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.