Section 36 of the Currency Act, 1927, provides for the submission to the Minister of the Central Bank's annual report and for its presentation to both Houses of the Oireachtas. It also provides for the publication in Iris Oifigiúil of such periodical returns as the Minister may direct from time to time.
Central Bank Bill, 1988: Committee Stage (Resumed).
Debate resumed on amendment No. 30.
In page 17, between lines 21 and 22, to insert the following subsection:
"(3) The report of the Bank's proceedings under this section shall include:
(i) a statement concerning the national economy,
(ii) a statement concerning monetary developments,
(iii) separate statements summarising the activities of the Bank in relation to every function conferred on it by statute,
(iv) other notable events at, or concerning, the Bank,
(v) a detailed statement concerning the deployment of staff and any changes in numbers and general remuneration of staff,
(vi) a statement concerning the cost of carrying out the functions of the Bank by function,
(vii) a statement concerning the way in which the Bank has carried out its functions under section 14 of this Act,
(viii) a statement showing how the Bank's surplus was derived and detailing the separate sources of revenues of the Bank,
(ix) a statement indicating changes in the Bank's reserves and setting out the policy considerations which justify the level of reserves for the time being,
(x) such other matters as the Minister may specify for inclusion in the Annual Report of the Bank.".
Amendment, by leave, withdrawn.
—(Deputy McDowell).
Question proposed: "That section 19 stand part of the Bill."
(Limerick East): Do I take it that the amendment in the name of Deputy McDowell is withdrawn?
Basically the Deputy said that there was not enough information and he mentioned certain areas in relation to staff and so on. I can assure the Deputy that these points are being incorporated in the new annual report which is due for publication in the next week or two. Many of the Deputy's proposals have been incorporated in the new annual report.
Question put and agreed to.
Section 20 agreed to.
SECTION 21.
Question proposed: "That section 21 stand part of the Bill."
(Limerick East): This is a winding up of the legal tender note fund and transfer of the assets to the bank's general fund. Is it purely that? Is no further measure being taken?
That is correct.
Question put and agreed to.
Section 22 agreed to.
SECTION 23.
Amendment No. 31 is in the names of Deputies De Rossa, Mac Giolla, Sherlock and McCartan. Amendment No. 32 is consequential. It is proposed, therefore, for discussion purposes, to take amendments Nos. 31 and 32 together. Is that agreed? Agreed.
I move amendment No. 31:
In page 18, subsection (2), line 28, after "may" to insert ", by order".
This amendment proposes that a ministerial order be issued, rather than having the Minister act without issue of such order.
These amendments are being opposed because, if accepted, they would defeat part of the purpose of section 23, that is, the reform of the way in which the exchange rate is varied. Since the passing of the Central Bank Act of 1971 we have joined the EMS. The exchange rate must, on occasions, be capable of being varied quickly in this context — indeed, many times at weekends. This amendment would require both Houses to approve an exchange rate realignment before it could be effective. The question arises as to what happens when the House is not in session and there is a realignment of EMS currencies. In the modern financial world, the Minister must be able to vary the general exchange rate arrangements of the pound quickly and flexibly. The section as it stands provides for any change to be notified in Iris Oifigiúil so that there is no fear of the change being done in secret without the Dáil knowing of it. There is nothing to prevent the matter being debated as a motion in either or both Houses should any Deputy or Senator wish to do so. Indeed, the practice is to have such a debate when realignment takes place.
I take it that a ministerial order can be issued without the House actually being in session. This occurs frequently in connection with various Bills. When there are long sessions, such as three and a half months, without the House being in session, it does create some difficulty. We are totally opposed to these long vacations. If the normal sessions of Parliament were held, there should not be any difficulty about this. The amendment we are proposing here would, we believe, conform to similar regulations issued by Ministers in various other Departments at different times. Perhaps our amendment No. 32 creates a difficulty but amendment No. 31 should not create any difficulty, In view of what the Minister has said, I am prepared to withdraw amendment No. 32 but do not think I would be justified in withdrawing amendment No. 31. Under any other legislation, it would mean that the order would come into effect unless annulled by the House.
I want to repeat that exchange rate realignments can occur at weekends. This is not done by ministerial order. It must be done by ministerial decision, subject to debate in the House afterwards. Under the other amendment it would not even come into effect until a resolution approving the draft had been approved by the House. This is just not practical in the modern world in which we live.
I am withdrawing amendment No. 32.
Does the Deputy propose to do likewise with regard to amendment No. 31?
I should like the Minister to give some more sensible reason for his rejection of amendment No. 31 that he has given, that it cannot be done when the House is not in session. I believe it can be done when the House is not in session. It is done frequently under other legislation. Perhaps it is a question of not giving the game away and that the Minister must do this in a certain way? Under the normal legislative process, there should be no reason why the Minister could not do this by ministerial order. I should like a better explanation from the Minister.
It is not necessary to do it by ministerial order.
That is not necessary?
The Deputy appreciates the circumstances under which those changes have been occurring in recent times. With the modern developments which are taking place in currency realignments and the manner in which these are done, it is not necessary to make a ministerial order. It is done by ministerial decision in conjunction with the Central Bank, is published in Iris Oifigiúil and is subject to debate thereafter in the House.
Is it the practice of the Minister always to publicise his decisions by notice in Iris Oifigiúil?
Yes, those decisions are published.
Amendment, by leave, withdrawn.
Amendment No. 32 not moved.
Question proposed: "That section 23 stand part of the Bill."
(Limerick East): What is the intent of the Minister in this section? What eventuality is he allowing for?
This is in relation to the definition of the Irish pound with regard to the changes set out in section 43 of the Central Bank Act of 1971. These, however, do not strictly accord with our obligations as a member of the European Monetary System or of the International Monetary Fund. In the 1971 Act the value of the currency is set out in terms of gold. This is now outdated. The principal changes made under this heading are the dropping of the definition of a pound in terms of gold and the removal of the requirement that changes in the gold value must be made by order of the Government and laid before both Houses. Section 43 of the Central Bank Act, 1971 is being repealed in the Schedule of the Bill. Subsection (1) defines the unit of currency as the Irish pound. Section 43 of the 1971 Act provides for the issue of a pound in the form of a legal tender note. The reference to a note is now deleted to facilitate the issue of a pound coin, which we are making arrangements to issue.
(Limerick East): Is there a decision to go ahead with the pound coin, or is there just a decision in principle to examine the matter?
There is a decision in principle to go ahead with it. Designs are being prepared at the moment.
(Limerick East): When will the poind coin be in circulation?
Next year, I expect.
(Limerick East): Is there any intention on the part of the Minister or the Central Bank to remove certain coins from circulation — coins of lower denominations?
No. There is some redesigning going on now.
(Limerick East): Is the halfpenny coin being removed?
The halfpenny has already been withdrawn. The rest of the coins stay. We retain the 1p, 2p, 5p, 10p, 20p and 50p.
(Limerick East): So the Minister is just proposing to add a pound coin to the existing range. Has the Minister any proposals to move legal tender notes down to denominations of lesser value than £1? Will we get a 50p note, like the old ten shilling note?
No.
(Limerick East): The old ten shillings was great at First Communion time.
Times have changed.
(Limerick East): What will be the notes in the larger denomination range? Are the £50 and the £100 notes still legal tender?
At present notes are issued in the following denominations: £5, £10, £20, £50 and £100.
(Limerick East): Is it the intention to keep that range in place?
Yes.
The Minister has said that there is an element of redesign in train. Is it proposed to redesign the currency notes of larger denomination that are currently not available in modern form? Would the Minister further indicate if it is proposed to retain the traditional design of the notes? I fully accept that their size has got too bulky even for large businessmen's or farmers' pockets. The larger denomination notes are hard to handle but it strikes me that their design is more pleasant to the eye than some of the more recent excursions we have had from the Central Bank. I would ask the Minister to arrange if at all possible that there be a single coherent set of designs which keep to the traditional layout.
I would ask the Minister as well to investigate the possibility of changing the weight of coins because the only coin that is sensibly weighted at present is the 20p coin, with the old half crown design of a horse, and this is reasonably easy to carry and use. If we are to have a £1 coin or a £2 coin this should be borne in mind. I find that I have huge pockets filled with colossal amounts of cupro-nickel. The time has come for smaller and lighter coins. Would the Minister agree that it now costs more than 2p to produce the 2p coin, in other words, that some coins cost more than their face value to produce?
Yes it does cost more than 2p to produce a 2p coin. I have responsibility for coinage design. Some of the designs are being examined at present and the weight factor is one of the aspects being looked at. The responsibility for notes rests with the Central Bank and I am not aware of any proposals to redesign notes. However, I will certainly take up the points with them, the points the Deputy has raised.
(Limerick East): To be fair to the 2p, it goes through a lot of transactions and this is not a fair comparison to make.
Maybe we should redesign the pockets.
And line them on the double.
Question put and agreed to.
SECTION 24.
Question proposed: "That section 24 stand part of the Bill."
The section provides that:
Every contract, sale, payment, bill, note, instrument and security for money, and every transaction, dealing matter, and thing whatever relating to money or involving the payment or the liability to pay any money which is made, executed, entered into, done, or had on or after the coming into operation of this section shall be made, executed, entered into, done and had according to coins or notes which are for the time being legal tender in the State and not otherwise, unless the same be made, executed, entered into, done or had according to a currency other than the currency of the State.
I presume that this effectively means that you cannot have gold contracts?
The section is designed to repeal and re-enact in a modified form section 10 of the Currency Act, 1927, which provides that payments, contracts, etc., are to be expressed in Irish legal tender notes and coins, unless the currency of some other State is specified.
Therefore, is it not possible to use gold or gold sovereigns as a form of payment?
No.
Does the reference to a currency of another State include ECUs?
In normal contracts where the words pounds and pence used to appear, it was taken to mean the currency of the State. This section basically means that that is what it is taken to mean unless the currency of some other State is specified.
With respect, it does not mean that. That may be its purpose but its wording is that you can only make contracts in the units of currency of the State, that is, the Irish State, after the section is enacted. I wonder whether that prohibits contracts made in ECUs, which are not the currency of a foreign state? The ECU is not a foreign currency but it could well be that people would want to issue denominated notes, securities and debentures in ECUs.
It does not prohibit it. As I understand it, what the section means is that if you say £1, you mean an IR£1, if you say a dollar, you mean a US dollar and if you say ECU, people know what you mean, and this section does not prohibit it.
With respect, it does prohibit it. The section says that "every contract, sale, payment, bill, note, instrument and security for money, and every transaction, dealing, matter and thing whatever relating to money or involving the payment or the liability to pay any money which is made" in certain circumstances shall be made and executed and whatever "according to coins or notes which are for the time being legal tender in the State and not otherwise, unless the same be made, executed, entered into, done or had according to a currency other than the currency of the State." The section states that you may not enter into gold contracts.
The wording is, "unless the same be made, executed, entered into, done or had according to a currency other than the currency of the State".
Other than the currency of the State.
You are disputing the drafting.
I am saying that the ECU is not a currency other than the currency of the State.
In my view the ECU is a recognised currency but I do not know whether Central Bankers recognise it.
The Minister issues securities in it.
Yes, I recognise it.
Does this section actually prohibit people from making contracts for payment in gold coins and so on?
Is it your interpretation that this is prohibited under the section?
If payment is made in gold?
Gold coins are no longer legal tender. However, ECUs are a currency, dollars are a currency. I believe this provision is here because we have changed from gold reserves backing the Irish £.
Question put and agreed to.
SECTION 25.
Question proposed: "That section 25 stand part of the Bill."
(Limerick East): The explanatory memorandum states that:
Section 25 empowers the Minister by regulation to extend the requirements of Chapters I to IV to particular classes of financial business if necessary to protect the public, or to secure the orderly and proper regulation of financial markets.
What were the circumstances or exigencies the Minister had in mind when he decided to introduce this catch-all provision? Is it simply a desire by the Minister to have residual powers which he could invoke at a later date or has he specific proposals he wants to put before the House by way of regulation rather than by way of primary legislation?
It is to cater for future developments in the financial markets.
The new section allows the Minister to make regulations, after consultation with other Ministers and the bank, to extend the bank's supervisory role where it is necessary to protect the public from loss or for the smooth running of the financial market. The regulations can apply all or part of the licensing and supervision standards applying to banks. They can also apply, or not, as the case may be, Chapter 1 of this Bill — penalty provisions — Chapter 2 of the Bill — mainly the secrecy provisions of the bank and Chapter 4 — winding up provisions with any necessary adaptations or alterations. The power should not be seen as giving the Minister carte blanche to extend the Central Bank's role. Rather it is an effort to ensure that if developments similar to the IFSC or options and futures exchanges arise in the future then the bank can become involved in supervising these new types of bodies without the need to enact new legislation.
(Limerick East): It is not the content of the section I am questioning — the Minister partly answered my question — but rather the procedure. If the Minister desires to put specific proposals before the House I would argue that the appropriate place to do so would be under the Central Bank Bill rather than taking on himself the power to subsequently regulate for eventualities which may already exist. What I want to know is if the Minister has specific proposals to hand which he intends to implement, by regulation, subsequent to the passage of this Bill or is this section a catch-all section which enables him, rather than coming back into the House, to apply sections of the Bill to activities the general nature of which may be foreseen but the specifics of which are still unknown?
We have no proposals on hand for which we intend to use this mechanism. It is just to cater for new financial instruments that may develop in the financial market in the years ahead.
(Limerick East): This section potentially is a very wide-ranging one. We are being asked to accept, with very little information, that the Minister be given power by means of regulation to extend four chapters of this Bill to institutions and/or activities which are not within the remit of the Bill at present. I want to give notice that I will return to this on Report Stage and, after consideration, I may put down an amendment which would require the Minister to put the regulations before the House and ensure that a positive motion in the House would be required to pass the regulations rather than the negative approach, which is more normal with Bills, which allows 21 sitting days to elapse and, in the absence of a nullifying motion, the regulations become law. I simply want to indicate that so that I will be procedurally on the right side of the line when it comes to Report Stage.
Question put and agreed to.
NEW SECTION.
I move amendment No. 33.
In page 19, before section 26, to insert the following new section:
"26.—(1) The Minister may, by regulations made after consultation with the Bank, require the holder of a licence to establish or join in establishing a scheme or schemes for the investigation of complaints against that holder or an associated company in relation to a prescribed matter of complaint.
(2) Without prejudice to the generality of subsection (1), regulations under this section may make provision in relation to any one or more of the following—
(a) the establishment and administration of a scheme,
(b) the manner of appointment of an independent adjudicator to conduct investigations,
(c) the matters to be subject to investigation under the scheme,
(d) the grounds on which a complaint must be based,
(e) the powers of, and procedure to be followed in the conduct of investigations by, the adjudicator,
(f) the circumstances in and the extent to which determinations are binding,
(g) the procedures for the making of complaints,
(h) the publication of the adjudicator's findings,
(i) the approval of the scheme by the Bank.
(3) Subject to subsection (4), the reference of a complaint under a scheme established under this section shall not affect the rights of any person to have a dispute determined in any other manner provided by law.
(4) Where on a complaint under a scheme established under this section the parties concerned agree that a determination in accordance with the scheme shall be binding on them and the scheme provides for such an agreement, then the determination shall be binding on the parties.
(5) In this section ‘associated company' means (where appropriate)—
(a) a holding company or a subsidiary company (within the meanings respectively given to them by section 155 of the Companies Act, 1963),
(b) a company which is a subsidiary of a body corporate, where the holder of the licence concerned is also a subsidiary of the body corporate, but neither is a subsidiary of the other.".
Section 92 of the Building Societies Bill empowers the Central Bank to require societies to join in a scheme for the investigation of complaints against building societies. The bank suggested that a corresponding power should be included in the Central Bank Bill in relation to licensed banks. The new section 26 provides accordingly. The text is drawn largely from the Building Societies Bill. It would be the intention to consult the banks before regulations are made and to ensure that any scheme which came into effect was manageable and did not impose unnecessary administrative burdens on the banks. Consultations would also be held with the Director of Consumer Affairs to avoid any conflict or dual responsibility of the banks to the Central Bank or under consumer legislation. I have written to the banking federation along these lines.
(Limerick East): In general terms this is acceptable. In circumstances where we are moving a Building Societies Bill and a Central Bank Bill in tandem through the Houses of the Oireachtas, it looks as if there is some disharmony whereby a complaints procedure is required under one Bill and not under the other. With the Building Societies Bill the concept of a building societies' ombudsman type of procedure is, I understand, what the Minister has in mind. Could the Minister be more specific here? This is quite a lengthy amendment which allows the Minister, by regulation, to set up any kind of a complaints procedure that he might conceive of or that his officials might suggest. The remit being given under the regulations is also very wide and again I would ask the Minister to be more specific.
This is a major amendment to the Bill. We are travelling into the dark and giving the Minister very wide latitude by means of regulations where, under normal Dáil procedures, we only have a veto. I always worry about major powers being given to a Minister by means of regulation without the specifics being put on display on the floor of the House. I would ask the Minister to be more specific first, on the parameters of this amendment as he sees it and, secondly, as to whether he has a precise proposal on the type of complaints procedure which he would envisage introducing under the regulatory powers of this amendment.
The same power is being given in this case as was granted under the Building Societies Bill and it will operate on the very same basis whereby the Central Bank will consult with the other banks in relation to setting up or joining a scheme for investigation or adjudication of complaints against a holder or an associated company of a holder. It is important because some of the banking services such as Access, Visa and so on are provided by subsidiary companies of the banks. For that reason it is important to consult the Director of Consumer Affairs also. As the Deputy rightly said, it is parallel with the building societies legislation and we have been attempting to make it so. The same powers will be given in both cases and the Central Bank will have the overall supervisory power.
Would the Minister agree that effectively he is establishing a system of arbitration? In some respects the powers he is giving seem to be deficient. By Report Stage he should, in subsection (2), consider allowing himself, by regulation, to give to the adjudicator any power that is available to an arbitrator under the Arbitration Acts. For instance, to require the production of records, to administer an oath in certain circumstances and matters like that which would be appropriate if a decision under subsection (4) of section 26 to be inserted is to be a binding decision.
In relation to the publication of the adjudicator's findings, is the Minister going to allow the adjudicators to be privileged? They may find themselves in the position — as have a number of other bodies, including Oireachtas committees — that they cannot actually announce their views on matters they have dealt with on the basis that they do not appear to have privilege. The same problem arises for witnesses who come before them. I would like the Minister to consider first, giving adjudicators more of the powers that are given to arbitrators, which would be very simple — another sub-paragraph would give the Minister the right to confer on the adjudicator any such powers — and, secondly, giving some kind of legal immunity to an adjudicator who is about to make an adverse criticism of somebody in his adjudication so that he should not be liable to be sued for it. Similarly, somebody making a complaint to an adjudicator should be immune from suit in libel or in slander for things they wrote or said to the adjudicator.
The Deputy is correct in that we are setting up a type of arbitration system. Subsection (2) specifies the items in particular which can be covered by the regulations and it is self-explanatory. Subsection (3) allows either party to have a dispute determined otherwise than in accordance with the scheme, that is by arbitration or by the courts. Subsection (4) allows both parties to agree mutually to be bound by the decision of the scheme adjudicator. Subsection (5) defines the associated company or holder of a licence to include a parent or subsidiary company because of the activities they carry on. Nowhere does it say that the adjudication results are to be privileged.
If the Minister allows for the publication of a report and does not allow privilege for it, if it is adverse or critical of some person or intends to detract from their reputation, it leaves the person publishing the report open to a suit for defamation. If a determination is to be binding on parties, what kind of determination are we talking about? Looking at subsection (2) (a), there seems to be no power to order any remedy. I do not know how you could have a binding adjudication if somebody cannot be told to do something to somebody else, to change a course of behaviour, give some money, make restitution or whatever. It seems vague if you have a binding determination but no power to order anybody to do anything. What kind of determination has the Minister in mind? Subsection (4) provides: "Where on a complaint under a scheme established under this section the parties concerned agree that a determination in accordance with the scheme shall be binding on them..." That means they have to obey it.
If they agree to be bound by it you would expect them to carry it out.
Yes, but where in subsection (2) (a) to (i) is there any power to tell them to do anything? There is nothing. The adjudicator does not look at it and make comments on it or whatever. He does not seem to have power to tell anybody to do anything.
(Limerick East): While the Minister is reflecting on that point I want to come back to another aspect. The amendment allows the Minister by regulation, after consultation with the Central Bank, to require the holder of a licence to establish or join in establishing a scheme or schemes for investigation of complaints against that holder or an associated company. It is a scheme or schemes. It is very unclear from the amendment whether the Minister has a precise proposal in mind. For example, is he thinking of an Ombudsman-type procedure or a complaints procedure modelled on, say, the Garda Complaints Act which went through this House? If the adjudication is to be binding and if an adjudication is involved, would it not be prudent of the Minister to allow forsome kind of appeal to the courts, or is the suggestion that the appeal to the courts would exist anyway?
Is it the Minister's intention to have one complaints procedure institution, person or way of proceeding for the building societies and an alternative one for the banks, or will one procedure and adjudication system apply to all licence holders under the scheme? The amendment the Minister is moving here, taken together with this section and the Building Societies Bill, would allow for a procedure for each and every licence holder in effect rather than one general complaints procedure for all the licence holders.
We are trying to have a set regulatory scheme backed up by a section rather than having it self-regulated. If you start off with banks agreeing to be bound mutually, the two parties to it being bound mutually by it, the Central Bank will impose the agreement whatever the arbitration final decision is, and their action is backed up by legislation. Deputy Noonan is asking if there is a scheme or schemes. It could be a scheme for a bank and a different scheme for a building society or whatever. We are keeping it as simple and non-statutory as possible, self-regulation as much as possible and not getting into the throes of arbitration. We are trying to align the two as closely as we can.
(Limerick East): What is coming across to me is that the Minister is moving an amendment to allow himself the power to introduce a scheme or schemes, a general scheme applying to the banks and a general scheme of the Minister for the Environment's legislation applying to the building societies, or, alternatively, an individual scheme for each licence holder. Effectively he is saying, “Give me the power. I have not made up my mind yet what I want and I will let you know by means of regulation at some indefinite time in the future what we have in mind”. That is not the way to legislate.
It is a scheme for the banks and banking.
(Limerick East): I accept that. Whatever the Minister and his Department have in mind may not be appropriate for the text of the Bill or it may not be at the stage of readiness to include it in the Bill, but certainly it must be at the conceptual stage. I am asking that the Minister detail the kind of scheme, the kind of complaints procedure he envisages introducing by means of legislation subsequently. On the basis of this section he can introduce anything he likes.
The regulations will detail exactly what they are going to cover, and that can be laid before the House and debated fully there. We are not thinking of a particular scheme for a particular bank but of a general scheme for the banks, not a scheme to cover every individual bank or anything like that. Regulations are made under that——
(Limerick East): The Minister has said regulations are specifying the parameters of the scheme and that the House will have the opportunity to debate the regulations. Can I take it from the Minister that that is a commitment to move an amendment on Report Stage to allow us debate the regulations when they come in? Is he making a commitment to introduce an amendment on Report Stage to allow us debate the regulations in the House?
Sorry?
(Limerick East): The Minister has just said in reply to me that he is outlining the parameters of the procedure and it will be up to the House to decide and the House will have the opportunity to debate them in full.
When the regulations come in.
(Limerick East): Does that mean the Minister is going to bring in the regulations by affirmative motion rather than by negative motion?
By negative motion.
(Limerick East): I know that is the normal way, but when Ministers give a commitment that something can be debated before the House they are not usually talking about the rights of the Opposition to veto regulations.
The Opposition have every opportunity to put down a negative motion.
(Limerick East): I am asking the Minister to introduce an amendment on Report Stage to this section and the previous one I mentioned where the Minister will bring in the regulations and they will be subject to the approval of the House rather than the veto of the House.
Surely the Deputy is not seeking that every regulation under this Bill be done by that kind of motion?
(Limerick East): The Minister could say to me, “This is the kind of complaints procedure I want. I will accept the section”, but it seems the Minister has decided, because there was a complaints procedure in the Building Societies Bill and people took up the level pitch and were lobbying on all sides of the House——
Surely the Deputy thinks that desirable——
(Limerick East): ——to have a similar situation applying to the banks. This amendment has been brought in now which involves a complaints procedure for the bank or banks administered by the Minister and the Central Bank. Without putting a tooth in it, I do not think the Minister has a notion what kind of complaints procedure he wants to bring in. All he is doing is taking the power to do what he does not know he wants to do sometime in the future.
Does the Deputy not think it desirable, when the Central Bank is going to be the central supervisory authority, in all financial institutions to have parallel situations involved on both sides? They are all getting into each other's business. You do not want a position where you do not have parallel regulations to deal with a situation. Building societies will be banks and banks will be building societies. The whole purpose is to line them up parallel. That has been done in the Building Societies Bill, and what we are doing here is lining it up parallel. I will look at what the Deputy is talking about for Report Stage.
(Limerick East): I am delighted when the Minister intervenes and gives more information.
Maybe I give too much.
(Limerick East): If the case was as plausible as the Minister makes it, he would not be moving an amendment today; it would be a new section in the Bill by way of amendment.
This House saw fit to bring in a similar thing in the Building Societies Bill.
(Limerick East): I would like to make two or three points without interruption.
We thought the interruptions were of a kind you might normally relish and I did not want to deny you that pleasure. In so far as you have set your own headlines I will be more attentive in future.
(Limerick East): This legislation and the building societies legislation has been promised for two years. The commitment was that both would move in tandem through the Oireachtas and that because the intent was to make changes and at the same time establish a level playing pitch between the various institutions, provisions, especially of a regulatory or binding nature, in one piece of legislation would be mirrored in the other. We had a complaints procedure in the Building Societies Bill but not in the Central Bank Bill. Why has the Minister introduced this amendment at such a late stage? He has said he wants a level playing pitch. Has his thought process proceeded and does he have a general picture of the type of complaints procedure he wants for the banks or is he simply taking power unto himself to do quietly what he is not doing publicly?
There is certainly merit in the Minister's amendment but if everything is to be above-board, with nothing secretive about it, the Minister should give a commitment to come back on Report Stage and move that regulations under this section will be laid before the Houses of the Oireachtas and will require a motion of affirmation before they become law, rather than the regulations being laid before the Houses of the Oireachtas and the onus being on the Opposition, who do not control business in the House, to bring in a motion of veto. The Taoiseach is the person who orders all business and if he does not want a veto motion to come in there is not much opportunity for the Opposition to introduce it.
When Deputy Noonan referred to this legislation and the Building Societies Bill travelling in tandem through the House, it struck me that they now look more like a pair of French aristocrats travelling in the same tumbril to the guillotine. There is nothing dignified about this progress in tandem.
Deputy Noonan is asking me to be a clairvoyant and to anticipate what type of complaints might or might not be made. That is not living in the real world. I am not a clairvoyant and I cannot anticipate the specific type of complaint that might arise. I am doing no more than providing in general terms for regulations, in the same manner as practically all regulations are provided for. I will not give a commitment to bring in such an affirmative amendment. I will look at it on Report Stage and see if I can find any more detail about the type of possible complaints. It would only be possible to anticipate one or two types. I have no intention of trying to anticipate all types of complaint. The affirmative amendment now being sought is not provided for in the Building Societies Bill, about which the Deputy spoke so eloquently.
(Limerick East): I know the Minister is not a clairvoyant. He proved that on budget night when he said petrol prices would not go up. The Minister is a great man for shooting down birds which never took wing. I did not ask him to predict what type of complaint would be lodged against the banks. I asked him to outline the type of complaints procedure he intends bringing in by regulation. He made a very articulate reply to a point which was never raised. I ask him to address the point raised. He is looking for power by regulation to bring in a complaints procedure. What type of complaints procedure has the Minister in mind? The Minister's reply is not good enough.
Vote the section down. We live in a democracy.
(Limerick East): It would be simple to bring in a one section Bill dealing with the Central Bank, providing that the Minister may, by regulation, as soon as he sees fit introduce regulations controlling the issuing of licences by the Central Bank to institutions. He will take it upon himself on the same day to widen the scope of these regulations to cover any eventuality that may arise. That is not the way to legislate. I have no idea of the Minister's intent.
The Deputy should read subsection (2) in which the procedures are covered.
(Limerick East): I have read it. What type of adjudicator have we in mind? Will he be a permanent office holder? Is he to be a person with professional qualifications, an accountant who will be brought in from time to time? Is he to be a barrister or an ombudsman?
Or a woman.
(Limerick East): We want answers to these questions. I know the Minister goes to Lansdowne Road sometimes. I have seen dummies being sold but this is the ultimate. I cannot even see the ball; I can only see the Minister running for the line.
It will be a person acceptable to the Central Bank. I do not think the Central Bank would expect an ordinary corporation worker to be an adjudicator. A person competent to carry out an adjudication in that type of situation is not the ordinary individual in the street. The Central Bank will not appoint somebody who is not competent. The person must be competent to do the job and acceptable to the Central Bank.
(Limerick East): I will come back to this on Report Stage.
If Deputy Noonan is happy that we have dummied, feinted and thrown the ball enough, we will move on.
(Limerick East): I should like to call for a quorum.
Notice taken that 20 members were not present; House counted, and 20 Members being present,
Amendment agreed to.
SECTION 26.
(Limerick East): I move amendment No. 34:
In page 19, subsection (1), line 20, to delete "two" and substitute "six".
The Bill allows a two-month period for institutions to comply with this section. This period is considered by the institutions not to be long enough and I am asking that it be extended to six months, or some compromise.
Section 26 (1) requires each licence holder to notify the bank within two months of this section coming into effect of all charges imposed by them for services provided to customers and the relative terms or conditions upon which the service is provided. Deputy Noonan wishes to increase the two-month period to six months. The Irish Bankers' Federation requested this change too because of administrative problems they claimed in complying with the two month deadline. I believe, however, that the other changes I am proposing in this section, in particular amendment No. 39, will reduce the burden on the banks of the volume of information they must supply and that the two months' deadline will be achievable. I would ask the Deputy, therefore, not to press the amendment.
(Limerick East): Pending the Minister's fuller explanation of amendment No. 39 I will withdraw this amendment.
Amendment, by leave, withdrawn.
Amendment No. 37 is related to amendment No. 35. Amendment Nos. 36 and 38 are alternatives to Nos. 35 and 37. It is proposed, therefore, with the agreement of the House, to take together for discussion purposes, amendments Nos. 35, 36, 37 and 38.
I move amendment No. 35:
In page 19, subsection (2) (b), line 33, after "condition" to insert ", applying to the provision of a service to the public or to any class of the public."
Section 26 provides for supervision by the bank of the charges made by commercial banks for services provided by them to the public or a class of the public. Amendments Nos. 35 and 37 to subsection 2 (b) and 3 (a) are purely drafting changes to make it clear that the charges, terms, etc. referred to in these subsections are also in respect of services provided to the public or to any class of the public.
(Limerick East): There are two identical amendments in my name. I would like to withdraw my amendments as the Minister's amendments are quite acceptable to me.
Amendment agreed to.
Amendment No. 36 not moved.
I move amendment No. 37:
In page 19, subsection (3) (a), line 38, after "condition" to insert ",applying to the provision of a service to the public or to any class of the public,".
Amendment agreed to.
Amendment No. 38 not moved.
The next amendment is amendment No. 39 in the name of the Minister and, as amendment No. 44 is an alternative, both amendments may be taken together for discussion.
I move amendment No. 39:
In page 20, between lines 24 and 25, to insert the following subsection:
"(7) The Bank may exempt a holder of a licence from the obligation to notify the Bank under this section in respect of—
(a) any charge which has been individually negotiated bona fide with the holder by a customer, or by or on behalf of a group of customers, of the holder, or
(b) a class of term or condition applying to a service provided by the holder, if the Bank is of the opinion that it is not necessary for it to be so notified in order to decide whether or not to issue a direction under subsection (3) in respect of the service.".
Amendment No. 39 inserts a new subsection (7) and allows the bank to exempt certain charges from having to be notified under this section, where the charges in question are negotiated bona fide between the commercial bank and individual customers or groups of customers. These charges cover, for example, charges negotiated by individual corporate clients or by professional associations in respect of services supplied to their members. In the case of freely negotiated charges supervision by the Central Bank is not required.
The new subsection (7) also permits the bank to relieve the banks from having to notify any terms or conditions on which the services are provided where the Central Bank considers that it does not need to be notified of these terms or conditions in order to decide whether to approve a particular charge. What we have in mind here is that the Central Bank will require to know only the main terms and conditions on which a service is provided and not every subsidiary or related terms such as might be contained, for example, in a loan or mortgage agreement. The Irish Bankers' Federation were concerned that the section as worded would place an unnecessary burden on banks in providing details of every term or condition of business, whether relevant or not, and of every change in such terms or conditions. I consider this point reasonable, and the new subsection (7) meets this concern.
(Limerick East): The alternative amendment No. 44 is in my name. Again the Minister's amendment has met the intent of what I was proposing. I will accept the Minister's amendment and withdraw my own.
Amendment agreed to.
We will deal with amendment No. 44 when we reach it.
I move amendment No. 40:
In page 20, between lines 24 and 25, to insert the following subsection:
"(7) Any person who contravenes subsection (1), (2), (3) or (4) shall be guilty of an offence and shall be liable—
(a) on summary conviction, to a fine not exceeding £1,000 or, at the discretion of the court, to imprisonment for a term not exceeding 12 months, or to both, or
(b) on conviction on indictment, to a fine not exceeding £50,000 or, at the discretion of the court, to imprisonment for a term not exceeding 5 years, or to both,
and, if the contravention in respect of which he was convicted is continued after conviction, he shall be guilty of an offence on every day on which the contravention continues after conviction in respect of the original contravention and for each such offence he shall be liable on summary conviction to a fine not exceeding £100 or on conviction on indictment to a fine not exceeding £5,000.".
(Limerick East): I would like if the Minister would explain this amendment a little further.
Section 26 requires banks to notify the Central Bank of charges and of changes in charges, and empowers the bank to issue directions to a bank in relation thereto. No penalty provision was included in the Bill as published to deal with breaches of this section. This amendment rectifies the position by inserting a new subsection, (7), along the lines of other penalty provisions in the Bill. The fine on summary conviction is £1,000 maximum and £50,000 on conviction on indictment and one-tenth of these amounts for every day the offence continues. Imprisonment of up to one year on summary conviction and five years on conviction on indictment is also specified.
(Limerick East): I do not want to enter into a debate on whether £1,000 in the one instance or £50,000 in the other is an appropriate penalty. I notice that in both cases they are maxima rather than mandatory fines. I would like the Minister, however, to indicate how wide, in his opinion, the power to imprison would stretch here. Would it stretch to employees, officers, directors of the banks and so on? Could the Minister indicate who precisely could end up in jail as a result of contravening this section? Could we have a whole group of people ending up in jail?
Directors are people in responsible positions. This was dealt with in section 11 earlier on.
(Limerick East): I remember the point but I am raising it again. Frequently in procedures such as this the person who issues the instruction is not the person who is involved with complying with the provision of certain information. I am wondering what is the scope of the provision in circumstances where the person in authority takes a decision either to implement or not implement certain procedures. What is the responsibility of the employees of a bank who are simply carrying out the legitimate instructions of superiors?
The employee carrying out the instruction will not be affected. It is the person in authority, the person who gives the instruction and not the person carrying it out.
Amendment agreed to.
Amendments Nos. 41 and 42 are alternatives to amendment No. 40a. It is proposed therefore to take amendments Nos. 40a, 41 and 42 together for discussion.
I move amendment No. 40a:
In page 20, lines 25 and 26, to delete subsection (7) and substitute the following:
"(7) In this section, ‘charge' and ‘term or condition' do not include any rate of interest.".
This amendment is intended to remove any doubt about the provisions in this section not applying to interest rates. The section refers to charges, terms and conditions and subsection (7) at present provides only that terms and conditions do not include interest rates. This amendment would clarify that charges do not include interest rates on interest either. The amendment has the same effect as that proposed by Deputy Noonan.
(Limerick East): Amendment No. 42, in my name, has the same intent. Obviously the Minister's draft has more expertise behind it than mine so I will withdraw my amendment and accept the Minister's.
Amendment agreed to.
Amendments Nos. 41 and 42 not moved.
I move amendment No. 43:
In page 20, between lines 26 and 27, to insert the following subsection:
"(8) Where the Bank has given a direction under this section:
(a) any person to whom the direction is given may by notice in writing to the Minister require the Minister to reconsider the direction,
(b) the Minister shall forthwith consider the direction and may vary, confirm or discharge the direction without prejudice to the validity of the direction during the period prior to the Minister's decision,
(c) the Minister shall, if confirming or varying such direction, make an order accordingly and the provisions of section 7 shall have effect in relation to any such order.".
The purpose of this amendment is to give an appeal from the decision of a bank in relation to a direction to the Minister and to require the Minister to make an order confirming or varying the decision of the bank where an appeal is made to him and the purpose of subparagraph (c) of the proposed subsection (8) is to apply the provision of section 7 to that order. It effectly allows a ministerial appeal to be reviewed or a decision given by a Minister in relation to banking practices to be reviewed by this House if it is considered necessary. The idea is to give the licensed banks some right of appeal against the decision of the Central Bank and to make the Minister accountable to some extent in relation to the appeal decision he would give in such circumstances.
Section 26 (4) allows the bank to issue directions to licence holders in relation to bank charges and related terms and conditions. Deputy McDowell's amendment would allow a licence holder to require the Minister to reconsider particular Central Bank directions. The Minister would then have to vary, confirm or discharge the directions, and if he varied or confirmed the directions, make an order accordingly and lay it before the Oireachtas. I have to say this is an unusual procedure. It requires the Minister to reconsider the decision of another party. The procedure is also very bureaucratic in my view. The Minister has no first-hand knowledge of bank charges. Only the Central Bank is in a position to act as supervisor and to come to the appropriate decision. Involving the Minister in the manner proposed would require the Department of Finance to make inquiries and get into areas in the supervision of bank charges and I would not agree that should be welcomed. The proposed requirement that the Minister make an order for individual decisions on bank charges seems excessive. We must trust the Central Bank in this area. There is nothing to be gained from the Deputy's proposal. It would not be wise to get the Minister and the Department of Finance into areas where they have no real expert knowledge. I would ask the Deputy to consider withdrawing his amendment.
Subsections (3) and (4) are quite wide. For instance, the bank may direct the holder of a licence
(a) to refrain from imposing or changing a charge, term or condition without the prior approval of the Bank,
I have no objection to paragraph (b) which has the publication requirement but will the Minister say if he believes that it is correct that the Central Bank, on a matter of policy — for instance, the amount of money that might be charged for a pass card or an access card or something like that — should determine these matters? This is fundamentally a matter of policy rather than a matter of high principle.
There should be some appeal at a political level with regard to a decision of the Central Bank. If a bank were to impose a charge of £20 per annum on pass cards, even though the Minister thought that undesirable as he was proposing to put excise duty on pass cards, it seems that the Central Bank can decide how to resolve that issue and in doing that will be making a political decision. If it is a political decision, it should be capable of being appealed to a politician who is responsible to this House in respect of whatever determination he makes.
This is not simply a matter of regulating what can and cannot happen. It is telling banks that they cannot tier their charges in particular ways, it is telling them what they can and cannot charge for certain categories of services and it is doing that at the instance of the Central Bank, and on the face of it, doing so in a totally unaccountable way. The Minister and his predecessor have been at pains to indicate that they would not interfere and that they were not responsible to this House for the activities of the Central Bank in relation to these matters. There is a lot to be said for giving the Minister political responsibility for political decisions and for requiring him to justify those decisions to this House. If a charge for a pass card is doubled, somebody should be obliged to account to this House for a decision of that kind.
Section 26 (3) (a) allows the Central Bank to direct the holder of a licence to refrain from imposing a charge, term or condition without the prior approval of the Central Bank but as drafted it seems to suggest that the only requirement is that they can direct somebody not to impose or change a charge without their prior approval. It does not seem to give them a right to refuse permission to do so in any circumstances. It seems that the Central Bank's veto is a sort of consultative veto in that they must be consulted on the matter. If the Minister means that the Central Bank may in fact prohibit or veto any charge made by a licensed bank, I would ask him to consider whether in those circumstances it would be appropriate to give the Central Bank the right of appeal to the Minister who would be accountable to this House for the decision.
This is happening in practice, but it is being provided for now on a statutory basis. The Central Bank in exercising their powers under this section must have regard to the promotion of fair competition. What happens is that if a bank decides on a particular thing, they notify the Central Bank who are in a better position than I to judge whether the charges are fair, and if the Central Bank feel that the charges are not fair they must do something about it. The Central Bank are the people with expertise in this area and not the Minister, and this is the way I propose to deal with it.
Amendment, by leave, withdrawn.
Amendment No. 44 not moved.
Question proposed: "That section 26, as amended, stand part of the Bill."
(Limerick East): I thank the Minister for accepting the three amendments and for introducing in his own form of words amendments I had put down. They have improved the section substantially and have met some of the fears expressed to me.
I will comment briefly on other aspects of the section with a view to putting down amendments on Report Stage when I have reflected on the overall effect of the Minister's amendments. There is a body of opinion which suggests that another subsection should be added to section 26 proposing that the provisions of the section should apply to building societies and any other institutions raising funds from the public by way of deposit or otherwise. Will the Minister say if such an amendment would be acceptable on Report Stage, or if he will introduce one himself? If such an amendment would not be acceptable I would like the Minister to tell me why not.
The existing non-statutory controls which have been in place for a number of years are effective and I have no objection to the introduction of statutory controls, but they should be uniform between all the institutions. If there is any doubt about the uniformity of their application, the Minister should take on board an amendment along the lines I have suggested.
An issue which has been raised by the Irish Bankers' Federation with the Minister's officials, and I presume with the Minister, is who will supervise the activities of other institutions taking money on deposit if such an amendment is not made to the Bill? How can we supervise the people either in the general area of banking or on the fringes of the banking world, who advertise for deposits but who would not necessarily be licence holders within the provisions of this Bill? We want fair competition between holders of licences and nonholders of licences. The whole thrust of this section is to control licence holders, but it seems to leave others involved in taking money on deposit outside of the remit of the section. I wonder is this wise. Will the Minister comment?
The Minister accepted the idea that interest rates were not charges, and were not intended to be, in the original text of the Bill, and has taken on board several other suggested amendments. I would like also to hear the Minister's views on how he sees competition. Does he envisage a situation where the Central Bank will operate the interest arrangements which have been in place since 1984? Does he envisage a situation where, when the playing pitch is level and other institutions are involved in a whole range of banking activities, and when we are moving away rapidly from a situation where the Associated Banks dominated the whole area of banking activity, there will be free competition at the level of interest rates as well as at the level of service provided? Does he envisage the Central Bank, through the mechanisms of this Bill, establishing price control in so far as price control relates to interest rates? I would like the Minister to comment because it seems that if we level the playing pitch and allow many new people to get involved in what traditionally was banking activity, once the regulatory mechanism is in place, the freer the competition the better from the point of view of the consumer. If there is to be real competition in banking it would have to be in the area of interest rates rather than anywhere else. If the banks and the building societies are to be subject to a price control mechanism, arising out of the matrix of interest introduced in 1984, where would be the scope for competition?
I would also like the Minister to inform me how he would see price control, implicit in the Bill, operating? Would this power be vested totally in the Central Bank or would the Minister for Finance, in consultation with the Central Bank, exercise control over interest rates?
I hope I will cover all the points the Deputy has raised. On the question of whether I should insert an amendment, I do not think there is any need for one as the matter is already covered by the Building Societies Bill but we can take another look at this question on Report Stage. On the question of who would look after those on the fringe, the Registrar of Friendly Societies looks after the credit unions. The State banks are, naturally, looked after by ourselves, the Department of Finance. The Trustee Savings Bank legislation will be published this week. Under that legislation they will be brought under the supervision of the Central Bank. The credit unions will also be brought under the supervision of the Central Bank.
(Limerick East): Does the Minister intend bringing them in also?
The State banks, such as the ICC and the ACC, are also covered.
I do not think we are missing out on anybody.
(Limerick East): I want to refer to the State banks and credit unions. The Minister is bringing the Trustee Savings Bank in, why does he not bring in the State banks? What is so special about the State banks? I am strongly of the view that if we are to regulate, we should have one regulatory agency.
That is what we are moving towards.
(Limerick East): If there is to be competition, everybody should be free to complete.
Under the one heading.
(Limerick East): Ultimately, it would come down to competition in the area of interest rates. I do not think this is possible at present.
As I said, the Trustee Savings Bank are being brought in. The question of whether the State banks should be brought in will also have to be dealt with. I believe they should be regulated by one straightforward supervisory authority. When this area is cleaned up there can be competition, as the Deputy rightly said.
(Limerick East): Is it the intention to have price control in the area of interest rates exercised by the Central Bank or does the Minister envisage licence holders being able to compete freely with different interest rates for different categories of customer?
I will not be stopping them and I do not envisage the Central Bank stopping them either. This arrangement will provide a flexible and market-oriented tool for supervising the principal retail and commercial lending rates of credit institutions. The arrangements will apply only to lending rates. The banks, like all other credit institutions, will be free to determine the appropriate level of deposit interest rates.
(Limerick East): Is it not the case at present that the associated banks, with the matrix of interest rates, are tied to specific differentials? While there may be a variation in the base rate, are they not subsequently tied to a set of differentials?
They can charge less if they wish.
(Limerick East): I know they can charge less if they wish but on the face of it that suggests there can be competition at lower interest levels. To enable the lending institutions to provide lower interest rates to low risk categories they have to be in a position to increase the maxima. I do not think it is as simple as the Minister suggests. I do not think they are free to compete as of now as they are tied to a very rigid band and the differentials are fairly specific. I would like the Minister to look at the possibility of loosening them up.
They do compete in certain lines of business. I am not saying they compete across every line of business. I am aware of cases where they do. Perhaps this is because the risk is low. They will compete in such cases. I accept what the Deputy has said in that they do not compete right across the board, but there is an element of competition. In recent times we have seen competition develop between the various lending institutions in the mortgage market. At one time a person got two and a half times their salary when applying for a loan for a house. With the banks and the building societies now competing with each other some are prepared to give a person three times his salary, other three and a half times. Some are offering different kinds of market attractions in order to attract more customers. Therefore, there is a fair bit of competition in that area of the market.
(Limerick East): It is proposed that the holder of a licence should, within a specified time of this section coming into operation, notify the bank of all charges imposed by it. Does the Minister think this section should make provision for an exchange of information between the Central Bank and the licence holder on procedures, conditions and interest charges and so on? For example, should a holder of a licence be required to notify the bank of any proposals to change any charge, term or condition or to impose any charge?
That matter is already covered under the section.
(Limerick East): Where?
Subsection (2) would require a licence holder to notify the bank of any changes in its charges, related terms or conditions which had been notified under subsection (1) and to notify the bank of any new charges and terms of conditions not already notified.
(Limerick East): I am aware the section would require a licence holder to provide certain information to the bank but would this section also require a licence holder to notify the bank of any changes in the conditions and terms it is offering? Would it require a licence holder to notify the bank on each and every occasion of a change in the terms or conditions?
Only the main changes, not every minute detail, would have to be notified.
(Limerick East): What I am trying to find out is how tightly drawn the section is and what are the exact requirements on a licence holder to notify the bank when a change in the terms or conditions takes place between the licence holder and the customers.
They are required to notify changes and charges in the main terms or conditions.
(Limerick East): I may return to this on Report Stage as I know the Minister's amendment takes this into account. Another group has suggested that there should be a requirement on licence holders to publish and advertise by way of leaflet, brochure or otherwise where they operate, the real range of interests and conditions they apply. In other words there should be an information provision on all licence holders which would be very welcome to many consumers as some of the advertising is difficult to understand at times. An institution took a full page advertisement publicising their deposit interest rate but it really applied to a two year period. When somebody looks at an advertisement of that kind they normally assume the rate to be a per annum basis. Of course that fact was mentioned in the small print but that is not enough. Is the Minister aware of the concern expressed publicly and privately by the Consumers' Association of Ireland that the licence holder would be required to provide information to the consumer in an easily accessible way, that is providing the information without any intent to mislead or any possibility of the consumer being misled, especially in regard to the conditions of a loan and, in particular, the interest that would be charged on a loan of a certain category or on a deposit?
The bank will be in touch with the individual licence holder. Subsection (b) states:
to publish, in such manner as may be specified by the Bank from time to time, information on any charge, term or condition applying to the provision of a service to the public or to any class of the public.
This covers the earlier concerns of the Deputy.
(Limerick East): I will return to it again, I just wanted to draw the Minister's attention to it.
Question put and agreed to.
SECTION 27.
I move amendment No. 45:
In page 21, paragraph (a), lines 20 and 21, to delete "with ‘banking"'.
This is a technical drafting amendment. The words being deleted by this amendment were included — and are — at the end of the definition and are superfluous in the context of the section. No substantive change to the section is involved.
Amendment agreed to.
Section 27, as amended, agreed to.
SECTION 28.
I move amendment No. 45a:
In page 22, line 9 to delete "under a unit trust scheme" and substitute "or trustee under a unit trust or collective investment scheme".
This section is in substitution for section 74 of the 1971 Act and exempts certain institutions from the requirement to hold a banking licence. These exemptions include a manager of a unit trust scheme. However, the regulations and usage recently introduced by the Minister for Industry and Commerce require that certain of the manager's functions be undertaken by a trustee of the unit trust. This amendment provides for the exemption to be extended, therefore, to include a manager or a trustee of a unit trust scheme. In addition it is necessary not only to refer to unit trusts but also to collective investment schemes generally to cover the case of the usage of other investment schemes which will be provided for in more general unit trust legislation under consideration.
Amendment agreed to.
Question proposed: "That section 28, as amended, stand part of the Bill."
(Limerick East): This section deals with exempted institutions. As I understand it, licence holders will include the associated banks and building societies. It is the intention of the Minister to bring in the trustee savings banks and, subsequently, State banks. Am I right in saying that when the whole package is completed only the credit unions and independently run unit trusts will be outside the remit or are the unit trusts being brought in also as a result of this amendment?
The unit trusts will be supervised by the Central Bank and only credit unions are outside it.
Question put and agreed to.
Section 29 agreed to.
SECTION 30.
I move amendment No. 46:
In page 24, subsection (1), lines 12 to 28, to delete paragraphs (c) and (d).
Amendment agreed to.
Section 30, as amended, agreed to.
Section 31 agreed to.
SECTION 32.
I move amendment No. 46a:
In page 26, lines 25 and 26, to delete "deposits (including deposits on current accounts)" and substitute "deposits (including deposits on current accounts) or other repayable funds".
Section 11 (3) (a) of the Central Bank Act, 1971, as amended by section 32 of the Bill, provides that where a bank has had its licence revoked, but is solvent, it remains subject to the full supervision of the Central Bank until all depositors are paid off. However, there may be other creditors of the bank from whom the bank has received repayable funds, not being deposits, for example, promissory notes or other debt instruments. This amendment simply clarifies that these funds must also be repaid in full.
Amendment agreed to.
I move amendment No. 47:
In page 27, between lines 46 and 47, to insert the following:
"(6) Any person aggrieved by a revocation or proposed revocation may apply to the Court for an order reversing or prohibiting such revocation, as the case may be, on the grounds:
(a) that the revocation is not in conformity with the provisions of this section, or
(b) that the revocation is unreasonableness, (the proof of such unreasonableness shall be upon the applicant).'.".
This amendment is in relation to the right of the Central Bank to make a revocation of a licence. The problem I have in relation to the revocation of a licence is that the grounds on which a person aggrieved by a revocation can act or do anything seem to be unsatisfactory. It would be desirable that a person who was aggrieved by a revocation — or a proposed revocation — could apply to the High Court for an order reversing or prohibiting such revocation as the case may be, on the grounds either that the revocation was not in conformity with the provisions of the section, in other words, that there was something technically wrong, that it had not been conformed with properly or, secondly, that the revocation was unreasonable. That, effectively, allows the holder of the licence to have an appeal on the merits. Appreciating that the Central Bank and the regulatory agency should not undertake the onus of proof because that would mean every revocation would degenerate into a long, protracted High Court proceeding, I have put in the safeguard that the proof of such unreasonableness should rest with the applicant. If, on the other hand, that means an applicant could show to the satisfaction of the High Court that what was being done was unreasonable on the face of it, he would have the right to have the revocation reversed or prohibited before it occured. Revocation of a licence is a very far-reaching thing to do in relation to a licensed bank and to allow no appellate procedure against the determination by the Central Bank that there should be a revocation is to give the bank very draconian powers indeed. On the other hand, to allow an open-ended right of appeal on every merit to every malefactor would probably be equally unreasonable. It seems to me that if somebody can establish to the court's satisfaction that the Bank is acting unreasonably that person should have a remedy made available to him or her.
This amendment could undermine the Central Bank as the supervisory authority and could be used to frustrate it where it was necessary to act with speed to protect depositors by revoking a bank's licence. Section 32 deals with the Central Bank's powers to revoke a licence and the procedure to be followed by and large is based on the existing system in the 1971 Act. It has stood the test of time and we have not encountered any problems in that regard. A principal tenet of the section is that the Central Bank should be able to revoke a licence on certain specific, clearly defined grounds. The suggested amendment would allow an appeal to the court. Since, in some of the cases specified as grounds for revocation, for example, conviction of an offence under this Act, it may be necessary for the Central Bank to act quickly to protect depositors, a specific provision to allow an appeal to the court could be used to frustrate the Central Bank. The section does allow for representations to the Minister and I feel that is a reasonable and sufficient safeguard for the licence holder. My main concern is to enable the Central Bank to act swiftly to protect depositors. I do not think that anything that might frustrate that would be in the interests of depositors. I should like to ask the Deputy to think again about his amendment in those circumstances.
I will think about the matter and I may revert to it on Report Stage. However, I will withdraw my amendment now.
Amendment, by leave, withdrawn.
Section 32, as amended, agreed to.
Section 33 agreed to.
SECTION 34.
The next amendment, No. 48, is in the name of Deputy Noonan (Limerick East). I observe that amendment No. 50 is an alternative and I am suggesting, therefore, that we discuss amendments Nos. 48 and 50 together.
(Limerick East): I move amendment No. 48:
In page 28, lines 23 and 24, to delete "the performance by the Bank of its statutory functions" and substitute "the protection of the interests of depositors of the licence holder".
The intention in the amendment is to put an obligation on the Central Bank to act in the interests of depositors of the licence holder. The intention of the section is that the Central Bank in carrying out a statutory function would be acting in the interests of everybody but I want a more precise direction from the House to it that its obligations would be, in the circumstances envisaged in section 34, to protect the interests of depositors of the licence holder.
The same thought occurred to me. The proviso I have put down is that no requirement shall be made under this subsection unless such requirement arises out of a concern by the Central Bank which relates directly to the interest of depositors or potential depositors of the licence holder in question. In other words, the power created in relation to records of the Central Bank should be one which is limited in its application and it should not be allowed to use this wide power as it pleases. The power should be directed towards a particular end and limited to that end.
I appreciate the points being put forward in both amendments, but I am not sure if they add very much to the section. The Central Bank's statutory function referred to in the section is, at base, the protection of depositors. However, to insert the particular words suggested might give grounds to a licence holder who does not want to supply information to require the Central Bank to justify the demand for it. I do not think we should place such an obstacle in the way of the Central Bank.
Both these amendments stem, I think, from concerns expressed by the Irish Bankers' Federation. Their problem, however, related more to the powers of investigation in relation to associated companies rather than to a licence holder itself. I think there should be no question but that a licence holder who is entrusted by the public with its deposits should have its books completely open to inspection by the Central Bank. In the case of associated companies, my officials drew the Irish Bankers' Federation's attention to subsection 3 (c) on page 29, which limits the inspection of books and so on to cases where this is materially relevant to the proper appraisal of the affairs of the licence holder and the Irish Bankers' Federation seem happy with this.
Amendment, by leave, withdrawn.
I move amendment No. 49:
In page 28, line 27, to delete "as he may consider necessary" and substitute "as he may reasonably require".
The amendment seeks merely to put in an objective standard and the Irish Bankers' Federation take the view that the clause as at present drafted is too wide, that there should be an objective test as to the powers which would be available in the circumstances to the person requiring production of the books. They suggest that it should be tied down to what he, objectively, reasonably requires rather than what he, subjectively, considers necessary.
The aim of the section is to allow the Central Bank access to any documents it considers necessary in order to carry out investigations. The requirement represents a restriction on that capacity. We wish to give the Central Bank as much power as possible to investigate since the links in financial deals may be many and varied. It must be allowed to trace these deals through all companies concerned.
Again, the Irish Bankers' Federation felt that an individual inspector might demand unreasonable information. Bank inspections are carried out in teams of staff under the guidance of a senior official of the Central Bank. I think we can trust the rectitude and expertise of such officials and their teams in seeking out relevant information.
I ask the Deputy not to press this amendment. It would put a restriction on their capacity to carry out full investigations. They should have access to all information they require, especially in regard to complex financial dealings. I am not inclined to accept the amendment.
What somebody reasonably requires, and what somebody considers necessary, are more or less the same thing. I would give the licensee the right to resist what they consider to be an unreasonable request whereas if it is entirely subjective they will have no right to resist.
Amendment, by leave, withdrawn.
Amendment No. 50 not moved.
I move amendment No. 51:
In page 29, line 12, to delete "accounts or other records" and substitute "books, records or other documents".
This is a technical amendment to bring the phrasing used into line with the wording used elsewhere in the Bill, for example, in subsection (4) of this section.
Amendment agreed to.
I move amendment No. 52:
In page 29, line 21 after "period" to insert "not exceeding 6 years".
In this amendment I am seeking to put a time limit on the period for retention of records. The Irish Bankers' Federation have suggested that a maximum retention period should be inserted and that a period of six years would appear appropriate. That seems reasonable to me. The period laid down should be limited and, unless somebody suggests that there should be a greater period I cannot see why the suggestion of the Irish Bankers' Federation should not be accepted by the Minister.
Deputy McDowell's amendment seeks to provide that books, accounts and records required by this section to be kept by licence holders should be kept only for six years. The section as it stands leaves it open to the Central Bank to specify the length of time. Six years is the norm and the Central Bank would accept that this is so. However, there may be cases where specific records are required to be kept longer than this and it would like the freedom to have the option, in exceptional circumstances, of so requiring. The amendment is opposed but the Deputy can be assured that the Central Bank will not seek to impose onerous conditions on the maintenance of clerical records. For instance, it may not be necessary to keep records of board meetings and minutes any longer than the period specified but I do not think it is too onerous a task to keep them for the specified period.
Amendment, by leave, withdrawn.
We now come to amendment No. 53 in the name of the Minister. I observe that amendments Nos. 54, 55 and 56 are alternatives and I suggest, therefore, that we discuss amendments Nos. 53, 54, 55 and 56 together by agreement. Is that agreed? Agreed.
I move amendment No. 53:
In page 29, between lines 22 and 23, to insert the following:
"(5) Where any person from whom production of a book, record or other document is required claims a lien thereon, the production of it shall be without prejudice to the lien.
(6) Nothing in this section shall compel the production by a barrister or solicitor of a book, record or other document containing a privileged communication made by him or to him in that capacity or the furnishing of information contained in a privileged communication so made.".
Section 34 amends section 17 of the Central Bank Act, 1971, by strengthening the provisions in relation to the keeping of books, documents and records by banks and their inspection by the Central Bank or an authorised officer of the Central Bank. The Irish Bankers' Federation have requested that two particular safeguards be inserted into section 17 to preserve the property rights of banks over any books or records produced during an inspection and to protect privileged communications from legal advisers. The particular provisions suggested by the IBF are the same as those in section 41 of the Building Societies Bill. I see no objection to making a similar provision in the Central Bank Bill and the two amendments I am putting forward are intended to achieve this effect. My amendments meet the purpose of amendments Nos. 54, 55 and 56 in the names of Deputies Michael Noonan and McDowell.
(Limerick East): I was momentarily distracted. I take it that the intent of the Minister's amendment is to meet the points raised by both Deputy McDowell and me in amendments Nos. 54 and 55?
Yes.
(Limerick East): Consequently, I want to indicate that I will accept the Minister's amendment and withdraw my own.
Amendment agreed to.
Amendments Nos. 54 and 55 not moved.
Section 34, as amended, agreed to.
NEW SECTION.
(Limerick East): I move amendment No. 56:
In page 30, before section 35, to insert the following new section:
"35.—Nothing in section 34 should compel the production by a barrister or solicitor of a document or material containing a privileged communication made by him or to him in that capacity, or the furnishing of information contained in a privileged communication so made.
It seems that in certain circumstances any interference in the professional relationship between a barrister or solicitor and his client is injurious to the rights of the client and also injurious to that professional relationship if matters which were deemed to be confidential are made public. I proposed this amendment with a view to introducing a saving section which would provide that "nothing in section 34 should compel the production by a barrister or solicitor of a document or material containing a privileged communication made by him or to him in that capacity, or the furnishing of information contained in a privileged communication so made". I wonder if the Minister is of the view that this provision is necessary, if it has already been taken care of within the Bill or will the section allow access to what, in normal circumstances, would be considered privileged documentation?
This was adverted to when we dealt with amendment No. 53, in the name of the Minister.
I have already covered that in regard to amendment No. 53, which also dealt with amendments Nos. 54, 55 and 56 in relation to privileged information.
(Limerick East): I am sorry, I missed that point.
Amendment, by leave, withdrawn.
SECTION 35
I move amendment No. 56a:
In page 31, line 1, after "instruments" to insert "including those".
Section 35 amends section 18 of the Central Bank Act, 1971, to allow the Central Bank to seek information from a wide range of financial institutions. Among those listed are persons carrying on the business of issuing, holding or otherwise participating in any market in financial instruments to which Chapter VIII of the Bill refers, that is, financial futures and options exchanges. The amendment I am now proposing broadens this category to participating in any market in financial instruments, and not only financial futures and options exchanges. The Central Bank have asked for this extension to cater for the development of newer and more sophisticated markets in financial instruments and the need for the Central Bank, as part of their general banking and monetary responsibilities, to monitor such developments. I believe this is a reasonable request and it is important that we draft the Bill so as to give the Central Bank flexible powers to be able to adapt their supervision to the fast pace of financial change.
Amendment agreed to.
Section 35, as amended, agreed to.
SECTION 36.
Question proposed: "That section 36 stand part of the Bill."
May I ask the Minister, in relation to the power of appeal or the power to set aside a direction under subsection (3), the grounds on which it is expected that the court would act? It seems remarkable that the court could simply set aside a direction. Will it set a direction aside on the basis that it was wrongly given or unnecessary? Will the court be at liberty to decide it on any ground, or will it be on legal error or procedural non-conformity? I am interested about that power because it amuses me that in some other areas the power of the court is restricted to a point of law. The Minister said that it would undermine the authority of the Central Bank as a regulatory agency in some other areas, but in this area the court will be given a wide and unlimited power to set aside any direction it likes and to substitute its own opinion.
There are no restrictions. The court can set aside the direction as it sees fit and there are no specific grounds given for doing this. I accept what the Deputy said about the provision being wide.
It is extraordinary that the philosophy behind the Minister's objections to my amendments earlier were that he should not be allowed interfere with the Central Bank's regulatory authority. There are other provisions in this Bill which allow the courts to act only on a point of law, and yet here there is an open-ended power being given to the courts to set aside a direction on any grounds where it appears to the court that it ought to do so. It is very rare to give a High Court a jurisdiction without any indication whether it is a procedural jurisdiction, a jurisdiction on merits or a jurisdiction which is to be exercised on the basis of expert evidence. Will a High Court judge be able to bring in witnesses and decide on balance, having heard all the evidence from one side or the other, that the direction in question should be set aside? This seems to be an extraordinarily wide provision.
It is a wide ranging provision. The Central Bank's powers are widened under this section. As the Deputy suggested, I will look at it from the point of view of possible restrictions on Report Stage. It is a wide provision and I accept what the Deputy has said, that a very wide ranging provision is being given to the Central Bank and, consequently, the wide ranging power is left to the court.
I only asked questions, I did not make any suggestions. I would prefer to see a wider jurisdiction rather than a narrower one.
It is a wide ranging provision on both sides, for the Central Bank and the courts.
Question put and agreed to.
SECTION 37.
(Limerick East): I move amendment No. 57:
In page 35, paragraph (b), between lines 5 and 6, to insert the following:
"(5) Section 23 of the Consumer Information Act, 1978, is hereby reenacted.".
The point at issue here is that while we all agree there should be a regulatory authority and approve of the fact that the regulatory authority are now being given the statutory powers to regulate, I believe there should be only one regulator. What I am trying to do in this amendment is to give the Central Bank the powers to supervise bank advertising. Section 23 of the Consumer Information Act, 1978, exempted the banks from certain provisions.
I am well aware that the amendment I have tabled is inadequate to convey my intent. I wanted to put down a marker and give the Minister an opportunity to reply to the issue I raised previously, which is that if we are regulating by statute, let us have one regulator; let us vest all the power in the Central Bank and in the Minister for Finance rather than running around different Departments subsequently trying to ascertain who is the regulator of one given activity.
I concede the amendment I have tabled is totally inadequate in terms of portraying my intent but I should like to hear the Minister's views on my intent.
Section 23 of the Consumer Information Act, 1978 exempts banks from the provisions of that Act. That exemption was repealed by the Restrictive Practices Act, 1988. It is the policy of the Government to abolish the special exemptions of banks and the Oireachtas so accepted in enacting the 1988 Act.
Deputy Noonan's amendment is surprising since it is understood that his predecessors in Kildare Street also supported the repeal of the section 23 exemption. The provisions of section 22 of the Central Bank Act 1971, referred to in this section, give the Central Bank a role in controlling banks' advertising from a prudential point of view, that is, to prohibit unacceptable advertising for deposits, etc. This is a legitimate concern of the Central Bank and does not impinge of any functions which the Consumer Information Act gives the Director of Consumer Affairs. If the Deputy is afraid there will be an overlap or conflict of interests, I believe that can be taken care of by mutual co-operation between the bank and the director.
(Limerick East): I accept everything the Minister says about my amendment. However, my purpose in tabling it was to ascertain whether henceforth we could have one regulator so that we would not be relaying on co-operation between different people. The Director of Consumer Affairs is an excellent man and the Central Bank an excellent institution but why have two fingers in the one pie? Why not vest all of these controls in the Central Bank and let them get on with the job?
This is a matter of opinion. The Director of Consumer Affairs is the watchdog for the consumer, the Central Bank the watchdog over the banks and, I suppose one could say, consumers as well. It is generally believed that consumers are better protected by the Director of Consumer Affairs in relation to the consumer aspect. It is a matter of opinion which way one comes down.
(Limerick East): In circumstances in which the Director of Consumer Affairs is dealing with licence holders and the Central Bank I would be of the view that he would find it difficult to carry out his remit without the Central Bank being absolutely behind him. If those are the circumstances in which the provision can be effective we might as well give the role to the Central Bank in the first instance. I cannot envisage the Central Bank moving unwillingly at the behest of the Director of Consumer Affairs.
Experience has been that the banks have used the powers about which we speak only in prudential circumstances and it was felt there was a need to introduce the Director of Consumer Affairs in order to protect the consumer. I might add that I am always on the side of the consumer.
(Limerick East): Since I am on the same side, I will withdraw my amendment.
Amendment, by leave, withdrawn.
Section 37 agreed to.
NEW SECTIONS.
I move amendment No. 58:
In page 35, before section 38, to insert the following new section:
"38.—Section 23 of the Act of 1971 is hereby amended by the substitution of the following subsection for subsection (4):
‘(4) In this section—
"liabilities" include such contingent liabilities as may be specified by the Bank from time to time for the purposes of this section;
"specified" means specified by the Bank in a requisition under this section.'.".
This amendment inserts a new section in the Bill to amend section 23 of the Central Bank Act, 1971. Section 23 of the 1971 Act permits the Central Bank to specify particular ratios to be observed by licensed banks between their assets and liabilities. A doubt has arisen as to whether "liabilities" in the section include "contingent liabilities". This amendment clarifies the position by inserting a new definition to this effect in section 23 (4).
The type of "contingent liabilities" in question cover guarantees by banks and certain types of new interest rate and exchange rate hedging instruments provided by banks — SWAPs, FRAs, etc. — where the liability of the banks is contingent on the occurrence of certain events or changes in interest or exchange rates. Since these items have become more and more a feature of banks' activities it is important that there be no doubt that the Central Bank's supervisory powers extend to those instruments in all cases.
I might add that a similar provision is included in section 39 (10) (b) of the Building Societies Bill.
(Limerick East): Is this merely a question of bringing the law into line with current practice or will the inclusion of “contingent liabilities” bring about a situation in which liquidity ratios will be changed leading to a restriction on credit?
The banks always have had these powers. As far as we know, it does not involve any change in the liquidity ratios we are talking about.
(Limerick East): I appreciate that the Central Bank had a power but what the Minister has said in proposing the amendment suggests there was a conflict about whether they had the right to impose that power over certain contingent liabilities and that the Minister is now making it clear that they have such power. Is this merely a clarification of the law or, as a result of acceptance of this amendment, will the associated banks be forced to act differently henceforth? Will there be a consequent movement in liquidity ratios which would have a knock-on effect of some restriction on credit?
No, it will not have any impact on credit ratios. As I have said, there is a similar provision in the Building Societies Bill.
Amendment agreed to.
I move amendment No. 58a:
In page 35, before section 38, to insert the following new section:
"38.—The Act of 1971 is hereby amended by the insertion of the following section after section 23:
‘23A. The Bank may, from time to time, specify as respects a holder of a licence requirements as to the composition of its assets and requirements as to the composition of its liabilities."'.
This amendment allows the Central Bank to specify prudential requirements as to the composition of a bank's assets and liabilities. The amendment is in the interests of consistency with the Building Societies Bill, section 39 (7) of which provides for the Central Bank to specify similar prudential requirements for building societies.
Amendment agreed to.
Sections 38 and 39 agreed to.
SECTION 40.
(Limerick East): I move amendment No. 59:
In page 36, line 16, before "Where the Court" to insert "Court hearings will take place in public, except".
This amendment allows for court hearings to take place in camera. My amendment proposes circumstances in which court hearings would take place in public except in certain specified circumstances. Generally speaking — if we might introduce clichés into the debate — justice should not merely be done but be seen to be done. The practice of holding in camera hearings runs counter to that age-old principle. I should like the Minister to expand on the intent of the section.
I have listened to what the Deputy has said. Because of the sensitive nature of such hearings before the court it is considered that the option should be available to the court to hear the proceedings in chambers so as to avoid any adverse publicity for the Central Bank which might prompt a run on it.
Article 34.1 of the Constitution provides that "save in such special and limited cases as may be prescribed by law", justice "shall be administered in public". Thus, the presumption already exists that hearings must take place in public except where otherwise provided for by law.
Therefore, the Deputy's amendment is unnecessary. It is covered by the Constitution. Indeed, there was an interesting case heard by Mr. Justice Costello recently vis-à-vis a managing director's contract when he felt that damage might be done to the relevant company and decided to have a private hearing. Whenever the courts envisage that it might create a run on the bank I have no doubt they would act accordingly.
In the circumstances, the Deputy's amendment is unnecessary.
Amendment, by leave, withdrawn.
Section 40 agreed to.
Sections 41 and 42 agreed to.
SECTION 43.
Amendments Nos. 60 and 61 are related. Is it agreed that they be taken together for discussion? Agreed.
I move amendment No. 60:
In page 37, subsection (1), line 32, after "matter" to insert "to the holder of the licence and".
The aim of my amendment is to achieve the same result as that of Deputy Noonan's amendment by different wording. If you look at section 43 (1) you will see that duties are imposed on the auditors of the holders of the licence to report certain matters, events or decisions to the Central Bank in writing and without delay. Primarily the duty of the auditor is to the shareholders of the company whose accounts he or she audits. This is now proposing that the auditor also take on board a duty to report to the Central Bank. I have no objection to that but in order to maintain the relationship of trust between the bank, and the auditor and to adequately provide for the relationship which would have to exist between the Central Bank and the auditor, an element of tripartite responsibility should be introduced here. The auditor, in addition to reporting to the Central Bank whatever decisions or facts he has uncovered or made under section 43 (1) (a) to (e), should also be obliged to report to the holder of the licence.
The substance of my proposal would be that the sentence "he shall report the matter to the Bank in writing without delay" be amended to read: "he shall report the matter to the holder of the licence and to the Bank without delay"; in other words, creating this tripartite relationship and not acting as a policeman for the Central Bank secretly and perhaps in a manner which would cause distrust between the Central Bank, the licensed bank and the auditor.
(Limerick East): My amendment, in general terms, has the same intent as that in the name of Deputy McDowell. The obligations of auditors are being changed in a major way in the Bill. I want to avoid a situation where an auditor who is under contract to a licence holder, would be put in a position of having to provide information to the Central Bank without the knowledge of the licence holder. This would, in effect, upset the professional relationship between the auditor and the licence holder. I would ask the Minister to reflect on this and, if possible, to introduce an amendment on Report Stage to take account of this.
Section 43 concerns the circumstances in which an auditor is required to report to the Central Bank. Amendment No. 60 seeks to ensure that in those cases set out in this section the auditor will report not only to the Central Bank but also to his client. I will be opposing Deputy McDowell's amendment since I believe it is already covered in subsection (4). Amendment No. 61 in the name of Deputy Noonan would require an auditor to report to the Central Bank via the licence holder. The object of section 43, however, is to ensure that the auditor can report directly to the Central Bank and that in the special circumstances of subsection (5) the Central Bank may insist that the auditor does not involve the licence holder in providing the particular information required by that subsection. That is not to say that the normal arrangements would be for the Central Bank to protect the auditor behind the back of the licence holder; that is not so.
However, there are undoubtedly circumstances in which the Central Bank will require to deal with the auditor independently of the licence holders. These are likely to be unusual cases, but cases which might entail the protection of the interests of depositors in the fullest meaning of that phrase. This is where we diverge slightly from the normal relationship between client and auditor. I would like to inform the Deputies that the same type of provision is already embodied in the Insurance Acts, and a similar provision was provided in the Building Societies Act. I accept the point being made about upsetting the normal relationship, but this is to deal with certain circumstances where depositors' funds could be at risk and in my view is reasonable.
I accept that the Minister is correct when he says that subsection (4) nearly covers my point, but I do not think it covers it completely because the obligation to send a copy is not as soon as may be and is not contemporaneous. What might happen is that the auditor may be effectively acting as an immediate spy for the Central Bank and then at his leisure he will inform his client. There is a difference between the obligation to report immediately to the Central Bank and the obligation, without any time limit, to send a copy of the report to the licence holder. I think it would be better to provide that the immediacy provided for in subsection (1) — that it is to be done in writing and without delay — should also apply to the bank. Then the relationship of trust, of which Deputy Noonan and I have spoken, would not be endangered. If there is a requirement to report immediately to one institution and then at your leisure to send a copy to your client, it does undermine the relationship of trust.
I imagine that the auditor who does not send his report to the Central Bank and to his client at the same time should not expect to hold his auditing job. I would expect any auditor to send the report to both at the same time. The amendment is unnecessary in the circumstances because I would expect that he would do that if he wants to keep his job and make sure he is still auditor of the company. I would not expect him to delay sending the report for a month because it could not be in his own interests to do so.
(Limerick East): I wonder if the Minister would see any merit in an alternative to section 43, which would propose that the accountancy bodies would produce for their members an auditing guideline setting out in precise terms the reporting responsibilities now proposed for bank auditors and the circumstances in which such responsibilities would arise. Auditing guidelines, I understand, are developed by the accountancy bodies to assist the auditor in the application of auditing standards and guidelines in particular sectors, industries and service organisations as well as the specific types of reporting engagements other than audits.
Each of the accountancy bodies has its own investigative and disciplinary procedures to ensure that its professional standards are being complied with. A guideline here could be discussed with the Central Bank prior to publication so that the supervisory authority were satisfied that compliance with the guidelines by the auditors would meet the Central Bank's objectives.
The legislation then could grant the Central Bank enabling powers to introduce detailed rules by regulation should they be dissatisfied with the guidelines produced by the accountancy profession. The guideline approach ensures that the reporting rules develop in accordance with Central Bank objective and provides on an ongoing basis a more flexible mechanism for revising the reporting requirements and supervisory objectives to take account of the rapid changes in the business and in the technology of banking. A clear balance can be struck as between the cost and benefit to the banks and to their depositors of the reporting requirement with the Central Bank able at all times to impose statutory regulations where the guideline approach is deemed to be deficient.
The accountancy bodies are obviously jealous of their privileges and like many professional groups, are anxious that as far as possible they would control their own standards. If the Minister would consider the alternative approach which has been put to me, and which I am now putting to the Minister, a more favourable resolution to the issue in section 43 might arise. If the Minister is not in a position to reply to this suggestion immediately, perhaps he would reflect on it between now and Report Stage. When I hear the Minister's response I may put down an amendment on Report Stage along these lines, if he would favour such an approach.
I had a similar representation. The request is in relation to guidelines and seems reasonable enough. There is nothing in the Bill to prevent the Central Bank from coming to practical working arrangements with auditors or the professional bodies. To include a subsection in the terms suggested by the representation — which is identical to the one I received — suggests that the Central Bank would in some way be able to vary the scope of the intent of section 43 to guidelines agreed with the auditing profession. I think the Deputy would agree that as a general principle this does not appear to be desirable. It is up to the Oireachtas to enact the law, not the Central Bank. It is unnecessary and inadvisable, therefore, to include this proposal in the Bill, although I would certainly approve of the Central Bank having a working arrangement with the various societies in relation to the guidelines to be followed. I feel, on balance, that we should enact the law and let them decide the working arrangements and the guidelines to be followed.
(Limerick East): I gather that the Minister does not see anything in this section which prevents the Central Bank and their professional bodies from coming together, agreeing on guidelines and operating the guidelines within the authority of this section.
That is right.
Amendment, by leave, withdrawn.
Amendment No. 61 not moved.
Section 43 agreed to.
Sections 44 to 48, inclusive, agreed to.
SECTION 49.
Amendment No. 61a is in the name of the Minister. Amendment No. 62 is an alternative and amendment No. 62a is related. I propose therefore, for discussion purposes to take amendments Nos. 61a, 62 and 62a together. Is that agreed? Agreed. I might say to Deputy Noonan, although he probably knows this already, that if amendment No. 61a is agreed, obviously his amendment cannot be moved.
I move amendment No. 61a:
In page 40, between lines 41 and 42, to insert the following paragraph:
"(c) the Bank;".
These amendments are requested by the Irish Bankers' Federation and referred to in amendment No. 62 in the name of Deputy Noonan. The purpose is to include (a) deposits held by the Central Bank with a licence holder; and (b) deposits held with a licence holder in the State by a branch of that licence holder abroad in the definition of "inter-bank deposits". These are not subject to the deposit protection levy and are not to be compensatable under the deposit protection scheme.
(Limerick East): I take it that amendment No. 61a, in so far as it covers the same ground as amendment No. 62, takes in category J, the Central Bank——
Right.
(Limerick East): ——and amendment No. 62a inserts “and deposits with the holder of a licence by any of its offices outside the State shall be deemed to be inter-bank deposits.” That would be category K——
Categories J and K.
(Limerick East): The Minister is not taking in categories G, H and I. Would the Minister comment, since we are discussing the three together, on the feasibility of taking G, H and I within the remit also?
I accept the idea of excluding deposits by the Central Bank and deposits by offices of the holder of a licence from outside the State that are deposits from a branch, say, in the United Kingdom. I put down an amendment for this purpose. As for industrial and provident societies and managers of unit trust schemes, these are not banks and so their deposits are hardly inter-bank. The Post Office Savings Bank are required to invest with the Minister for Finance and have no bank deposits as such of any great size.
(Limerick East): I thank the Minister very much for including the bank and also deposits with the holder of a licence by any of its offices outside the State. I accept that it would not be appropriate to include the other categories which I have mentioned. I withdraw my amendment.
Amendment agreed to.
Amendment No. 62 not moved.
I move amendment No. 62a:
In page 41, between lines 5 and 6, to insert the following:
"and deposits with the holder of a licence by any of its offices outside the State shall be deemed to be interbank deposits;".
Amendment agreed to.
Question proposed:"That section 49, as amended, stand part of the Bill".
(Limerick East): I can agree to that, but I was trying to cover some ground for Report Stage. I think I have already mentioned sufficient to give myself scope for any amendments that I may put down on Report Stage.
Question put and agreed to.
Section 50 agreed to.
SECTION 51.
(Limerick East): I move amendment No. 63:
In page 41, subsection (2), lines 23 and 24, to delete", or such other proportion as may be specified by regulations under section 68 (2),".
Section 51 sets out the level and basis of the calculation of the contribution by licence holders to the deposit protection account and the amount of the contribution is 0.2 per cent of the relevant Irish pound deposit with the holders, subject to a minimum contribution of £20,000 for every holder. The section also prohibits a licence holder from advertising if his deposits are protected unless the bank gives prior approval. I am introducing an amendment here to allow the Minister, by regulation, to vary the proportion under section 68(2). Does that meet with any kind of approval from the Minister?
The effect of this amendment would be to prevent the Minister from altering by order the 0.2 per cent levy on deposits which would fund the deposit protection account. This would not allow therefore for a change in the scheme at a future date when the circumstances might demand an increase or decrease in the contribution. The aim of the flexibility being allowed to the Minister is to cater for changing circumstances. The orders made under section 68 (2) can be made only after a recommendation from the Central Bank. It is unlikely therefore that the Central Bank would make a recommendation without taking due and full account of the impact on banks and the banking system. I believe that it is in the interests of the scheme to allow for some flexibility in the framework to cater for changing circumstances. In those circumstances, I would ask the Deputy to reconsider his amendment.
(Limerick East): The Minister has already much power. The fund is set up in the first instance and there is a minimum included, but not a maximum, that the Minister can take from appropriate deposit holders. Is that correct? Effectively, the Minister is applying a levy of .2 of 1 per cent to appropriate deposits and while it is subject to a minimum, it is not subject to a maximum.
Correct.
(Limerick East): That puts the Minister in a position where, if there were no banks or no licence holders getting into trouble, there would not be an early draw-down on the fund. As the business of licence holders expands, the relevant deposits would also increase, so the amount which the Minister or the Central Bank may drawn down increases also. Secondly, the Minister has the power subsequently in the Bill to reconstitute the fund in circumstances where that is necessary. The power, in the first instance, to apply this to all appropriate deposits and, secondly, to reconstitute the fund in certain circumstances seems to make it unnecessary to have the Minister take the power upon himself to vary the rate of the imposition. Varying the rate of the imposition is a matter for the House. Would the Minister reconsider my amendment?
The flexibility will be there for the Minister to reduce it, if the fund is not being used and the amount is going up. You cannot demand any more. You can reconstitute the fund once every year. At that stage you could use the flexibility in that regard if there was no draw down. I think the Deputy is afraid that the amount would keep going up.
(Limerick East): Historically, such flexibility allowed to Ministers went only in one direction but if the Minister intends to use the flexibility also in the opposite direction, I withdraw my amendment.
The Deputy might be here.
(Limerick East): Whether I am here or not, I still have the feeling that I will not be given that opportunity in the immediate future.
Amendment, by leave, withdrawn.
I move amendment No. 64:
In page 41, subsection (2) (a), line 26, after "excluding" to insert "such pound deposits of excluded depositors,".
This is a minor matter proposed by the Irish Bankers' Federation to exclude from the competition of depositors "excluded depositors" as defined in section 49 (i), which refers to moneys held in the bank by persons who are connected with the bank. The Irish Bankers' Federation have suggested that it would be reasonable to exclude them from the base on which the percentage is calculated.
The amendment suffers from one major drawback. Some of the classes of excluded depositors would not be known until a liquidation would arise and could not, therefore, in practice be excluded from the levy. For example, section 59 provides that certain persons who caused or profited from a licence holder's demise may be excluded from compensation. Furthermore, even in respect of certain classes of named excluded depositors, under section 49 there is an appeal to the court to determine whether particular individuals should be excluded or not.
With due respect, the Deputy's amendment causes practical difficulties and even in those cases where it is possible to identify certain classes of excluded depositors in advance, the time and expense of the banks in isolating the deposits in question may be out of all proportion to the benefit to be gained from a reduced deposit base for the levy.
I have listened to the Deputy make the case on the submission from the Irish Bankers' Federation. The position has been explained to them and I understand they are reasonably happy with it.
If they are happy, I am happy.
Amendment, by leave, withdrawn.
Amendment No. 66 is an alternative to amendment No. 65 in the name of Deputy McDowell. It is proposed, with the agreement of the House, to take amendments Nos. 65 and 66 together for discussion purposes. Is that agreed? Agreed.
I move amendment No. 65:
In page 41, subsection (2), line 32, after "£20,000" to insert "nor more than £4,000,000".
These amendments in my own name and that of Deputy Noonan have the same intent, that is that the amount that would be payable by a depositor would not only have a lower floor level but a ceiling level. I feel that the fund in question should not be one that is contributed to on a pro rata basis by the very large banks, irrespective of the size of their deposit base. I think there is a strong case to be made for the proposition that they are less likely to fail than the smaller banks. Since they are less likely to fail, they are, in effect, being asked to act as insurers for the smaller banks. To use an insurance term, the moral risk is less in the case of a large bank than it is in the case of a small bank.
Smaller banks traditionally resort to a more competitive strategy than the larger banks; they take the higher risks and they appear to be more likely candidates for recourse to the fund. Having provided a fund which is sufficient to meet the likely requirements of the failure of a small bank, it should not be the case that the large banks should have to go further and be required to contribute on a pro rata basis to a risk which really is not theirs, as far as they are concerned. In those circumstances I think there is a strong argument to be made for putting an upper limit on the size of the contribution that has to be made.
(Limerick East): My amendment has the same intent, but I would like to explore the issue with the Minister. I am not tied into any particular ceiling but I think it is objectionable to have it open-ended.
Both amendments seek to place a maximum upper limit on the size of individual contributions to the deposit protection account. For the reasons explained on Second Stage, I am not in favour of an upper limit. I cannot see the difficulties of the banks with the present requirements. We are talking about a fund of £18.5 million, which is modest by any standards, especially when compared with total bank assets of £24 billion. Furthermore, the funds in the deposit protection account belong to the banks and earn interest in the same way as other funds held with the bank. The amounts in the deposit protection account will count as part of their primary liquidity ratio. In the case of Deputy McDowell's suggestion, the account would be reduced by approximately £4 million, to about £14 million and if Deputy Noonan's amendment were accepted the account could be reduced to £6.5 million. I think the size of the fund as proposed in the Bill is not excessive. The Central Bank have calculated it on the basis of the assets the banks hold with them.
With a few exceptions, the bulk of small banks operating in the country are subsidiaries of major banks. There are a few exceptions, but I do not think it is excessive.
From history and experience it is more likely that a smaller bank would have recourse to the deposit protection account. Therefore, to require the larger banks to subsidise the insurance to the depositors with the smaller banks is, in principle, only acceptable up to a certain point. There should be a ceiling put on the contributions to the fund with a view to reinforcing the substance of the risk in the minds of the smaller banks, that it is they who, proportionate to their funds, will carry more of the risk because they are the more risky propositions. That seems to me to be a legitimate policy consideration to put into a Bill, that in terms of insuring deposits, you take account of the actual likelihood of defalcation and it does not appear that depositors in the large banks need the protection as much as depositors in the small banks.
Whatever the Minister says about these funds being small and insignificant and that they earn interest, I have no doubt that they might earn more interest if they were put elsewhere. To the extent that they are kept in the fund, they are a subsidy to the banking system generally. The subsidy is that they provide a guarantee of deposit protection. If there is a deposit protection subsidy to the smaller banks, it occurs to me that it is a subsidy from the bigger to the smaller players and I am not happy that that should be an unlimited subsidy.
While I accept it is reckonable as part of their primary liquidity ratio, I still believe that it inevitably ends up with the bigger banks subsidising the smaller and riskier banks. If we are talking in terms of competitive forces, this subsidy is an anti-competitive force because it undermines the principle of competition that those who are big and play safe have to subsidise those who are smaller and play riskier in the market. I believe there should be an upper limit and I cannot see any justification for this cross subsidy without limitation especially when the reality is that the smaller banks are at more risk. A capped fund is quite adequate to deal with any situation that would arise in the smaller banks.
(Limerick East): The Minister has said that the deposits held in the deposit protection account would be treated as part of the primary liquidity fund. As a consequence, would it not be true to say that the money which would be categorised as money in the fund is already on deposit with the Central Bank and is part of the liquidity fund?
It is already tied up.
(Limerick East): It is on deposit in the Central Bank and is reckonable as part of the primary liquidity fund. Arising from that, is it not true to say that there would not be a requirement on any bank, no matter how large, in present circumstances, to deposit more than they have already deposited and is it not just a question of reclassifying funds that are already deposited with the Central Bank or are we talking of an additional tranche of money on deposit? It would appear from the Minister's reply that there will be no new deposit made but that existing funds in the Central Bank will be reclassified and the issue is now the risk to the bank in the event of failure. Obviously the primary liquidity fund is not at any risk, but money on deposit treated as part of the primary liquidity fund is at risk to other banks going broke and calling on the deposit protection fund. I would like the Minister to confirm that this is the only risk and that Deputy McDowell's suggestion that the money could be put on deposit elsewhere does not arise from my interpretation of the Minister's remarks. If that is the way the Minister envisages it working, I would be prepared to withdraw my amendment.
What happens if the fund is cleaned out and has to be replenished? If it is reconstituted it has to come in as a fresh fund, not from the existing ratios but the banks have to make it up again. It is a subsidy from the larger banks to the smaller banks by way of insurance. I am not so sure that if there was a run on the fund, so to speak, it would not end up with the larger banks paying more than their fair share towards the riskier smaller banks.
Deputy Noonan has more or less answered the points I was going to raise. It is tied up in the liquidity ratio already. It is a recategorising of the funds. Undoubtedly if the fund is dissipated or drawn down it then has to be replaced but at present that is the position. The funds would not be available for on-lending to more beneficial areas. It would be invidious for me to speculate as to whether the risk is greater for a small bank or a large bank to go under. In most cases the quality of the management in the bank will decide that whether they take good or bad risks. Sometimes with a large bank it depends on what kind of business they decide to go into as to whether they will be successful or otherwise. It is not right to point to smaller banks as against larger banks in that area. Anyway the measure only applies to deposits up to £10,000. Anybody who is going to invest £50,000 or £100,000 will know he is not protected by this measure and he will have to make his judgment as to where to place the money.
I will give the example of two banks competing with each other to get deposits. As a result of this measure both of them can tell the people that they are copperfastened up to £10,000, that their deposit is safe. If the bank which offers the higher rate of interest — we are all talking about competition — and takes the greater risk of failure by doing so, can rely on the more conservative, larger bank which is more flatfooted in terms of its competition policy to act as a guarantor of its deposits, which is what this means, and if when the fund comes to be replenished the bigger banks have to pay for the smaller bank's riskier interest and competition strategies, it is wrong in principle to ask the larger players to subsidise their friskier competitors. The larger banks should not have an unlimited liability to contribute to a fund in these circumstances and the smaller banks should have it borne on them that they adopt a competitive strategy to bring in more money. Experience shows that it is the smaller banks that run into problems. People tend to be concerned with the guarantee of deposit protection when they invest with a smaller bank much more so than when they invest with the Bank of Ireland or the AIB. This deposit measure is of value to the smaller banks and the ones which are paring down their margins to the minimum and adopting the most competitive strategy. It is anti-competitive to require this fund to be replenished pro rata by people who do not carry the same risk.
The smaller banks are under the supervision of the Central Bank which should make sure they do not engage in wild activity that might lead to their demise at the end of the day. It is not true to say they can use the measure as a competitive advantage. Advertising of deposits up to £10,000 is banned as a competitive instrument under section 51 (9) (a) so they cannot use it in that regard. Large banks have certain advantages over small banks in many cases. They have access to better credit guidelines in many areas. I do not see this as a subsidy; it is a measure to protect depositors' money.
Do I take it that Deputy McDowell is not pressing amendment No. 65?
Subject to the observation that it is not a ban but only a requirement of consent in relation to section 51 (9) (a).
It amounts to a ban.
Amendment, by leave, withdrawn.
(Limerick East): I move amendment No. 66:
In page 41, subsection (2), line 32, after "£20,000" to insert "or more than £750,000".
Amendment, by leave, withdrawn.
(Limerick East): I move amendment No. 67:
In page 41, subsection (3), line 42, after "1971." to insert "Recalculations of the amount of the deposit shall be on the average of the deposit for the 12 months immediately preceding the recalculation date.".
This is self-explanatory. The recalculations of the amount on deposit should be the average of the amount on deposit for a 12 month period rather than the amount on deposit on the actual date at which the legal requirement arises.
I accept the intent of the Deputy's suggestion. The Central Bank have informed the licensed banks that the calculation will be based on a 12 month average and the banks have accepted that. They do not feel it is necessary to specify the method of recalculation in the legislation. It may well be that at some future date the Central Bank, with the concurrence of licence holders, might wish to use some other method of calculation. I hope what I have said meets the Deputy's concern in relation to the amendment.
Amendment, by leave, withdrawn.
Section 51 agreed to.
Sections 52 to 54, inclusive, agreed to.
SECTION 55.
I move amendment No. 68:
In page 44, subsection (3) (b), to delete line 6 and substitute the following:
Section 55 (3) (b) sets out how the amount of compensation for a depositor is to be determined when there are insufficient funds in the licence holders' deposit protection account. This deposit is vested in the liquidator by virtue of section 54. Thus if all depositors combined are entitled to be compensated to the sum of £100,000 in total — represented by y in the formula — but the licence holder's deposit is only £50,000 — represented by x in the formula — each depositor will receive a proportion of his deposit based on the relationship of x over y, that is, in this case, 50 per cent. To achieve this effect the proportion represented by x over y must be applied not only to reduce the eligible sums which the depositor has on deposit — A, B and C — but also to reduce the amount otherwise available from the proceeds of the liquidation — represented by D in the formula.
Through an oversight the original formula did not apply the proportion x over y to D. The revised formula does so and is mathematically correct in its desired effect. While in the example I have just given each depositor will receive only 50 per cent of his eligible deposit from the funds vesting in the liquidator, the other 50 per cent will be met from general deposit protection by virtue of section 56.
The Minister is reminding Deputy Noonan of his leaving cert maths.
(Limerick East): In the absence of a blackboard and chalk on the Minister's side of the House, I have no intention of getting involved in this and I accept what the Minister has said.
I will be totally pedantic and suggest to the Minister that his amendment should have a capital X and a capital Y to coincide with the rest of the section.
Agreed. They should be capital letters.
Amendment agreed to.
Section 55, as amended, agreed to.
Sections 56 to 59, inclusive, agreed to.
SECTION 60.
Amendments Nos. 68a and 68b are related and therefore may be discussed together.
I move amendment No. 68a:
In page 47, subsection (2) (a), line 19, after "exclusion" to insert "or deduction".
Section 62 allows, in certain cases, a depositor, excluded from compensation, to appeal to the High Court and the court may set aside the exclusion. However, a person whose eligible deposits were reduced because of a set-off of the deposit against an outstanding debt under section 58 (2) does not have that right of appeal. This was an oversight and the purpose of the amendment is to allow an appeal in such cases also. It is a technical amendment.
Amendment agreed to.
I move amendment No. 68b:
In page 47, subsection (2) (c), line 33, after "exclusion" to insert "or deduction, as the case may be,".
Amendment agreed to.
Section 60, as amended, agreed to.
Section 61 agreed to.
SECTION 62.
(Limerick East): I move amendment No. 69:
In page 49, subsection (1), line 4, to delete paragraph (b).
I do not think it a good idea that the moneys in deposit protection funds should be used for other purposes than to compensate eligible depositors in banks. Consequently I move that section 62 (1) (b) be deleted to ensure that the money would not be used for other purposes.
I share that view and I put down the fact that I was opposed to the section in its entirety rather than seeking to amend it. The purpose of this section is to allow the bank at its discreation and to the extent that it deems proper from time to time to charge on the deposit protection account any other payment out of the general fund which, in the opinion of the Central Bank, was applied to protect the interest of persons or any class of persons maintaining deposits with one or more holder or former holders of licences, or to promote the orderly and proper regulation of banking.
Here we have the deposit protection fund being potentially looted by the Central Bank for other purposes — one of them is to protect the interests of persons maintaining deposits. That could be anything, it could be a fire brigade fund to reconstruct the finances of a bank which was a going concern. We are back to the old system that would allow one bank to be reconstructed or recapitalised courtesy of the other banks and they have to make good any shortfall in this fund. I am not keen on that. I do not know why the deposit fund should be lootable — to use a horrible word — to promote the orderly and proper regulation of banking. That is so general as to mean virtually anything. If the Central Bank can apply the moneys for that purpose, they can effectively use it as a fund of last resort in circumstances which are not clearly defined in the Statute.
Subsection (2) says the Central Bank is supposed from time to time to keep the Minister and the holder of the licences informed of the general principles which the Central Bank proposes to use in applying the funds in this way, but what about the Legislature? When will the Central Bank tell the Dáil what they propose to use these moneys for, and in what circumstances they propose to use these moneys? We are creating a fund and giving authority to the Central Bank to use the moneys out of that fund, then we are told the Central Bank will tell the various affected parties how they propose to use those funds from time to time. I am not keen on that provision. I think the Bill when enacted would be just as strong without it. A little discipline and tightness would be imposed on the Bill if this loophole or recourse provision was taken out.
The purpose of section 69 is to allow the Central Bank to use the deposit protection account in situations in which the stability of individual licence holders is threatened or where the banking system as a whole has been subjected, or might be subjected, to some financial shock or crisis. Obviously, we are speaking here of very limited circumstances of grave peril which would require immediate and concerted action. Deputy Noonan's amendment essentially seeks to allow the fund to be used only in the case of threats to particular licence holders. I do not think we should limit ourselves in this manner. There may well be circumstances in which action may be needed to promote "the orderly and proper regulation of banking". This phrase is used throughout the Central Bank Acts and is commonly understood to refer to situations which affect bank stability generally. It would be most unwise, in my view, not to cover such situations.
Deputies may consider that the powers being given to the bank in this section are too wide, and I am conscious of these concerns and that is why subsection (2) has been inserted. This requires the Central Bank to formulate principles in advance for the manner in which the fund will be used under section 62. These principles will have to be notified to licence holders and their views listened to. The Minister, too, is required to be kept advised of these principles. Subsection (2) is no mere rhetoric or window-dressing. It places an onus on the Central Bank to proceed in a judicious and open manner and ensure that the licence holders are part of the process. I believe that may meet the concerns of the House.
We will look again at subsection (1) (b) to see if we can improve the wording before Report Stage.
I was going to suggest that paragraph (b) is pretty vague by any standards. For instance, if the consent of the Minister was required to the establishment of the principles, or if the Minister was given a veto over the use of the money, he would have something. Just keeping him informed of what they propose to do or how they propose to do it, does not seem to be sufficient. This is the kind of thing for which there should be political responsibility in the last analysis. At least either the Minister's consent should be required in advance or he should be notified with the power of veto to say that they cannot use the money for that purpose, or that he does not want it used for that purpose. Because it is a circumstance in which the funds of one bank can be used to shore up a competitor, and it is not simply to protect depositors but to take a wider view of their solvency on some other front or some other unforeseen event, then under simple, ordinary competition rules they should be tied down as far as possible and this should not be a general fire brigade section. I cannot see why the Minister would not require that his Department be informed and that he would have a right of veto, or at least a right to be consulted in advance of any applications.
The Central Bank have to supervise and I doubt whether any Minister for Finance would be too happy, now or in the future, to have the last say on the question of the collapse of a bank. I accept what the Deputy says, that this is very wide and we will look at it before Report Stage. There is a phrase in the Building Societies Bill, "the maintenance of the financial stability and well being of societies generally", and we will look at it before Report Stage and I hope I can satisfy the Deputy. In certain circumstances, it may cost less if the fund becomes involved earlier, and it might be in the interests of others in the fund to do it that way. I agree with what the Deputy is saying. This is too wide and we will try to improve it.
It is something like the ICI-AIB matter, and I am not passing any judgment on the merits of that. Could this fund be used for that purpose? I am worried about creating a fund——
It would take members of the "A Team" to bail out of that.
I know, but there could be lesser instances of the same thing. I am worried about creating a fund which has this kind of global purpose added to it.
Amendment, by leave, withdrawn.
Question proposed: "That section 62 stand part of the Bill."
I am not agreeing.
Shall I put the question?
No, it is just that I am not agreeing.
Question put and agreed to.
SECTION 63.
Question proposed: "That section 63 stand part of the Bill."
(Limerick East): This raises some of the issues we dealt with under section 51 in so far as some of us wanted to put a cap on the liability of any licence holder in terms of deposits to the fund. In the course of the discussion on that, the Minister said contributions would qualify as primary liquidity. I understand he also implied, and I would like him to confirm, that the interest rate payable on moneys in the fund should be the same as that paid on primary liquidity. Could he confirm that?
I confirm it. It is at the Central Bank's discretion to pay, but there is no reason for us to believe it should be different.
(Limerick East): Will the Minister confirm it for me on Report Stage.
I will, on the understanding that that is the case.
(Limerick East): In the Minister's opinion, would Government deposits in the accounts of licence holders be included in the calculation of contributions or would Government deposits be outside the remit of the calculation of the 0.2 per cent levy on eligible deposits? Are Government deposits eligible deposits for the purpose of the levy?
They would be included but they would be small.
(Limerick East): Would the Minister consider excluding them?
I will have a look at it.
(Limerick East): Regarding payments out of the fund in the event of a drawdown, the payments will obviously be charges on licence holders. Will they be tax deductible subsequently?
Yes.
(Limerick East): Is it the intention that the Central Bank will maintain separate deposit protection funds in respect of banks and building societies and any other activities that may in the future require a similar type of fund or will there be one fund to deal with all licence holders and all new entries to the business?
No decision has been taken on the latter part yet. It could be either one or two separate funds.
(Limerick East): I intend to seek clarification on that matter on Report Stage.
Question put and agreed to.
Section 64 agreed to.
SECTION 65.
I move amendment No. 70:
In page 50, subsection (1), lines 8 and 9, to delete paragraph (c), and substitute the following:
"or
(c) which, in its opinion, ought to be lodged to that account.".
This is purely a drafting amendment to paragraph (c) of section 65 which refers to any other sum received by the Central Bank which, in its opinion, ought to be lodged to that account. The words "any other sum received by the Bank" are superfluous since paragraph (c) is already governed by the phrase in line 4 —"any sum paid to the Bank". This amendment removes the offending words. There is no substantive change to the section.
Amendment agreed to.
Section 65, as amended, agreed to.
Sections 66 to 70, inclusive, agreed to.
SECTION 71.
Amendment No. 71 in the name of Deputy McDowell. Amendment No. 72 is an alternative. Therefore, amendments Nos. 71 and 72 may be discussed together.
I move amendment No. 71:
In page 52, paragraph (b), lines 25 to 28, to delete from and including "or an associated enterprise" down to and including "subparagraph (v)".
I have received representations from the Irish Bankers' Federation to the effect that this section seems to bring within the scope of acquiring transactions any acquisition of shares, however small, either by a person who already holds in excess of the prescribed 10 per cent or which would cause an existing holder to go over the prescribed percentage. Their anxiety is that this would affect some existing institutional investors in the banks. They are concerned that the reference in paragraph (b) of section 71 to an associated enterprise should be deleted. They believe that the section has enormous implications for institutions, including banks and associated companies, whose normal course of business includes taking equity stakes in companies. In view of those representations I have tabled this amendment. Deputy Noonan's amendment is along similar lines. Perhaps the Minister will indicate his response to the bank's anxieties in this matter.
I can accept that the inclusion of associated enterprises in this section has caused problems. I will bring forward an amendment on Report Stage to delete the reference and to exclude certain share acquisitions by banks from the section, such as nominee holdings, share underwriting and shares held as security for loans.
(Limerick East): Thank you.
Amendment, by leave, withdrawn.
Amendment No. 72 not moved.
Section 71 agreed to.
Section 72 agreed to.
SECTION 73.
Amendment No. 73 in the name of Deputy McDowell. Amendment No. 74 is an alternative and amendment No. 75 is consequential. Amendment No. 76 is an alternative to amendment No. 75. Therefore amendments Nos. 73, 74, 75 and 76 may be discussed together.
I move amendment No. 73:
In page 53, subsection (2), to delete lines 34 to 42, and substitute the following:
"(b) where the proposed acquiring transaction is of such nature that the provisions of the Mergers, Take-Overs and Monopolies (Control) Act, 1978, would, but for subsection (4) hereof, have applied, he has consulted with
(i) the Minister for Industry and Commerce and
(ii) such other Minister of the Government appearing to the Minister to be concerned
and he shall refuse to give his consent where he considers that the exigencies of the common good so warrant.".
I have received representations to the effect that subsection (2) (b) of section 73 should be deleted on the grounds that the public interest would appear to be more than adequately protected by the powers conferred on the Minister by other parts of the section. The Minister can refuse to consent to any such transaction if he is satisfied that it would not be in the interests of the orderly and proper regulation of banking or that it would be contrary to the common good. The subsection is also viewed as undesirable on the basis that it requires the Minister for Finance to consult with other Ministers and that would be a duplication of effort which might cause unnecessary confusion. The banks in question propose that if that could not be deleted, the subparagraph in question could be amended to read as follows:
where the proposed acquiring transaction is of such a nature that the provisions of the Mergers, Take-Overs and Monopolies (Control) Act, 1978, would but for subsection (4) hereof, have applied, he has consulted with—
(i) the Minister for Industry and Commerce and
(ii) such other Minister of the Government appearing to the Minister to be concerned,
and he shall refuse to give his consent where he considers that the exigencies of the common good so warrant.
It would be provided in subsection (4) that the Mergers, Take-Overs and Monopolies (Control) Act, 1978, would not apply to an acquiring transaction to which this section applies. In view of those cogent points made by the Irish Bankers' Federation in relation to the avoidance of duplication and the fact that the Minister already has powers of a sufficient kind available to him, I would ask him to heed the view that these provisions are not necessary in their present stringent form.
(Limerick East): There are similar amendments in my name and I support the submission made by Deputy McDowell.
The object of these amendments is to seek to exclude any transactions covered in this chapter from the Mergers, Take-Overs and Monopolies (Control) Act, 1978. The substance of the amendments was, I believe, proposed by the Irish Bankers Federation, which feared that the banks would be required to comply with the provisions of two sets of legislation. I appreciate its concerns but the fact is that the Mergers, Take-overs and Monopolies (Control) Act, 1978 and the provisions of this Bill address the issue of bank take-overs and banks' participation in take-overs from two quite different perspectives. This Bill is concerned principally with prudential considerations; is the take-over safe?; should these people be let run a bank?, etc. The Minister for Finance becomes involved when it is a question of effective control of banking in the State passing into new hands.
The Minister for Industry and Commerce's concern is the effect of take-overs on competition generally and the question of banks taking stakes in or building up conglomerates covering a wide range of commercial activities. I recognise these legitimate interests and my colleague's anxiety to retain a say in this matter. I held that view when in that Department. The wording of section 73 (2) reflects and recognises the dual role. Indeed, this is the way in which, by and large, the present system operates. Any bank wishing to acquire another firm first notifies and clears this with the Central Bank, after which formal notice is given under the mergers Acts. This procedure will continue, except that the Minister for Finance will now be formally required to give consent in the cases to which section 73 refers. In deciding whether to give my consent, I would, of course, consult the bank and the Minister for Industry and Commerce. Administrative procedures can and will be worked out to minimise the delay and paperwork involved. The House can be assured on that point.
When colleagues in Government sit around the table it is there for open discussion. I have to confess openly that as Minister for Industry and Commerce I held the view fairly strongly that the mergers and monopolies legislation approached the matter from a different direction. There are different situations to be looked at, including the common good and all that area. I would not concede those amendments. I have a very strong view. Maybe Deputies have different views.
How stands the amendment?
I am not going to push it to a vote.
Amendment, by leave, withdrawn.
Amendments Nos. 74 to 76, inclusive, not moved.
section 73 agreed to.
Although we did not reach some of the amendments I want to serve notice that I will be putting down amendments on Report Stage on section 126 dealing with the Bankers Book of Evidence Act, 1879, and on section 127, dealing with the Bills of Exchange Act, 1882, which will deal with matters raised in amendments Nos. 88 and 91. I would also propose a small amendment to the provisions in Chapter 7 on supervision of international financial services centre companies.
Would the Minister consider doing something on foot of my amendment No. 90 which is levelling the playing pitch in relation to certifying discharge of mortgages by banks?
It is already taken care of in the Housing Finance Agency Bill last year.
If it is, I am happy.
As it is now 7 o'clock I am required to put the following question in accordance with an Order of the Dáil of this day: "That the amendments set down by the Minister for Finance and not disposed of are hereby made to the Bill in respect of each of the sections undisposed of, and the section or, as appropriate, the section as amended is hereby agreed to and the Schedule and the Title, as amended, are hereby agreed to, and that the Committee reports that it has gone through the Bill and has made amendments thereto, and has amended the Title to read as follows:—
‘AN ACT TO AMEND AND EXTEND THE LAW RELATING TO THE CENTRAL BANK OF IRELAND, THE DECIMAL CURRENCY ACTS, 1969 AND 1970, AND THE LAW RELATING TO CERTAIN FINANCIAL TRANSACTIONS AND TO PROVIDE FOR OTHER MATTERS CONNECTED WITH THE MATTERS AFORESAID.'.".
Question put and agreed to.
When is it proposed to take Report Stage of this Bill?
Tomorrow, subject to the agreement of the Whips.
Is it agreed to take Report Stage tomorrow? Agreed.
Report Stage ordered for Wednesday, 24 May 1989.