates in the UK. There, the base rate is established and if a bank feels like it, they can lend at one half of one per cent above the base rate if they think the risk is good enough. I realise that this is a complex area but the arguments put forward by the House on the Building Societies Bill and, by extension, the Central Bank Bill, are that we are introducing a new regime where financial institutions compete for business and that the ordinary citizen can shop around but that will not be possible if there is a strong element of price fixing in interest rates. I accept that reference rates move up and down but the whole block moves up and down on the matrix. The Minister should see if a more flexible system can be introduced when it comes to the pricing of money so as to allow the benefits of competition to flow to the borrower.

A number of miscellaneous proposals are contained at the end of the Bill and I have no particular objection to them. If the Minister wants to change the coinage that is fine with me. I have no objection to a £1 coin; I have no particular love for it either but I will not be objecting to its introduction. The Minister drew attention to section 127 which empowers him to direct the closure of banks and other financial institutions or exchanges where the protection of the currency or the national interest so requires. He is introducing, in a new and more extended form, certain provisions which deal with bank holidays and that is acceptable. The general position of Fine Gael in regard to the Bill is that it is well worth while. Certain parts of it have been in gestation for between 25 and 30 years and now is an opportune time to bring them through. I appreciate the fact that the Government have decided to bring this Bill through in tandem with the Building Societies Bill because there is a cross-fertilisation. It is important that we should be able to see the two pieces of legislation side by side. We have no objection to the principle of the Bill or the principle of the different sections. However, we will be considering our position between now and Committee Stage and whether we will be tabling a long series of amendments or a few will depend to a great extent on the Minister's reply to the points I have raised.

The Bill is one of a number of Bills which have formed, by way of series, a constitution for our Central Bank. It is significant in some respects and insignificant in others.

The Progressive Democrats accept that there is need for a major reform to repair and augment the powers and functions of the Central Bank. We make one preliminary objection to this Bill, that is that it seems to lack a comprehensive character. Ireland is now entering into a single European market for capital and it is noteworthy that this Bill does not put Ireland in a position to operate as a jurisdiction in which financial services are controlled by comprehensive legislative measures. In Britain there is a comprehensive financial services code which covers everything from the point of view of investment advisers, assurance, investment companies and the like. Here we are doing a stitching and darning job and we are giving all these extra powers to the Central Bank to deal with a restricted number of areas of expansion in the financial services market. One power relates to the international Financial Services Centre on the docks. Another relates to the futures and options exchange which is about to be opened in Dublin. Another power relates to the question of control of the moneybroking business in Dublin in so far as that requires control. These are three small elements in a large financial market.

So far as I am concerned the difficulty that this Bill poses for anybody interested in legislation is that it shows we are playing with fire. This House has the advantage of seeing how legislation has been introduced in the UK to bring order and accountability into the financial service sector but there is no indication of any urgency on the part of the Government to deal with the same issues in an Irish context. What protection has an Irish investor against the occurrence in Ireland of an incident equivalent to the Barlow Clowes incident in the UK financial context? What protection has the average Irish investor in respect of representations made in advertisements and the advice given by financial advisers in respect of deployment and investment capital? We have virtually no legislation and a free for all. Although this Bill seeks to bring some coherent control to the banking sector, to moneybrokers, to the financial futures and options exchanges, there is a gaping hole in financial protection for the consumer, the investor. This measure does nothing to close that loophole. A piecemeal approach to the supervisory functions of the Central Bank will lead to a major investment scandal here from which many ordinary people both Irish and foreign will suffer substantial losses. Then the question as to why there was not in place financial services legislation will be asked. We will then want to know why there was not comprehensive legislation giving a controlling and supervisory role to a capable and competent authority to ensure that there was not an abuse of the kind which has caused so much loss to so many innocent people in a much more legislatively alert and controlled environment such as Britain.

This measure is inadequate. It is a partial solution to an obvious and growing financial danger in an integrated economic capital market. It appears that comprehensive legislation in the financial services sector will only come about in the wake of a major and costly financial collapse. The Minister should say what are his long term views in relation to total protection for the investor by way of financial services protective legislation for the consumer in the Irish context. I do not want to hear about the little bits and pieces of the jigsaw that are filled in by this legislation. I want to know what is there to protect the investor from abuse, from misleading advertisements and from the participation in the market of people whose record or propensities are so obviously unattractive as to demand protection for the innocent investor. About a year-and-a-half ago, for example, I read in The Economist magazine about a firm in Dublin offering extra-ordinarily attractive interest rates to investors in the UK. I remember at the time thinking that I had never heard of this body nor had I seen any mention of it in any economic journal in Ireland. I remember wondering why it was that such a body could come into existence and advertise from an Irish base to an English market and yet never have come to the attention of somebody who was showing active interest in the Irish financial market as I was then. Time went by. I made inquiries in the Dublin money market as to whether they had ever heard of such an organisation and they had not. Three or four months later news came through that this organisation had gone to ground and had collapsed. There was no legislative framework in Ireland to stop it, to inquire into it and to find out what it was about. In the absence of comprehensive financial services legislation which investigates competence and the capacity of individuals to handle money and their probity as far as honesty and capacity are concerned, Ireland is, in economic and capital terms, an open season for the worst elements in the European capital market to come here and advertise seeking investment funds from abroad. There is nothing in this legislation to seal that hole or to offer any protection to Irish or foreign investors from the use of Ireland as a haven for people of that kind. Anybody who sees an advertisement in a newspaper offering any particular rate of return on investments is entitled to assume that there is some regulatory agency taking an active interest in that kind of advertising and which will offer protection against abuse. There is no such jurisdiction, no such agency in Ireland. There is nobody seeking out such companies so as to protect people from abuse. There is protection in relation to the taking of deposits but in relation to advisory services and to channelling investment funds, which is an extension of the same business, there is no protection for the investor. This gap in our law is an unacceptable loophole which benefits those who are willing to exploit it and there are plenty who will do that.

On several occasions, most recently on 31 January this year, I raised in the Dáil the refusal of the Minister and his predecessor to answer questions relative to the operations of the Central Bank. On every occasion I have either had a blank refusal or an anodyne and totally bland response to the effect that the Central Bank is an independent financial institution for which the Minister is not accountable to this body and in respect of which he will not give any detailed replies. That is entirely unacceptable and I have said so as volubly as I can without causing disruption in this House. I fully accept the requirement for independence for the Central Bank. I fully accept that the Central Bank should, as the Minister suggested, be afforded a large degree of autonomy. However — and this is a point I want to reiterate as I made it on 31 January in hurried circumstances — independence and autonomy do not exclude responsibility and a measure of accountability.

Because Dáil Éireann has no worthwhile budgetary, fiscal or financial committee — which it ought to have — there is no basis for this House, which is given the role of budgetary and fiscal control watchdog, to come to grips with the policies pursued by the Central Bank or to form any real judgments about the policy options open to that bank and the implications of the choices that the board of that bank make. On the last occasion the Minister pointed out to me that, in the context of this debate, I would have an opportunity to raise many of the issues I raised in the question to him. If every ten years a Member of this House is entitled to raise in this House what policies the Central Bank are pursuing or to question the circumstances in which they carry out their various duties, or to raise the procedures whereby they are given what I believe amount to immunity from scrutiny by this Chamber, all I can say is that that is inadequate scrutiny and does not amount to an ample vindication of the people's right to know what public institutions are doing on their behalf. Were there a committee of this House which met regularly with the members of the board of the Central Bank, and kept up to date with the thinking of the Central Bank on policy issues, the policies they are following and the plans the Central Bank were making to discharge their duties, there would be an effective channel of communication without, in any sense, compromising the independence of the bank or the integrity of their decision-making powers.

I have had the opportunity over the last few days to look at the book by Moynihan on the history of the Central Bank, the book by Dr. Ronan Fanning on the history of the Department of Finance and a few other texts on the control of banking in Ireland and the history of the evolution of the Central Bank, as an institution, based on the Currency Commission established in 1927. Having looked at them as far as I can see there has never been — despite complex debates on occasion as to the possible role and the possible benefits of having a central bank — an adequate debate in this House on the accountability of the Central Bank for the discharging of its functions. I believe it is possible to have an independent institution which is entitled to look at the Oireachtas and the Government of the day, eye to eye, level pupil to level pupil, and say: we are independent; we have our own view; we will not bow the knee to you. I believe it is possible to have such a relationship based on some communication of information of an adequate nature between the two bodies, some capacity, especially on the part of this institution, to question what goes on there. It is entirely wrong that Members of this House should be left in the position, as they are very frequently, that whenever they tender any questions to any Minister arising out of the circumstances in which the Central Bank is run, they are told that this is not a matter for the Minister for Finance who, by the way, appoints and will, under this legislation, appoint the entirety of the membership of the board of the Central Bank. We are told that it is not a matter for him to account to this House for its policies. All right, I accept that it may not be his particular duty but, if it is not his duty to account for the policies of that bank, it is the bank's duty to account for its own stewardship. If this House cannot, by its laws and procedures, require an account of stewardship of an adequate kind, then there is a deficiency in our level of control.

It may be argued that the annual reports and accounts that the Central Bank furnish are an adequate response to any interest on the part of any Member of this House as to how the Central Bank is run. Frankly, that is a bogus argument. Anyone who takes a look at the Central Bank's reports will immediately recognise that they give an anodyne and completely transparent account of what has happened in the Central Bank during the year. All crises are brushed under the carpet, all thorny issues are ignored. Effectively what is told to this House is that there is nothing but good news in the accounts of the Central Bank. Those reports amount to an unilateral statement on the part of the bank which leaves Members of this House entirely in the dark on many sectoral issues affecting the bank. For instance, the annual accounts of the bank furnish this House with two figures in terms of expenditure. They tell us what is the total amount of expenditure which is divided into two categories, wage and remuneration, and total other expenditures.

No Member of this House is entitled to know, apart from that, how the moneys of the Central Bank have been expended during the year and to what extent there is good value for money in respect of those expenditures. It is simply entirely wrong that a major financial institution should be entitled to say that it has specified its own expenditure at a certain level, it has categorised it into two areas, wage and non-wage expenditure, and say to this House: that is the entirety of the information you will have as to the way in which we have expended our moneys during the year and the value the public will receive for that expenditure. That form of accounting is virtually useless.

It is a sad fact that the form of accounts which the Central Bank are obliged by statute to render to this House is prescribed by regulations of this House and that those regulations do not actually require the Central Bank to set out, in intelligible and reasonable form, a breakdown of their expenditures with a view to establishing, in the public mind, that that bank are getting good value for money.

Another example is that it was the habit of the Central Bank until, I think, about three of four years ago, to say in their annual reports how their staff were deployed. Now we are given only the aggregate number of staff employed which hovers around the 750 mark. The fact is that, up to about five years ago at any rate, it was the habit of the Central Bank to tell this House where they were deploying their staff for example, how many people were involved in the currency production unit in Sandyford; how many were involved in exchange control; how many were involved in the supervision of banking and how many were involved in other specific areas. That breakdown has ceased to be given. Why has it stopped? It was stopped because it was not statutorily prescribed for the Central Bank to tell us this information, because it became uncomfortable for the bank to continue to reveal that information to us.

I have here the latest three annual reports of the Central Bank. Anyone reading those will note that there are somewhere between 720 and 760 employees but what they are doing is entirely obscure from that report, even though five years ago at least the Central Bank did this House the courtesy of telling us how many of their complement of staff were engaged in various tasks ascribed to the particular functions this House has set for the bank.

It is a matter of importance that we should know whether the bank is over-staffing or under-staffing in specific areas. For instance, if we insist on maintaining exchange control — which is now slowly ebbing away — it is a matter of importance that we know how many people are supposed to be charged with the duty of carrying out the delegated powers of the Minister for Finance to the Central Bank in respect of exchange control. It is worth while noting that this House has not been told for three, four or five years how many people are carrying out that function at present and, in view of recent developments in relation to Central Bank policy and Government exchange control regulations, how many people will be released from that area to work in others, such as supervision of the building societies, supervision of the International Financial Services Centre in the Custom House Docks area, and control of the moneybroking business and the futures and options exchanges. We simply do not know.

We have delegated all these functions, at arms length, to an institution. We are not even in a position to ask to what extent and in what way that institution is complying with the duty we have laid on them. That is completely wrong. For some unknown reason that information has been excised from recent reports so that no one on the outside is aware of the way in which the bank's staff are deployed among the various duties required to be performed by the bank. As a result, no one can form any judgment as to the efficiency and performance of each aspect of the bank's duties. We must be satisfied with a global, utterly uninformative, assurance from the board of the bank that all is well every year. I am not prepared to accept that and I do not think I would be correct in doing so.

With the scaling down of exchange control one might well ask how the resource of the bank should be redeployed to take account of their new duties, especially vis-á-vis the building societies, companies in the International Financial Services Centre, moneybrokers and the control and supervision of futures and options exchanges. One might ask these questions but the simple fact is that, as long as ministerial policy continues as it is now, no answer is forthcoming either in the bank reports or from the Minister who, though he appoints the entire board, refuses to answer to this House for any of their detailed policy decisions or for their performance.

A recent example which caused me some considerable disquiet is the operation of the bank's currency centre in Sandyford. The bank has a large facility there with industrial relations problems relating to the redeployment of new technology. I am left with no answer when I ask the Minister's predecessor about the costs of currency production at Sandyford. Is that facility necessary? Is it necessary that Ireland should produce its own coins and notes? What is the vital national interest that that be carried on in this country? Or is that facility carrying our work for any foreign countries? Is it possible that if we have a secure institution of that kind, and it is necessary for our own interests to have it here in this country, that it could carry out for international bodies, foreign countries and the like, the same functions in relation to security printing? Are we getting value for money? Who knows? Who in this House knows what the industrial relations problems which have come to the fore recently in the newspapers in relation to new technology actually mask? Is this the tip of an iceberg? Are we actually running a mint in circumstances where the same could have been done, as it was at one stage by Thomas De La Rue and Company, for much smaller outlay in terms of capital on the basis that their facilities were available to a number of individual countries and not simply to Ireland? Could that institution be earning us valuable foreign export orders?

All these are questions which arise but what is known is that upwards of 100 staff — when we last found out how many people were up there it was somewhere between 100 and 150 people — are engaged in the production of currency in Sandyford and its checking and so on, and we do not know to this day whether they are necessary, how much they cost us as an economy, whether this work could be done more efficiently by others and whether they could be working for foreign banks which do not have their own currency production units. We simply do not know any of these things because the Minister and his predecessor have refused to answer any detailed questions on the activities of the Central Bank.

I can appreciate that there may be good reasons security matters should not be discussed in this House but I do want to know why it is necessary that this country should engage in what is, on the face of it, a difficult area of technology, fraught with industrial relations problems, and does so without any indication as to whether it is necessary or good value for money so far as our taxpayers are concerned. So far as this House is concerned the Members simply do not know and, what is more, nobody will tell them the answers to these questions.

The upshot of all this lack of accountability and obscurity in relation to the activities of the bank is that it is not merely given autonomy and independence but immunity from examination. On 31 January the Minister, somewhat disingenuously I have to suggest to him, suggested that because the accounts of the Central Bank are examined by the Comptroller and Auditor General nobody should suggest that there is anything amiss. Of course he is right in the sense that there is an audit in process which is supposed to uncover any misappropriation of funds but let us stitch this into the record with the greatest of respect to the Minister: his answer shows just how little real accountability and responsibility there is. The Comptroller and Auditor General has many functions but he has no function in reporting to this House as to whether he believes that the staff costs in the Central Bank are excessive or that the staff is badly deployed, and still less has he any function in determining whether the bank's reserves are adequate, inadequate or more than adequate to carry out its duties. If, as I suspect, the bank's reserves are greatly in excess of the actual need for such reserves, there is a strong argument to be made for the liquidating of some of those reserves and their restoration to the Exchequer for the purpose of reducing national indebtedness and consequently reducing interest liability on the part of the Exchequer.

Nobody explains to this House the policies by which the level of Central Bank reserves is determined. There is an independent board who at the end of any given year, having decided on what the bank's operating costs are, including staff and non staff items, and having decided what amount it wants to put into its reserves, decide by a process of elimination, what is its surplus that is available to the Exchequer. We rely on their good faith, and perhaps rightly so in some respect, that that is the best value the Exchequer can receive from the Central Bank but I doubt it. In any institution which has as long a history as that, unless there is strong parliamentary pressure to indicate performance ratios, to indicate targets, to indicate a justification for every reserve that is built up and the level of such reserves, there is bound to be a laxity to the disfavour and to the detriment of the ordinary taxpayer as proprietors of the Exchequer of this country.

Again, there is no basis on which the amount of the reserve is explained or the policy decisions which underlie the maintenance of reserves are examined with a view to determining whether they are correct or incorrect. Nobody knows why the levels of reserves are fixed as they are and nobody who cares to look at any of the reports and accounts which are furnished to the Members of this House can divine precisely what process of intellectual rationalisation has led to the particular level of reserves which have been fixed for the year in question.

All of this is of significance to the taxpayer because the amount of money which the bank each year gives back to the Exchequer by way of Central Bank surplus varies directly in accordance with certain decisions made by the board of the bank in relation first to the expenditure of the bank on its staff, second to the expenditure of the bank on other matters, and third on the provision for reserves. Every Central Bank decision affects the taxpayer directly and whereas no one is suggesting that the Central Bank should become the pawn of Government or the Department of Finance, or be directly controlled by the Government of the day in respect of the funds at its disposal, there is a halfway house which is not only reasonable but, I would argue, essential. That is, the position of accountability and consultation among equals, not domination by one body of the State over the other but a relationship of equals and understanding. That is a principle which is entirely lacking in the practice and legislation which governs the activities of the Central Bank at this time.

I notice, looking back over the records of the Central Bank's history, that the Labour Party have on occasion demanded Government control over the bank in terms of policy. That is a view with which I disagree. I must say also that I think the present situation of immunity, which is not independence, autonomy, responsibility or accountability, but is simply immunity from challenge, is indefensible and wrong in principle and probably is working to the detriment of the Irish taxpayer and the economy in general.

All of that feature of the Central Bank would be bad enough were it not that the Government now plans to worsen considerably the situation because it is noteworthy that section 1 of the Central Bank Act, 1942 required the Governor, every director and every officer of the bank to take an oath before a peace commissioner before taking office or on doing so, swearing not to disclose any information relative to the business or records or books of any bank which might come into their possession in their capacity as a Governor, director or officer, as the case might be, save in circumstances where such disclosure was authorised by Statute. That is a very simple thing. Here is a regulatory agency which had an investigative function. It had the right to ask any bank to disclose to them their records, to require of any bank a considerable degree of information and the State, as a compensatory safeguard for those individual banks, required each and every person who came into possession of that information to take an oath of secrecy in relation to it on the basis that the Central Bank was a regulatory agency and that such information was only available to it by virtue of its regulatory function. Unfortunately, this Bill has a dramatically different approach to the same issue. The new Bill proposed to fundamentally alter the manner in which the Central Bank operates as regards disclosure.

The 1942 Act applied only to information relating to other banks. Section 15 (1) of this Bill creates a prohibition of a very wide-reaching and deep kind on the disclosure of any information relative to the business of the bank which comes to the knowledge of not only the directors, the governor or the officers but also the servants or agents of the bank in relation to any matter concerning the business of the bank. A criminal offence is now being created for disclosure of such information to any third party. I ask why this is needed. Why is there suddenly a requirement that any information, no matter how trivial, which comes into the knowledge of any servant, officer, director or governor of the Central Bank, may not be disclosed except in the circumstances set out in section 15 (2) of the proposed Bill?

Section 15 (2) does not allow, for instance, a governor, a director or an officer of the Central Bank to come to any Member of this House and disclose information relating to the business of the Central Bank which might reveal, for instance, gross inefficiencies, errors of judgment or the like. None of the circumstances set out in section 15 (2) permits a person in the Central Bank who is privy to information which could greatly affect the future running of the bank to come to a person such as a Member of this House with that information with a view to improving the way the bank is run. The exceptional circumstances surrounding the absolute ban on disclosure of any information are set out in section 15 (1).

The ban on the disclosure of information set out in section 15(2) relates to information comprising the disclosure "required by the Court"; "with the consent" of the person to whom the information relates"— which probably would not affect a major blunder in the Central Bank; "where the bank is acting... in the capacity of an agent for a person, made to the person in respect of that capacity"— that is irrelevant too; "where the bank considers it necessary for the common good"— that is a laugh, because if the bank has made a colossal blunder and the majority of the board are responsible for that blunder, we will not hear about it because they will not consider it necessary for the common good and it has to be the bank rather than the individual person in question which is at stake; where the disclosure is "made to an authority in a foreign jurisdiction duly authorised to exercise functions in that jurisdiction"— that is irrelevant; where it is "made to any institution of the European Communities for the purpose of the State's membership of any of those Communities," or, lastly, "which in the opinion of the Bank, is necessary for the protection of depositors." If this Bill is passed in its present form in no circumstances can a director of the bank come to a Member of this House and say: "Are you aware that the bank has been pursuing an erroneous, loss-making or damaging policy for the last three months and has suffered badly as a consequence? I want to reveal that to you so that you will raise this matter in public and something will be done about it".

This Bill makes such a person not simply a person who must lose his job, not simply a person who may be criminally liable, but a person who is a traitor to his institution. That is wrong. There is no basis why it should be so. Why should there be a cloak of secrecy around the Central Bank with a view to deciding that information in the hands of officers, governors, directors or servants of that bank should never be disclosed except in the entirely restrictive set of circumstances set out in section 15 (2) of this Bill? That is wrong. It is not merely a replacement for the provision that was set out in the 1942 Act which related to disclosing information which was got from subordinate bodies and which they were only entitled to in that capacity; it is trying to drag around the Central Bank a new cloak of secrecy, an Official Secrets Act, which will make the bank more impenetrable.

For instance, I will not be able, on any financial occasion such as the launch of the new magazine, to talk to any officer, director, servant, agent or the governor of the Central Bank in manner that will allow him to disclose any information about the business of the bank. For my sins, I am Finance spokesman of one of the parties in this House. If I and Deputy Noonan are to be excluded from hearing, bona fide from the lips of a director of the Central Bank about any matters dealing with the business of that bank on pain of him and us committing a criminal offence, there is something seriously wrong with the legislation. It should not be accepted in its present form and it is probably unconstitutional. Why should there be such a cloak of secrecy dragged around the operations of the Central Bank, around policy issues and errors that are made inside the Central Bank? It is wrong in principle; it would be wrong in practice and it would only compound the problem which I have spoken about earlier, that is, the lack of accountability of the Central Bank.

As I have said, this measure will apply in particular to a director who believes there is something of importance which ought to be disclosed to Members of this House in relation to the bank's affairs or to the policies being pursued by the bank. To say he is prohibited from disclosing such information unless the majority of the board agree, is a gross invasion of his dignity as a member of the board of the bank and goes too far in creating an unnecessary aura of secrecy about this institution. I can see good reasons why there should be, in certain respects, an obligation of secrecy — there could be profits to be made or information which is sensitive and damaging to institutions would come to the knowledge of such people — but section 15 as drafted at present is absolutely excessive and wrong in principle.

As I have said before and I repeat, the accounts of the bank which are regularly put before this House and whose contents are regulated by statutory instrument are completely inadequate. You could study those accounts until you are blue in the face but you could form no judgment as to whether the taxpayer is getting value for money from that institution. There is no performance target information available in those accounts. There is no basis on which anybody, no matter how clever, who examines those accounts could arrive at the view that the Central Bank is delivering value to the consumer. The mere fact that the form of the accounts is decided by this institution is a slight indictment of the Dáil because it is done by statutory instrument and this House is entitled only to such accounts as it is willing to accept. The Minister should require the bank to give full and proper accounts from which any interested and intelligent Member of this House could deduce whether the bank is being properly, adequately, efficiently and tightly run — I use the phrase "tightly run" because, like any other institution, it is not immune from the winds of change or from the economies which the rest of us have had to make in our various capacities. The Central Bank must be subject to the same controls and the same ethics that it seems so often to preach in its financial commentaries to the rest of the economy.

Would the Central Bank accept for one minute that there should be a Department of State whose affairs and expenditure are not subject to any scrutiny? It would not. What is sauce for the goose is sauce for the gander. If the Central Bank wants to remain independent, the very least it can do is to demonstrate by way of proof positive that it is doing a good job with the resources and the moneys over which it has control and, moreover, that it is doing an economical job in relation to the reserves that are given to it. So long as the Central Bank purports to lecture others on what they must do in relation to belt tightening controls and at the same time insist that its own independence requires not merely that it not be questioned but that it be entirely immune from any investigative procedure, apart from the Comptroller and Auditor General's cursory but detailed examination for the purposes of seeing that there was no misappropriation, its position is untenable and indefensible in many respects. Such an approach would not compromise the independence of the bank but on the contrary would ensure that the ordinary citizen and the taxpayer would have protection for his ultimate interests, both in the way the bank is run and as to what happens to the funds at the Bank's disposal.

There are many detailed provisions in this Bill in respect of which we have queries and in respect of which we intend to table amendments. The Progressive Democrats are determined to ensure that this opportunity, which is a ten yearly opportunity at best, will not pass without using the legislative process to the full to ensure that the public's right to know, that the principle of value for money and the principles of accountability are firmly entrenched in the legislation relating to the Central Bank and that the ethics which that institution preaches to others apply equally, and by operation of law, to itself.

A number of points arise out of the text of the Bill. I do not want, because this is only the Second Stage, to go into the detail of the Bill. One point that occurs to me in the context of the Building Societies Bill is that since 1981 the Central Bank has held unto itself the right to determine, by way of veto, the number of branches that any individual bank can operate. At that stage it was the view of the Central Bank that there was an over-emphasis on branches, on the structures of the various associated banks, and that as a consequence the consumer was losing out.

If the Central Bank purports to take on a supervisory role in relation to building societies I want that clearly entrenched either in this Bill or in the Building Societies Bill. Since both Bills are being debated at the same time I hope I am not straying from one to the other illicitly so far as the procedure of this House is concerned. I want it clearly stated that the Central Bank can say to any building society: "You may not spend more than a certain percentage or your funds or a certain ratio of your assets or whatever —however it is determined, I do not care —on advertising. You may not fly people in jumbo jets to Las Vegas to see boxing matches which you have sponsored. You may not erect, at any expense, branch offices where you want them and as you want them in every rural town and every urban suburb".

If there is any good reason for the 1981 stricture on the Associated Banks in relation to their expenditure on the opening of branches and the problems that creates from the point of view of keeping costs down, the same applies a thousand-fold to the building societies. It applies especially to building societies because the shares, to a large extent, in the Associated Banks are owned by financial institutions who look to those shares and the money they get out of them with a view to seeing what dividend they get in return. I am sure that 95 per cent of the Members of this House are shareholders in building societies in one way or another. How many of us exercise any function whatsoever or have any interest in the amount of money that is spent by the board of that building society on promotional activities, advertising activities, management expenses, administration, buildings and the appurtenances of those building societies? I believe there is no pressure from within those building societies for control in those areas. Although the Central Bank has functions of this kind in relation to ordinary associated banks it should be explicitly stated in the legislation that it has the same functions in relation to the building societies. It may be implicit and the Minister may be so advised but I have grave doubts as to whether it is. When I look at the legislation that existed in 1981 I have grave doubts as to whether it was open to the Central Bank to start directing the banks under its control at that time that they must apply for permission before opening an extra branch. I have doubts as to whether such general prohibitions or regulations were intra vires the Central Bank then. I would want explicit authority in that regard if such proposals were to be included in future legislation.

I have objected as strongly as I can to the terms of section 15 because I think it is a mistake. Section 18 will require substantial amendment. For instance, the Minister the other day was telling me about his shared misgivings with me about the Revenue Commissioners' failure to furnish adequate reports within an adequate time for their annual doings on our behalf. Section 18 gives the Central Bank six months to prepare its annual report. Why should we put up with this sloppy, laid back attitude to reporting requirements? If there is something wrong let us find out two months after the year is ended. Why should section 18 give them six months in which to dilly and dally and procrastinate in relation to telling us the bad news or the mistakes they have made in the previous year? Section 18 should be amended to provide that the accounts and records of the bank and the annual reports furnished by the bank should have specific items: (i) clear indications as to how staff are deployed and (ii) clear indications of the relative costs of each of the bank's activities. I refer in particular to the cost of currency production so that we can see what that particular enterprise in Sandyford is costing the taxpayer and can make our judgment as to whether it is necessary or desirable to maintain it on foot of such information.

I welcome the winding up of the legal tender note fund and the transfer of its assets to the general fund of the bank. It is about time we left the era of the currency commission and came into the 20th century.

Section 26 is doubtful in that it requires the holder of licences — in other words licensed banks — to notify the bank of all charges imposed by such holder in relation to the provision of any service to the public or any class of the public. I know that is intended in good faith but a requirement and notification of that kind will lead to an approximation rather than price competition among the various licensed banks in relation to the services they provide.

In relation to section 28 I note that investment trust companies are not included and I would ask the Minister to explain the reason for that.

I agree with the proposition that auditors appointed to a licensed bank should have an obligation to the world at large as opposed to their individual client and should have the duties and immunities conferred on them by the sections of the Bill up to 44. There should be a method of excluding certain persons from acting as auditors in the company. In relation to section 82, I would ask the Minister to accept that that section is very restrictive. It allows only for an appeal to the courts against a refusal of the Bank of its consent to a particular set of circumstances on the basis of a point of law. A reasonableness criterion should be entered into also. It should not be simply on the basis that something was not legally capable of being done by the Central Bank but also that in arriving at its decision the bank had acted unreasonably.

I do not see the necessity for section 82 (6) which prohibits any appeal from the decision of the High Court, in relation to a point of law on the part of an application dealt with under section 82 to the Supreme Court. I am against any restriction on a right to appeal from one judge to five judges unless there is a clear, coherent and necessary reason for so doing. If I appealed to the High Court on a point of law and felt I got a raw deal, I would look askance at a statute which said: "there is a Supreme Court there to deal with errors of law by the High Court, consisting of five members, whose function is to reconsider decisions of law by the High Court but you, by statute, have been precluded from appealing to it for no reason whatever". I should like to know why there should be no appeal to the Supreme Court under that section.

The Deputy is speaking as a lawyer.

I am not speaking just as a lawyer. In relation to the financial institutions for the International Financial Services Centre, I support the idea that the Central Bank should exercise a control over these institutions, but Part VII of the Bill, and in particular section 87, is of such a kind effectively as to be making up the law as we go along. The effect of section 87 is to allow the Minister and the bank to make up the law relative to bodies located in the Financial Services Centre as they go along and as they think desirable.

We have been rapped over the knuckles once this year by the courts for delegating in an impermissible manner legislative authority to bodies other than this Chamber. Rather than have the Minister apply laws as he considers fit to what happens in that centre, I would like legislators to take responsibility for what happens in relation to that centre and at the very least for the Minister, when he makes an order under that section, to require the consent of the Dáil to the making of such an order. This section says that we as a legislature can delegate to the Minister, after consulting the bank or any other Minister he wants to consult, the right to apply any law he likes of a financial kind to the bodies operating in that centre, to such an extent as he likes, and with such exception as he likes. That effectively is making him into a one man legislature, and I am against that as a proposition.

The establishment of self-regulatory bodies under section 90 — I will not go into much detail on the section because we will have another day to do that — is not set out in such a manner as will give any such self-regulatory body teeth as far as individual members are concerned. The Minister could have done a better job on section 90 than he has done. I appreciate that he is working under time constraints, but this is a very thin skim of margarine on a piece of legislative bread.

I want to deal with the breaking of rules set out in section 103 of the Bill. I want to point out to the Minister — and I am wearing my lawyer's wig for a moment — that unless there is a system of providing what are the rules, and presumptions in relation to what are the rules that people are supposed to have exchanged, and a system of evidential requirements and evidential rules in relation to what rules actually are, that section will never be applied because a lawyer one day out of Kings Inns, could run a coach and four through it if it still exists when this legislation comes into operation.

I have a few queries to make of the Minister in relation to moneybrokers. Moneybroking involves a person carrying on a moneybroking business. A moneybroking business involves a certain set of transactions between any two or more persons who are holders of a licence under section 9 of the 1971 Act — in other words, licensed banks, a building society or a financial institution — and moneybroking shall be construed accordingly. I believe there should be a wider definition of moneybroking. It is important that as the moneymarket develops corporate institutions are attracted into it and moneybroking transactions should not have a restricted meaning. I appreciate that by orders under section 105 it is possible to extend the meaning of a moneybroking transaction, but again I think that is a very loose and inadequate mechanism for setting out what the law is.

There are provisions in this Bill relating to the Bankers' Books Evidence Act. I have prosecuted cases for the poor benighted people who have been unfortunate enough to have me as their counsel, and I can tell the House that the Bankers' Books Evidence Act is a mess. To prove that bank records are accurate and to make them admissible under this Act is quite difficult. If the Legislature is looking again at the Bankers' Books Evidence Act, I hope the DPP's office will be consulted to enable a reasonable number of amendments to be made to this Bill so as to change that Act and make it easy to prove banking transactions in court cases. I have seen cases —and I am not speaking out of court or out of turn — where the difficulty of proving financial transactions in accordance with Irish laws of evidence has allowed guilty people to go free. If the Minister is amending any provisions of that Act, it is about time that records of financial transactions, not simply bankers' books evidence but every form of financial record, are made easily provable in court cases with a view to securing convictions of people who are committing offences. I can only assure the Minister that it is very easy to exclude evidence under that Statute which is now 110 years old, even as amended, and makes it impossible to prove in courts of law the substance of quite serious financial crimes. If we are going to interfere with that Act, I believe now is the time to take on that issue.

It is necessary that the law in relation to the Central Bank be changed but it is not necessary, looking at the history of the Central Bank, that we should merely add another tottering tier to a wedding cake. The Central Bank emerged from the Currency Commission. It went through the 1942 process and the next major milestone in its legislative career was during 1971. The Central Bank is entering a period of huge expansion of its functions in 1989, but it still remains a body which I believe is immune from the ordinary rigours of accountability and responsibility. It is up to this House to accord it a degree of independence and respect which is commensurate with the importance of the work it does. In order to achieve that it is not necessary for this House to wash its hands of responsibility or allow its Ministers to simply say that this is an independent body over which they have no control when they appoint the entire board. The reports of the Central Bank are never debated in this House — I do not know when they are debated but they are used on occasion — and its accounts are never debated or examined in depth by this House, and it is not enough to have them submitted annually and left lying in the Library of this House.

It all persuades me that if we are serious about exercising the supervisory functions which we nominally give ourselves in so many Acts of requiring people to report to us, this House must galvanise itself, at least sufficiently to respond to those reports, to examine them and to have a committee or institution of this House of some kind who actually address their collective brains, such as they may be, to the substance of those reports, who would call in the Governor of the Central Bank and say that they have been presented with this report and that the committee have or have not said X or Y and want to know what is and what is not implicit in the report and want it accounted for. That does not demean those bodies.

One experience that you get as a lawyer in dealing with civil servants is that when a civil servant goes to court and is put into the witness box and a Bible is put in his hand, it is as if it were a stone rolled over in a field. There is a scurry for cover. There is a feeling that here is that civil servant being subjected to the cold light of day. I do not know why they are so afraid of these bewigged gentlemen, but they are. Accountability may suddenly attach to an individual. This is endemic in Irish society and is probably our greatest fault, this lack of accountability and responsibility, lack of an innate capacity on behalf of those whom we employ to man our institutions to say "That is the decision that I took and I have to stand over it and accept the blame".

The Central Bank is independent; it must be independent, it must be able to tell the Government that they are wrong; it must be able to tell the people at large that the Government are pursuing unwise policies; it must be able to control the banks on an independent and non-political basis. All those things are true, but it must also be capable of looking the public straight in the eye and saying: "We as a financial institution on our own account are delivering good value for money. We are managing our own stewardship properly. We will on occasions subject ourselves to a few questions being put in our direction".

If the Minister technically — and I presume that he is correct technically because I never challenge the Chair unduly in this House — chooses to hide behind the proposition that this is a separate institution for which, although he elects its directors he is not personally responsible, fine, that is his business. However, the institution itself is making important decisions and does so from day to day and will, as all this corpus of legislation comes into being, make more and more important decisions. Every time it makes such a decision somebody is accountable for that decision. What I see in my short experience in this House is that nobody is willing to be responsible although he is in theory accountable for the decisions that he makes. That worries me. The Central Bank are being given a watchdog function. They are being given control over the banking system. They are being given the power to close banks, to revoke licences, to close building societies, to suspend their activities. They are being given huge powers to protect the public interest, and they are probably all necessary powers.

There will undoubtedly be, as there have been in the case of the insurance world and the Department of Industry and Commerce, occasions when there is immense pressure on the Central Bank to disregard breaches of its guidelines, not to act because of the consequences for the integrity of our economy or our financial solvency in any particular area. But the deciding power and the buck, in colloquial terms, will always stop on the board table of the Central Bank. I am saying that this Bill, combined with all the other Central Bank Acts and amendment Bills and the Currency Act of 1927, does not do what is necessary, that is, to establish the Central Bank as a body which has public accountability and responsibility and which carries them out in any form other than under these documents. These are great for students, for macro-economists who are happy to look at various ratios and the like. They do not tell somebody who is responsible, as Members of this House are, and to whom the Central Bank are accountable, what actually has been decided in any given year, what options were open and what options were acted on in one way or another and how the public interests were affected.

The more we complicate the Central Bank, the more important we make it the easier it is to confuse immunity with independence, to confuse irresponsibility with autonomy. Although I welcome this Bill — and we are not going to call votes on Second Stage of it——

You are on your own, Deputy Mick.

——this is the opportunity for this House completely to reconstruct——

We could beat you two to one.

——the facet of the Central Bank's relationship with the State, which is at the moment most unsatisfactory. I believe in the future, when there is one major financial collapse or one failure on the part of the Central Bank to exercise its functions, it will give rise to huge reverberations. At that stage this House will have no moral authority to say to the Central Bank: "You made a mistake. You are responsible". We never insisted on our right to know what was happening or to insist that the Central Bank account for its stewardship.

With those remarks I will indicate that the Progressive Democrats support the passage of the Bill, at least as far as Committee Stage, when we will be putting down amendments.

My timely arrival will, I hope, enable me to make a few remarks on this subject. There are several points that I should like to make on the Bill. One relates to a matter probably not very prominent in the Minister's mind, that is to that section of the Bill which deals with the retention of papers by the Central Bank. It purports to annul, as far as I can see, the effect of the Act passed by the last Dáil with regard to national archives so far as the Central Bank is concerned. It seems to say that any previous enactment of the Oireachtas requiring them to retain documents for more than six years is repealed. It may be that this was proposed and brought in without much thought about the national archival aspect, but some matter of convenience of not having any room in that vast building for retention of papers may have lain behind it. I should like the Minister to reconsider the point. Both Houses concurred in that legislation and as an ad misericordiam plea vis-à-vis the Minister, it is the only piece of legislation that I actually succeeded in bringing in myself as Taoiseach in the last Dáil, so I shall be sad to see part of it disappearing in these circumstances. I should like the Minister to have a look at that.

There are other points that I want to make. I am concerned about the deposit insurance proposal from several points of view. I do not know whether the full implications of this have been considered. I fear that the effect of enacting this may be quite unintentionally to divert the depositors towards less secure investments. The effect of this is to apply, as far as I can see from the Bill a standard premium for what is called "insurance", to be paid by all the different deposit taking institutions of 0.2 per cent of their deposits, I think. The exact figure escapes me, but it is a small percentage. This would apply to all institutions regardless of what degree of risk is involved. Whatever this is, it is not insurance. It is a mistake to describe it as that. The fact is, of course, that there are different risks attaching in different cases.

Let us take on the one hand the large, established institutions such as the associated banks. It is true that in my last term of office as Taoiseach it transpired in unusual circumstances that a problem existed in respect of one of these institutions, a problem which we dealt with very speedily and rectified. However, the action that we took — and I shall come back to the reasons for this later, I do not think that it is an action at which the Minister would demur — was motivated by considerations that went far beyond the question of the interest of depositors or shareholders. What was at stake would have been so serious for the economy, putting at risk other banks and our currency, that the Government had no alternative but to take the action they did. In proportion to our size, our two major banks are very large indeed compared to what might be called a large institution in absolute terms in the United States, that would control a much smaller proportion of total banking there.

A very large institution is in a position where, in practice, the public authorities cannot allow it to fail. Not alone in those cases are the depositors protected by virtue of the public interest, but in practice so, largely, are the shareholders. People may argue the merits of that. It is not entirely satisfactory that there are shareholders in a business in which the State cannot afford to let the shareholders lose out.

In the United States if a small institution fails, the depositors are protected under their insurance schemes but the shareholders are not and therefore lose out. In the case of a large institution, intervention takes place by the Federal Reserve Bank, designed to ensure that the institution does not disappear. It is taken over by somebody else. The shareholders may not do as well as they might have done, but normally the takeovers are such that the shareholders are not seriously adversely affected, the reason being that the impact, even in the United States economy, of the failure of a large institution would be such that it could not be accepted.

De facto deposits in large institutions here are secure for reasons that go beyond the narrow interests of the institutions concerned, yet it is proposed to impose the same levy on those institutions as on ones which may be less secure. That money in practice can only be put towards salvaging the depositors in smaller institutions. Insurance is normally related to risk. That does not seem very sensible. The Minister may say that it does not matter very much because the sums are small, but there is a little more to it than that.

The existence of deposit insurance will tend to have the effect of encouraging people to put their deposits in less secure institutions. Institutions which are involved in higher risk activity designed to earn higher profits can afford to pay higher deposit interest. Looking at the different rates offered by various institutions, some depositors decide to take the risk because they want a higher deposit interest. That is fair enough. That is how the market system operates. It is now proposed effectively to insulate the depositors against almost all the risks, except in certain peculiar circumstances, if I understood the mathematical formulae in the Bill correctly — and I may not since I have never been much good at mathematics, as distinct from arithmetic. It seems that normally the depositors will be assured of protection in respect of two-thirds or more of their deposits. They will, therefore, be more inclined to go for the institutions offering the higher rates and those institutions will be more inclined to engage in more high risk activity in order to sustain those rates. There will be a widening of margins and a distortion of activity in favour of high risk institutions as against the more secure ones. That does not seem to be a good idea.

This is happening because the regulatory mechanisms in operation are not, in the Minister's view, such as to offer the necessary protection to the depositor. In other words, the Central Bank, as at present operating with the existing staff, are not in a position to monitor the activities of these institutions sufficiently well to be satisfied that they will not go under, as the Irish Trust Bank and another merchant banking institution went under. It does not seem satisfactory that the Central Bank, in a small country like this with a limited number of institutions, should feel so unable to monitor them adequately that they have to introduce a system of protecting depositors which will effect a distortion in favour of high risk institutions, encourage them to take more risks and encourage depositors to put their money in a more risky area than in the more secure ones. That does not make good economic sense.

I do not suppose my remarks will divert the Minister from his intention to introduce the scheme but in this House we should at least debate the merits of the proposal and not allow it to be put into effect without further consideration. The Minister will probably be disinclined to accept the idea of having different premiums paid by different institutions as being invidious as between them, perhaps highlighting areas of risk by charging higher premiums for some and identifying them as being more risky. That is what he should do in economic terms. I would ask him to reflect on this point, which may already have been drawn to his attention. I may be preaching, if not to the converted, at least to somebody who has already been alerted to the points I am making. He may have taken a rational decision to ignore the considerations I am putting forward and, having decided in favour of deposit insurance, he may have taken the rational decision not to discriminate in terms of the premium, but if these issues have not been fully debated in Government — I know from my own experience that not every issue is debated fully in Government — I suggest that the Minister should at least reflect on the points I am making.

I said earlier in relation to the particular financial institution which experienced difficulties when we were in office that it was baled out and that no Government could have allowed such an institution to go under. I refer once again to that case because it was not satisfactory. People will recall that the institution took over an insurance company, the record of which had been inadequately investigated and which turned out to be in a state of incipient insolvency to such a degree that the bank, despite its size, could not carry the costs and risks involved. The Government were approached and it transpired that the bank felt itself to be at risk. Why? After all, it had its own shareholders' capital and it is required by the Central Bank to have primary and secondary liquidity.

In this country, the secondary liquidity requirements relate more to the Government's need for support for gilts by the banks than anything else. Banks here are in those terms more secure than elsewhere because of our secondary liquidity requirements. Why, then was there a problem in this case? The problem arose because of the fact that banks had been permitted to count as part of their equity base FRNs, loans from other banks of a particular and unusual kind. These are loans which are given on condition that if the bank to which the money is lent or any subsidiary, no matter how small, becomes insolvent the loans in question can be withdrawn overnight. I had to plead ignorance. I was unaware that a significant part of our banking capital took that form until this case occurred.

I had not studied banking in detail since the mid-sixties when I undertook a study of the banking system in considerable detail, at a time when the bank's profits and reserves were hidden, with a view to identifying what they were. I was reasonably successful. I identified the position as being that in 1958 their profits had been 2.75 times the figure disclosed, falling to twice in 1964. When they were disclosed in 1966, they were 1.75 times, which was right on my trend line. It was an interesting study.

I have not had anything much to do with banking since then except as an ordinary individual with an ordinary overdraft. I was unaware of this feature of the banks. I was very taken aback that the banking system had so evolved under the authority of the Central Bank — that this additional risk element was introduced without any public awareness of it and without the knowledge of members of the Government. Perhaps it was with the knowledge of people in the Department of Finance, but it never happened to come to our attention.

It was a very serious development that the system had evolved so that part of the alleged capital of the bank was an insecure loan which could be withdrawn at a moment's notice in the event of any subsidiary of the bank becoming insolvent, thereby putting that bank at such risk that it had to call on the Government and the Central Bank to intervene to save the banking system from danger of default.

Since that time — not necessarily because of that — the Bank of England have been pursuing the question of the adequacy of banking capital provisions. I should like the Minister to tell us whether the provision which put at risk a major Irish bank — and our whole banking and currency system at that time — has since been reviewed. Can he assure me that the risks which then existed, including the operational risk, have been modified perhaps in pursuance of what the Bank of England have been doing worldwide, not just in England, but in relation to other banking systems? I should like an assurance that this has been dealt with.

In our time in Government it was not possible to pursue the matter much further but we took the necessary and immediate action to save the system. Then, after an interval when there was no risk to the credibility of the bank or the banking system, we arranged with the Central Bank to arrange with that bank, and to some degree with others, to finance retrospectively at no cost to the taxpayer, the provision that had to be made in that emergency so that no burden fell on the taxpayer. We were not able to convince people of that fact because at the time this happened we could not make provision to require that bank — and others to a lesser degree — to provide the necessary resources without putting in doubt immediately the very thing we tried to secure — that the bank and the system were safe.

We were not able to defend ourselves against attack, some of which came from the Opposition benches but more generally in the press and media, that we were bailing out a bank with Government money. In fact, because of the steps we took in pursuance of reaching a decision at the time, after an appropriate interval we ensured that the taxpayer did not have to pay anything and the bank itself, over time, through the Central Bank and other banks to a lesser degree, would finance the rescue operation. I should like a clear statement regarding FRNs. We do not want that to happen ever again. I should also like an assurance that this matter has been resolved, and that steps have been taken to ensure that this will never happen again.

It is appropriate to raise that matter because it has a bearing on the other point I wish to make about deposit insurance. On that occasion we found — and this Government would have done the same — that we had no alternative but to take the action we did. It was not open to us by any mechanism that could be devised, at short notice in any event, to take action that would not put at risk the whole system or to allow the burden to fall on the shareholders. Therefore, the shareholders in these large banks are very privileged indeed and, in view of the privilege they enjoy, it is a matter for the State to consider how they will deal with the banking system or parts of it. While that might be a reason for looking on these large institutions a bit differently from smaller ones, it is not a good enough reason to operate a deposit insurance system of a kind which at the margin will encourage people to go for the high interest rates.

There is a problem in this country — perhaps everywhere — that when people see high interest rates offered they are tempted by them. All my life, I have taken the view that if any interest rate is higher in one place than another there is usually a bad reason for it. I am more than willing to be told I am wrong and I would be the first to chance it — if I had any money to put into something at the higher rate if I thought it was secure. The first time this happened to me was a very long time ago when my wife suggested she put a little money into Shanahan's Stamp auctions. I told her not to do so until I had checked it out as the interest rate was so high I thought there must have been something wrong. It collapsed a few weeks later and I have operated that principle since then.

Having said that, of course the marginal differences in interest rates between deposit taking institutions as published in The Irish Times every Monday are differences between banks which, in the ordinary way, are secure. Some of them operate in a slightly different way from others and there are marginally different interest rates; I am not suggesting that when they are slightly higher there is any real insecurity. However, there is slightly less security in most cases where higher rates are paid. Beyond a certain point that could become insecurity.

The deposit insurance system will encourage those banks, by virtue of the additional money that people put into them, knowing now that their deposits are safe, to offer higher interest rates because people are now insured for at least two-thirds of the amount by the State. That is unwise because it has operated badly in the United States and has been a significant contributory factor to the failure of banking institutions in the US according to quite a number of observers of the banking system there. Before we introduce a flat rate premium, we should reflect on the American experience and on whether we want to encourage people along these lines.

If we had a very sophisticated body of depositors who knew the risks involved in higher interest rates and were willing to take them, that would be all right but, given the reaction of depositors in the institutions which have failed, it is obvious that they do not think in those terms. They believe that any institution operating here on the authority of the Central Bank must be secure and that if the institution goes under they are entitled to their money back from the State. As long as people believe that and put their money in on the basis of getting the best return regardless of risk, there will be a tendency to invest in risky areas and deposit insurance in these circumstances merely makes that trend stronger and makes it more likely that some institution at some stage will take too much of a risk and fail.

The provision of deposit insurance will be very popular and will satisfy the people who want their deposits to be secure, but whether it is in the interest of the country as a whole — or even in the interest of the depositors in the long run — is another question. I was anxious to contribute to this debate and I look forward to hearing the Minister's response.

I wish to thank all the Deputies who spoke on this Bill for the contributions they have made to the debate. I am glad that there is a broad measure of support for what we are aiming to do generally in the Bill. The keynote is the protection of the public from financial loss and the upholding of acceptable standards of supervisory practice.

I have listened carefully to the points made by all speakers. A number of arguments were made in the debate to which I wish to respond. I will take them in the order in which they were made.

In regard to section 11 Deputy Noonan asked whether it was appropriate to apply penalties to the employees of a financial institution. The provision in section 11 is standard and appears in many other Acts. It does not require that individuals be prosecuted but allows this to happen where it is clear that the person in question is the main architect of the breach of the law.

In regard to section 14, Deputy Noonan drew attention to the Irish test embodied in section 14 (3) (a) for entry to the staff of the bank. This is simply an re-enactment of an existing requirement and I do not see that it causes practical problems. From experience, it has not caused any so far. In relation to section 15, which deals with confidentiality, Deputy Noonan may be reading much more into it than is there. The present oath of secrecy is more restrictive than the proposed provisions in the Bill. The section will not prohibit the bank from dealing with inquiries from committees of the House. Last month officials from the bank appeared before the Oireachtas Joint Committee on Secondary Legislation in relation to certain EC Directives on banking.

The purpose of section 15 is to safeguard the confidentiality of the affairs, for example, of individual banks supervised by the Central Bank. This is essential to enable the bank to supervise such bodies.

I note what Deputy Noonan said in regard to section 17 and I will look at it between now and Committee Stage. In regard to the International Financial Services Centre, the provisions are only a small element of the Bill and I hope the whole debate will not concentrate on it, although it is important to include it.

The success of the centre to date speaks for itself. Fifty-three projects, with the potential to create 1,300 jobs, have been approved. The Government welcome all suggestions for the development of the potential of the centre. The contribution by the commentator referred to by Deputy Noonan was commented on recently by the chairman of the International Financial Services Centre Committee and in the short time available to me I will not quote what he said but I think it was a clear statement of the position and I see no reason to add to it. I hope that we can all work together in securing the continued success of the International Financial Services Centre. The commentator put that forward as his view as to how we may improve the centre. The statement issued by the committee in response deals with that but I have no doubt we will return to this matter on Committee Stage.

I have been asked to clarify how Chapter VI will work and if a bank will be required to get approval not only from the bank, or from me, but also under the mergers and takeovers legislation. The position is that the consent of the Minister for Industry and Commerce will be required in certain cases. The Bill provides that I must consult with my colleague when giving my approval. Perhaps, as Deputy Noonan suggested, one decision making body is best but I would not see, in practice, major problems arising with the procedure outlined in the Bill. This is more or less the way it happens at present when a bank wishes to take over another firm.

Deputy Noonan wondered if the size of the deposit protection account would be too large. I agree with the Deputy that the account will be larger than is the case in the UK. However, there are a number of important differences with the UK scheme. It is proposed in the Bill that the money deposited with the Central Bank would remain the property of the individual banks and they would be paid interest on their deposits. The scheme would not cost the banks anything unless it was found necessary to utilise the fund which we all hope will not happen.

Another important difference is that the UK fund is able to borrow money thereby increasing the money available to compensate depositors. I would prefer not to have a maximum limit on the size of the account. I think it is more prudent to have a fund that can meet situations that may arise rather than to have a scheme which fails at the first hurdle. As for the power to alter the percentage by order I would only be able to do this after a recommendation from the bank.

In regard to section 40 certain reservations were expressed about the use of the provisions in the Bill to have court proceedings held in camera when the affairs of a financial institution are involved. I, too, believe in open justice but there are undeniable cases where the trial of issues in public might not be desirable. It would be up to the court to decide if this is the case. All we are doing is allowing the court to take that view and to try the issues other than in public. In a recent case Mr. Justice Costello decided on the evidence before him that that case should be heard in camera as if it were to be heard in open court untold damage might be caused to a commercial business. It is only reasonable that the court should take a look at the factors involved and decide on whether to hear a case in open court.

Deputy McDowell raised some interesting points which I have no doubt he will pursue further on Committee Stage. He asked a question about the currency centre in Sandyford — the bank is responsible for the issuing of our currency — but only last summer the Deputy was assured, in response to questions raised by him on the cost of efficiency of the production of currency, that the production costs were competitive. There are reasons for giving limited detail in response to questions on this area and on Committee Stage I hope to refer to this area in more detail when I hope that the present industrial dispute will be at an end.

Deputy McDowell also raised queries about the format of the accounts of the Central Bank and complained bitterly about the lack of information contained in them. The format of these accounts was reviewed and changed in 1984 but I can assure Deputy McDowell and the House that once this Bill has been enacted I will review the format and take into account all suggestions made. I may be open to correction but I am not aware of the Central Bank refusing to give information to any of the committees of the House who act as watchdogs over the various public bodies. However, I can assure the House that I will take a look at the format of the accounts once this Bill has been enacted. Deputy McDowell asked as to why changes were made in 1984. I will outline the reasons on Committee Stage.

Deputy McDowell also referred to the UK Financial Services Act and called for the enactment of a similar Act here. I think anyone who is aware of the implications of the UK Financial Services Act would not wish such an Act on the financial institutions here. It is quite clear that that Act has caused many problems for the operators in the London market. It has increased costs for operators and some feel that it needs a very extensive overhaul. I would not be in favour of enacting a similar type Act here.

In regard to the Deputy's query on the gaps in supervision I would refer him to section 25 of the Bill, the provisions of which would allow me to apply supervisory provisions to unregulated sectors, if needed, so as to protect the public from loss or to promote the proper and orderly regulation of the financial markets.

The Deputy also referred to cases of fraudulent investor activity and the placing of misleading advertisements in Irish newspapers recently. I would refer the Deputy to the recent action of the Director of Consumer Affairs in tackling illegal and fraudulent share pushing. A provision is contained in the Bill, where misleading advertisements are published, for the Director of Public Prosecutions to take action. In one, if not two, recent cases he sought the assistance of the fraud squad and they dealt with the cases pretty adequately. This is not an easy matter to deal with.

Deputy McDowell also raised various queries in relation to section 82 and appeals to the court. He asked why not move from an appeal to the High Court to an appeal to the Supreme Court. For the information of the Deputy and the House I should say that the same system applies under the Mergers and Monopolies Act. However, this is an issue we can come back to on Committee Stage. Deputy McDowell also raised various other queries which I will deal with on Committee Stage.

Deputy FitzGerald raised some questions in regard to the components of bank capital monitored by the Central Bank. For the Deputy's information and the information of the House let me point out that under new EC rules, the so-called Basle agreement, nearing finalisation, there will be EC agreement which will reflect the agreements reached between the regulatory authorities of the major economies. Under these rules a certain amount of primary capital can be subscribed by floating rate notes, FRNs, which the Deputy referred to, where these are perpetual, in other words non withdrawable. The Central Bank is committed to operating the Basle Rules.

Is the Minister satisfied with them?

I will get a chance to go into more depth on Committee Stage. In regard to the flat rate contribution of 0.2 per cent the Deputy said that no account is taken of differences in risk. I believe that all schemes in place are run on a flat rate basis mainly because it is very difficult to derive an actuarially based deposit insurance premium. The proposed introduction of the scheme outlined in the Bill does not imply any lack of confidence in the supervisory ability of the Central Bank and the scheme is being put in place to provide some limited compensation to depositors if, for any reason, a bank failure occurs. I will go into this matter in more detail on Committee Stage, including the reasons for the introduction of the scheme. I believe I dealt with this matter at some length in my opening ramarks and if the Deputy studies them in detail he will see what I am trying to achieve. I am approaching this matter in a balanced way but I will take on board some of the points made. We can look at this matter in more detail on Committee Stage.

The Deputy also referred to the difficulties which arose in one financial institution during his time in Government and the problems which were caused as a result. The Deputy said he could not find a possible mechanism at that stage to transfer some of the responsibility to the shareholders. My party in Opposition supported fully the action taken by the Government then in the interests of ensuring that our two major banking institutions were kept intact. I was not privy to the discussions at the time but I would have thought it would have been possible at that stage to ensure no damage was done to our financial institutions. I would have thought there could have been a mechanism by which the Government would have been able to take a shareholding in that bank and when better days come, as they did soon afterwards, the shareholders in turn would have the opportunity to buy back those shares from the Government of the day, the Central Bank or whoever. In that way it would have been possible for the shareholders to shoulder the responsibility which was theirs in the first instance. The taxpayer should not be asked to shoulder that responsibility. It was right for the Government to step in. In the same circumstances any Irish Government would step in. I would have thought it possible——

Those thoughts struck me but at that time with the time scale it was not possible to devise such a method. It would have been appropriate if it had been feasible.

It would have been easy to take 20 per cent or 30 per cent of the shares. We would not be asking the taxpayer to share the responsibility.

I am sorry to interrupt the House but the time has come to deal with other business.

I raised a point about the destruction of documents after six years. Would the Minister look at that?

I will come back to that on Committee Stage. It may have been an oversight.

Question put and agreed to.

When is it proposed to take Committee Stage?

Next Tuesday, by agreement with the Whips.

Committee Stage ordered for Tuesday, 14 February 1989.