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Dáil Éireann debate -
Wednesday, 21 Apr 2010

Vol. 707 No. 1

Central Bank Reform Bill 2010: Second Stage (Resumed).

The following motion was moved by the Minister for Finance, Deputy Brian Lenihan, on Tuesday, 20 April 2010:
That the Bill be now read a Second Time.
Debate resumed on amendment No. 1:
To delete all words after "That" and substitute the following:
"Dáil Éireann declines to give the Central Bank Reform Bill 2010 a second reading because:
I. It has not been rooted in any proper investigation of what has gone wrong, nor any serious attempt to make key players accountable for the errors committed, both of which are necessary to determine whether this Bill is an appropriate response.
II. It infers that the most urgent reform is to change the architecture of the existing regulatory bodies, when there is no verifiable evidence that such architecture was in any significant way responsible for the shortcomings of the regulatory system.
III. It preserves the system of appointment of Directors to the new Central Bank Commission exclusively to Government with no proper scrutiny by the Oireachtas or any other external body.
IV. It does not give the new Commission the necessary ‘bank resolution' powers needed to put failed banks safely into a managed administration when that is the most appropriate policy outcome.".
—(Deputy Richard Bruton.)

As I was outlining last night effectively the Government is turning to the Dáil once again and asking us to accept on faith that its solution to bank regulation will be the best possible. I simply believe its record does not stand up to scrutiny. The Government states that the important thing at this time is to reorganise the architecture of the Irish regulatory system when there is absolutely no evidence to suggest that architecture was in any way responsible for what went wrong. Equally it is proposing to push ahead with creating this new system without completing any investigation into what went wrong or any accountability for those who were intimately involved in what went wrong. Both of those are necessary before we can see that we have an adequate system for dealing with a regulatory regime for the future.

It is now clear to me and to many people in the general public that many still in the banking system believe that once the taxpayer has ponied up with the guarantee, the cost of NAMA and the recapitalisation they can simply return to business as usual. However, the taxpayer is in no mood to accept that. The taxpayer rightly demands to see in Ireland the same sort of accountability as we have seen in other regimes, where individuals in the public service who carried responsibility or private bankers who carried responsibility are openly and clearly held to account and there are consequences for their accountability. We have not seen that and we cannot design a system for the future without having seen that level of accountability and without having seen whether there are flaws in our existing legal regime that are preventing these people from being properly held to account.

The truth is that the mysteries of banking have been stripped back to reveal a system that was easily corrupted by buccaneering methods, paid obscene bonuses for short-term profits and was built on the notion of commissions without any regard for the long-term profitability and without any risk assessment involved. We have seen large banks into which the State is going to pour billions of euro run without proper risk assessment and yet none of the people is being held accountable. Boards did not do their duty to their shareholders and shareholders have been left penniless. There was a cosy relationship with Government, the regulators and the Central Bank of Ireland, and there have been no clear consequences for that. Even today the Minister has proposed that the very same way of appointing the old banking commission will apply to the appointment of the new banking commission. It will still be Government selection with no role for the Oireachtas to vet the suitability of those being appointed.

If we are to adopt a "never again" approach as we need to, the Minister should start to think afresh the ideas that are received wisdom, which he is getting from those within the system. There must be a new dispensation in respect to banking which must be much more radical than what is offered by the Minister in the Bill or in any of his pronouncements to date. The issue of "never again" is not tackled in this legislation. I accept that the Central Bank of Ireland will no longer have the role of promoting financial services, but no other change in its approach has been proposed by Government. We are proposing to design how the board will be appointed, who will be its members and how it will be structured without yet being sure what we want them to do. I would submit that is like designing a building without first knowing its function; it is not appropriate.

There are real issues that the House needs to debate seriously. What restructuring of our domestic banks is needed to deal with the risk of this ever happening again? We have had no debate on that matter, which bears on the type of architecture. Why do we not have a bank resolution scheme that would allow failed banks to be closed down safely? That has been put in place in other regimes, including in the UK. We do not yet have such a bank resolution scheme in place.

What are the new clear bank offences that are to be created? It is now 15 months since the Office of the Director of Corporate Enforcement indicated that there was a case to be answered in Anglo Irish Bank and we have yet to see a single charge laid against anyone. Are there obstacles to successfully pursuing offences in the corporate governance area? Are the offences not sufficiently specific? We need to know those in order to know what sort of regime we need in place for enforcement. Is the link between the regulatory system and the Office of the Director of Corporate Enforcement adequate? By passing this legislation we are assuming that everything is fine in that relationship. As I understand it that relationship has meant that to date no fines have been issued from the Financial Regulator against any of the banks for the wrongdoing that occurred. Everyone is standing back until the Garda fraud squad and the ODCE are finished. Is that adequate? Do we have adequate systems in place to enforce this? That is a vital and relevant question before we put to bed the regulatory and central bank structure for the future.

Should we simply be making reckless lending enforceable in the courts? Is that something we should consider? Much of what was done here was simply reckless and should never have happened. If we are going to shift the onus away from the bonus culture to one of long-term responsibility do we need to copper-fasten it in some way? Do we need to have living wills where those banks that are systemically important know at the outset that certain bondholders will need to take responsibility in the event of things going radically wrong?

Earlier today the Taoiseach was taking questions on whether we should be taking powers to prevent this argument that the pension scheme for the chief executive is some way not the public concern when the public will need to walk in and take over when things go radically wrong and bear all the burden of the horrendous mistakes. The Taoiseach has to come in and say that is not part of our regime and that we have no say in it. We must question whether we should have a say in that. I believe it is absolutely unacceptable and offensive to the public to see banks behaving as if nothing has changed while they have seen their jobs wiped out, their houses being repossessed and the economy in tatters with the taxpayer stumping up. We need to have such a serious debate on the regulatory regime.

The Minister is introducing legislation as if it was in some way the first and vital task in fixing our problem. At best this is fixing a minor flaw in the regime. We should not be cementing in a structure that is curing a minor flaw when the results of the major investigation into what went radically wrong are still not at our disposal. I believe the Minister is making a mistake in what he is trying to do. It shows that a culture is still alive and well that believes all that is necessary are a few running repairs and let us press on back to business as usual.

The Deputy's attitude is that we should have no job specification in this area.

This view must be roundly rejected. We need transformative change in our banking system to give a sound platform for rebuilding our economy and we do not yet have that. We need power to hold people properly to account including by the Oireachtas. The Minister is still proposing to appoint the board of the Central Bank of Ireland in the same way as it was always appointed. We know that it became far too cosy. The relationships between the Department of Finance and the board of the Central Bank of Ireland and the regulatory system was too cosy, too comfortable and too close to the banking system. We do not see any proposal that would show we are now taking a completely different approach to this.

There still seems to be within the Department a belief, shared by the Minister that, as far as banking policy is concerned, they do not have to come forward with any evidence-based material as to why we need to implement the changes we are proposing. The Minister has done this in respect of many of the other elements of his banking solution. He has not tested the evidence and has not offered evidence to the House. As we debated last week, the onus is on the Minster and his officials to show that keeping the likes of Anglo Irish Bank and Irish Nationwide Building Society as going concerns is in the taxpayers' interest, even when the cost of doing so has escalated from €5 billion to probably €30 billion at this stage. The onus is on the Minister and his Department and advisers to lay that out for the House. Let us test it. Like doubting Thomas, let us put our fingers into the hole to see if we are satisfied.

The Minister comes to this debate with no evidence to suggest the architecture of the regulatory structure we had in place or the fact of twin boards was responsible. There is no evidence offered by the Department or in the Minister's speech as to why that was the case.

The one issue that was central on the last occasion was the debate as to whether consumer protection should be married with prudential oversight, and many on this side of the House argued that those two aspects should not be married. Professor Ray Kinsella, whom the Minister knows well, very cogently pointed out that they are completely different functions, work to different timescales, require different skills and have different purposes in mind. One is about protecting the consumer and the other is about protecting the prudential robustness of the bank. Yet, the Minister comes back with this legislation which keeps them married together. He is still locating consumer protection in the new Central Bank Commission and the only elements he is migrating are the education elements. He is still keeping married the areas that were hotly debated in regard to the previous regime.

One would have to say that the evidence supports Professor Kinsella's forecast that when they are married together, both are poorly served, and it supports Professor Kinsella's view that prudential oversight was weakened by the consumer responsibility, which the Minister insists will still stay with the banking commission whereas, as we now see, consumer protection is being completely dumped. There is virtually no talk in this whole banking debate about how we will protect consumers who were sold bum mortgages and who are over-extended. That debate is for another day. Some 18 months into the debate, the Minister has some commission working on it and we have not yet seen the timeframe for its work.

This legislation is poorly constructed because we do not have the results of an inquiry or investigation in order that we would have a firm grip of what it is we want to deliver in the new regime and new culture that will occupy banking, and the new oversight that this will involve. The Minister needs to think further on this issue.

I looked back at the Second Stage debate in 2002. I tabled a reasoned amendment, which stated that:

"Dáil Éireann declines to give the Central Bank and Financial Services Authority of Ireland Bill, 2002, a Second Reading for at least three months until

(a) a full assessment of best practice in regulatory supervision has been undertaken, which takes into account the lessons of recent regulatory failures (including the lessons of Enron and Allfirst) [which were current at that time]; and

(b) a full assessment of best practice in providing consumer protection in relation to financial services has been undertaken;

and the proposed merger of consumer protection and prudential regulation into a single Regulatory Agency can be viewed against best practice requirements identified by those assessments.".

Those reasoned amendments for the last Bill were proved right and I tabled virtually the same amendments to this Bill. We have not carried out the assessment of best practice and we are still insisting, without any evidence from the Department of Finance, that consumer protection should remain married to prudential regulation, and that one can serve both those purposes adequately in the way the Minister sets out.

I regret to say this legislation is half-baked and ought to be withdrawn. Nonetheless, there are some elements of it which I would consider worth supporting, such as the new power for the regulator in regard to the fitness and probity of individuals occupying positions in the bank. Such a power would be useful to introduce immediately. However, I do not believe we should lumber the bedding down of the architecture for the Central Bank system because we want to make one piece of new power available to the regulator.

Equally, I welcome the Minster's proposals for the credit unions. That aspect has been pinching many credit unions who can help people in the present crisis and I welcome the Minister's suggestion that this would be relaxed. However, we have to divorce the emergency powers, if they are such, that the Minister wants to introduce to deal with the immediate and pressing task of regulation and managing credit unions from the bedding down in a permanent way of architecture that has not been stress-tested in the heat of a genuine investigation of what went wrong and an attempt to make people accountable. If this system fails to make people accountable, we will have to revisit this whole debate again. If we cannot enforce sanctions under the present legislation, we should not be bedding down something that assumes we have got that right.

I still do not understand the Government's national strategic approach in regard to this package of three-part legislation. Ordinary people have lost their jobs, many who invested in bank shares have lost their pensions, firms are starved of credit and Fianna Fáil has rescued the banks. It is only a €75 billion to €80 billion bill, but we are all right now and it is onwards and upwards or, as the Taoiseach would say, "going forward into the future".

It is difficult to understand where the governing party is at this point. We have had a series of rolling scandals for the past week or two in regard to the bankers and the fact they remain determined to have their way. Both the Minister, Deputy Brian Lenihan, and the Taoiseach, Deputy Brian Cowen, have agreed that the bankers can have their wish, which is to return to business as usual as fast as possible. As Mr. FitzPatrick famously said, he would not say "Sorry" but he would say a big "Thank you" to the Irish taxpayers. We have not moved on from that position because the people sitting on the other side of the House are determined to protect their cronies in the banking and development system.

This is terrible nonsense.

I want to highlight two issues which are in the media at present, one being the €1.5 million top-up bonus to Mr. Boucher. For the people in Fianna Fáil, used to the Galway tent, this is small change because they told most of their visitors in the tent that it was a tiny amount of money. However, to the average public servant who is thinking about how they will vote in regard to the Croke Park deal, it is a large, significant amount of money — the Minister can believe it or not. The behavioural, ethical and political issues that it gives rise to, never mind the economic issues, are significant in the minds of most ordinary people.

I do not understand why, if the Government is anxious to secure the Croke Park deal, it has not listened to the clear message put out by Mr. Kieran Mulvey in a series of interviews. He said that ordinary people cannot understand the increases granted to selected staff in Anglo Irish Bank or the pension top-up for Mr. Boucher. Why can they not understand it? If they are public servants, it is because they understand that they took a 5% to 7% pension levy, not to top up their pensions but to increase their contributions to pay for their pensions.

There is an old saying that a cat can look at a king. The ordinary public servant looks at Mr. Boucher and wonders what particular inner track he has with the governing party.

In a situation where he is part of the management team that dabbled in crazy property deals that brought the bank to the brink of ruin, instead of having to repay money to the taxpayer, he gets a €1.5 million top-up. Could the Minister explain that to us?

Fianna Fáil's irresponsibility in this matter is grotesque. Both in the legislation relating to the covered institutions, and the legislation relating to NAMA, the Minister has more powers than have ever been granted by Dáil Éireann to any Minister for Finance because of what is recognised as a national financial emergency. The deductions from public servants' pay were made through a Bill the title of which mentioned the fact that there is an economic national emergency. When it comes, however, to Fianna Fáil's friends in the senior echelons of the banks — not the tellers, the clerks or the porters — the party steps in and tells them to keep shovelling the loot to themselves because it is all right by Fianna Fáil and it will support them as they return to doing business as usual. This Bill is silent on such destructive behaviour.

What is the distinction between dismantling IFSRA and putting it back in with the Central Bank? It happened as soon as the level of the crisis emerged. What happened then? The Governor of the Central Bank and the regulator started to co-operate and, as the Minister has told us on many occasions, acted as his principal advisers. Mr. Neary and Mr. Hurley, the regulator and the Governor, were never far from the Minister's hip, advising him on what to do in this crisis. The Minister spoke with extreme emotion about his gratitude to them at various points during the crisis, both in this House and elsewhere. What is this financial architecture about? If the same thing happened again, would this new architecture protect us from the worst? Based on what is in the Bill, we have no idea.

This morning the Taoiseach suggested that for the four years he was Minister for Finance, he did not know anything about Irish Nationwide. That begs the question: did he ever do a day's work in the Department of Finance or did he spend his time gadding around the country securing votes for Fianna Fáil and for himself as the future leader of Fianna Fáil? He did not know. The Bill was rushed through at 9 p.m on 5 July 2006 and so much has happened since then, so many tents have been attended at the Galway Races, that the Minister for Finance can barely recall it.

A building society has taken the country for an incredible amount of money. Today's edition of The Irish Times contains a list of the building society’s investments and only a minute fraction is devoted to funding houses and mortgages for ordinary people, with the rest devoted to property development for a favoured group of property developers, most of them apparently based in the London and British markets. Shame on the Minister for Finance and his predecessor, the Taoiseach, that they can barely remember if they had any contact or dealing with, or even knowledge of, this building society, even though the Ombudsman on several occasions had condemned its practices.

The then Labour Party spokesman on housing, Deputy Gilmore, spoke in the short debate that was ordered, where each party was only allowed one speaker in a debate that lasted less than two hours just before the Dáil went into recess for the summer. He pointed to what the Ombudsman had said about the practices of this society, which were possibly unlawful. The Taoiseach, however, claimed this morning that he barely knew a thing about it. I wonder did he ever even know the names of the principals who ran the firm.

Sections of the Bill deal with the qualifications necessary for appointment as a banker. Today we hope that aeroplanes will return to the skies. It might come as news to the Minister but if the pilot of a jet is flying, he or she must be trained continuously, with up to date qualifications to show he or she is suitable to fly a jet. If a teacher is to stand in front of any class at any level, he or she must show appropriate qualifications. A doctor must have the appropriate registration and qualifications. What qualifications does Michael Fingleton Jnr., the boss's son in Irish Nationwide, need? He would not be covered by this Bill because relatives of people in the banks do not even merit a mention. The boss's son could be employed technically as a junior clerk and there would not be any provision in the Bill for the regulator to deal with that issue.

The Minister should get his officials in the Department of Finance to check this but Irish Nationwide was described in the London markets as being the "crack cocaine building society" of Ireland. The Minister might profess surprise but his officials would have been aware.

I have not professed anything.

That is how the dealers described it because it was making crazy deals, outbidding those who had oil wells in some property deals. It encouraged its customers to outbid sheiks to buy and develop sites in London. The former regulator, Mr. Neary, of whom the Minister was once so fond, complained that it was some sort of anti-Irish sentiment from the British.

I did not express any feeling about Mr. Neary.

He was close enough to the Minister at midnight on the night he bet the entire nation's patrimony on bailing out the banks. Who was at the heart of the bail out and who was among the Minister's principal advisers: the then Governor of the Central Bank and the then regulator. No one from the Opposition was there until the Minister had made his decisions. Those were the people who came in with long faces, telling us they had been advising the Minister. They were good enough to give advice then, and what did the Minister do? He put Anglo Irish and Irish Nationwide, two rotten institutions, at the heart of the bank guarantee and put that burden on the backs of ordinary workers and businesses.

While Deputy Burton would have let the banking system collapse.

Going back to the Bill, if the regulator spotted that the boss's son was not appropriately qualified for banking, what could he do about it? The boss's son would not have to show any qualifications — he would not even need his leaving certificate. He would just be lifted into his job in London by virtue of being the boss's son. The regulator would have to go to court. Instead of a system where bankers must show their qualifications, the reversal is the case. There is a list of associations someone must have with accountancy, economics, law and social policy before they can qualify as a banker. I know many people who might like to pilot a jumbo jet who could claim to have an interest in flying and to have flown in an aeroplane many times. They could say they have a very good idea what the deck of a jumbo jet looks like, which, in any case, flies by computer, and so they think they would make a good job of it. A teacher might talk of having a great love of children and a tremendous interest in literature, might claim to be very well read and to read all the newspapers every day, and then suggest that he or she would make a very good teacher. In our system, however, we say this is not so, that the person must have some formal qualifications and training. That is nowhere in this legislation and it is an extraordinary piece of folly. The regulator is not being served well by the Minister's legislation in that he must go to court to prove that a person is, ultimately, unsatisfactory. That legislation is the wrong way round because it leaves the incentive and the initiative with the banks rather than the regulator, who can lay down regulations as to the minimum required qualifications for bankers.

Regarding the rest of this legislation, we will see another Bill towards the end of autumn and yet another some time next year. What do we need now? If there were to be another meltdown in the banking system, we would need a resolution structure that would enable us to close down a bad bank, one that was crooked, one in which the directors had abused the depositors and investors. We have no resolution trust mechanism. I mentioned that at the time I spoke about the guarantee. One and a half years later there is no word about a resolution trust mechanism to wind down a delinquent bank, as in the case of Anglo Irish Bank and the Irish Nationwide Building Society. It is disgraceful that the Minister does not even entertain that in this legislation. I do not know why he does not include it in the Bill. Is it that he is letting Irish Nationwide off, even though, effectively, it is a nationalised institution, as is Anglo Irish? Is he hoping that if he gives the bankers enough time they will work things out and get back to business as usual for themselves? That is shameful.

I turn to the issue of consumers in Ireland, who were sold bad products and bad services at high prices by the banks. We may ask what these products were. In the case of ordinary consumers, the especially bad products were mortgages of 100%, 110% and 120%. Were there people in the banking industry who said that this was not a wise thing? The answer is "Yes". Was there any attempt by the Central Bank or the regulator to rein in these practices? No, there was not. The then Governor of the Central Bank and the Central Bank Quarterly made a few references to this practice being unwise. However, the system that Fianna Fáil encouraged allowed banks to pursue a crazy business model that forced the trajectory of bank profit growth into an unreal position. There were banks that were routinely increasing profits by more than 10% a year. In the long run, that is not sustainable. If a bank seems to be making too much money, the reason is that it is not on a sustainable growth path. If a bank is in that position, it must find some other way of making money because one cannot make money in the way that Anglo Irish or Irish Nationwide, and, latterly, Allied Irish Banks, claimed they were making. It was unsustainable. Products and services that were badly and poorly described were being sold to consumers, both businesses and, in particular, mortgage-holders. The result is that we now have a generation of young family householders in their 30s and 40s tied to mortgages of €400,000 and upwards which they do not have the income to sustain and which will last, in many cases, for up to 40 years.

There is no sign or mention of a resolution trust solution in this Bill for those people. It does not even feature. What is the purpose of the Bill? There is much mention of prudential regulation, concerning which the ECB stated that it is not satisfied this Bill provides for sufficient and clear independence in regard to the institution. The ECB's comments were broadly favourable because the Bill does not amount to much and what is involved is a matter of shifting the chairs on the ship. However, the regulator is still there and so is the Governor of the Central Bank. The only difference is that there is now a more direct, formal legal relationship tied to one institution whereas before there were two institutions intimately linked to each other but not as formally tied as they are now. That is the only change in the architecture.

What about the consumer? We must remember that consumers of bank products are not only individuals with bank accounts. They are, in particular, small and medium-sized Irish businesses that do not deal with international banks, but bank and deposit funds in Ireland. The Minister for Finance has shafted consumers in this legislation. He has done this because there is no requirement in the legislation for a description of bank products. There is nothing specific in the legislation, for example, in respect of the bad, poorly described and over-sold products that were the core part of the failure of the business model of banks in Ireland.

We must bear in mind that in any economy for a bank lending into the mortgage business to survive in the long term there must be some parity between the level of wages in that economy and the cost of mortgage payments. People cannot buy a mortgage on a wage or salary figure, or a business earnings figure, any more than they can pay rent if the actual figures and cost of the mortgage or lease are considerably out of kilter with their earnings. In the current downturn, it is not sustainable for the businesses in Grafton Street to have to pay, for example, €300,000 to €400,000 per year for leases before the first customer comes through the door. Landlords can describe rent yields for NAMA purposes any way they like but in terms of long-term viability of businesses in Grafton Street, this is not on. The same is true of a person who goes to acquire a mortgage through a bank when the mortgage bears no relationship to his or her income. Old-fashioned, plain vanilla banking insisted that there be a relationship and a ratio of approximately one and a half to two and a half times a person's income in respect of the kind of mortgage he or she could support. That is why so many economists, including Dr. Morgan Kelly in UCD and David McWilliams, say that Irish house prices still have a considerable way to fall because, as yet, they are not back in kilter with the earnings capacity of people who want to buy their own homes.

I do not know why the Minister has done this. There has been no independent assessment of the effectiveness of the regulator' s mandate to protect consumers. The Irish Financial Services Regulatory Authority, IFSRA, was very good at producing information and websites to compare the prices of different packages. What it did not say clearly enough to people was to warn them that such and such a mortgage was not sustainable if either member of a couple, for example, were to lose their job, fall ill or have a change in family circumstances and their income were to fall by only a small degree. It did not ask them to consider whether a 30 or 40 year mortgage was sustainable at such a price. If people are in their mid 30s, they can expect to work for only another 35 years, even if they work to 70. A mortgage period could extend to 40 years.

There is nothing in this Bill which addresses the issue and the Minister seems to want to hive it off to the National Consumer Agency and the Competition Authority — two quangos that are to be united. Essentially, that will be about giving price comparisons and there will be no tough regulation of the products. There will be no description of products and consideration as to whether the products make sense.

Professor Elizabeth Warren, whom I mentioned to the Minister on a number of occasions, is the Harvard law professor who is head of the oversight commission in the US which reports on these matters. She is correct in stating that regulating for safe products, protecting consumers from themselves and dangerous financial products, is the cornerstone of consumer regulation. Unfortunately, this Bill from Fianna Fáil is completely silent in this regard because it could not give a monkeys about consumer regulation or that it has left young people around the country stuck with unbearable mortgages. No resolution is offered in this Bill to such matters.

Has the Minister learned anything? In true Fianna Fáil fashion he is to personally appoint all the members of the board, bar the statutory members. It will once again be the friends of Fianna Fáil. I do not know what the system of appointment will be and there may be even a public advertisement. The people who will hold important positions on the board will experience no public vetting or examination, as happens in almost every other country in the world.

Why should there be a public vetting or examination of such people? Our system has crashed at an unbelievable cost to our citizens and yet the Minister wants to cleave to the old system behind closed doors of Fianna Fáil mostly appointing its friends. There will be one or two independent appointments and the Green Party will have an appointee to keep it happy.

If somebody is to be on the board of the bank commission, what will be required of them? They will need to eyeball powerful and wealthy people, indicating that despite such people being multi-billionaires as a consequence of owning a bank, what they are doing may not be in the interest of ordinary consumers. Have people been prepared to do so up to now? They have not. If the appointments are made behind closed doors, how are we to know the calibre of these people? There will be one and a half lines in the newspaper indicating the people chosen, with one being an accountant and another a lawyer. There will be one person from every profession.

These will be the Minister's choices, and they will be mostly men, with one or two women at most. As has happened with their predecessors, they will be required to feel grateful that people like millionaire bankers would give them the time of day, a glass of sherry and a nice lunch in a bank building with a few nice paintings at which to look.

Does the Deputy think Mr. Bacon has been doing that for the past five years?

The Minister's party appointed the current board.

He is on the board.

It required no accountability from the current board. There are good people in Fianna Fáil and connected with it. What is wrong with them coming before an Oireachtas committee to be examined on their qualifications for this very important position? Are we to learn nothing from the disaster so that the Minister can tell his cronies — the developers and the big bankers — that it is business as usual?

The Minister had an opportunity in this Bill to mark out new territory and to indicate to everybody in this House that times have changed and we have learned something. There is currently an attempt by the Minister and the Taoiseach to paint a picture that the only thing to go wrong in Ireland was the failure of the regulator. The contention is there was nothing wrong anywhere else. We have heard several times from the Taoiseach about comprehensive regulatory failure; this was not just a failure of regulation, however, it was crony capitalism, as the Minister termed it in an interview with the Financial Times.

What does the Minister want from the legislation? There is reference to extra information and powers to request information at Dáil committee meetings but they are very small beer and it will happen a long time after current events. There is a peer group review which will happen only every four years. What use is a peer group review in that respect? I used to work in this area. A peer group review four years after the event, which will take six months and be reported on six months later, would amount to financial archaeology. It would be of very little benefit.

There will be no inquiry by the Dáil or a committee of the Houses into what happened. Fianna Fáil is in a protective cover-up mode. This legislation is not good enough for Irish taxpayers.

I propose to share time with Deputy Edward O'Keeffe by agreement of the House.

I am delighted to be able to say a few words on the Bill today. There has been much debate and analysis of what went wrong in the country's banking system in the past few years. The catastrophic failure of regulation is one issue upon which nearly everyone agrees. One simply could not make up the kind of cowboy lending practices that went on in some of our institutions.

This week it was revealed that some people were getting 120% loans in Irish Nationwide Building Society. This is truly shocking, as is the scale of the losses they incurred. We also learned that Irish Nationwide losses exceed the combined profits made in its history, and it now seems that Irish Nationwide Building Society was run as Mr. Michael Fingleton's personal fiefdom. I am not alone in being outraged by his failure to return his €1 million bonus last year, and the new chief executive there has described what went on as "an outrage".

The same can be said of Anglo Irish Bank and Mr. Sean FitzPatrick. The more they lent, the bigger the risks they took. Not only did they breach the rules but they made up their own rules, which were morally wrong and in some instances illegal. It begs the questions of where was the former regulator, Mr. Patrick Neary, when all this was going on? It seems the regulator was asleep at the wheel, happy to cruise along and ask no awkward or difficult questions.

This era of light touch regulation has been disastrous for the Irish economy and the Irish taxpayer. This Bill will bring an end to that disastrous era in Irish life. It will overhaul regulation in this country and ensure the regulator has real teeth. The appointment of Matthew Elderfield and Patrick Honohan has impressed Members from all sides of the House. They are doing a good job and I commend the Minister, Deputy Lenihan, on appointing them.

Under the new structures outlined in the Bill, the failed entity that is the Irish Financial Services Regulatory Authority will be abolished. Under the new structure the Central Bank commission will be established, chaired by the well respected Professor Patrick Honohan. This new board will be not only responsible for financial stability in general but also for the interests of consumers in particular.

It is these people, the ordinary consumer, who will be obliged to live with and pay for the excesses of an elite few. I welcome the statements made by Matthew Elderfield before the Joint Committee on Finance and the Public Service last week that those who hold new key positions in banks will be quizzed on their fitness to practice and their suitability. This Bill puts these commitments on a statutory footing and gives them the necessary powers. I hope this provision will be an important step towards changing the banking culture in this country. The actions of an elite few have nearly brought this country to its knees. Since the financial crisis began almost two years ago, there has been widespread change of key personnel in the banks, which is vital if the culture is to be changed. We have new chief executive officers and chairmen in AIB, Bank of Ireland, Anglo Irish Bank and Irish Nationwide. Likewise there are new faces at board level.

I welcome robust legislation on banking regulation and the bank inquiry is a vital part of the exercise of fixing the banking system. Members need to know the systemic failures that have brought us here and, as legislators, it is their responsibility and duty to know what went wrong. Similarly, the public and the taxpayers who will shoulder this burden and this debt for years to come have a right to answers. I agree with the comments of the Governor of the Central Bank, Professor Patrick Honohan, when he stated:

A witch-hunt is no good to anybody. What we want to do is go behind the glib statements that are made about why things happened in the way they did and really try to dig and put the finger on any processes, any structures, in our whole system that really contributed to this [that is, the banking crisis].

No one wants a long-drawn out and expensive inquiry and the last thing that is needed is to replicate the tribunal process. The Oireachtas clearly has a role to play in this regard. To date, the Joint Committee on Finance and the Public Service has already met both the Governor and the independent expert at the outset of their work to be briefed on the members' priorities for investigation. Once the two preliminary reports have been completed and the terms of reference have been established, the commission's reports will be laid before the Oireachtas.

It is open to the committee to hold public hearings on the report. While the court judgment following the Abbeylara inquiry appears to make a DIRT-type inquiry impossible, I note that constitutional law expert Gerald Hogan SC has stated an inquiry into the banking system could comfortably operate provided it was not making findings that "somebody engaged in "nefarious criminal conduct". While there are limits to the findings a Dáil committee can make, he believes it still could censure someone for failing in his or her duty.

My preference is for as much an Oireachtas involvement as possible. On 22 January 2009, I wrote to the Chairman of the Joint Committee on Finance and the Public Service, Deputy Michael Ahern, asking him whether the aforementioned joint committee

would investigate the circumstances and failures of the banking and financial systems regarding Anglo Irish Bank, the role of Central Bank, that role of the Financial Regulator. . . the role of the Director of Corporate Enforcement, the role of the Department of Finance and any other State bodies and the bank auditors associated with the bank.

In the letter, I stated:

confidence in the banking system has been seriously undermined by the revelations which have emerged from Anglo Irish Bank in recent months. Confidence must be restored in our banking system and in us as legislators who make the laws to regulate banks and financial services in Ireland. I would urge your Committee to use the powers to compel witnesses and discovery of documents under the compatibility legislation which was used in the DIRT enquiry.

I was referring to the Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Act. This letter, which I also sent to all my colleagues at the time, is dated 22 January 2009. Other people may be giving credit for such a suggestion on setting up a committee to someone else. I also tabled a motion before the Fianna Fáil Parliamentary Party asking the party to consider this matter and to consider an inquiry. The Minister made it clear that he had plans to do so, which I of course accepted that evening, and he has brought forward his own proposals.

The Minister for Finance, Deputy Brian Lenihan, has acted decisively and responsibly in dealing with the financial crisis. Indeed the decisions taken by the Government have been widely praised by the European Central Bank, the European Commission, The Wall Street Journal, the Financial Times and by the Minister’s contemporaries in Europe, which is vital. Ministers in governments throughout Europe have commended him on the action he and the Government have taken. The only people who have not acknowledged the Government’s commitment to resolving the financial crisis have been Members of the Opposition, who appear determined to oppose every decision the Government has made to return Ireland to growth. On September 17 last, Deputy Kenny stated the Government was supposed to ask the right questions to ensure the banking system was properly regulated, to prevent the build up of risk in the banking system and it failed in that duty. However, at his party’s conference last week he warned about the dangers of over-regulation and stated: “I do have a concern here that I think the move from having effectively no regulation at all to over-regulation.” It strikes me as strange that such a statement would be made a couple of months after making the other statement.

Reports of the €1.5 million being paid towards the pension of Richie Boucher in the Bank of Ireland have incensed people. This news is hard to take as families and young people around the country struggle to stay afloat. It is also particularly galling for those who have seen their overdrafts withdrawn by the bank or the terms of their loans changed. I accept as a legislator that one has no option but to support the banks as without a banking sector one has no economy. However, it up to the heads of such financial institutions to show the people they are grateful for their support. Mr. Boucher should act accordingly as a gesture of goodwill and should do the right thing. If there is to be a change in the culture in the banks, it must start now. I must conclude by asking who sanctioned this payment.

Did the board of the bank sanction it? It is outrageous and we will never have the confidence of the people while such behaviour is allowed to continue.

At the outset of the banking crisis, I made a statement in this Chamber about auditors. However, nothing has happened subsequently regarding the entire subject of auditing. Auditors have a major role to play in all company performances with regard to annual reporting and auditing figures. The number of major auditing firms in Ireland has fallen to four, which are based in the city of Dublin. While I do not wish to name them, they are well known and are the only firms available to public and major companies. I believe there must be a change in this regard. While auditors are supposed to be the watchdog of the shareholders, they are the watchdog of no one but their own business and legislative change in this regard is necessary. Further changes are necessary to prevent them from being on the scale and size they have reached at present because they are too big. Many auditing firms are auditing two or three companies of the same nature or business with a different named auditor and this must change. This must be changed as while such practices go on, there will be no proper regulation. The same point applies to legal firms and the major solicitors.

I wish to make the point to the Minister, who is listening, that we are employing auditing firms, legal firms and valuers who were involved in the mischief that went on in the banking sector. This must change as one cannot be a poacher turned gamekeeper or vice versa. This must be changed to the effect that one must have been independent and had no knowledge in respect of valuing, banking and auditing.

One can go back to 2007 regarding the banking crisis and the collapse of Northern Rock. What was the Financial Services Authority in the United Kingdom doing at that time? Members know famous people who were involved in that office. I understand that the new regulator who has been appointed in Ireland was employed in that office. Although amber lights were flashing in the previous year in respect of Northern Rock and other small banking operations in the United Kingdom, no recognition was given to them until it collapsed. That was the first indication of a serious crisis in the banking sector, after which the whole thing started falling. I refer to Bear Stearns, Lehman Brothers and so on. Moreover, in recent days, further mischief has been revealed within the banking system, whereby Goldman Sachs proposed an investment to fool someone. I do not have all the details.

I do not agree with my colleague Deputy O'Flynn, as this country is over-regulated. I come from a farming background and no people are more regulated than the Irish farming community on foot of European regulation. I do not want to see that situation imposed further in other sectors of society.

In the name of God almighty, what will this man do with 700 people in his office in the Central Bank? What are they for? There are not even that many branches. We are making €12 billion available for small business through both banks. If I were a bank manager in any small town, I would not give out a bob because I would be under strict regulation. I would be so frightened of losing my job that the best I could do would be to keep the money and let the bank reinvest it. There is nothing worse than overregulation. It brings further mischief, contempt and blackguardism because people will find their way around it. We have seen that occurring.

I entered the House 28 years ago. I have seen changes. Every year, we lose more authority. Although we are Deputies representing the ordinary, plain people of our constituencies, we have less and less say. It is always being handed over. We probably blame Europe, but there is also the HSE and the NRA.

We are discussing 700 staff. In my county council's area, the bad roads are the fault of the weather. I say "Well done" to the Minister for making €40 million available to Cork County Council, but it cannot employ extra people to spend the money thanks to the embargo. However, this man is getting 700 staff.

I want to be fair to everyone in the House, the various sides of which have said much, but Pat Neary was a decent and honest man. I served on the finance committee for two terms. When he appeared before it, he had no staff or legislation. The 2003 Act was where everything went wrong. We know of the disputes between Ministers and Attorneys General regarding that legislation, which ended up being soft legislation, but the previous Central Bank legislation was worthwhile and did an excellent job since the founding of the State. It was updated occasionally and Dr. Whitaker and others did an excellent job in controlling the system. The deposit to borrowing ratios were kept in order. Everything went astray after 2003 and moved on. Banks can be blamed, but they are composed of business people. It was on an asset's value that they lent money. If I had a house worth €400,000 that was worth €600,000 two years later, I got two thirds of the amount, by and large, but the repayment capacity was based on the capital. This is what occurred. There is no point in our coming into the House to cry and scream about this issue every day of the week. Regulation will solve nothing. Overregulation will just add tier after tier, but it is the policy of the day.

I am a shareholder in many financial institutions. I will declare it in the House because I was questioned last week by journalists. I have shares in Lloyds TSB in the UK and Standard Chartered Bank. I would not be very wealthy, but I have a few quid. My portfolio also includes the Royal Bank of Scotland, AIB, Bank of Ireland and Irish Permanent. This is the truth of the matter. I will not defend one bank over another. However, coming from rural Ireland and an agricultural community, no bank has served Ireland better than AIB, whether it was in the development of the co-operative movement or of small business in rural Ireland or in placing branches in small towns. I am annoyed by what is occurring. I do not want AIB to be nationalised. I want our high street banks owned by the people, not the State.

If there is a problem with Colm McCarthy, I would like to know what it is. Did he give bad advice about privatisation to the Government of the day a few years ago? He was successful and a first class guy in his business and in serving his institution and this country. I would like my question answered.

I do not have a script, but I want to make another point on unregulated investments through auctioneers, accountants and others. All investment should be regulated and licensed. I know several people who have invested and been badly caught. I know people who, having asset values of a few hundred thousand euro or even €1 million, were advised to make back-to-back borrowings to invest in Zurich, Budapest and so on. Joe Meade, who was the Financial Services Ombudsman, referred to this point several times. Accountants are taking in money, but there is no accountability when that money is lost and people are in tears. Newspapers carried a story of a similar case in recent days. I can name several organisations that have done this and failed time and time again, but which were not accountable.

Legislation covers stockbrokers and accountants, but it is not worth the paper on which it is written. An accountant will be knocked off the roll if he or she is found to have made an irregular investment, but there are many accountants and it is time for this area of investment to be regulated. Those who have been caught by their investments are innocent, poor people. As a child many years ago, I remember the same situation could be found where Shannon-Stansted was concerned. People invested £10 or £15, but where did it all go? This country has a long history of failed investments and regulations.

Until 2003, we had an excellent and well regulated banking system, but competition took over. What will happen to foreign banks in Ireland? How will the regulator and the Governor of the Central Bank manage them? I am referring to the likes of Rabobank, the Royal Bank of Scotland, which owns Ulster Bank, and many others. They are causing havoc for people who have borrowings, mortgages and so on. This issue must be treated with an even hand. They cannot have a monopoly over the others because our two banks are those we trounce and about which we give out the most.

How effective have our directors on the banks' boards been? The only director from whom we ever hear is Alan Dukes, who is often criticised. The others are never heard from but are on fat salaries. They should only be awarded their expenses, but many of them are on good ministerial pensions and more. Let us put our house in order and be fair and even-handed. I want to see a report on those directors. The Bank of Ireland has two State directors, but Richie Boucher is still getting hundreds of thousands of euro and a pension fund. This cannot be fair.

The Deputy has one minute left.

Much work needs to be done without regulation. This is the House to do all of that. We are the bosses. It is what we are elected to do. People put their confidence in us and sent us to the Dáil. It should not be down to regulation and people doing the work for us.

The Bank of Ireland situation is a scandal. I understand that we can do nothing about it, but it sets a bad example and is having an effect on the community. Its effect on ordinary people is even worse than the Anglo Irish Bank situation. We know the scandals. This all goes on, but I would like to see a more practical, commonsense approach.

I wish the Minister well. I know I have given him a difficult time, but I will make no apologies for it, as that is my job.

The Deputy's time has expired.

He has a somewhat different perspective from other Members.

I want legislation to address those fangled investment ideas that are unregulated.

This is the Central Bank Reform Bill 2010, to which we in Fine Gael tabled a reasonable amendment in the name of Deputy Bruton. The problem is that, since September 2008, we have been through a most horrific time in terms of the financial landscape, particularly banking. A proper investigation is required. Preliminary investigations are under way, but they will turn into a statutory inquiry at the end of May. However, the period covered by that inquiry should be extended to well beyond the end of September so as to provide us with a proper overall review through which we could see exactly what occurred. This Bill is purely about changing the chairs in the room. It is no fundamental reform. We need to know exactly how the situation was caused and how to ensure it never recurs. This is the last chance saloon and we must get it right.

I wish to revert to one of Deputy Edward O'Keeffe's points. The Minister can move on the €1.5 million payment into the pension plan of Bank of Ireland's CEO, Richie Boucher. In a question dated 3 December in which I asked the Minister about the remuneration plans for the covered institutions, he told me that "the Government considers the CIROC recommendations regarding remuneration of chief executives including bonuses, pensions, long term incentive plans, which includes stock options, are appropriate" and that any "deviation from this should be in exceptional circumstances" and with his agreement. This position has not changed.

Under section 48 of the Credit Institutions (Financial Support) Scheme 2008, the covered institutions were required to submit a plan to the covered institutions remuneration oversight committee, CIROC, within six weeks of 29 September 2008. CIROC was then required to report to the Minister for Finance within three months. The section states: "Where the Minister considers, on the advice of CIROC, that the covered institution has not complied with the requirements of this paragraph, he or she may direct the covered institution to amend the remuneration plan so that compliance is achieved." In its report, CIROC stated: "we feel that the Remuneration Plans need to be reviewed before we are in a position to assess meaningfully the extent to which they comply with the requirements of Paragraph 47 of the Scheme."

During the period in question, the banks would have supplied their initial remuneration plans sometime in November 2008. CIROC's report was presented to the Minister on 27 February 2009. On 11 February 2009 he announced that he was going to recapitalise AIB and Bank of Ireland and stated that the banks were seeking reductions in people's levels of remuneration and that the CIROC report was expected shortly. The report to which I refer states, in emphatic terms:

As we explained, the Plans need to be reviewed in the light of discussions with the Financial Regulator. We consider that revised Plans should also have regard to our comments in the following paragraphs . . . There is a strong case also for reviewing the pension arrangements that have been a feature of the remuneration packages of some senior executives in recent years . . . We consider that pension arrangements for top management should be reviewed. We have become aware of a practice in which cash allowances were paid to compensate for the effects of the "pensions cap" [the €123,000 paid to Mr. Boucher] . . . Pension schemes should reflect public policy and tax law and it is unacceptable that arrangements should be put in place which would be inconsistent with the intent of the relevant legislation.

The latter is exactly what happened with Mr. Boucher. The report to which I refer also states: "In general, top management make little or no employee contribution for their pensions."

Did the Minister for Finance receive a revised remuneration plan from Bank of Ireland? Did he approve the €1.5 million top-up payment that was made to the pension plan of Richie Boucher, CEO of Bank of Ireland? Did he also approve the €123,000 payment provided to Mr. Boucher by way of a cash pension allowance? The latter payment is clearly not in compliance with the thrust of the legislation. In addition, it is clearly not in compliance with the recommendations of CIROC. If the Minister agrees with what Bank of Ireland has done, then he is going against the recommendations contained in CIROC's report. He made reference to that report in reply to a parliamentary question I tabled to him on 3 December 2009 when he stated that what was put forward in the review in the context of pension entitlements was appropriate and that "Any deviation from this should be in exceptional circumstances".

Did the Minister receive a plan and, if so, did he approve it? If he did not receive such a plan, then he should, under sections 48 and 50 of the Credit Institutions (Financial Support) Scheme 2008, write to Bank of Ireland in the immediate future and request that Mr. Boucher and the board reverse their decision, which is not in compliance with the legislation or with CIROC's recommendations. As already stated, CIROC indicated that "the Remuneration Plans need to be reviewed before we are in a position to assess meaningfully the extent to which they comply with the requirements of Paragraph 47 of the Scheme". It also recommended that this matter should be considered in the context of pensions. A pension allowance of €123,000 is clearly not in compliance with CIROC's recommendations, which the Minister stated were appropriate. Furthermore, Bank of Ireland and Richie Boucher should never have been allowed to enter into an agreement in respect of the pension top-up of €1.5 million.

There is a deficit in the pension fund of the ordinary employees of Bank of Ireland. Negotiations in respect of this deficit are ongoing and it has been stated that these individuals may be obliged to wait until they are 68 before they retire. Mr. Boucher can retire at 55 on a pension of €325,000 per year. That amount is nearly double the salary of the Minister for Finance. Something is fundamentally wrong here.

The Minister has responsibility for enacting legislation. The Title to the Credit Institutions (Financial Support) Act 2008 states that it is "AN ACT TO PROVIDE, IN THE PUBLIC INTEREST, FOR MAINTAINING THE STABILITY OF THE FINANCIAL SYSTEM IN THE STATE". Richie Boucher has been given a pension top-up of €1.5 million and a cash pension allowance of €123,000, which will being his salary up to €623,000, a figure that is above the maximum of €500,000 recommended by the Minister. Such behaviour is not in the public interest and it is not in compliance with the Credit Institutions (Financial Support) Act 2008, the Credit Institutions (Financial Support) Scheme 2008 or the recommendations of CIROC. The Minister indicated in his reply to my parliamentary question of 3 December 2009 that those recommendations were appropriate.

I request that the Minister ensure that the decision in respect of this matter is reversed. In addition, he should outline when he first became aware of it and indicate whether he received a remuneration plan. If the Minister did receive such a plan, did he approve it? Does he accept that what has happened in the case of Mr. Boucher is not in compliance with the legislation?

We are considering how we can reform the way in which the regulatory system operates. In that context, I wish to comment on the back-to-back credit facility afforded to Anglo Irish Bank by a financial institution in Germany. Effectively, this facility amounted to manipulation of the markets. I am also interested in the back-to-back credit facility afforded to Anglo Irish Bank by Irish Life & Permanent, which allowed the former to present a deposit from the latter as a customer deposit in order to boost its balance sheet.

Over 40 bankers in the US have been imprisoned as a result of their actions. Not a single banker in this country has been incarcerated. When I use the term "bankers", I am referring to the top corporate executives and not to ordinary bank employees. The latter were, invariably, prudent in their dealings and were informed that if they were not involved in sales, then their careers would suffer.

The Minister for Finance stated that NAMA is winning the respect of the public. That is not the case. People realise exactly what NAMA will involve, namely, and at a minimum, €43 billion of their money. NAMA will have consequences for several generations of people in this country in the context of the level of public expenditure that will be required to finance its operations.

The facts bear out what I am saying.

The Deputy should read the IMF's reports and other reports from outside the country and stop spouting nonsense all the time. He must stop spouting such nonsense at some point.

The IMF was quite conditional in the views it expressed in its various reports. Some two thirds of all loans that have been transferred to NAMA are no longer performing. If, when he introduced his fairy tale plan, the Minister had informed us that this was the case——

The Deputy knows that what he is saying is nonsense.

The Minister originally indicated that 40% of the loans to which I refer were performing.

Debate adjourned.
Sitting suspended at 1.30 p.m. and resumed at 2.30 p.m.