I welcome the opportunity to contribute to the debate. I compliment the staff of the Oireachtas Library and Research Service on the comprehensive supporting material they have provided for all Members.
An editorial in the latest edition ofThe Sunday Business Post stated: “The more we learn about the behaviour of those who have led our financial institutions in recent years, the more obscene the lavish way in which they have rewarded themselves appears.” Members and the public are no longer shocked by revelations about financial institutions which are emerging day after day, week after week. This learning curve started for most in 2008 and it has continued to the present day. Only last week in the most recent chapter we learned of the Taoiseach’s endorsement of a €1.5 million pension top-up for Bank of Ireland’s Richie Boucher, which he subsequently relinquished. Prior to this, a €1 million bonus was paid to Michael Fingleton, former chief executive officer of Irish Nationwide Building Society, INBS, which has not been returned, despite many promises. That list is lengthy and it is likely to continue. Will the legislation bring an end to the obscene rewarding by the banks of their own executives? Will we ever find out the true level of self-rewarding within the banks?
The Minister for Finance capped the pay of new executives appointed to the lending institutions but too many of the old brigade are still in place. Many of them sat idly by while irregularities were perpetrated. If they are forced to leave, they will not go empty handed, given the pattern to date. It seems few knew what was happening while others were in denial. Even when the Taoiseach referred to his tenure as Minister for Finance in the House last week, he declared it was not his duty to monitor the activities of the banks or to inquire when the signs of failure were apparent to the public. There were serious problems in the banking world. During his term as Minister for Finance between 2004 and 2008, most of the banks' reckless lending to developers took place and, at the same time, the economy went from boom to bust. He became part of the cause, despite his repeated denials. Only last week when addressing this legislation, he stated, "We should forget about looking back at the past".
We were told that prior to the start of the financial crisis in 2008 that financial institutions were preparing regulations for the Government. This was raised by Deputy Gilmore this morning and no answers were forthcoming from the Taoiseach in response to the Deputy's questions. Is it not a pity that a regulator such as Mr. Elderfield was not in place at the time? Surely he would have directed that many of the bosses in place then who were responsible for reckless lending take a walk and rather than receive a bonus and he would not have allowed related top-ups. He needs to be complimented on his approach. The regulator needs competent personnel and he stated he is taking steps to address "the critical absence of intellectual firepower within his staff and will appoint experienced and effective staff who will perform their duties properly".
When one sees the deceit that sections of banks engaged in during the years leading up to the crisis and during it, is it any wonder future generations of taxpayers will be burdened for their lives? I refer to INBS and Anglo Irish Bank, which the Minister for Finance alluded to during Question Time. The wreckage left behind by Mr. Fingleton only came to light recently when the annual accounts of the society highlighted losses of €2.5 billion. This was a traditional home loan institution but, unfortunately, its supposed success in the commercial world was a major factor in its downfall. The new chief executive officer of INBS, Mr. Gerry McGinn, said, "What happened at Nationwide is an outrage." The Government had to put €2.7 billion into the bank to shore it up and to avoid its collapse. The shock for those who examined the procedures adopted at INBS was the lack of written documentary evidence, as would be the normal practice if proper procedures and paperwork were followed for commercial developers. There is no evidence of security and more than €8.3 billion in loans will be transferred from the institution to NAMA.
It is hoped the purpose of the Bill is to create a single and fully integrated Central Bank board and commission and to rid the system of the failed regulatory institutions. If, as intended, the heads of the Central Bank and the Financial Regulator's office can control and regulate all financial institutions, the Bill will be worthwhile. The new fully integrated Central Bank will replace the boards of the Central Bank and the Irish Financial Services Regulatory Authority. Their past failure merits this action. One of the main provisions of the Bill is to enhance financial regulations and controls, particularly in the area of enforcement. The new role of the Central Bank, as anticipated by the Minister for Finance's reforms, will be to place itself at the centre of financial supervision, stability and oversight.
The Minister informed us that the new structures will ensure Ireland is regulated to the best EU and international standards as a result of this legislation. The Central Bank of Ireland in its early years did not carry out functions generally regarded as characteristic of a central bank and it did not take responsibility for licensing and supervising banks until 1971. In July 1998 a report by the Oireachtas Joint Committee on Finance and the Public Service warned that the fragmented regulatory structure had allowed many irregularities to emerge, including overcharging. Following the recommendation of the committee, the Government announced a single regulatory authority.
Part 3 is the most important element of the legislation in that it sets out the powers of the Central Bank in regard to key officeholders and the main financial institutions and, in particular, it has the power to intervene in sensitive and influential appointments. The Central Bank commission will comprise the Governor, the chairperson of the commission, the head of the Central Bank, the head of financial regulation and the Secretary General of the Department of Finance. These will beex officio appointments but between six and eight additional appointments to the commission will be made by the Minister and it is important that each of them be properly scrutinised in order that he or she will be fit for purpose. Will the Minister have a watchdog role or will the Secretary General of the Department take on that responsibility? In the past, many of the appointments made to bodies were of friends or acquaintances of Ministers and others. We hope that on this occasion such practices will not be repeated. We are told that when the provisions of the Bill are enacted that they will restore confidence in the management of financial institutions. We hope that will be the case. That will be welcomed in this country and internationally. Hardly a day went by in the past two years without headlines in the media revealing another scandal — another banker discredited or another link to a developer — caused by the reckless action of the executives of those lending institutions which brought about the failure and crisis in the banking system.
It was a great pity that the bank leadership retreated into denial rather than tackling the problem at the first sign of the crisis becoming serious. Had that happened, much of the subsequent hardships to be inflicted on taxpayers would have been avoided. The failure of proper Government attention to the financial crisis also contributed to the problems. People who highlighted the oncoming problems were criticised for talking down the economy and doing the country a disservice. It must be seen therefore that the current crisis occurred as a result of neglect of duty and recklessness by bankers, the regulators and the failure of the Department of Finance to ensure proper procedures were followed.
One would have thought that the people charged with responsibility, namely, the management of the banks, would be removed from their positions because of their failure and in many cases, irregularities, in their work. The Minister has declared that he will pursue each of them vigorously but the inquiries currently taking place have as yet yielded little result. No confidence will ever be restored into the banking system by the public despite this legislation until some of those people are brought through the courts and put behind bars, as has happened in other jurisdictions.
The defiance of some banks in the face of change has led to promotions in some cases of those who were at the centre of their failure. If we are serious about restoring confidence in the banking system, which is essential for the recovery of the economy, then we must follow the example shown by other countries who have dispatched those who were to blame. There is no shortage of experienced and well-qualified persons who could ensure the proper governance of the banks, which is the job that is required. Given that the State is currently a large shareholder and owner of the banks — at such a high cost to the taxpayer — surely the Minister can demand change and oversee the proper working of the financial institutions? It is essential that the Bill is capable of bringing about the necessary reform of the banking sector. It is important that Mr. Elderfield and Professor Honohan are given the necessary legislative support to do their work effectively. They have the expertise to do what is necessary. Let us hope that no obstacles will be put in their way either by the Government or bank personnel.
One assurance that is giving hope to the public is the stated intention and determination of Mr. Brendan McDonagh, the chief executive of NAMA, who appeared before an Oireachtas committee last week. He insisted that NAMA will pursue the borrowers to recover what they owe. He said his role was to protect the interests of the taxpayer.
I welcome the section dealing with credit unions, which have remained the friend of the small borrower in the past two years in particular, and the fact that they will now be allowed to reconstruct their lending procedures and the underpayments that have been made by various people who have loans from them. I support the Bill. I hope the legislation will ensure the work is carried out as intended and that confidence can be restored in the banking system.