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.