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Dáil Éireann debate -
Wednesday, 30 Jun 2010

Vol. 714 No. 1

Central Bank Reform Bill 2010: Report Stage

I move amendment No. 1:

In page 9, line 6, to delete "FULLY INTEGRATED" and substitute "FULLY-INTEGRATED".

This is a technical amendment to correct a typographical error in the Long Title of the Bill.

Amendment agreed to.

Amendment No. 2 is out of order.

Amendment No. 2 not moved.

I move amendment No. 3:

In page 10, between lines 15 and 16, to insert the following:

"4.—Specified kinds of levies imposed under section 33J and payable by classes persons who are subject to regulation under the designated enactments and designated statutory instruments shall be fixed at a rate calculated to ensure, as near as may be, that the total amount of each specified kind of levy collected or recovered under that section meets but does not exceed the total amount of costs incurred in performing the functions and exercising the powers of the Bank in relation to the class of person paying that specified kind of levy.".

The purpose of this amendment is to provide for the construction of a levy on banks. I realise amendment No. 2 was ruled out of order. This amendment provides for the cost of regulation to be bourne by the banks and the regulated bodies. In an answer to me recently the Minister for Finance set out the cost of regulation which was bourne by the taxpayer in 2009 for bank regulation as being some €34.5 million. The view of the Labour Party is that the levy should be bourne by the banks. I do not have to tell the Members here what €34 million would do in terms of various services which have found themselves short of money.

One of the oddities of the last financial regulation Bill was that the cost of regulation of the financial sector was borne approximately 50% by the Exchequer and 50% by the various banks and financial institutions. Given that all sources of Government income are under pressure and that the banks have cost ordinary taxpayers an extraordinary amount of money it seems odd that from now on the banks would not meet the full cost of regulation.

As I understand it, in various other areas of regulation the people who are involved in the regulated activity bear the cost of regulation but for some reason when the Bill on financial regulation came before the Dáil a decision was made by the then Minister, Charlie McCreevy, that the cost would be bourne 50% by the Exchequer and 50% by the banks. This amendment would seek to provide that the levy and the cost of regulation from now on would be bourne in full by the regulated entities, that is, the banks and financial services providers.

I support this amendment. It is very reasonable. We tabled amendments Nos. 44 and 51 which will probably not be reached because of the guillotine, which are complimentary to and very much in keeping with the amendment tabled by Deputy Burton. Amendment No. 44 states, at subsection (2): "In publishing its proposed levies, it shall publish an impact assessment of the proposed levies including relevant comparisons of cost effectiveness of its operations with comparator countries". I understand Deputy Burton's amendment considers a situation whereby the industry would pay for regulation but it would be paid in such a way that, in effect, it would be break even. There is no further cost to the taxpayer. That is my interpretation. It is a very fair situation. The levies which are imposed on the industry are in excess of the cost to the industry, which ends up being charged to the end customer. I commend Deputy Burton's amendment as a reasonable proposal. I do not wish to tell the Ceann Comhairle his business but I am surprised amendments Nos. 44 and 51 from the Fine Gael Party were not grouped with amendment No. 3 because they also deal with the impact of the levies.

We must ensure that the cost of the regulatory system is met by our financial industry. Regulations have not been enforced at industry level and the taxpayer is pouring €22 billion down the drain of Anglo Irish Bank, as well as putting various sums in the other banks, and we still have not reached the end game. For these reasons, we will be supporting the amendment.

Sinn Féin supports amendment No. 3 because the cost of regulation should be borne by the regulated bodies. We hardly need to point out the colossal costs which taxpayers must bear because of past regulatory failures. We do not want to see a repeat of that situation in the future.

One way of dealing with the past failure of our regulatory regime is to recognise that previous assessments tended to focus primarily on the costs rather than the benefits of regulation. We want to highlight the benefits inasmuch as they restrict unscrupulous risk taking behaviour on the part of financial institutions, of which there has been considerable evidence over the past several years. The cost of good regulation should be borne by the bodies to be regulated and the interests of ordinary people should not be put at risk. We have suffered enough and it is critically important that the cost of regulation in the future is based on an assessment of the benefits to society and the economy, not just the financial institutions concerned. Holistic assessments will be needed if we are to get a clear picture and the correct answer. Amendment No. 3 makes eminent sense and I commend it to the House.

It is obvious that the cost of regulations should be borne by the authority which imposes them. If this Bill is passed without amendment, credit unions will be subject to extreme powers in terms of regulating lending practices, the reporting of loans, provisional reserves of capital against loans and specified percentages of liquid assets. It would not be right to pass this Bill without the necessary amendments.

Credit unions have done an outstanding service to their communities and to small time savers and borrowers. People who have an aversion to using banks have always used credit unions. All the people in working class areas use the facilities offered by credit unions. We must be careful, therefore, that we do not damage the ethos of credit unions or burden them with additional costs. I am fully supportive of this and other amendments which tighten the Bill and swing the balance away from the banks and the Central Bank and in favour of credit unions.

Deputy Burton's amendment seeks to ensure that the financial services industry meets 100% of the costs associated with regulation. Other Deputies have made related points which do not, however, appear to be apprehended by amendment No. 3.

At present, the costs associated with regulation are shared on a 50-50 basis between the industry and the Central Bank and the Financial Services Authority of Ireland, except in the case of covered institutions which pay the full cost of the regulatory regime applying to them. Specific arrangements apply to credit unions in respect of levies.

The Government has signalled its intention to move to a model in which the industry meets the entirety of the costs associated with regulation. The Minister for Finance had a long discussion on this matter with the Deputies opposite on Committee Stage and he has asked his officials to undertake a process of consultation with the Central Bank and the industry with a view to moving towards full recovery of costs.

The existing provisions of section 33J of the Central Bank Act provide the bank with the power to impose levies and make regulations which, inter alia, determine the amount of such levies. The Minister has a statutory role in approving these regulations. It is unnecessary, therefore, to explicitly provide in legislation that the financial services industry shall meet the full cost of the regulatory regime to which it is subject. Arrangements are being made to achieve the Government’s objective of a 100% funding model. In these circumstances, I cannot accept the amendment

I thank the Minister for his reply but, to paraphrase St. Augustine, Lord make me pay the levies but not just yet. In 2009, the cost of regulating financial institutions was approximately €69 million. Under the current regulations, this cost is split between the taxpayer and the institutions. The cost of regulation in 2009 was only a fraction of the cost that the State incurred in the financial crisis but while the Minister might argue that mechanisms were put in place to extract payments in return for the guarantee and other facilities, figures released on foot of a freedom of information request by The Irish Times and parliamentary questions I submitted some time ago revealed that the Department of Finance alone has spent €17 million for advice on the banking and financial crisis. Since July 2008, we have also seen an extraordinary number of investigations and stress tests of the banks in the run-up to the guarantee and thereafter. As we know, the most extraordinary case of costs incurred by the taxpayer is the €22 billion which has gone into Anglo Irish Bank so far. At a committee meeting about ten days ago, the chairperson, chief executive and finance officer of the bank as much as told members that while perhaps €2.5 billion of the €22 billion may be utilised in a new, good bank, we can kiss the rest of it goodbye. We are all used to taking it on the chin but €22 billion on the chin is a quite a blow.

The revised Central Bank Reform Bill is meant to sort out matters. Given what we know about the financial and banking crash, one of the principles we adopt should be that the financial institutions, that is, the regulated entities, should bear the cost of their regulation. This cost should not be excessive and should be based on value for money. The regulator should not incur or be encouraged to incur extravagant costs but the banks should bear the cost.

Bearing in mind the way in which the Minister approached the various legislative proposals on banking, it is unlikely that any bank will pay tax for a long period. Not only will they have the State financing their hoped for return to profit, but they will not have to pay any tax on such profits because such are the colossal losses they have incurred that a tax liability will not arise. The Minister has made a small gesture in that banks may pay a minimal tax contribution to cover their blushes, as it were.

Why should banks not pay the cost of regulation? The Minister will argue that in the context of the banks, the €34 million cost taxpayers will directly bear for regulation is neither here nor there. In my constituency, respite services for children with intellectual disabilities are being withdrawn. The families affected by this measure protested outside the Oireachtas yesterday. The amount of money involved, €4.4 million, is not terribly large. A sum of €1 million, €2 million or €3 million would make a significant difference to the many schools which await permanent buildings.

Why is the Fianna Fáil Party unerringly pro-banker? Why do the banks not pay for the cost of regulation? In the scheme of things, €34 million does not even amount to a hiccup for the banks. While it is barely a dot on the horizon for them, it is a meaningful amount for ordinary taxpayers. Such a sum may not have had much significance in the Celtic tiger era but as we learn to adjust to our new economic realities €34.5 million acquires a great deal of budgetary significance. I ask the Minister of State to think again in this matter because I am not sure a budgetary saving of €34.5 million would be sniffed at in his constituency of County Clare. If he realised that this sum could be easily available and were to agree to do so, we could share it between County Clare and Dublin West.

I strongly recommend the Labour Party amendment. There is value in sending out a signal to the financial institutions that it is not business as usual. Citizens and taxpayers have been burdened with intergenerational debt to remove the burden from the shoulders of the financial institutions, specifically the covered institutions. Setting this matter right by telling the banks they must pay the full cost of regulation from now on would be make a good start in sending out the necessary signal.

Perhaps counties Limerick, Galway, Cork, Wicklow and Monaghan could share in the €34 million pie.

A Fine Gael Party amendment proposes that an impact assessment be carried out on the proposed levies, including relevant comparisons of cost effectiveness in its operations with comparator countries. The banks need to be made fully aware that the game has changed. We must not allow all costs to be passed on to end consumers and the cost of regulation should be borne by banks.

Deputy McCormack referred to the regulatory burden on credit unions. It is highly unlikely the House will discuss the issue of credit unions or the Minister's amendment No. 53, although it may be debated in greater detail in the Seanad. The Fine Gael Party has tabled an amendment which provides that the measures provided for under amendment No. 53 would not come into effect until the order for commencement has been approved by both Houses of the Oireachtas. In addition, it provides that the Minister, at the same time as making such an order, would publish a report on the impact of this part on credit unions in Ireland generally.

Deputy Burton's amendment is a fair one. A proper impact assessment of levies should be done to determine the end charge to the customers of the various institutions. The impact on the credit union movement of changes in section 35 should also be assessed. Credit unions do fantastic work in every parish, village and town. In my constituency of Limerick city they provide invaluable help to people on the ground.

The banking and credit union sectors must become robust, fair, transparent and accountable. People must have confidence in these institutions. We cannot allow a buccaneering attitude to prevail in the banking sector. Regulation in the past amounted to little more than the Financial Regulator telephoning a bank to ask if everything was in order. Unfortunately, various things happened in terms of the regulator, inter-director loan transactions——

Second contributions on Report Stage are limited to two minutes.

I thank the Ceann Comhairle for his indulgence. This is a reasonable amendment and I hope the Minister will see fit to accept it and two complementary Fine Gael Party proposals in amendments Nos. 44 and 51.

The Minister before us is not a Minister of State but the Minister for Defence who is here to defend the indefensible. I hold the Minister in great esteem. However, on the one hand he states the Minister for Finance intends to set in train a process which will lead to 100% cost being applied to the regulated bodies — hopefully they will be regulated — while on the other he refuses to accept the amendment. Let us enshrine the amendment in the Central Bank Reform Bill and let us have absolute clarity of intent on what the Minister indicated in his opening remarks in reply to our first contributions. It is incredible to the public that after everything that has been exposed about the banks' conduct and disposition towards their customer base that we are seeing a continuation of the worst excesses of fees, punitive interest rates and an absolutely intolerable regime now applying where branch banking is no longer what it used to be. We now have the advent — like a pub with no beer — of a bank with no cash transactions. Customers can no longer contact by telephone their local bank and must go through a call centre — one of the 1-800 numbers that land them God knows where. They will endeavour to deal with people in a cold and disjointed way, which is different from the traditional relationship between bank branch staff and their customer base. The whole thing is going to the dogs and the defence for the unreasonable and at times irrational decisions that are taken regarding customers is blamed on the computerisation of the business of transactions, clearing houses and all the rest of it.

After all the public have committed to rescuing these institutions from themselves, it is about time they were taken by the throat and shaken. The people are absolutely infuriated. One of the smallest and most reasonable steps that can be taken is that they bear the full cost of regulation into the future as the amendment requires. Much more needs to be done and a wake-up call would need to be applied to the Minister and the Department over what is happening on the main street and high street regarding the attitude of banks to ordinary customers, people who through tax contributions are bailing out these institutions daily and will be doing so perhaps for the rest of their lives. The Minister should stop the rot now and adopt this amendment and show clear intent regarding the purpose outlined.

Does the Minister accept that if the Bill were passed in its present form without accepting the amendment now proposed and the other amendments we will deal with later, it would seriously restrict the credit unions in their ability to provide financial services to their members? I know representatives of the Irish League of Credit Unions sought — and may have had — a meeting with the Minister for Finance to discuss their concerns about the Bill. Did that meeting take place? If it did it might have ironed out much of what we are discussing tonight.

Does the Minister accept that the Registrar of Credit Unions is attempting to control credit unions in an unreasonable way that ultimately would mean credit unions would be unable to assist their members as they have done in the past? As Deputy Ó Caoláin said, banks are not lending money in any case and a bank with no cash is like a pub with no beer. One simply cannot get blood out of a turnip. The credit unions still have a vital role to play in our economy. Lending to small businesses setting up would create employment in the regions served by the credit unions, which is now every region in the country.

It is important to note the purpose of the Central Bank Reform Bill, which is part of a suite of three Bills, the second of which will be before the House in the autumn term with a further one later. This is step one. On Deputy Burton's amendment, it is important to note that the covered institutions already pay 100% in any event. Deputy McCormack made an important point on credit unions, which may not be germane to this amendment. In fairness to Deputy Burton, she has tabled a later amendment, which raises that issue very specifically and we will deal with it when we reach that amendment. However, in answer to Deputy McCormack's question, the Minister to my knowledge has met representatives of the credit unions at least twice at this stage and has had discussions with them on various aspects. I have had discussions with them, as I am sure others have had. Some Members present had the discussion on Committee Stage over a very long period.

Section 33J provides the Central Bank with powers to impose levies in much the same way as is provided for in Deputy Burton's amendment, except that were her amendment to be enshrined in legislation at this stage, it would remove all of the flexibilities which might be represented as having a negative impact in the way some Deputies, apparently sincerely, fear they would, but would also have the downside of removing the advantage of some of those flexibilities and the regulator's activities undertaken by the bank regarding the EU and so forth, which obviously need to be accounted for and done. That is something that needs to be borne in mind. There could be difficulties in the event that the Central Bank was dependent on streams of income that did not come into play and were provided for specifically in legislation and flexibilities were not available in that regard. Other sources of funding that might currently or in the future be available would appear to be precluded in the event that this amendment were accepted. There are many considerations.

In the context of what the Minister for Finance is undertaking in this suite of legislation, his intention is to move towards a situation where all the institutions, including all the covered institutions and the others, get to the position of 100% payment, which is desirable for many reasons, including perhaps to send the correct signal which was rightly pointed out by a number of Deputies. Dealing with the current reality, and bearing in mind that this is part of a suite of legislation, it is not desirable or advantageous for anybody at this point to accept this amendment.

The Minister made reference on behalf of the Minister for Finance that the covered institutions are paying a levy. It is important for the record to say that that levy is but a fraction of the increased cost of borrowing by Irish taxpayers and the bond spreads we have endured as a country following the blanket guarantee that the Fianna Fáil-led Government introduced. It is inappropriate to suggest that somehow we are in the debt of the banks because they have paid a nominal amount towards the facilities and the guarantee they have received from the taxpayers and then to entirely ignore from the arithmetic the enormous additional interest cost.

Paul Krugman pointed out recently that we have taken austerity on the chin until the pips squeak. How have the international bond markets responded? They are marking us up with some of the dearest bond spreads, much dearer, for instance, than Spain or many other countries. Yesterday with troubles in the market again, our bond spreads have increased to enormous levels. The Minister suggested that somehow the banks are doing us a favour and that Anglo Irish Bank, with its €22 billion, €20 billion of which is down the drain and we may still need to pump €5 billion to €7 billion over and above that amount into the bank, is somehow or other paying its way. Like fantasy football that is fantasy economics.

There was no such suggestion in any of the points I made. It is an entirely different issue. I have come here to debate the legislation point by point with regard to amendments I understand people have put down in good faith and the interpretation put forward by Deputy Burton is entirely at variance with the point I made.

Amendment put and declared lost.

Amendment No. 4 is related to amendment No. 11 and both amendments may be discussed together by agreement.

I move amendment No. 4:

In page 10, between lines 15 and 16, to insert the following:

"4.—On the cessation date, the Freedom of Information Act 1997 is amended by inserting—

(a) in paragraph 1(2) of the First Schedule, “the Central Bank of Ireland,”, and

(b) in Part I of the Third Schedule at the end thereof—

(i) in column (2), "Central Bank Acts 1942 to 2010", and

(ii) in column (3), "any provision" opposite the mention in column (2) of the Consumer Protection Act 2007.".

I approached this amendment with some degree of hope that the Minister would take a fresh view on it. The purpose of it is to ensure that the Freedom of Information Act will apply to the new legislation. There is no doubt that in Irish society, bodies such as the Central Bank and NAMA and people like bankers, developers and friends of Fianna Fáil — however they are cast — wish to operate behind closed doors and veil of secrecy.

The Labour Party is arguing that such people should think again, as this country has progressed most when we have cast aside censorship, provided for freedom of information and allowed people to know the true state of affairs. The purpose of this amendment is to ensure that freedom of information processes are applied to the operations of the new institution.

I have discussed with the Minister how there are areas of commercial sensitivity but equally there are broad areas of policy and practice within the new Central Bank Reform Bill that will reform the Central Bank and bring together the old Central Bank and the regulator. These areas are legitimate subjects of freedom of information requests. Ireland has progressed best since we opened up the country to freedom of information processes.

Such processes are painful for many people, including politicians, but that does not mean we should not pursue the issue. In countries and democracies where there is freedom of information generally — particularly in Scandinavian and Nordic countries — societies have done better. Fianna Fáil should give some thought to providing for appropriate freedom of information processes applying to the reformed institution that will emanate from this Bill when enacted into law.

I will speak to the Fine Gael amendment No. 11. We believe the Central Bank commission should come under the freedom of information structure. The point is transparency and having a system where people can gain access to information in a way that will make them confident in how the system operates. I feel strongly about this and if an organisation is run properly by dealing with probity and fiduciary duties, there would be no worries about freedom of information. Every Irish citizen and taxpayer who makes a contribution, including those paying income tax and social welfare recipients who pay VAT, is entitled to know what is happening in all institutions and what is happening in the Central Bank commission.

On a related point it is unlikely we will reach the amendment being put through by the Government on the Central Bank, amendment No. 53. The Minister made reference to various discussions taking place between the Minister for Finance, Deputy Brian Lenihan, and the collective credit union movement on this section in the draft legislation. It relates to Part 7 of the Amendments of Credit Union Act 1997, sections 35(2) and section 35A. Representatives of the credit union movement reached an understanding with the Minister that their views would be taken on board and an amendment would be forthcoming, particularly relating to section 35, that would effectively bring in the powers of the regulator. It would be considered in that fashion.

Did a meeting take place with representatives of the various bodies in the credit union movement before this amendment No. 53 was tabled for Report Stage? The Minister should provide clarification on that as we have a credit union movement that has concerns about the level of regulation that will be provided and the general legislative powers to be provided to the regulator. Did discussions take place with the credit union bodies on amendment No. 53 prior to it being put forward today?

I am mindful of the time so I wish to record my support of amendments Nos. 4 and 11. They have a common intent and purpose, and I understand from Deputy Burton's contribution that when we talk about the Central Bank of Ireland today, it is understood that the Office of the Financial Regulator is part and parcel of that entity.

Therefore the proposition if accepted by the Minister and if the Bill is amended, will apply directly to the office of Mr. Elderfield, which is appropriate. There is nothing to be protected in the work and decision making of the Central Bank of Ireland and its respective elements. The application of freedom of information aids best practice, best decision making and an awareness of the potential of careful scrutiny, which aids and abets the already stated objective. It is in the wider public interest not just on the basis of having a means or mechanism to catch people out but rather to have a much better understanding of the decision making process and why certain decisions are taken. I strongly urge acceptance of the amendments as presented by the Deputies from the Labour and Fine Gael parties.

We will deal with amendments Nos. 4 and 11 initially and then move on to amendments Nos. 53 to 55, inclusive.

We will just deal with amendments Nos. 4 and 11.

As Members are aware, this issue was discussed on Committee Stage and, as requested, the Minister for Finance speaking note on the issue was sent to the clerk of the committee for circulation to Members. As the Minister for Finance stated on Committee Stage, there are good reasons behind the exclusion of the Central Bank from the Freedom of Information Acts given the sensitivity of the information it holds, its independent role under European statutes and the very restrictive information constraints that go with this. There is also the risk of an inadvertent disclosure of sensitive information.

However, as the Minister also indicated on Committee Stage, he is prepared to consider whether the level of information made available by the Central Bank could be improved within the legal and other constraints that apply. The Minister for Finance will reflect further on this issue with a view to examining it again as part of a second Bill on financial regulatory reform to be published in the autumn. In those circumstances I do not propose to accept amendments Nos. 4 and 11 at this point.

Having regard to the hour, I wonder if we could dispose of the amendment.

Amendment put and declared lost.
Debate adjourned.