Dáil Éireann debate -
Wednesday, 26 Jun 1996

Vol. 467 No. 5

Private Members' Business. - Borrowing Powers of Certain Bodies Bill, 1996: Second Stage.

Minister of State at the Department of Finance (Mrs. Doyle)

I move: "That the Bill be now read a Second Time".

I thank Deputies for agreeing to consider this Bill at such short notice and to taking all Stages today.

This is a short, essentially technical Bill which has the main objective of confirming the powers of State bodies to engage in capital financing transactions, including, in particular, finance leases. Its provisions and the background to it are summarised in the explanatory memorandum which has been circulated with the Bill for the convenience of Deputies. Before addressing the Bill, it would be useful if I said a few words about the wider context.

Over the last decade or so, there has been phenomenal growth in the area of financial services both at home and abroad. That was the result of many factors, including the world-wide liberalisation of financial markets and of international payments and capital movements. Helped by constantly improving technology, it has been accompanied by an ever-increasing sophistication in the financial instruments developed in response to the requirements of market participants to reduce the costs of borrowing and to minimise the risks caused by fluctuating interest and exchange rates.

Ireland has benefited from these developments as witnessed by the growth of our own financial sector and the success of the International Financial Services Centre. In regard to the latter, the direct incremental employment created by the IFSC now stands at over 3,000, most of it highly paid, and many more jobs have been created in ancillary areas such as accountancy and law. The growing complexity and sophistication of the financial services area, with its potential for achieving savings, was one of the reasons for the Government's decision in 1990 to establish the National Treasury Management Agency with the specific purpose of exercising the borrowing and debt management functions of the Minister for Finance.

The private commercial sector has been very quick to exploit the potential benefits of new financial instruments for their capital financing needs. However, our big commercial State bodies have been equally adept in this area. Indeed, given their need to finance sizeable capital programmes, these bodies have developed a particular expertise and sophistication in the use of capital financing instruments. One of the mechanisms they use to this end is the finance lease. A finance lease is a contract under which an asset is purchased by a party other than the user, usually a financial institution, which, by availing of capital allowances etc., can reduce the cost of financing to the user, that is, the lessee. The lessee, in such an arrangement, assumes all the risks and rewards of ownership, other than legal title to the asset. Such leases are commonplace and are widely used as an alternative to direct borrowing to acquire assets because it is more cost-effective.

A number of State bodies have acquired assets in recent years by way of finance leases. The total value of outstanding finance leases for commercial State bodies was £575 million at the end of 1995. Of this, £72 million carried a State guarantee. I now come to the purpose of this Bill. The existing powers of State bodies to borrow funds are for the greater part enshrined in the laws governing the operations of these bodies. In 1992, however, the Oireachtas passed the Financial Transactions of Certain Companies and Other Bodies Act which confirmed that State bodies generally could effect contracts involving instruments such as swaps and options, or derivatives. This Act was necessary because a ruling in the UK on the use of derivatives by local authorities cast doubt on the powers of our State bodies to trade in derivatives.

A somewhat similar situation has now arisen in relation to finance leases. While some State bodies have explicit statutory authority to contract finance leases, others do not. It is the authority of the letter to engage in such leases which is now in question. Up to recently, no doubts were ever raised about this issue nor about the powers of the Minister for Finance to provide State guarantees in respect of these transactions. The consensus of all interested parties, including the financial institutions, was that this power was implicit in existing legislation governing the borrowing powers of the State bodies concerned.

Recently, however, doubts were expressed about the powers of a particular State body to contract a finance lease and about the applicability of a State guarantee to it. Because of these doubts, financial institutions are reluctant to conclude any more finance leases with certain State bodies until the legal position in regard to their borrowing powers is clarified. In light of this, my Department consulted the Attorney General's office who advised that express statutory power is required for State bodies to enter into finance lease agreements and that the Minister requires a similar power if he wishes to guarantee the resultant obligations of State bodies. The implication of this advice is that existing finance leases contracted by State bodies, which do not have the necessary express statutory powers, may be ultra vires and so may any related State guarantees.

Urgent action needs to be taken to rectify the situation I have just outlined because it is necessary to remove any doubt about the validity of the finance leases which certain State bodies have already entered into and of any associated State guarantees; State bodies should be able to access the range of commonplace capital financing instruments available to the private sector, and it is desirable to remove inconsistencies in the treatment, in existing legislation, of the borrowing powers of State bodies and of State guarantees.

In addition to such action, I wish to avert the recurrence of a situation in which legal doubt may be cast in future over the powers of State bodies to engage in other normal capital financing transactions such as note issuance facilities, commercial paper etc. At the moment, these instruments are considered by all parties, including financial institutions, as borrowing within the legal meaning of the term. This is reassuring but only up to a point because, heretofore, finance leases had also been so regarded. In view of this, I want to avoid a situation in which a future Minister for Finance has to come back to the Oireachtas with further primary legislation to clarify the borrowing powers of State bodies.

I am not talking of anything of major significance here. This Bill has very limited application and is doing no more than confirming that State bodies have the powers which a private sector company could assume by simply altering its memorandum and articles of association. Moreover, the Bill will not allow any of these bodies to engage in transactions unrelated to their statutory functions. The powers being confirmed by the Bill will only be exercised in accordance with specifications issued by the Minister for Finance following consultation with the relevant Minister, where appropriate.

Against the background I have sketched, the aim of the proposed legislation is to remove any ambiguity in the meaning of the term "borrowing" or inconsistency in the treatment of borrowing in respect of common non-controversial capital finance instruments currently in use. Having regard to the continuing evolution of financial markets and instruments, State bodies should, subject to the consent of the Minister for Finance after consultation with the Central Bank and the Revenue Commissioners, have the legal authority to have recourse in the future to new financial instruments which become commonplace in financial markets. To all these ends, I seek the approval of the Dáil to the Bill.

It is intended this Bill will apply to bodies whose borrowing powers are subject to the consent of the Minister for Finance, whether the consent of another Minister is required. While there are more than 50 such bodies, the range of capital finance instruments most of them use is very limited. The number of State bodies likely to make use of the powers confirmed by this Bill is quite small and mainly confined to the commercial State sector.

The Bill also provides for an increase in the limit on the borrowings which ACC Bank is permitted to undertake. This limit stands at £1,400 million and it is proposed to raise it to £2,400 million.

Deputies will recall that the Agricultural Credit Corporation was established in 1927 to cater for the special funding needs of agriculture, in particular by way of the provision of long-term credit which was not readily available from other sources. This narrow sectoral remit, and the economic difficulties of the early 1980s which adversely affected the agricultural sector, had very negative consequences for the ACC. Bad debts and increases in arrears reduced the profitability of the corporation, culminating in heavy losses in 1987. The Agricultural Credit Act, 1988, sought to redress the situation, in particular by granting powers to the corporation to broaden the base of its operations to reduce the risks of a loan portfolio based on a single sector.

In the following years, the ACC turned the corner and is now heading for its ninth successive year of increasing profitability. This process of recovery was aided by the passage of the ACC Bank Act, 1992, which removed entirely the remaining restrictions on lending outside the agriculture sector. That Act also changed the name of the organisation to ACC Bank plc to reflect the more diversified nature of the corporation's business. It also increased the authorised share capital from £35 million to £50 million, and raised the limit on borrowing from £800 million to £1,000 million. Finally, the 1992 Act brought ACC Bank within the prudential supervision of the Central Bank. This means that ACC Bank is now subject to the same rules as apply to the other credit institutions supervised by the Central Bank. These rules relate in the main to capital adequacy, liquidity, categories of exposure, permissible charges, and deposit guarantee.

As regards the purpose of the increase in the borrowing limit, it has to be borne in mind that the term "borrowing", as it applies to banks, means the sum total of the deposits placed with them in addition to all other forms of borrowing. Thus, when ACC Bank accepts a deposit from a customer, it increases its borrowing and its capital base at the same time. This enables the bank to increase its lending and thus to expand its business. In recent years, the bank has been attracting substantial deposits and growing at a strong rate. In the past five years, retail deposits have more than doubled, from £443 million at 31 December 1990, to £964 million at end-1995. The bank's total borrowings at 31 December 1995 amounted to £1,229 million, just £170 million short of the present ceiling on borrowing. Business has continued to grow significantly in the current year with the strong probability that this ceiling will be reached towards the end of the year.

Against that background of rapid expansion and without an increase in its borrowing limit, the bank would have to cease increasing its deposits and adding to its other forms of borrowing. This would correspondingly limit its capacity to expand and could, thus, significantly damage its credibility. It is now proposed to raise the ceiling to accommodate the operational needs of the bank.

The proposed increase in the limit amounts to £1,000 million. At the average rate of growth which has obtained in recent years, this should cover the bank's requirements for the next four to five years. The reason for this major increase in the borrowing limit has to do with the bank's success in attracting new business particularly in the home and commercial mortgage sector. However, unlike more established mortgage providers, ACC Bank does not have a portfolio of retiring mortgages to offset against new mortgage growth. That all mortgage business undertaken by the ACC tends to be new business contributes to a higher rate of asset growth and, obviously, as the asset base grows, the underlying capital base must also rise.

The performance of ACC Bank over the past few years, in an increasingly competitive market, is due in no small measure to the commitment of the board, the management and the staff of the bank and I take this opportunity to commend their efforts and congratulate them on their continuing success. That I should have to come to this House today to seek such an increase in the bank's borrowing limit is a reflection of the extent of that success.

In preparing this legislation, my Department had detailed consultations with a wide range of organisations likely to be affected by it. These included the State bodies mainly concerned, the Irish Bankers' Federation and the Irish Finance Houses Association. All have expressed agreement with the Bill.

This Bill is essentially a technical one. It has been modeled on the Financial Transactions of Certain Companies and Other Bodies Act, 1992, which confirmed the powers of State bodies to trade in derivatives. Section 1 is a standard provision related to the necessary definitions to be included in the legislation. As the definition of "capital value" relates to section 7, it would be best to elaborate on it when dealing with that section. Section 2 defines the bodies to which the Bill applies.

Section 3 contains the main provisions of the Bill. Section 3(1) confirms the powers of the bodies concerned to engage in the specified list of capital financing transactions and enables the Minister, after consulting the Central Bank and the Revenue Commissioners, by order, to prescribe other capital financing transactions which these bodies may conduct. The latter provision is designed to take account of the continuing development of financial mechanisms and the possibility that State bodies may, in future, wish to avail of an instrument not yet invented. Subsection (2) enables the Minister, again after consultation with the Central Bank and the Revenue Commissioners, by order, to amend or revoke any previous order made under this or the preceding subsection. Subsection (3) relates exclusively to the class of transaction known as finance leases and is designed to give the Minister the authority to take account of any changes in definition which may be made to it as accountancy practice evolves. Subsection (4) defines the terms "finance lease" and "body" for the purposes of the section.

Section 4 gives the bodies concerned the power to charge their assets, or to provide indemnities, in respect of any of the specified transactions. Section 5 provides that all existing provisions in respect of borrowings and guarantees, including requirements in relation to ministerial consent, will apply to all the transactions authorised by the Bill. It also enables the Minister, after consultation with the relevant Minister where necessary, to determine the terms and conditions under which a State body may engage in any of the specified transactions.

Section 6 extends all existing guarantee powers, rights and obligations of both Ministers and State bodies to the transactions specified in the Bill. Section 7 specifies the manner in which the borrowings of State bodies, and any related State guarantees, are to be calculated for the purposes of the statutory limits imposed by the Oireachtas. These limits set ceilings on the financial exposure of State bodies, in the case of borowings, and of the State, in the case of guarantees. To this end, it is necessary to ensure that any financial exposure or potential liability arising from a transaction authorised by this Bill is recorded by the State body concerned as borrowings for the purposes of the statutory limits on its borrowing and any related State guarantee. The Bill relies on a specific definition of "capital value" in this regard, namely, the total value of the transaction less any inherent interest amounts and any amounts which do not constitute a legal liability on the body concerned.

Finance leases do not consist of separate principal and interest payments as in the case of a normal term loan. However, in pricing a leasing contract, there is effectively an imputed or inherent interest element included in the payments. For the purposes of determining the level of borrowing under this Bill, it is proposed that the amount borrowed will be calculated by reference to the nominal value of the payments less the inherent interest amounts.

In the case of certain structured finance leases, a State body, as lessee, may secure its payment obligations to the lessor, by making a deposit with a third party who undertakes to make the necessary payments to the lessor. However, these structures may not allow the lessee to assign its legal liability for the lease payments to the third party. In that situation, the liability to make the payments would fall back on the lessee, if for any reason the third party were to default on its payment obligations. The Bill requires that any such potential liability or exposure be recognised for the purposes of both the borrowing limit and, where appropriate, the guarantee limit.

Section 8 confirms that State bodies may contract leases other than finance leases. The leases in question are operating leases which relate mainly to normal rentals such as office space and equipment. As such, the section exempts them from the requirements which the Bill lays down for finance leases and other capital financing transactions.

Section 9 provides for an increase in the borrowing limit of ACC Bank to £2,400 million from its present level of £1,400 million. Section 10 is a standard provision in Bills which alter the powers of State bodies. Sections 11 and 12 are standard to all legislation.

I again express my thanks to Deputies for agreeing to deal urgently with this Bill which I now commend to the House.

Mr. M. Ahern

Deputy McCreevy agreed to take this Bill because of the necessity to clear up the confusion about the matter but, unfortunately, he is unable to be here this evening.

The need for this Bill arises because some people have become so mesmerised by the words "finance lease" that it is regarded as a term of art and, as such, capable of being distinguished from the sort of transaction we would traditionally describe as a borrowing transaction. The Bill is full of vague attempts to pin down the term "finance lease" for fear that when this House gives it its imprimatur, some many headed hydra will emerge claiming the benefit of these provisions.

The draftsman failed to formulate a satisfactory definition of the term "finance lease" and has fallen back on a feeble substitute of what normal accountancy practices regard as a finance lease. That is not acceptable. If we are being asked to confirm existing types of transactions, let us do so more explicitly. The combined effects of sections 3 and 8 leave everybody under the impression that not only must a Minister give consent to the transaction but he must also make an order under subsection (1) and-or (3) of section 3, specify terms and conditions under section 8(3) and-or requirements under section 5 (2) only after consultation with other relevant Ministers, and attend to any other matters that require attention before a ministerial guarantee is in place.

Is this bureaucracy gone mad? Who is questioning the extent of the borrowing powers of these bodies? Who is querying the Minister's statutory power to guarantee? My understanding of the legal position in regard to such powers is that the courts will always interpret powers specified in statute very widely to include, where not expressed by implication, everything that is incidental or consequential to the power itself. Acts Reasonably Incidental states:

A statutory authority endowed with statutory powers has, as already mentioned, no common law powers at all: it can legally do only what the statute permits and what is not permitted is forbidden. This is the strict doctrine of ultra vires, and it applies in full force to most of the organs of government.

A statutory power will, however, be construed as impliedly authorising everything which can fairly be regarded as incidental or consequential to the power itself; and this doctrine is not to be applied narrowly.

For example, a local authority may do its own printing and bookbinding; buses may be run a short distance beyond the end of the authorised route if there is no other practicable way of turning them around; housing authorities may charge differential rents according to their tenants' means, may subsidise their tenants, and may insure their effects; a Board charged with the organisation of the totalisator may make contracts with firms for the collection of off-thecourse bets, but may not subsidise one of the firms. Statutory powers therefore have considerable latitude, and by reasonable construction, the courts can soften the rigour of the ultra vires principle. Although this book contains so many instances of that principle being infringed, it must be remembered that the courts intervene only where the thing done goes beyond what can fairly be treated as incidental or consequential.

Apart from the attitude of the courts regarding the actual statutory wording of the Act, can anybody doubt that the transactions of these statutory bodies in the ownership of the State will be honoured? Is it seriously being suggested that a ministerial guarantee does not mean what it says, that it is not worth the paper on which it is written? Lawyers are being a little unreal in their analysis of this area of legal doubt.

The bona fides of these bodies and of the Minister in these transactions can never have been in doubt. I hope the provisions of this Bill do not mark the beginning of a number of corrective Bills on the basis that parties cannot rely on the intention and bona fides of a Minister.

How often do the statutory bodies with which we are concerned use these finance leases? Have there been difficulties with any of those transactions? Is there a problem with any specific statutory body that has engaged in finance leasing?

The phrase "subject to the consent of the Minister" is used in sections 2 and 3 and it is defined in the definition section. Are there any bodies established by or under statute whose power to borrow money is not subject to the consent of the Minister? It is surely these bodies which have the problem the Minister described because where the Minister has consented in any other case, the third party from whom the body borrows has the assurance of a fall back position in as much as it may be assumed that the Minister, in consenting, is not disputing the body's power to borrow — quite the reverse. It is almost a principal-agent relationship since presumably the Minister is the nominee shareholder and the owner of the body in the public interest.

Sometimes we find a ministerial guarantee underpinning the liabilities of the public body which is borrowing. There can be no room for doubt in such a case. The Bill may open up a problem by limiting its provisions specifically to bodies borrowing with the consent of the Minister. If any bodies are empowered to borrow without such consent, this Bill will not advance their legal position.

As regards section 3 (1), will the bodies be deemed to have, and to have always had, the power to engage in the listed transactions without the consent of the Minister, which is how it reads to me? The phrase "subject to the consent of the Minister" is included by way of identifying the bodies concerned with the Bill. If the Minister is saying the phrase "in so far as they relate to borrowing or capital financing" means that the permitted transactions must be in the nature of a borrowing transaction and, therefore, as before, subject to ministerial consent, I would disagree because capital financing is a much broader concept. The Minister may say section 5 covers that point but I will argue later that it is the Achilles heel of the Bill, defeating the intention to retrospectively validate transactions which are now thought to be of suspect validity.

The ministerial order mentioned in section 3 (1) and (2) is unnecessary if we refer back to the Statutory Declaration Act, 1938 which states that the power to make includes the power to unmake. Section 3 seems to duplication section 3 (1) and (2) in that "a class of financial transactions" is a sub species of finance lease. This causes needless complication of section 3 (4) which defines the words "finance lease". Could we now define the words "finance lease" as a lease of capital equipment and leave it at that? The finance aspect relates to the tax affairs of the lessor-owner-financier. It may affect the cost of leasing to the lessee but it does not affect the nature of the letting transaction which is what the Minister is trying to define.

As regards section 5, inserting the consent of the Minister requirement into these transactions means that transactions in the past without such consent are not being retrospectively validated or confirmed by the Bill. This legislation is not empowering; it is confirming power which already exists. It is making an implied term express. One cannot confirm an existing power and then add preconditions. In most cases, the consent precondition is already in the bodies' empowering Act and this section will cause problems.

As regards section 7, are these transactions not already counted as borrowings on the balance sheets of these bodies? If not, how are they being treated by the accountants? Is the Minister increasing the national debt by redefining these transactions as borrowings? How much is involved? Are the other leases referred to in section 8 not borrowing transactions? If not, what are they? This section has not been well considered. Why query the bodies' power to enter into leases where no borrowing is involved? Has the Minister received legal advice on the validity of such leases?

Three types of order are referred to in section 3. The section should be dropped because there is no doubt about the power to lease premises, etc. The query raised is about "finance leases" with which this Bill should deal.

I welcome the decision to extend the borrowing limit of the ACC Bank, which will allow it to continue to grow and develop as it has done successfully over the past number of years under the leadership of the former chairman, Mr. Dan McGinn, who recently moved from that position. I take this opportunity to commend him on the excellent work he did in turning around the bank and under whose guidance the bank grew to be strong, credible and profitable.

I would like to know the Government's policy as regards the rumoured involuntary redundancies of staff of 50 years of age or over who have been responsible for turning around the fortunes of the ACC Bank. Natural justice would dictate that there should be no forced redundancies. Will the Minister elucidate the present policy position of the three Government parties as regards the third banking force? Does the ACC Bank have a future in those plans?

Mr. E. O'Keeffe

This is important legislation which appears on the surface to be simple and straightforward. However, there is a substantial element of retrospection which is not wise and it may be found to be unconstitutional. The Dáil should not give State companies retrospective powers.

It is less than ten years since the jewel of our State trading companies, Irish Shipping, disappeared under an ocean of debt. We are all aware of the hardship suffered by those involved for many years until my party dealt with the situation. It appeared that the management did not believe it necessary to get board approval for leasing commitments, although it did have to revert to the board on capital expenditure.

The board of a State company is seeking an urgent meeting with the Minister whose Department appointed it. Members of the board have told him they are only directors and they do not know about anything which any curious person would ask. They have threatened to seek indemnity for doing something or for doing nothing. I refer to the board of Bord na Moná which is still in the dark as regards the salary of its chief executive. Directors of all State companies should be aware of the situation in relation to chief executives. Perhaps it should be written into legislation. This should also apply to the private sector in which inflated salaries are paid to people. Certain people have been sacked and demoted. This is a minefield not alone in this country but in the UK, from which we have learned. There must be some change in salaries if the system is to operate properly.

According to the explanatory memorandum, one of the purposes of this Bill is to provide for finance leases. If State companies in the trading sector made cumulative profits, which would not be an unreasonable request, they could avail of their own capital allowances and there would be no need for this Bill. Is it the case that State bodies exceed, directly or indirectly, their borrowing powers without the Minister's consent, knowledge or approval? Why did the Minister not find it necessary or desirable to introduce this Bill last year or in previous years? The question of finance leasing goes back to the regin of the late Mr. George Coolley as Minister for Finance. State companies are protected to a considerable extent from the real world. This Bill, if enacted, would sanction further subsidisation, that would be acceptable if it is what the Oireachtas wishes, but we should be clear about what we are doing.

The Department of Finance is aware that implementation of this Bill would further facilitate financial institutions and other companies in reducing the amount of corporation tax they pay. Small companies find it much more difficult to get in on the act at times such as this. Once again I ask the Minister to reduce the rate of corporation tax on small business instead of sponsoring this Bill, which will favour the big boys, however embarrassed they might be to avail of the Labour Party tax policy at the expense of the small business community. This Bill reinforces the influence of the Department of Finance in the running of State companies which come under the auspices of other Departments. Should we not strive for the opposite, or does the Department of Finance believe that other Ministers are not to be trusted? Is the Minister for Transport, Energy and Communications happy with the further curbing of his powers?

ACC, which was set up as an agricultural bank in difficult times, is today in limbo and a decision must be taken on its future. I am critical of that institution because it is not interested in the borrowings of small farmers or small communities. In the last four or five years it was not interested in financing dairy farmers. Its job should be to assist developing farmers who wish to improve their income and status in life, but it has failed in that regard. The ACC bank has too much political influence, and political uncertainty is not good for society. Last year there was great uncertainty when directors, who had a statutory right to be on the board of the bank, were threatened with removal.

It is time the position regarding ACC was sorted out. Consideration should be given to its amalgamation with a large agri-bank on the Continent, two of which, Casse Nationale de Credit Agricole in France, a very large bank, and RABObank in Holland, are interested in an amalgamation, merger or takeover. That matter should be considered.

I am concerned about people who have accounts with the ACC, many of whom experience difficulty in clearing cheques. It takes five days and sometimes longer to have a cheque cleared by ACC as against cheque clearing with Bank of Ireland of two days and with AIB, which has introduced an electronic system, of only one day. There is need for change in that regard and an electronic system should operate across the board.

The Government has put forward the idea of a third banking force, a bungled idea from three parties that do not know what direction to take. Suggestions have been made with regard to the Trustee Savings Bank, a niche bank which has served the small borrower and investor and has a future role in Irish society. The question of a third banking force is creating great uncertainty in the banking world. I do not expect the Minister to deal with this matter because it is a matter for Cabinet. There is no room in society for a third banking force. There should be no more talk about a third banking force resulting in cheaper money. I know quite an amount about banking because I am in the borrowing business and I would prefer to deal with our two major banks than with ACC whose treatment of people in terms of security, borrowing and so on is unacceptable. A third banking force will not improve the system. At the end of the day it would probably result in a more expensive banking system. It is time the Government clarified the position. There should be a clear statement of intent in terms of the future of the banking system.

As I said, I would welcome a merger between ACC and another European bank, but it should not be done at the expense of the taxpayer. I have been very much to the forefront in making statements on this matter. At the time the late George Colley was Minister people experienced great difficulty in getting mortgages from building societies and the Trustee Savings Bank came to the rescue. That bank, which has 100 branches, provides a very good service to the man in the street. There is a role in society for that bank and it should not be interfered with. It would be unacceptable if one of our assets was sold to the National Irish Bank, an Australian based bank, which would reap the profits.

We have been told that a Bill will be introduced shortly dealing with credit unions, a matter in which I, as spokesman on that matter, have an interest. That Bill is long overdue, as credit unions have played a major role in Irish society. We are now being told they will have an expanded role but I do not believe they will take over the role of the banks. Some credit unions have assets in excess of £20 million. That is an enormous amount of money and in addition they have substantial borrowings. I accept there is room for legislation but I do not want to see credit unions compromised by the introduction of a third banking force which has been mooted to satisfy the Government which will soon face the electorate. The reality is there are no free lunches when it comes to the banking business or interest and deposit rates.

If legislation is put in place to regulate the whole area of money transmission it will alter the cost of money to the ordinary borrower. I am open to correction on this but I understand it takes five days for a cheque to be cleared by the ACC Bank, two days by the Bank of Ireland and one day by the AIB through its new electronic system.

The ACC Bank has done a good job but it should cater more for the small agricultural borrower. The Minister of State comes from an agricultural county and I know she has a keen interest in this matter, but if it was not for the other banks, small agricultural borrowers in her county would not be in business.

The ACC Bank should recognise there is little point in going after the big boys. They are already experiencing difficulty because of the beef crisis. I understand substantial losses have occurred in the area of finished cattle while farming is doing reasonably well. This whole area should be assessed.

I do not expect the Minister of State to respond to all my points because she may not have access to all the relevant information. The Minister for Finance should be here to answer the questions I have raised because this is comprehensive legislation.

There is no excuse for a director of a State company not having all the relevant information about the chief executive of his company when he joins the board. The director is responsible for running the company. If people knew where they were going we would not have had the recent charade.

Minister of State at the Department of Finance (Mrs. Doyle)

I thank Deputies who contributed. I assure the House I have taken notes of their comments and will respond to them.

As I indicated at the outset, this is largely a technical Bill which confirms the power of State bodies to employ modern capital financing instruments. Effectively it is to make explicit what we have assumed was implicit and to add for future requirements. This is something any private company can do simply by changing its Memorandum and Articles of Association. In the case of most State bodies, however, their powers are established in statute and as such require a change in statute.

The reason for this Bill is not that the specified transactions are ultra vires— the State cannot tolerate State bodies being a little bit ultra vires, as suggested by Deputy Ahern; if he thinks about that he may agree with me — but that there is a question of legal doubt specifically over the issue of finance leases. The existence of this doubt has resulted in a situation whereby financial institutions are reluctant to conclude any finance lease contracts with State bodies who do not have explicit statutory power to engage in finance leases in their own legislation. The purpose of the Bill, therefore, is essentially to reassure the market and to put the question of the scope of the borrowing powers of State bodies beyond question.

As I already indicated to Deputies, the bodies mainly involved are the large commercial semi-State companies. Given the demand imposed on these bodies to become more efficient, to improve performance and customer service and to deliver services more cost effectively, it would be unacceptable that they could not take advantage of the full range of capital financing instruments available in the market and others that may become available in future. Cost effective capital relies on matching the needs of the investor and the borrower and access to these transactions will enable State bodies to continue to secure capital financing at an attractive price.

With the total indebtedness of commercial State bodies amounting to £5.8 billion. It is essential that they manage their debt in a manner which minimises the capital carrying cost. Notwithstanding that this is a technical Bill it is of considerable importance to the bodies concerned.

These types of financial instruments are particularly important in accessing the international capital markets. The removal of restrictions on capital movements between EU member states and between member states and third countries has significantly improved the availability of capital in this country. Moreover, the EU second banking coordination directive established the principle of the single banking licence and home country supervisory control with effect from 1 January 1993. Under this directive banks in any member state can establish branches or provide services in other EU countries without the need for a physical presence. To date, 11 credit institutions from other countries have set up branches in Ireland and almost 50 provide deposit taking and other services without a physical presence.

The development of the International Financial Services Centre has also had knock-on effects in that it has brought Ireland to the attention of financial institutions worldwide in a manner which makes it easier for Irish companies seeking funds to tap into a much bigger pool of resources than heretofore. It has also contributed to the development of professional and sophisticated treasury management operations domestically. Our large semi-State companies have excellent treasury management departments which have been able to exploit the benefits of more liberal international capital markets and the increasing knowledge of Ireland as a world class financial services centre. This Bill will enable these bodies to continue securing cost effective capital to meet their capital financing requirements.

I assure Deputies that the inclusion of a guaranteed provision in the Bill does not commit the Minister to any increase in State guarantees, nor is it intended to provide any increase in the current level of guaranteed debt—I believe Deputy O'Keeffe made that point. The present policy is that State guarantees are given only where the body in question would otherwise be unable to secure access to credit or where the cost of credit would be prohibitive. Since 1991, the percentage of commercial semi-State debt guaranteed by the State has fallen from 90 per cent to 60 per cent, or from £4,700 million to £3,500 million. It is expected this trend will continue in future.

In relation to finance leases and any liability arising from them, these are already treated as borrowings for the purpose of the borrowing limit. The Bill simply recognises and regularises the current position.

I know Deputies will join me in congratulating the ACC Bank on the major turnaround it has achieved in the past number of years. The increase in the borrowing limit will enable the bank to continue to grow profitably and to provide excellent service to its increasing customer base.

Deputy Ahern made a point about redundancies in the ACC Bank. The ACC Bank informed me yesterday that its current rationalisation programme will not involve any reduction in overall employment. Moreover, certain functions are being maintained in the Tuam area office to secure the employment of staff there. Concerns were expressed in that regard.

The ACC Bank's profit enhancement programme resulted in significant reorganisation of the bank which was considered necessary to respond to the changing market and to control costs. Most of these changes will not be apparent to the general public except in the form of improved customer service and continuing growth in its profitability. Examples of the changes are the separation of the sales and credit function at area level; the centralisation of back office processing; the reorganisation of the bank's legal and collection department; the establishment of a credit control unit at head office and the reduction of the number of areas in the bank from four to three.

The reorganisation of the area structure has aroused public comment. Previously, the bank had four areas — the Dublin area, east area, western area and the south — and the four area offices were located in Dublin, Navan, Tuam and Cork. As a commercial semi-State company, ACC Bank must compete in the highly competitive banking market on the same basis as every other bank and financial institution. This involves constantly improving its services and processes and keeping tight control on costs in the interest of delivering quality service and value to their customers. With the advent of new technology and vastly improved communications systems it was considered no longer necessary for the bank to maintain four area administration centres to support its business. However, the ACC informed the Government no later than yesterday that the current rationalisation programme will not involve a reduction in overall employment.

I note the Deputies' comments about the third banking force. The case for a third force, originally contained in the previous Government's Programme for Government, was related to the need to generate a more vibrant and competitive market in retail banking services. At the time small and medium sized enterprises were having great difficulty in securing access to credit and were incurring significant costs on banking services. The absence of alternative credit providers and the dominant position of the major banks in Ireland were a major contributory factor to the hiatus in the market.

It is fair to say that the retail banking market has been transformed in the past four years with the emergence of the building societies as a major player in the provision of banking services and the moves by the banks into the home mortgage market. I also referred earlier to the liberalisation of capital markets and the EU directive on banking markets which have also had an impact. These developments in banking services are set to continue and there will be increasing competition based on telecommunications, information technology and the emergence of the credit unions as a credible alternative for many people.

The Cabinit sub-committee is also looking at the future role of An Post and its branch network in service delivery. Deputies will be aware that the first phase of computerisation in An Post, involving the computerisation of 600 counter positions, is almost complete. The second phase will involve the computerisation of a further 900 offices. While I appreciate that this issue has been ongoing for some time, the Minister for Finance and his colleagues in the sub-committee are continuing to examine all the options to identify the solution which best addresses the needs of all stake holders.

Deputy Ahern suggested we should have a simple definition of "finance lease". If we follow his suggestion we would capture ordinary operating leases and make them subject to the requirements of the Bill. That would be contrary to his suggestion to drop section 8 which relates to operating leases. Deputy O'Keeffe referred to retrospective powers for State bodies and asked if it was wrong to give such powers. There is no question of giving retrospective powers. The Bill clears up any ambiguity in the term "borrowing" in existing legislation; that is, it confirms that the bodies always had the power to borrow.

The Bill proposes to treat finance lease transactions as borrowings and replicates the provisions currently applying to borrowing in legislation. At present all borrowing is subject to the terms and conditions specified by the Minister for Finance and any other relevant Minister. If a commercial semi-State body is involved, for example, the Minister for Transport, Energy and Communications would also be involved. There is no change in this requirement in the Bill. That is how all borrowing requirements operate for semi-State companies and it would be inappropriate for it to be otherwise.

It was suggested we might create a monstrous bureaucracy. I do not agree. This Bill simply carries forward what is the practice already. The specification of conditions by the Minister is designed to safeguard the interests of the State. It is a power that will be used sparingly.

I hope I have covered the points raised by the Deputies. I thank them for their contributions and thank the House for agreeing to take all Stages of this Bill at such short notice.

Question put and agreed to.