Vol. 701 No. 1
91 Deputy Olwyn Enright asked the Minister for Finance the extent to which banks are currently depending on European Central Bank liquidity support; his views on whether the terms in which its support is available will be tightened; and the implications of such changes for Ireland. [5212/10]
The latest Central Bank statistics, released on 1 February, show that Eurosystem borrowing by credit institutions resident in Ireland has fallen significantly from its highs of last summer. Borrowings at end December 2009 stand at €91.9 billion, down from the high of €130 billion in June 2009. These numbers reflect not just Irish headquartered banking groups but include subsidiary operations of international groups operating in Ireland. While the Central Bank publishes figures which cover all credit institutions operating in Ireland, including the IFSC credit institutions, it does not publish figures for individual institutions as these are highly market sensitive. The total aggregate balance sheet of all institutions is €1,306.9 billion, of which €91.9 billion represents ECB lending at end 2009, that is, 7% of aggregate assets.
Funding from the ECB is an important part of funding not just for covered institutions but for all credit institutions and was a common feature even before the recent turmoil in the markets. For example, in December 2006, €27 billion of the aggregate balance sheets of all credit institutions operating in Ireland represented ECB lending. It would be inappropriate for me to speculate upon or pre-empt the decisions of the ECB governing council concerning future funding decisions, but should it bring forward changes to funding policy this might be a good indication that wholesale funding markets are improving and returning to proper functioning.
The ECB has indicated publicly that it is engaging in the progressive, timely and gradual phasing out of the non-conventional measures which had been introduced in response to the financial crisis but that liquidity will remain abundant for months to come. As such, there are no negative implications in the medium term from the announced "phasing out" measures.
While I welcome the reduction in the dependence of financial institutions on ECB funding, that dependence has increased since October. That is, while it is lower than the peak of last summer, it is rising once again. Is the Minister confident we will have enough qualifying collateral as the ECB tightens its lending range, as it has indicated it will in the course of the year? The values applied to many Irish denominated bonds are being downgraded, with the result that some could fall out of qualification. Is the Minister confident that Irish banks have sufficient qualifying paper?
Second, will Irish Government paper as issued through NAMA qualify at the ECB in all circumstances? Could the downgrading of Irish bonds and the ECB's tighter lending categories ever exclude Irish NAMA paper from being brought to the ECB for liquidity? In other words, does the Minister have a guarantee that at all times and forever Irish NAMA paper will be accepted for liquidity purposes at the ECB?
In the course of the financial crisis, credit institutions have made active use of the Eurosystem's re-financing operations and have deposited as collateral some eligible assets for which market liquidity had basically dried up. The eligibility criteria and risk control measures of the Eurosystem's collateral framework are an important tool in the reactivation of the asset-backed securities markets. The risk control measures employed by the ECB include the prohibition of some types of close links, the raising of the rating threshold for asset-backed securities, an increase in valuation haircuts and the phasing out of multi-layer securitisations. It is untrue therefore that the ECB is open to accepting all assets within a class regardless of their quality. On the contrary, the ECB actively grooms assets presented to it and it could be said that it is already seeking higher grade assets than were the norm on the markets that have dried up.
That said, in regard to NAMA bonds specifically, I am not aware of any particular difficulty that has been raised at the ECB.
A downgrading of bond ratings could see them fall out of the qualifying list.
Such a downgrading is highly unlikely given the general improvement of sentiment towards Ireland in the eurozone and on world markets. I draw the Deputy's attention to two articles in the Financial Times today which indicate that Ireland is seen as a very solid risk compared with several other eurozone countries.
Is it the case, however, that we have no guarantee in this regard? Is it dependent on the rating of those bonds from time to time?
I have not conceded that. I said that no difficulties have been drawn to my attention in regard to NAMA bonds. Deputy Bruton raised the question of sovereign risk and I responded to it.
Does the Minister agree that in the longer term, the bond markets are likely to count NAMA bonds as part of Irish debt? While I agree with the Minister that there has been much favourable international comment in regard to wage reductions, for example, and a favourable comparison of Ireland with Greece, that is unlikely to sustain itself as the NAMA process works through because the level of Irish debt is rising dramatically.
What is the status of the NAMA bonds, which mature every six months? The Minister has used a phrase of his adviser, Dr. Aherne, on several occasions, when he observed that for the first six months the NAMA bonds would "wash their face". What happens after the first six months? Will the Minister confirm that the receiving banks can cash the bonds as opposed to holding them or using them with the ECB in terms of the capital structure? Is that not a legal condition within the NAMA legislation?
There is nothing unusual about NAMA bonds. In the case of the phrase to which the Deputy referred, I am not sure whether Dr. Aherne borrowed language from me or vice versa. NAMA bonds can be presented like any other bonds at the ECB. No difficulty has ever presented in that regard.
The broader question raised by Deputy Burton which needs to be addressed is the question of whether NAMA bonds will in some way affect our status as sovereign. As is clear from all international reports, views of rating agencies and commentary about the Irish economy and the Irish sovereign, the greatest obstacle to putting ourselves beyond any risk as a sovereign is the uncertainty surrounding bank debt and bank exposure. That is why it is of fundamental importance that we resolve in the coming months the issues relating to NAMA and the capitalisation of the banks.
The nationalisation of the banks.
The markets have already discounted into their calculations substantial losses in the Irish banks. What we are required to do is to quantify precisely what that exposure is. In doing that, we will give further certainty to our fiscal position and reassure investors that Ireland is a good place to do business.
The former chief executive officer of Allied Irish Banks, Mr. Eugene Sheehy, indicated at a meeting of the Oireachtas Committee on Finance and the Public Service before Christmas that AIB may not use NAMA bonds to obtain credit from the ECB. In light of this, is the Minister confident that NAMA will facilitate a flow of credit to small business? Does he expect that the banks will use NAMA bonds to secure credit from the ECB?
Yes, I do. I am confident as a result of good work done in this House on Committee Stage of the legislation that the Minister for Finance has ample powers to ensure credit can be secured as a result of the NAMA operation.
92 Deputy Caoimhghín Ó Caoláin asked the Minister for Finance if he will comment on the refusal of the Information Commissioner to allow a freedom of information request to release documents related to two meetings on the night of 29 and 30 September 2008, one involving senior Ministers and officials and another involving senior banking executives. [5100/10]
Under the Freedom of Information Acts, the Information Commissioner is completely independent of the Government in the performance of her functions. It would be inappropriate for me to comment on her legally binding decision in this or any other case.
The Minister has given a very brief reply. Surely he accepts that he is the custodian of this information. Now that the public is pouring money into the banks to save them, does the Minister appreciate that people are entitled to information on the meetings between Ministers, as representatives of the people, and bankers? This House was misled in September 2008 in respect of a number of issues, not least the scale of the difficulty in the banking sector. In that context, I am sure the Minister will agree that it is imperative for us to get this information. Perhaps he will elaborate on these matters.
The Information Commissioner is not accountable to me in any sense. She makes her own decisions in this regard. She has decided that the materials in question are not required to be disclosed under the freedom of information legislation.
Will the Minister disclose the information?
It is not customary for such information to be disclosed. It is not covered in the freedom of information legislation for a good reason. That is the position. There is nothing unusual in any of this. The position I have set out in respect of these records applies to all Government records. As I understand it, that position is in accordance with the view of the Information Commissioner, having examined the records in question.
I would like to ask the Minister about his Department's handling of a number of freedom of information requests made by me, which have been ongoing since last July or earlier. The requests relate to the handling of the events referred to in Question No. 92. The Department has informed me that of the 90 documents pertaining to my request, it has decided to refuse to release 64 of them, to release ten of them in part and to release just 13 of them in their entirety. It is incredible, given that the actions of the banks have cost this country so much money, that the Department is taking this approach. It has nothing to do with the Information Commissioner, as the Minister is the primary decision-maker in terms of departmental policy. The Information Commissioner gets involved at a much later phase of the process. In my case, the only remaining phase probably involves having recourse to the courts.
I have no——
As my party's finance spokesperson, I am already spending hundreds of euro on trying to get information from the Department of Finance. As a Member of this House, I should be entitled to receive that information. The policy being operated by the Department essentially involves a complete clampdown on the vast bulk of my serious and reasonable freedom of information requests.
The Deputy will appreciate that I do not decide on requests for information.
The Minister does.
No, I do not decide on requests for information.
The Minister sets the policy of the Department. He can decide to release this information.
I do not decide on information requests at the Department. An official in the Department is designated to do that. That person's decision can be appealed to the Information Commissioner. That system applies to information concerning my Department.
The Minister sets the policy.
I have not changed or varied the policy that was pursued by my predecessor. As I understand it, the protection of Cabinet records is fundamental to the operation of the legislation.
The Government has disemboweled the freedom of information legislation.
I have not sought to change the policy. As the Deputy is aware, the Department decides separately from me on each freedom of information request. I have not engaged in any of Deputy Burton's verbal histrionics. I have not disemboweled or filleted the freedom of information legislation.
That is exactly what the Minister and his party have done.
I do not have a precise statutory function in relation to any of the matters that have been raised so far this afternoon.
It would be highly appropriate for this information to be brought into the public domain. Will the statutory inquiry into the banking system and the subsequent Oireachtas inquiry be able to obtain all the information on the meetings of 29 and 30 September 2008? Will public servants be allowed to issue expressions of opinion during the public inquiry into what happened on the nights in question?
Will the Minister give us details of the nature of the meetings that took place on the two evenings in question? Were they arranged for lobbying purposes? Was the Minister threatened or intimidated by the bankers? Did they attempt to threaten or bully the Minister on these matters?
This was all discussed in the House at the time.
The Minister is the custodian of this information. Others may make freedom of information decisions, but the Minister is before the House this afternoon to answer questions on these matters. In light of the import of the crisis that was brought upon us by these bankers, aided by Government policies, surely the Minister feels obliged to answer such questions.
A great deal of information can be gleaned from the parliamentary debate on the legislation that was produced following these meetings, during which I was questioned extensively about what exactly was said on the night in question. The question before us this afternoon has nothing to do with that issue. As Deputy O'Donnell is well aware, the terms of reference for the scoping inquiry do not include the Government decisions that were necessitated by the banking crisis. The inquiry is an examination of the banking crisis.
What about the statutory inquiry?
If the Deputy has studied the crisis to any extent, he will be aware that by September 2008, Government action on the matter was unavoidable.
The Minister did not answer my question on public servants.
Public servants will co-operate with any inquiries that are established.
The Minister will set the terms of reference, or gagging orders, for the inquiries.
93 Deputy Kathleen Lynch asked the Minister for Finance if he will make a statement on the recent declines in labour market participation, its likely effect on the macro economy and on tax revenues for 2010 and beyond; his views on the fact that this development depresses the live register figures; and if he will make a statement on the matter. [5310/10]
The latest data on labour force participation relate to the third quarter of last year when, according to the quarterly national household survey, 62.5% of the total population over the age of 15 was in the labour force. As labour force participation peaked in the third quarter of 2007 at just over 64.5%, it has declined by 2.1 percentage points over the last two years. There was a fall in the participation rates for all male age groups during this period. Participation rates among females over the age of 25 showed minimal falls for two age groups and increases for the other four groups. The biggest fall in the labour force participation rate was in the 15 to 24 age group, among both males and females. Although full data for 2009 are not available, it seems that the fall in labour force participation for this age group reflects an increased participation in education by younger people and therefore should be welcomed. The increase in participation in education, which is associated with the fall in labour force participation rates, will contribute to enhancing the skill level of our labour force and the productive capacity of the economy over the medium and longer terms. The fall in the average labour force participation rate is an outcome of the reduction in employment opportunities that is associated with the economic downturn. While receipts from income tax were weak last year, reflecting the poor economic and jobs climate, it is difficult to estimate the impact the drop in participation, particularly among younger people, would have had on tax receipts. In the absence of detailed information on those involved, it is not possible to estimate with any certainty the impact on the live register of the fall in labour force participation rates.
Is the Minister aware that approximately 440,000 people, one third of whom are men, are unemployed? It is a national disaster. The figure I have given does not take account of emigration, which has resumed at a strong level among people who had previously migrated to this country and at a high level among young Irish graduates. People in the latter group are going anywhere in the world they can, in order to try to secure employment. Does the Minister have any plans in this regard? Can Fianna Fáil offer any hope that a job creation strategy will be introduced? We know that Fianna Fáil is spending a lot of time on bankers and developers, but it seems to have no interest in the unemployed. The Green Party does not seem to be making an input into solving the problems of the unemployed. Does the Minister have any kind of strategy for getting people back into work? Is he aware that tax flows are strongest in countries with high labour participation rates, such as the Nordic countries, because more people are contributing and that economies tend to be most stable in such countries?
Of course the Government has a policy to bring people back to employment and to improve the economy. It requires improving our competitiveness, getting our financial house in order and restoring our banking sector to stability and to the capacity to provide credit to the economy. The Labour Party has consistently chosen to oppose the various measures adopted to advance such policies, which are essential if we are to see a return to employment-creating conditions. I accept there are no easy solutions to this serious problem and of course I am aware of the position reflected in the January live register returns. However, it should be borne in mind that the figures are as predicted at budget time and do not constitute a deterioration on what was anticipated. In every economic crisis, there is a prolongation of unemployment even when the end of the crisis is in sight and regrettably, that is the position in Ireland as well.
Does the Minister——
While I will return to Deputy Burton, I call Deputy Morgan.
In light of the figures published this morning by the Central Statistics Office on unemployment, does the Minister accept that the real number of unemployed people probably is close to or in excess of 500,000? For example, one should consider those who were forced into being sole traders, particularly in the construction sector, in order that their then employers would not be obliged to pay PRSI and who therefore are not entitled to jobseeker's benefit or assistance. Second, one should consider those unemployed people who were entitled to jobseeker's benefit for 12 months because they possessed the requisite stamps. Thereafter, another income coming into the affected household would disqualify that person from an entitlement to jobseeker's assistance. Therefore such people may not be registered as many people do not feel obliged to register when not in receipt of a payment from the State. Does the Minister appreciate the huge number of people involved, which I estimate to be in excess of 500,000 rather than the published figure of 436,000? This is the scale of the crisis facing us.
While I accept Deputy Morgan's good faith in putting this question, I do not accept its premise. I consider the quarterly labour force survey to be a far more reliable indicator of the extent of unemployment than are the CSO data relating to the live register. It provides a more accurate picture because not everyone who is on the live register is unemployed. Nevertheless, the position is serious and regardless of how one analyses the statistics, it reminds one of the essential need to put our economic house in order. The position in respect of competitiveness in Ireland, as it developed during the latter part of this decade, is highly serious. It is clear that we had priced ourselves out of world markets and had developed unrealistic expectations about how we could manage ourselves as citizens, workers, employers, householders or self-employed producers. There are clear signs in the economy that this has been recognised, that such realities are accepted and that we are taking the necessary measures to put us back on the road to recovery.
I accept that as a mea culpa from Fianna Fáil for economic policy from the year 2000 onwards, when almost all the cost rises in the Irish economy were led by increases in Government charges as an alternative to reforming the tax system in a fair and balanced way. As for competitiveness, does the Minister agree there is indeed a sheltered private sector? For example, I have yet to hear of families who have been obliged to take their children to a GP, including many low-income public servants, and who have found that the GP prices have decreased. It still costs €50 to €60 over almost all the country.
The Deputy is extending the scope of the question.
The Minister has answered regarding competitiveness, which is important.
Not before the question.
However, most of the lack of competition occurs in areas that were controlled or organised by Fianna Fáil in government from the year 2000.
An tAire, a brief reply.
Again, I agree with some, albeit not all, of what the Deputy said. However, I accept that the introduction of competitiveness in the sheltered private sector is of crucial importance. One reason I placed on a standard rate the reliefs available for medical expenses in the penultimate budget was because I considered it to be an important disincentive towards medical inflation. One must take such individual decisions in individual areas to ensure that competitiveness and transparent pricing are to the fore.
94 Deputy Frank Feighan asked the Minister for Finance when interest is due to be paid on preference shares held by Government or the National Pensions Reserve Fund; if he expects these payments will be awarded; and if he will make a statement on the matter. [5223/10]
147 Deputy Jim O’Keeffe asked the Minister for Finance the consequences of the decision of the European Commission to disallow payment of dividend interest by the Irish banks on the moneys advanced to them in return for preference shares; the impact on State ownership of the possible issue of ordinary shares in lieu of interest dividend; the situation on same; and if he will make a statement on the matter. [5138/10]
I propose to take Questions Nos. 94 and 147 together.
As a condition of state aid approval, in respect of the recapitalisation by the Irish Government of both Allied Irish Banks and Bank of Ireland, the European Commission required that the two banks each prepare and present restructuring plans to the Commission. The plan for Bank of Ireland was submitted on 30 September 2009 and the plan for Allied Irish Banks was submitted on 13 November 2009. The restructuring plans must comply with EU guidelines in this regard and have regard to EU state aid rules.
The commitment to burden sharing by the institution is a key consideration of the EU requirements for restructuring plans. Drawing on this, the EU issued guidelines in October 2009 aimed at clarifying its position on burden sharing, in particular with regard to the non-payment of discretionary coupons for hybrid capital instrument holders. The basis of the Commission's policy is to ensure that the amount of state aid should not exceed the minimum necessary and to achieve appropriate burden sharing with bond holders. Commission practice in this area is guided by the principle that transactions such as coupon payments reduce the total regulatory capital of an institution and this is incompatible with a position in which those same institutions are still reliant on state aid to fulfil regulatory capital requirements.
In response to the Commission's policy in this area, Allied Irish Banks and Bank of Ireland have both been obliged to announce to the market that they cannot make discretionary coupon payments on tier 1 and upper tier 2 capital instruments. Non-payments of these coupons gives rise to a so-called dividend stopper, which prevents payments on a range of other hybrid capital instruments held by the two institutions, including the cash coupon on the State's preference shares. This would result in the activation of an alternative payment mechanism that would give rise to issuance of ordinary shares related to the cash amount of the dividend that would otherwise have been payable.
I am determined, in the context of ongoing discussions with the European Commission to secure agreement on the banks' restructuring plans, to resolve this issue to ensure that the State receives appropriate remuneration for its recapitalisation of these banks. Importantly, the European Commission is open to finding a solution, particularly since payment of a cash dividend on the State's preference shares was an important element of the Commission's approval for the state aid provided to the banks in the first instance. I will keep the Deputy updated on progress in this matter.
I thank the Minister for his helpful reply. Why did the Minister not exercise his rights to take ordinary shares, rather than going to the European Commission to try to find a way of getting an exception to its general ban on the payment of dividends? My understanding was that the Minister structured the deal in such a way that in the event of non-payment, he would receive ordinary shares, as the latter would appear to put the taxpayer in a position to gain from a recovery in the banks. Alternatively, is the Minister of the view that he wants the cash? Furthermore, how could general guidelines provide that dividends would be paid to one type of investor, namely, the State, while other investors would be excluded from such privilege? Would this not in itself be in breach of state aid by favouring one type of creditor?
There is a fundamental distinction between a bond that provided for the repayment of interest advanced on foot of an arrangement with a private investor and a capitalisation arrangement that was approved by the Commission itself. While the position is that the payments are stopped at present, that is without prejudice to the State making its case in the context of the restructuring plan that such preferential payments should be made. On the wider question raised by the Deputy as to the reason the State does not simply rely on the ordinary shares, the return on the preference shares is immediate and tangible, while the return on an ordinary share is a matter of some volatility, depending on the value of the equities in the market over time.
One certainly would get good value at present.
However, the whole point about the preference share arrangement is that it provided the taxpayers with an immediate return on that particular investment they made in Bank of Ireland and Allied Irish Banks. I believe the coupon was set at 8% and that particular coupon was a return to the pension fund from the institutions in question.
I refer to the Minister's investment of €7 billion on behalf of the taxpayer into Bank of Ireland and Allied Irish Banks through this preference share structure. Is the dividend on these preference shares a cumulative preference dividend so that the dividend rights accrue until such time as the banks ever pay a dividend, when that dividend comes first?
Under the new arrangements announced by the Department last evening the NTMA will take over the management of the Minister's shareholding in the credit institution. The National Pensions Reserve Fund, which is also under the remit of the NTMA, provided these funds. Will it be the NTMA's decision from hereon as to whether or not the option on converting the arrears of preference dividend into ordinary shares is taken up?
The NTMA does not decide that. Under the terms of the capitalisation arrangement the Allied Irish Bank dividend on preference shares is payable annually in advance on the anniversary of the 2009 issue date, which is 13 May, or the next business day. The Bank of Ireland dividend on preference shares is payable annually in arrears on 20 February or on the next business day. That is the position.
Does it accumulate?
I will have to write to the Deputy about this as I do not have the information to hand.
Normally in most companies it does accumulate.
The Deputy has asked a question.
There is no provision in the recapitalisation agreement for the conversion of the preference shares into ordinary shares. The banks can repurchase at par up to the fifth anniversary of the issue and thereafter at 125% of par. The effect of the restrictions by the banks would be to trigger the dividend stopper provisions of the Government's preference stocks and the pension fund would then become entitled to be issued a number of ordinary shares related to the cash amount of the dividend that would otherwise have been payable should there be no change in these circumstances. That is the position. It may be if the matter is still with the commission on 20 February that it can be left in dry dock until final advice is received from the commission
Does section 3 of last night's document mean the NTMA now makes the decision?
The Deputy should not address the House from a seated position until she is called.
Section 3 states that the NTMA is now managing the Minister's shareholding.
It has been managing my shareholding for the past year in practice also. There is no constitutional revolution here. The NTMA is subject to ministerial direction as an arm of the Minister for Finance.
It also has responsibility to the National Pensions Reserve Fund.
The Deputy cannot simply address the House from a seated position.
When does the Minister expect that the business plans that are with the European Commission in respect of the recapitalisation of AIB and Bank of Ireland will come back from there? What percentage shareholding does the Minister anticipate that the Irish State and the Irish taxpayer will have on the two main banks post recapitalisation?
I will not hazard any speculation on a percentage share that the State might or might not have in any particular institution as a result of capitalisation. I am in consultation with the Governor of the Central Bank, the regulator and my officials about the extent of capitalisation which will be required. The structural plans and their approval will have a bearing on that. Work on the structural plans is ongoing in the Commission and I anticipate the Commission will revert on the structural plans in the first half of this year.
A total of €560 million is due to the Irish taxpayer in February or May. What will happen to this? Will the taxpayer definitely get value of some sort on 20 February or 13 May or will this just be added to the money owing? A cheque is due to the National Pensions Reserve Fund on those dates and we need clarity on the Minister's view of what will happen on those dates.
Does the Minister anticipate that the State will have a controlling interest in the ordinary shares of the two main banks, namely, AIB and Bank of Ireland post recapitalisation?
Deputy O'Donnell is speculating about the future capital structures of institutions.
Which have huge implications for the Irish taxpayer.
We must determine the level of capital they require in the first place. With regard to the payment, it is set out in the agreement that an arrangement exists which will come into operation in default of payment. However, the question may still have to be determined as to whether the effect of European intervention is simply to freeze matters for a relatively short period of time. Whether it happens in February or some weeks thereafter, finality will be brought to this matter.
Written answers follow Adjournment debate.
