Credit Institutions (Stabilisation) Bill 2010: Committee Stage

Section 1 agreed to.
SECTION 2

I move amendment No. 1:

In page 9, subsection (1), to delete line 13 and substitute the following:

"2.—(1) Nothing insection 53 shall be construed as enabling orders to be made under this Act which purport to have the effect of making or changing laws, within the meaning of subsection 2 of section 1 of Article 15 of the Constitution.

(2) In this Act—."

The purpose of this amendment is to address the issue of section 53 in which the Minister gives himself an astonishing range of powers seldom seen outside totalitarian regimes. I am sure it will be much copied if totalitarian-style regimes want to give a Minister for Finance an extraordinary range of powers.

Section 53 exemplifies what is problematical about this Bill. This amendment to subsection (1) states that "Nothing insection 53 shall be construed as enabling orders to be made under this Act which purport to have the effect of making or changing laws, within the meaning of subsection 2 of section 1 of Article 15 of the Constitution”.

Section 53 seeks to give extraordinary powers to the Minister for Finance. As I said at some length during my speech on Second Stage, the Labour Party has called for a clear commitment to a bank resolution regime. The Government agreed to such a regime in the memorandum of understanding between the IMF and the European Union institutions. In fact, according to the memorandum of understanding, a full banking resolution regime is to be in place early in the new year, presumably in the time of the next Government.

We received copies of this legislation yesterday at around 1 p.m. It is a complex Bill comprising 67 pages with 77 sections and two Schedules, one of which is in five parts. Each part sets out substantive amendments to other pieces of legislation, such as the National Pensions Reserve Fund Act and the NAMA Act. In addition, the Bill before us sets out changes to powers concerning the relationship between the Minister for Finance and the Governor of the Central Bank. We are supposed to deal with all this material by 10 o'clock tonight, out of which 90 minutes will be devoted to Private Members' time.

In dealing with such a Bill, Second Stage is obviously more important than Committee Stage. However, Committee Stage will now be limited to the small amount of time we have been allocated, with almost no opportunity for interested parties, publicly-minded citizens, expert academics and lawyers to examine and consider the Bill with a view to how it might be improved or amended, or what might be deleted or altered in its provisions. The Bill is being railroaded through. It is hard to understand what is its purpose, except in the context of a general election happening early in the new year.

The Labour Party is not opposed to bank resolution regimes. We have called for one. However, this is not a bank resolution Bill. It is a temporary measure that will be in force for only two years. The Government is committed to introducing full special resolution regime legislation by the end of next February under the terms of the IMF-EU memorandum of understanding. The Bill is an interim stop-gap measure. It attempts to plug a gap in a way that will enable the Minister for Finance to dictate a targeted special resolution regime designed to facilitate specific restructuring and reorganisation measures that it is expected will be undertaken in the coming months.

However, the measures are not spelt out in the Bill. From media comment and from a brief discussion I had with the Minister and Department officials — I am sure the same is true of other Opposition parties — we know that the Minister's intention is to address the issues in each of the guaranteed institutions over the next short period of time. We understand, for instance, that the issues in Allied Irish Bank are grave and that it is likely that the further recapitalisation of AIB by the Government will be attended to before the end of the year, and perhaps before Christmas. The Minister knows this but it is not specifically referred to in the Bill, other than that powers in the Bill address all the guaranteed institutions as well as others the Minister may feel require the effect of the legislation.

Not even an optimist could consider that Anglo Irish Bank and the Irish Nationwide Building Society have a future. However, the legislation specifically refers to the Minister reorganising and recapitalising Anglo Irish Bank, as though the aim of the Bill was to save Anglo Irish Bank, when not only is it beyond salvation but it has, pretty much, taken the country down with it.

Deputy Burton, please speak to the amendment.

I am addressing what the Minister is proposing to do but what he has not actually addressed.

We are discussing amendment No. 1. Can you confine your remarks to the amendment to section 2.

I will read the substance of the amendment again. It states:

Nothing insection 53 shall be construed as enabling orders to be made under this Act which purport to have the effect of making or changing laws, within the meaning of subsection 2 of section 1 of Article 15 of the Constitution.

It is the Labour Party's view that the powers the Minister is seeking to confer on himself in section 53 are so wide as to be beyond the boundaries of the Constitution in any reasonable meaning.

In various sections of the Bill, the Minister has made orders, constructions and structures in regard to the different institutions. He covers himself, presumably after consultation and advice, by saying that having arranged that, he will be able to have the courts rubber-stamp what he has dictated. In that sense, he seeks to take unto himself the power to amend legislation.

Section 53 says the Bill will override the provisions of any earlier Act. Much legislation does this. However, section 53 goes further. It purports to empower the Minister for Finance to override Acts of the Oireachtas and to legislate contrary to their terms. The section seeks to make the Minister a one-man legislature, with power by order to amend or repeal the law of the land. The section attempts to equip the Minister with the power to make orders that will have the effect and force of law, notwithstanding any Act of the Oireachtas. If we approve of legislation such as this we may as well pack our bags, because the country will be ruled by the Minister and not, as the Constitution says, by the Oireachtas. There is nothing in the recitals to the Bill that would justify the Government attempting to seize the power of making law from the Oireachtas in this way and to seek to vest it in the Minister for Finance.

It has become a feature of the Minister's legislation that there are recitals at the front of a Bill that seek to paint broad pictures and give extra powers. Much of the Minister's emergency legislation contain these recitals, presumably on the basis that the general arguments in the recitals will impress judges and persuade them to give the Minister full power to override the Oireachtas and the Constitution.

The basic principles were set out by Chief Justice, the Honourable Mr. Justice John Murray, in his judgment in Mulcreevyv the Minister for the Environment, Heritage and Local Government and Dún Laoghaire-Rathdown County Council. The Chief Justice said:

Article 15.2.1 of the Constitution provides that the sole and exclusive power of making laws for the State is hereby vested in the Oireachtas. No other legislative authority has power to make laws for the State. It is well established that the exclusive role assigned to the Oireachtas in the making of laws by this Article does not preclude the Oireachtas from empowering Ministers or other bodies to make regulations for the purposes of carrying into effect the principles and policies of the parent legislation, but it is also clear that such delegated legislation cannot make, repeal or amend any law and that to the extent that the parent Act purports to convey such a power it will be invalid, having regard to the principles of the Constitution.

The courts have also said:

It is necessary to seek the meaning for the words in the statute which absolve the national parliament from any intention to delegate its exclusive power of making or changing the laws. Needless to say, if such a meaning is not possible, then the invalidity of the subsection would be established.

What the Oireachtas is, therefore, faced with, in the words of former Chief Justice, the Honourable Mr. Justice T. F. O'Higgins and affirmed by former Chief Justice, the Honourable Mr. Justice Ronan Keane, is an attempt to seek a meaning for the words in section 53 of the Bill which absolve the national Parliament from any intention to delegate its exclusive power of making or changing the laws.

I cannot see how section 53 can be read in any other way. It specifically says that ministerial orders have effect, notwithstanding the terms of any Act of the Oireachtas or any pre-Independence statue. To the extent that it overrides existing statute law, any such order would have to be taken to implicitly either amend or repeal it. However, the power to amend or repeal statute law is, according to the Supreme Court, a power that the Houses of the Oireachtas cannot delegate to a Minister. The Dáil cannot delegate its exclusive power to make or change the laws. In view of this I propose this amendment. It is important because we have had so much emergency legislation.

The WikiLeaks reports that were reported yesterday inThe Guardian and The Irish Times set out the mindset of Department officials at the fateful time of the bank guarantee. The material in question refers to a perfect storm, to impaired assets constituting 0.5% to 0.8% and to the fact that the media had exaggerated the difficulties in the bank. It states that the issue related to how to unwind the problem assets and that the auditors, PricewaterhouseCoopers, PwC, had a favourable impression of two of the institutions that were examined. It further states that there was a herd mentality that was based on rumour and innuendo. The herd mentality to which it refers revolved around the fact that our reputation had been shredded in the UK, in particular, and in the United States as a result of the actions of two rogue institutions, namely, Anglo Irish Bank and Irish Nationwide.

The US Government representatives indicated at the time that "it may be that government officials are being a bit optimistic in their assessment of the level of impaired assets". The term "optimistic" refers to the belief among officials in this country that the level of impairment, at less than 1%, was negligible. That kind of thinking, which was prevalent when the bank guarantee was introduced, has carried through into the legislation before the House. Those who delivered that guarantee now want us to grant the Minister extraordinary powers and to basically abdicate our constitutional role as a Legislature. The Labour Party will not do that because it is of the view that the Minister is wrong.

According to the memorandum of understanding, the legislation before the House will be replaced, by the end of February, with the type of proper bank resolution legislation required by the IMF and the EU. Why is the Minister seeking to grant himself such extraordinary powers and why does he feel no obligation in respect of this matter? The Bill contains vast secrecy provisions and when it is enacted, we will not be able to discover why the Minister took certain actions in respect of the various institutions. However, we are aware, from media reports and from the Minister's general comments, that the taxpayer will own 90% of AIB. It is proposed in the relevant section of the Bill that Anglo Irish Bank be reorganised and recapitalised. The Minister should read that section into the record in order that people might know what is to occur. Amendment No. 1 seeks to reasonably restrain the Minister from doing something which he is not entitled to do.

I support the amendment. As Deputy Burton stated, the Labour Party is in favour of the introduction of bank resolution legislation. Such legislation was not in place in 2008. Not many Members knew much about bank resolution regimes at that time. However, we have all learned a little about them since. Having waited for a bank resolution Bill since 2008, we have suddenly been presented with one on the day before the House is due to adjourn for the Christmas recess. There is no rebutting the argument advanced by Deputy Burton that this is no way to make law. We have been presented with a complex item of legislation which runs to some 76 sections and we are expected to respond to it on the hoof.

I do not believe the Bill before the House constitutes bank resolution legislation. It certainly does not reflect the bank resolution legislation that has been put in place in other jurisdictions. Rather, it is a temporary measure which is designed to empower the Minister to do certain things, some of which may be in urgent need of being done. For example, it is obvious that AIB plc would be in danger of losing its banking licence after 31 December next if the Minister is not empowered to come to its rescue. A press release from AIB appeared on the Reuters website last night and in it reference is made to the Minister publishing the Bill. The press release in question states "the Minister has indicated the legislation, if passed, will be available to effect, in part, an injection of capital into AIB prior to year end". In other words, what is being stated is that AIB would not be in compliance with the new capital adequacy ratios established by the Financial Regulator by the end of the year. If the bank is to comply with the new capital requirements, the Minister must be in a position to do what he proposes to do.

Under normal circumstances, the provision of a bank resolution regime would be entrusted to the Financial Regulator or to the Central Bank. In the legislation before the House, the Minister proposes to take over that function. He is arrogating unto himself the prudential function relating to the special resolution scheme envisaged in the Bill. That is most unusual. Following the collapse of Northern Rock, the UK authorities introduced temporary legislation to cover a period of six or nine months in which they could get their act together and decide what would be required in respect of a special resolution regime. They then introduced what became the Banking Act 2009.

I would be interested in hearing the Minister's views on why, in the period since 29 September 2008, he has not sought to establish a special resolution regime. At present, his actions appear to be driven by two factors. The first of these is the urgency with regard to the position of AIB and the second is the IMF-EU-ECB agreement, which places certain impositions on the Minister in the context of his ability to intervene, restructure and make changes within the banks, to reallocate sections of one bank to a safer home, etc.

Deputy Burton sought to make the point that the Labour Party is in favour of the introduction of bank resolution legislation. However, it is most unfair to place Members in a position where the legislation has been thrust upon them 24 hours before the House rises for the Christmas recess and then expect them to make a considered response in respect of it. I am not opposed to the Minister taking upon himself powers that are proportionate to the job that must be done. However, any reading of the Bill suggests that it will empower the Minister, without reference to the Houses, to make orders that are contrary to legislation enacted by the Oireachtas and to the provisions of particular laws. This extraordinary power is contained in section 53.

It is important that the interpretation section of the Bill should seek to constrain, in the fashion envisaged in the amendment, the powers of the Minister. The Bill contains a sunset clause which appears to support the view the Labour Party is expressing, namely, that this is not bank resolution legislation. Rather, the Bill is a temporary measure to which certain limited, designated objectives attach. The Minister appeared to imply that, as a result of a requirement contained in the deal with the EU and the IMF, a more comprehensive item of bank resolution legislation will be forthcoming in the spring. Everyone would welcome the introduction of such legislation. In the meantime, however, we must respond to the interim measure before the House. I submit the amendment tabled by Deputy Burton is desirable and the Minister still would have powers that are proportionate to do the job he must do.

The issues that arise in this regard are quite serious. Obviously if Members can resolve this issue, which should be done either by clarification or by vote, one would be able to approach what the Minister seeks to achieve in other sections in a much clearer fashion. Certainly, the case for this amendment that has been made by my colleague, Deputy Burton, is very important. It is simply a fact that clarifications have been given by the highest court in the land on the use or departure from Article 15.2.1° of the Constitution. This is the reason it is appropriate to discuss Deputy Burton's amendment under section 2, the interpretation section, as it goes right to the very beginning and seeks to clarify what precisely is the intent of the legislation, as will be proposed specifically with regard to section 53. In turn, Members should be well aware of section 53's sweeping powers. The section proposes to give the Minister an extraordinary power to override any other instrument and I will outline the issue. It states:

The provisions of this Act, and any order made under this Act, have effect notwithstanding anything in—

(a) the Companies Acts, the Building Societies Act 1989, the Credit Union Act 1997 or any other enactment,

(b) any other rule of law or equity

(c) any code of practice. . .

However, as an ordinary legislator in this House, albeit one who has been here for a long time, may I set out the current position and where the difficulty arises? For example, Members need to discuss significant amendments to the basic consolidated companies legislation. I suggest that legislation in this regard is quite urgently needed. It would have been desirable, and this is a positive, rather than a partisan view, that after November 2008, Members had been provided with research papers and a good discussion on, for example, the role and responsibilities of non-executive directors. Moreover, as a long time has elapsed, I would like to return to the companies legislation pertaining to professional supports and requirements.

Some changes have been made in recent years with regard to the auditing function and so forth, in which a departure from traditional practices has created the capacity for the disaster in which we now find ourselves immersed. However, Members should imagine being engaged in such a review and that one then encounters as passed section 53 of this Bill. The question immediately would arise as to what precisely does the Minister seek to override. Is there a boundary to it in legislative terms? Does it extend beyond the range of this particular Bill and everything that is mentioned in it? This would have been helpful but I make this point in an attempt to tease out the current position in respect of this provision. Unfortunately, section 53(a) provides a citation of other Acts such as the Companies Acts, the Building Societies Act and the Credit Union Act 1997. Consequently, the provision is going beyond the boundaries of what is sought with regard to this legislation.

The Title of the Bill, namely, the Credit Institutions (Stabilisation) Bill, may be enigmatic. Certainly anything that might happen may be more stable than anything of which Members have had recent experience, but the legislation does not resemble the comprehensive bank resolution legislation about which Professor McHale of NUIG wrote last spring. While I wish to be fair, this Bill pertains to the role, competence and entitlements of the Minister to deal with the particular mess as it arises in respect of particular financial institutions.

Another problem arises beyond the constitutional one posed by Article 15.2.1° and the possible compromising of legislation that is beyond the boundary of this particular proposed legislation, namely, the role of the Minister into the future. This is not a personal criticism of this Minister but is a criticism of any Minister of the day. The difficulty is that this legislation appears to deepen the connection between the Minister, as Minister for Finance nominated and agreed by the House as a member of the Government, and the banks. This is a difficult question because the Minister should be able to answer but, at the same time, the Minister to an extent will be almost constrained to defend what has happened. The Minister could reply to that point by stating he will have powers through this legislation to state, for example, that he sought A, B or C but it was not complied with. The legislation may be in existence but non-compliance or the absence of sanctions for such non-compliance will then immediately arise.

I must make a small admission which is that I have written previously about the role of the Department of Finance and Minister for Finance anyway and I wish to provide a tiny example in this regard. Off the top of my head, I refer to section 24(1)(1) of the Ministers and Secretaries Act 1924, which has been comprehensively abused. For example, as a former member of the Cabinet, I recall that one could go to Cabinet and could succeed in an argument with one's Cabinet colleagues. One could reach consensus or, if consensus was not available, some kind of compromise agreement, only to find that this retained power under the aforementioned section would leave one withering on the vine in respect of the approval that was required with regard to, for example, the staffing of a meritorious institution, some of which were associated with my period in office. I remember getting approval for a particular activity and purchasing a premises in the west of Ireland, namely, Turlough House, only for it to be left closed to the public for 18 months because it was pointed out to me that one could not get permission for the approval of staff and so forth. This issue as to what should be the competence of a Minister and of a Department and so forth is a matter for another day. I make this point lest people state that I am always against the Department of Finance. I draw a distinction between the Department and the Minister of the day.

Incidentally, I suggest to the Minister that he needs a protective distance between himself and the functioning of the Department. Moreover, he needs a protective distance between himself and those to whom regulation functions have been delegated. However, his real difficulty lies in him stating that nothing anyone else may legislate, order or do in this area or even outside it will count. He also, in the long list of internal matters pertaining to ministerial orders as to function within a banking institution, leaves himself wide open to the suggestion that had the Minister wished it to be different, he should have specified it. He is moving too close to the institution in respect of performance whereas, under the Constitution, what he is being asked to do is to provide accountability. They are different things and one could state, for example, that the Minister is not in the role of a defender of the faith with regard to what happens in financial decisions but he is in this Chamber to show how the public interest is facilitated. I suggest that while I strongly support the amendment to section 2 tabled by Deputy Burton, it would be very wrong to pass section 53 in its rather vague and widely defined way and Members should vote on that.

Deputy Doherty, we are on section 2. Do you wish to make a contribution? You tabled amendment No. 1.

I agree entirely with the sentiment of the amendment. I do not know how the Minister thinks the President can sign the Bill into law without referring it to the Supreme Court or at least consulting with the Council of State. There will be trouble for this Bill in its current state. I hope there is because I do not want to see legislation passed which incorporates the package from the IMF and the EU. It would do us all a favour if it was referred to the Supreme Court and it found it to be unconstitutional.

On the narrow issue of the amendment, all legislation is subject to the Constitution. It is legislative surplusage to say that section 53 will be subject to the Constitution because it is subject to it. The primacy of the Constitution is fundamental in all the legislation we enact. I do not see the narrow text of the amendment advancing the argument in any way and I am not prepared to accept the amendment in its terms.

More general arguments were raised.

Then we would have to oppose section 53.

I will deal with section 53 and try to persuade the Deputy why he should not oppose it by speaking to the general issues he raised. I have dealt with the narrow issue of the amendment but wider concerns were raised in the course of the debate. It is important to note that section 53 achieves two purposes rather than one, a point which was not noted in the discussion.

First, it states:

The provisions of this Act . . . have effect notwithstanding anything in—

(a) the Companies Acts, the Building Societies Act 1989, the Credit Union Act 1997 or any other enactment,

(b) any other rule of law or equity,

(c) any code of practice made under an enactment,

(d) the listing rules

and so forth.

It has a double effect. Second, it provides that an order made under the Act shall have effect, notwithstanding relevant legislation. There are two distinct objectives in this section and it is important that they are distinguished for the purposes of this discussion.

First, the reason for the extensive recitals is that the Bill reflects a banking emergency and the legislation has limited operation until December 2012 under section 69. Second, the provisions of the Bill are so fundamental that there can be no question as to its primacy over other legislation. The Oireachtas is being invited to approve this qualification of other statutes, such as the Companies Acts, the Building Societies Act and the Credit Union Act 1997. There is an implied repeal of any possible inconsistent provisions in this Bill in order that it, from a legislative prospective, can have full force and effect.

In the course of the argument it was not suggested by any Deputy that the first element was improper or wrong. The discussion was focused on the second element, as I understand it, namely the issue relating to the orders that could be made under the Bill. I am distinguishing between the two aspects of the section and suggesting that no objection was made by any Deputy to the fact that the provisions of the Bill are so fundamental that there has to be an implied repeal of other legislation in the event that there is a possible inconsistency.

The second issue is the question of the orders under the Bill. Orders under the Bill are not binding until sanctioned by the High Court. They override other legislation only to the extent that is permitted under the Bill. Deputy Higgins put the point well in his argument when he invited me to indicate if the Minister can use the powers under this Bill to repeal other legislation. The Minister cannot do that. All a Minister can do under this Bill——-

——is override.

——is look for an order in accordance with the statutory scope of the powers for which the Minister can apply.

For example, the power to give a direction is the most topical because a direction order may be required in the case of AIB. Such an order would be applied for and confirmed by the High Court and would then take full force and effect, notwithstanding the provisions in the listed legislation, the rules of law or equity, the codes of practice, the listing rules, the memo and articles of association of the relevant institution and any agreement to which that institution is a party.

The purpose is not to empower the Minister to repeal legislation, rather, it is to protect orders made under valid legislation enacted or to be enacted by the Oireachtas and to enable the Minister to apply and make these orders, subject to High Court confirmation. Those particular orders cannot be challenged on the basis of some other enactment. The orders are made within the terms of this enactment and that is the second effect of the section. All of this, I have been advised by the Attorney General, is in accordance with the Constitution.

Some wider questions were asked which relate to what we are discussing. The first question was how this Bill relates to the bank resolution legislation which the programme requires us to have published by the end of February. I take issue with Deputy Rabbitte. This is bank resolution legislation in substance as well as form because the most fundamental power in bank resolution legislation is the power to move assets and liabilities and that power is clearly conferred in this Bill.

The power in regard to subordinated debt is a fundamental provision in resolution legislation and is also dealt with in this Bill.

The power is targeted.

The powers regarding capital are also required in a resolution regime. The powers on the appointment of a special manager are frequently found in resolution statutes. The essentials of a resolution regime are contained in this Bill.

Deputy Noonan made the point that these powers would normally be vested in the Governor of the Central Bank and it is intended that the permanent resolution legislation which will be published in February will confer those powers on the Governor. The lead role and responsibility assigned to the Minister under the Bill reflects the huge commitment of State resources to the banking system and the need to safeguard the State's fiscal position in implementing the programme.

In the terms of the facility which has been provided, €50 billion is for drawdown for the purposes of funding the State, for paying our salaries in this House, paying pensioners and discharging current and capital expenditure requirements. Of the balance of €35 billion, we are drawing €17.5 billion from our own reserves in the National Pensions Reserve Fund which is a contingency fund that can be drawn down if required. It is very important that we draw down as little of the contingency fund as possible.

For that reason, the Minister must have a central role in safeguarding the fiscal position of the State which has to be fundamental in the implementation of the Bill. It is also essential that the Minister has wider discretion, drawing on the best expert advice regarding the necessary steps or courses of action that should be embarked upon in seeking to resolve the challenges facing our banking system. Our problems, as all Deputies have recognised in the debate, are sector wide. Therefore, a sector-wide resolution plan is needed urgently.

I and any Minister will work closely with the Governor of the Central Bank but it is imperative that the Minister takes responsibility for this Bill and that is why it is drafted in that way.

Debate adjourned.