Michael Creed
Question:13 Mr. Creed asked the Minister for Finance if he is satisfied with the performance of the Central Bank in the Gallagher affair; and if he will make a statement on the matter.
Ceisteanna — Questions. Oral Answers. - Banking Institutions.
Patrick McCartan
Question:25 Mr. McCartan asked the Minister for Finance if he has received the report of the Liquidator of Merchant Banking Limited; if he intends to take any action as a result of the report; if he is satisfied with the performance of the Central Bank in regard to the regulation of the financial sector, especially in light of the details which have emerged about the collapse of Merchant Banking Limited; if it is intended to provide the Central Bank with any additional powers; and if he will make a statement on the matter.
Michael Noonan
Question:31 Mr. Noonan (Limerick East) asked the Minister for Finance if, arising from the revelations in the recent "Today Tonight" programme, concerning the affairs of Patrick Gallagher, he is satisfied that the Central Bank has sufficient powers to supervise the activities of all banking institutions conducting business in this country; if these powers were properly exercised in relation to banking activities in the case of Patrick Gallagher; and if he will make a statement on the matter.
Mervyn Taylor
Question:57 Mr. Taylor asked the Minister for Finance if he will make a statement regarding the serious allegations in the "Today Tonight" programme on 21 February 1990 that no adequate financial controls or inspections were carried out on Merchant Banking Limited up to its liquidation resulting in losses of £4 million savings of small depositors and the undermining of financial stability; if he will allay public concern in this matter; if discussions with the Central Bank are to take place with the possibility of introducing a compensation package for the small investors who lost their savings, in the same manner as the Central Bank organised for Allied Irish Banks following the collapse of the Insurance Corporation of Ireland.
I propose to take Questions Nos. 13, 25, 31 and 57 together. The supervision of licensed banks is a matter for the Central Bank. I have no function in this regard. The liquidator does not report to me but to the courts.
The Central Bank Act, 1989, established a Deposit Protection Scheme to compensate small depositors with licensed banks if they fail in the future. I have no proposals to amend the legislation to introduce a special scheme to compensate depositors in Merchant Banking.
The Central Bank Act, 1989, also gave the bank new powers in relation to the supervision of Banks. I am satisfied that the Bank has sufficient powers available to carry out its supervisory functions.
A Cheann Comhairle——
I am calling Deputies in the order in which their questions appear on the Order Paper before me. First, Deputy Creed.
This raises questions with regard to banking supervision, the inadequacy of Garda resources and the fraud squad, and with regard to inadequate legislation to protect depositors. Would the Minister agree that the Central Bank need additional powers to investigate individual accounts within banking groups and that a situation could not have arisen within the Gallagher Group, whereby 80 per cent of assets loaned by Merchant Banking Limited were lost, if we had effective legislation? Is the Minister satisfied that the Central Bank executed their functions efficiently and effectively in this matter and can he say if they were satisfied with accuracy of information being furnished to them? Will the Minister ask the Central Bank to carry out a full investigation into the operations of Merchant Banking Limited and make the findings public? It is only by doing that——
Please, Deputy Creed. The Deputy is asking a series of questions in omnibus form. Would he please come to finality.
——that we will be in a position to introduce effective legislation.
The Deputy has made his point effectively.
It is true that the powers available to the Central Bank under old legislation were not effective in this regard but all these matters were put right with the introduction of the Central Bank Act, 1989. The areas that were deficient have been provided for under sections 36, 38 and 47.
A Cheann Comhairle——
I am calling Deputy Mervyn Taylor.
Is there in the possession of the Minister's Department a copy of the liquidator's report, and if there is, will he make it available to the spokespersons for Finance? Further, would it not be entirely appropriate that the Central Bank who, on the Minister's admission, did not adequately monitor Merchant Banking Limited, would organise a rescue package for the small depositors who lost their moneys in the same way as they organised a rescue package for AIB in relation to the Insurance Corporation of Ireland? Is it not appropriate for the Central Bank to do for these small investors what they did for AIB as this has arisen due to the Central Bank's own mistake? Many unfortunate small investors lost their entire life savings.
The liquidator does not report to me but to the courts. From the information available to me it would appear that failure to expose the true state of affairs in Merchant Banking Limited can be attributed to a deficiency in the bank's legislative powers and to breaches of the law by Merchant Banking Limited. There were loopholes in the law and deficiencies in the powers of the Bank which emerged during the Merchant Banking failure——
If there were breaches of the law, they should be prosecuted.
The bank made proposals for changes and the Department accepted those changes. These have been put in place in the Central Bank Act, 1989.
What about the rescue package?
I have no plans for a deposit scheme. There is provision to look after people who fail in the future. I would remind the House that as far back as the early seventies the Central Bank advised Merchant Banking not to take deposits.
Deputy Michael Noonan.
The Minister has not dealt with the question I raised about the rescue package for small investors.
I said that I have no plans for a rescue package for small depositors. As far back as the early seventies the bank advised Merchant Banking not to take any form of deposits.
It is all right to rescue the AIB, but not the small people. This is disgraceful.
Please let us hear a reply.
If Deputy Taylor will have a little patience and listen I will tell him I understand that of the £4 million owed to depositors, a significant amount is owed to other companies in the Gallagher Group and that the net figure owed to small depositors is closer to £1 million and much of it is foreign investment.
It would be all the easier to compensate the people.
A Cheann Comhairle——
I am calling Deputy Noonan who has a question tabled on this subject.
(Limerick East): Arising from the revelations on a recent “Today Tonight” programme, has the Minister made inquiries through his Department whether the Central Bank at the time fully discharged their supervisory obligations and did everything they could under existing statutes, when the transactions which led to the collapse of Merchant Banking Limited took place? Is the Minister satisfied in this regard?
From inquiries, I am advised that they carried out their functions in so far as they could. Referring back to the deficiencies that existed under law at that time, they did not have available to them the instruments they now have under the 1989 Act.
Is the Minister seriously telling us that with all the revelations about the shady dealings within Merchant Banking, the Central Bank, in so far as they could, carried out their supervisory rle? Can the Minister explain what he means by "in so far as they could"? Did they carry out their functions to the full extent?
Yes, within the powers available under the legislaton.
Does the Minister therefore accept responsibility for the fact that they had inadequate supervisory functions and that, consequently many hundreds, if not thousands, of small depositors are at a loss of approximately £1.3 million? Will the Minister not now do as other Governments have done when banks got into trouble and when AIB got into trouble, that is, introduce emergency legislation to compensate the small depositors who lost up to £1.3 million?
From the information available to me it would be extremely difficult to support an allegation that the bank were remiss in this matter. I have stated where the deficiencies arose in relation to the law and in relation to Merchant Banking Limited and I also said that the Bank inspected Merchant Banking Limited and in 1973 requested the bank not to advertise for deposits. There has been a long and troubled relationship with the Central Bank in relation to Merchant Banking Limited and, arising from the collapse, the Central Bank identified certain areas where the powers of the Bank might be strengthened, particularly in relation to investigations and the demanding of information from banks and their associated companies. These new powers were put in place. The file was sent to the Director of Public Prosecutions who has not instituted any criminal proceedings as yet.
A final short supplementary——
I am calling Deputy Mervyn Taylor for a final and brief supplementary.
Will the Minister not agree that, based on the statement a few moments ago that there was clear evidence of breaches of the law by Merchant Banking Limited and their officials, it is a disgrace in the public eye that after all these years no prosecution has taken place in the matter, and does the Minister propose to do anything about that?
I have already said that it is a matter for the Director of Public Prosecutions to whom the file has been sent. It is not for me to comment on it.
I have an important supplementary.
I hesitate to deny the Deputy a brief question.
The Minister referred to the fact that the Central Bank notified Merchant Banking Limited that they should not accept or advertise for deposits. Did they inform the Minister who was in office at the time of that fact and why did they not make a public statement to that effect?
The information the Deputy now requests is not on the file. I will have it looked at although it is a separate question.
This has resulted from negligence by the Department of Finance and the Central Bank.
Please, Deputy De Rossa.
I do not know why the Deputy comes into the House asking questions if he does not wish to accept the answers.
Question No. 14.