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Dáil Éireann debate -
Wednesday, 5 May 2010

Vol. 708 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 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.

I congratulate Deputies Fahey and Dooley on voting with the Opposition today in trying to have a by-election in Donegal. I am surprised they did not stick to their morals. We should have a by-election.

In the earlier part of my contribution on the Bill, I referred to regulation and the current regulator. The auditors have huge questions to answer. Where were the auditors in the cases of Anglo Irish Bank and Irish Nationwide? Any good accountancy practice would know, as an auditor should no doubt know, that what was going on in those two banking institutions at the time——


Could I have some ciúnas, Acting Chairman?

I call for order in the House. Deputy Kehoe should proceed.

I believe the auditors have huge questions to answer given what was happening in Anglo Irish Bank and Irish Nationwide at the time. The regulator has one issue to answer but what role did the auditors play in regulating the accounts of these banking institutions? Was the Minister for Finance aware——


Sorry, Deputy. I again call for order.

I do not think the noise is in the Chamber; it is in the Visitors Gallery.

I gather that. It is in the hands of others. I apologise to the Deputy.

I will not continue until it finishes.


For the fourth, time I will make the point about the auditors——


Is there any means of calling on the people in the Visitors Gallery to stop talking?

My understanding is that it should be controlled there. All I can do is appeal for silence.

I will wait until the Visitors Gallery has quietened.


I believe the auditors who were——


I will wait until the people have left the Visitors Gallery. It is totally unfair.


I understand the matter in the Visitors Gallery is being dealt with. I will endeavour to protect the Deputy as much as possible.

He does not need the Chair's protection.

I am glad the Minister of State, Deputy Andrews, is listening because on occasion he does not listen.

The auditors involved in Anglo Irish Bank and Irish Nationwide Building Society have questions to answer. The Financial Regulator was responsible for overseeing the auditing of accounts by these banks. One wonders what was going on. I understood that the regulator was answerable to Government and, in the main, the Minister for Finance of the day. Did the Minister for Finance have his head in the sand given the skulduggery going on within these banking institutions? On the last occasion I spoke on the Bill I made the point that when an official of Anglo Irish Bank, Mr. Willie McAteer, told Mr. Patrick Neary, former Financial Regulator that he would have his bank books in order by the end of the year the Financial Regulator replied saying, "Fair play to you Willie", which is something one might hear in a circus. We all believed Anglo Irish Bank and Irish Nationwide Building Society were upstanding banks.

I read in a Sunday newspaper a few weeks ago of how close some of the banks were to Members of the Oireachtas and how they were lending money without any security. Surely, this was wrong on behalf of our banking institutions given the number of people now unable to meet their mortgage repayments. Like other Members I, too, have been visited at my clinic by people who have lost their jobs, some of whom come from one-income families, and are unable to meet their mortgage repayments. I made representations to several banks to see if alternative repayment arrangements, such as interest only payments or mortgage freezing for a number of months or a year, could be made to allow these hard pressed people sort themselves out. However, the banks would not listen to me and did not want to deal with me. In some cases, houses were repossessed and people were forced out of their homes while other cases were referred to the High Court, which is unbelievable given what Mr. Fingleton and Mr. FitzPatrick are getting away with.

We were all told to expect a soft landing. Where is this soft landing we were promised by former Taoiseach, Deputy Ahern, and former Minister for Finance and current Taoiseach, Deputy Cowen? There has been no soft landing for many people. Like other Members of the Oireachtas and this House I, too, am aware of the number of small and medium sized businesses closing each week as a result of the skulduggery in the past by people involved in Anglo Irish Bank and Irish Nationwide Building Society. These people have walked away scot-free. NAMA will take over their loans and they will retain a wealthy lifestyle. The people really feeling the pinch are those who got nothing from the boom.

This Bill is welcome. However, do the reforms contained therein go far enough? We have not yet learned from what happened. This Bill should be withheld for another time. There is much more we, as a Parliament, need to learn from what happened. We must enact rigorous legislation to prevent this happening again. As stated previously, people in other countries engaged in similar practices were imprisoned. For example, in America when the skulduggery of the banking institutions was discovered those involved were brought out of their offices in handcuffs and imprisoned. This is what people outside this House want to happen here. It is up to us as parliamentarians to ensure we enact water-tight legislation to ensure what happened in the past does not recur. We are moving a little too fast in terms of the introduction of this Central Bank Reform Bill. We should hold off enacting this legislation until we have learned more from what happened.

In recent months I have seen the current Financial Regulator, Mr. Elderfield, in operation. I compliment him in terms of some of the decisions he has made. We must have in place a tough regulator who can face down tough decisions such as those that will have to be made if we are to recover. We must enact tough legislation to ensure the financial institutions learn a lesson and are not allowed to conduct business in the manner they have done during recent years. We need tough water-tight regulation and a Financial Regulator who will enforce those regulations. It is up to us as Members of the Oireachtas to ensure we put tough regulation in place. I welcome the opportunity to speak on this Bill. There is more we can learn from what happened in the past and major changes to the Bill will need to made on Committee and Report Stages.

I welcome the opportunity to speak this evening on the Central Bank Reform Bill, which is another positive measure being introduced by the Minister for Finance, Deputy Brian Lenihan. Positivity is an attribute that has been sorely lacking in this country for too long. I welcome that the Minister is, through this Bill, bringing to the forefront regulation in regard to our banking sector.

There is outrage among ordinary people at how we got to this point, who is to blame and why we, as ordinary people, have to suffer for the wrongdoing of others. These emotions are understandable in the current economic crisis. There has been unforgivable reckless behaviour by some of those in the banking sector and I look forward to the day when they face the full rigour of the law. In the meantime, we must continue to focus upon fixing the problems with which we are faced.

There have been many measures introduced by the Minister for Finance, measures that received ample criticism from all sides of this House and the wider public. However, I have always had confidence in these measures, many of which have already been applauded by experts in the field as being the correct course of action. It is the Government's job to ensure that the correct measures are implemented. It is not in the business of trying things out; there is simply too much at stake. Those in Opposition can make suggestions knowing they will never have to implement them, thus their reliability will never be tested. This type of behaviour does not bode well for our economy. It pokes the problem but never offers a solution. I know individuals, families and businesses across the country are suffering, be it as a result of unemployment or a fall in income or business. I meet them every day in my constituency in Donegal which faces these problems and also problems because of close proximity to Northern Ireland. I have huge empathy for their situation. However, we were elected to this House to shape solutions and that is what this Government is consumed with.

Last week, the late Mr. Gerry Ryan passed away, may he rest in peace, and we witnessed an outpouring of grief from our nation. He was a superbly talented broadcaster who spoke his mind regardless of who might take offence. One of his many attributes that I admired was his ability to turn a negative into a positive, and this could be seen on a daily basis as listeners turned to him with individual problems that were affecting their lives, some large, some not so large and some small. Gerry always revelled in the challenge of finding a solution no matter what the problem. His positivity was enthralling and he was a strong advocate of not talking ourselves down as nation. It is this frame of mind with which we should all move forward. Talking ourselves down is a dangerous concept and no matter what the task, we must as a Government shape a solution, as we have been doing for the past 18 months to two years, finding solutions to the banking and economic crises.

There is no simple quick fix; it has required several very large steps, all of which have cost our economy much money. However, we had to find a solution. Winding down some of the troublesome banks would have been wrong, although it would most likely have been the easiest way. I know I could have sold that solution to my constituents much more easily than one involving having to invest billions of their money in our banks. However, it is not about taking money out of the economy and giving it to the banks; it is about building this country back up, and this involves having a fully working banking system. If it could have been done in another more simple way, of course we would have done it. We are in the ultimate phase in the resolution of our banking crisis. NAMA is up and running and has forced banks to acknowledge reality and to recognise their losses, which were sobering. Prudent capital requirements have been set by the Financial Regulator and the Central Bank to ensure that the reckless lending of the past does not repeat itself.

Bank of Ireland recently announced that it would be able to meet its capital requirements through private investments, which show that the market has confidence in our strategy. The EBS is currently exploring the availability of private market capital and has had an expression of interest to date. Many of the other banks are not in such a favourable position but rest assured that any investment by the Government will realise significant gains for our citizens.

I acknowledge that the Central Bank Reform Bill is a crucial step in a comprehensive programme to put in place a domestic regulatory framework for financial services. I commend our Minister for Finance in his unrelenting pursuit of stability and reform. This is a very real effort to maintain the stability of the banking system while safeguarding the interests of consumers and investors.

I look forward to publishing two reports investigating the collapse of the banking system later this month. The Governor of the Central Bank will report on the performance of the functions of the Central Bank. The second report will investigate the recent crisis in our banking system to assess what lessons can be learned and to inform the future management and regulation of the sector. Following this, an independent statutory commission of investigation will be established to identify, examine and report on the causes of systemic failures such as corporate strategy, governance and risk management in the Irish banking industry.

It is important that we remind ourselves why we need to stabilise our banking system. A major concern was the safeguarding of deposits, which was the money of every citizen who had money in the banks. If we had not provided the guarantee, in many cases ordinary people would have lost their life savings. We put the guarantee in place. The next major concern was business; without business we cannot get out of this recession. We need to get credit flowing to businesses and to SMEs in particular. The nationalisation and recapitalisation of Anglo Irish Bank and the establishment of NAMA were put in place to get credit flowing again. This is our ultimate aim and we are determined to see it through. It is only then that full realisation of the Government's plan will be evident.

In return for these measures the Minister for Finance is imposing specific lending targets on the AIB and Bank of Ireland. Both banks must make €20 million available to Enterprise Ireland supported ventures for seed capital. They will each set up a fund of up to €100 million for environmental, clean energy and innovation projects. These are just some of the claw-back measures being imposed on the banks. The credit review process has also been established for those who have had credit refused or withdrawn, whereby they can apply for an independent review of a bank's decision. Our focus is mainly on getting credit flowing for business and only then will we see the real fruits of our stability measures.

Those having difficulty with their mortgage repayments are also a very real concern. A number of initiatives to support these people have been introduced. The statutory code of conduct on mortgage arrears for all lenders has been introduced. The moratorium on legal proceedings has been extended from six to 12 months and we have refocused mortgage interest relief on those who bought homes at the peak of the market. More than 15,000 families have been supported through the mortgage interest subsidy scheme. We have increased the advisory services through the MABS. The Irish Banking Federation has given assurances that where a satisfactory arrangement is reached and adhered to between a borrower and a financial institution its members will not take legal action against the borrower. Thankfully, repossession rates in Ireland remain extremely low, but one repossession is one too many. I highly commend any measures taken to help those in mortgage arrears.

To counteract some of the doom and gloom that we increasingly hear, the ESRI and the Central Bank have predicted the economy will begin to grow in the second half of this year. The ESRI predicts that in 2011 GNP will grow by 2.75% while the Central Bank states that it will grow by 2.8%. Exports have increased by 16% from just over €6 billion to €6.99 billion since December 2009. This could create 20,000 jobs next year and 45,000 the year after. Ireland is the only economy in the euro area in which labour costs are falling and this makes us more competitive. Huge export opportunities exist in the emerging economies such as Brazil, India, China and Russia all of which Ireland and the Government are looking to fully exploit.

Consumer confidence is growing as is business confidence. As many Members have stated, car sales have increased by 30% since this time last year. In the past week I learned that car sales in Donegal have increased by more than 50%, with more cars sold this year than in all of last year, so certainly the indicators are very good. Only last month, the leader writer with the Financial Times, Chris Cook, commented that Ireland is in pretty good shape. Various other promising statements have been made in recent weeks also. José Manuel González-Páramo of the ECB stated earlier this year that the Irish measures are very courageous and are going in the right direction. The German Minister for Foreign Affairs, Dr. Werner Hoyer, stated that there is a fundamental belief that the Irish are going to solve it. The French Finance Minister, Christine Lagarde, stated that Ireland has set a high standard and the rest must follow. The Wall Street Journal carried an article on the Irish economy stating that the Irish Government has repeatedly taken extraordinary steps to fix its financial problems. Today, I read that the Exchequer returns for the end of April look fairly favourable also.

I commend all of the steps being taken by the Minister for Finance despite constant criticism from all sides of the House. While it will take a little time, by the end of this year we will have a bright future and I look forward to better times.

The next speaker is Deputy Mary Upton who will have 20 minutes but will be interrupted at 7 p.m.

Despite what Deputy Blaney just stated about the positives he is putting forward, unfortunately the taxpayers do not see it in quite the same way. They are still losing their houses, seeing no light at the end of this very long tunnel, and will bear the brunt of the mismanagement of the economy for many years. It is indicative of the Government's opinion of the House and Irish people that we are debating a Bill to reform our derided financial regulatory institutions in May 2010, 20 months after the banks effectively collapsed, more than two years since the St. Patrick's Day massacre of the Anglo Irish Bank share price and several years since people became aware of the erratic lending polices of Irish Nationwide.

Reform of the Central Bank and regulatory system that failed so badly in recent years is urgently required and should be addressed clinically in the best interest of the Irish taxpayer. What kind of regulatory system allows banks to loan developers more than 100% of a purchase price? This was, unfortunately, a common practice and many slightly bewildered borrowers availed of the opportunity because they believed in the system. What system allows banks to become developers, authorises 100%, 40 year mortgages and does not recognise a property bubble despite the weight of economic history?

The system failed badly and the plain people of Ireland are paying the price. These are the people whose only experience of the Celtic tiger was being able to pay all their bills on social welfare or those who were panicked by the media and auctioneers into buying overvalued, poorly built and badly located housing. They will pay for the recklessness of the few and the failings of those charged by the State with overseeing the BMDs — the banks of mass destruction. The culpable and guilty get away with it. Instead of real reform and the pursuit of those at fault, for everything they have, we have a media circus in which some former top bankers are questioned in front of cameras and a little early morning drama as bankers are brought off and questioned. This is nothing more than window dressing. Following 12 months of investigations into Anglo Irish Bank, Mr. FitzPatrick is not questioned until the week before it is announced that the citizens of the State will collectively forfeit more than €20 billion in tax revenue to pay for delinquent lending practices.

The group myopia and sheer brass neck of those within the golden circles is breathtaking. From Sean FitzPatrick stating that he could not "say sorry with any degree of sincerity" for running his bank into the ground to the then leader of the Fianna Fáil Party expressing surprise that people who had the temerity to question the Government's economic and financial policies "didn't commit suicide", the collective group think at work suggested we did not need regulation.

While the previous Financial Regulator had no choice but to resign, it is my strong suspicion that he was implementing financial regulation to the levels with which the Government was happy, that is, with an extremely light touch. If the banks had been forced to reduce lending, it would have dampened the property bubble, thus reducing the amount of tax the Government received from stamp duty. The Financial Regulator and the Central Bank were certainly at fault and need to be reformed. This reform must extend beyond that set out in the legislation before us. The simple fact remains, however, that the architects of the crisis are still in place in the Government and upper echelons of the Civil Service. The Taoiseach was Minister for Finance between 2004 and 2007, the years in which the economy was effectively destroyed. Accountability and responsibility begin at the top with those privileged to serve people. When they choose to spurn opportunities to accept the consequences of their actions, they demean their office.

The Bill before the House does not go far enough in addressing the problems in our system. Despite the abject failure of the bankers in almost every institution in the State, there is no effective mechanism for the regulator to object to unsuitable senior appointments. Will it be another case of golfing buddies and those who sit on multiple boards once again filling the senior positions in the banks, thus condemning the system to fail again owing to a lack of appropriate and qualified oversight? Even worse, the Minister for Finance will have control over appointments to the new Central Bank. We can, therefore, be certain that solid Fianna Fáil supporters will be appointed to these boards. What we need instead are independent experts beholden to no one and fully qualified to ask the bankers serious questions about unsustainable practices and irresponsible lending. A board member should have no problem appearing before an Oireachtas committee similar to Senate appointments committees in the United States where the qualifications and thinking of the proposed appointees are challenged.

Another glaring flaw in the Bill is the absence of a bank resolution mechanism in the event that a bank becomes insolvent at a later date. If history has taught us anything, it is that everything moves in cycles and at some stage it is likely that another bank will overshoot its reserves in a quest for higher share values and greater bonuses. If this occurs there should be a facility for the Financial Regulator to intervene in a potentially toxic bank before it is too late.

While every Irish bank acted irresponsibly, the trail blazed by Anglo Irish Bank led to other banks following its lead. Much like the BP oil well in the Gulf of Mexico, once the pipe burst the contagion spread across the entire sector and no amount of disaster relief could do anything more than contain the problem and leave a huge mess to be cleaned up.

The economic commentator, David McWilliams, is correct when he states we have effectively abandoned capitalism when it comes to the banks to embrace instead a form of socialism for our banking sector. The Government is so petrified by the all powerful bond market that it moves in lock step with what the compromised, tainted former masters of the universe tell it to do.

It is the plain people of Ireland who will pay for all these bailouts with reduced services. Fewer road repairs inevitably means more accidents. Less funding for hospitals meaning longer waiting times for patients not lucky enough to have private health insurance. Cutting language supports means we run the risk of creating our very own version of Paris's banlieues in places such as west Dublin or Galway.

To use a poker analogy, the banking elite have been caught bluffing outrageously, yet they walk away from the table confident that the Government will force the citizens of the State to pay for their bad behaviour and cavalier risk taking. Where is the justice in our system? The United States of America, the home of capitalism, is a useful comparison. In the United States, Bernie Madoff will spend the rest of his life behind bars, whereas our former bankers play golf while holidaying in sunny climes. The United States has announced sweeping reforms and new regulations for its banking sector, whereas our bankers throw their toys out of the pram until they get their way with the Government on issues such as appointing insiders or pay levels which exceed Government regulations. In the US, Goldman Sachs is hauled before a Senate hearing with a massive fine expected, whereas in Ireland, bankers with outstanding loans to their own companies which they are not maintaining continue to receive pensions from the same organisations.

The 20 months it has taken the Government to produce some level of reform of the banking regulatory sector is indicative of the inertia which courses through the veins of this tired Administration. The legislation emanating from the Government proceeds at a glacial pace, unless someone from the golden circle appears to be in peril. The bank guarantee is one such example. The Taoiseach was sold snake oil by the chief executives of Bank of Ireland and Allied Irish Banks and persuaded to guarantee the entire banking industry, even though it was known at that stage that Anglo Irish Bank and Irish Nationwide were in serious trouble and not systemically important.

The legislative programme shows only 14 Bills due for publication for the entire summer session. The Order Paper includes 39 Private Members Bills, including two of mine, which the Government shows no inclination to take.

There is no question that our regulatory institutions are in need of serious reform. Light touch or principles based regulation has been shown to be an abject failure. The simple truth is that unfettered capitalism does not find a natural equilibrium and can and has gone badly wrong. Developments in 2008 were not isolated incidents.

Despite the best hopes of many who spend their spare time watching the film "Wall Street", unfettered capitalism does not work and must be kept in check by regulation. It is the Government's responsibility, as the servants of the people, to develop a regulatory system which ensures that markets and financial institutions cannot damage the real economy. While any reform of our obsolete financial regulatory system is to be welcomed, this legislation does not go far enough. It is a conjurer's trick which does not give regulators enough power and oversight to prevent recent bad practice from occurring again.

I speak as a representative of the people of Dublin South Central, many of whom have contacted me with real, everyday problems. Some are at risk of losing their homes because they cannot pay their mortgages or put food on the table. They are in a state of panic. While it is disappointing that the legislation does not go far enough, it is not surprising from this Government. Plus ça change, plus c’est la même chose.

Debate adjourned.