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).

Deputy Margaret Conlon

I welcome the Minister of State, Deputy Mansergh. We all remember the shocking events of September 2008. During the boom the banking culture, as we have now discovered, was out of control. Money was thrown about like confetti at a wedding as financial institutions focused above all else on expanding their loan books. I recall speaking to a couple some years ago who had sought a mortgage of €150,000 to build a house. The financial institution they approached told them this would be insufficient and that they should borrow more. When they insisted that they did not wish to borrow more than that sum they were advised that since they were getting married they should borrow more to cover wedding and honeymoon expenses and that the money for a new car could also be thrown in. Fortunately, this couple were not tempted by the officer and borrowed only the €150,000 they had sought. They are surely grateful now for their decision.

I hold no brief for any banker who behaved irresponsibly. I am appalled and disgusted by what was done, but I am confident that some of those who behaved in this manner will face the full rigours of the law in time. I am also appalled and disgusted by the lack of effort on the part of the former Financial Regulator. This was a man who seemed to sit on his hands; he saw nothing, he heard nothing and he certainly did nothing in terms of regulating the financial industry. That is not acceptable. The new regulator is perceived to be doing his job. We on all sides of the House respect his independence and the public seems to approve of his performance. I had the opportunity to meet him recently in regard to the Quinn Insurance situation. While he did not tell me what I wanted to hear, I appreciated his frankness and independence. He seems to be doing a very thorough job.

Better regulation is essential. Banks cannot be allowed ever again to behave in such an irresponsible manner. Before the boom we had a tradition where customers in local branches knew their bank managers and could speak to them about their financial situation. When they applied for a loan they could be confident the manager's decision would be based on customers' banking history and their ability to meet repayments and other financial obligations into the future. The financial situation of each individual was taken into consideration before a decision was made. Unfortunately, that power was taken away from the local bank manager and replaced by decision makers in head office, faceless officials who were not acquainted with applicants' personal circumstances and did not properly take into consideration their ability to make repayments. They did not have the best interests of customers at heart and that was a retrograde step.

We must learn from the mistakes of the past. None of wants to be here in ten years discussing similar episodes and recounting similar tales. Banks have a duty to act responsibly and we all, as taxpayers, expect them to be responsible. That is a legitimate expectation. It is of paramount importance to us all that their activities are supervised. If we do not have a properly functioning and regulated banking system, the State cannot function in an effective manner. A flow of funds and trade credit is the lifeblood of an economy. The Government has put capital requirements in place, set by the Financial Regulator, to ensure these mistakes are not repeated.

We have all been hearing that the Government has bailed out the banks. I am sick, sore and tired of listening to that phrase. We did not bail out the banks — we bailed out the economy. If we had not invested money in the banks, they would have gone under. That was not an option. We need a healthy functioning banking system for a healthy functioning economy, and we are attempting to achieve that. It cannot come quickly enough, but unfortunately such things cannot happen overnight.

Every Irish citizen who has money on deposit has a legitimate expectation and a right to feel that their deposits are safe. If we had not put the bank guarantee system in place, many ordinary people who had worked hard and been careful with their money would have lost their savings. We could not have allowed that to happen.

A tale has been doing the rounds about a person who put their card in the bank machine, which told them there were insufficient funds. The person wondered whether they or the bank had insufficient funds. We could not countenance something like that happening in this country.

Business people who run small, medium and large businesses are seriously concerned about getting credit and the lack of credit flow. It is the lifeblood of those businesses and without it, many will go under. I am not advocating the return of reckless lending practices. However, where a business has a good trade and credit history, and is considered to be viable in the future, credit should be made available. If we are to get out of recession, those businesses are crucial to our recovery. We must give them the tools to allow them to carry on with their day-to-day activities.

I welcome the fact that the credit review process is in place. People who feel that they were unfairly treated — who were refused credit or had it withdrawn — can request a review of and a determination on the bank's decision.

I welcome the new powers in the Bill to ensure the fitness and probity of nominees to key positions. That is hugely important. The public, and we as public representatives, demand that it happens. We have witnessed the results of irresponsible and incompetent behaviour by those at the top in our financial institutions. It must never happen again. The new powers will restore confidence in the management of our institutions, which is necessary on the domestic and the international fronts.

Before the financial crisis, we thought our regulatory structures were effective and appropriate. How wrong we were. The public is dismayed and disgusted by what went on, and I share those sentiments. I am convinced that when the investigative work is complete, there will be prosecutions. Those who were responsible, and who were reckless, will face the full rigours of the law. I look forward to that day. I hold no court or brief for anyone who has done wrong or behaved in that manner. They should have their day in court, and explain and face the consequences of their actions — or in some cases, inaction.

I welcome the accountability provisions for the Central Bank. It will be required to submit a strategic plan to the Oireachtas once every three years, through the Minister for Finance. That will specify the bank's objectives and how it plans to achieve them. The Central Bank will be asked to present an annual statement to outline its internal audit function. We should welcome those changes.

I agree with the Minister for Finance, Deputy Brian Lenihan, that the Bill is urgent and essential. It will enshrine in law the new structures that are necessary to ensure we have a properly regulated banking system. I commend the Minister for Finance on his resolute determination to ensure there is confidence in our banking system at home and abroad, and I commend the Bill to the House.

Deputy Deirdre Clune

The central plank of the Central Bank Reform Bill 2010 is to replace the Central Bank and the Financial Services Authority with a new Central Bank Commission. That commission will consist of the Governor of the Central Bank, the head of the Central Bank, the head of financial regulation, the Secretary General of the Department of Finance and six to eight other members who will be appointed by the Minister.

My party's spokesperson on the subject, Deputy Richard Bruton, has already outlined his concerns on those proposals. The European Central Bank has expressed concerns about the extent of ministerial influence. The Secretary General is an ex officio member, and the head of the Central Bank and the head of financial regulation are to be appointed with the Minister’s consent. The six to eight members will also be appointed by the Minister. The ECB stated that the Minister’s influence over the Central Bank supervisory role will be increased and its operational independence endangered.

This House has debated the need for openness and transparency in appointments, including those made by Ministers to relevant boards. The structures the Bill sets out are important for the future regulation and control of banking and credit institutions. It is an appropriate area in which to ensure we have transparent structures in place.

The Central Bank Reform Bill 2010 is the first of three Bills. It will be followed by a Bill to enhance our regulatory functions and an overarching consolidation Bill.

It is important that we look back, as many Members have, at where things went wrong and how we can ensure we do not have such lax regulation — to put it mildly — in future. The Comptroller and Auditor General produced a report last December on the financial crisis and on regulation. It quoted from the Financial Regulator's 2008 annual report, which referred to the factors that increased demand in the property sector. One factor was the strong economic growth from 1995 to 2004, during which our GDP increased by 93%, which was four times the average increase in GDP throughout the EU during the same period. The age structure of our population was a contributing factor — the percentage of people aged 25 to 54 increased from 35% in 1990 to 45% in 2005. Interest rates in the EU were low at that time and the large number of property-based tax incentives — such as tax relief on mortgage interest and tax incentives for property investment — contributed to the increased demand for property. The demand for housing supply continued to fuel the property market during that time.

The Financial Regulator was asked by the Comptroller and Auditor General what steps he had taken between 2004 and 2007 in response to the accelerating credit growth. He said that in 2004, consumers were warned about the risk of debt, which included warnings about refinancing personal debts into mortgages. In October 2005, new requirements were introduced for credit loss provisioning, including requirements for credit risk management. In May 2006, capital requirements were increased on high loan-to-value mortgages. In June 2006, new liquidity measures were introduced and they became effective in July 2007. In August 2006, the consumer protection code was introduced to tackle aggressive lending. In January 2007, discretions available to the Financial Regulator under the capital requirements directive relating to property were exercised by increasing the risk rating to 150% from 100% on exposure to speculative real estate.

Did the steps taken by the Financial Regulator succeed in dampening expectations or reducing the demand for capital given that banks ensured double-digit returns in their profits in the time in question? Did it ensure banks met their financial commitments from their deposit base rather than through the purchase of bonds? Did it ensure consumers would not be given 100% mortgages in an inflated housing market and that credit would not be obtained so easily? Did it ensure banks would take greater account of their exposure to the property market? I do not believe so. We have seen all the signs of lax regulation. Professor Honohan stated growth of 20% on the balance sheet of any bank should act as a trigger, yet Anglo Irish Bank had annual growth of 36% during eight of the nine years in question. Foreign-owned operators in the Irish banking sector pursued aggressive growth levels.

A cause of concern that should have been addressed was the high loan-to-value ratio with regard to mortgages. In 2005 and 2006, two thirds of mortgages for first-time buyers were 90% mortgages while one third of applicants got 100% mortgages. There was a negligible regulatory response in this period. Against this background, it was probably refreshing and reassuring to have heard the new regulator, Mr. Matthew Elderfield, say in his first public statement that we need to undertake a fundamental overhaul of our regulatory model for financial services in Ireland, including the setting up of a dedicated division to deal with enforcement with special investigative units established for the first time. We all welcome this and other statements made by the Financial Regulator and we look forward to its new regime.

There already has been a change to the regulatory approach to the covered institutions. It involves a more on-site presence at each institution, increased reporting requirements for the institutions, improved reviewing and security regarding management information, a focus on the governance structures and processes and the establishment of a dedicated department within the Office of the Financial Regulator for supervising the covered institutions. This will require finance, staff and more resources. Mr. Elderfield has raised this matter in public. Tomorrow he is due before the Committee of Public Accounts and I am sure he will be addressing this matter at that forum also.

The OECD agrees there were two main concerns over regulation and supervision. It pointed to the issues associated with Anglo Irish Bank in respect of which the threat of enforcement was weak. Regulatory structures should have been in place. We need more structures because there was a culture of non-regulation and an expectation that the regulator would not visit financial institutions. Enforcement was weak and there was no threat thereof in the period in question.

We have heard criticism of the light-touch regulation that was in place. It was a chosen policy of the Government. Guidelines were recommended rather than rules enforced, and this had major negative consequences. There was a failure to enforce strict rules and we are all dealing with the fallout now.

The Financial Regulator issued a consultation paper on corporate governance, which is to be welcomed. It is aimed at addressing the inadequate oversight of the financial institutions, which is widely regarded as a cause of the financial crisis. The paper requires that the number of directorships each director can hold be limited. Directors spread themselves about and were not in a position to give their full attention to each demanding, onerous position that they held. Further proposals are that membership of the board be reviewed every three years, that there be clear separation of the roles of chairman and CEO and that an individual who has been a CEO, director or senior manager of an institution during the previous five years be precluded from becoming chairman of that institution. We all know where these recommendations have come from. It is important that they be acted upon.

The role of the non-executive director needs to be defined clearly and minimum requirements for board committees should be set out. The purpose of these recommendations are to prevent a recurrence of the circumstances that obtained when boards of some financial institutions acted as nothing other than a rubber stamp for decisions taken by chairmen or CEOs, who ran the institutions as personal fiefdoms.

Enforcement is very important. New legislation designed to ensure a new system of regulation must have enforcement at its heart. There is no point in having an improved set of rules if we are to undermine them through inadequate enforcement.

Many public representatives have received representations from constituents who are having difficulties with their banks. They are running businesses and some of them have been in business for a long time and have been working with what they perceive to be performing loans. Now, however, they find their banks are, to quote a constituent of mine, "putting the squeeze on them". The constituent had a performing loan and he was working to repay it within the guidelines set down by the bank but the terms and conditions of the loan are now changing and the bank is demanding an increased return and shortening the term of the loan without prior notification or affording an opportunity for consultation. This practice is affecting small and medium-sized businesses throughout the country.

Although a credit review process has been established, it applies only to new loans. What structures are in place for small businesses that find themselves at the mercy of their banks? These businesses have a long track record but find the terms and conditions of their overdrafts are changing. I was speaking to an individual recently who could not obtain a €10,000 advance from the bank to pay his lease although he was always given it in previous years. The individual is running a successful retail unit that will continue to trade because there is a demand for it, but because he could not obtain funding he had to let go a member of staff. Stories such as this are real and can be heard throughout the country. They are very serious because the employers affected comprise the lifeblood of the economy. Without them, towns and cities would not be functioning. This is what is happening. These are the real stories. There are very serious stories throughout the country. These people are employers. They are the lifeblood of our economy. If they do not employ people, our towns and cities will not function. I am using this opportunity to raise this matter again. It will continue to be raised. It is a serious concern for people who are at the mercy of their banks. The terms and conditions of loans can be changed at will without consultation.

I would like to make a point about the future of banking in this country. Six weeks ago, in late March, Mr. Larry Broderick, who is the general secretary of the Irish Bank Officials Association, expressed his view that members of his union are facing the future with trepidation. The recent loss of 900 jobs in Quinn Direct shows how vulnerable large-scale financial institutions are at present. It is obvious that changes will be made to the whole banking structure. Many people are fearful about losing their jobs.

Another matter that is addressed is the credit union movement. This legislation will have an impact on credit unions. The Irish League of Credit Unions has welcomed the amendment to section 35 of the Bill. It is important to say that smaller credit unions have some difficulty with the definition of "impaired loan" in this Bill. This point has been made to me by the manager of a local credit union, who has been working in the credit union for 25 years. Members of credit unions can miss payments because they are on holidays, or over the Christmas period. They always make up the balance over the course of the year. Under the terms of this legislation, such loans will be considered to be impaired. There is some concern within the credit union movement about this issue. Members of the Health Services Staffs Credit Union, for example, have had to renegotiate their loans on foot of the recent pay cut and the reduction resulting from the pension levy. Are such loans now deemed to be impaired? I understand the Minister for Finance and officials in his Department are engaged in ongoing discussions in this regard. I am sure the matter will be explored further on Committee Stage.

I had wanted to raise the whole issue of auditors and auditing. Throughout this period, auditors were looking at the banks' books. We need to look at the whole situation. There is a body of opinion that believes auditors are too close to their employees — the credit institutions. Auditors are appointed by the boards of such institutions to audit their yearly accounts. Perhaps a degree of cosiness sets in over the years. Do we need to introduce changes in this area? Should auditors be rotated? Should they be approved by the Financial Regulator? Such changes should be considered if we are to renew confidence in our banking sector and ensure that what happened before is not repeated. I accept that they would have cost implications for the credit unions, but we are familiar with the cost implications for the taxpayer arising from the current approach. I refer to the fall-out we are dealing with today.

I look forward to debating the various amendments that will be proposed on Committee Stage.

Deputy Joe Carey

I welcome the opportunity to speak on the Central Bank Reform Bill 2010. Over recent months, many people have quoted Edmund Burke's remark that "there is a limit at which forbearance ceases to be a virtue". When the Minister for Finance, Deputy Brian Lenihan, presented this legislation to the Dáil, he spoke of the admirable grittiness of the Irish people in dealing with the issues that have come before us in the past two years. He spoke about emergency budgets, actual budgets, bank guarantees, the recapitalisation of the banks, NAMA and the nationalisation of Anglo Irish Bank. What Burke meant over 200 years ago was that there is a tipping point in all matters. When the Minister for Finance came into the House over a month ago to outline Anglo Irish Bank's capital requirement, a tipping point was reached in this case. The sheer size of the requirement is staggering. The capital required by the bank, which has been described by the Minister for Finance as an "institution of systemic importance", is mind boggling.

Despite Anglo Irish Bank's growth of 30%, year-on-year, no alarm bells went off in the Financial Regulator's office in this regard. If this type of growth were associated with gangland activity, the Criminal Assets Bureau would get involved in the issue immediately. If such growth were associated with clients of the Department of Social and Family Affairs, departmental inspectors would be immediately on the scene. Why was such growth allowed to continue when the participants were dressed in pinstripe suits and wore collars and ties? Such questions must be answered in the forthcoming banking inquiry. It is presumptuous to bring this legislation, which is one of three proposed Bills on the Central Bank, before the Oireachtas. What is the point in enacting legislation before one knows exactly what one wants to legislate for? Is something else going on here? Is the Government sincere in its proposed banking inquiry? Is it prepared to present the true and unvarnished story to the Irish people? The nature of the inquiry, along with the period the inquiry deals with and this rush to enact legislation to regulate our banking system, indicates that it will be a whitewash. The establishment of a toothless inquiry, designed to appease coalition partners, is another example of what the late Séamus Brennan described as the difference between senior and junior hurling. New legislation for the Central Bank on regulatory affairs should not be drafted and presented until we know the full story.

One of the glaring problems in our economy is the lack of available credit. We have gone from one extreme to another. Money was too freely available without proper regulation, but now businesses are being starved of cash. If one walks down any main street, one will witness the carnage being endured by small retailers. Whited-out windows and lost jobs are the norm. I continue to get postcards from retailers who want the rules governing rents to be reviewed. I call on the Government to amend the existing legislation to ban upward-only rent reviews. Cash flow is the lifeblood of any business. Small and medium sized enterprises, which provide a great deal of employment in this country, need access to credit. The Government has failed miserably on this point to date. As a result, jobs have been lost and businesses have been forced out of existence. If this situation is allowed to continue, the country will never emerge from recession. Every week in my clinics, constituents complain about the lack of credit being made available to them. It is time for the Government to draw a line in the sand and ensure that business people who seek money to run viable businesses have access to credit.

Successive Fianna Fáil Governments have led this country into the financial quagmire in which we now find ourselves. Their failed policies, which poured more fuel on a grossly overheated housing market, have resulted in half finished housing estates and empty hotels all over this country. There is a prime example of this in the village of Clarecastle, County Clare which was reported on by Jerome Reilly in the Sunday Independent last Sunday week. This development was to comprise 25 shop and office units, a crèche and almost 100 homes but today it is surrounded by a 7 ft wooden screening and the site is only occupied by security guards. The community of Clarecastle rightly asks questions. What now for this landmark site? Will it become an eyesore or will it be knocked down and returned to a greenfield site? Will it have a community purpose?

Members of the public are beyond angry as they, together with their children and future generations to come, will have to pay for this mess, which has been created by Fianna Fáil, the banks and the light touch regulation regime they encouraged. At the very least, where a building development has failed and is taken over by the banks or NAMA, the community should have a say in what happens to the site. The "Prime Time Investigates" and "The Frontline" programmes earlier this week highlighted ghost estates, unfinished estates and failed commercial developments throughout the State. These need to be dealt with in the proper manner. Will the Minister of State try to do something in this area?

I welcome the progressive parts of this legislation associated with the changing of the rules for credit unions. This sector of the financial services industry has been a quiet success over the years and as our supposed conventional high street system repairs itself and its balance sheets, with the cost passed on to the taxpayer, credit unions will play a significant part in keeping credit flowing, however limited, in the economy. This supposed conventional high street sector was the historical poster boy but it will become the unglamorous cousin that keeps the show on the road. Section 35 of the Credit Union Act 1997 will be amended by the Bill to add greater flexibility to credit unions' long-term lending arrangements. This is a welcome initiative, which addresses the need for credit unions to be in a position to facilitate rescheduling of loans due to the economic climate. The credit union system and its financial methodology will play a more significant role in years to come.

There have been many changes in our banks over the past two years, which have made it more difficult for the customer, whether individual, business or SME. It came to my attention that one bank in County Clare during the summer of 2008 changed many of its managers. Working relationships that had developed between a customer and bank manager over the years had to be re-established and, in many cases, this was never the bank's intention anyway. To do this when customers needed such a relationship most only shows the cavalier and fundamental attitude of self-interest of our banks.

The banks and the Government up to now have been under the impression that their role is not one of facilitation to an economy but rather in the economy itself. This is deluded thinking and the sooner we retreat from this position the better. We will never recover economically until there is a political shift in emphasis from financial services and banking to producing items for sale, whether that is food, electronics or even intellectual property.

I spoke recently to a man who retired as manager from one of the two big banks. He took early retirement in 2003 mainly because he did not like what he was seeing. He did not like the pressure put on him to sell what he saw as worthless products to customers or the chase for mortgage business with the altering of loan to value ratios. Most of all, he did not like the change in culture that he could see happening. He had spent his career in one institution. He used to have the power to make a lending decision at his desk. This changed and he had to pass all applications, however small, to what he called "group credit control". He saw that the system of placing a loan applicant's details into a computer to make a decision was flawed and it undermined the basic principle of banking that he had followed for 35 years, which is trust and human interaction. The Minister, with his canon of legislation, may think he has the tools to deal with the future but, because of the total breakdown in trust between the consumer and the bank, the fundamental issues have not been dealt with.

It is interesting to see the hand of the European Central Bank come more and more into play in domestic political decisions. For some time, much of our macroeconomic policy has been determined by Frankfurt and Jean-Claude Trichet. However, over the past year, a number of Government decisions relating to the banking crisis have been tempered by Europe. The initial NAMA haircut proposed by the Minister for Finance has been adjusted and, as recently as last week, he became more open to the idea of winding down Anglo Irish Bank for some reason. The ECB has recently expressed its concerns about the transparency of our new proposed Central Bank system's legal structure in the absence of consolidating legislation and the Minister must address this.

This legislation will give rise to a majority of ministerial appointments on the newly proposed Central Bank commission, six to eight out of ten or 12. The ECB has stressed the need for the commission to be independent from the Department of Finance in this regard. It is difficult to see how this can be achieved when these appointments are at the discretion of the Minister. It would be better if appointees such as these appeared before an Oireachtas committee for ratification. This model of appointment would be more transparent and accountable.

A further cause for concern about future independence of the Central Bank is the Minister's powers under section 50 to make regulations. The common theme in financial legislation over the past two years is that many new and significant powers are being vested in the Minister for Finance. That is not particularly healthy for a democracy and I would prefer to see a more robust position developed for the Oireachtas. This could be facilitated with a beefing up of the Oireachtas committee system by introducing more regulatory and oversight powers for committees rather than for the individual. There are good aspects to this legislation but it is presumptuous and it should not be enacted until the inquiry into our banking system concludes its business.

Deputy Andrew Doyle

I welcome the opportunity to contribute to this debate. The Short Title refers to an initiative that needs to be taken but it will not deal with the reforms of the Central Bank that are needed for many reasons but, in particular, because it is rushed legislation. Even in the context of what happened over the weekend with the ECB and the IMF taking a central role in bailing out the euro because of the weakest link being vulnerable, the reform of the Central Bank and its role, as proposed in the legislation, is ill-informed.

We must face the fact that people have lost faith in the bankers, the regulators of financial institutions and those who established the rules for regulators. They have lost faith in the Government which put in place the powers and rules that govern financial institutions and gave powers of oversight to the Central Bank and the regulator. Some aspects of the Bill are to be welcomed but in order to know where one is going, one must know where one is coming from and there has not been a full and comprehensive report on where the mistakes were made. The Government actively and passively contributed to the rapid expansion of the gambling culture of the banks. When we entered the eurozone and gained easy access to cheap money the bankers increased the availability of credit to all comers and bankers bonuses were a key factor in developing the sales focus of banks instead of prudential loan management and the traditional principles of banking.

It emerged at a meeting of the Oireachtas Joint Committee on Finance and the Public Service that any banker who expressed a concern was sanctioned, moved on or told to shut up. As Deputy Joe Carey outlined, if the performance of a business in another area was in double-digit figures it would be subject to an investigation. Anyone who questioned the banking sector was told that the shareholders and investors demanded that level of performance. Such practices were allowed to continue because everyone was asleep at the wheel. It was said that the practices pertaining in the country were reckless. Large amounts of easy credit due to the financial bubble fuelled developer-led housing bubbles in every town and village in the country. That increased the cost of houses which were paid for by easier personal credit terms.

The Central Bank reported that €118.9 billion was outstanding on residential mortgages in the last quarter of 2008. Many householders were suddenly the owners of unthinkable amounts of debt. A total of €2.8 billion was due in credit card debt alone. According to the Central Bank, in 1995, for every €100 earned, €48 was owed compared with €176 for every €100 earned in 2010. In 1995 we had the lowest debt to income ratio. The level in Spain was 59% and in France it was 66%. We increased by 267%, France by 9% and Spain, a country considered to be a basket case, by 120%. Those countries are in the eurozone and their central banks had the same level of power over the currency and fiscal matters as we did even though we had lost control of certain aspects of our currency to the European Central Bank. However, those countries managed to perform more sensibly than we did.

The knowledgeable voice of the local bank manager was ignored and the sales focus of the bank became a vision of the future. It was similar to casino gambling. The more one lent out as a salesman for a bank, the more one got at the end of the year by way of a bonus. The financial bubble was one of the core effects because it caused such a bubble in the property sector and affected our competitiveness. From our accession to the European Union when markets opened up to us we had spent years fine-tuning our ability to have an efficient, competitive, export-led economy. In the course of a few years we allowed that to completely disappear.

It is difficult to see beyond the banks and the bankers in particular. No one disagrees that we must bail out the banks and that we must have a banking system but it is not correct to say we must bail out the bankers. The same people are still in charge. No effort has been made to issue sanctions or undertake a proper inquiry. That is what upsets people and causes unrest. The Government had better wake up and realise the symbolic importance of the fact that the same people are still in charge. It is hugely important that those who were seen to have been reckless, negligent and to have profited to such an extent from reckless behaviour, facilitated by light touch regulation, are seen to pay the price. We paid them large bonuses for providing big loans. Why are we not able to fine them when the loans default? Why are we not able to go after those people? Those are the questions people are asking. No amount of long-winded speeches in the House about how the fundamentals are being improved will change the perception that exists unless we take direct action.

The Government preached about light touch regulation. The big players in the banks said they could self-regulate and that they needed light touch regulation in order to stimulate the economy. The trend of consumer debt to income did not just suddenly change between 1995 and 2008. A trend was obvious during that period. Why did no one express concern about it? In response to the Taoiseach's first budget in his then role as Minister for Finance in 2004, Deputy Bruton referred to the alarming trend that was developing in terms of property speculation that was threatening our national competitiveness.

Thanks to the light touch, hands-off attitude to the regulation of banks the Government has sold citizens into debt bondage to the tune of €54 billion and that might not be the end of it. That was taxpayers' money which should go into making a better society and creating jobs. What a difference it would make if even €20 billion had been available to invest in job creation initiatives, the protection of jobs and concentrating on what we are good at in this country. A study was published last week by Harvard graduates who work for Bord Bia which indicated that no one was championing the cause of the potential of the food industry to create jobs and to become an even bigger player in our economic recovery.

We still do not know all the details of what happened because the full inquiry into the bank collapse and the Government decisions on the banks has yet to be published. In Iceland last month a report was published into an inquiry on the December 2008 banking collapse. A similar report is not available in this country yet. If one is to reform the Central Bank and the governance and oversight bodies one must know where one is coming from in order to know where one is going. Perhaps some of the existing structures and architecture are suitable but we cannot say that for definite until we know where we have come from. Without the basic facts on the operation of the banking casinos and their nationalisation there will not be a clean sweep of personnel and genuine regime change in the banking culture, both of which need more regulation.

What is known is that the Central Bank is in charge of national financial stability since monetary policy was transferred to the European Central Bank when we joined the eurozone in the same way as happened in France, Spain and the other eurozone countries. The Minister has claimed that in order to make the Central Bank more effective in carrying out its fundamental responsibility the Government is proposing a three-party trilogy of Central Bank reform Bills. It is intended to restructure the organisation of the Central Bank to ensure better regulation and supervision of the banks and financial companies. Where is the bank strategy report that clearly states the new vision and strategy of bank culture so that the casino-style bank system that created a debt of more than €80 billion will never happen again? We need to return to proper prudential banking so that the banks we have capitalised and whose bad loans we have removed can improve their ability to borrow on international markets to lend to small and medium-sized enterprise and operate under conditions set down by the Central Bank.

Where are the powers in this Bill to enable the Central Bank to make those banks make money available to small and medium-sized businesses to protect jobs and not just shore up their balance sheets and give positive returns for investors, who are being protected by the current position? As speculators and investors they were glad to take and not share profits by way of any payback into the system and now they want the taxpayer to guarantee them indefinitely.

In March 2009 I asked the Minister for Finance what his objectives were for the board of management in Anglo Irish Bank and what its strategy was now that it was in public ownership. The Minister's response was to the effect that the bank was being run on an arm's length commercial basis from Government. Does this mean that the self-serving enrichment system for staff and shareholders that has operated within the banks for at least four years is continuing as usual, there is no change and neither the Central Bank nor the Financial Regulator has power to enforce change?

Without new objectives for the bank boards to restore conservative well-regulated banking practices I am seriously worried that the small group of people who have been enriching themselves in the banking property sector will continue as before while the economy continues to wither. Is it not a case of keeping the public paying and us ignorant?

I welcome some parts of the Bill. Other speakers have mentioned the whole issue of the credit unions, which is a welcome amendment. The credit unions have also welcomed it.

When one comes to analyse where we are today regarding the economy being in trouble, it is impossible to get away from the manner in which the banks operated. Professor Patrick Honohan has said that bank regulation, although compliant with international standards, was nonetheless complacent and permissive: "Too much reliance was placed on an international risk model deployed by the regulated entities." Even the Financial Regulator's consumer consultative panel found that the regulator was far too lenient when policing the larger players in the financial services sector.

The OECD pointed to the specific issues around Allied Irish Banks in particular and said that the regulator was far too weak in dealing with this bank. That is the nicest thing one could say about the regime that pertained and the way the Financial Regulator performed his duties. It was gross negligence which has amounted to a catastrophe for society, the economy and citizens, with the debt and the bondage of some €54 billion that has been imposed on everyone in the State. We have to change it.

I received an e-mail before I came into the Chamber from a former member of the old consultative group, who said the advisory committee that has been established has no real teeth and will not have any real input into the new Central Bank commission, its findings, determinations, etc., including how it will hand down rules to the banks.

If ever the people at the top needed to listen to what is happening on the street, it is now. I am sure many Deputies on the Government side as well as in Opposition have to listen to the anger and frustration among constituents as well as their total perplexity about how this is being allowed to continue, that is, the State bailing out people who have made a mess and allowing them to continue in office. It is one thing to protect the structure and the banking system, but it is a totally different matter to decide to protect those who made the mess in the first place.

This is at the heart of the Fine Gael amendment to this Bill, on foot of which we oppose giving the Bill a Second Reading, because — the European Central Bank has made this point — it reserves the system of appointment of directors to the new Central Bank exclusively to Government with no proper scrutiny by the Oireachtas or any external body. It is a case of jobs for the boys.

I have just drawn a little diagram with the signs of the Olympic symbol, five rings, all intertwined. It represents the upper strata of society in Ireland in business, banking, accounting, etc. NAMA is now appointing people from the estate agencies, auditors and accountancy firms who promoted the slogan, "Buy now — it is never a bad time to buy a house", and fuelled the price increases. These were the same firms which were in charge of looking after the accounts of some of the banks.

People have the perception that these golden circles are all intertwined and cannot be broken up. If we are going to do this seriously, we have to examine the situation and make root and branch changes to the system. The Central Bank Reform Bill 2010 should be the start of this, but, unfortunately, it is not. I hope that people in Government and in the Department of Finance will take on board the concerns that exist. Some of them are symbolic and in so far as symbolism is important, people have to see changes taking place. However, there is much more that is down to the nuts and bolts, for example, the power of the Central Bank commission where it has concerns. A three-year plan is fine, but an updated report on that plan at least twice a year to the relevant Oireachtas committee has to be part and parcel of its implementation programme to show how the figures are improving and how the banks are behaving and responding.

We have to be able to ensure that the banks that we now support and guarantee by way of sovereign debt report to and are responsible to the citizens of this country. Anything less by way of reform is only using the word as a cover-up. It would mean that people will lose even more faith. We have a long way to go to restore faith in the Government, the banks and the Financial Regulator. I implore the Minister of State to take on board the concerns that have been expressed here by Members of the Opposition who have no interest in seeing the economy going down the Swanee. It is not in anybody's interest. I have four children and I do not want to see them having to emigrate. I am no different from most Members in this House. I ask the Government to listen to what has been said.

Deputy Billy Timmins

One of the mysteries in the whole banking crisis and property difficulty is why we did not see it coming or know about it. Almost everybody surfed the wave, including many commentators who appear to have the solutions today. I do not ever recall reading in the Economist Intelligence Unit's reports where Ireland was heading. Perhaps someone will tell me I am incorrect, but I cannot recall seeing it.

One of the reasons we did not see what was happening was that we all spoke in terms of property. We spoke about the rising price of property — the property bubble. However, this was not a property bubble but a money bubble — the free and easy availability of money. History shows that when assets grow at an extraordinary rate, something is actually wrong. This is a weakness in our system, not necessarily the regulatory system but in our political system. Time and again during the ten years I have been here, I have spoken about the necessity for futurologists and people in Departments, no more than those in normal business, to project what is going to happen in the future. Maybe we should consider having a ministry for forecasting, in which this responsibility would be given to one Minister. Everybody is so busy in their day-to-day lives with crisis management.

The public, and even we in the Opposition, like to see things working. We like to see the country do well, and we would like to see the measures introduced by the Government working. However, time and time again we have sat here and listened to pronouncements, predictions and commitments which have fallen through sand. Often, these assertions are made in a confident manner but without confidence and without any significant basis. It is a major weakness in our system. Surely we could amalgamate various sections of our Departments to form one which would deal purely with anticipating the difficulties ahead on the macro scale, as opposed to the micro scale. It is a case of not seeing the wood for the trees. That is one of the main reasons we are in the current situation.

If we look back through history, we will see asset bubbles as far back as the South Sea bubble and the tulip mania in the Netherlands. These show us what can happen when assets are overvalued. The purpose of this Bill is to put in place a domestic regulatory framework for financial services, giving rise to stability, proper supervision and confidence and thus protecting the interests of consumers and the country. Our regulatory system clearly failed us, but we do not know why because we have not had a proper inquiry. We have had a few scoping inquiries but thus far we are not sure why it happened. There are mixed views on this. Perhaps our system did not fail us, but rather the culture, and individuals failed as a result of that culture. This new Bill will give us a Central Bank commission and the Oireachtas will receive an annual regulatory performance statement.

Almost a year ago, Fine Gael introduced a policy document on reform of the committee system. We can talk about sending things to committees, but the committees do not have the resources to deal with them. We have too many committees. Some Members of the Houses are on five or six committees and, as a result, they are unable to take their duties seriously. They are running from one committee to another and they are not prepared for meetings because they do not have time, and neither do the committee secretariats. We must halve the number of committees. We need to strengthen the Joint Committee on Finance and the Public Service and make sure the Committee of Public Accounts works effectively; we also need an enhanced Joint Committee on European Scrutiny. However, we must consider amalgamating committees so that each Member is on only one committee. Committees should also be staffed in a manner that ensures they meet their requirements. At the moment the system is dysfunctional, as everybody in the House knows, and there may also be a suspicion outside the House that this is the case. It is a disgrace that we are actually participating in a system we know is dysfunctional, and it is a reflection on us in the House.

The consumer information function will be transferred to the National Consumer Agency. Fine Gael moved an amendment on Second Stage of the Bill declining a Second Reading, as discussed by Deputy Doyle in his submission, because we do not have an investigation report and therefore we cannot know how the system needs to be changed. The Oireachtas Library and Research Service produced an excellent document dealing with regulatory failure in Ireland. I do not know whether it has been read into the record; I do not propose to read it today, but I may do so another time because it is an interesting document. We do not know why the system failed and whether it was the fault of the culture or of individuals.

Directors will still be appointed to the new Central Bank commission without Oireachtas scrutiny. They will be nominated at the behest of government. There are also shortcomings in respect of the powers the commission is given, including that of placing failed banks into managed administration.

Fine Gael has been asked several times over the past couple of years to don the so-called green jersey and to follow the Government blindly. On occasion we have supported the Government, but I must say, on reflection, that if we had known all the details before the introduction of the bank guarantee on that fateful day at the end of September 2008, we might not have been so willing to extend the guarantee to Anglo Irish Bank or Irish Nationwide. We were told at the time that the recapitalisation of Anglo Irish Bank would cost around €4 billion; now, it looks as though it will be at least €22 billion. Similarly, we were told the recapitalisation of Irish Nationwide would cost €1 billion; it has now become €2.7 billion.

When the Minister for Finance was questioned on the radio one morning, perhaps by Cathal Mac Coille on "Morning Ireland", about the estimated bad debt of Anglo Irish Bank, he responded to the effect that it was a dangerous line of questioning. Surely the Irish public are entitled to know the amount of bad debt carried by an institution it is about to bail out. If someone came along and asked me to act as guarantor for a bad debt, the first question I would ask is "What is the extent of the bad debt?". However, the Minister for Finance portrayed this line of questioning as being unpatriotic, implying that such pertinent and relevant questions were undermining the country's financial system.

The chief executive of AIB at the time used words to the effect that he would rather die than see recapitalisation of the bank. Everybody was wheeled out to tell us the fundamentals were strong and that stress testing had been carried out. We were told lie after lie, but we believed them because we wanted to. Most of us had a belief in the system. The people who believed in the system are now those who are most angry. A large section of Irish society never believed in the system and always felt we had a two or three-tier society. Others thought we had a good society, but they have been let down badly.

We were told the bank recapitalisation would allow credit to flow. However, I am not aware that this has occurred. People are in despair. Their lives have changed for the worse and they are wary. This gives rise to complete disillusionment with the whole system. They believe there is no accountability. It is now one and a half years since the financial crisis began but they do not see anybody paying for his or her sins. They do not even know what these sins are, because we have failed to date to establish this.

There was a protest outside Leinster House last night. I have no difficulty with peaceful protest, no matter how large or small, but I condemn the activities of a small number of protestors last night, and also some commentators who, in recent weeks, have almost incited such a protest by asking why Irish people have not protested more vigorously. One can make one's silent protest in the best place, which is the ballot box. Irish people will soon get their opportunity to protest because we live in a democracy. I call on those commentators to be responsible. Yes, we are all annoyed. Sometimes I would love to go over to the Government benches and tear them down, but that is not how it should be done. Change must be achieved through the ballot box.

Will we see a change of culture in the banking system? Deputy Doyle mentioned that most of the people who made mistakes are still in place. There is a misaligned interest. Those who work in the banking system do not work for the common good. They work for profit for their shareholders and bonuses for themselves. A major cultural change needs to take place within the banking system, which may require nationalisation; I do not know. Those who work in the system must realise that the banks work for the economy and the country, not for the shareholders. This misaligned interest is one of the fundamental reasons we have had these difficulties.

The public want to know what happened in the days leading up to the bank guarantee. Morgan Kelly wrote an interesting article in The Irish Times a few days afterwards. Was the official advice not to include Anglo Irish Bank and Irish Nationwide? Were telephone calls made directly to the Taoiseach and Minister for Finance which changed their view, thus lumping us with the €20 billion plus guarantee for those two institutions? What actually happened on that night? Will we ever know? Is there any paper trail? Will history tell us what happened? I do not like to enter the realm of speculation, but my view is that the advice was that Anglo Irish Bank should not have been included under the guarantee because it was not of systemic importance among our financial institutions.

The Acting Chairman is looking at me.

Acting Chairman (Deputy Jan O’Sullivan)

As it is 1.30 p.m., I ask the Deputy to finish.

Deputy Billy Timmins

Before I finish, I must mention one concern which I have raised with the Minister for Finance in the past. I refer to the existence of records of personal guarantees that were given to Anglo Irish Bank. I would like confirmation that there are soft and hard copies of these. Can the Minister of State confirm that some of these personal guarantees which existed in hard copy only have gone missing? I have heard anecdotal evidence that this is the case. It may or may not be true, but I would like confirmation from the Minister for Finance that all the personal guarantees given to Anglo Irish Bank are accounted for.

Acting Chairman (Deputy Jan O’Sullivan)

The Deputy still has eight minutes left, so he may continue when the debate resumes.

Debate adjourned.

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