Financial Services (Deposit Guarantee Scheme) Bill 2009: Committee Stage (Resumed) and Remaining Stages.

Question again proposed: "That section 2 stand part of the Bill."

The basic purpose of a deposit guarantee scheme is to prevent a run on a bank. The most pertinent example in Ireland's case was that of the British Government stepping in to protect Northern Rock. Based on the provisions of the Bill, responsibility for preventing a run on a bank now resides with the Central Bank of Ireland, which is given the role of advising the Minister for Finance. What does that mean for the regulator? Does it mean that we will now have a structure where the Central Bank of Ireland retains, if one likes, control of the prudential aspect of regulating banks and preventing runs on banks? Is this recognition by the Minister that the regulatory system, which we had been assured was fine, failed utterly? I certainly believe it failed dramatically and it is costing our taxpayers a vast amount of money.

The Minister spoke about greater Oireachtas oversight. In the United States, the legislative arrangements for future regulation are being published at present. Public disclosure and transmission of information, including to markets, is at the heart of those proposals. However, this short Bill makes no provision for public disclosure. The Minister talked about more Oireachtas oversight and then suggested that oversight should be in private.

Not entirely in private.

When it comes to the private affairs of banks, we have a culture of total secrecy. However, this culture of absolute secrecy in our banks, where there is no requirement for freedom of information, allowed individuals in banks, particularly in Anglo Irish Bank, to behave like those inThe Bonfire of the Vanities. They had complete licence to do whatever they wanted and to maintain right up to the last moment of the last hour before the bank’s collapse that everything was really fine and they would pull through. While I agree with the suggestion that the Oireachtas should have more oversight, I am concerned at the suggestion that the bulk of that additional oversight might be in secret meetings. I thought the purpose of the EU college of regulators, etc., to which the Minister referred was to try to get information about a bank that is going bad and where there might be a run on the bank.

The purpose of this legislation is to put mechanisms in place in circumstances where there might be a run on a bank in the future. I do not see how copper-fastening the culture of secrecy that exists in the Department of Finance, the Central Bank of Ireland and the regulator can benefit us. That culture of secrecy was what allowed these banks to make ridiculous decisions on investments and go mad on property speculation, and to claim to the outside world that everything was grand. I fundamentally disagree with the Minister in that regard.

I am advised that we are allowing the debate to wander somewhat from the subject matter of the section.

It is difficult because it is a short Bill and some of this is dealt with later on. However, the role and approach of the Central Bank of Ireland are critical.

The Chair will be as accommodating as is allowed.

Deputy Bruton must construe section 2 in the context of the directive, which requires us to implement this legislation. Under the directive, member states are obliged to ensure that coverage shall be at least €50,000 and that by 31 December 2010 all member states are obliged to ensure that the aggregate deposit coverage for each depositor shall be set at €100,000. We intend to implement our obligations immediately rather than to wait until that date. This legislation will stand beyond that date, providing this exact coverage. I am glad the Deputy has given me the opportunity to put that on the record of the House.

However, the Commission is also empowered by the next provision of the directive to prepare a report. If the report concludes that the increase to €100,000 and the harmonisation are inappropriate and not financially viable for all member states, it may bring a fresh proposal on the coverage limits to the Council. Therefore, the Commission is given an option to bring a proposal under the directive. It is envisaged that we in Ireland have made the guarantee and will stand by it. Clearly, there can be evolutions in the light of the Commission proposal.

The answer to the question as to what happens after the date referred to in the Act is that the guarantee will remain in force. Clearly, the Commission may have some ideas about that in the light of the prevailing banking position in Europe.

Deputy Burton asked about the Central Bank of Ireland, which is addressed in section 11. The question of how this issue is addressed in this legislation is distinct from whatever proposals the Government brings forward on the regulatory system. The reference to the Central Bank is a technical issue as to the appropriate place in which the payment out will be made in the event of the guarantee being called. It does not necessarily prejudge any question about the regulatory system which will be decided upon by this House when the Government brings forward legislation on that subject.

Question put and agreed to.
Section 3 agreed to.
SECTION 4.
Question put: "That section 4 stand part of the Bill."

Section 4 contains the proposal whereby those that are covered will be required to maintain a deposit, the amount of which will be prescribed from time to time. There are criteria against which this judgment will be set out. Is it the intention that this system would be designed or seen as part of a tool for regulating behaviour? Will this be a way in which the Central Bank will flag a signal to banks that it is unhappy with some of their complexity or liquidity? Or will it solely be a formula set in stone and everyone will know their place within the formula?

To what extent will credit ratings of institutions be one of the issues considered when it comes to deciding what level of deposit applies? I am aware that credit ratings have become discredited in recent times but on the other hand they are an independent body taking a picture of an institution's risk. They give the public some way of seeing what the bank is charging in terms of the deposit required for this sort of protection. It gives one the sense that the Central Bank is applying rules that are largely similar to what an independent rating company looking at the very same sort of portfolio of behaviours, assets and liabilities would judge. I would be interested to know the philosophy behind this and what scale of deposit is envisaged. If I am not mistaken, I think it was 0.2% when it was €20,000 so does that mean it will be 1% when it is €100,000 with variations around that level of deposit, or does the Minister have a different concept in mind?

In the crazy times people ignored a lot of these requirements for maintaining deposits, and requirements for capital and liquidity ratios. In the current hard times, however, central banks and regulators are repairing their hand by being tough on capital ratios. To some degree the time to be tough with capital ratios was in the past because the same rules do not apply now. Having recognised the enormous failures of the past, there is no point in imposing a straight-jacket now at a time when the issue is whether there is any credit at all, not whether people are running away with risk. The problem is probably the opposite in that people have become so risk-averse in the banking system that there may be a case for relaxing some of these ratios to make banking more pro-risk when looking at some of the business proposals. I worry that the exercise of some of these, smarting from the criticisms that they were too loose in the past in setting capital ratios, liquidity ratios or deposit requirements, may — at the very time when the country is crucified for lack of credit — swing to imposing strait jackets that are inappropriate to the present credit situation. That is not to say that we must take a loose view with regard to the mistakes, including toxic loans, and the people who are responsible, but we may see the pendulum swing too far and create a highly risk-averse system. It may be so anyhow because banks are motivated by self-preservation to shrink their balance sheets and avoid the threat to their independence. I would be interested to hear the Minister's view both on this specific section and the wider context within which this will be drafted.

I referred earlier in the debate to section 4(4) which basically gives the Minister the right to vary the amount. In a uniform credit deposit protection scheme a good bank, which is well regulated and well run, ends up reserving exactly the same amount as a bank which is indulging in risky behaviour. Can the Minister clarify what his approach to that will be? The Anglo-Irish Bank model was to offer very high rates of interest and return by risky short-term borrowing. When the balloon went up, the bank was left with a fundamentally dangerous structure. In many ways, that was the reason the State — the Minister's party — stepped in with the overall guarantee.

A weak funding base, Deputy.

Similarly, Irish Nationwide was the other example of a building society which was behaving in an incredibly risky business manner. All the institutions which are covered by this deposit guarantee scheme will face the same requirements concerning the scheme. Surely, however, it would make sense that if a bank is engaging in a risky or bad business model, it should be more penalised than a bank which is being more conservatively governed, and therefore perhaps not making the exotic income and returns that, for example, some of our credit institutions were claiming and which then crashed so spectacularly.

Section 4(4) refers to the bank advising the Minister, but the critical thing is whether that information gets out to the market. Historically, in all the institutions dealing with credit in public authority in Ireland — the Department of Finance, the Central Bank and the regulator — we have seen an extraordinary reluctance to be in any way openly critical. Mr. Hurley, the governor of the Central Bank, has attended various committees and if one reads the small print it states in words to the effect, "I did warn...", but who will notice in the stampede of a bubble? It is like the footnote on travel insurance that people do not examine.

What will the bank do now about the actions that are set out in the subsection concerning the adequacy of internal controls, including procedures relating to risk management and mitigation, and arrangements for financial stabilisation? That is the core reason why Anglo Irish Bank went down the tubes. That was the job of the regulator, but under this legislation it will now be the primary job of the Central Bank, even if part of the task may be given to whatever form of modified regulator we have in future. I would like the Minister to comment on that.

The Minister said 0.2% of the reserve would be charged but will that apply to credit unions also? Is that the Minister's intention? A position may arise where it might be more costly in terms of credit unions overall than the banks, so perhaps the Minister can expand on that.

There is power not to apply it to smaller credit unions in the event that it imposes a disproportionate burden on them. I understand the statute covers that point.

On the philosophy of the section, the first point to notice is that it empowers the Minister to prescribe by regulation the amount of the deposit which a credit institution shall lodge to the deposit protection account. The power is in fact conferred upon the Minister, although clearly the Minister must act on the advice of the Central Bank. There is an element of political accountability when the power is conferred upon the Minister, which is valuable in this context.

The current rate is 0.2% of overall deposits under the existing regulations, and the Minister is given power to vary by order the amount payable by a credit institution or credit institutions, or a class or classes of credit institution. In response to Deputy Burton's query as to whether a particular bank could be charged a higher rate due to the greater perceived risk of that institution, the answer is "yes". That is possible under this Bill, although the Minister would have to act on the basis of a report submitted to him by the Central Bank. After appropriate consultation with the Central Bank, the Minister could decide to increase or decrease the amount which a particular credit institution or class of institution must deposit with the bank for the purposes of this scheme. That is an important power because it provides the Minister with the means to introduce a more risk based deposit guarantee scheme, if he deems it appropriate.

The assessment of risk is always a difficult question in banking matters. It is worth analysing the types of risk to which the Irish banks exposed themselves in recent years, and Deputy Burton referred to a number of institutions. The reality is that the risks taken by institutions were of two varieties. The first was the risk of excessive dependence on short-term and international borrowing, and that was on the borrowing side of the account. To a greater or lesser extent, different Irish institutions engaged in this. The second variety of risk was an excessive amount of lending to persons with too optimistic an assessment being made of their prospects. That again took place to a greater or lesser extent in all the institutions, from the level of the consumer seeking finance for a house transaction, right through to the developer seeking to acquire land.

I do not think the Minister responded to any of the issues I raised.

I thought the Deputy wanted me to explain the philosophy of the section and to outline my intentions as a Minister regarding its operation. I have explained the philosophy of the section, but my initial intention is to state the 0.2% for all institutions. By virtue of the section, the Central Bank will be in a position to do a far more detailed assessment of the position of different financial institutions and their relative risk character. In that context, it would be open to me in the future to vary the amounts that are to be paid.

That is a fair approach. People who are running tight operations should not find that they are being charged the same as people who are being more risky. The wider point I raised concerns the Minister's view that there is a risk that one of the problems inhibiting the availability of credit at the moment is that regulators are moving towards taking a fairly tight view of things. I could understand if this was a risky class of investment, such as more development investment, because we are already so exposed in that area that the notion of investment in development land would certainly constitute an area where very high capital ratios should be applied. On the other hand, can we say that one of the reactions to this is too tight an approach to credit? Maybe there is a case in looking at liquidity ratios, capital ratios and so on in respect of new credit. Maybe now is the time to be supporting the issue of credit, making the banks more willing to take risks rather than being more willing to avoid risks.

This is a deposit guarantee scheme. For the foreseeable future in the Irish economy, many people will have a very high propensity to save, due to their personal finances, jobs and so on. Interest rates are on the floor at the moment, so the ordinary depositor will want safety and will also look for rates of return. By and large, the people offering greater rates of return in Ireland in recent years — we will not bring Icelandic banks into this — are the people who have been having——

They were in a league of their own, even by our standards.

I agree. If the Minister has the power to be advised by the Central Bank and we will move into a new regime where we will all be more sensible about our financial affairs, what does he say to the ordinary saver who is receiving a redundancy lump sum, retirement lump sum and so on? These sums are individually small, but they constitute an enormous and important reserve for the Irish banking system. If everybody is charged exactly the same, that is harsh on credit unions because they are mandated to be very careful and limited on where their money can be deposited. I have spoken about an investment bond that could be used by the credit unions with the NTMA. The Labour Party also mentioned other bonds that could be raised by way of a State investment bank.

I want to know about the old system which allowed a bank to act recklessly and carelessly with a business model that was unsustainable. The deposit rates for Anglo Irish Bank are very attractive, yet we will still be bailing it out. How will all these things be married? While we want competition in the sector, we live on a small island and there is a limited number of institutions. We also want maximum safety for the security of the system. Surely the Central Bank, as the Minister's principal adviser on this, ought to be putting this information and rating out in the public domain. Many of the international rating agencies have been appalling. I do not think Ireland deserves to have higher bond spreads than Greece, yet we do. Will there be differentiation between good behaviour and the risky behaviour which stands to make a killing out of this?

I did not reply to Deputy Bruton's wider question. I gave a detailed reply on the section, but he raised the wider question about the danger of excessive regulation in the current banking system. In one sense, the question is highly theoretical, given the current state of our banking system, as the core issue is securing funding for the system. Every decision we make must have as its lodestar the need to maintain and sustain funding in the system. That said, I share some of the general views expressed by the Deputy.

Rating agencies shared in the worldwide irrational exuberance of recent years and made greatly over optimistic assessments about financial institutions. They have had to rue their assessments and are now engaged in excessive caution when making assessments. They have since become very difficult to deal with. There is a similar international pattern on regulatory authorities, where regulation has become discredited worldwide because of the failure of regulators to forestall the banking crisis. The danger in our case is that light touch regulation will be replaced by heavy-handed regulation that will deter inward investment in the internationally traded financial services sector and inhibit lending.

The crucial issue for regulation in Ireland is to improve the competence and leadership of the institutions concerned. That is why the search for the new regulator is the most important issue. We need a lead personality who will inject an entirely new ethos into the regulatory system. The system must be informed by a far greater level of competence and ability than shown to date. We referred to public sector reform in this House. The practice of having an exclusively public sector organisation to manage the regulatory system is clearly one of the problems that arose here. The failure to recruit expertise from those with knowledge and practical experience of banking was a key difficulty in the evolution of our regulatory system. All matters must be addressed in the context of reform of the regulatory system.

Regarding the suggestion that there was a danger in raising capital ratios, the UK raised them to give confidence to markets in respect of the banks. We did not follow suit, keeping with the minimum capital ratios. I do not propose to change that because I agree with Deputy Bruton that if one raises capital ratios too high we will inhibit lending. We must have a minimum and that must be adhered to.

Regarding Deputy Burton's questions, the rate of interest is the key issue for the depositor with State investment bonds or infrastructure bonds, however the financial bond is designed and whether sold through a savings bank or a financial institution. That applies to various proposals for State infrastructure bonds and for the NTMA to fund itself. The NTMA cannot offer a better rate of interest than the State can obtain on world money markets. There is a question of whether domestic depositors would be interested in investing at those rates.

Deputy Burton raised the important question of the actual rates of deposit offered by particular institutions. Some institutions in Ireland offered more generous rates of interest than others. That becomes a cost for the entire banking system. If some offer rates that are out of line to an extent that is utterly disproportionate to world market conditions, this is a penalty the domestic banking sector must carry collectively.

It is worth bearing in mind that we are part of a wider market in terms of the provision of banking services. Financial institutions from other countries can offer depositors generous deposit rates.

Hence my reference to Iceland, the most extreme example.

It is a good example because it was not a member of the eurozone. The more direct and immediate competition here has been provided by institutions in member states, in respect of deposits and risky lending. Leaving aside Anglo Irish Bank because it was not a domestic mortgage lender, although I understand why the Deputy likes to dwell on it, when one looks at the history of events in the domestic mortgage market, it is clear that the pressure for risky lending came from overseas institutions that established here. The Irish institutions had to respond to the competitive pressure. A similar difficulty can develop on the deposit side. While this section will be valuable in giving me a power to put some limit on this, on the advice of the Central Bank, I am a passionate believer in European regulation. If we have a wider marketplace, the wider marketplace must be regulated. It cannot be regulated on a national basis.

I refer to the credit unions. If Irish institutions had taken a more prudent view and had not followed some of the international competitors, we would not be in the mess we are in with the banking sector. It is not the case that they had to follow international trends.

That was just in the case of the mortgage market. I qualified my remarks to refer to the mortgage market.

Equally that applies because Ireland is in this mess as a result of the housing market.

Referring to credit unions and section 4, the majority of the credit union movement has been extremely prudent in how it lent money and retained its deposit base. It seems a little unfair in a situation where they will be levied on a higher deposit base to a loan base over the normal banking institutions. I note that the Minister is in discussions on the administration of the scheme. The Minister mentioned that where credit unions are unable to meet the 0.2% of the prescribed deposit base, leniency could be applied but he might consider this as a general perspective for the credit union movement.

This is the first time the credit union movement has been brought into the deposit guarantee.

That is right because there is a level playing field. In that case there must be a level playing field all round so there must be some element of contribution. I will discuss this with the credit union movement and if the movement demonstrated a low element of risk to the Central Bank, that could be reflected in the appropriate levies. I have already made it clear that I am sensitive to the difficulties of smaller credit unions. A later section deals with bulk payments to ease the administrative burden that may arise.

I note that and welcome it.

Deputy O'Donnell should remember that stabilisation within the credit union movement has been a divisive subject. The credit unions are not of one mind on this matter. I must ensure that those who deposit moneys with credit unions are secure.

No one disagrees with that but we are into a new area. I welcome the fact that the deposit protection scheme has been extended to credit unions. Many smaller credit unions in cities, towns and villages throughout the country were the backbone of small savings, small loans and small business. We are entering a new era of the credit union movement and we must find something reflective of the risk they are taking and a charge commensurate with their lower level of risk relative to larger banking institutions.

I will examine that.

Credit unions operate the savings protection scheme. The Minister said that they have some €13 billion in deposits at various credit unions. He suggested he might exempt some credit unions, on a selected basis and perhaps only smaller ones, from the requirements of this. Can the Minister clarify that this is what he said? Is the savings protection scheme of the Irish League of Credit Unions going in aggregate into the scheme, as suggested in section 7? Will the Minister have ministerial discretion under section 4 to exempt some smaller credit unions from the scheme?

As well as providing a countrywide savings system that is very popular, many people who approach the Money Advice and Budgeting Service to sort out financial affairs are first advised to join a credit union and make regular savings so that they qualify for loans. It has been suggested that some credit unions have financial difficulties and some have had the bad experience of being sold bond investments that did not turn out very well. Credit unions must keep a relatively large proportion of savings on deposit and are more restricted in that respect than banks. I welcome the fact that credit unions are included in the scheme. Will the Minister vary the terms and conditions for them? Will he apply the 0.2% rate on a blanket basis for them or will it be varied?

I mentioned this in the course of the debate and did not clarify fully what was envisaged. The minimum contribution is currently €25,400, but I do not propose to apply the minimum to credit unions. If the minimum were to be applied, smaller credit unions would have to pay a disproportionate amount if I imposed the 0.2% rate on them.

The €25,400 figure as applied from the 0.2% rate would suggest a total deposits figure of €12.7 million.

I believe that is correct. I will accept the Deputy's figure for the purpose of the argument.

The issue is with small credit unions.

A small credit union will not be hit with a minimum. It is my intention with regard to the regulations I will draw up not to apply the minimum to credit unions, so smaller credit unions will not have to pay the minimum figure, which would exceed the percentage contribution otherwise.

The Minister will publish a separate schedule of regulations dealing with credit unions.

Yes, or there will be a separate provision within the regulations dealing with the issue. It is important for credit unions, with which we are engaged in a very intensive discussion on the subject of general stabilisation. One would need the skills of a Kofi Annan to fully resolve the issue.

I agree with the Minister's attempt to grope towards a fair balance. There is no doubt that the credit unions have had much lower loan to deposit ratios and would be less risky in that sense, so they should qualify for a lower percentage charge. I hope that when the Minister scrutinises the matter, he can come to that view.

Like him, I have concerns that some credit unions may not be managed to the highest standards. In section 5 he envisages that each year the Central Bank will look afresh at each institution and see how they are behaving, but under section 7 he does not intend applying that to groups of credit unions. Will the umbrella groups do what the Central Bank has indicated it will not be doing? Will there be some scrutiny of individual management and approaches if the group charge and therefore the exemption from the section 5 provision occurs? The last thing we need is for savers in a credit union to be worried, even with this, about the professionalism of management.

The Minister is trying to evolve a system and to some degree there is an inconsistency between sections 5 and 7. Section 5 envisages annual scrutiny by the Central Bank and section 7 indicates that this will not happen in the case of credit unions. That is probably a sensible balance but we need some reassurance that somebody will carry out invigilation of individual unions. That is where the successor to the registrar will be involved.

There is a registrar of credit unions under the IFSRA legislation and it is his function to maintain the invigilation which Deputy Bruton referred to. In a sense, this legislation deals with payments on foot of the requirement. There is the wider question of stabilisation and traditionally the league has supported a position where it manages the stabilisation fund. That is a very strong view entertained by the league, which it sees as part of the ethos of self-reliance implicit in the credit union movement.

On the other hand, a number of larger credit unions have disaffiliated from the league and are anxious to maintain a direct stabilisation deposit in the Central Bank because of the volume of their operations. They believe they would give more confidence to depositors by doing so. It is a delicate question because of the divergence of views between credit unions and I have left myself enough leeway in this legislation to work out a compromise between these views, which will at the same time ensure a minimum level of protection for depositors.

Question put and agreed to.
Sections 5 and 6 agreed to.
SECTION 7.
Question proposed: "That section 7 stand part of the Bill."

Has section 7 been discussed already?

We will deal now with section 7 but there were discussions on issues relating to section 7.

I thought I heard Deputy Burton speaking on it.

We discussed issues related to the section.

I was outside the Chamber and I thought the Deputy spoke on the section.

What is the Minister's timeframe for bringing the credit unions into this structure?

With regard to the credit union movement, it is proposed under this section that: "A group or groups of credit unions may, subject to the prior approval of the Minister, make an aggregate payment or payments on behalf of each credit union which is a member of such a group in satisfaction of the amount of a deposit in the deposit protection account." Considering the charge to be levied on credit unions, will that be a standard charge on the group or will specific credit unions be considered?

That is what we were discussing in the Deputy's absence. There is a minimum charge in the existing regulations which will not be applied to credit unions, so a smaller credit union will simply pay the proportionate amount rather than the minimum amount. That was the point raised by Deputy Burton earlier.

The section permits the payment of aggregate contributions on behalf of a group of credit unions and that facilitates the existing structure and the administration of the scheme at the Central Bank. It will facilitate a bulk payment in lieu of a plethora of small payments by individual credit unions.

With regard to Deputy Burton's query, the guarantee already stands on the basis of ministerial assurance for the credit unions but we envisage the practical administrative arrangements will take three months to complete.

To clarify, will the rate to be applied to the group of credit unions coming together be subject to negotiation? How is it proposed to deal with the matter? There is an anxiety there and I appreciate the Minister referring to the fact that the credit union movement may not have a consistency of thought. There is anxiety among many smaller credit unions, which we represent, because of the potential level of charge. Will the Minister elaborate on whether it will be subject to further review by him?

This will be determined by regulations. Credit unions, like other credit institutions, at this stage will be required to pay 0.2% of total deposits. However, they will be exempt from the minimum payment deposit provision which is currently set at €25,400, as that could have a disproportionate impact on smaller credit unions. The initial intent related to a 0.2% rate and as I indicated in the debate, I am open in the context of the risk assessment procedure to varying it in future.

So the position is that the €25,400 minimum will not apply to the credit union movement.

It will not apply to individual credit unions. It is not my intention to do that.

The same rate of 0.2% will apply but with a lower base figure.

Question put and agreed to.
SECTION 8.

I move amendment No. 1:

In page 6, lines 11 to 21, to delete subsection (1) and substitute the following:

"(1) If the Bank charges on the deposit protection account any payment out of the Bank's own funds in accordance with the Deposit Guarantee Regulations, the amount of the payment shall, with the approval of the Minister, be repaid to the Bank out of the Central Fund or the growing produce of that Fund within 3 months.".

The purpose of section 8 is to deal with a position where the Central Bank has indicated it is prepared to cover a shortfall with its own resources on a short-term basis where there are insufficient funds in the deposit protection account. It must be made clearer than was perhaps the case with the initial text that the Central Bank is not obliged or required to fund any shortfall that may arise in a deposit protection account. Under the rules of the European Central Bank, which has requested this amendment, the Central Bank cannot be obliged to fund any such shortfall as that would breach a prohibition on national central banks relating to monetary financing except in exceptional circumstances and on a strictly short-term basis.

The regulations will contain a provision permitting the Central Bank to fund a shortfall at its discretion, where the bank is of the opinion that it is in the interest of financial stability to do so. Where the Central Bank does provide funding, it must be reimbursed by the Exchequer. It is a technical amendment which is required by the European Central Bank.

I understand this is a technical amendment. However, section 8 provides for the Central Fund repaying the Central Bank within three months while the deposit fund makes up to the Central Fund this amount. How will this unfold? Will it become a premium charge against all the institutions, other than the one that failed or caused the payment to be made? Would it be a recoupment from that institution when it got back on its feet? Will it be somewhat like the levy to make up NAMA? Will those who broke all the rules and, as a result, created the problem have to pay more than those who were prudent in running their businesses? Will every institution be treated equally or will the offending institution make good to the others over time?

In the case of a run on a bank in which it became necessary to use the fund to protect one institution, if that institution subsequently collapsed would the other institutions have to meet the deficit in the fund or will the Government step in with other mechanisms to limit runs on banks?

The power would have to be determined by a future Minister for Finance after consulting with the Government. He would have wide powers and he could propose to levy the entire system or could make it more specific to a particular institution.

The fundamental procedure when dealing with a run on a bank is the injection of liquidity back into it by a central bank. As Ireland is in the eurozone, the European Central Bank is the ultimate protection against a run on a bank as it will pump money into the affected bank. The surest remedy against a run on a bank is the continued provision of cash. In this case, we are dealing with the question of solvency and the depositors not being paid. It is not simply a matter of a temporary run on a bank caused by some short-term panic but at a more deep-seated problem in the institution which means it is insolvent.

Under a deposit guarantee scheme, the State ensures savers up to a limit have an absolute assurance their deposits will eventually be paid. The fund exists to meet that liability. If it is insufficient to meet the liability, the Exchequer must top up the fund to the extent required. The question then arises as to how to levy the institutions to recoup the money from them over time. I am attracted by Deputy Burton's proposal that there should be some element of disproportionality in the imposition as the moral hazard is eliminated entirely from the equation if there is an equal levy on all institutions. That will be determined by a Minister making a proposal to the Government under the Act.

The Minister may not be correct in claiming it is up to the Minister in the future. Section 8(3) states, "the Minister shall determine the period over which the payment required ... is to be made". It does not, however, state he or she can decide the rules at that point. The Minister does not have discretion in deciding how the share will be determined. I presume it will be the Central Bank advising the Minister. Will the Minister reflect on an amendment for Report Stage to provide for a penal charge on the institution that causes the problem?

Section 4(4) refers to a wide range of matters which the Central Bank can use to advise the Minister. If an institution were insolvent, the Minister would not be in a position to impose a levy on it. It would be the other institutions that would have to carry it. I was referring to the association of the other institutions with the degree of risk engaged upon by the errant institution. There could be a variable geometry in terms of the culpability of the other institution. Section 4(4) gives the Central Bank powers to examine that issue.

Amendment agreed to.
Section 8, as amended, agreed to.
SECTION 9.
Question proposed: "That section 9 stand part of the Bill."

This section deals with penalties for offences under this Bill in which a bank, acting in a quasi-fraudulent or risky way and of which there have been many examples, puts deposits at risk. The penalties comprise, on summary conviction, a fine not exceeding €5,000 or imprisonment for a term not exceeding 12 months, and, on conviction on indictment, a fine not exceeding €250,000 or imprisonment for a term not exceeding three years. Considering what some guys have made with our banks, such penalties might be worth the risk to them.

The Residential Institutions Redress Act contained a gagging clause to prevent residents, many of whom were treated horrifically, from disclosing their cases. The fines and terms of imprisonment are not too far off these — six months on summary conviction and two years in jail on conviction on indictment. Are we proposing a penalty regime as light as this for "banksters" — that is bankers who have turned into gangsters? Is there a reason for this tenderness towards our banksters?

We have been very tender to our recent banksters to whom we are all now in hock. I do not want to be vindictive and would not like to see anyone going to jail. However, those in the redress scheme, many of whom must give evidence and can be cross-examined, face virtually the same penalties if they speak about their cases as does a person found guilty of an offence under this Bill. Where is the proportionality in that? What is the reason for such tenderness towards banksters?

I am unsure that there is much tenderness in this provision because it applies to section 4. Section 4 is the only provision that creates an offence within the Bill. The offence created by the Bill is that a credit institution shall not carry on the business of a credit institution unless it maintains a deposit with the bank. Consequently, the offence is that it failed, as a credit union, to maintain a deposit with the bank. The failure of a bank to so do must be criminalised. I am not aware of such an offence ever having been committed. Clearly, a standard provision was provided to back up the prohibition in section 4(1) with a proper criminal sanction. Moreover there is provision, on indictment, for a fine not exceeding €250,000 or imprisonment at the discretion of the court. This would apply to a director, manager, secretary or any other officer of the body who committed the offence. In my view, this constitutes sufficient protection for the public in respect of this matter. While many offences may have been committed by bankers in recent years, I am unsure whether this was one of them and the prescribed penalty is adequate for the purpose.

The point is about proportionality with other offences on the Statute Book. Last week, the House held a harrowing debate on the Residential Institutions Redress Act and whoever drafted that Act provided extraordinarily severe penalties for breaches of confidentiality in respect of people's own personal circumstances and the awards they received. This legislation goes to the heart of Ireland's financial security by preventing, in so far as possible, runs on banks. It exhibits a very soft attitude to people of the banking fraternity who abuse public trust on foot of their extraordinary power.

One fact that drives people mad at present is that the people who did this to Ireland earned enormous sums of money. One man was heard to complain that he earned less than €2 million a year. Others were obliged to get by on €4 million or €5 million, very large pensions and so on. They feel hard done by because their financial genius has not been sufficiently rewarded by the ordinary PAYE-paying citizen of this State. If the Attorney General's office contains a wall chart showing offences under different schedules, there is an argument for a degree of proportionality. As the Minister is aware, it has proven extraordinarily difficult in Ireland either to institute prosecutions for white collar, bank or corporate crime or to secure convictions. My point is that this is extraordinary when one considers other schedules. The Minister is a barrister and I am sure he could reel off many laws whereby someone who stole a loaf of bread, as opposed to a bank, would face tougher penalties than are provided for in this legislation.

There are far wider sanctions available in other banking legislation, including fines of up to €10 million.

However, they will not apply. The Minister should tell the House whether anyone has been taken up under such legislation. Has anyone been convicted or taken to court under such legislation?

The Deputy has exhausted this point.

If the Deputy is aware of any matters, she should bring them to the Garda herself and get it to investigate them.

Question put and agreed to.
Sections 10 and 11 agreed to.
SECTION 12.

Amendment No. 2 has been ruled out of order.

Amendment No. 2 not moved.
Question proposed: "That section 12 stand part of the Bill."

I wish to ask the Minister one question on this section and the Schedule to the Bill. The Minister should outline how the deposit guarantee scheme relates to the Minister's proposal to allow the extension of the bank guarantee under the Credit Institutions (Financial Support) Act 2008 and the proposal to extend it indefinitely by ministerial order under legislation that will be debated next week. Will this affect the required level of contributions to the deposit protection account? Will new deposits be covered by the bank guarantee scheme for a five-year period?

There is no relationship between this Bill and the proposal that will be contained in next week's measure because this Bill relates to deposit protection. The issue that will be debated in the House next week is the question of medium-term debt and guarantees to the banks of medium-term debt. As the Deputy is aware, the present position is that the guarantee will lapse on 29 September 2010. Clearly, unless the banks are in a position to have their medium-term financing needs guaranteed beyond that date, they will have serious funding difficulties as a funding gap would arise in their arrangements.

Members can discuss the details of that legislation next week. I announced the principle underlying that Bill in my budget speech. It will not apply to dated subordinated debt or to securities of that character. It will relate to medium-term financing for the banks and this is a measure that has been taken in every other European country since Ireland's guarantee was made. In effect, when the Government gave its guarantee, it was a blanket guarantee to a designated date. One difficulty with so doing is that as and from the designated date, the banks have no guarantee whatsoever. Consequently, since then other European institutions have introduced more selective guarantees that in effect guarantee medium-term financing needs beyond that date. It is important that our banks are not put into an uncompetitive positionvis-à-vis other European institutions. While that is the purpose of next week’s legislation, I do not wish to anticipate it too much today as it has nothing to do with this Bill.

I will repeat a question that has been asked of the Minister previously. In advance of next week's debate, can he provide Members with an analysis of exactly what he means? Members have held arcane debates in the House about exactly what is covered by the guarantee. While I do not wish to reopen the issue of bondholders, the Minister is aware there are many ways of defining bondholders, classes of bondholders and maturity dates. It is almost impossible for Opposition Members to enter the House and play blind man's buff in this regard. They do not know what exactly is covered, its make-up, the running order or the maturity dates.

The Minister spoke earlier of oversight by the Oireachtas. However, unless Members are provided with analysis in some detail of what exactly is proposed in what one might call next week's parallel suite of measures, because all these matters arise out of the bank guarantee, it will be very difficult to make sense of it. The Minister referred to five-year maturity. Does that mean, for instance, that the bonds in Irish Nationwide will come within the terms of the five year period? If so, how many of them and for how much? Similarly, does it mean that what might be described as different types of bonds debt within Anglo Irish Bank will be included? If so, for how much, what type are involved and for what period?

While I do not wish to anticipate next week's debate, this would not apply to existing advances of bonds. It would be in respect of fresh——

I know that. I refer to a potential roll-over.

I understand an official briefing has been arranged for later this week. If this is the case, these questions can be explored there.

The point is that Members are aware that various institutions, namely, Anglo Irish Bank and Irish Nationwide in particular, as well as all the other covered institutions, have maturity dates on certain types of debt that will expire after a period and they will renew or roll over that debt. I assume the Minister intends to extend the guarantee to some of it on its renewal.

Not as I understand it. Again, this is a technical issue and it might be better for the Deputy to wait for her official briefing on Friday. However, this pertains to fresh issuance, rather than existing roll-over extensions.

I welcome the Minister's decision to provide in section 12(2) that "Section 4, in so far as it applies to credit unions, shall come into operation on such day as the Minister may appoint by order." I hope a consensus will be reached on foot of the deliberations with the credit union movement. I hope the rate that is charged in the credit union sector will be low enough to reflect the relatively low risk involved in the sector.

Question put and agreed to.
Schedule agreed to.
Title agreed to.
Bill reported with amendment.

As there are no amendments on Report Stage, we will proceed to the Fifth Stage in accordance with an order of the Dáil of this day.

Question proposed: "That the Bill do now pass."

I thank the Deputies who attended and contributed to the debate on this legislation. I thank the Whips for agreeing that the Bill should be treated as a priority so that Ireland can meet its obligations under EU law. The debate ranged widely, as all our debates on banking do, and overlapped into other aspects of financial services. We can consider such matters next week in the context of the Financial Measures (Miscellaneous Provisions) Bill 2009. I believe the discussion on this Bill was constructive. The European Commission has embarked on consultation on possible amendments to the Community's deposit protection arrangements. I thank the staff of the Chief Whip's office and the Houses of the Oireachtas for the hard work they did to make progress with this legislation. It is important to respond to the point made by Deputies Bruton and Burton during the debate about the provision of the maximum possible amount of information on the banking system. If the specific items of information that are required can be put into the public domain, it is important that we do so as quickly as possible. If such information can be disclosed, I am open to disclosing it as quickly as possible.

Question put and agreed to.

The Bill will now be sent to the Seanad.

The Acting Chairman is playing a blinder.