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Dáil Éireann debate -
Wednesday, 12 May 2010

Vol. 708 No. 4

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.)

I will go over some of the points I made earlier today. We missed the boat on this affair because the emphasis was on a property bubble when it was in fact a money bubble. Who would have believed that the practices in our banking system could be as they have been shown to be? It is important if we are to re-establish confidence and trust to get to the bottom of exactly what happened. Those who acted incorrectly must be brought to justice.

I mentioned the concept of futurology, and suggested we consider dedicating a Department solely to forward planning. I realise each Department has its own small group that considers forward planning, but we could easily amalgamate some of the Departments and allocate specific responsibility to a Department for macro forward planning. If we did that, and employed people to concentrate on the issue as opposed to dealing with crisis management and fire brigade action, and day-to-day activities, perhaps such a crisis could be foreseen.

When the current regulatory legislation was bundled together and consolidated in 2002, my party's spokesperson on finance at that time, Deputy Richard Bruton, pointed out that he was concerned that the legislation was not stress-tested and had shortcomings. He was proven correct, in that the system aligned to the culture did not work. We will not find out why it did not work until there is a full, frank and open inquiry. I do not know when the scoping inquiry is due to report, but the sooner it comes before the Dáil and we agree terms of reference for a comprehensive inquiry, the better. I hope that it will not be akin to the Moriarty or Flood-Mahon tribunals — those have been going on for well over a decade, which is unacceptable. I call on the Minister and the Taioseach to set a deadline by which the tribunals must report to the House.

We have another shortcoming in this country. The German Parliament held a debate on the allocation of the aid package to Greece. We have had very little discussion on that, other than at Leaders' Questions or Taoiseach's Question Time. I strongly advocate that the Taioseach should attend the House before the European Council meetings when we should debate the issues that are due to come up and the approach that is likely to be taken. That will ensure we get the views of Members in the House and discuss the matter. We in Fine Gael support the bailout of Greece, but certain conditions must be attached to it. We cannot blindly go along doing those things if we do not have an input into them beforehand. The Taoiseach mentioned earlier that amendments to the Lisbon treaty might be needed to facilitate the bailout, but I understand that is not correct as Article 122 of the treaty permits the bailout.

The public want to see the results of the banking inquiry and they want those who are culpable to be brought to justice. They want a system in place in which they can have confidence, but that cannot happen until the wrongdoing is addressed. The culture of banking and financial management in this country has to change. The misaligned interests must be realigned. The financial institutions are there to support an economy — they do not exist solely to create profit for the shareholders. While making profit is one aspect, it should not be the sole aspect. The financial institutions' function is to assist with the development of the economy. Ultimately, responsibility for overseeing and managing the economy lies with the Government, not the Central Bank, Financial Regulator or individual banks. It is in this regard that the Government failed miserably.

I welcome the opportunity to contribute to this debate. I fully support the amendment of the Fine Gael finance spokesman, Deputy Richard Bruton. The legislation is being introduced prematurely. The investigation into what went wrong with the banking system is ongoing. The reports by the Governor of the Central Bank and the two wise men into the reasons for the crash and the fiasco in our banking system have not yet been produced. We have had no report on, or inquiry into, what went wrong in the banking system even though the man on the street knows a certain amount about what took place. Nobody has been held accountable for what happened in the banks. The banks were completely reckless, particularly by giving 100% mortgages and by increasing credit limits on credit cards on a six-monthly basis. This was very unfair and wrong.

The Government was complicit regarding what went wrong, yet no politician has put up his hand to accept responsibility for the decisions made. There were critics, including economists, who flagged much of what was to come down the tracks. Organisations such as the IMF and OECD published reports continuously outlining the overheating in the Irish property market and banking sector, yet the property market was talked up consistently. We were consistently told that the fundamentals were sound in the property market and that home owners were to make purchases at current prices or else miss the boat and not get an opportunity to purchase a property again.

Bankers were not held accountable for what went wrong. Certain bankers, who are still working for Irish financial institutions, were complicit in what went wrong and were present when some of the bad and reckless decisions were made by those institutions, yet they are being rewarded handsomely with very high salaries and profit sharing schemes. Despite this, the ordinary worker is paying obscene tax and is being hammered from every direction by the Government.

Bank auditors were asleep at the job, particularly in regard to certain transactions in Anglo Irish Bank and Irish Life and Permanent at year-end. It was very poor form for auditors to miss the key transactions and not report them. There is an onus on them to do so. They have failed shareholders, particularly by signing off on accounts year after year without having seen some of the transactions and without flying the red flag to show creative accountancy was taking place or that the banks were not functioning as they should.

The relationship between the political establishment, the Financial Regulator, the Governor of the Central Bank and the Minister for Finance was too cosy. The Bill seeks to change this relationship but it is being introduced prematurely before a full investigation has been carried out. We have not yet heard what happened.

I acknowledge the improvements that have taken place under the new Governor of the Central Bank, Professor Hohohan. He is doing a terrific job. The new Financial Regulator, Mr. Elderfield, who has clearly put his own stamp on the job, is very independent and is not for turning. He has brought new realism to the Office of the Financial Regulator. People are not happy with what happened with Quinn Insurance but the regulator has ensured there will not be as many problems in the insurance industry as might have arisen.

There is no evidence to state the existing regulatory bodies were responsible for what went wrong in Ireland. The Government is glad to make a scapegoat of the former regulator and the Governor of the Central Bank and make them ultimately responsible for the fiascos that occurred. By doing so, the Government is only trying to save its own skin. No responsibility is being taken at all.

The former regulator was definitely at fault, yet he is being paid a handsome pension and is enjoying all the trimmings associated with his former position. It is very poor that nothing has happened in this regard.

It is clear that responsibility must be shared. The Government allowed the banking crisis to happen and never shouted "Stop" at any stage over the years. It never sought to cool down the overheating property market because it was hooked on all the stamp duty receipts that were consistently coming into the Exchequer.

The procedure for the appointment by the Minister for Finance of the new directors to the Central Bank commission is very flawed. The Minister will have exclusive responsibility to appoint directors. The Joint Committee on Finance and the Public Service should have a vetting responsibility to ensure directors appointed have the necessary expertise. The Oireachtas should be comfortable, on a cross-party basis, that the people being appointed are the right people to do the job. Deputy Bruton and other front-bench spokespersons have been consistent in their criticism of the appointments procedure. The Oireachtas should have a more central role in overseeing the appointment of new directors to new bodies or existing quangos.

The Committee on Finance and the Public Service should have an opportunity to question potential appointees. There ought to be accountability and transparency in making appointments. Politics has failed people and we need a new form of politics. More scrutiny and probing of potential appointees would bring more comfort to the people. Merely appointing individuals without scrutiny amounts, in certain instances, to cronyism and is very wrong.

The new Bill does not give the commission bank resolution powers to put failed banks into administration. This point has been made throughout the debate. It is crucial that no bank in difficulty be allowed to continue. It should be possible to wind a bank down without jeopardising the future of the country and its finances. There is nothing in the Bill to prevent a recurrence of the events that saw one or two banks of systemic importance bring down the national economy. History must not be allowed to repeat itself and this needs to be written into the legislation. The Irish do not have the stomach to deal again with a collapse like the one that occurred. People are rightly angry over what went on in this country.

The Minister is not adopting a hands-on approach to interest rates and is allowing the banks to increase modestly their interest rates every so often. He has recapitalised the banks and they should, therefore, have enough funding without trying to extract more from home owners through punitive interest rates.

The banks are making the case that the cost of funding is more expensive on the international markets because of what has gone on in this country. It is clear that home owners cannot consistently absorb all these extra costs on a continual basis. The only way interest rates will go is up, possibly over time. It is unfair that first home owners will again be asked to pick up the tab for the problems in our banking industry.

The timing of the recent wage increases given to the staff of Anglo Irish Bank was lousy. The decision to allow ordinary workers to get increases clearly damaged the credibility of the banking sector. The increases were probably justified, as they may have been due to the workers in question over a number of years. However, the wage increases sent out the wrong signal at a time when other workers are having to tighten their belts. Public servants, in particular, are facing extreme difficulties as they try to make their mortgage repayments and pay their bills on a weekly and monthly basis.

I would like to speak about the insurance industry. The banking system has dominated the political agenda over the past two years. Insurers have been resilient throughout this period of financial instability. The insurance sector merits much more representation in the Bill. The appointment of six or eight directors to the Central Bank commission is provided for on page 47 of the Bill, which refers to accountants, bankers, economists and lawyers but does not make reference to the insurance industry. The sheer size of this country's insurance industry means that it should be represented. That is a clear omission in the Bill.

A distinction needs to be drawn between the insurance industry and the banking industry. One cannot subject both industries to the same amount of regulation. It is clear that the insurance industry, with the exception of a single company, has not let down the financial sector. It has always operated correctly. Its business model, its operations and the risks it poses are very different. That should be accounted for clearly in this legislation. The Bill also requires separate divisions to be established within banks to deal with banking and insurance. That should be stated as well.

On the question of the accountability of the new Central Bank commission to the Oireachtas, a proposal for yearly reporting has been made. It would be better and more timely for Members of the Oireachtas to receive reports every three or six months. If we are to convince people that things are changing and to improve regulation in this country, it is clearly insufficient to provide for accounts to be produced on a yearly basis. It does not give confidence to people.

Most Deputies have received representations from the credit union movement, which is unhappy that the Bill does not distinguish between banks, building societies and credit unions. The regulation of the credit union sector has not failed — it is purely the banking sector that has failed. The excessive regulation of the credit unions poses a serious threat to the movement and may lead to a decrease in the number of volunteers. Every Member of this House has received a representation to that effect. Perhaps the Minister for Finance will reconsider this aspect of the matter.

The investment of €22 billion in Anglo Irish Bank is a topical issue at the moment. It is in the news most days of the week. The Fine Gael position on the matter is crystal clear — we are looking for an immediate wind-down of the bank, which cannot continue the way it is going. A great deal of money has been invested in Irish Nationwide, AIB and Bank of Ireland. People are angry about the light touch regulation that took place in this country. The Taoiseach, who was the previous Minister of Finance, and certain parties within the banking sector, such as the auditors of banks, have to be accountable for what has gone on. We will probably never hear the full truth about the level of reporting between the Financial Regulator, the Governor of the Central Bank, the previous Minister for Finance and the previous Government. I am sure a certain element of truth will come out during the investigations.

It is premature to introduce this legislation before the results of the banking inquiry have been released. A certain element of the Bill makes sense. We are not 100% sure that it was the regulatory system that let us down. Perhaps individual people in certain positions were unqualified and should not have been in those positions. The Irish people are angry about what has gone on in the banking sector and about the money that is being absorbed here. They cannot understand that schools are being closed and the home help hours of those who need help are being reduced, at a time when a great deal of money is going into the banking sector. I will leave it at that.

I call Deputy Reilly. He has up to 20 minutes.

I thank the Ceann Comhairle for giving me so much time. He will not be telling me to be in order or anything like that.

I am pleased to have an opportunity to speak on this Bill, which is a smokescreen to deflect from the fact that the Government ignored the warnings of the Central Bank during the Celtic tiger years.

At a time when the current Taoiseach was Minister for Finance, the Central Bank stated clearly in three separate financial stability reports that the Irish financial system faced grave risks. The Central Bank felt so strongly about these risks that it mentioned them in its annual reports of 2004, 2005 and 2006, also when the Taoiseach was Minister for Finance. The annual reports of the Central Bank were addressed to the then Minister for Finance, Deputy Cowen, who either did not read them or ignored the warnings in them. The Central Bank blew the whistle and rang the alarm bells loudly. We are in this terrible mess because the then Minister for Finance did not listen to or act on the Central Bank's warnings. The Governor of the Central Bank produced three annual reports for the Taoiseach while he was Minister for Finance. The warnings in those reports cannot be denied — they are written in black and white and are available for everybody to see.

In the 2004 annual report of the Central Bank, which was published in 2005 when the Taoiseach, Deputy Cowen, was Minister for Finance, the Governor clearly expressed his alarm about the turn the economy was taking. He was concerned about the amount of money people were borrowing. The 2004 report warned that a sudden fall in house prices was the greatest threat to the stability of the banks:

The risk of an unanticipated and sudden fall in residential property prices, accompanied by an increase in the default rate among mortgage holders . . . . is the risk that poses the greatest threat to the health of the banking system.

In the third paragraph of the Governor's foreword to the 2004 annual report, he states:

There are still concerns, however, about the increase in indebtedness in the economy, after another year of strong growth in mortgage and non-mortgage credit last year, with the ratio of debt to disposable income of households now in excess of 120 per cent.

On pages 33 and 34 of the report, the Governor of the Central Bank continued:

The overall conclusion of the Financial Stability Report 2004 was that ‘the Irish banking system is currently in a good state of health despite the sharp slowdown in the growth rate of the economy that occurred in recent years. Our central expectation, based on our assessment of the risks facing both the household and non-financial corporate sectors, as well as the current shock absorption capacity of the banking system, is that its current good state of health will not be compromised over the medium-term horizon. However, this central expectation does not preclude the possibility of adverse developments which, should they materialise, could have serious financial consequences for households, corporates and banks. The risk of an unanticipated and sudden fall in residential property prices, accompanied by an increase in the default rate among mortgage holders, who may have been too willing to take on ever higher levels of indebtedness at the bottom of an interest rate cycle, is the risk that poses the greatest threat to the health of the banking system.'

The former Taoiseach, Deputy Bertie Ahern, told people they were missing the boat, to get on quickly to buy and that his main concern was that if they did not act immediately, property would be out of their reach within a few years but the fundamentals were correct. The current Taoiseach also stated the fundamentals of our economy were sound. People were mocked and those who issued warnings and sounded alarm bells were accused of financial treason and of being naysayers. Commentators who were prepared to go out on a limb and call it like it was and who advised about the very things the Central Bank was warning could and would happen were ignored and scorned and laughed at. It was suggested scurrilously at one stage that such people should go away and consider suicide.

I am afraid it is questionable to introduce a Bill now which seeks to change the method by which the bank operates without addressing core difficulties around the fact that it issued warnings and the fact that the regulator was asleep at the wheel. Was he asleep at the wheel because somebody had administered a hypnotic substance or because somebody told him to look the other way? We do not know and we will not get the answer through the current investigations. It is clear a combination of factors, many of which had the hand of the Government on them, has led us to the sad and sorry mess we are in now.

The Central Bank sounded the alarm bells repeatedly. In its 2005 and 2006 annual reports, which were addressed to Deputy Brian Cowen as Minister for Finance, its officials clearly repeated these warnings. If they had been heeded, there would have been no need for the bank guarantee and we would not have found ourselves in the position we were two years ago. Five years prior to the guarantee, the financial stability report of the Central Bank warned that the banks were becoming more vulnerable because they had begun to borrow money from abroad to give people mortgages in Ireland. Any semblance of probity and prudential lending went out the window. The old adage that applied to bankers whereby they did not lend more than 80% of their reserves flew out the window under the eyes of the then Minister for Finance who cheered from the sidelines along with the then Taoiseach. Not alone did they fail to observe the golden rule of only lending 80% of their reserves, they exceeded this threshold to borrow money from abroad, which has left us in a position where Ireland has one of the highest levels of personal indebtedness in the developed world.

On several occasions the financial stability report warned that the financial system would be in trouble if, in the future, Irish banks were unable to borrow money from abroad. It stated: "It is increasing the banking system's dependence on cross-border inflows of funds, thereby introducing risks around both the continued availability and cost of these cross-border funds in the future". How prescient, for that is precisely where we find ourselves. The inter-bank rate rather than the ECB rate impacts on the ordinary man or woman on the street when he or she seeks to borrow money or renegotiate a mortgage. The inter-bank rate has shot up because banks no longer trust each other's deposit base. Government members presided over a scenario where bankers could defraud the regulator with ease by moving huge sums from bank to bank and rename it as an investor deposit as opposed to an inter-bank loan. The more we are reminded of how we got here, the more angry people will be and the more convinced they will be that this legislation is a smokescreen and a fig leaf to distract from the problems we face and the reasons we face them.

The report also stated:

In the presence of market stress there is no guarantee that this source of funding would be available to an equal extent. [That has come to pass]. This poses the question as to what the impact on the supply of credit might be in the event that Irish banks, for whatever reasons, would not be able to source adequate funding from these markets.

They have had to be recapitalised by the taxpayer. The report also highlighted that too much money was being borrowed. The officials clearly emphasised that their models were issuing warning signals because of the level of borrowing in the economy and they called the speed at which debt was accumulating "particularly worrying". They stated: "The Central Bank has warned on numerous occasions that the recent and current levels of lending growth may be excessive". That was code for the Minister to put the brakes on but he looked the other way. The report continued: "Private-sector indebtedness ... is now at historically high levels. ... In addition to a concern on the overall level of indebtedness, a particularly worrying aspect is the speed at which this debt continues to accumulate." The then Minister for Finance took no action and allowed the party to continue.

The report further stated: "The Bank's concern with excessive credit growth in Ireland and household indebtedness is borne out by the credit related indicators, most of which, issue warning signals as credit growth continued to increase rapidly in 2003." Despite the bank warning that the speed at which debt is accumulating was "particularly worrying", Deputy Cowen did nothing. It was referred to as "masterly inaction", which has led to a catastrophe for the country. Any right minded, reasonable, logical person would have to conclude his failure to act caused the amount of debt to double during this term in office. Because of his inaction, for every €1 that the public owed when he became Minister for Finance, they now owe €2. The public owes an additional €190 billion because of his failure to act. Irish household debt increased twice as quickly as it did in the rest of Europe. For every €1 of income that Irish households earned, they owed almost €200 by the time Deputy Cowen left the Department of Finance.

Rather that debating the technicalities of the structures of the Central Bank, we need answers from him. Did he read these reports when he was Minister for Finance? If so, why did he ignore the warnings? The legacy of his tenure is horrifying and it is there for everyone to see and, unfortunately, to live with. It is possible to calculate the total debt in the economy. EUROSTAT provides figures for every member state's national debt and total household debt. The figures are shocking. The Greeks are in their mess and they are drowning in debt. Every Greek person would have to pay €37,000 to clear the debt owed by the Greek Government and Greek households. What of the Irish? Every person would have to pay €70,000 to pay the debt owned by the Government and Irish households. That is almost twice as high as the amount for Greece. The figure is astronomical. One way or another that money must be paid back by ordinary working people. The Government debt must be paid by money collected in taxation and household debt must be paid from workers' take-home pay. People who are trapped in unemployment will not be able to contribute to paying money back. If the debt is to be paid back by workers, then every worker will have to pay €165,000 to clear it. The figures from EUROSTAT are real. They come from the central banks and finance departments of each of the countries concerned. The data is from 2008 and 2009. I doubt it would be unreasonable to presume that today's figures are even worse.

This very clearly highlights the dangers of the Government's plans for Anglo Irish Bank. It is daft to think we can take on the bank's losses when every worker is already expected to pay €165,000. Keeping the bank open will be a catastrophe for this country.

We simply cannot afford to bail out Anglo Irish Bank. The Minister's assertion that we turned the corner towards the end of last year and the beginning of this year does not appear realistic.

It is funny that the European Commission agrees with it.

I do not think so.

Deputy Reilly would if he read the newspapers.

All one has to do is look at what is happening. Through what can only be described as clever accountancy the Minister sought to describe the €4 billion already put into Anglo Irish Bank as an investment. The European Commission certainly does not agree with that. It now wants the Government to put that sum on the books. One could be forgiven for the perception that the very clever accountancy that got us into this mess in the first instance is the same methodology that is being used to get us out of it — but it will not.

Ordinary people in the street are aghast and amazed at what they see, namely, people lying on trolleys in Beaumont Hospital. They see hospital beds and departments being closed all over the country — in Beaumont Hospital and in Portlaoise. All around the country health services are being pulled back. They see the money allocated to the fair deal system being used to transfer patients from long-term care in publicly funded facilities to private facilities. They wonder how billions can be poured into the banks, yet we cannot afford the millions we need for the health service, to educate our children and to secure our future. It is quite obvious that everyone, except perhaps the chosen few, want to see Anglo Irish Bank closed in an orderly fashion.

The bondholders are big boys. They went to the races and put on their bet but the horse did not come in. The taxpayer cannot give them a two-way bet and give them their money back even though they lost. They have to accept some of the loss themselves. They are not foolish. I do not accept that Ireland Incorporated's reputation is damaged by that because Ireland Incorporated did not borrow the money. Anglo Irish Bank did, and let it, its bondholders and those who support them take the hit. We are getting signals that the Minister might be starting to listen and that perhaps that will happen. I hope he does listen because it would be a terrible catastrophe for this country if we continue to shore up the bank which is very slow to tell us what the true story has been. I accept new management is in place and that the information is emerging which was not previously the case. We have been led up the path and sold a pig in a poke. We need to close down the bank and force the bondholders to take the hit. They are responsible for gambling their money. They made huge profits when the bank was expanding and now there is no choice but to force them to accept the consequences of their gambles.

The country is standing on the edge of a cliff. We need to face up to those issues. The Bill is a waste of the House's time. Rome is burning and we are arguing about the nitty gritty technicalities of reforming the structures of the Central Bank when, in fairness to it, it clearly warned us, but the man who should have been listening and the person who had responsibility for listening did not listen and we find ourselves in the current situation. We were warned of the dangers we faced and the dangerous path we were on but people just carried on regardless — people who should have known better. The Taoiseach of this country was the Minister for Finance at the time. It is clear to me and the vast bulk of the citizens of this country that what we need is not reform of the Central Bank per se but a change of policy and a change of government.

I thank the Ceann Comhairle for the opportunity to say a few brief words. I understand the debate on the Bill is drawing to a conclusion. The saying "We are where we are" drives people daft. It is not a question of recrimination, although I understand people's anger and the need for them to be given a legitimate opportunity to express it. Last night outside Leinster House we saw what happens when people are denied that opportunity in that a less acceptable mechanism was evident. Most people are interested in how we re-establish a financial regulatory framework that will ensure we do not repeat the mistakes of the past.

I do not doubt the Minister's bona fides but it is entirely premature to talk about reform of the Central Bank when we are still waiting for the results of the inquiry. We have debated the shortcomings of the inquiry, which we on this side of the House find entirely unsatisfactory. It is entirely inappropriate to reach conclusions and put in place a new infrastructure dealing with financial regulation, the Financial Regulator and the Central Bank without knowing whether it was a fault of the regime, a cultural fault or due to the individuals who failed to act in spite of having all the necessary powers, or, as has been said, when they did articulate concern that the Government, the Minister for Finance and the Taoiseach did not want to know. It is difficult to comprehend why we are having this debate when we are still awaiting the outcome of the inquiry. That does not inspire confidence.

I understand that in terms of oversight we are expected to be inspired and reassured on the basis that the new structure will report to the Houses of the Oireachtas. I recall the Financial Regulator telling us he had stress tested the banks and that everything was fine. We had the same reassurances from the Central Bank and others. Reporting to the Houses of the Oireachtas and supposedly placating our concerns about a faulty architecture does not wash. It has all the semblance of window dressing. Some one decided that this sop would keep those troublesome people on the floor of Dáil Éireann happy but it just is not going to work.

This House needs its own root and branch reform. I spent all morning in a committee meeting investigating the lost at sea scheme. All political shades of opinion are doing extremely valuable work in the committee but I have the greatest fear that the committee, which is only a reflection of the entire committee system in the Houses, will not do its job properly until this House reforms itself and its structures regarding the way it does its business. The House will flex its own muscles as a Legislature and the voice of the people. We shall always find people outside the gates because this House has failed the people who sent us here. We do not have the appropriate investigative committees. We have something like 20 committees still operating in the dungeons of this institution busily working away while the Government assumes a monopoly of wisdom and gets on with the business of running the country, blithely unaware of the views of other elected Members. That system must stop and the House must reform itself. The commitment that we will have an annual statement from the newly structured Central Bank just does not inspire me.

On the issue of the appointment of new directors, there is no role for the Oireachtas. We see on television hearings being held in other democracies such as the United States, where appointees to every position are quizzed, regardless of whether it is to the banks or the Supreme Court. That is the type of accountability we want. Board members of the Central Bank were reflective of the era of social partnership and people are now jumping up and down criticising public policy who were themselves in very important positions, on the Central Bank and elsewhere. Others were nominated to the boards of these institutions on the basis of being "personalities". That era just will not wash, but in the new era there is no role for the Oireachtas to approve, vet or question the suitability or otherwise of people being proposed for appointment. That is an outrageous shortcoming in the Bill and it is reasonable at this stage to park this legislation and get a better Bill. We should hold on until we find out whether the current structures are at fault or if it was the fault of the personnel in positions of power — the culture rather than the architecture. I cannot lend my support to the Bill on its current basis.

There is no provision in the legislation providing a template for how we might deal in the future with failed banks. It seems to be that either banks prosper and make profits and function, or if they fail the only recourse is for the State to step in and give a guarantee. We have a system, for example, for other businesses, where a court officer may be appointed to see whether the enterprise can trade its way out of difficulty. It is a failing in this Bill, given what we have been through, that such a template is not being provided for as regards banks being in difficulty. We are being asked, almost, to follow blindly the advice and the diktat of Government in this regard. This House is just a rubber stamp, so off we go. The new Central Bank reform structure just is not going to work. The "same old same old" will not work in the future and that is why people are angry, want a changed system, more accountability, more questioning, more probing.

The director of AIB came before the Oireachtas and said he would rather die than face recapitalisation. The Financial Regulator said he had stress tested our banks. Everyone of them lied through their teeth and we were the patsies who were expected to accept all that, and look where it landed us. We are not going to take the type of situation which pertained up to now any longer, and with good reason, because it has landed us in the mess we are in. If the Minister does not recognise the folly of that and the fact that this Bill does not deal with this reality, then I am really worried. It is in the context of being asked to buy a pig in a poke and follow blindly.

If we knew then what we know now, would we have bought the Minister's line in respect of the nationalisation of Anglo Irish Bank and in particular, the guarantee? Would we have extended that blanket coverage if we had known then what we now know as regards Anglo? We were led to believe that its debt was in the region of €4 billion. It is now €20 billion plus. Can the Minister quantify that for us? Irish Nationwide's was €1 billion, but it is now €2.5 billion or €2.7 billion. What will the story be next week if we follow blindly, accept the Government's diktat, in the semblance of doing something and giving the impression we are in control of our destiny? The appearance is that the shared wisdom of this House is involved in the formulating of new policy structures, etc., but it is not. All backbenchers and Opposition Members are excluded from the process. The Government knows best, and this is the approach that has led us to where we are. I certainly have the gravest reservations in that regard.

Something has been brought to my attention, and I am not sure whether it is possible. In the context of Anglo Irish Bank and the personal guarantees that were given, there is a rumour around this town that the shredding machine in respect of those guarantees is working overtime and that the people who may have signed up are now escaping scot free. It is alarming if that is true and I cannot say I can substantiate this, but it is something for which I should like to get reassurances from the Minister, at whose behest the bank is now in State ownership.

When NAMA was established, its quid pro quo was that we should see credit flowing. That has not happened and it is squeezing the lifeblood out of existing businesses from the viewpoint of working capital and securing existing jobs. This has to be part of the strategy to get the economy going, to hold onto what we have. I am talking mostly about small and medium-sized enterprises in rural Ireland, including the agricultural community who are finding it extraordinarily difficult. They are being facilitated as regards the credit squeeze by their co-ops and their merchant stores who have over-extended themselves in many respects in this role, but the State has not responded in any meaningful manner in terms of getting credit up and running.

The Minister's credit review office is only window dressing, in its assertion to the effect that it will review whether a bank has treated someone fairly. That will not get money flowing and the Minister needs to come into this House with a detailed plan to get capital to the business that can sustain existing jobs and create new ones. I am of the view that the agricultural sector and agrifood businesses can create more jobs, but we need the proper framework, credit and a successful outcome to CAP negotiations in Europe. However, that engine for recovery, agriculture and agrifood, can be significant in this regard. It was interesting to hear last week the report commissioned by Bord Bia, identifying very significant potential in that sector, but it is crying out for credit, and the Minister's plan has not worked. He needs a plan to get credit moving.

The hallmark of banking practice over the past ten or 15 years was the increasing downgrading of the role of local bank managers. They might have some discretion as regards the approval of car loans or minor matters, but anything else, including mortgages, was effectively centralised. This was to negate local knowledge as regards businesses that were viable, what the micro-economic realities were etc. The knowledge which local bank managers and their staff had was written off in the interests of centralisation, and we know where that has led us.

As regards the future of banking this is an issue that needs to be addressed. The provision of funding for viable businesses is critical. This competitive issue between banks' obligations to shareholders and the national economy must be addressed. Excessively banks favour profit growing initiatives, paying enormous dividends to shareholders at the expense of the national interest and this must be examined in terms of reorganisation. That is something that should be considered in terms of reorganisation.

These are observations that the Minister may have heard before. However, it is foolish to think we can draw conclusions about what failed and attempt to establish a new architecture for financial management in this country when we have not yet concluded our own banking inquiry. Although the inquiry has been emasculated and engineered to deflect attention, none the less, it is wildly inappropriate to proceed with this Bill before its completion.

Earlier in the Deputy's contribution he used the phrase "lie" in referring to identifiable individuals. While I will not backtrack to that point now, I must point out that such language is inappropriate and unparliamentary.

On that basis, I will withdraw the word and use "untruth".

I appreciate the Deputy's co-operation.

I must say I did not notice, which is unlike me.

In the course of this lengthy debate, Deputies have taken the opportunity to engage in a wide-ranging debate on the banking sector and the part it has played in the current economic difficulties we face. That is understandable. However, the focus of this Bill is somewhat narrower, and Deputies should appreciate this. It is my intention to introduce a number of amendments on Committee Stage, details of which will be made available to Deputies in advance.

The contributors made a number of points about the Bill, which will be given careful consideration. However, I must respond to some of the issues that have been raised. There is one fundamental point which is of great importance in this debate but which has been overlooked by the Opposition speakers. I find it extraordinary that neither of the main Opposition spokespersons made any reference in his or her contribution to the two persons who will head up the new structures: the regulator designate, Matthew Elderfield, and the Governor of the Central Bank, Patrick Honohan. Were I to have followed the advice proffered by Deputies Reilly and Creed at the conclusion of the debate, I would never have ensured these persons were appointed in the first place.

The whole purpose of the Bill is to put in place the structures on which the job descriptions of these two men are based. Their appointments have brought an energy and professionalism that has already gone some distance in restoring confidence in our banking system both domestically and in international markets. The bank is in the process of significantly increasing its staffing to ensure it has the necessary resources to carry out its functions appropriately. These are important developments and they surely merit some reference from the Opposition finance spokespersons.

The purpose of this legislation is to give statutory vesture to appointments already made. It has been suggested that somehow this legislation has been designed as the be-all and end-all in resolving the banking crisis. It is not, and I did not introduce the Bill to the House on that basis. However, it is important that these two appointments, which have commanded substantial confidence in Ireland and overseas, be underpinned by the necessary legislation, which at least gives them the job descriptions on the basis of which these persons were appointed. This is important and everybody in the House should agree on it.

Of course, it has been characteristic of the banking crisis that we do not agree on very much in the House. It is far more politically profitable to talk nonsense from the Opposition benches — some of the time, not all of the time — and make political capital than to face our problems with a clear eye and seek to resolve them.

The Minister is indulging himself.

Deputy Bruton and other Deputies raised a question——

By clever accountancy, such as the €4 billion to Anglo Irish Bank?

Allow the Minister to continue without interruption.

No. I dealt with that, as the Deputy knows very well. The Commission has stated since that reclassification that it has every confidence we have turned the corner. Commissioner Rehn made that point last week, as the Deputy knows.

Deputy Bruton and other Deputies raised a question about whether the causes of the financial crisis have been misdiagnosed as a failure of the regulatory architecture. Again, I did not put forward such a proposition. After many hours on the floor of this House picking through the causes and effects of the severe shock to the Irish economy arising from irresponsible practices in the financial sector, I can assure the Deputy that my view of the issues is considerably more complex and nuanced than that.

However, it seems clear that — as a first step — a new beginning requires a refocusing of financial regulation through a single, unified structure. It was on that basis that both Matthew Elderfield and Patrick Honohan were appointed to their positions. I do not want any ambiguity about the powers, role or function of the Financial Regulator. As we know, the former chief executive of the Office of the Financial Regulator retired in January 2009. I do not believe it was viable for this country to defer an appointment pending the completion of a banking inquiry or of some hearing in this House about the suitability of a person for office.

That was never suggested.

Nobody was suggesting that.

It was suggested by Deputy Creed when closing the debate for the Deputy's own party.

With due respect——

With due respect to the Deputy——

With due respect to the Minister——

With due respect to the Deputy, there has been ample debate here. I am responding to points that were made in the debate.

The Minister is not responding to all of them.

He should be a bit more objective.

Deputy Burton commented on the position of consumers under the new system.

Allow the Minister to continue without interruption.

Will the Minister address the other point?

I thought the Minister was generating a common purpose.

Please, Deputies. I will not allow these interruptions to continue.

The Minister does his intelligence a disservice with some of his comments.

I will start working on a common purpose.

Deputy Burton commented on the position of consumers under the new system. I share the Deputy's concern that consumers were not always best served under the old arrangements and change is needed. The Bill makes a number of important changes to integrate the protection of consumers of financial services into the Central Bank's core functions and into its reporting responsibilities, including the requirement to set up an advisory group on consumer interests. I am open to further suggestions from Deputies on how we can ensure that financial regulation better protects consumers, especially those who are more vulnerable to mis-selling of unsuitable financial products.

The Deputy can take comfort from the Financial Regulator's statement before the joint committee that consumer protection remains a top priority in the new regulatory structure. In the coming year, the consumer protection code and minimum competency requirements are to be reviewed and the regulator's team is moving immediately to ensure that the backlog of overcharging cases is resolved more quickly.

Deputies also raised the need for a full investigation to provide a deeper understanding of the root causes of the systemic failure in our banking system. The Government has committed to the establishment of a statutory commission to report by the end of the year and, as Deputies will be aware, the two preliminary investigations are due to be completed before the end of this month. At the same time, other investigations by the Office of the Director of Corporate Enforcement and the Garda are under way; for obvious reasons, I do not propose to comment on these.

On the question of whether holders of influential offices in financial institutions are well qualified or indeed fit to occupy their positions, I re-emphasise what I said at the start of this debate. A key element of this Bill is the introduction of new powers for the bank to ensure the fitness and probity of nominees to key positions, including, where necessary, the holding of screening interviews with job candidates. Such is the importance of the new provisions that I decided to include them in the present Bill rather than waiting for the next Bill, which will deal with regulatory functions and powers and will take into account decisions that are awaited at European level.

Deputy Sherlock raised concerns about the implementation of changes arising from the amendment to section 35 of the Credit Union Act 1997 which is provided for in the Bill. The Deputy was in error in a number of his statements. The policy decisions with regard to the changes proposed are matters decided by Government. The Registrar of Credit Unions does not make policy. There have been extensive consultations on the section 35 proposals. The amendments contained in the Bill enable the registrar to impose requirements on credit unions with regard to their lending practices. These include making provision for bad and doubtful debt, having a certain level of liquidity, and controls and reporting requirements.

I have already assured the House that the Registrar of Credit Unions will adopt a balanced and proportionate approach to the application of the loan provisioning requirements which are proposed. In addition, transitional arrangements will be operated by the registrar, which will help ease the position for credit unions in the current financial year and the next financial year ending in September 2011. They will also allow time for credit unions to adjust to the new regime. There is a balance to be struck between meeting members' needs to reschedule loans and ensuring the stability of the credit union sector overall. It is in the interests of every credit union in the country that the stability of the sector is safeguarded. The proposals being brought forward in connection with the Bill will achieve this fundamental aim.

During the debate, conflicting claims were made about the pace of legislative reform.

Deputy Upton appeared to suggest we were moving too slowly but, on the other hand, Deputy Kehoe claimed we are moving a little too fast. In these circumstances, I suggest to the House that the Government must be getting the balance on this issue just about right.

The Central Bank recently announced a public consultation process on new corporate governance standards for banks and insurance companies. The paper sets out minimum requirements as to how banks and insurance companies should organise the governance of their institutions, including membership of the board of directors, the role of the chairman and the operation of various board committees. It is proposed that the requirements will apply to all credit institutions and insurers licensed or authorised by the regulator, including Irish licensed and authorised subsidiaries of international financial services groups. My Department will examine the question of additional powers for the bank to introduce corporate governance requirements. This will be done in the context of the second Bill on financial regulatory reform which, as I said in my opening speech, will be brought forward in the autumn.

The absence of a role for the Oireachtas in the appointment of members of the proposed Central Bank commission or other senior positions within the new institutions was raised during the debate. I ask Deputies to consider the proposition that the Executive, answerable for its actions to the Oireachtas and ultimately to the people, should retain the primary responsibility in this regard.

The same old friends of Fianna Fáil.

Is the Deputy suggesting that the regulator and the Governor of the Central Bank are friends of Fianna Fáil?

No, but the new directors——

They are appointments directly germane to this Bill for which I take responsibility.

I ask Deputy Burton to stop interrupting.

Everyone is aware that Fianna Fáil has made four Fianna Fáil appointees.

They are the type of appointments envisaged by this legislation.

Yes, Fianna Fáil ones. We know that.

They are Government appointments, not party appointments.

They are party political, that is part of it.

The Minister, without interruption, please.

The Government appointed both the regulator and the Governor of the Central Bank, for which it can be accountable to the House. Somebody must, ultimately, be accountable for appointments. That is of fundamental importance in our constitutional arrangements. The question of a bank resolution mechanism——

What about Government hearings, like in the United States? What would be wrong with hearings?

Deputy Burton, please allow the Minister continue.

The United States has a different constitutional system from us.

It is able to clean up its banks much faster than us.

I ask Deputy Burton to allow the Minister make his contribution.

The question of a bank resolution mechanism was also raised. The global financial crisis has revealed the significant challenges that arise for countries when there is a necessity to deal quickly and effectively with distressed financial institutions. Special resolution regimes for the financial sector are recognised as a key method of reducing the impact of the distress or failure of individual financial institutions. For our part, I indicated in the course of the NAMA Bill debate that I would examine options for the introduction of a legislative regime to deal in a systematic way with distressed financial institutions. The objective of such a regime would be to ensure that the State has in place a range of tools to protect deposit holders and ensure that problem institutions can be dealt with effectively in the interests of maintaining financial stability.

In view of the central role performed by central banks in resolution frameworks for financial institutions, my Department is in consultation with the Central Bank and the Financial Regulator with a view to the development of suitable options for progress in this area, including draft legislative proposals.

The work relating to the bank resolution issue is highly complex in character. We have, for example, studied the United Kingdom legislation, which raises serious constitutional questions in this jurisdiction. We have also looked at legislative models in other jurisdictions, with some of which fault has already been found. We will get this right and we expect proposals to be brought forward early next year in that regard.

When exactly? Will it be early 2011?

Yes, early 2011.

I welcome the general consensus on the need for change. However, I am acutely aware that there are different perspectives on financial regulatory reform. I fully expect that before the ink is dry on these very necessary reforms, some Members will express fears that we are overreacting to the crisis and that the pendulum will swing too far towards over-regulation. Indeed, I note that the leader of Fine Gael expressed such a view recently when he was reported as saying that NAMA was in danger of being overly heavy-handed in its regulation of builders and developers. That is a curious perspective and a change from the charge that this side of the House invented NAMA to bail out the builders.

To return to the Bill, I predict that the next line of argument will be that the new regime will deter investors and adversely affect job creation. There are already voices on Wall Street telling US reformers that they will scare business away to London.

That is Charlie McCreevy's line of argument, the Government's ex-Commissioner. That was his principal argument.

I am only outlining my views on this matter.

The Minister, without interruption.

The Minister is just crediting this to Fianna Fáil.

Mr. McCreevy is not a member of this House. I am simply giving the Deputy my views on a particular line of argument that I anticipate. I pointed out that there are voices on Wall Street advising US reformers that they will scare business away——

There is one of them in Kildare also.

I have not heard any voices from Kildare in recent weeks, since Kildare was liberated from his strong obligations to the European Union.

He was a lobbyist for no regulation.

In London, regulators are being told that they will frighten investors away to Geneva, and so on. However, the truth is that we are looking at an international reform movement intent on instilling high standards and preventing opportunistic regulatory arbitrage.

In this, I share the views expressed by President Obama in his recent address making the case for regulatory reform. A strong, well-resourced and independently-minded regulator is an integral part of any modern and complex economy. It provides reassurance to those investing and working in Ireland that there is no competitive disadvantage to playing a straight game and it provides the necessary stability to foster economic growth and public trust. Indeed a strong, well-respected and well-resourced regulatory system has the capacity to give us a competitive advantage in attracting financial services to this country.

This Bill is essential to the work already embarked upon by the regulator and the new chairman of the Central Bank. It will provide us with a robust structure and I commend it to the House.

Question put: "That the words proposed to be deleted stand."
Question put.
The Dáil divided: Tá, 78; Níl, 71.

  • Ahern, Michael.
  • Ahern, Noel.
  • Andrews, Barry.
  • Andrews, Chris.
  • Aylward, Bobby.
  • Behan, Joe.
  • Blaney, Niall.
  • Brady, Áine.
  • Brady, Cyprian.
  • Brady, Johnny.
  • Browne, John.
  • Byrne, Thomas.
  • Calleary, Dara.
  • Carey, Pat.
  • Collins, Niall.
  • Conlon, Margaret.
  • Connick, Seán.
  • Coughlan, Mary.
  • Cregan, John.
  • Cuffe, Ciarán.
  • Curran, John.
  • Dempsey, Noel.
  • Devins, Jimmy.
  • Dooley, Timmy.
  • Fahey, Frank.
  • Finneran, Michael.
  • Fitzpatrick, Michael.
  • Fleming, Seán.
  • Flynn, Beverley.
  • Gogarty, Paul.
  • Grealish, Noel.
  • Hanafin, Mary.
  • Harney, Mary.
  • Haughey, Seán.
  • Healy-Rae, Jackie.
  • Hoctor, Máire.
  • Kelleher, Billy.
  • Kelly, Peter.
  • Kenneally, Brendan.
  • Kennedy, Michael.
  • Killeen, Tony.
  • Kitt, Michael P.
  • Kitt, Tom.
  • Lenihan, Brian.
  • Lenihan, Conor.
  • Lowry, Michael.
  • McDaid, James.
  • McEllistrim, Thomas.
  • McGrath, Mattie.
  • McGrath, Michael.
  • McGuinness, John.
  • Mansergh, Martin.
  • Moloney, John.
  • Moynihan, Michael.
  • Mulcahy, Michael.
  • Nolan, M. J.
  • Ó Cuív, Éamon.
  • Ó Fearghaíl, Seán.
  • O’Brien, Darragh.
  • O’Connor, Charlie.
  • O’Donoghue, John.
  • O’Flynn, Noel.
  • O’Hanlon, Rory.
  • O’Keeffe, Batt.
  • O’Keeffe, Edward.
  • O’Rourke, Mary.
  • O’Sullivan, Christy.
  • Power, Peter.
  • Power, Seán.
  • Roche, Dick.
  • Ryan, Eamon.
  • Sargent, Trevor.
  • Scanlon, Eamon.
  • Smith, Brendan.
  • Treacy, Noel.
  • Wallace, Mary.
  • White, Mary Alexandra.
  • Woods, Michael.


  • Bannon, James.
  • Barrett, Seán.
  • Breen, Pat.
  • Broughan, Thomas P.
  • Bruton, Richard.
  • Burke, Ulick.
  • Burton, Joan.
  • Carey, Joe.
  • Clune, Deirdre.
  • Connaughton, Paul.
  • Coonan, Noel J.
  • Costello, Joe.
  • Coveney, Simon.
  • Crawford, Seymour.
  • Creed, Michael.
  • D’Arcy, Michael.
  • Deasy, John.
  • Deenihan, Jimmy.
  • Doyle, Andrew.
  • Durkan, Bernard J.
  • English, Damien.
  • Enright, Olwyn.
  • Feighan, Frank.
  • Ferris, Martin.
  • Flanagan, Charles.
  • Flanagan, Terence.
  • Gilmore, Eamon.
  • Hayes, Brian.
  • Hayes, Tom.
  • Higgins, Michael D.
  • Howlin, Brendan.
  • Kehoe, Paul.
  • Lynch, Ciarán.
  • Lynch, Kathleen.
  • McCormack, Pádraic.
  • McEntee, Shane.
  • McGinley, Dinny.
  • McGrath, Finian.
  • McHugh, Joe.
  • McManus, Liz.
  • Mitchell, Olivia.
  • Morgan, Arthur.
  • Naughten, Denis.
  • Neville, Dan.
  • Noonan, Michael.
  • Ó Caoláin, Caoimhghín.
  • Ó Snodaigh, Aengus.
  • O’Donnell, Kieran.
  • O’Dowd, Fergus.
  • O’Keeffe, Jim.
  • O’Mahony, John.
  • O’Shea, Brian.
  • O’Sullivan, Jan.
  • O’Sullivan, Maureen.
  • Penrose, Willie.
  • Perry, John.
  • Quinn, Ruairí.
  • Rabbitte, Pat.
  • Reilly, James.
  • Ring, Michael.
  • Shatter, Alan.
  • Sheahan, Tom.
  • Sheehan, P. J.
  • Sherlock, Seán.
  • Shortall, Róisín.
  • Stagg, Emmet.
  • Timmins, Billy.
  • Tuffy, Joanna.
  • Upton, Mary.
  • Varadkar, Leo.
  • Wall, Jack.
Tellers: Tá, Deputies John Cregan and John Curran and; Níl, Deputies Paul Kehoe and Emmet Stagg.
Question declared carried.
Amendment declared lost.