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Dáil Éireann debate -
Wednesday, 15 Dec 2010

Vol. 725 No. 2

Credit Institutions (Stabilisation) Bill 2010: Second Stage

I move: "That the Bill be now read a Second Time."

The Joint EU-IMF programme commits the Government to a comprehensive restructuring of our banking sector. The Credit Institutions (Stabilisation) Bill 2010 gives the Minister for Finance the necessary powers to effect that restructuring as quickly as possible. The fundamental rationale for this legislation is well expressed by the detailed set of recitals contained in the Bill before the House. In essence, these highlight the persisting adverse impact of the banking crisis on our economy and the need in the public interest for strong measures to resolve the continued serious threat to the stability of the financial system generally.

The Preamble to the Bill stresses the necessity for the functions and powers provided under the Bill to reorganise the guaranteed domestic credit institutions in the context of the National Recovery Plan 2011-2014 and the European Union-International Monetary Fund programme of financial support for Ireland, consistent with EU state aid requirements. The Preamble also reiterates the basic justification for the very substantial financial support that has been provided by the State to the banking system, namely, to make certain that these institutions continue to meet their financial and regulatory obligations to maintain public confidence in our banking system and, in particular, in the security of deposits. Extraordinary and exceptional challenges still face our banking system and the economy and there is a strong public interest in the introduction of the extensive ministerial powers included in this Bill, the details of which I will outline to the House shortly.

This Bill represents an intensification of the measures already adopted by the Government such as NAMA and bank recapitalisation to ensure that there is a viable and long-term banking system in the State to meet the needs of the real economy and underpin our economic recovery. The purpose of the bank restructuring measures set out in the joint programme is to ensure that the sector is proportionate to the size and credit needs of the economy. The objective is to capitalise the banks to the highest international standards, thereby rebuilding investor confidence in the Irish banking system in due course and restoring their access to normal market funding. This will, over time, facilitate a very significant reduction in the domestic Irish banking system's reliance on funding from the euro system and the Central Bank of Ireland and put the Irish banking system on a more sustainable funding platform.

Has my speech been circulated?

Yes. We have heard it all a couple of times during the past number of years.

We will not go there now as we will have plenty of time later to do so.

As the House will be aware, the primary elements of the programme include a substantial and immediate recapitalisation of the banks, further recapitalisations, as necessary, based on the outcome of stringent stress testing and rigorous validation of asset valuations and a substantial downsizing of the banking system through the identification of non-core bank assets and their run down or disposal over time. This reshaping of the banking system will be carefully guided by the determination of sustainable long-term funding metrics for the banks which can be met through stable funding sources including deposits and long-term debt. The size of the balance sheets of banks can be reduced to make the institutions more sustainable by asset securitisation or portfolio or division sales, with scope for credit enhancement provided by the State if necessary.

The powers provided in the Bill allow the Minister to implement key aspects of the agreed support programme for bank restructuring as follows: direction orders may be issued to relevant institutions to take or refrain from taking any action in support of the Government's banking strategy; transfer orders may be issued relating to relevant institutions' assets and liabilities to facilitate the restructuring of the banking sector; and consistent with the terms of the support programme, the making of subordinated liabilities orders under particular conditions to achieve appropriate burden sharing by subordinated creditors in relevant institutions which have received State support.

It is clear that the powers being provided under the Bill to the Minister for Finance are extensive and interventionist. They are, however, targeted and proportionate to the scale of the challenge we face. Importantly, they are subject to consultation with the Governor of the Central Bank and within a clear framework for appropriate judicial oversight. I should advise the House that a particular policy priority under the Bill is to ensure that the reorganisation and restructuring measures are recognised in other EU member states through the mechanisms available in the European Communities (Reorganisation and Winding-up of Credit Institutions) Regulations 2004, which implement the relevant directive in Ireland. This is particularly important given that many agreements entered into by Irish credit institutions are governed by the laws of other EU member states. I should also make clear that all the powers provided under the Bill must be executed in a manner fully consistent with EU state aid requirements.

I will now address the key provisions of the Bill. Section 2 sets out the definition of a number of terms used in the Bill. A key definition in this section is that of a relevant institution. Section 3 provides the Minister with the power to prescribe any body corporate with a registered office in the State as a "relevant institution" for the purposes of the Bill. Section 4 sets out the purposes of the Bill, which I have already outlined for the House. Section 5 safeguards the independence of the Governor and the Central Bank and section 6 provides the Minister with the discretion to agree a relationship framework to govern his or her relationship with the Governor in relation to the exercise of powers.

Part 2 of the Bill addresses the making of direction orders under the Bill. While important powers of direction are available to the Minister under the ELG scheme, it is considered important to strengthen under this Bill the legal basis for that power of direction. Section 7 sets out the circumstances under which the Minister can make a proposed direction order. Sections 8 to 11 set out the procedures for the court to make a direction order on the terms of any proposed order, provided that the Minister can apply to the court to vary the direction order and that a relevant institution or its members can apply to the High Court to have such an order set aside. Section 11, in particular, provides that the High Court may set aside, amend or vary the order if it thinks it appropriate. A similar process is provided for the making of special management orders in Part 3, subordinated liabilities orders in Part 4 and transfer orders in Part 5 of the Bill.

Part 3 is an important part of the Bill as it gives the Minister for Finance the power to appoint a special manager with knowledge, expertise and experience of the financial sector to take over the management of a relevant institution where this is necessary for the preservation or restoration of the financial position of that institution. The provision of the power is an important legal innovation as it provides a mechanism that can be used as an alternative to nationalisation. Moreover, in the context of this Bill, the special manager is required to operate the institution in a manner consistent with the objectives of the Bill, helping to ensure that the public interest in the maintenance of financial stability strongly underpins the conduct of the special management.

Section 20 specifies the functions and certain powers of special managers. The special manager will take over the management of the business of the relevant institution and carry on that business as a going concern with a view to preserving and restoring the financial position of the relevant institution. Section 22 is a significant power providing that while a relevant institution is under special management, the Minister's prior consent is required for a number of resolution and restructuring actions concerning the institution, which ensures that no precipitous action can be taken while the special manager is in place which could jeopardise financial stability. Furthermore, once a special manager is appointed, the functions of the directors and, with the Minister's consent, the powers of the relevant institution exercisable by general meeting may only be exercisable by the special manager. Sections 23 and 24 provide that the special manager may, with the consent of the Minister, remove directors, officers or employees from their position and that the special manager will determine the role and remuneration of directors during the special management.

Part 4 gives the Minister for Finance powers to take certain actions in respect of the subordinated liabilities of relevant institutions to which he or she has provided or intends to provide financial support under the Credit Institutions (Financial Support) Act 2008. The purpose of this Part of the Bill is to achieve appropriate burden sharing with holders of subordinated debt in the relevant institutions under the particular circumstances set out in the Bill.

Part 5 confers the power to make a proposed transfer order, which would transfer all or any of the assets and liabilities of a relevant institution where I believe it is necessary for achieving the purposes of the Bill and for the preservation or restoration of the financial position of the relevant institution. Any transfers would, of course, take place in accordance with EU state aid rules following the completion of a market process.

Section 38 provides for the provision by the Minister for Finance of financial incentives to a transferee. However, the Bill is clear that any such financial assistance provided is a debt due and owing to the State by the transferor. Section 41 makes specific provision for the transfer of foreign assets under a transfer order.

Part 6 addresses potential existing administrative and legal requirements whose effect might otherwise impact adversely on the achievement of the aims of the Bill. I especially draw the House's attention to a key section — section 48 — which provides that the overriding duty of directors of relevant institutions will now be to me, as Minister for Finance, on behalf of the State, to have regard to certain purposes of the Bill. Prior to the enactment of the Bill, the primary duty of directors has been to the company.

Part 7 contains a number of miscellaneous provisions necessary to ensure that the powers provided under the legislation are effective. Section 51 provides that nothing in any enactment or rule of law can prevent me from imposing any terms and conditions relating to the provision of financial support which the Minister considers desirable in the public interest. As a result, I can impose terms and conditions that relate to the non-payment of bonuses and the institution concerned must comply with this. The powers set out in this legislation refer to any financial institution which receives State support. Where the taxpayer is providing extensive support for an institution, there would be grounds for the Minister for Finance to impose conditions on that support in regard to bonuses.

Section 52 is an important section the purpose of which is to ensure that orders made under this Bill are consistent with the EU credit institutions winding up directive, as I have previously outlined. Sections 55 and 56 empower the Minister to exclude a particular institution as a relevant institution under some or all of the provisions of the Bill for a specified period or to declare that I will not exercise all or any of the powers conferred under the Bill in respect of a specified institution for a specified period. This could arise where it is believed that this is necessary to facilitate the availability of private investment in the institution that would reduce the amount of public financial support that would otherwise be required.

Section 59 provides that the fact that I have made or propose to make a proposed order under this Bill must be kept confidential. Sections 63 and 64 provide for the limitation of judicial review and of certain rights of appeal to the Supreme Court. Section 67 is required in order to comply with the loan agreements with both the European Financial Stabilisation Mechanism, EFSM, and the European Financial Stability Facility, EFSF, under the EU-IMF support programme. Section 69 provides that the provisions of the Bill, with the exception of sections 67 and 51, cease to have effect from 31 December 2012 or later, if decided by a resolution of both Houses.

The Bill also provides for the amendment of a number of other enactments. The purpose of the amendments to the Building Societies Act 1989 under section 71 is to facilitate the conversion of building societies into private limited companies.

Section 72 amends the Central Bank Act 1942 to ensure the Central Bank is legally able to share confidential information to facilitate the Central Bank, the Minister, the Governor, the head of financial regulation or a special manager appointed under the Bill in the performance of their functions under the Bill.

The amendment of the Central Bank Act 1971 under section 73 is proposed to facilitate a more expeditious transfer of a banking licence holder's business including assets and liabilities not directly associated with its banking business. The purpose of the changes to the Credit Institutions (Financial Support) Act 2008 under section 74 are to ensure I can provide financial support other than by means of direct guarantees and assistance and, in particular, can provide financial support through the normal capital markets structures.

The purpose of the amendments to the National Asset Management Agency Act of 2009 under section 75 is to limit the right of appeal to the points which the High Court certifies for appeal to the Supreme Court. The provision also requires that any appeal be determined by the Supreme Court acting as expeditiously as possible, consistent with the administration of justice.

Section 76 provides for a number of amendments to the National Pensions Reserve Fund Act 2000 to allow the Minister for Finance to suspend or reduce the annual contribution to the fund for the duration of the EU-IMF programme; to direct the NPRF to invest in Government bonds; and to direct the NPRF to make payments to the Exchequer for capital expenditure purposes for the duration of the programme. The purpose of these amendments is to facilitate the State's own contribution to the programme over the next three years.

The pace at which this legislation has been prepared and the urgency with which it must be enacted by the Oireachtas reflect three separate but related objectives. The first is the real and tangible value of demonstrating to the external parties to the programme, the wider international community and the international markets the strength of the Irish authorities' commitment to the delivery of key elements of the agreement consistent with the ambitious timeframe for implementation. The second is the clear benefit of having the necessary powers available to the Minister for Finance at the earliest possible stage for initiating the profound restructuring of the banking system envisaged under the programme. The reputation of our domestic banking system and its ability to meet its funding needs from market sources will be only be rebuilt by undertaking the concrete measures to bring about a substantial reconfiguration of our banking system. The third is the imperative of empowering the Minister for Finance with the statutory authority to ensure all our institutions are in conformity with regulatory capital requirements set by the Central Bank of Ireland at the end of this year. It is also essential that the Minister is in a position to progress the joint restructuring of Anglo Irish Bank and Irish Nationwide Building Society is progressed expeditiously, while safeguarding the Exchequer.

No Deputy should doubt the importance of ensuring that the Minister for Finance is appropriately equipped with the range of legal powers necessary to continue to maintain financial stability in the State. That is the sole purpose of the legislation before us. I commend the Bill to the House.

I wish to share time with Deputies Mitchell, Perry and Varadkar.

The legislation is a long time in gestation if we understand the Minister correctly. Fine Gael has been calling for resolution legislation for a long time and, eventually, it has arrived. It is not appropriately named, as it is not the kind of resolution Bill I was expecting. This Bill empowers the Minister to do whatever he likes with the banking sector and I do not see many resolution measures in it.

It is a pity that he did not organise business in order that we could have debated it properly. There are 76 sections and every Member knows we cannot deal with this appropriately between now and 10 p.m. with a break of an hour and a half for Private Members' business. It is a ridiculous position to put us in and, despite putting several hours into them last night, I am not sure what all the sections mean yet. I would like to question the Minister and to tease the legislation out with proper Committee Stage and Report Stage debates. I renew the offer made by Deputy Kenny on the Order of Business. We are prepared to come back to the House next Tuesday if the Minister defers Committee and Report Stages to next week and we will go through the Bill and, at least, give it some justification.

There is nothing more serious in the eyes of the public at the minute than how we will deal with the banks and the banking crisis. The electorate is intelligent and when people see us ramming through stuff here that nobody fully understands, they wonder what we are at in this House. It is unnecessary. I acknowledge it is always difficult to draft complex legislation and have it out on time and I also acknowledge the Minister experienced a further delay when he had to stitch on provisions relating to bank bonuses to a section of the Bill. I presume that held him up for 48 hours but we should give the Bill a proper debate.

The explanatory memorandum is helpful in understanding the legislation. It is cast as emergency legislation and almost everything the Minister has introduced recently has been cast as an emergency measure. If there were not such recitals of public interest, much of what he has brought before the House would not pass constitutional muster and even though he did not recite public interest considerations in this regard, similar language is used. The Minister said this is an emergency, it is necessary in the current circumstances and it has to be done. There is a salute to the Constitution on the way through.

The section relating to the purposes of the Bill contains a number of interesting measures. One is very curious and the Minister might comment on it. One of the purposes is "to continue the process of reorganisation, preservation and restoration of Anglo Irish Bank". I thought one of the purposes of this legislation was to get rid of it but the idea that the purpose is "the preservation and restoration of Anglo Irish Bank" is a new one on me. The Minister might explain that concept. Is he trying to sneak up on them? Is he using the Tonto approach whereby he wants to lull them into a false sense of security before he buries them?

It is to ensure consistency with EU legislation. It does produce certain ironic consequences.

Like the Taoiseach, the EU must be speaking in riddles as well.

Another purpose is to facilitate the availability of credit in the State. That is a worthy purpose because there is a serious lack of credit at present, and I wish the Minister would do something to provide it. However, I searched the Bill and could not find any measure to put this objective into effect. There is no credit flow. As some classical scholar said in an analysis piece, of which I reminded the Minister previously, currency derives from the word currere, to flow. It means the flow of funds through the system, without which the economy dies. There is no flow of funds through the system at present. While the objective is worthy, it is not put into practice under the provisions of the Bill.

The Minister said the same about the National Asset Management Agency.

I am concerned about the role of the Governor of the Central Bank under this legislation. I would have expected resolution legislation to have conferred the special powers on the Governor of the Central Bank, rather than on the Minister. In this Bill the special powers are conferred on the Minister on all occasions. There is a section which states that the independence of the Governor of the Central Bank is not affected, but the powers taken by the Minister and the lack of additional powers being given to the Governor of the Central Bank are quite noticeable.

There is a curious section which provides that the relationship between the Governor of the Central Bank and the Minister will be specified in writing. I understood that under the Central Bank acts the Governor of the Central Bank was independent in the exercise of his functions. How can that be squared with the provision in this Bill which states that the relationship in respect of the provisions of the Bill will be specified in writing by the Minister? It appears to suggest that the Minister will, from time to time, give written instructions to the Governor of the Central Bank and he will have no recourse but to obey them. That is a peculiar restatement of the relationship with the Governor of the Central Bank, given that one of the pillars of our fiscal and monetary system was the independence of the Central Bank.

There is a provision under which direction orders may be issued by the Minister from time to time. However, the Minister appears to be doubtful about the legality of what he is doing because in all the instances where he is taking powers, he is providing for recourse to the High Court to underpin his actions under the legislation. The High Court has little power to overturn what the Minister is doing but it is as if the Minister is nervous on constitutional grounds and each time he provides for a power which will be exercised at his discretion, there is a parallel provision providing for the Minister to go to the High Court to get it authorised. It appears to be an attempt to put the Minister's actions beyond constitutional challenge and I am not sure that is an appropriate way to legislate in this case.

The Minister is careful to pitch everything so it is in accordance with EU Directive 2001/24 of the European Parliament and Council of April 2001, the credit institutions winding up directive, CIWUD. I understand why he does that and it is appropriate to do so. Obviously, his actions must have the force of law across the Union and must be consistent with this directive. However, is it also in accordance with the law in the United States and the United Kingdom, in particular, and in other jurisdictions? There is a provision dealing with subordinated debt. In circumstances where part of the assets of Irish credit institutions are subject to US and UK law, Chapter 15 provisions should apply in the United States and the provisions in English law similar to examinership would apply in the UK. There is a possibility that the Minister will take power to move against the providers of subordinated debt and find that they will move against assets of the banks in the UK or the US unless the Minister has proofed it sufficiently that his actions are recognised under the provisions of Chapter 15 and UK law. However, the Minister has hitched his wagon to the CIWUD directive, which probably has the force of law in the UK but not in the United States of America.

There are various other provisions which my colleagues will discuss. In section 51, the Minister makes an attempt to protect in law the actions he is taking against those employees of the banks, especially AIB, who have received bonuses. On first reading, the provision appears to be cosmetic rather than having any effect. Deputy Burton already pointed out on the Order of Business that it appears to be doubtful from a constitutional point of view. I have a slightly different view. The Minister's legal empowerment arises from the letter he sent to the board of directors of AIB and he is relying on force majeure concepts to carry it through. This is a cosmetic provision in the legislation to give respectability to that letter, which was relying on far older and more forceful concepts.

The Minister must be aware that this is possibly the most far-reaching and significant financial legislation to come before the House. It is potentially so far-reaching and draconian that it contains a sunset clause. He must also be aware that a Bill of this intricacy and complexity requires far more time for discussion than has been allocated. In fact, we only received a copy of the Bill at lunchtime yesterday so it is impossible to get a full idea of the intent of the legislation, much less give it the type of scrutiny it requires.

It is ironic that this legislation is being brought forward in such a rushed format when at least two of its main provisions provide for policies that were totally rejected by the Government when they were recommended by this side of the House over the last two years. We were assured that Anglo Irish Bank was of systemic importance, could not be wound down and had to be maintained. Billions of euro of taxpayers' money were pumped into it to ensure it could continue as a going concern. Two and a half years and billions of euro later, we are confronted with legislation to provide for what the Minister originally rejected. It is a pity he did not listen to the dissenting voices two and a half years ago. We could have saved all those jobs and all that money and, possibly, prevented many of the forced emigrations as well.

We were also told there could not be burden sharing. There was no question that we had to cover all of the recklessly acquired liabilities of Anglo Irish Bank and the other banks. Now we have legislation before us that will not only encourage and permit deeply discounted liquidity management exercises but which goes much further to permit a coercive approach. In short, the Government that would not consider burden sharing is now introducing legislation which goes far beyond what was being proposed by the Opposition. Again, it is a complete turn in Government policy and, again, it is a pity that the Government did not accept the inevitability of burden sharing before it paid off, at face value, all the billions of euro of subordinated debt over the past two and a half years.

Hardly a week passed without the Government telling us what a good job it was doing and how the rest of the world saw Ireland as a headline for how to manage the financial crisis. It is strange that the countries which we were told thought we were so wonderful are now forcing us to do the opposite and precisely what the Opposition recommended at the time. It is too little, too late. Again, I wish to point out the folly of not even providing in legislation for burden sharing with senior debt-holders. This insistence on wrapping senior debt-holders in cotton wool and protecting them from the consequences of their reckless investments is wrong, and will continue to be wrong. I wonder if those in the EU who enforced this position on us, if it is the truth that they did enforce it, recognise that they are ultimately imperilling the repayment of senior debt and, indeed, the loans they are providing to us under the bailout.

My fundamental opposition to the Bill is based on the way it is being rushed and the lack of adequate scrutiny.

There is no indication of the Government's intention in respect of disposing of the banks. There is no opportunity to debate the which, the how and the when. I presume the idea of this Bill is that whatever is ultimately left of the zombie banks will be for sale to foreign banks.

The primary reason for opposing this Bill is the draconian powers it gives to the Minister of the day. We have absolutely no confidence in the current Minister for Finance or his predecessor, so how can we have confidence in passing these powers to one man without even the opportunity to scrutinise the details of what is being proposed?

From listening to Deputy Noonan's comprehensive review of this Bill, his points were quite apparent when we look at the deficit. The Minister for Finance has repeatedly said that the Government has taken a stake in Allied Irish Banks and Bank of Ireland in the hope that the banks clean their risky property loans, and will be able to raise equity from their own shareholders and from new private investment. We now know that this hope was misplaced in the case of Allied Irish Banks and that the Bank of Ireland is still hoping to avoid a majority stake in shareholding. The two major banks in this State are fully dependent on State funding to maintain their operations. These banks may yet reveal additional losses from loans to businesses and householders.

When we look at the massive shortfall in funding to businesses at the moment, there is no confidence and no credit in the economy. The €12 billion that has been promised by Bank of Ireland and Allied Irish Banks is not available to companies. Viable companies are closing as we speak due to the lack of support, regardless of the Credit Review Office headed by Mr. John Trethowan. His powers are very limited. In the world of real banking, of lodgments, withdrawals, payments and cheque clearances, the banks are struggling to survive. In the casino and gambling part of banking, such as trading activities, the bankers seem to believe that nothing has changed. From the behaviour of bank trading staff in the last few weeks, it is clear that a substantial bonus culture, based on short-term bookkeeping profits, is still the expectation. The people working in banks seem to think it is okay to pay themselves bonuses from taxpayer provided cash. How far out of touch with the reality of everyday in the country are these people? Do they really think they can continue to pick the pocket of the taxpayer while an indifferent Government stands idly by?

Until recently, people in the financial world believed in their own superiority and took salaries and bonuses that were orders of magnitude of ordinary wages. They were getting golden handshakes, bonuses and cheques for leaving that were worth millions. There is no great body of evidence showing that a big bonus culture improved long-term shareholder value in financial services companies. The decent people of Ireland were told to invest their money in these banks, and many of them have lost their life savings. It is unforgivable. People trusted the credibility and the corporate governance of banks and they put their life savings in them, and now they have nothing. All evidence points to the reverse of this theory. There is much commentary about the design of the bonus scheme, where short-term results are valued ahead of solid, long-term improvement. There is no bonus roll back system for situations where risk was misunderstood and serious losses were incurred. That is outrageous.

In the past few years, these delusional masters of finance have been exposed as idiots, and yet our Government has been very slow to learn that lesson. Slapping down the bonus culture in Government controlled banks is a short-term measure that will appeal to the hard-pressed taxpayer. Having the Government involved in micro-managing the individual pay decisions will not work. The evidence from the out-of-control pay and conditions of top semi-State managers clearly demonstrates that the Government does not and cannot micro-manage the pay and bonuses of the financial services sector.

I have stated my case. Enough is enough. What we want is credit for small companies, which are the backbone of this economy.

This is one of the most important Bills before the House, certainly in my time here. It is very interesting that more than two years after the bank guarantee was introduced, it is only now that we have bank resolution legislation. The guarantee really was only an exercise in buying time. That time could have been used to restructure the debts of the banks, bring them to resolution, close down Anglo Irish Bank and organise a debt for equity swap in AIB and Bank of Ireland. That did not happen. As a result of that, there is two years worth of water under the bridge as well as billions and billions of euro of taxpayers' money.

It is good that we have bank resolution legislation at long last. Unfortunately, it does not go far enough. In particular, it does not contain any provision for the restructuring of the debts of senior bondholders, particularly those who are not under the guarantee. There is perhaps up to €16 billion of taxpayers' money that could be saved by imposing losses and haircuts on those bondholders. That is the key change of policy that needs to happen when we have a change of government in this country because the people are not responsible for the debts of those banks and should not be held liable for them. That is the big lacuna in this Bill. It is not the appalling disaster that people make it out to be. For example, Washington Mutual in the US restructured its debt by imposing losses on senior bondholders and by organising debt for equity swaps. I do not see any reason that cannot be the case in this country. In fact, I think the markets expect us to do it. One of the reasons we have not had an improvement in our sovereign bond yield numbers is because the bond markets and the rest of the world are waiting for a new government in Ireland to do what everyone expects us to do at this stage. That is the major gap in this Bill.

Today's stopgap Bill is too little, too late. It is too late because the horse has bolted since the expiry of the original bank guarantee, and too little because it does nothing to address the treatment of liabilities other than subordinated bondholders. It fails to address the issue of senior bondholders now out of the guarantee, the debts for whom amount up to €20 billion. Had a resolution regime been in place when the crisis struck in 2008, much of the cost of the banking crisis that is now being borne by taxpayers could have been avoided. Indeed, I have called for the introduction of a special resolution regime for our banks on a number of occasions since the bank guarantee was first introduced.

In the US, which has a long-standing bank resolution framework, it is not uncommon for officials from the Federal Reserve or the Department of the Treasury to go into a failing bank over a weekend, close it down, clean it up and sell it on. Depositors are protected. Losses are apportioned on the basis of creditors' seniority. Business continues as normal when the bank reopens on the Monday morning, often under new owners. There is only recourse to taxpayers' funds in the event that the excess of liabilities over assets cannot be made good. The wind up of Washington Mutual, where even senior bondholders were made to share some of the burden, is a case in point.

It is now 113 weeks since the night of the bank guarantee, and nearly two years since the UK introduced its own special resolution regime for banks in February 2009. If a limited bank guarantee had been introduced in September 2008, covering all depositors, interbank loans and new debt issues, time could have been bought for the introduction of a resolution regime for the banking sector. Arguably, a general framework for bank resolutions should always have been in place. At the latest, this should have happened back in late 2008 and early 2009. Instead, two years on, the Government is trying to lock the stable door after the horse has bolted and many of the bondholders have already been repaid.

When any private company goes bust because of reckless trading, its private investors are supposed to lose out if they made a bad bet. If the shortfall between assets and liabilities is greater than shareholders' capital, not only do shareholders lose their shirts, but losses are passed up the line to other creditors depending on their seniority — first to subordinated bondholders and then to other unsecured creditors, including senior bondholders. These are the fundamental rules of a functioning market economy. Using State funds to bail out private investors would be a cynical example of socialism for capitalists.

Banks are not like all other private companies. They play a crucial role in the wider economy, facilitating payments, transactions, savings and investments. Thus, the disorderly collapse of a bank could have severe ramifications, potentially setting off a chain of events and a run on the banking sector as a whole. Banks are also unique in that they hold the savings of almost the entire population. Irrespective of any regime to wind up or restructure credit institutions, this important economic and social role must be recognised with the protection of depositors from financial loss. The people in the Department of Finance and various institutions seem to have no idea of the transition that has taken place between managerial capitalism and the new financial capitalism. They seem to be at sea about this and about the globalisation of markets. Even though banks are different from other private companies, the principle still holds that private and professional investors in banks should lose out in any restructuring arrangement before any taxpayers' funds are put on the table. It is for this reason that we need our own special resolution regime for our banks.

Deputies will remember the rising sense of anxiety around the country in the period to the end of September 2008. People were worried about their savings, and there was evidence that people were taking cash out of the banks. An Post experienced a surge in new savings. This all happened again recently, as the Minister knows. Older people in particular were contacting my office to ask if their savings were safe or to tell me that their savings were now under the proverbial bed. What started as a trickle threatened to become a flood. In mid-September 2008, before things got out of control, I proposed in a letter to the Minister and in public statements an enhanced guarantee of at least €75,000 for depositors. Far from the Fianna Fáil rhetoric that the Labour Party would not countenance any form of bank guarantee and was willing to put depositors at risk, we were in fact the first to propose a strengthened guarantee specifically for depositors. What we could not accept was a bailout of professional investors, a free lunch for bondholders and a blank cheque for Fianna Fáil.

Professor Patrick Honohan, Governor of the Central Bank, in his seminal report on the banking crisis published last summer, made this very point. He is on the record as saying, before his time as Governor of the Central Bank but after the introduction of the bank guarantee: "Mature reflection by the financial markets would recognise that a country honouring its debts and guarantees to the letter — and not beyond — was more creditworthy than one which handed over money lightly to unguaranteed risk investors." This is a core problem for the Government. It lacks fundamental credibility in terms of the soundness of its approach to banking, hence the continued destruction of our reputation here, in Europe and around the world.

Bondholders in Ireland had nowhere to run. Even if the Government of the day was convinced that the banks were facing merely a liquidity crisis, which was suggested, it has never explained why it saw fit to guarantee locked-in investors. This would do nothing to affect liquidity in the short term but, as Professor Honohan pointed out in his report, the decision narrowed the Government's margin for manoeuvre in resolving the banking crisis while protecting the interests of taxpayers. As a result, Anglo Irish Bank alone is likely to cost Irish taxpayers upwards of €30 billion when all the dust has settled.

All of the details have not yet been filled in on the bank guarantee blank cheque, but from what we have seen so far, it could reach half of our diminishing national income or more. Writing in The Irish Times on 3 April this year, Professor John McHale of NUI Galway mapped out how a special resolution regime could be introduced in Ireland before the expiry of the guarantee on 29 September as an alternative to the Government’s gratuitous no-bondholder-left-behind policy. He wrote:

A critical element is that the Government puts in place an American or UK-style special resolution regime (SRR) for failing banks. This regime should be ready to go when the existing guarantee expires and would affect unguaranteed bondholders whose bonds have yet to mature.

The SRR would provide options for a bank to seamlessly continue in operation under new ownership (eg, AIB or Bank of Ireland) or for a gradual winding down (eg, Anglo or Irish Nationwide).

If a bank cannot meet specified capital adequacy requirements on its own, it should be resolved in a manner that is least costly to the taxpayer, while also ensuring that all creditors do at least as well as under a normal bankruptcy procedure. One option would be for bondholders to become owners of a now well-capitalised bank through a debt-equity swap.

The regime should also allow for the clear protection for depositors and secured creditors such as the ECB. In a wind-down scenario, unprotected creditors should bear losses before any burden is placed on the taxpayer.

Had the Minister heeded Professor McHale's warning, Irish taxpayers might not be in such a deep hole. Instead, he prevaricated and let the guarantee expire.

The Minister has insisted for months that this legislation was in the pipeline, but we only saw it for the first time yesterday. The Minister is addicted to playing political games. For a Bill of this importance and complexity, this is not the right way to treat the Dáil. This Bill deserves careful consideration and scrutiny. Instead, it is being railroaded through the Dáil in less than five hours. We are told to expect a full and permanent special resolution regime early in 2011, and under the terms and conditions of the EU-IMF programme of financial support, the Government has committed to introducing legislation for such a regime by the end of March 2011. I suggest that a slimmed-down Bill be introduced, covering the bare essentials for the immediate restructuring of the banking sector, but that any of the more substantive measures should be held back for the permanent regime due early next year. To be honest, it is hard to believe that this is anything other than window dressing, with an election coming down the tracks.

In introducing any special resolution regime for the banking sector, three concerns must be paramount: providing stability to the banking sector, providing certainty to depositors and protecting the interests of taxpayers. We already have an extensive guarantee to protect depositors. This Bill seeks to bring stability to the banking sector but it brings little in the way of protection for taxpayers. The Bill contains draconian measures to transfer powers to the Minister for Finance without countervailing measures to allow for Oireachtas oversight. As I mentioned this morning, perhaps the worst example of this transfer of powers is contained in section 53, which may well be contested on constitutional grounds.

Section 53 contains two provisions. First, it provides that this Bill will override the provisions of any earlier Act, which is standard and uncontroversial. However, section 53 then goes further. It purports to empower the Minister for Finance, by order and without reference to the Oireachtas, to override Acts of the Oireachtas and to legislate contrary to their terms.

The section makes the Minister a one-man legislature, with power by order to amend or repeal the law of the land. The section is an attempt to equip the Minister with power to make orders that will have effect and the force of law, notwithstanding any Act of the Oireachtas. If we, as Members, approve such a section we might as well pack our bags early for Christmas and not come back at all in the new year. Instead, the country will be governed by ministerial diktat in a way similar to that of totalitarian regimes. Such regimes would willingly send someone here to study the powers Deputy Brian Lenihan has taken. There is nothing in the recitals of the Bill to justify the Government's attempt to seize the power of making law from the Oireachtas in this way and to seek instead to vest it in the Minister for Finance.

The Bill draws a veil of secrecy over the exercise of these extensive executive powers with a series of confidentiality clauses. There is a mania in all the emergency banking legislation that has come before the House in the crises of the past two and a half years and a need for the Department and the Minister for Finance to have secrecy and more secrecy. To close the stable door after the horse has bolted, it is now proposed to transfer a vast swathe of new powers to the Minister for Finance. That such drastic action is now needed to right our banking sector is beyond doubt. However, the need for drastic action has come about now because of monumental policy failure on the part of Government and the regulatory system, compounded by the lies, incompetence, fraud, stupidity and wishful thinking on the part of our delinquent bankers and the foolishness and folly of those in political and public administration who were supposed to have oversight and governance of them.

As a consequence of the Government's failed banking policy, its pension policy is now in tatters. The National Pensions Reserve Fund is being plundered time and again to plug holes in the banking sector. A total of €7 billion has already been pumped from the pension fund into AIB and Bank of Ireland. Under the EU-IMF bailout, a further €10 billion or more will be pledged to the banks from this source. What was to be a strategic reserve set aside for the payment of state and public sector pensions from 2025 as our population would begin to age, will soon be a crutch holding up not some elderly old age pensioner or public service pensioner but our elderly, infirm and beyond-rescue banking system.

Perhaps sensibly, section 76(c)(ii) allows for the suspension of payments into the pensions fund in 2012 or 2013. Although transfers do not impact on the general Government balance, they impact on the Exchequer borrowing requirement and it does not makes sense even if it were possible — which it is not, now that we are out of the bond markets — to borrow at 6% or more to put money into the pensions fund at a lower average annual return. Section 76(g) goes on to make provision for transfers in the other direction, back to the Exchequer’s Central Fund. The Minister has indicated that these funds taken from the National Pensions Reserve Fund back to the Exchequer could be used to fund capital investment projects.

The cynic in me wonders if the Minister's Damascene conversion has anything to do with the clock ticking down to the general election early next year. It is entirely inappropriate for a Government on the way out of office to squander the last remnants of our strategic reserve through a pre-election slush-fund for pet projects to save the skins of failing Fianna Fáil candidates. The use of the pensions fund to finance capital investment has much merit but it must be done on a structured, commercial basis. This is something the Labour Party proposed years ago to howls of derision from Government benches. In changed economic circumstances and with capital investment necessarily curtailed in the years to come, the Labour Party has proposed a strategic investment involving a modest €2 billion from the pensions fund. Setting up an investment fund takes time and must be done in an orderly way to ensure successful investment that could finance important infrastructure projects and innovative start-up and scale-up businesses. With Ireland now out of the bond market for the foreseeable future, one could have been forgiven for wondering what was to become of all the highly-paid NTMA staff who had previously fulfilled that function. Section 76 provides the answer. It further expands that nature of the pension fund's "investments" to include non-listed credit institutions, namely, the building societies. It also proposes to allow the pension fund to become a bizarre support scheme for Irish sovereign debt. It seems the NTMA is to be kept busy with one department selling sovereign bonds to another.

The Deputy has 20 seconds remaining.

The Bill also covers the credit unions. Given the importance of the credit unions in the fabric of Irish community, social, family and business life I am disappointed that the Minister has not explained the implications for the credit union movement of its inclusion in the Bill. I made recommendations to the Minister in a previous debate, which he promised to consider, regarding proper consultation with the credit union movement but the movement has been simply thrown in again.

I read with interest the cables released on Wikileaks yesterday. It is fascinating to read the conversations set down between the United States Embassy and various officials with staff in the Department of Finance, the Central Bank and the Financial Regulator at the time of the guarantee. They guessed impaired assets to be between 0.5% and 0.8%. They had favourable impressions to the effect that the banks were not in much difficulty at all.

You are eroding the next group's time.

I am pleased someone from the United States Embassy committed this in cables from the ambassador because the tone of the cables represents exactly the type of advice and brush-off that the Department of Finance gave to people such as myself when we questioned the notion that nothing was wrong other than a little liquidity problem in the Irish banks that would right itself by the subsequent weekend.

We move on to the Technical Group. The group has 20 minutes in total but I am unsure about the sharing arrangements.

Ba mhaith liom mo chuid ama a roinnt leis an Teachta Arthur Morgan agus an Teachta Finian McGrath. Let us be clear, this legislation underpins the bankrupt banking strategy of the Government. It represents the official seal of approval of the bailout plan and it ratifies it in Irish law. I examined section 67, to which the Minister referred earlier and I wondered what the Minister, Deputy John Gormley, would make of it. He has referred to his desire and vision to grow and empower local authorities. This section stipulates that any local authority that wishes to mortgage one of its premises must seek the approval of the IMF before so doing. The depths to which this bailout or sell-out is reaching with regard to the constraints on local government is appalling.

Ní le muintir na hÉireann fiacha na mbanc, sin an phríomhphointe atá agam. Simply put, bank debt cannot be public debt. We must find a way to separate the national debt from financial debt. We must ask ourselves how the reputation of a financial area can be made more solid by rewarding banking failure rather than success. The EU-IMF bailout is not a bailout for the people. It will not secure social welfare, nurses' wages or the provision of education. It will not help those on low income who are struggling. However, it will provide money to the Government to pursue its current banking policy. Such is the essence of this legislation. Parts of this legislation are welcome. We referred to them in our briefing with the Minister for Finance. In general, however, the Bill is too little, too late. The decision to make Ireland's citizens pay for the recklessness of the State's bankers is entirely a political one. There is no economic imperative that says the bondholders cannot be burned and taxpayers must carry the burden. This is a political decision being imposed by the ECB and the IMF. Lenders should face fully the consequences that bad investments are meant to face in a capitalist, free market economy. They are not shy about taking the rewards in the good times, so they should not be shy about taking the knocks in the hard times. This means burning the bank bondholders as an alternative to several generations of Irish people struggling to repay billions of euro.

The Government refers to burden sharing, but there was no profit sharing when things were good. My party and I have tabled more than 40 amendments, which make a clear distinction on burden sharing to ensure senior bondholders are included. We have not heard this distinction being made by any other Opposition party because the corrupt, bankrupt policies of the Government will be followed by Fine Gael and Labour. The idea of investing taxpayers' money to bail out the gamblers in Anglo Irish Bank, whether they are subordinated or senior bondholders, is morally wrong.

On a point of order, I wish to inform my Sinn Féin colleague that his party voted——

That is not a point of order.

——for the guarantee. Sinn Féin got us into this——

His party voted to bail out and invest——

Sinn Féin, Fianna Fáil, Fine Gael and the Green Party got us into this boat.

This is not a point of order. Deputy Doherty should continue.

The Deputy knows well, although he may not agree with his party's leader or spokesperson on finance when they say they will use taxpayers' money to bail out the gamblers in Anglo Irish Bank.


Hear, hear.

It is appalling that a party claiming to follow the legacy of Connolly will take from the most impoverished and give it to the gamblers, the bondholders, the international multibillionaires.

I touched a nerve with Deputy Broughan.

There is no incentive for banks and pension funds to lend sensibly to borrowers if there is an implicit guarantee that they will always be bailed out by the taxpayer, even at the expense of impoverishing a nation. The €85 billion deal with the IMF and the EU explicitly bans the State from defaulting on guarantees given to the overseas finance institutions that loaned €15 billion in senior bonds to Anglo Irish Bank. This is what we are giving effect to in this legislation. Do Fine Gael and Labour believe that protecting these bondholders is right? Instead of writing down or renegotiating with bondholders, we should burn them completely. The European institutions that lent recklessly to our banks did not bother to consider the risk because they assumed there was no risk to them. There is a phrase about what happens when one assumes something, but I will not repeat it in the Chamber. Government debt must be restructured. Bank debts need to be converted into equity and, where banks are insolvent, debts should be written off. Measures to boost growth in the economy will be an obvious requirement to meet the significant debt repayments on this bailout, but the terms of the €85 billion loan limit our options by sacrificing most of the pension reserve fund. The Bill amends the existing provision to allow the Minister to direct the National Pensions Reserve Fund, NPRF, to invest in credit institutions so as to ensure that the fund will continue to be available to support banks. The pension fund will not go into critical infrastructure projects, take hundreds of thousands of school children out of cold prefabs or be invested in job creation projects. It will go to the black hole of banks. It will give an injection of fresh equity capital into the banks. Unlike the Labour Party, we would support the idea of changing the Bill's provisions to allow the pension fund to be invested in capital projects. It would be used to build schools, hospitals and child care facilities.

Did Deputy Morgan indicate that he will cede time to his colleague? Deputy Doherty's time is up.

Perhaps I understand where the Labour Party is coming from, given that its pre-budget submission called for a reduction of €1.2 billion in capital spending.

Christmas has come early for the bondholders. We are repeatedly told that the banks need a fresh injection of capital. There have been so many injections that it has been more like a transfusion, that is, a transfusion of public wealth to bankrupt entities. The lifeblood of the economy has been drained to avoid defaulting on the holders of private debt. The Bill should rename the NPRF the "National Bank Transfusion Fund".

I understand Deputy Morgan will share time with Deputy Finian McGrath.

The Deputies have six and seven minutes, respectively.

The Acting Chairman might tell me when I have a minute or so remaining. I thank him for allowing Deputy Doherty to continue. Well done to my colleague. He was on a flow.

Here we go again in the wrong direction. The Bill is supposed to restructure the banks. Sinn Féin would support that 100%, but the Bill is only partly about restructuring the banks, in that it has more to do with underwriting the lousy deal between the IMF, the EU institutions and the Government. It is a political and financial mugging of the people by those institutions. Instead of the Government standing up to defend the taxpayer, the economy and the future of both, it is choking them to facilitate the IMF's rip-off. The Bill is nothing more or less.

The banks have already paid bondholders some €60 billion. In most cases, they are zombie banks. It is what Anglo Irish Bank has been for a long time. We know about Allied Irish Bank and Bank of Ireland is only a short step behind it. The economy cannot support such a level of bailouts for banks that are insolvent. They are hanging on by dint of money invested in them by the ECB, although not through the ECB's generosity. The ECB is investing that money because the Irish taxpayer and the Government are underwriting the banks. No one else would stand over this situation. It is crazy and it should not occur. Sinn Féin has outlined a progressive and sensible path forward to deal with this situation. We would not waste money earned through the sweat and effort of the economy's taxpayers on zombie banks, yet that is what is being done.

A sensible approach would be to adopt Iceland's solution. By and large, Iceland told bondholders to take a walk. The past quarter has already seen it at 1.2% economic growth. Where are we? In a good scenario, we will be flat-lining or dipping for the next two years. Compare those two examples. The agenda of the ECB and the Commission was to protect the euro. They had no interest in the Irish people or the problems the two bodies would create in the economy for several generations. They could not care less. While we might expect such from the IMF, perhaps even from the ECB and the Commission, our so-called partners in Europe, surely the Government should have stood up in the negotiations and told the ECB and the Commission that Ireland would have nothing to do with the IMF. In terms of the money the ECB shovelled into our zombie banks, the Government should have pointed out that the former was the central bank over the euro area. The ECB could have made the call. It should have known better. The bottom line is that the ECB has a significant responsibility. It is at least as culpable as anyone else involved in the case. Did the Government point out this? What it did instead was to sign up to its deal with the IMF.

Deputy Doherty outlined how the Bill's provisions tie the hands of local authorities. A typical example is that local authorities in County Louth are imposing a 25% cut on staff wages. The cut will not be applied surgically. One can be sure it will be applied with an axe. That will happen in local authorities across the country with a consequential drop in public services. We are aware from what the Minister for Health and Children has said about the significant burden that will affect the Health Service Executive. Therefore, health services will take a substantial hit as well. Meanwhile, back at the ranch there is also talk of selling off the ESB, Coillte and Bord Gáis — all providers of critical essential services. One would think the Government would have learned something from its predecessor selling off Eircom. Where is the common sense in that approach?

I would have expected an initiative to try to grow the economy. There is no hint of the need to create jobs and provide a stimulus package. From the record of the IMF internationally it is clear that it could not care less about growth. All it wants is its pound of flesh.

The issue of rip-off charges in terms of the interest rate of the ECB and the institutions was raised this morning on Leaders' Questions. That is scandalous and unacceptable.

I hope the Bill will be rejected. It is regrettable that we do not have more time to deal with the legislation comprehensively, given that we will only reach one or two of the amendments.

I thank the Acting Chairman for the opportunity to speak on the Bill.

When is it my turn to speak?

Deputy O'Keeffe will have his turn after Deputy McGrath.

Deputy O'Keeffe should not worry. We could not forget him.

When I first heard about the legislation and read about it in the newspapers I thought I was hearing things. The Minister for Finance, Deputy Brian Lenihan, was portrayed Fidel Castro-style riding in and sorting out the banks. All of a sudden I thought the Government had turned to the left. One big difference, however, is that the Cubans nationalised the banks when there was money in them but we take major shareholdings when the banks are broke. The latest developments in Cuba would be of interest to the Minister for Finance and the Government. I read in a newspaper today that the draft guidelines for economic and social policy state that as it updates its economic model, planning will be paramount, not the market. Perhaps there is a lesson for the Government and the Minister for Finance to learn from our comrades in Cuba.

The details of the legislation refer to the transfer of loans and deposits from lenders in a bid to reduce the size of the banking system. Special managers will have the power to sack directors and overrule shareholders. The Bill will also allow the Government to pump further cash into AIB which has a capital hole of €9.8 billion. In addition, it will enable the Government to wind down Anglo Irish Bank and the Irish Nationwide Building Society. The Bill changes the investment rules for the €25 billion National Pensions Reserve Fund. The Bill will also allow the Government to acquire 100% of AIB.

My colleague, Deputy Morgan, referred to the example of Iceland. It negotiated a new deal which is an improvement on the one rejected by 91% of Icelandic citizens. Iceland has secured a reduction in the rate of interest to be paid, from 5.5% to 3.2% on average. That is a sensible way to deal with the issue. Who shoulders the losses of the banks is a political choice. That is why I raise the issue. Iceland said "No" and got a better deal. We said "Yes, yes, yes" and we got saddled with an interest rate of 5.7%.

Levels of growth in the four year plan are grossly overestimated. It is important to admit that and to have an honest debate on the matter. We cannot make progress without growth. Our small open economy will be driven into the ground. No country in history has successfully accomplished what Ireland is being asked to do. At the very least other countries could devalue. That is extremely painful but it helped their economy with their neighbours. We cannot do that. If we succeed, the economics textbooks will have to be rewritten. We are being asked to do the impossible. It has never been done before. This small peripheral economy is being squeezed. The politics of the Government and some of the other conservative parties is helping the squeeze. What has happened in our country is totally unacceptable.

I referred previously to the greed of some bankers and others working in the industry and how the debt is about to cripple this country. The reality is that we live in two Irelands. We live in an Ireland of the rich and an Ireland of the poor. Let us consider Mr. Eugene Sheehy, who is retired on a pension of €529,000 from AIB. He will gain almost €16,000 per year from the budget. Mr. Seánie FitzPatrick has retired from Anglo Irish Bank on a pension of €4 million. He will gain many multiples of the Sheehy gains — in excess of €64,000 — from the budget. That is a disgrace and a grave injustice.

Attention has already been drawn to the fact that super-high earners are gaining from the budget while low and middle income recipients are being hit. "Hit" is a polite way to put it: they are being hammered. There is greater inequity in pension income. As pensioners, rightly, do not pay PRSI, they are not affected by the abolition of the ceiling. A pensioner gains approximately €16,000 per year whereas an employer on the same income gains approximately €12,000. On the other hand, a person with a private sector pension of €15,000, which is less than the minimum wage, loses €400 while a public sector pensioner on €15,000 loses €580 per year. The injustice springs from two sources. The pensions of public servants on low incomes are being directly cut while high-income private pensioners such as the former bank chief executives are not. That is a grave injustice. The application of the universal social charge results in a €404 disadvantage to all those on low incomes. It is a disgrace that we find ourselves in this situation.

There are sensible aspects to the Bill but the Government's overall handling of the banking crisis has been a disaster. Most independent observers would agree with that. I urge caution and sensible debate. Rushing through legislation is not good for the country, the economy and, more importantly, it is not good for the people of this country.

I am pleased to have an opportunity to speak on the Bill. What I have to say will not be favourable to my side of the House.

This is the most draconian legislation ever introduced by an Irish Government, especially a Fianna Fáil Government. My colleague, Deputy McGrath, referred to Cuba, but it is even worse than Cuba, it is like something one would hear about in North Korea. The Bill is taking from the rights of the people and putting legislation in place to that effect. We have seen a lot of that in recent times. That is why Fianna Fáil has lost support and is down to 17% or 18% in the polls. We have a Minister for Finance who is not identifying with the issues that concern the public. I say that publicly. I gave him a warning some weeks ago. I have no say in this House. I am a backbench Deputy. We are where we are because of our financial policy. Since 2008 we have gone down the wrong road with bank guarantees to Anglo Irish Bank.

I wish to refer to one issue which has not been referred to by any speaker today, namely, credit unions. They are at risk from the Financial Regulator. He is going to use a scalpel to destroy our credit unions that are based in towns and villages across the country. Approximately 2 million people are members of credit unions. They must be protected. It is a hidden issue in the Bill. I give a warning to that effect. I do not want that to happen. I defended the credit unions as spokesperson on enterprise and employment in 1997 with Deputy Mary O'Rourke, who was a good friend of mine at that time.

Credit unions need protection. Mr. Elderfield could become the new Cromwell of the Irish Republic. He cannot be allowed to take a hatchet to them, as he has been doing and will continue to do. The threat is hanging over credit unions and people are frightened. They are contacting me about the issue. Credit unions in villages and towns across the island must be protected.

Deputy O'Keeffe is right.

I thank Deputy Morgan. It was not the Bank of Ireland and AIB that caused the problem. An individual came here from the United Kingdom, Mr. Mark Duffy. He brought the Bank of Scotland into the Irish market. He gave 100% mortgages to the Irish people. He could not give out enough money. No one has said anything about him. We have heard all sorts of things from the Labour Party and from Fine Gael but no one has mentioned him in this House at all at all since 2008. He was the man who destroyed the banking system in this country. He came into the finance committee and told us what we should and should not do. Bank of Scotland is gone with a trail of financial destruction left behind and Mark Duffy has gone and he has not been arrested.

We are talking about other Irish people who did nothing wrong being forced into competition. Competition destroyed our banking system and foreign banks in our land. We have foreign people telling us what to do. We have a regulator who was Garret FitzGerald's financial adviser in 1984-87 and what did he do? He doubled the national debt. He talks the talk, he goes to dinners and tells us what to do but he is a professor, he never bought a pig's head in his life; if he had, he would know what life is about.

We have only two banks on this island and we have no banking system and no country can afford not to have a banking system. Every country in the European Community will have a bank in its own nationality. New Zealand went down the road many years ago of deregulation and still to this day does not have a banking system and it regrets that every day. I meant to go to New Zealand this year but because of restrictions on this House and economics and cutbacks and publicity I did not.

If I was in charge of the banking system as Minister for Finance, I would have put a business banking task force in place of people like O'Brien of O2 and Alan Dukes, who is not a bad guy, and I would have Denis O'Brien and the stockbroker of NCB, Dermot Desmond, along with Pat Farrell of the Irish Banking Federation. I would have put five practical, common sense people on a bank task force. Then we would have business and we would not be running around with bank guarantees and bad banks and good banks. We do not know where we are going and the people of Ireland are fed up with us because banking has destroyed this Government and this Minister for Finance has let it rip, rip, rip. I have told him so and I commented publicly in 2008 when he got the job. If I had gotten that job in 2008, my first task in my first month would have been to make a plan. No plan was put in place, nothing was done and the economy was on the down. It was done by McCreevy and other Ministers and now we are depending on foreign banks to rescue us. Corrective action should have been taken.

This legislation must go before the Supreme Court before it can be enacted. It is the most serious and draconian legislation that has ever come in here, even the Special Powers Act was not as dominant and dangerous to the Irish people as this legislation. Tomorrow morning our two banks can be sold off at the stroke of a pen. We are being told they must be sold. What are we going to do? I say that we cannot manage without an Irish bank and I am looking at the Minister of State, who is a good friend of mine and I ask if we are going to depend on the HSBCs, the Barclays, the Standard Chartereds, the Credit Suisses? They just laugh at us.

Side by side with that, we can look at what has happened with Lehmans in New York, and Bear Stearns, and what happened in other countries, where they put their houses in order. American banking is not as bad as it was. There are two banks in Britain, Royal Bank of Scotland and Lloyds and they have no problems. We do not have any leadership in banking. That is the problem.

The sooner we put our House in order and put our structure right, then we will be in business, but it has not happened and no one has a formula. I mentioned credit unions and I mentioned selling off the banks. We will rue the day we sold the banks. In Irish history, we will never forget it and I say that as a genuine Irishman. We have more foreigners running our banks now that we will get so bad we will be looking for Brian Boru to drive them out again.

I thank Deputies for their contributions on Second Stage of this important legislation.

The comprehensive restructuring of the business system is a key pillar of the financial support programme with the IMF and EU, approval of which was passed earlier this morning. It is the first important step in putting in place an extensive special resolution regime that will provide for a comprehensive framework to facilitate the orderly management and resolution of distressed credit institutions. In that context the Bill includes the powers to appoint a special manager to a relevant institution, which would only arise in limited and exceptional circumstances, to achieve the objectives of the legislation.

Under the EU-IMF programme, there is a commitment providing for a comprehensive special resolution regime to be published by the end of February 2011 which would include the full suite of SRR powers based on international best practice and the evolving EU framework. Once this Bill is enacted, the powers available to the Minister would enable the substantial and significant restructuring actions envisaged in the support programme to be progressed and the provisions will facilitate the disposal of non-core assets to support the achievement of funding targets set by the Central Bank of Ireland, while allowing the Minister to provide credit enhancement that could help to support progressive reduction in the balance sheets of the domestic credit institutions through, for example, the securitisation of bank assets.

The restructuring of Anglo Irish Bank and Irish Nationwide Building Society is set out in the programme agreement and is consistent with EU state aid requirements, providing scope for appropriate burden sharing for subordinated debt and providing the Minister with the power, if necessary, to effect a recapitalisation of AIB prior to the end of the year to meet regulatory capital requirements set by the Central Bank of Ireland.

As the Minister outlined in his speech, it is imperative that he has the necessary powers to undertake these actions as soon as possible. There was much comment in the debate about the need for senior bond holders to accept their share of the burden of this crisis. When those who deplore the gradual erosion of the deposit base of the Irish banking system come to reflect on it, they will see the substantial contribution made to that process by the unhelpful level of domestic noise about this matter. The Minister dealt with this issue earlier in the debate on the IMF-EU support programme. There is simply no way this country, where the banks are so dependent on international investors, can unilaterally renege on senior bondholders against the wishes of the European Central Bank. People talk about burning the bond holders but they will burn the people of this country, those on social welfare, public servants and anyone dependent on the public purse. It is grossly irresponsible to suggest that can be done unilaterally. In any country where such experiments have taken place, the central banks stood behind the affected banks throughout the resolution of the resulting crisis. Those who think we could unilaterally renege on senior bondholders against the wishes of the ECB are not living in the real world.

Deputies are aware that discussions are ongoing at EU and international level on the mechanisms that may be available in future to share the fiscal costs of bank resolution with senior creditors of banks other than depositors. This work, however, remains preliminary and many important legal, financial and commercial hurdles must be cleared before there is any prospect of it becoming accepted market practice. It is important to draw attention to that because this debate in Ireland is not taking place in isolation from developments with our EU partners. For all these reasons, and those discussed at length in this House and elsewhere, the scope for burden sharing going beyond subordinated debt is a matter not currently available to us. When the new Government is formed, the parties in that Government will rapidly find out those realities, if they do not realise them already.

It is not the case that SRRs are widespread, it is only in recent weeks that countries such as Denmark and Germany have brought such legislation before their parliaments. The legislation before the House now is an important first step in the development of a comprehensive SRR and the Government is committed in the IMF-EU programme to having such an extensive regime by the end of February 2011. It is worth noting that at EU level, an EU directive on the issue is not due to be published until June 2011 by the Commissioner for Internal Market and Services.

Question put.
The Dáil divided: Tá, 80; Níl, 72.

  • Ahern, Bertie.
  • Ahern, Dermot.
  • Ahern, Michael.
  • Ahern, Noel.
  • Andrews, Barry.
  • Andrews, Chris.
  • Ardagh, Seán.
  • Aylward, Bobby.
  • Behan, Joe.
  • Blaney, Niall.
  • Brady, Áine.
  • Brady, Cyprian.
  • Brady, Johnny.
  • Browne, John.
  • Byrne, Thomas.
  • Calleary, Dara.
  • Carey, Pat.
  • Collins, Niall.
  • Conlon, Margaret.
  • 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.
  • Gormley, John.
  • 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.
  • McEllistrim, Thomas.
  • McGrath, Mattie.
  • McGrath, Michael.
  • McGuinness, John.
  • Mansergh, Martin.
  • Martin, Micheál.
  • Moloney, John.
  • Moynihan, Michael.
  • Mulcahy, Michael.
  • Nolan, M.J.
  • Ó Cuív, Éamon.
  • Ó Fearghaíl, Seán.
  • O’Brien, Darragh.
  • O’Connor, Charlie.
  • O’Dea, Willie.
  • 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.


  • Allen, Bernard.
  • Bannon, James.
  • Barrett, Seán.
  • Breen, Pat.
  • Broughan, Thomas P.
  • Bruton, Richard.
  • Burke, Ulick.
  • Burton, Joan.
  • Byrne, Catherine.
  • Carey, Joe.
  • Clune, Deirdre.
  • Connaughton, Paul.
  • Coonan, Noel J.
  • Costello, Joe.
  • Coveney, Simon.
  • Crawford, Seymour.
  • Creed, Michael.
  • Creighton, Lucinda.
  • D’Arcy, Michael.
  • Deasy, John.
  • Deenihan, Jimmy.
  • Doherty, Pearse.
  • Doyle, Andrew.
  • Durkan, Bernard J.
  • English, Damien.
  • Feighan, Frank.
  • Ferris, Martin.
  • Flanagan, Charles.
  • Flanagan, Terence.
  • Gilmore, Eamon.
  • Hayes, Brian.
  • Hayes, Tom.
  • Higgins, Michael D.
  • Hogan, Phil.
  • Howlin, Brendan.
  • Kehoe, Paul.
  • Lynch, Ciarán.
  • Lynch, Kathleen.
  • McCormack, Pádraic.
  • McEntee, Shane.
  • McGrath, Finian.
  • 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.
  • Sheahan, Tom.
  • Sheehan, P.J.
  • Sherlock, Seán.
  • Shortall, Róisín.
  • Stagg, Emmet.
  • Stanton, David.
  • Timmins, Billy.
  • Tuffy, Joanna.
  • Upton, Mary.
  • Varadkar, Leo.
  • Wall, Jack.
Tellers: Tá, Deputies John Cregan and John Curran; Níl, Deputies Emmet Stagg and Paul Kehoe.
Question declared carried.