Credit Institutions (Financial Support) Bill 2008: Second Stage.

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

This House does not lightly agree to debate emergency legislation of the type that is before us this evening, but when finance, the lifeblood of our economy, is a matter of concern, the House will appreciate that we must move swiftly and decisively.

I wish to thank the parties opposite for the co-operation they have extended in regard to this legislation. The Government's purpose and the objective of this legislation is to reinforce the strength of the Irish economy, the financial sector and especially to protect the long-term interests of the taxpayer. Maintaining a stable banking system is at the heart of the functioning of our economy and the daily lives of everyone living in our country. This legislation is not about protecting the interests of the banks; it is about the safeguarding of the economy and everyone who lives and works in this country.

The Bill provides a legislative framework to underpin the guarantee arrangement for depositors and lenders to Irish financial institutions which was announced by the Government earlier today following advice from the Central Bank and the Financial Regulator.

I want to put on the record of the House that the Government's decision is intended in the first instance to underpin the financial standing of the Irish banks and building societies. It provides a framework for the future to address financial stability of common concern with our EU partners and especially our closest neighbours in view of the strong degree of financial integration between the two jurisdictions and the several financial institutions which operate in both.

Recent headlines and media reports can leave no one in this House in any doubt as to the extent and depth of upheavals in international financial markets, especially within the past month. The sub-prime crisis, which became evident in the United States over 12 months ago, is now widely considered as likely to lead to eventual losses of over $1 trillion. In the United States, several major financial firms have been either brought into public ownership, bought by stronger firms or even allowed to fail.

The turmoil has spread to this side of the Atlantic in the past year and has become especially pronounced in recent weeks. In the United Kingdom, the authorities have had to make a number of significant interventions to prevent any contagion from difficulties in individual firms. Throughout Europe a similar pattern is evident as countries have had to finance and arrange the rescue or support of financial institutions.

In view of the size and importance of the financial sector in Ireland, it was only a matter of time before these difficulties visited on our shores as the global financial markets continued to deteriorate and the credit freeze intensified, starving our financial institutions of the funding to finance their normal activities. It is in this international context that the Government made a decision to extend the guarantee announced today.

I stress that the provisions we are asking the House to approve are in no way a bail-out for the financial system. The granting of guarantees to individual institutions will be subject to specific terms and conditions for each institution, including appropriate remuneration of the benefit of the guarantee. This is important to ensure the implementation of the measure conforms to EU state-aid and competition law requirements. The guarantee provided by the State is not intended to insulate the shareholders of these financial institutions from the risks attached to the investments they have made, as much as they may have benefited from significant rewards over the years.

In that context, I want to make two crucial points. The guarantee is not free and the taxpayer who ultimately underwrites this support will be remunerated for the value of the support provided. The terms and conditions on which the guarantee is provided will ensure the taxpayer gets value for money.

In addition, as I have already highlighted, our community will benefit if the guarantee helps secure greater stability in our financial system. The extended international credit crunch which we have experienced has brought home to all of us the pivotal role of the financial system in the economy and in the day-to-day lives of ordinary people. It has also brought home the broader social responsibilities of the financial sector to the country.

I will be drawing on the advice of the Central Bank and National Treasury Management Agency to put a fee mechanism in place to remunerate this guarantee. This process will take into account such factors as the possibility of increased funding costs for the Exchequer, the economic value for the institutions and the need to support international investor confidence in the Irish financial system.

I emphasise to the House that the Government's decision to give this guarantee was made following lengthy discussions and very careful consideration of all relevant factors. The Government's decision was informed by the advice and guidance of the Governor of the Central Bank and chief executive officer of the Financial Regulator.

Among all the uncertainties and unknowns that exist in such circumstances, one thing was clear and evident. The unprecedented disruption in international financial markets required a strong and decisive response by the Government to underpin the commitment of the authorities to Ireland's financial stability. We took such a decision by providing a guarantee to the six domestic financial institutions which were not in a position to rely on the support and assistance of a parent institution. This guarantee is intended to ensure Irish financial institutions have access to the normal liquidity and funding which they need to operate their day-to-day business. The guarantee is also essential to give confidence to depositors and wholesale lenders that they can continue to transact their business as usual with the institutions concerned.

It was very important for the Government to demonstrate its resolve to stand by its statement in recent weeks that money placed with an Irish credit institution would not be placed at risk. There is understandable concern that the Exchequer is potentially significantly exposed by this measure. This is not the case. The risk of any potential financial exposure from this decision is significantly mitigated by a very substantial buffer made up of the equity and other risk capital in the relevant institutions.

It is estimated that the total assets of the six financial institutions concerned exceed their guaranteed liabilities by approximately €80 billion, which is half of Ireland's total GNP. By any measure there is, therefore, a very significant buffer before there is any question of the guarantee being called upon.

I want to assure the House that the intensified scrutiny and oversight of financial institutions which has been put in place since the onset of the current turmoil will be maintained and further strengthened to ensure that high standards of regulation are achieved in Ireland and that the quality of corporate governance in these institutions is a bulwark against any risk of loss for the State.

As far as the question of moral hazard is concerned, it will be a priority for the Government to ensure that the highest regulatory standards and standards of corporate governance apply in all of the institutions concerned, including in lending practices to safeguard the interests of taxpayers against any risk of financial loss.

I will now describe the main provisions of the Bill. Section 2 establishes that the functions of the Minister for Finance under the Bill are exercised in the public interest having regard to the importance of maintaining the stability of the financial system in the State. The functions in the Bill are granted in the public interest because the Minister, having consulted with the Governor of the Central Bank and Financial Services Authority of Ireland, has formed the opinion that the exercise of these functions is necessary to protect the stability of credit institutions and to maintain the stability of the financial system of the State. The Minister may continue to consult with the Governor and the Financial Regulator in the exercise of his functions after the passing of the Bill. Section 2 also confirms that the Bill will not interfere with the exercise by the Central Bank or Financial Regulator of their functions in respect of credit institutions authorised or regulated in the State.

In section 3 "relevant date" is defined as 30 September 2008, the day upon which I announced the decision to guarantee deposits in credit institutions and subsidiaries and to protect the interests of creditors of credit institutions and their subsidiaries. This is the date from which the Minister may provide financial support to credit institutions.

Section 5 deals with regulations and the general implementation of this legislation. It provides that the Minister for Finance may make regulations to do anything that appears necessary or expedient for bringing the Act into operation. The Minister will lay a draft of such legislation before the Houses of the Oireachtas which will require the approval of each House by resolution. This is an emergency Bill and I think it is appropriate that there be scope to address any difficulty that might arise with bringing it into operation.

Section 6 deals with the provision of financial support for credit institutions. It provides that the Minister may provide financial support in respect of the borrowings, liabilities and obligations to the Central Bank or any person, of any credit institution or subsidiary which the Minister may specify by order. Financial support will not be provided beyond 29 September 2010. Financial support would be in such form and manner and on such commercial or other terms and conditions as the Minister sees fit. Conditions attaching to financial support may include stipulations to require the institution or subsidiary to fulfil all requirements of the Financial Regulator or relevant authority, as well as conditions to regulate the competitive behaviour of the credit institution or subsidiary. The Minister may subscribe for shares and other securities in a credit institution on such terms as he sees fit. For the purposes of this section, the Minister may create and issue securities subject to such interest, consideration and terms and conditions as he sees fit. Money paid by the Minister as financial support under this section will be repayable with interest once funds to do so are available to the company. Section 8 provides for annual reports to the Houses of the Oireachtas by the Minister on the position regarding any financial support provided under this section commencing with 2009.

Section 7 provides that if a merger or acquisition involves a credit institution and the Minister considers that the proposed merger or acquisition is necessary to maintain the stability of the financial system in the State then the power to determine whether the merger or acquisition would be in breach of the prohibition on anti-competitive practices in that Act lies with the Minister rather than with the Competition Authority. It also provides for the circumstance in which the Minister may approve a merger or acquisition.

In conclusion, the State is underwriting very substantial liabilities in monetary terms but is, as I have outlined, at a far remove from loss arising from these liabilities. I commend the Bill to the House.

Everyone in this House will agree that huge mistakes have been made in Ireland in recent years that have undermined the successful model that we had. It was a model of an economy based on strong export growth, tight management of public finances and a financial sector that had a proper balance in its approach to funding. The problem was the dangerous flirtation with the property sector that occurred in recent years. Those who were in a position to exercise restraint on this, in my view, failed to act.

There is no doubt that the Financial Regulator repeatedly warned of some of the features that were exposing our banking sector in recent years. I recall in the 2006 stability report the regulator drew our attention to the excessive growth in credit, the excessive reliance on the wholesale market to support that credit growth, the excessive reliance on the property sector as a proportion of the loan book, the falling provision for bad debt and the limitations of stress-testing that were going on in financial institutions.

There was warning that our financial structure was going down a road that was dangerous but, in my belief, little was done to address that. Indeed, we have been exposed by dangerous levels of credit expansion, particularly in the property sector and by a false belief, often promulgated by Government, that this was based on sound fundamentals when the sound fundamentals of a small open economy clearly lie elsewhere. Indeed, the Government itself became excessively reliant on the product of this property boom and I am sure we will have another day to discuss that when we debate the budget.

The truth is that today, as a result of this serious change in the way we ran our economy, ordinary people are being hurt. That is the reality. There are now 75,000 extra people unemployed than there were 12 months ago. Young families are burdened with debts to pay for houses that they are unsure will ever be worth what they paid, and owe, for them. Sound businesses are beset with problems and some business people are having to face the tough decision that they will have to fold their business. People are facing foreclosure from banks where they struggle to meet repayments. Against that background, people will be wondering why the Dáil is moving to deal with a crisis in the financial sector. Why are we offering support, as people see it, in the financial sector when perhaps we are not being so generous with our support to some of these? That is an important question.

We are offering support to this Bill because we believe it is important that we copperfasten our financial system. We must all understand that a sound financial system is like the oil running through an engine. If that oil is drained away by a loss of confidence, then suddenly that engine seizes and the problems that beset people in our country who are facing the dole, who are struggling to meet their payments and who are encountering tough times in business, would get much worse. That is why we are supporting this approach. We believe it is timely to move and to deal with what would be a potential run on banks.

The difficulty with the banking system is that it is all built on confidence. One can have a sound bank that is being run on the most prudent principles ever but if people suddenly lose confidence, that sound bank goes down. That is the risk that we cannot afford to take.

The international crisis that has come along brutally exposed the weaknesses that have been building up in our financial sector, but that does not mean we cannot get into the blame game of asking what happened and why it happened. There will be a day for that and we must learn lessons from it. We must have a much sounder regulatory system, and a sounder approach to the way we manage our economy, on the back of this experience.

The immediate requirement that we face today is to ensure that, in the face of the loss of confidence that our banking system has suffered and the dangers, which no doubt existed and of which the Government became aware, this is the right thing to do, as I believe it is. We are better to take the approach of providing a guarantee to the depositors in all our financial institutions rather than allow what perhaps has happened in other jurisdictions where weaker banks were picked off to occur. I fear the approach taken elsewhere would not have worked in Ireland and I support the view of the Government that it is better to provide the broad deposit guarantee involved in this legislation.

I would not go along with the Government in seeking, as it has been doing, to play down the significance of this and say the taxpayer is very much in the background and that the rules are not being changed dramatically. The rules are being changed dramatically. From this day on, the taxpayer will be standing as guarantor for the money Irish financial institutions raise, thus changing the whole relationship between the taxpayer and those institutions. Banks can raise money with a guarantee from the Irish taxpayer and we therefore need to know what that money is used for. We cannot afford to have money guaranteed by the taxpayer used in a way that involves an institution which is exposed to risk gambling on the chance of "getting out of jail" and believing it will be home free with another roll of the dice. The lending practice or purchase of derivatives associated with this strategy cannot be allowed as a result of the new access to deposits we are providing for through the guarantee.

It is very important that the Government is aware that the rules have changed dramatically. I hope the Minister is correct that there is a buffer between the taxpayers' guarantee and any possible crisis in a financial institution. There is a buffer but it consists predominantly of shareholders' funds; it is not a huge buffer. The Minister reckons it amounts to €80 billion and I am sure we will see his analysis of this figure as the debate proceeds. However, let us not understate the position of the taxpayer because the taxpayer now has a new relationship with financial institutions. If one institution gets into difficulty, we will have a very different relationship with it as a result of this measure. It behoves us, therefore, to change the way in which we approach regulation.

What is missing from this legislation is a real indication that the Government has a new set of regulatory rules to apply. There is an indication that it is taking the power to introduce such rules, but there is no detail. As Deputy Kenny stated today, we believe the regulator should be represented on the risk committee assessing risks taken on by the banks. Thus, the regulator would ensure that bad decisions on the use of the money are not made by banks. The Government is taking on powers but not telling the Oireachtas, and consequently the taxpayer underpinning them, what those powers will be. This must be remedied before we conclude this debate.

It is clear that a different definition is being applied in the legislation from that indicated earlier. This morning it was just deposits and bonds that were to be subject to guarantee, while tonight there is a wider definition that includes the obligations of credit institutions. We need assurances regarding what the wider definition includes. Does it address circumstances in which the buffer of shareholders' funds may be somewhat narrowed by comparison with what we believed? If so, we need to know why the Minister is changing the rules.

Many people are concerned about the failure to include a number of financial institutions whose parent companies are not in Ireland but which have been operating in and are very crucial to the financial infrastructure of the country, particularly in certain regions. This begs the question as to whether the policy is sound. One must ask whether there is a level playing pitch and whether the approach to protecting our banking structure is appropriate. Are we creating difficulty for some of the institutions that are excluded as opposed to those that are included?

An issue also arises in regard to the legislation itself. For legislation to be robust and for the Minister to pick six institutions from a range of others that are in operation, there should be proper criteria deemed robust by a fair person examining them. The criteria employed by the Minister in picking the six institutions that are to be protected should be deemed proper and fair in the eyes of an outside observer, but I am not sure this is provided for in the legislation. The Minister does not provide any criteria for the selection of financial institutions for assistance. Six that we know are wholly regulated within Ireland are being selected but others are also regulated within the country. If we are to be robust against questions being raised as to whether this is indirect state aid or unfair competition, we need to make sure this has been thought through and that the legislation does not prove frail as it moves forward.

As a further general comment, there is extraordinarily high reliance in this legislation on secondary provisions through regulation. The courts have already raised doubts about legislation that relies so much on a Minister making provisions by secondary legislation. Some of this secondary legislation the Minister is taking on in order to impose conditions will be laid before the House. Under other sections, however, it will not be laid before the House and we will see rules produced by Ministers without even having a regulation laid before the House. Is this a wise way to go, given the view the courts have already expressed regarding reliance on secondary legislation?

Another issue causes concern. There is discretion, apparently, for the Minister to accept a below commercial rate of return in regard to the protection he is now offering. Again, to be robust in terms of state aid rules, there needs to be a commercial rate of return. The Minister should not be in a position to choose when commercial rates apply and when they do not. I acknowledge he is taking the option that he does not have to take the payment in cash, as it could be taken in equity, which gives flexibility, but the payment, the price or the fee for the service the taxpayer is offering must be a commercial one and must be applied uniformly.

An extraordinary power is being taken in section 5, where the Minister is effectively stating he can do anything to resolve any difficulties that arise in regard to the exercise of this Bill. The presence of that provision does not inspire confidence that we have exactly stress-tested every aspect of the Bill. We need to know what is the intention of the Minister in taking such a very wide power because he cannot override certain international obligations such as those regarding state aids and so on.

There is a last point that is not in the Bill which the Taoiseach plainly said would be included, namely, that the banking sector will make up a shortfall. The Taoiseach outlined earlier today three lines of defence before the taxpayer would be called into service. One was the shareholders' funds, another was the ECB loans and the third was that the banking sector would step in as another buffer. I do not see any provision in this Bill whereby the banking sector would make good a shortfall to which the taxpayer might be exposed. I do not know to what exactly the Taoiseach was referring, although, again, I suppose this will become clear in the course of the debate.

On a point of information, in the event of there being a future situation where one had to work out the assets of an institution, if it emerged after working out those assets that there was a deficit, clearly the sector would pay for the difference through a levy over time rather than expecting the taxpayer——

It would be a future levy.

In the same way, I gave the earlier example of the insurance company.

So the Government is not making provision for it today but it is envisaging the possibility——

That would be predicated on the idea of a failure.

I have finished my broad remarks. We accept the need to introduce this measure but we also want to see that there is very robust protection. We want to see that this new access to money is managed in such a way that the taxpayer is protected to the maximum amount, which is a vital element on which we must get reassurance. It will not be enough for the Minister to state he is taking potential powers that he can use. The Oireachtas will want to see the colour of the powers he intends to apply and the sort of conditions that will be in place.

If our suggestions of putting people on the regulatory board are not the best ones, let us see what is better, but at least that is a solid suggestion as to an approach. We believe financial institutions which are in this situation and which need to rebuild capital should not be seen issuing dividends and bonuses to employees, which would be quite contrary to what we are doing here. The taxpayer, who is ultimately underwriting this, would expect that we will apply those sort of rules. That is a very important point. Deputy Kenny asked an important question earlier that was not answered. Has the Minister received advice that the legislation will be robust to scrutiny under EU directives? The House will want to know that has been thought through and that we are on a good, firm footing.

It is clear that within the Bill the Minister proposes to take the most extraordinary powers in regard to regulation. It is interesting that many of the powers referred to in the Bill require no reference, except by the Minister's choice, to other Ministers or even to the Cabinet. In Irish constitutional law power comes from the Government and from Cabinet, not from an individual Minister, so the Bill is an extraordinary blank cheque to the Minister for Finance in conjunction with the Central Bank and the Financial Regulator to, as it were, offer terms and conditions of support and guarantees to banks in an unprecedented way. It is a blank cheque. The Minister has only barely sketched in the details of what the cheque may involve. We know that around the country people are losing jobs at the rate of 300 a day. Firms are calling in people on a weekly basis to say they may have to let them go or put them on short time or half time. We know what Cowen economics and the slump coalition has done to people and we want to see our banks being facilitated to provide liquidity for the real economic activity of the nation, the jobs, businesses, and farms, not the speculators and fat cats who have been making a killing for the past ten years but the ordinary, decent, working families and firms.

I put the Minister on notice regarding some of the Labour Party's requirements of the Bill prior to tomorrow's Committee Stage debate. We want the publication of details of schemes before they come into force. The Bill purports to allow the Minister to create schemes but it appears that the details of same only have to come to the House afterwards rather than before, so that is a blank cheque. We want to know the remuneration being provided in the compensation packages for higher executives and managers in banks and what limitations, if any, are to be put on remuneration. There is no indication in the Bill that there are to be any limitations. Could we start with a simple concept, namely, that no executive in any of the banks that are the subject of the guarantee scheme should earn in compensation more than the Taoiseach or the Minister for Finance during the years when they are getting the guarantee from Government? That would give them a compensation package of a salary in excess of €300,000 plus pension equivalents, which would be significant compared to the income of people who normally rely on the State for support and who end up on social welfare because they have lost their job. Those people are facing compensation of approximately €200 per week but we are not looking at any limitations being offered by the Minister nor any sense of proportionality about what some of the banks have done. They have celebrated the good years and Ireland has benefited from the activity of many of the banks, but some banks have acted greedily and recklessly. We want the Minister to drop the provision for non-commercial terms and conditions that are clearly included in the Bill. We want them excluded because we do not want the Minister or any of his successors to be tempted to offer conditions that perhaps relate to relationships that apply in other locations than are debated on the floor of the House. We want to know about positive approval rather than mere non-annulling by the Houses with regard to changes. We want to know the position of other governments. The Swedish Government faced this problem in the early 1990s and there was an agreement between the centre-right and the centre-left to have an equity stake returned to the Swedish Government, so that when banks recovered to full health the equity stake available to it could be sold so that the taxpayer could be recompensed for his or her investment in the guarantee scheme.

We also wish to know the limits of the guarantee schemes, so that they do not apply, for example, in cases of subsequent acquisitions by institutions or irresponsible lending. For instance, it is likely that with the proposed scheme, deposits will flood towards the Irish banks likely to be covered by the guarantees as opposed to banks operating in this country which are not covered by the guarantees. We need assurance that there is a fair playing pitch for commercial equity.

Only last week in this House the Minister for Finance assured Opposition Deputies that Irish banks were risk secure. We heard that the fundamentals were strong and that there was no sub-prime problem with Irish banks, which is correct. The phrase the Minister used was "risk secure". What a difference a week makes. I remember some years ago, and even this year, families in Dublin and other parts of the country suffered from a major flooding incident. They suffered the economic cost because they had no insurance. There was a question mark over the responsibility of the State to assist them. It was the so-called moral hazard issue, the fear that a State bail-out would reward those who took foolish risks and failed to insure their homes adequately. It was a core value of public policy that those who took risks paid the penalty. Deputy Brian Cowen repeated this policy position when Northern Rock failed in the UK. As Minister for Finance he said he would not countenance a bail-out of reckless behaviour by banks. Recently the Government came out rather proudly after a Cabinet meeting and said that for Waterford Glass there was no question of the Government facilitating a borrowing request which, if I recall correctly, was approximately €34 million. The Government has form on this issue. That was then and this is now. What happens in the past few days to cause such a dramatic——

It was completely different. There was no consideration for the value offered for Waterford Glass. No value was offered.

What caused this flip flop in Government policy? Ministers were proud to say they did not consider any form of guarantee for the borrowing requirements of the Waterford Glass group. The same issue of moral hazard came centre stage when banks starting to fail internationally. They took reckless risks with some mortgage products and practices. The job of Government was to minimise both short-term harm to important financial institutions while protecting the taxpayer from long-term costs. At first the US and British Governments tried a modest programme to contain the fall-out. It was not enough and gave way to a plan to refinance and guarantee mortgages to a limited and controlled amount. That was still not enough. Then we had the bigger bail-outs with which we are all familiar, namely, Northern Rock, Bear Sterns, Fannie Mae, Freddie Mac and AIG. These measures have only fuelled the panic.

In the United States of America the Bush Administration chose to throw in the towel and is using taxpayers' money to take responsibility for entire debts in a desperate effort to avoid a complete meltdown. We are being asked in this House to follow George W. Bush's lead and offer even greater guarantees, relatively speaking, than the Bush White House. We are being asked to offer greater guarantees to Irish banks. "Moral hazard be damned" had become the centrepiece of the new orthodoxy. The core issue is the accumulation of unmarketable mortgage-backed securities and complex financial products of dubious value. I see no reference in his legislation to the regulation of dubious financial products or even the description of dubious financial products. Now it seems governments, including our own, will set aside potentially billions of the people's money to acquire these assets, taking them off the private sector's hands to allow financial institutions to resume routine borrowing and lending without the fear of becoming stuck with worthless paper. The Exchequer, or some specially created public agency, may become an owner of vast amounts of dodgy debts and the property associated with them.

The Minister should be in no doubt that there is more than the powers of a guarantee in this legislation. We understand what the Taoiseach spelled out earlier today about guarantee but the powers are much wider and if the Minister chooses to exercise wider powers than merely the guarantee described, I am not satisfied that there are sufficient requirements in the legislation for him to come in and clear that with the House.

I do not doubt that drastic action, national and international, is necessary to stabilise the situation. We agree with that. The Labour Party wants the lines of credit secured to protect the jobs, the employment prospects and the firms that employ working and middle class Irish people. We share that objective with the Government but the Government has a duty to uphold the nation's financial system. We accept that. The issue is the cost to current and future taxpayers. Many difficult questions remain and the Minister must give answers in the Dáil this week before we have a simple, dump it all on the taxpayer proposal. He says we will do this now and we will get the invoice in the post in the long term. That is not good enough.

The Taoiseach spoke today about this simply being a guarantee in regard to bank deposits and lending made by the banks from the European Central Bank and other secondary tier lending, as it is referred to, but it must be remembered that this is just one side of the bank equation. On foot of guarantees in respect of bank deposits and bank borrowing, banks can then lend out multiples. Nowhere in this legislation does the Minister make it clear how he proposes to regulate the lending practices of these banks to ensure they are saved from reckless actions in the future because those reckless actions, after this legislation, will have a cast iron, golden guarantee from the Irish taxpayer. We want an explanation in that regard.

What is the impact of this legislation on the national debt? The Minister's officials are suggesting it is a little note to the bottom of the national debt stating that our national debt is approximately €46 billion, which is low, but we have another €400 billion of exposure to the Irish banking system. That makes the figures gallop quite quickly, so to speak.

As well as regulating senior financial executives' pay in these banking institutions, will we finally see, for instance, the end to the practice that caused much of the construction bubble in Ireland, namely, the tax breaks that fuelled the speculative bubble? Can the Members opposite wean themselves off that at the same time they propose to bring in extra regulations for the banks?

The basic approach of the Minister has many defects. The Labour Party wants to join with the Government in protecting the legitimate interests of Irish taxpayers, Irish workers, Irish companies and Irish firms, but we are not writing a blank cheque to people who lived high off the hog during the years of plenty and did not contribute very much. We want to see them pay up and to see that clearly set out in the legislation. Nothing less than that will satisfy this party.

I wish to share time with the Minister for the Environment, Heritage and Local Government, Deputy Gormley.

Is that agreed? Agreed.

I applaud the decision taken by the Taoiseach and the Minister for Finance to bring this issue to the attention of the Government yesterday evening. It is in everyone's interest to take decisive and cohesive action on this issue. The international financial system has been affected by unprecedented turmoil and dislocation over recent months. Credit markets, which are central to meeting the medium-term funding needs of the financial system, have closed, in effect. Interbank lending rates have increased significantly, thereby escalating the cost of finance to financial institutions.

Recent developments in the United States have created major structural issues for the global financial system. When I visited the US recently, it was evident that these issues were being presented in a simplistic manner that was leading to polarisation. We should avoid such an approach here. I do not suggest that it is happening in this country. One of the reasons the US Congress did not come to a certain conclusion was that, from an early stage, the action proposed by the Executive there was presented as a bail-out for the elite at the expense of the person on the street.

There will be an election in the US in a few weeks.

Such an over-simplistic presentation led to yesterday's inconclusive result at Congress level. That result has the potential not only to affect the US economy but also to have global ramifications. The Government's decision to introduce the legislation before the House will affect every member of Irish society. In essence, it is about employment. Deputies spoke about the decline in this country's employment figures and the growth in unemployment. The bottom line is that everybody with a stake in our economy — including elderly people, those who are employed, the self-employed, business people and shopkeepers — will benefit from this legislation. Such people would ultimately pay the price of the indecision that would prevail if this step were not taken by the Executive or the Oireachtas. We need to put such a fundamental point to the people in an honest manner.

The Government has not taken this decision lightly. It took significant advice from the key authorities in this field. Its decision to underpin the stability of our financial system, by enabling funds to flow and the wheels of our economy to turn, was made in the best interests of all the Irish people rather than to benefit any single group or section of society. That is the bottom line in terms of our decision. I am sure the Members of the Oireachtas, including Opposition Deputies, accept the imperative that the Government has put before the House in the shape of this legislation. It is important to move in a coherent manner, as quickly as possible, to underpin the confidence that has already been generated by the Government's decisive action. Indecision would create further challenges and difficulties.

It is clear that we are witnessing extraordinarily volatile times. Perhaps the exact extent of the impact of this volatility has yet to emerge fully. Recent events throughout the world, particularly in the United States, are unheralded and unprecedented. I refer to the quality of the institutions which have fallen, or have had to be subsumed into other institutions. As the global financial crisis has evolved, the Government has been consistently mindful of, and committed to, the need to underpin stability at all stages. It has increased fivefold the extent to which it is prepared to protect deposits. It is important to accept the bona fides of the decision that has been taken by the Government. We should not fall into the trap of engaging in the type of debate that pits one group against another.

This legislation will not offer a free ride to the banks and the other financial institutions. Commercial rates will apply. There is a price to be paid for the State guarantee. Deputy Bruton spoke about the powers which may be taken on by the Minister for Finance. In the current circumstances, it is advisable to make legislative provision that enables the Minister to take action. It is right to give the Minister certain enabling powers. He or she should have the capacity to respond to situations as they emerge and evolve. I will now hand over to my colleague, the Minister, Deputy Gormley.

What about the Border counties?

This evening we have an historic and momentous decision to make. Most of us in this House entered politics because we believe in serving our fellow citizens and protecting their interests. Central to that mission is guarding the welfare of the many against the greed and self-interest of the few.

The landmark decision we have to make is about protecting all Irish citizens. It is about protecting our economy and our society, and giving ourselves a fighting chance to make a good recovery from the global financial turmoil in which we now find ourselves. For the past month many Irish citizens have been living in daily fear for their jobs, their families' welfare and their homes. We have seen the breath-taking speed with which some of the world's fabled Wall Street investment banks literally vanished. Some of these were a century old and had even survived the 1929 Wall Street crash. Many of us asked what hope we in Ireland had if finance giants like Merrill Lynch, Goldman Sachs and Morgan Stanley could not withstand the financial hurricane hitting world financial markets and banking systems.

The Government has considered the options for tackling this urgent crisis. The manifestation of the problem has been simple enough. Banks in Ireland, in common with their counterparts across the world, suffered from a lack of money. This lack of bank liquidity was threatening to bring longer-term depression to bear on an Irish economy already technically in recession. The lack of money to fund enterprise was threatening the well-being of virtually all Irish people. When business cannot borrow for its needs then ordinary citizens suffer as enterprises founder and jobs are lost.

We in Ireland have watched our counterparts in other countries, notably Britain and the USA, grappling with these same potentially crippling problems of bank liquidity. However, rather than follow the lead of Britain or the USA, we in Government are convinced that we have a better remedy. We are delivering an Irish solution to a global problem which fits our small open economy. We have decided to guarantee bank deposits in all Irish banks. We chose that over other options such as nationalising banks either partially or entirely.

We believe that as a country with one of the lowest level of debt to wealth ratios in the EU giving State guarantees to the Irish banks is fair to Irish taxpayers. The banks will also be obliged to pay for these guarantees which already today have enhanced their value and stabilised their shares on the money markets.

This comprehensive approach to the issue at hand dealing with all banks on the same basis avoids the potential for future confusion in dealing with banks on a case-by-case basis. Let us recall that banks lend money on two bases, the first on the funds they get from their own depositors and the second from money they borrow from other banks. In many ways, this legislation just widens the guarantee given to depositors 12 days ago to cover all bank deposits generally.

The Minister for Finance has brought forward a mechanism which minimises the cost to taxpayers but at the same time places a bedrock of State guarantee under our banking sector. This bold move has seen commentators from around the world look on with a degree of admiration. I am very proud of the role the Green Party was able to play in providing this innovative solution.

Is the Minister proud of Fianna Fáil's role in this debacle?

This is the type of new thinking we need in Ireland if we are to weather current storms and return to a sustainable and stable prosperous economy.

The Green Party was told about it this afternoon.

I cannot let this occasion pass without lamenting the lack of global money market regulation. This gap has allowed reckless avarice to carry the day for far too long on world money markets.

This is a blast from the past.

The Green Party was told what to do.

People entrusted with a sacred duty to police the money dealers have failed in their duty. The price of all of this has been the loss of people's confidence in the global financial markets.

We in Ireland have been ill-used and so have the citizens of the United States. However, we must also realise that we have many lessons to learn from this debacle. It is time for the politicians, elected by the people to order their affairs, to remedy the lack of regulation which has caused chaos and misery to ordinary citizens. We need to go further. What we are deciding here tonight must be seen as a first step. Politicians in Ireland and across the western world must rebuild a sustainable and sound system of financial regulation. We must get back to serving the needs of the many and not the greed of the few. I commend the legislation to the House and I thank the Opposition Parties for their co-operation.

I propose to share time with Deputy Varadkar.

Is that agreed? Agreed.

Tonight is an historic moment for Ireland. While we discuss this Bill, people are looking on who are fearful of losing their jobs or who cannot secure access to finance for their small businesses. The chief executives of four banks appeared before a meeting of the Joint Committee on Finance and the Public Service last July. Fine Gael specifically requested their attendance to discuss the issue of the difficulties encountered by people in accessing credit. The witnesses told us there was no problem and that they were continuing to lend money. Clearly, they were not. Those people have seen today that while they could not access credit, the same is not true for the banks in their moment of difficulty.

It is extremely important that the measures introduced under this legislation should not only benefit the banks but also small businesses and those who are seeking mortgages. In particular, we should bear in mind two consequences of this proposal. First, the banks are now able to access further liquidity on the interbank market at a lower rate than they were being offered yesterday. They must pass on that lower rate to hard-pressed customers. Second, Government bonds have increased in value in terms of the returns people will expect. That will affect the taxpayer. I am glad the Minister made reference to the guarantee scheme and how he proposes to put the mechanism in place. However, it is important that the taxpayer does not pay the cost of these measures.

Under section 6(4), it is proposed that all financial support shall, "as far as possible", ultimately be recouped from the credit institution or subsidiary to which it was provided. It is important that we devise mechanisms whereby the taxpayer does not pay for these provisions. We will bring forward proposals to that effect on Committee Stage. The Minister made reference to the buffer made up of equity and other risks. However, he made no reference to potential bad debts that the banks must write off, to ensuring they do not pay a dividend and that there will be an end to the awarding of excessive bonuses to chief executive officers, and that they do not engage in risky practices.

We are operating in changed circumstances and there is a requirement for new regulatory measures. Deputy Kenny referred to the Government making appointments to risk management committees within the banks. In addition, an overseas board should be appointed by the Government which would include the Financial Regulator and the Governor of the Central Bank.

Is the Deputy going to suggest there should be a representative of the World Bank?

There should also be a representative of the Government on this committee. We are putting forward positive proposals. People should not be sniping and making silly comments on such a serious issue.

It is a ludicrous suggestion.

People are worried about losing their jobs and about being unable to access credit.

The Deputy should not be turning this into a partisan issue and scaring the bejaysus out of people in the process.

A foreign channel is being picked up. It should be turned off.

Deputy Gogarty should make his comments during Government time.

It is time that Deputy Gogarty shut his mouth and minded his own business.

Deputy O'Donnell should be allowed to continue without interruption.

People are entitled to the assurance that these procedures will be put in place.

We welcome these proposals, which are necessary for the banking sector. However, we must ensure it is not the taxpayer who pays for them. The measures must provide a flow of funds from the banks to enable the economy to function. That has not been happening in recent months. I welcome the decision to allow time to thrash out the details on Committee Stage.

The Minister for Finance has told us that finance is the lifeblood of the economy, while Deputy Bruton described it as the oil in the machinery. I agree with that. The purpose of this Bill is to restore confidence in the financial services industry and to secure the banking sector. Some members of the public will be unhappy with what we are doing, but it is important to remember that this is not just about saving banks, it is about pension funds, people's savings, businesses big and small, and jobs.

I disagree with the Minister on some points. I do not agree that the main problem with the banking sector is liquidity. I think there is a capital problem as well. The banks have squandered their capital on mistaken loans to the property sector and I really wonder whether, in all cases, their assets exceed their liabilities. I will be interested to see how the Minister has been assured of that and how he has come to the conclusion that their assets reach €80 billion.

I also have some concerns which should not go unmentioned. I have a real concern that the taxpayer will be guaranteeing interbank loans. It is not clear to me that there is anything stopping a bank from borrowing €1 billion or €2 billion tomorrow from the Bank of Abu Dhabi or the Bank of China and then lending that out to people who cannot afford to repay those loans.

The Taoiseach has described the purpose of this Bill as going back to business as usual, but we do not need business as usual — we need to change the way we do business in this country. We need to do that through better regulation of the banking sector, although that is not provided for in the Bill. We need better oversight and I want to see more in that regard. We need to know how this will impact on the cost of borrowing. It would appear to me that if we are potentially taking on these liabilities, the cost of borrowing on behalf of the taxpayer will be higher. We will borrow €10 billion this year and probably the same next year, but will the cost of that borrowing be higher? If so, what will the cost be to the taxpayer?

I am disappointed that there are no consequences or punishment for some of the people who are, in part, responsible for this situation — bankers who made inappropriate loans, the Central Bank to a certain extent, and also Ministers who had the opportunity to act to rein in the financial sector, but did not do so for various reasons.

My final concern relates to what has happened here today. Our frontbench met this morning to discuss what was going on, yet there was no indication at all that legislation would be required. We only found that out at Taoiseach's Questions at approximately 4.30 p.m. We were summoned back here at 6 p.m., 7.30 p.m. and 9 p.m. It was suggested by the Taoiseach that we should discuss a draft Bill that had not even been published and we returned here at 10 p.m. We have been told that markets and banking operate on confidence, but I do not have a lot of confidence in a Government that does its business that way. We finally got the Bill — and it is still warm, believe it or not — at 9.45 p.m. We have been asked to read it but it is like being asked to read the Lisbon treaty in 15 minutes. Apart from being stand-alone legislation, it also amends four other Acts: the Competition Act, two Finance Acts and the Companies Act.

We have a national crisis and on this side of the House we are doing our best to offer responsible and patriotic opposition. As a result, and because this Bill changes other legislation, we are by and large supporting this Bill on trust. The Government has asked for bipartisanship and a Tallaght strategy, and they will get it on this one Bill. However, the responsibility for this lies on the heads of Ministers and woe betide them if any banks fall or if taxpayers are left with significant liabilities.

I wish to share time with Deputy Rabbitte.

Is that agreed? Agreed. Deputy Quinn has five minutes.

This is not a night for recriminations, but we cannot pretend that this problem fell from the sky. We have had a failure of regulation in this country in the sense that the advice of the regulator — Deputy Bruton has already cited this — to curtail the massive lending and extreme extension of funding into the construction sector was consistently ignored by the lending institutions and by the Department of Finance. The tax breaks stayed in place. All the advice coming from independent economic advisors and commentators was simply ignored by the Department of Finance and by the Minister's predecessor. When the regulator voiced concerns, as did the Governor of the Central Bank, he did not seem to have the power to enforce his advice.

I refer the Minister and his colleagues from the Department of Finance to page 6 of today's Financial Times where an article by Gillian Tett refers to the success the Spanish Central Bank’s governor has had in helping Spanish banks, which have a big property exposure, to avoid the road we currently find ourselves on. The Spanish banks, particularly Banco Santander, have moved into a premier position in the new European landscape.

The meat of this Bill is in sections 5 and 6. The meaning of section 5 is that the regulations introduced on foot of whatever decisions the Minister makes will have to be laid in draft form in this House before they can be activated and become law. However, that procedure is reversed in section 6, where the Minister reverts to the traditional manner. As we all know, that kind of draft regulation is never scrutinised here. I again defer to the point made by Deputy Bruton. We are sailing very close to unconstitutionality with this Bill, and as a senior counsel, the Minister must be aware of that. I ask him to look seriously at reversing that particular mechanism and return to how we scrutinise the draft regulation in section 6.

The Government is guaranteeing €400 billion. What will it charge the banks for this insurance policy? The Bill does not tell us what the banks will pay for this facility. The rate in credit default swaps is approximately 2%. This means the banks are getting an insurance policy worth €8 billion for two years. These are points that are being brought to our attention, and I am bringing them to the attention of the Minister so we can get answers to them by tomorrow. What is to stop the banks that are covered by this guarantee from poaching deposits from those that are not covered and lending them on to make enormous profits? It appears to us that there is no attempt to limit the competitive damage to other banks not covered by the scheme.

What is the signal that we are sending to the financial institutions in the IFSC, many of which are completely outside the remit of this Bill? This is a flagship in which we have all taken some pride, particularly Fianna Fáil, yet down in the IFSC they are wondering why they have been singled out for non-inclusion. I have not even mentioned the traditional high street banks whose parents are located in other jurisdictions attached to other central banks. Does the definition of credit institutions, as defined under the Central Bank Act 1989 in S.I. 395 of 1992, allow the Minister to ring-fence an Irish bank operating on the Irish high street, whose parent is outside this jurisdiction, to benefit from the same facilities he is providing for the six banks in order to level the playing pitch?

Is that legally possible?

That is what I am asking. There are many banks in this country with a large number of employees and customers who have been here for a long time, and who see this as blatant discrimination. Time prevents me from proceeding, but I would like to see those questions examined and answered.

I doubt if there is any Member who disagrees with the proposition that banks must be able to source funding abroad and lend it to their clients in order to maintain economic activity. However, the question remains as to why the markets are frozen towards Irish banks. The answer has to be that international banks regard Irish banks as having too many bad debts and bad loans on their books. That is the reason the money is not coming forward. The Financial Regulator timidly warned of the dangers of the huge expansion of credit and personal indebtedness, but did not seem to be able to enforce it. We have been left with a property overhang and that bubble is the cause of the problem, and not the events on which Deputy Micheál Martin lectures the US Congress.

Deputy Martin thinks it is churlish of public representatives in the US to take the two and a half page Bill they received and elaborate it into a 100 page Bill.

I did not say that.

He thinks they should have nodded it through like he expects to happen in this House. In fact, those representatives identified critical omissions such as the absence of congressional oversight and that same absence is evident in this Bill. We have been given a vague, rushed Bill which was being drafted during the day as we were in this House awaiting it and we know it is an invitation to difficulty down the road. I see three options: the Paulson option, the option of pumping in equity and taking stakes or, the insurance, the guarantor, option. The Minister has opted for the guarantor option and the Bill does not tell us anything about the nuts and bolts. The Bill is essentially enabling legislation that confers the most extraordinary, far-reaching powers on the Minister who may make regulation when and as he thinks fit. It is the most all-encompassing power I have ever seen devolved to a Minister and none of the critical nuts and bolts is available to the House. Mr. Paulson would love to be Minister for Finance in this country because apparently he could do what he likes. This is what he tried to do in Congress and the Congressional members had the audacity to put a halt to his gallop.

Banks who have been lending too much to dodgy builders come in the back door to Merrion Street and make a case, presumably that one or other of them is in deep trouble, and we opt to convert the country into a massive AIG. We are one massive insurance policy now for some €400 billion. The United States has attracted much attention for putting forward $700 billion of taxpayers' money to buy back dodgy toxic accounts. This is roughly 5% of GNP in the United States. We have put 200% of GNP, theoretically, at risk here and we do not know what the Minister means when he says there will be a cost levied, how it will be levied or how it will be done. This is not the way to make law.

We are being asked to confer these powers on the Minister without any knowledge of what kind of oversight or anything else is in place. I think the delay today was caused by matters brought to the attention of the Government once it made the announcement this morning and, from what I know, those matters relate to the competition area. It seems issues were raised about the exclusion of certain banks functioning in this jurisdiction and this is what caused the redrafting and the delays that happened today. The Minister needs to address that issue. I notice the European Commission has said that distortion of competition out of proportion to risk may well be an issue it will need to examine.

I notice the Minister for the Environment, Heritage and Local Government, Deputy Gormley, is going to tackle global regulation as his next move and this is reassuring. However, it would be marvellous if we could tackle regulation here. The Minister's script is full of assurances about the strict regulation that will apply now. Why should it apply now, when anybody who knows anything about finance and economics, for the past three or four years in particular, has been warning the Minister and his predecessor that we would come to grief in exactly the fashion we are now dealing with tonight? Everybody was aware of that situation but we did nothing. We stoked it and expanded credit. Personal indebtedness has got out of hand. Now we have a property overhang and the Minister in his budget will probably come up with some scheme to buy back the properties from his financiers in the building industry and we are left with the mess. The taxpayers of Ireland are expected to underwrite it with their money and bail out the reckless behaviour of some of the lending that went on in this country over the past number of years. Both the Minister and I know this is the case. The people who helped him write this legislation are the ones who it appears will be able to implement it.

This morning, Deputy Kenny recommended that the new regulator ought to be represented in the big decision making. Now that they are underpinned by the State, I cannot see anything that will prevent banks acting as banks and taking decisions which we will be sorry for in the future.


It is better than doing nothing.

Deputy Pat Rabbitte's party could print its own money anyway.

That was a long time ago.

Deputy Micheál Martin is supposed to be a diplomat and a statesman.

I am trying to ascertain whether Deputy Pat Rabbitte is for or against the Bill. Today is not a day for point scoring.

I am not against it. I did not see the Minister five minutes ago.

The Deputy is a man who always knows his mind. I thank the Minister for Finance and all those involved over the past several days in dealing with these important issues.

The Credit Institutions (Financial Support) Bill is about protecting the public interest at a time of deep disturbance in international financial markets. It is about protecting depositors and giving confidence to those international banks that lend to our banks. Its effect will be to ensure liquidity is retained in the Irish financial system. The importance of maintaining such liquidity is key to the ongoing ability of not just our banks to do business but to that of our small and medium enterprises. Their ability to get and retain credit impacts directly on their ability to do business every day. The actions of the House tonight in considering the Bill are key to the security and stability of our economy at a local and national level.

The current crisis has its roots in the credit markets of the United States. While Irish institutions have no significant exposure to the kind of assets that have sparked this credit crunch, over time the global situation has taken its toll. While in the past individual financial institutions have fallen because of one event or another, the number of institutions which have been the subject of liquidations, forced partnerships or state takeovers of one kind or another is growing.

Fortunately, Ireland has been spared the worst of this but Irish financial institutions are as reliant as any others on the international capital markets. This means that when liquidity — the lifeblood of finance — starts to become harder to access, the institutions find it increasingly difficult to carry on as normal. This liquidity shortage is at the heart of much that is happening in financial institutions worldwide. Across the world, creditworthy institutions are being placed under stress because of the difficulty of raising finance for their operations.

Notwithstanding the many flaws in the system becoming evident, modern economies require the presence of a broad range of financial services. In particular, the availability of credit on reasonable terms allows for entrepreneurial activity, for the development of private and public infrastructure and for the generation of economic growth and employment. It is essential that toolkits are available for the protection of the financial system's stability, particularly when it is being challenged globally.

One tool in the toolkit has already been deployed. The Government has announced its intention to give a guarantee to several financial institutions. This decisive action gives support to the creditworthiness of the institutions concerned, making it easier to raise cash for operations and allowing them to continue serving their customers. That guarantee is the appropriate tool for the current situation. In other circumstances, other tools might be necessary.

It is important that where an institution runs the risk of ceasing to be viable, it can be brought together swiftly, with the minimum of fuss, with a stronger partner. Section 7 provides that in certain circumstances the Minister for Finance can step into the role, temporarily, of the Competition Authority, to enable competition issues in the bringing together of institutions to be considered fairly, swiftly and in the full understanding of the financial stability issues concerned.

We hope, of course, this tool will never be used. Even if it were, there would be little question of damaging competitiveness in a sector. It cannot help competitiveness for an institution to go to the wall which could otherwise thrive as part of a different structure. The public interest can often demand broadly based and swift consideration of strategic options in achieving the best outcome for the people. It important that we allow for that.

What about Ulster Bank?

The Minister will deal with that issue later.

He did not deal with it earlier.

I support the initiative announced by the Government this morning which took many by surprise. However, few options were available to the Government this morning.

If a significant decision had not been taken by the Government today, we may well have been facing the scenario of one or more Irish banks not surviving the day, never mind the week. The options were limited. Nationalising individual banks that are in trouble was not an option for the Government, in my view. Likewise, allowing any individual bank to go under in an Irish context would have caused ripples that we would not have been able to control, in terms of its impact on other banks.

The response from the Stock Exchange today has been reasonably positive, although we should not overstate that. The Government has been making the case that the issue is primarily about liquidity and the availability of funds to Irish banks and there is a lot of truth in that. However, Deputy Rabbitte raised a valid issue. We need an answer to the question as to why Irish banks have been finding it so difficult to access funds and why banks outside of Ireland have become slower to lend money to them.

The radical measure that the Government has taken today will not solve domestic problems within Irish banks in terms of their potential exposure to bad debt, which the Irish taxpayer may now be exposed to in the foreseeable future. The Government's decision must be backed by legislation, although there was some confusion about that today. The Minister said this morning and repeated again this evening that the taxpayer will be protected in this deal. That simply is not the case. The exposure of the taxpayer will certainly be minimised and the Minister will do everything in his power to ensure that is the case. However, to claim that the taxpayers' interests will be entirely protected in this deal is simply not true. The Irish taxpayer is being exposed to potentially enormous debt, should future calamity befall Irish banks and the Irish economy more broadly. On top of the potential debt risk that exists, following the other protections that exist should they fail, is the potential damage that is being done to the cost to Ireland of borrowing money. In that context, I seek more detail from the Minister for Finance. Will the fact that we have become guarantor for a very large amount of money make it more expensive for the Irish Government to borrow large sums of money, as will be necessary for this years' budget?

Let us be clear — this is a gamble. It is calculated, but a gamble nonetheless, using public money in response to the abnormal and extraordinary circumstances faced by Irish banks and the Irish financial system generally. Our job in Opposition is to be responsible at times like this and we will be so. However, the Government should not expect us to wave provisions through without being constructively critical or making suggestions tomorrow. In that context, I appeal to the Minister and the Tánaiste to examine the sensible suggestions coming from Fine Gael and other Opposition parties with an open mind.

The Bill is essentially akin to war-time legislation, responding to extreme circumstances by giving extreme and all-encompassing powers to a Minister to make decisions as he sees fit. To ask an Opposition to accept that is very serious indeed. Tomorrow we will be seeking more oversight, more guarantees around tougher and more comprehensive regulation of the Irish banking system and we expect to receive at least a constructive and responsible response to our requests because they are not unreasonable.

This is not about securing the jobs of bank managers or the salaries of the board members of large banks in Ireland. It is about a much broader issue in terms of the availability of funds that will keep the Irish economy afloat and moving forward.

I welcome the opportunity to say a few words on this Bill. I listened with interest to those who suggested the Bill is necessary to re-establish trust in the lending and credit relations, particularly between banks.

There are those of us who have made reference to this in terms of "whether". The Minister, Deputy Gormley, asked whether, if there is a blizzard in the United States, we can be far behind. It is important that the Irish public, who are watching this, will require of us that we make a proper analysis. The reality of the United States, for example, was that there was a liquidity crisis and the reason the legislation was not passed in Congress was that many representing their constituents felt that the way in which the United States problem was being approached should not require the purchase of €700 billion worth of toxic debt, the equivalent of approximately $2,200 per taxpayer in the United States. There were several other ways in which one could have addressed the liquidity crisis. The IMF, in a conservative document looking at 42 banking crises internationally, showed that few — I think ten, including Paraguay and Pakistan — had got involved in purchasing toxic debt. That is a reality.

It is not about "whether". Neither is it about, unfortunately, some sort of Lego approach to the economy about which the Tánaiste is talking about — tools in the toolkit. It is about giving a guarantee and people will reasonably ask what we are guaranteeing. One turns then to the Minister for Finance and the Taoiseach.

I suggest the last thing the public wants is a guarantee that things will go on as they have done. They do not want that. They certainly do not want a version of the economy that has been qualitatively changed since the time growth was sustained by export performance to a time when one had high rates of growth based entirely on the revaluation of the property base of the economy. Frankly, the message I get from constituents is that people want an end to that. They want an element of transparency. For example, the six institutions mentioned in the legislation differ entirely in their exposure to risk. Some are heavily exposed, as has already been established in the financial accounts, in relation to commercial property liabilities; others are not. It is nonsense to be using phases such as "the banks" because they differ.

We are interested in restoring such liquidity that will create and sustain employment and that will turn the economy around in a positive way, but where is there any suggestion of that in the legislation? The Minister takes extraordinary discretionary powers in dealing with the banks, but there is no evidence that he is taking any power to change either regulation or credit policy.

It is important to place on record, just to help those who are interested internationally, that there has been a failure of regulation internationally but, much more importantly, a model has failed. According to that model, that goes back to Von Hayek and on through Freidman, unrestrained growth, by capital staying mobile, can go for ever. It has failed. It is over. Therefore, people are looking for versions of assurance that will, as they stated in the discourse in the United States, enable people to take out loans, to buy cars and to fund the stock in their shops.

It is exactly the same in Ireland. People are asking, for example, if the banks be different for those who want to start small businesses or will the banks continue facilitating property purchases of a speculative kind, many of which are not within the Irish economy at all? The Minister for Finance will be well aware of the amount of property that has been purchased externally and funded by the Irish banking system. It is a matter with which he does not deal.

I intend to return on Committee Stage to the fact that the Minister is embarking on a constitutionally frail exercise. In several places he suggests that he will consult with such Ministers as he finds necessary, but not necessarily with the Cabinet. That will not stand long. Then several other times he takes powers of a discretionary kind that are not related to any sensible credit policy or do not offer us any future regulation. A good example of this is in page 10 of the Bill, which states "on such terms as the Minister sees fit". This is sloppy drafting and no Minister should be given the powers of discretion the Minister seeks in the legislation. We will return to this on Committee Stage.

My party understands that the Government needs to intervene to stabilise the financial system. The logic behind this move is to undermine the bear market and lead to investment in our banking system. This legislation is about more than the banks and I accept the point made in this regard by several speakers. It is about offering security to ordinary citizens, investors and Irish businesses, which in turn means jobs. It may well prove to be a move that other states will seek to emulate.

The concern all day is based on what will be the quid pro quo. What will the Government extract from the banks in return for this legislation? The Bill does not offer the details needed to inform us of the terms and conditions the taxpayer will require. We need to be particularly cautious about this move because, since the Central Bank has proven itself to be spectacularly incapable of doing its job, we do not know what our major banks’ budget sheets look like and what liabilities Irish taxpayers are undertaking. We need the guarantee to be underpinned by more conditions and we need detail thereon.

When the Government bailed out AIB in the 1980s after the ICI collapse, a levy was introduced on the banks. A similar initiative must be included in this Bill to build a fund that will serve to meet the insurance requirement that is clearly necessary for the banking sector. If this guarantee does what it should, the banks should make a profit from borrowing the State's name and should pay significant compensation to the State for that security. There should also be a commitment from bank management to forgo bonuses for the time covered by this guarantee, or consider cuts in their exorbitant salaries. Separately, we need to see new transparency in the banking system and we need better regulation.

Today, while welcoming this decisive move, we must point out that action could have been taken many years ago to prevent the move from being necessary. As far back as 2005, the Oireachtas Committee on Finance and the Public Service, of which my colleague Deputy Ó Caoláin was a member, made recommendations on bank charges and interest rates. Deputy Ó Caoláin initiated the process. As well as exposing the lack of transparency on the part of banks regarding their charges for customers, the committee urged the need for further regulation of banks. We must not forget the current global financial crisis is of the sector's own making.

We need to know what assurance will be given to ordinary people, including those who have lost their jobs in the construction sector, those who are mortgaged to the hilt and are facing negative equity in their homes, those who risk losing their homes and those who did not earn bonuses during the boom years while others reaped millions. This guarantee will mean nothing to people, hauled before the courts by the banks, currently embroiled in court hearings over mortgage defaults.

When was the last time the Government sat through the night to come up with solutions to solve these people's problems, as it did last night? It is imperative that the Government offers the same level of security offered to the banks to ordinary people in debt to the banks. Thus far, no bank has moved on a major developer to recoup loans, yet homes continue to be repossessed. Along with the guarantee I seek, there should be an immediate moratorium on home repossessions. Every step must be taken to ensure people can reschedule loans where required, defer payments on the capital sum borrowed and, as required, negotiate interest-only repayments for a designated period.

My party has always been in favour of a State bank. This morning's announcement is evidence enough of the value of such a proposition. With a State bank, the Government can adequately protect the investments and deposits of ordinary citizens and small businesses while wisely investing profits into the public purse to the advantage of all. The newfound policy of privatising profit while socialising debt surely magnifies the need for an urgent reorientation of our economy. The sooner such a process commences, the sooner funding will be found for the provision for proper social services.

When I telephoned Deputy Kenny at 7 a.m. this morning and explained to him the circumstances in which the State found itself in regard to financial stability, he responded without hesitation that he would support any measure the Government brought forward. Of course, it is natural and correct that in the course of the day Deputies would express reservations or doubts, or that in the course of the debate Deputies would query particular provisions. I look forward to Committee Stage tomorrow when there will be an opportunity to elucidate some of those provisions and explain the different issues at stake. I do not propose today to go into the detail of all of the elements of this legislation as many of these matters can be addressed on Committee Stage. However, I want to address some points that have been raised on the floor during the debate because they are of importance.

I welcome the broad welcome which was extended to the Bill in the House. I hope we do not divide on the matter because I believe agreement on Second Stage on this legislation will send a clear signal to the markets tomorrow morning to secure the stability of the financial sector.

Deputy Bruton made a very important point in regard to our compliance with European Union obligations. I assure Deputy Bruton that the advice of the Attorney General was sought on this matter and obtained. The Government is satisfied that this legislation is in conformity with our obligations to the European Union. Contrary to what Deputy Rabbitte suggested, namely, that this was the occasion of the delay today, that is far from the case. The advice of the Attorney General was sought on this matter as part of the contingency planning which led to this legislation, and that advice was crystallised in the course of our deliberations yesterday evening. I want to state that the advice of the Attorney General has been obtained on this legislation and that we are satisfied we are in accordance with our obligations to the European Union in regard to it.

Complaints may be made to the Commission. Complaints are made to the Commission about many matters and when this happens, the Commission rightly and properly seeks explanations from the relevant member state about its position. However, as a Government, we have been advised by the Attorney General that we are acting in accordance with those obligations.

Deputy Quinn raised the question of the banks which are not covered by this guarantee. If one examines the legislation, one will see there are six designated banks which are covered by the guarantee and the option is given to the Minister to extend that guarantee to other entities. However, it is not entered into as a matter of legal obligation. To explain why this is the case, I have to bring Deputies back to the lonely place where the Taoiseach, myself and the Attorney General found ourselves last night. These six institutions do not have any other friend in the European Union or on the Continent of Europe. All of the other banks referred to — we can look at their position in due course — are subsidiaries of a bank the ultimate responsibility for which rests with another member state. There are six institutions for which ultimate responsibility rests with the Irish State. One of the crucial issues running through this debate is the extent of the obligations, or the assumption of obligations, which the State should undertake in regard to them. Deputy Rabbitte touched on this when he referred to the different options that are available to the State.

I want to go back to a point made by Deputy Burton at an earlier stage of the debate when she canvassed the option of following the Swedish model in regard to the problems we face. The Swedish model was adopted in a context where there had been actual bank failure. My Department, and I as Minister, have studied in great detail the Swedish model with regard to bank failure, and it is a very interesting and constructive model. However, the Deputy should be aware that there was a very substantial drop in the gross domestic product of Sweden when there was mass bank failure. The approach taken by the Swedish Government was a constructive one and worthy of emulation, but we are not at that stage yet.

Deputy Coveney raised the question of the possible increase in the cost of borrowing to the State as a result of this guarantee. As I made clear in opening the debate, the process of devising the fee mechanism will take into account such factors as the possibility of increased funding costs for the Exchequer, as well as other factors.

Several Deputies referred to the extensive powers of regulation being conferred on the Minister in this legislation. It is not correct to suggest that a Minister for Finance operates in isolation from his Government colleagues. Powers conferred on the Government are somewhat of a rarity on our Statute Book. The powers conferred on the Minister for Finance are of course exercised by him collectively with his colleagues in Government.

Question put and agreed to.

When is it proposed to take Committee Stage?

Is that at 10.30 a.m.?

My understanding is that we will commence with Leaders' Questions and the Order of Business and that debate on the legislation will resume on the conclusion of the Order of Business.

You are always correct, a Cheann Comhairle.

It is nice of Deputy Kenny to say so. He is one of the very few who does.