Central Bank and Credit Institutions (Resolution) (No. 2) Bill 2011: Second Stage (Resumed)

Question again proposed: "That the Bill be now read a Second Time."

I was speaking here yesterday evening on this Bill, before we went on to Private Members' business. The Bill is designed to have a legislative system in place to deal with banks in difficulty in any future banking crisis. We hope that we will not have to rely on this legislation, because we have had enough banking crises in the past, but we must pass this Bill because it could be necessary in dealing with some of the existing banks at the moment.

Many of the points I made yesterday were in connection with the role of the European Central Bank. I finished up by questioning the continued existence of the Irish Central Bank and the other 26 central banks in the EU. Most banks in those jurisdictions are too big for the local central bank to regulate and oversee. If we have learned anything in the last two years, we now know that this banking problem is a European issue that needs European resolution, and not just piecemeal resolution in each state.

It is unusual for someone in here to call for more powers for Europe, but everybody in Ireland lost confidence in the Irish Central Bank, the financial regulatory system and the banking system. Some of that confidence has been restored by the appointment of new people in those key positions, but those people will not always be there, and there is a strategic weakness in terms of the size of the Irish banks relative to the size of the Irish Central Bank.

The banking crisis has been examined to the nth degree. We have had several reports, including the Honohan report, the Regling-Watson report and the recent Nyberg report. We have also had a number of stress tests of the assets and liabilities of the various banks. The most recent test was carried out by an American organisation known as BlackRock, which took a very pessimistic view, put perhaps it is right to get to the end of it.

This is a heavy duty Bill, and I think there is general fatigue among the public when they hear about bank resolutions, financial crises, Greeks, bailouts, subordinated bonds, unsecured creditors and so on. Be that as it may, we have a responsibility to deal with these issues. In the Irish banking system and the worldwide banking system, there was no liquidity problem until the events of mid-September 2008, when Lehman Brothers collapsed. Access for banks around the world to short-term borrowing became very constrained due to the failure in confidence in the banking system and in the ability of banks to repay.

One can speak of a bank being solvent, in the sense that in time when its assets mature it will provide more than enough money to repay those who have lent money to it, while at the same time a bank can be illiquid in the sense that the bank is unable to pay its borrowings immediately and cannot find other lenders who will tide it over. We have a situation where banks can be solvent in the long term but cannot access funds in the immediate or short term to pay their liabilities that are falling due in the short term. That is what we would call illiquid.

Putting such a solvent bank, even though it might have a liquidity problem, into bankruptcy is unnecessary and will involve an unnecessary cost on the taxpayer. Emergency measures like that should only be taken as a last resort because if given time, the banks could work their way through the system.

There are major costs involved in having a reconstruction system in place. The costs are of two types. The first involves the funds that are required from the taxpayer to fund or eliminate the losses of depositors and creditors while the second, which is far more important for the public, involves the costs that will have been incurred by the taxpayer and which will ensure there are fewer resources as a result of putting the money into an insolvent bank for the economy's medium and long-term growth potential.

The money that goes into a bank is not just the cost of the money but the many purposes that the money could be used for, which is very important. It is, however, necessary to have this new resolution scheme in place. The main reforms, including those in this legislation, will involve the strengthening of regulation, adopting internationally accepted accounting auditing and financial reporting standards and practices and toughening compliance and regulation.

One may ask if this could not be done under existing company law. Company law deals with most situations but normally corporate insolvency procedures are inadequate for banks and other financial institutions and we must explain the reasons for that. The time to act to avoid a run on the bank is after a bank has lost market confidence but before it becomes insolvent. That can be a very narrow window. Insolvency practitioners do not take into account public policy objectives, so banking and banks have a major public policy objective in terms of the availability of credit and a payments system in the economy. A normal insolvency-liquidator process would not take that into account and that is why we need extra provisions to deal with a bank that needs reconstruction, as opposed to ordinary companies that do not have a wider impact on the economy. Also when a bank fails it has greater knock-on effects on the economy than a local business that fails.

I am pleased that the legislation is beginning to recognise the issue of bank liquidation. For a long time I have opposed the view that a bank is too big to fail. A bank is a business like any other business and the consequences of a bank failing are far more serious, grave and important, but that does not mean that banks are what may be termed "sacred cows" and should not be allowed to fail. The circumstances in which it can happen have to be specific and an absolute last resort from the taxpayers' point of view but that option must always be there. The resolution regime in terms of liquidation of banks means there must be specific reasons for placing the bank in liquidation and terminating its banking activities.

It is also essential that under this legislation it is made very clear that this can only happen if in the opinion of the Central Bank, the winding up of the bank is in the public interest. People who owe money or are owed money by a bank cannot put a bank into liquidation as happens in cases of other normal commercial debts. A bank is different and it can only be put into liquidation with the say of the Central Bank. It is also possible that if credit unions are unstable or, in the opinion of the Central Bank, may be unable to meet their obligations to creditors and have failed to comply with a direction of the Cental Bank, there are then reasons that they should be put into liquidation. It is important that we discuss that issue as we have shied away from doing so on several occasions.

In the legislation before us, section 6 refers to the independence of the Governor of the Central Bank. I have a major problem with that. I cannot see how it can work in practice. The Governor of the Central Bank, Professor Patrick Honohan, has said on various occasions when he is in Dublin he is Governor of the Central Bank in Dublin but when he attends a meeting in Frankfurt he is not the Governor of the Central Bank in Dublin but a member of the board of the European Central Bank. These are two different roles with two different objectives but one cannot divide oneself into two halves. This is a flaw with all the legislation across the EU.

l suspect that in years to come we will have legislation across the EU countries, and especially those in the eurozone, for one strengthened Central Bank to deal with these banking issues. We are tinkering at the seams of the problem at the moment. What we have to do is necessary in the short-term crises in which we find ourselves but in the calm light of day, when the banking crisis is behind us — it might be in five or ten years — we will have a stronger central bank at European level to deal with all the banks in Europe.

We all know that if the Irish Central Bank wants to close a bank it will have to get permission from the European Central Bank on any major action in which it wishes to engage. By definition that proves that the Irish Central Bank does not have autonomy. Anyone who believes that the Irish Central Bank has autonomy in regard to currency, exchange rates or any major function one would normally associate with a central bank is mistaken because such functions have long been obsolete since we joined the euro. We have not yet managed in our national psyche to accept this reality. It is a nationalistic wish to hold as much authority as we can in these areas but I see the time coming when we will have a strengthened European Central Bank and these decisions would be made on a broader European basis for the good of all our citizens.

I very much welcome this Bill. It is part and parcel of an overhaul of the financial system in the country. We are following on from a part of an EU framework, which comprises of three parts, namely, preparatory and preventative, early supervision-intervention and also resolution tools and powers. We are now discussing the resolution tools and powers associated with it.

Sadly, this legislation is at least five years too late. If this legislation had been in place in 2005, we would not be in the same financial crisis that we are in now. I welcome the legislation as I can see what the Minister is trying to do in parts of it, particularly when the Governor of the Central Bank will be appointing someone who will be suitably qualified to take on the role of manager of a failed financial institution. However, I have some concerns.

I compliment the late Deputy Brian Lenihan for his initiative in appointing Professor Honohan as Governor of the Central Bank. It was the first time in more than 60 years that a non-civil servant was appointed as Governor. That must be welcomed as the head of the Civil Service should not necessarily be appointed to the office of Governor of the Central Bank.

There are a number of issues that are of concern to me in the legislation. The intervention conditions are very vague. The Minister has indicated that there will be a certain number of amendments but the whole problem with intervention is that the information must flow from the financial institution. We have had problems in the past where that type of information did not flow from the financial institution to the Central Bank. The problem was that banks refused to pass on the information that was crucial for decisions to be made up the lines. When the banks came to the Government in November 2008 they failed to correctly inform it of their overall debts. It was not until two years later that we got some sort of indication of how serious the problem was.

The next link in the chain concerns the role of auditors. The auditors failed the Irish financial system and the Irish people.

In the past 15 years, auditors have consolidated internationally and that has reflected badly on world economic affairs. There were at least eight auditors 15 years ago but now there are four internationally recognised auditors, with each of them directly or indirectly involved in auditing the four main banks. There were five auditors ten years ago but Arthur Andersen virtually collapsed as a result of the Enron affair, leaving only four globally recognised auditing firms. In the last ten years, there were only two changes in bank auditors in the Irish financial system. Ernst & Young were replaced by Deloitte & Touche in Anglo Irish Bank and KPMG replaced PricewaterhouseCoopers after the Rusnak affair, which cost AIB just €690 million.

Auditors had a responsibility to report to the bank and to the Financial Regulator. There were two options if they had done their work properly. The soft option was to inform the credit institution and the audit committee, along with the Financial Regulator, of the serious problems associated with the bank's balance sheet. If there was no response to that, the auditors could have resigned in the midst of doing an audit, which might have led to serious problems for the bank with a potential run on assets and cash. During the entire period of the financial crisis, however, no bank auditor resigned.

The third step up the ladder before the information reaches the Governor of the Central Bank is the regulator. Many celebrity economists would recognise the maxim that regulatory bodies, like those who comprise them, have a marked life cycle: in youth, they are vigorous, aggressive, evangelistic and even intolerant; later they mellow and in old age, after ten or 15 years, they become, with some exceptions, either an arm of the industry they are regulating or senile. That was the problem with the regulators here, they became an arm of the industry or senile. This was written in 1954 about the crash in 1929 and it is as relevant today as it was then.

While I welcome the Bill, I am interested in seeing the amendments on intervention. I hope the conditions put down for the Governor of the Central Bank intervening in financial institutions that are experiencing difficulties will be made clear and the reporting of this will give an indication to the Governor of the Central Bank that he can step in as necessary.

I welcome the Central Bank and Credit Institutions (Resolution) (No. 2) Bill 2011. It addresses the vacuum that faced the authorities when the blanket guarantee was introduced on 29 September 2008. Banks are a different type of corporate entity than non-banks and non-credit institutions. When they hit difficulties as a result of insolvency or illiquidity, the corrective regime, the rehabilitation regime or the resolution regime is going to be different. This Bill sets out under the relevant Parts the way to approach the situation when a credit institution gets into severe difficulties.

The framework for dealing with the situation is spelled out. The important ingredients that must be addressed include clarity in the legality of a resolution regime, the operational trigger points, the legal mandate and the autonomy requirement, where the banking authorities should be endowed with operational autonomy adequate to the legal powers and the human and budgetary resources necessary to effectively perform their functions free from external pressure, and the Bill addresses all of those. The co-ordination aspect that is required is also met by the sections of the Bill.

When we look back over our experience over the period from 2003 to the present, in retrospect we saw the institutions going out of control. There are principles of banking that were completely abandoned, such as the basic prudential principle of fractional reserving, whereby high street banks reserve a proportion of their deposits before they will lend out the remainder. That was clearly abandoned when we see loan to customer deposit ratios in the banks averaging in the six Irish-owned institutions in excess of 165%; in one instance it stood at 300%.

The failure at the time was that while there may have been a degree of supervision, it was very lax and there was no follow through. That was discovered by Patrick Honohan when he was compiling his report and Max Watson and Claus Regling also saw it while drawing up their report. No matter what legislation we put in place, it will be imperative that the follow through on the execution of the requirements of that legislation is conducted properly. In the case even of the very poor supervision in the past, there was no follow-up even to some of the findings that indicated things were amiss. It is important there is complete and effective follow-up to whatever is prescribed in legislation.

We need to see the international context. Similar behaviour and a similar lack of effective legislation and supervision occurred elsewhere. That is why the crisis was pan-European and global. It is a pity this legislation, as previous speakers pointed out, is coming after the horse has bolted. It is important, however, to have this legislation in place in case we arrive at a time in future where institutions are in a weak or unviable situation. We must protect the stability of the financial system in the State and also the interests of savers and depositors. The Bill does that. Accordingly, I would recommend it to the House.

There are amendments to follow. They will be important because the amendments come after people have read, digested and considered the Bill and when the proofing of the legislation is put in place.

A systematic resolution framework is what is required for financial institutions. They are different from other types of business enterprise. The all-important safety of depositors and savers is paramount. Even in the past three years where there have been failures, not alone in this country but abroad, there were huge shortcomings in the resolution frameworks in other jurisdictions. Our legislators have put together a commendable initial framework for dealing with the situations. The particular sections that deal with the elements of the framework are clear. The trigger points for assessment for when intervention is needed and action must follow are also fair and clear. Previous speakers on the opposite side have mentioned that there could be an element of tension between our own Central Bank, which will be the overarching authority for this resolution regime, the European level and the European Central Bank. The forthcoming amendments will address that type of situation. Overall, I join my colleagues, Deputy Lawlor, the preceding speaker and the Minister in recommending the Bill to the House.

My first problem with the Bill — I have many — is the Title. The use of the word "Resolution" in this sense is gobbledygook. Why do we not call it "The Bill to Provide for the Bailout of the Private Banking Sector when it gets into Trouble, Potentially at the Taxpayers Expense"?

Section 4, at paragraph (f), is much clearer on the purpose of the Bill. It states:

[T]o provide a mechanism to prevent the financial instability, or threat to the financial stability, of an authorised credit institution [May I say "bank" for simplicity] contributing to financial instability of any other...[bank], the financial system or the economy, and to avoid creating a risk of such financial instability.

That is my first major problem as we are suffering the current economic catastrophe because banks have wrecked the economy, created massive financial instability and then economic instability. The question is not asked at all in the legislation why that happened, how it happened and why it was allowed to happen.

The first issue that should underlie any legislation in response to the present catastrophe is why private institutions, major banks, hedge funds, major insurance companies and assorted other speculative agencies are afforded such power as to be in a position to wreak havoc on an economy as a result of their activities, which means wreak havoc on society, on the livelihoods and lives of tens and hundreds of millions of people. Why should financial institutions such as banks be given such power that their actions can therefore result not just in national crisis but worldwide systemic crisis affecting the lives of countless millions?

What are banks? What are the credit institutions? They are institutions run by unelected, self-perpetuating cliques, thoroughly undemocratic in how they operate. They are unaccountable to the people whose lives they wreck, the vast majority of people in society. They are faceless and unelected in any democratic sense of the term. Their primary function is to make massive profits for their private, corporate owners.

All one has to do is look at the major international banks that were up to their necks in speculation on the sub-prime mortgage situation in the United States, which laid the basis on the toxic debt that it built up, the bundling of that toxic debt and its sale all over the world for the massive economic crisis of 2008. Let us take one such bank that was intimately involved in the sub-prime mortgage crisis, Goldman Sachs. In the Rolling Stone magazine in 2010, Matt Taibbi summed up brilliantly the role of Goldman Sachs, a major international bank, in the woes that have been created for working people throughout the world including in this country. He wrote:

The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled dry American empire, reads like a Who's Who of Goldman Sachs graduates.

The Bill has nothing to say on the ethical question of why such institutions should continue to be afforded such power over the lives of hundreds of millions of people in the world. In fact, it accepts that private corporate ownership and the massive power that the institutions are afforded in society and then proceeds to legislate weakly and feebly on the situation.

Mr Peter Sutherland is the chairman of Goldman Sachs International and by coincidence is a Fine Gael grandee as well. Last year Mr. Sutherland rather sternly warned the working people in this country that the cuts that were to be imposed in the following budget of December 2010 were not enough. He said the cuts should be far greater and he argued against a slower rate of budget cuts, saying:

This simply will not fly as an option. Any weakness in one budget will be punished by the market in a manner which we will be unable to take.

People such as Mr. Sutherland have some audacity in lecturing us, in view of the role of the institution of which he is a key linchpin in the crisis we face at present. He declares that any weakness will be punished by the market and never asks the question, as most of our media never ask, of who or what is the market. The market is spoken of as if it were a divine power, raised over society, whose every edict must be obeyed and in front of whom ordinary people have to be sacrificed. Martyn Turner's cartoon in last Friday's The Irish Times brilliantly encompasses this idea. There is a high priest of the troika — ECB, EU and IMF — sacrificing the Greek people on an altar while declaring “O gods of the markets, banking & business behold our sacrifice....”. Ominously, the next unfortunate in the line, trussed up to be put on the fire, is Ireland, followed by Portugal. That sums up, in a simple cartoon, the truth about which the establishment in this country, from RTE right across the media, has not been prepared to be truthful. Who or what are these markets that Mr. Sutherland, the chairman of Goldman Sachs, warns us not to upset? Lo and behold, Mr. Sutherland is talking about himself, as a corporate entity.

Some time ago, when the paramilitary campaigns were going on in Northern Ireland — they were reactionary, disgusting campaigns, but we cannot get into that now — there was a joke among the establishment media. When the leadership of Sinn Féin said seriously and with great deliberation that they would talk to the IRA, the response was that they would just have to go into a room and talk to themselves. We have had no such exposure of the reality with regard to the markets. These grandees, whether they are Fine Gael members or establishment figures from all over the world, whose words warn us that we must accept cuts in public expenditure, through privatisation and so on because otherwise the markets will create havoc in Spain, are talking about institutions in which they themselves are intimately involved. We have had a cover-up of that reality and this Bill simply carries on that cover-up. Goldman Sachs, again, made a fortune on the sub-prime market when it was on the up and then, with consummate cynicism, seeing that it was going to collapse, bet on its collapse and made a fortune when it was on the way down. These are the institutions in front of which a supposedly sovereign Irish Government, the Greek Government, and an EU whose leadership used to lecture me weekly, when I was in the European Parliament, on what a great democratic institution it was, fall on their faces. They demand that European workers accept these massive cuts to jobs, living standards and public services to satisfy the markets. It is incredible.

We see the chaos that the market system is causing our fellow citizens in Greece at present. Happily, the Greek working class is fighting this vicious attack on them with a magnificent 48-hour strike. The media, of course, will home in on the few fellows with black masks who are burning things, most of whom are agents provocateurs from the police trying to discredit the movement, but not dwell on the millions of workers who are taking strike action and using their power in a very disciplined fashion. Our interest lies with them.

Will this Bill solve or provide a basis for a solution to the disasters caused by private corporate ownership of the financial system — in other words, the markets? No. It is a recipe for more bailouts into the future. This system is subject to crisis after crisis as a result of how it is set up and as a result of the private ownership of these massive financial institutions and their lust for profit.

Sections 9, 10 and 11 of the Bill deal with financial input into a fund to guard against losses in the future. It states, rather vaguely, that it should grow over time to try to meet contingencies that would arise. Does anybody think that, for example, such a fund in Anglo Irish Bank would rise to anything like the €30 billion or €35 billion that Irish sovereign Governments are forcing the taxpayer to put in to salvage the wreckage it created?

Section 11 states that the Minister may contribute to the fund — with taxpayers' money, of course — and that he or she "is entitled to be reimbursed from the Fund for all contributions". The wording is not "shall be reimbursed" but "is entitled to be reimbursed". This is simply a recipe for putting more taxpayers' money in to bail out private institutions, which will find other subterfuges for sucking money out of ordinary people, as they have done on the subprime market and in other areas. The Nyberg report is very clear in this regard; I am surprised Deputy Mathews did not refer to it. Incidentally, when writing about the dictatorship of the markets, Nyberg states that in 2008, when it was thought that problems were coming down the line, one reason resolution legislation could not be considered was that if the news had got out that it was being drafted it could have had a serious destabilising effect on the markets. It is quite incredible. Nyberg also states: "However, the existence of a resolution regime in itself would not necessarily have been a panacea to avoid high fiscal costs to the State in the absence of burden sharing with creditors." In other words, it would not have made a blind bit of difference in reality.

I have no confidence whatsoever in the powers given to the Central Bank. The Central Bank and its leadership played a baleful role in the Irish banking crisis. It did not attempt to restrain the profiteering and racketeering that was going on and the outrageous exploitation of young working people when the prices of homes were being doubled, trebled and quadrupled and bankers and developers were raking it in in the most obscene fashion. It was then central to bouncing the Fianna Fáil-Green Party Government into bringing in the troika. It was obviously a tottering, rotten Government that had no moral authority whatsoever. Why did the Governor of the Central Bank facilitate those coming in to carry out the agenda of the ECB and the EU — that is, to save the massive German, British, French and other financial institutions on the backs of the Irish working class? We are now expected to have confidence in this institution to play a central role in resolving any further or future banking crisis. No way. The alternative is to get rid of this diseased system in which faceless and unelected corporations and individuals have so much power over society. It is time for democratic control and public ownership of the financial system so that its activities are geared towards the well-being and development of society and its people, as well as the creation of employment. This must be extended across Europe. If the Irish people were to adopt such a demand, millions of Europeans from Greece, Portugal and Spain would join them because they are also suffering from this diseased system and the parasites who run it.

Níl an Bille seo, ar a ngairtear Acht do dhéanamh socrú maidir le córas réitigh éifeachtach dlúsúil d'fhorais creidmheasa áirithe ar an gcostas is lú don Stát, sásúil ar chor ar bith, mar nach dtéann sé go croí lár na faidhbe atá againn i láthair na huaire nó go croí lár an fhátha go bhfuil an fhadhb úafásach san chóras airgeadais, agus dá bhrí sin san chóras eacnamaíochta, i láthair na huaire. Bunús na faidhbe ná úinéireacht príobháideach ar chorporáidí móra, ar institiúidí airgeadais, ar bhainc agus a leithéid agus úsáid na hinstitiúidí úd mar thobair do bhrabús thar fóir dóibh féin. Dá bhrí sin, tá an cumhacht ollmhór eacnamaíochta á ligean leis na hinstitiúidí seo agus ciallaíonn sé sin go n-éireoidh na fadhbanna ceanann céanna arís agus arís eile. Ní théann an Bille i ndeighleáil leis an bhfadhb úd.

Dá bhrí sin, úinéireacht poiblí faoi stiúriú daonlathach atá ag teastáil maidir leis na hinstitiúidí airgeadais agus leis an gcóras airgeadais. Go dtí go mbeidh córas den tsaghas sin againn beidh an saghas géarchéim atá againn i láthair na huaire arís agus arís eile go mbeidh na milliún de lucht oibre na tíre seo agus na hEorpa thíos leis sin. Dá bhrí sin, caithfimid dlús a chur leis an díospóireacht maidir le malairt ar an gcóras airgeadais, ó thaobh an tsochaí agus ó thaobh thromlach na ndaoine de. I mo thuairim is í an mhalairt shóisialach ar cheart dúinn a chur chun cinn.

I wish to share time with Deputy Terence Flanagan.

Is that agreed? Agreed.

Of the three major banking reports, the Honohan and Nyberg reports stated if a resolution mechanism had been in place at the time of the initial banking crisis, public losses would have been considerably reduced. Therein lies the rationale behind this overdue legislation. The Central Bank and Credit Institutions (Resolution) (No. 2) Bill 2011 will create a permanent and special resolution regime, involving a resolution fund managed by the Central Bank. Up to 40 banks and building societies, along with 400 credit unions, will pay into this fund. This welcome and meritorious development will, in contemporary jargon, constitute a form of burden sharing, albeit a tentative one. It will also have a regulatory effect in itself in that the banks will be contributing to the outcome of their own possible future misdemeanours.

The legislation also provides for a transfer order to move deposits from one institution to another, for special management orders to put in place special managers, for bridge-banking and a modified liquidation process. It covers the entire eventuality around the collapse of one or several banking institutions. In June 2008, there had been discussions on these types of proposals but at the time it was decided not to go ahead with them for a combination of reasons. In hindsight, this was a regrettable and regressive decision.

This legislation does not preclude the need for a proper regulatory process in our banks. While considerable progress has been made in this area, vigilance needs to be maintained. Neither does the legislation preclude the need for the rationalisation of the banks. I welcome the Minister for Finance, Deputy Michael Noonan's, initiatives in this area with the designation of the two pillar banks.

All these exercises and measures, however, are needed to create a normal banking environment. The Honohan, Regling and Watson and Nyberg reports established several phenomena in the Irish banking sector including bad governance, poor management, overdependency on single assets, namely property, and insufficient regulation. While the banks' management structures stand condemned, the then Government, as the custodian of the people's interests, must do so also. It failed both to set the agenda and keep a watching brief.

The banking system has still not returned to normal, in that there is insufficient credit available to small businesses. Credit availability is the great need in our economy to kick-start its recovery. Allied Irish Banks and Bank of Ireland are committed to lending €12 billion between 2010 and 2012. This injection of new credit into small businesses needs to be monitored on a monthly basis, a commitment made in the programme for Government. Will the Minister for Finance confirm this arrangement will be put in place? We need small businesses to thrive again and employment to be created. While today, at least we had the launch of the national internship scheme, we need small businesses to create the single job here and there which, in turn, will generate the economic recovery of our small towns and communities.

In 2007, some 90% of small and medium-sized enterprise loan applications were granted. In 2010, this figure dropped to 50%. This, along with the overall drop in the number of loan applications, tells how incomplete the banking system has become and how limited credit availability has become for our small and medium-sized enterprise sector. These are not good developments and they illustrate the fact that we have moved from one extreme to another.

In addition to dealing with the structural issues involved, the regulatory process, the doomsday scenario the legislation is designed to tackle, the matter of lending, we must also consider the broader picture. The Minister, Deputy Michael Noonan, is to be congratulated on the statement he made in Washington to the effect that we will ask unsecured senior bondholders in Anglo Irish Bank to share losses. That is both a progressive and necessary step. It is correct that the Minister should go through the process with the ECB because a solution must be found. The position with regard to Greece underlines that fact. There is a risk of contagion and Spain, Portugal, Italy and Ireland are in a perilous position. The position of Greece is even more perilous. As a result, there will be a need for a pan-European or at least a broad-based European solution to this problem.

Europe will be obliged to return to the drawing board. It is unreasonable that taxpayers in this country and those in other member states should be obliged to accept all of the losses involved. Those who hold bonds — senior unsecured bondholders and others — invest with a view to making a profit. When the wind is at their back, these people accept profit. When it blows against them, they should be asked to accept their losses. The losses must not be transferred on to taxpayers.

If the situation regarding Greece brings anything into focus it is the fact that the EU, the ECB and the IMF — the so-called troika — must come together in order to resolve this issue. I am of the view that a pan-European solution will be required. In the context of interest rates, the terms of our loans will have to be changed and the length of time applying to repayments will have to be extended. In addition, bondholders are going to be obliged to accept significant losses. The same type of prudential financial management that has been imposed on countries such as Ireland should also be imposed on a broader European basis. The Minister, Deputy Noonan, both in terms of his stewardship of the domestic economy and in the context of the initiatives he has taken at international level, has moved us a fair distance into our journey. However, he must be joined by his partners in Europe.

I commend the legislation, which is an important step in the process of rectifying what was a horrendous wrong, to the House. We can only learn from the terrible situation into which we have been placed in the context of building a better future for coming generations.

Like most Members, I welcome the Bill. It will ensure speedy solutions in the context of the winding down of Irish banks and other credit institutions encountering serious financial difficulties. As previous speakers indicated, it is under the terms of the EU-IMF deal that the special resolution regime is being introduced. I am delighted that the Minister has decided to introduce such a regime immediately.

The current financial crisis has highlighted the shortcomings of both the current system and those of the previous Government, which continued to bail out reckless institutions, thereby bringing the country to the brink. As a result of the unique status of banks, particularly in the context of their taking deposits and lending and the fact that they are systemically important, it is essential that the special resolution regime be implemented as soon as possible. Certain countries such as Japan, America and Canada have had resolution regimes in place for many years. The Minister for Finance, Deputy Noonan, stated that the Bill represents an important step in ensuring that the Central Bank will have the necessary powers to promptly and effectively resolve distressed institutions when they pose a risk to the financial stability of the State.

What we require are speedy resolutions which can be done at the lowest possible cost to the State. Billions of euro have been poured into the banks to date and this is turning out to be one of the most expensive resolution regimes ever. If the legislation before the House had been introduced previously, Ireland would be in a much better position.

The purpose of the Bill is to manage the winding up of insolvent institutions and to reorganise institutions which are in difficulty. The Bill will apply to authorised credit institutions such as every bank that is licensed, every building society that is incorporated and every credit union that is registered in the State. Unlike the Credit Institutions Stabilisation Act 2010, the provisions of the Bill will apply to banks regardless of whether they have received financial support from the State. The latter Credit Institutions Stabilisation Act is due to expire on 31 December 2012 and, therefore, the Bill before the House will come into effect from 1 January 2013.

In the past the relevant authorities have been forced to deal with troubled banks through regular corporate insolvency procedures. It is not correct that ordinary banks are obliged to go down the same road as companies which are in examinership or administration and that the same rule of law applies to both. Normal insolvency procedures are inappropriate because they can only be implemented when an institution is already insolvent and when depositors have long since departed. At that point, it is already too late. At present, all the Minister can do is either apply traditional corporate bankruptcy laws or inject public money into the banks, thereby nationalising them. We have all witnessed the devastating effects to which the latter method can give rise. The previous Government took us down the wrong road in that regard.

The Bill provides an alternative method for dealing with credit institutions in difficulty. Its provisions are detailed, lengthy and complex. Under those provisions, the credit institutions resolution fund is to be established. That is a welcome development because from now on the banking industry will be responsible for looking after its own affairs and dealing with its own mistakes. As a result, taxpayers will not be obliged to bear the burden. All authorised banks, financial institutions and credit unions will be obliged to contribute to the resolution fund. The Minister will also make a contribution to it.

It is important that the resolution fund should not be used to recapitalise failing institutions but rather to ensure that there will be sufficient resources available to deal with the various resolution costs relating to the winding down of an institution.

Under the Bill, the Central Bank will be in a position to establish a bridge bank. Such a bank will, on a temporary basis, hold the assets and liabilities of an institution that is in trouble. The benefit of a bridge bank is that it will allow a failed institution to continue to operate until a buyer can be found. This will allow for a swift and orderly resolution of such an institution while transfer negotiations take place. The powers of the Central Bank will be beefed up to a considerable degree under section 8. The power to order the transfer of specified assets and-or liabilities of an authorised credit institution to a bridge bank is contained in the Bill.

Provision is also made for special management orders. Under these, the Central Bank will be in a position to appoint a special manager to an authorised credit institution that is in difficulty for a fixed period. The decisions made by a special manager will obviously supersede those taken by the members of the relevant institution. He or she will, therefore, have a great deal of power at his or her disposal. He or she will also have the power to make decisions regarding the remuneration of the directors and officers of the institution. That is an extremely important development, particularly in light of recent reports in the press.

The Bill will empower the Central Bank to present a petition to the High Court for the winding up of a credit institution on specified grounds, for example, where the bank is of the opinion that this is in the public interest. Only the Central Bank will have the power to appoint a liquidator and it will be obliged to ensure that all of the depositors in an institution will be repaid their moneys up to the required amount of €100,000. This money can be transferred into another authorised credit institution and held there on behalf of depositors while the first institution is being wound down.

Under the provisions of the Bill, the Central Bank may direct an authorised credit institution to prepare and implement a recovery plan in order to try to turn business around and, if possible, haul the relevant bank back from the brink. The Central Bank itself may prepare a resolution plan and this plan will set out the bank's preparations on a contingency basis for the exercise of its functions under the Bill with regard to a credit institution.

The Bill also introduces various miscellaneous provisions, one of which relates to the confidentiality of a proposed order that is to be made. It shall be an offence to publish information relating to the making of the proposed order and there must be adherence to confidentiality. This important power provided in the Bill is crucial to ensuring the confidence of depositors is maintained at all times. There will already be enough uncertainty and lack of confidence in the institution if it is about to fail and the resolution process to be adopted by the Central Bank must not add to that.

The Bill also restricts rights of judicial review in respect of decisions made under the Bill. It is vital the right decisions are made and limitations on rights of appeal to the Supreme Court are justified. It is in the public interest that the Central Bank will take decisive action to prevent a run on deposits of any failing credit institution. Nobody wants to see that happen in the future.

If this Bill had been enacted in the past, it would have saved the taxpayer billions of euro. If it had been enacted prior to 2008, the situation that occurred with Anglo Irish Bank would have been dealt with more efficiently and in a less costly manner and taxpayers would not face the bill they must now pay. It is crucial we plan now to ensure that the situation which happened with Anglo Irish Bank and our other banks does not happen again and that we provide confidence for any new bank and all deposit takers and lenders that privately owned banks of systemic importance will have an effective resolution process available. I support the Minister and this Bill. It is in the interest of taxpayers that the least amount is paid out in the future if we have another failed bank.

I wish to share my time with Deputy Dara Calleary.

Is that agreed? Agreed.

I welcome the opportunity to contribute on this Bill. It is well known that this Bill was initiated in the Seanad by the previous Minister for Finance, the late Brian Lenihan. Therefore, it is effectively the same Fianna Fáil Bill and is almost word for word what was set out then. While I do not want to make a political issue of it, I welcome the fact that the Government continues to deal with the crisis in a similar manner, particularly with regard to the enactment of legislation along the lines set out by the previous Minister and Government.

I welcome that the Bill is being put forward now to ensure the situation can be resolved in the event of a similar crisis occurring such as that which occurred in 2008. Prior to the election, the approach suggested by some was that it would be possible to force burden sharing on various bondholders. That has not been possible.

It has not been possible yet.

Not yet. I wish the Government side well in that regard. Like all Members, I would like to see a situation develop where the exposure to the taxpayer is limited to the greatest extent possible. I know people on all sides of the House, and the previous Government, approached this crisis from the viewpoint of bringing about burden sharing, but that was not possible because of the way in which the ECB, in particular, sought to prevent a situation where senior bondholders would be required to share the burden at that time.

The losses were not known.

I accept that. If the Deputy works with me I will try to tease out the issue for him. The ECB set its face against that, which was regrettable. I welcome the continued efforts by the current Government and the Minister for Finance to try to ensure that on the broader level, in terms of the resolution of the financial crisis, pressure will be brought to bear on the ECB to ensure burden sharing ultimately becomes a reality. However, it cannot be done in isolation.

I do not want to harp back to the election debate, but some of the then Opposition Members, who are now in Government, sought to create the impression that it was only a matter of senior members of the Government taking themselves to Europe and facing down those who set their faces against burden sharing. The suggestion was that if the proper negotiators were in place, the issue could be resolved. They are now learning the lesson that it is not quite as easy as that.

It is interesting that the Minister for Finance, recognising some of the commitments of his backbenchers and his banking expert, Deputy Mathews, and that he had not been able to achieve success in that regard, took himself to New York recently.

It is early days yet.

On the 99th day in Government he set about keeping the ball in the air by suggesting that burden sharing would be sought by the Government and it would take a strong and proactive approach in Europe. At the same time, he did not face the issue with those who most objected to it, namely, the ECB. It is interesting that although making that suggestion, unsecured and unguaranteed bondholders are still being paid off — even this week. Our spokesperson, Deputy Michael McGrath, already alluded to that in his contribution. The Minister continues to pay off unsecured and unguaranteed bondholders and still has not addressed the issue.

Some €8 billion was paid off before the former Minister——

Allow the Deputy to continue.

As Deputy Mathews knows, the ECB is still set against it. While the millions are relatively small in comparison with the requirement in November to settle €1 billion, I wish the Government well in its efforts. Hopefully it can find a resolution to the matter.

To remind Deputy Mathews, the Minister, Deputy Leo Varadkar, indicated in the course of the election campaign that not another cent would be provided to the main banks here until such time as senior bondholders took a share of the burden associated with the debt. Sadly, the Government has had to continue to deal in the same way as we did with the issue, because of the situation with the ECB. The point I am trying to make is that while this legislation is helpful and important and while it continues with the train of legislation we started, of itself it does not set a new direction because we still have the difficulty in terms of the ECB's position with regard to allowing the failure of a bank and, in particular, the sharing of the burden by senior bondholders.

I am taking the same direction.

Deputy Mathews has had his say.

I am happy to allow Deputy Mathews make his point.

Is the Deputy giving way?

Yes, I will hear his point.

I and others have consistently aimed in the same direction, with further energy and force developing as we speak, with a view to showing that the losses in our banking system need to be shared by those who financed them indirectly, including the ECB.

Thank you. I have always recognised the Deputy's consistency on this matter. The only question I raise in my contribution is that while the Deputy set out a clear pattern in advance of the election as to how this might be resolved, his party leadership and the Minister for Finance have not necessarily followed the path set out prior to the election.

It was mentioned——

I have taken the Deputy's point once and will try to answer it. It has been recognised that the problem is not as easy to solve as was first believed.

We are trying to unlock——

The legislation clearly provides a permanent regime for credit institutions and banks that get into trouble. It is a technical but clearly vital framework to deal with future problems. While it places on a permanent footing a systematic approach to dealing with previously covered troubled financial institutions, it still leaves outstanding the issue of trying to achieve a much broader approach across Europe to the institutions.

In this context, it is worth recognising the relative advances that have been made in Greece today. At least its Parliament has faced up to the crisis it faces and which we all face collectively. It is welcome that Greece has taken what we might consider the first step by passing the motion to ensure the commencement of privatisation and the very serious curtailment required. There are a number of other steps to be taken. Member states across the Union have indicated willingness to consider a further bailout, which I understand will be necessary in August. Notwithstanding that, there is a very serious crisis that has the capacity to overshadow the particularly good work that has been done on a cross-party basis, bearing in mind the process my party started. It must be recognised that there are further steps to be taken.

It was interesting to note that President Sarkozy talked in recent days about French banks considering the roll-over of certain bonds, albeit voluntarily. This is interesting because it is the first step——

——towards the concept of burden-sharing. Some might argue this would once have constituted default. The voluntary nature of the exercise may allow the language to change slightly so we do not enter the default process which is considered to be very negative from the market's perspective. Over time, euphemisms will be found for "default" and "burden-sharing" that will become more palatable.

I doubt the word "bankruptcy" will be the euphemism to deal with it. I am sure that, over time, there will be an accommodation.

We discussed on a number of occasions the surmounting of the crisis created by the way in which the Taoiseach entered his first meeting with President Sarkozy as part of his first foray as Taoiseach. There was an interesting tête-à-tête that resulted in the stand-off over the interest rate. As soon as we can have clarity on this, the better. I would be very concerned if we rejected the notion of an increase to the corporate tax rate yet were somehow prepared to give way on the CCCTB issue, or allowed some linguistic accommodation that gave both sides to believe they had won. Most Members on this side of the House believe there can be no accommodation on this issue. We must be very clear that CCCTB is tax harmonisation by the back door and we must set our face totally against it.

This is the first occasion on which I have been in the Chamber in the presence of Deputy Ring in his capacity as Minister of State at the Department of Transport, Tourism and Sport. While I have congratulated him outside the Chamber, I want to do so on the record. In his first 120 days in office, Irish sportspeople have won medals at the 2011 European Amateur Boxing Championships and at the Special Olympics World Games and I am sure the all-Ireland is only a few months ahead of us.

I genuinely wish the Minister of State well. The Ceann Comhairle was one of the his predecessors in his Department.

On a sad note, this is the first occasion on which I have been in the Chamber discussing economics since the death of our colleague and my good friend, Brian Lenihan. His fingerprints and design are all over this Bill. This is an appropriate occasion in which to remember him as a fantastic parliamentarian and as a man who did his best, in incredibly difficult circumstances, to address the issues this Bill deals with.

There is no doubt that the Bill vastly improves the country's ability to respond to crises that may erupt. While we say that in the full knowledge that the horse has bolted and the stable door is well and truly broken, we must ensure there is never a return to the banking and fiscal practices that led us to where we are today. We must ensure there are immediate-response mechanisms to deal with incidents such as those that have led us to where we are. As sure as night follows day, in 20 or 25 years, at which time all of us will probably be gone from this Chamber, with any luck, banking systems will revert to the practices that led us to where we are. The devastation caused across the world, including in Ireland, will be forgotten about and profit and the euro will again become the Mecca that guides the banking industry. I will not say we are showing humility at present but contend that any changes made now must be made to prevent this and to ensure there are sufficient protections in place for banking customers and countries.

Deputies Dooley and Mathews implied this Bill forms part of the European Commission's response. The Commission calls it a framework for crisis management. Now in 2011, three years since the beginning of the crisis, the Commission has finally decided to produce a framework for crisis management. The difficulty, as touched upon in the previous contribution, is that while the Commission produces a framework document and engages in its usual practice of consulting all around it, the ECB will in the meantime probably ride roughshod over what the Commission, which represents the elected people of Europe, proposes. The ECB will undoubtedly ride roughshod over what is proposed at the European Council and what is discussed in chambers such as this across Europe.

I am not as happy as my colleague Deputy Dooley about what is happening in Greece based on the images of what is happening there this afternoon. I refer to the protests, rioting and injury being caused by austerity programmes and debates that are happening on the back of similar proposals around the world. This is happening because an institution is blind to people. It is perfectly in tune and in sync with figures——

Not even those.

——and economic models but consideration of the impact on the lives of people seems to be beyond it. It seems to be oblivious to this. Based on the fact that from next September or October there will be new management in the ECB, I can only hope that its having a president from a country that is economically weaker than that of the current president will bring a different perspective to bear on matters.

An opportunity was lost to the Government regarding the overall debate on our interest rate and fiscal package in that it did not flex any muscles in the selection of the new president in the pursuit of a lower interest rate or better deal. Given that President Sarkozy attempted last Thursday night to block the appointment so there would not be a replacement Italian on the executive board, an opportunity might have been missed. There was a wide-open goal in terms of the need to have unanimity in the appointment of a new president of the ECB. If we are serious about flexing our muscles and getting the interest rate deal sorted once and for all, we must wonder whether we missed an opportunity. If we are serious about the reform of the ECB — many countries throughout the eurozone, not just those subject to ECB programmes, have views on this — we must conclude an opportunity was lost in this regard also.

If the Commission is to produce a framework, it should work hand in glove, in a good way, with the ECB. There has been considerable disagreement between the Commission and the ECB in their approach to bondholders and subordinated debt. I cede to Deputy Mathews' knowledge on this issue. There has been huge divergence between the Commission and the ECB on fiscal and monetary policy. There is no sense in producing a crisis response framework when these two institutions are pulling in different directions; it would be like sending out members of a tug-of-war team to pull against each other. Unfortunately, the rope they are pulling is made up of our people, the people of Europe and those affected by the various rescue plans.

I am also concerned about the Government's response to the situation in Greece. The first of the votes was passed this afternoon with further votes to follow. Last weekend, the Minister, Deputy Noonan, was quite blasé on RTE Radio One about the Greek programme. He stated it would be passed but he expressed the view of many that the actual implementation of what is being voted on in Athens today is quite a different matter, and that the relationship between Greek taxation policy and its implementation is not the same as it is here. Many commentators, approximately 99% of them at this stage, suggest the plan will not work and that we will be back to the drawing board in Greece. The default issue is a very live conversation.

Other Ministers were also slightly blasé about this and its impact on Ireland. I accept that we are not Greece and if the Minister, Deputy Noonan, had supplied the t-shirts he promised we would all be wearing them today. However, we share a common currency zone with Greece and if there are issues with the payment of Greek loans or debts, it will impact on Ireland whether we like it or not. This is the world in which we live.

The contention of the Minister at the weekend that the Greek crisis is a matter for the big economies and will not impact on Ireland is simply wrong. I hope he stated it merely to calm the troops and to keep everybody assured but I got the impression no plan is in place in the event of a Greek bad debt situation happening this week or in the coming months. On Sunday evening, I challenged the Minister, Deputy Varadkar, on this and he was relatively blasé about it, although given his history in speaking about Europe I would not blame him for being relatively shy.

The Government needs to have a plan in place in the event of a Greek default because it will impact on us no matter how much work is done by the House or the Government or what burden the people of the country take. This needs to be considered in the context of the Bill.

We cannot have debate about banking or banking resolutions without referring to banks lending to SMEs. I know the Minister of State, Deputy Perry, is doing much work on this issue. Every Deputy in the House knows about this. We can have all the credit review reports and banking reports in the world but I am sure all Deputies in the House have had a good business person with a solid idea speaking to them who has either had an overdraft pulled overnight, been forced to move that overdraft into a very overpriced loan or been refused good facilities. As we move towards an ECB meeting next Thursday, when interest rates will increase, I appeal to the Government to act urgently on the mortgage issue. Enough solid ideas are floating around from every side of the House and beyond to present a resolution mechanism. We cannot speak about credit institution resolution unless we deal with these two elephants in the room.

I wish to share time with Deputies Martin Heydon and John Paul Phelan.

Is that agreed? Agreed.

I am delighted to have an opportunity to speak on the Central Bank and Credit Institutions (Resolution) (No. 2) Bill 2011. It is very important legislation. Listening to the previous Fianna Fáil speakers, one would imagine they are taking responsibility for the conception and delivery of the Bill and we are merely introducing it after they have done all the work. Our spokesperson on finance in the previous Dáil, Deputy Joan Burton, had sought the Bill for two years and it did not appear. Likewise, it is not true to say the European Commission did not produce a framework document for crisis management in the financial sector. In fact, the Bill is based on such a document which was produced approximately 18 months ago. The previous Government could have produced this long ago and it could have passed prior to the election.

One must recognise that many mistakes were made and that the purpose of the Bill is to look to the future and ensure these mistakes are not made again. This has nothing to do with the ECB good, bad or indifferent. If each nation puts in place a regulatory reform system regarding how the banking sector will operate and if proposals are made for mechanisms that govern a resolution regime in a proper fashion, whether it involves an ailing bank, a failed bank or a bank that can be resuscitated, this issue will be able to be dealt with in the future. If a resolution fund is put in place, as is proposed in the Bill, the matter will be dealt with in advance. In this respect, it prepares for the rainy day. It is better not to introduce irrelevancies that have nothing to do with the legislation in itself.

The Bill is particularly important because of what happened in the past. It is important to ensure the Irish financial institutions which almost ruined the country — and we are not out of the woods by any means — cannot do so again. The mantra was that every bank seemed to be a systemic bank and there was a perception that they could not be allowed to fail. This is what brought us to the present situation. The previous Government handled the economic crisis with this view and in this respect the Irish taxpayer was hung out to dry.

We must remember that banks are like any other private business; they can fail and they must be allowed to do so rather than being propped up if they are not able to survive. When they do fail, they must be properly interred so they cannot spread contagion. The Central Bank and Credit Institutions (Resolution) (No. 2) Bill 2011 provides the statutory mechanism for an effective screening and a decent burial for those failed banks. Where the condition is one of an ailing bank which is not terminal, the Bill also provides for structures and mechanisms for its resuscitating and rehabilitation.

Section 4 clearly states the purpose of the Bill is "(a) To provide an effective and efficient resolution regime for authorised credit institutions” and “(b) To provide for a resolution regime for such credit institutions that is effective in protecting the Exchequer, the stability of the financial system and the economy”.

It is difficult to look back nearly three years to a time when the given wisdom was that the failure of a major bank like Anglo Irish Bank could not be contemplated even though it was rotten to the core with debt. The previous Government bought a pig in a poke with regard to the bank guarantee scheme and convinced the other political parties, with the exception of the Labour Party, to follow suit.

It is difficult to look back and envisage an entire private banking system being given a State guarantee of protection by the taxpayer to the tune of €500 billion. If the Sinn Féin Members in particular, whom we hear loudest in the Chamber, knew then what they know now — or if they had thought about it properly — they would scarcely have voted for the taxpayer to bail out the private banks to the scale of €500 billion. That was the time to burn the bondholders and protect the taxpayers. Rather than doing so, Sinn Féin voted for a bailout by the citizens for a private banking system.

The programme for Government makes it quite clear that the old ways are over forever. It states, "We will introduce a comprehensive special resolution regime for dealing with bank insolvencies". Furthermore, the programme for Government makes it clear that the burden of dealing with impaired or failed banks will not be shouldered by the taxpayer. Rather the banking sector, which caused its own failure in the past, should in future contribute to a resolution regime in the coming years.

Thus the Government "accepts that enabling provisions in legislation may be necessary to extend the scope of bank liability restructuring to include unsecured, unguaranteed senior bonds".

The full rigours of the marketplace must apply to the banking sector and private debt must never again be allowed to become sovereign debt. The first steps have been taken. The Credit Institutions (Stabilisation) Act 2010 provides for the reorganisation and restructuring of the domestic banking system in line with the recommendations of the EU-IMF programme of support for Ireland. Recapitalisation, restructuring and reorganising of assets and liabilities of the credit institutions are being implemented. Anglo Irish Bank and Irish Nationwide Building Society are being wound up or wound down, which ever the case may be. Five credit institutions are now State owned and two pillar banks are in the process of being built up to trade profitably. Most of the impaired loan portfolios have been purchased from the banks by the National Asset Management Agency at a significant haircut of 58%, although this reduction is probably on the generous side compared to the real value of the loans in question. Only €3 billion worth of loans remain to be reviewed and transferred to NAMA. It is expected that the restructuring will be largely completed by 2012, at which point the Credit Institutions (Stabilisation) Act will lapse and the legislation before us will be activated.

The purpose of the Bill is to take over once the banking system is stabilised and to provide a permanent resolution framework for the future should the evil day ever loom again. It is crucial that the events of 28 September 2008 are never repeated. There must not be another late night mugging of a Government and the taxpayer by those in the banking world who put private greed and self-preservation before the interests of their country or the welfare of citizens.

Under the provisions of the Bill, the Central Bank will be substantially in charge of the entire operation. It will, in the first instance, make the decision to intervene in the operation of a particular credit institution. It will have a toolkit for repairing an ailing institution or for transferring the assets of a failing or failed bank to a sustainable bank and closing down the failed institution. A credit institutions resolution fund will be built up by the banking sector for the eventuality of a rainy day in the life of a credit institution. A bridge bank may be established and capitalised from the resolution fund. The assets and liabilities of the impaired credit institution may be transferred to the fund with a view to continuing to transact business pending the ultimate transfer of its assets and liabilities to a sustainable bank or formulation of recovery or resolution plans. Special managers, special management orders and other resolution tools contained in the Bill will facilitate the management of the impaired institution to recovery or winding down the institution with a view to liquidation.

What is critical about the legislation is the acceptance that ailing financial institutions of any type or size and, crucially, systemically important institutions can be allowed to fail without risk to financial stability while avoiding costs to the taxpayer. This must be the nub of the solution. The European Commission document, An EU Framework for Crisis Management in the Financial Sector, produced in 2010 forms the backdrop to the legislation. The framework makes the following interesting and important assertion: "Banks must be allowed to fail, like any other business." This is the key aspect of the solution and the purpose of the legislation is to establish rules, regulations, supports and mechanisms to ensure such failures can proceed in an orderly fashion, rather than having the burden transferred to taxpayers.

I do not have time to discuss in detail the good work being done by the European Commission on the issue of bank resolution. This work forms the background to the legislation and I expect each of the 27 member states to produce similar legislation. The Commission is also working on a final solution, if one likes, whereby a single EU fund would be established to support resolutions for banks which find themselves in difficult circumstances. I commend the Bill to the House.

In debating this important Bill on Second Stage I will concentrate on the credit union movement. It should be remembered that this legislation applies to authorised credit institutions, which include banks, building societies and credit unions registered under the Credit Union Act 1997. In discussing the wide range of powers being granted to the Central Bank under the Bill and the establishment of the resolution fund we should reflect on the impact these powers may have on local credit unions. We should also ask whether our national credit unions require the same regulatory regime as the large national banks, many of which are in State ownership.

Credit unions are the life blood of communities in many of the local areas where they operate. Members of the public who may never enter a large banking institution can have all their financial requirements met by local credit unions. Services provided include savings plans, insurance services and loans for up to five years duration. The credit union movement was established in the 1950s in Dublin in response to the effects of high unemployment at the time. According to the movement's promotional information, its founders "recognised the root of the problem as lying in the scarce availability and poor management of money and resolved to identify a system that would allow people to gain more control over their finances". Sixty years later, we are in a similar position, one in which the credit union movement could play a significant part in the recovery of the country and return to financial independence for many individuals. While the credit union movement has not been unaffected by the financial difficulties of recent years, it is impossible to justify treating each small community-based credit union in exactly the same manner as a bank which brought the burden of billions of euro of debt on the country.

My main concern is that we are moving from a position in which the Minister for Finance enjoys significant control to one in which the overwhelming control is handed over to the Central Bank and Financial Regulator. The lack of political oversight into this process is not a healthy change for the credit union movement.

Section 8 deals with intervention conditions, an area in which we need to ensure some control or oversight is retained. For example, section 8 provides that the intervention conditions are fulfilled in relation to an authorised credit institution if either condition A or condition B is fulfilled and defines condition A as follows:

(2) Condition A is that the Bank has serious concerns relating to the financial stability of the authorised credit institution concerned


(a) has directed that credit institution to take particular action to address the Bank’s concerns, and the Bank is satisfied that—

(i) the credit institution has failed to comply fully with the direction, or

(ii) the credit institution is incapable of taking the necessary action to so comply within the period specified by the Bank in the direction,


(b) is satisfied that, having regard to the urgency of the situation or for any other reason, its serious concerns cannot be adequately addressed by such a direction.

The words "for any other reason" leave the options to the absolute discretion of the Central Bank. What constitutes serious concerns for the Central Bank? If an institution such as a small credit union is unhappy with a decision of the regulator, what options are open to it to challenge the Central Bank's view of an issue of serious concern? Its only recourse would be to challenge a decision through the courts. However, if a small credit union were to mount such a challenge, its members would likely lose confidence and withdraw their savings.

Already, the Registrar of Credit Unions has gained substantial powers over all small credit unions to the extent that he can choose board members, block or cancel annual general meetings, set the size and scope of a credit union and set dividends and rebates. The rules being used to deal with credit unions are the same as those being used to deal with large banks which handle billions of euro. It is important to note that in 2010 only a small percentage of more than 400 credit unions applied for assistance in the form of loans. Credit unions are not the same as banks and should not be treated as such. With the inevitable consolidation in our financial institutions arising from mergers and other transactions, a growing need is emerging for a trusted community-based organisation which retains the confidence of many of its customers and can regenerate confidence in the economy.

We should remember the central reason for founding credit unions, namely, that it is an organisation of people, for people which exists only to serve its members rather than to profit from their needs. In the 1950s, the founders of the credit union movement recognised the serious difficulties and lack of confidence caused by mismanagement and a lack of money and resolved to establish a system that would allow people to gain more control over their finances. Credit unions have a promising future. We need to ensure the legislation and regulatory framework that is created to secure their viability is specifically suited to them and allows them to continue to function as was intended. If we do this, credit unions will be able to continue to grow and flourish and become one of the building blocks for economic recovery from a local level upwards.

I concur with many of the sentiments expressed by Deputy Heydon on the important role of credit unions. They have a role to play in economic recovery and the provision of small loans to individuals. It is important that whatever legislation is introduced would not have an adverse effect on the important role credit unions have played and can play in our economy in the future.

I am glad to have the opportunity to speak in support of this Bill and to correct some of the points placed on the record by Members of the Opposition, who have left the Chamber, regarding the handling by the previous Government of our economic difficulties in the past few years, particularly the difficulties with the banks. Deputy Costello spoke correctly about the perception that existed that banks could not be allowed to fail. As a result of the decisions of the previous Government the taxpayer was exposed to huge losses.

I commend the Minister, Deputy Noonan, on his first 100 days or so in office. He has done much more in that brief period to provide some certainty about the direction our financial institutions will take in the future than the previous Minister and previous Government managed to do in four or five years of trying to do the same. There has been a clear pronouncement from the Minister for Finance and the Government outlining the structure of the two pillar banks, a structure which has been widely accepted across Europe and elsewhere. We have seen the first attempts at burden sharing with subordinated debt holders and an indication from the Minister that he is prepared to take the fight, for want of a better term, to our colleagues in Europe to seek that the burden sharing regime might be extended to the holders of other Irish bank debt. He has done more in that regard than the previous Government. It is clear to the general public that the previous Government made no effort to take that battle to our colleagues in Europe and I commend the Minister on his recent actions and comments in that regard.

Banks must be allowed to fail like other businesses. However, there are specific circumstances that relate to financial institutions so this legislation provides for the orderly winding down of such institutions. Previous speakers have said it is a case of closing the stable door after the horse has bolted, but we do not know if all the horses have yet bolted. Some have and some are still in the stable. This legislation provides a clear mechanism for how financial institutions in Ireland might be wound up in the future if difficulty arises. As has been mentioned, there is similar legislation in the US, Canada, Japan and other countries for the orderly winding down of financial institutions.

I wish to mention a couple of items in the last minute available to me. The transfer orders allow for the transfer to another institution of some or all of the relevant institution's assets and liabilities. That is carried on from the Credit Institutions (Stabilisation) Act, as are the special management orders. The bridge bank will allow the holding, on a temporary basis, of some or all assets of the financial institution in question.

This legislation provides for the establishment of a resolution fund to minimise the exposure of taxpayers in the future. That is the single main reason I personally support this legislation. I commend it and the efforts of the Minister, Deputy Noonan, to the House.

I am grateful for the opportunity to speak on this important legislation. I welcome the debate because this Bill goes to the heart of the economic crisis and deals with its causes. I strongly believe it will force Members of the Oireachtas to wake up and deal with the issue of banking and financial institutions and how they were run in the past.

Let there be no mistake — these fat cats screwed the country, let the people down and should now pay the consequences. Blaming and penalising the sick, the disabled, the low paid and the unemployed should not be part of any strategy. Sadly, however, that is happening as I speak. Cuts to the number of special needs assistants, SNAs, for children with a mild learning disability are taking place while this Government and others look the other way. These cuts are happening on the Government's watch and that reality should be highlighted as it is linked to the debate on this legislation. To say otherwise is misleading and dishonest.

The purpose of the Bill is to make provision for an effective and expeditious resolution regime for certain credit institutions at the least cost to the State, to amend certain enactments and to provide for related matters. When the Irish financial crisis started in 2008 there was no suitable mechanism for dealing with distressed credit institutions or for winding up insolvent banks. When faced with an insolvent bank, options were limited to orchestrated market based solutions, examinership, bailout or nationalisation. However, to secure financial stability, minimise contagion and ensure the continuity of essential banking functions, an orderly winding down through the use of resolution tools would have been preferable. It is argued by many that had a resolution regime been in place when the crisis struck, most of the costs of the banking crisis that are now being borne by taxpayers could have been avoided. This is at the heart of the legislation before us today.

Before I outline my ideas about this Bill, it is important to look closely at those who were responsible for the crisis and the wealthy people in this country who gained during the Celtic tiger economy years. The Minister should consider introducing a Robin Hood type of tax which would take money from the wealthy and look after the poor. Many legislators throughout the European Union are on that wavelength and are forming policies on a Robin Hood type of tax. It was people who caused this crisis. Legislation is about responding to the crisis. The big issue for me is that people such as regulators, people in the banking system, speculators, developers and bondholders caused the crisis. It is important that we identify them and deal with them.

This reminds me of the recent debate on nursing homes. Where something goes badly wrong in a nursing home, the Health Information and Quality Authority, HIQA, moves in and closes down the nursing home instead of looking at other options such as getting rid of the people who are causing the problem in the first instance. That is preferable to laying off other staff and workers. We appear to have gone in the other direction when dealing with crises that emerge in our society, and this is another instance of it.

Last year, the German Chancellor, Angela Merkel, proclaimed that the current financial crisis represented a beneficial crisis or a golden opportunity to move forward with the establishment of an effective EU government to complement monetary union. The EU Council of Ministers agreed in March 2011 to adopt a comprehensive package of measures to respond to the crisis and to preserve financial stability in the European Union. Following the Council meeting, the President of the Commission, Jose Manuel Barroso, boasted to an RTE news programme about how far the EU had travelled. He said, "We have reinforced our monetary union with an economic union. .... The economic and monetary union will finally walk on its two legs...".

The centrepieces of the March package are the Euro Plus Pact and the amendment to the European Union treaties to establish a permanent European stability mechanism. The Euro Plus Pact will subject the 17 countries of the eurozone, particularly smaller ones such as Ireland, to a regime of detailed intrusive surveillance of budgets, tax policy, wages policy, pensions policy and economic policy, to be enforced by fines and sanctions. It represents a drastic reduction in a state's national democracy and independence. This is something to which we must face up in the current economic climate. The country was bailed out by the European Union and the ECB through the European Financial Stability Fund and the European Financial Stability Mechanism, by the IMF through its extensive funds facility and by Britain, Sweden and Denmark through bilateral loans.

The dogs in the street now know the bailout was a stitch up. It was a forced loan that has turned the State into a vast debt servicing machine. Thousands and millions of euro in loans were provided on foot of the bailout to prevent insolvent Irish banks from going bust and thereby defaulting on their debts to the German, French, British and other banks, which were incurred during the property fuelled borrowing binge between 2002 and 2007. These are essential points that should be considered by everyone interested in this debate. These debts were shifted to the Irish State, and its citizens have been turned into 21st century financial serfs, bound to service a bankocracy every bit as grasping and oppressive as the aristocracy of feudal times.

From June 2013, a European stability mechanism, ESM, will take over from the European Financial Stability Facility and the European Financial Stabilisation Mechanism in the provision of loans to eurozone members in difficulties, strictly conditional on the implementation of a range of adjusted measures. Described by the German Chancellor, Angela Merkel, as a solidarity measure, the ESM will not have retrospective effect and will not be of any benefit to this country in its present situation. To add insult to injury, the Tánaiste admitted, in response to a question in the Dáil on 30 April 2011, that Ireland will be required to pay approximately €9.87 billion towards the fund.

The European Union authorities are anxious to avoid a referendum in any European state on the establishment of the ESM, even though it would entail an amendment to the European treaties. It is proposed to push this amendment using the self amending provision of the Lisbon Treaty, Article 48. The line from the Government and major Opposition parties, along with the usual supporting chorus in media, business and trade union circles, is that the changes do not increase the powers of the European Union. This is something I would like to highlight and bring to the attention of the Dáil. This line is based on the opinion of the previous Attorney General, Paul Gallagher. It was the same Mr. Gallagher who advised the previous Government, in September 2008, that a blanket State guarantee of all the debts of Ireland's private banks was legal and that Irish law required that the creditors and bondholders of the Irish banks should not be touched, in view of such a guarantee. This opinion fitted neatly with the insistence of the European Central Bank on a guarantee that no Irish bank could be allowed to fail in case the German and French banks, from which the Irish banks had borrowed, would not be paid back. The refusal to hold a referendum clearly breaches the Supreme Court judgment in the Crotty case of 1987, simply so that the German and French Governments and Brussels will not be inconvenienced.

This is a travesty of democracy. By denying the people a say on this fundamental matter, the Government and the major Opposition parties will be engaging in yet another stitch-up to add to the bank guarantee and last November's bailout. It is one stitch-up too many. I ask people to consider this in the broader debate today.

Let us look also at the reality for more than 455,000 people who are unemployed. This is not taken very seriously. While I welcome aspects of the jobs initiative, we should examine it in more detail and take a more radical approach to it. We could talk all day about the huge greed and mistakes of the banking industry, but we must first deal with the results of the banks' actions. Since the summer, the number out of work has soared to more than 455,000, the highest live register figure since it began in 1967. At the same time, we are taking €3.6 billion out of the economy, which will lead to further job losses.

I accept that we must deal with the banking crisis but part of the solution must be a jobs and growth plan to get out of the current crisis. I agree with the Minister for Finance's call for consumer spending. His comments were dismissed in some circles, but I strongly disagree with those people. People who have a few extra euro must go out and spend an extra €10 or €20 to develop their local economy. It is not correct to say people do not have the money to spend. I am talking about targeting the people, particularly people over 55, who have a few bob in the bank. There is approximately €134 billion on deposit in Irish banks. I encourage older people to spend an extra €10 or €20. Economists and retailers reckon that 10,000 jobs could be created if everyone did that little bit for the country. This strategy must be adopted. In my own constituency there is massive support for it. For a business employing seven or eight people it could mean being able to hold onto two or three employees.

Even the conservative forces in the Financial Times and Barclays Bank say we must be very careful about our banking plan because it places the whole burden on the taxpayer.

There are those who say there is no alternative. The EU, the IMF, the ECB and the Irish establishment all want us to believe there is no alternative. There is an alternative. They claim there is no choice but to take pay cuts, slash social welfare benefits and give up hard won working conditions because there is not enough money to go round. This is a lie. Ireland is still a fairly affluent country. This has been highlighted by many independent economic observers. There is still a fair amount of wealth in this country. Between them, Ireland's millionaires have a combined wealth of €121 billion. According to a rich list published recently in The Sunday Times, the wealth of the richest 300 people in Ireland increased by more than €6 billion in the past year. Let us go after them. Let us impose a Robin Hood tax on them instead of taking money from the lowest paid or cutting services. There is an alternative but it requires tough decisions. We should go after the fat cats and the big guys.

The alternative involves using these massive resources to create jobs and to redevelop the economy. We are paying approximately €10 billion a year in interest on our debts. We should not be dismissive of our natural resources. We have huge natural resources with potential to develop the economy. Some people estimate the value of our natural resources at €850 billion. A wealth tax could also bring in money.

I am presenting an alternative reaction to the current situation. Before the general election some, including the Labour Party, said a job creation strategy was required. This is something I have always supported.

As an Independent Member of the Oireachtas, I will support any sensible solution. I supported the reduction in employer's PRSI in order to support small businesses. We need a serious job creation project.

Yesterday, I met members of the ESB group of unions. The ESB is an excellent organisation. They told public representatives we are taking our eye off the ball in dealing with the economic crisis. They said semi-state bodies should be developing the economy and assisting us. These bodies are profitable and keen to do the work and to take on employees. We should be allowed develop them and not slash them or sell them off. We need massive job creation projects.

With regard to small businesses the debate concentrates on joint labour committees and the potential to cut low-paid workers, which is something I strongly oppose. When one talks to small shopkeepers, or to the people who own chippers, they mention three things. They talk about commercial rates, energy costs and insurance costs. These issues could be looked at, rather than take the easy option of slashing the wages of low-paid workers.

In the past 40 months, the Irish retail industry has lost more than 40,000 jobs, as struggling shops close their doors for good. A further 40,000 retail jobs are currently at risk unless the Government intervenes. These jobs can be saved with a little creative thinking and a further 13,000 jobs could be created if strong action is taken.

Rents in Ireland as a percentage of sales are twice the global average. NAMA was established to deliver liquidity to the banking system, thus allowing commerce to function better. The agency wants to maintain upward only rents. By doing so, it will cause jobs losses and business failures and, in the medium-term, it will undermine asset yields because more businesses will fail and more jobs will be lost. Everyone will pay then.

I welcome the Minister to the House. I believe strongly in a competitive retail environment where market rents will result in lower prices for Irish consumers, significant job stability and creation and the retention of our national competitiveness. I accept the points made by previous competitors regarding these developments. Sensible ideas have been outlined in the debate, which I welcome.

Section 9(2), which deals with the credit institutions resolution fund, states: "The purpose of the Fund is to provide a source of funding for the resolution of financial instability in, or an imminent serious threat to the financial stability of, an authorised credit institution...". Section 9(3) also provides that the fund "shall be constituted by—

(a) the contributions made by authorised credit institutions pursuant to section 12,

(b) any sums paid into it by the Minister pursuant to section 11, and

(c) interest on those sums and contributions.

Section 9(4) also provides that the Central Bank "shall not provide any funds to the Fund from its own resources". Section 10 deals with the management and administration of the fund. It provides that the Central Bank, "shall manage and administer the Fund" and "shall determine the rate of interest payable from time to time on money standing to the credit of the Fund."

The IMF and the World Bank published a comprehensive report on banking insolvency in 2009 while many of the crises globally were still emerging. The report examined the legal, institutional and regulatory framework necessary for bank insolvency. The measures needed were divided into two parts — resolution mechanisms when there is economic stability and when there is financial turmoil.

As the Bill will provide for a special resolution regime to address future bank failures, the guidelines for resolution mechanisms in times of financial stability appear to be the most applicable. During times of financial stability, the objective of a bank insolvency framework is to safeguard the stability of the financial system. Bank insolvency proceedings refer to all types of official action that can take place when a bank has crossed the threshold to the commencement of insolvency proceedings. Official action includes the removal of management, restrictions on, or the suspension of, the rights of shareholders and the assumption of direct control of the bank by the authorities and these are features of the legislation.

While the law may distinguish between the two stages for the purposes of a special resolution regime, they are often combined into a single proceeding. There are official administration and liquidation processes. During the official administration phase, the authorities take direct control of credit institutions in an effort to restructure. Where a restructuring is not possible, the authorities place the bank in liquidation resulting in the dissolution of a bank as a separate legal entity. The purpose of liquidation is an orderly winding down of the credit institution with the focus on maximising the value of assets and an equitable distribution of the proceeds to creditors.

I welcome this important debate on this legislation. I acknowledge the views of colleagues from different parties. The Minister has a huge task ahead of him. He faces major problems and I accept he has inherited most of our economic problems from the previous Government but I urge when dealing with these issues to put his country first.

On the occasion of my maiden speech, I wish to put on record not just formally but sincerely that I am deeply conscious of the honour that has been bestowed on me by the people of Cavan and Monaghan. I thank my family and all the people who helped me on a voluntary basis during my election campaign but, most of all, I thank the people who voted for me. I am especially conscious of the trust that has been placed in me and I pledge to work hard and honestly to represent my constituents. With this honour comes duties to the people who have sent me to the House as their representative. In carrying out those duties I look forward to working with my fellow Deputies from the constituency and with members of the Government.

I pay tribute to former Deputy, Seymour Crawford, for his loyal service to the people of my constituency in the House for more than 18 years. In his maiden speech on 15 December 1992, he spoke of the various economic and infrastructural needs of the constituency. He referred to the needs of the agricultural community and the potential that its exports had for our economic regeneration, as well as the need for Ireland to maintain competitive advantage in international trade and to the necessity to provide funding for rural development initiatives, especially for roads, something that is still vital for our two counties. He spoke of the need for cross-Border interaction and for INTERREG funding for the Border region generally and of the severe economic hardships and deprivation the region was suffering.

I acknowledge that, on a number of these fronts, much progress has been made. The peace process, in which Deputy Crawford played a significant role through the British-Irish Parliamentary Body, coupled with a period of economic gain, changed the dynamic in many ways. It enabled people to take up initiatives within the economic sphere, which were unthinkable previously.

I would like to record the strong desire of my constituents for equality and fair play in our quest to rebuild our broken economy. As we strive to deal with the awful situation that faces us, to rebuild trust in politics and in the workings of this House and as we work to give people the hope they deserve, let us not forget the wider picture. We do not live in an economy where people are just economic tools; we live in a society, a community in which each of us has a responsibility to each other.

I very much welcome the opportunity to contribute to the debate on this legislation, which is hugely significant in the context of the entire banking system. We are all well aware of the fact that our banking system and regulatory authorities failed us completely but we need to acknowledge the role of others in this catastrophe. What was the role of auditors in the banking collapse? After all, they signed off on the accounts presented to the public and some of the same auditing firms continue to provide services to the State. What was the role of commentators and analysts in the daily and Sunday newspapers who told people to buy property and invest in shares? Those who said "Stop" were made to feel like they were fools who were missing out on a great opportunity. This was the crock of gold that we were all told we would have. We bought houses not only to live in but to retire on. We were all encouraged to buy into a greedy society that measured success on the accumulation of assets, which, in some cases, are now worthless.

In respect of our banking system, some commentators may say this Bill can be seen as a classic case of locking the stable door after the horse has bolted. However, if one does not learn from one's mistakes, one is destined to repeat them. In that respect, we are all fully aware of the mistakes that were made in the past by our credit institutions and the aim of this Bill is to ensure they are not repeated.

There have been three comprehensive reports on the banking crisis. The general theme of all three reports was that while global factors played a part, Ireland's banking crisis was essentially homemade. Our banks were over exposed, poorly governed and had inadequate risk management. Our regulatory controls did not work for us and these weaknesses subsequently proved disastrous for our banking sector and the wider economy. Essentially our banks were allowed to chase after market share in a reckless manner, while the necessary structures were not in place to withstand the enormous problems which came their way. As a result, it was the Irish taxpayer who had to come to the rescue when difficulties arose.

If enacted, this Bill will establish a variety of means for protecting our credit institutions should we encounter institutions which are failing or likely to fail in the future. One of the key points is the establishment of a resolution fund which will provide funding for the resolution of credit institutions. Once the Credit Institutions (Stabilisation) Act 2010 expires, all banks and building societies, along with 409 registered credit unions, will be required to contribute to the fund, with non-payment amounting to an offence. In the case of credit unions, cognisance should be had to the fact that no State aid has been given to them and their contributions should be commensurate with the individual risk profile.

This Bill gives the Central Bank very sharp teeth, with extensive powers that need to be used effectively and efficiently while working to clear objectives. We need clear lines of accountability. I urge the Minister to ensure that the Central Bank is held accountable and responsible for its actions, and where necessary it must justify why a certain course of action was taken or indeed not taken. The Central Bank's officials must have a clear understanding of the outcomes of the decisions they make, and we do not want to find ourselves in the same situation as was the case in September 2009 when panic ensued.

In view of the extensive powers being given to the Central Bank, the Minister should ensure objectives such as market confidence, public awareness, the protection of consumers and the reduction of financial crime are put in place. In discharging their functions, the Central Bank officials must be mindful that a burden or restriction imposed on a financial institution should be proportionate to the benefits, and consideration should be given to the expected result from the imposition of that burden or restriction. They need to take account of the international character of financial services and markets, and the desirability of maintaining the competitive position of Ireland, and the need to minimise the adverse effects on competition in the industry that may arise from such actions. They need also to be careful that innovation and market growth is not stymied by their approach.

The Central Bank and especially the regulator of credit unions should be looking at the success of the co-operative and ethical credit union model, which has helped so many people and communities in this country, and ensure it is not regulated out of existence. Sweeping regulation across the financial sector needs to be considered carefully, in particular the effect it will have on the credit union sector. The Minister should ensure that the "one cap fits all" approach is not pursued in the interest of easier oversight.

In my own experience, the success of the credit union movement arises from the fact that it is cemented in the community for the community, and local knowledge, coupled with the trust and loyalty that credit unions enjoy, is one of their great assets which cannot be measured in the balance sheet or taken into account in stress testing exercises. The strong ethical values of credit unions will serve them well in these difficult times and more than ever, we need to afford our credit unions a degree of flexibility to continue to provide much needed credit to local businesses. The continued flow of credit is absolutely essential to the recovery of our economy and what better vehicle to use at a local level, whether for individuals or small business, than the credit unions.

The credit union review commission has been set up by the Department of Finance and I want to welcome the review, which is due for final report in March 2012. In the interim, we need to be careful of how the credit union sector is managed in terms of regulation and resources. In carrying out his regulatory duties, the regulator must not make any attempt to micro-manage the sector. We need to take cognisance of the continuing unique role of credit unions in society and in all of our communities, particularly in these difficult economic times. We must make sure that the baby is not thrown out with the bath water. In our attempts to eliminate credit union risk, we could end up getting rid of credit unions.

I welcome the Bill, but with increased powers come increased responsibilities and accountability. This should always be the case.

It is important to remember we do not just live in an economy — people are not just economic tools — we live in a society and in a community in which each of us has a responsibility for each other. Go raibh maith agat.

Thank you Deputy. Congratulations on your first speech in the Chamber. I wish you a successful career here. I now call on Deputy Donohoe, who has nearly nine minutes.

I want to join with Deputy Humphreys in welcoming this Bill to the House. It is a very important Bill, given the difficulty in which we find ourselves in respect of the banking system. This Bill is important because the absence of such legislation did two things to us in the past. First, it reduced the options and tools available to the Government at the time to deal with a banking system that was in grave difficulty. The absence of such legislation meant that the armoury available to the Government was impaired, because it did not have the ability to manage a situation where a bank might fail, or the ability to handle the failure of that bank in an orderly manner. This is the hole which the Bill before us is aiming to fill, which is why it is to be welcomed. Second, in the absence of a Bill like this, somebody else must pick up the cost for great banking difficulties. This is either the shareholder or the taxpayer. Everybody acknowledges that the taxpayer has borne too much cost for the failure of our banking system. This Bill means that were something like this to develop in the future, there would be more options available to the Government to ensure that the cost of banking failure is not borne almost exclusively by the taxpayer.

I want to make four points on the Bill. The first point is about the degree of progress this Bill offers on the previous legislation. That legislation was stabilisation legislation, whereas this is resolution legislation, which goes a step further. The Bill contains three elements that are of particular importance and which could be of help if they are called upon in future. First, the Bill puts in place the capacity for the State to manage the orderly wind up of a bank. Second, it puts in place the capacity for the State to establish a bridging bank or bridging fund, which has been absent up to this point. Third, it puts in place a firm footing for a levy to be put on banks to ensure that the potential cost of a banking difficulty in future is not borne exclusively by the taxpayer. These are three improvements in the Bill that are very important and which should be noted.

The second point is about the area in which this Bill is triggered. People who are greater experts in this area than I have written quite a lot about this subject. They have detailed the intervention criteria which should be put in place for a Bill like this to be triggered. This Bill does not seek the consent of the shareholders of the bank to trigger the power of the Bill. That is very important, because in at least one case in Europe where a resolution process was triggered, the shareholders of that bank disputed it and fought it, which slowed down the implementation of this process. The lack of that consent in this Bill will make a big difference to its implementation.

I would appreciate if the Minister would clarify the criteria laid down for the Central Bank to trigger this legislation. There are four criteria, the first of which is that either the financial stability of the institution be threatened or the overall financial stability of the system be threatened. The Central Bank is given the option of choosing either of those for fulfilling the terms of the Bill. It then lays down two other criteria that must be fulfilled, that the bank could fail a regulatory test in the future and that the immediate winding up of the bank is not in the public interest. My question on those criteria which are in the Bill is whether they are too prescriptive to slow the implementation of this Bill at a point in the future. The dynamic of something like the legislation being successful is so dependent on whether it is implemented at the right time. Is it necessary to lay down the criteria for the triggering of the legislation within the Bill or could this be done in another way?

My third concern relates to the operation of the special management which is laid down in Part 6 of the Bill. The special manager is a feature of the legislation which is carried over from the Credit Institutions (Stabilisation) Bill 2010. For colleagues who are not familiar with the special manager, he will be a figure of significant interest, if we are ever unfortunate enough to need him. The power that the ‘special manager' is granted in respect of the operation of a failed bank is vast. Section 50 sets out the function of special managers. The special manager has the ability to order any employee, manager, director, or anybody associated with the bank to act in a particular way, if the special manager judges that it is necessary for the stability of the bank or the system to be preserved. The reason I raise this issue is that if one looks at the current difficulty we face, in requesting and ensuring the banks carry out the will of the Legislature or of the Government, we are then creating the ability to put in place this special manager who will have a degree of power to oversee everything that is happening in the bank. My simple question is whether we are sure that will work. My expectation is that if something like that is triggered it will be resisted fiercely by the bank into which the person will be moving because the special manager will, I believe, have the power to override the chief executive officer or any members of the board. We know to our cost the difficulty which individuals or officeholders like that have caused us in the past.

The legislation will operate in a new culture. I think there could be a tendency to look into the past and say that if we had given people more power, we would not be in the difficulty we are in. Of course, the truth is more complicated, there was a culture that meant that even the power that was there was not levied. That point is made clearly in the Nyberg report. The author of the report asked how so many people in positions of power did not carry out their duty and spot the risk to our system. My point is that as welcome as the development of the new power is, we have no guarantee that it will be implemented in the proper way. The answer to that question will rest on ensuring that the people who are wielding this power, those in the Central Bank and those in the office of the Financial Regulator, have been well chosen so that we have people with the right training and exposure to the right culture to be able to use the power in the Bill for the benefit of us all.

Deputy Heather Humphreys said in her maiden speech on the Bill that there was an element of closing the stable door after the horse had bolted. I hope I am not putting words in her mouth, but that is putting it mildly. The Central Bank and Credit Institutions (Resolution) (No. 2) Bill 2011 is an utterly pathetic attempt to make it look as if the Government and the European authorities are doing something to prevent a repeat of the financial madness that went on in the banking system in this country and across Europe that produced the financial crisis, but in actual fact does nothing about it and retains the key features of the banking and financial system. It protects precisely the features that led to the crash in the first place. This is smoke and mirrors, spin and a smokescreen to make it look as if one is dealing with the problem when in fact one has no intention of getting to its root. I am not sure if the Government understands that because this proposed legislation is in fact a measure which the Government has been dictated to introduce by the IMF and the EU. When one sets aside all the spins, this is what the EU-IMF deal for this country and similar deals imposed elsewhere seeks to do. What they are really about is protecting the banking system that wrecked our economy and ensuring that nothing is done to infringe upon its right to make profits regardless and to be protected in the present situation against any attempt by anybody to make the bankers take on the burden of their reckless gambling and speculation. This is in the first line of the third review for fiscal consolidation and financial sector reforms in the memorandum of understanding for this quarter. On recapitalisation, the authorities will ensure that a process of a banking system recapitalisation is immediately set in motion. That is the bottom line, recapitalisation at all costs, force us to borrow money at high interest rates to pump into these banks to recapitalise them so that their balance sheets are okay; so that they can return to profitability and carry on doing what they did before, the sort of reckless behaviour that led to the crisis.

How would the Deputy get them to lend?

I will get to that point, Deputy Donohoe. Of course, if one wants to understand the thinking behind the IMF-EU diktats, what one needs to look at are the ECB's guiding principles for asset support schemes in the section under governance from 2009. This is what they say and it is worth reading.

A guiding principle pertaining to the governance of asset support schemes, which refrain from outright nationalisation and which should be borne in mind even if nationalisation become necessary, is that after receiving public support the institutions should continue to be run on the basis of business criteria; to the extent it is possible the preservation of private ownership is preferable for several reasons. These include in the short term the high costs involved in nationalisation — could the cost possibly be any higher than the cost incurred by ordinary people in this country? — and in the medium term the risk of banks' objectives being diverted from profit maximisation to alternative goals that might distort the market structure and jeopardise the level playing field. These are the guidelines that inform the IMF-EU deal and their diktats have been carried through in this Bill to deal with the banking system.

This Bill allows for the closing of banks.

It is about regulation of the banks.

It allows us to close them.

I will get to that; the Deputy has already had his chance. The Bill is about making sure the banking system remains in private ownership and is protected from any serious public control, with profit maximisation as a central goal.

If we are to deal with the causes of the banking crisis, should we not ask what caused it? Was it not caused by the pursuit of profit maximisation at all costs, with no consideration of other factors? That was precisely the problem and it is not just me who says that; Peter Nyberg said that the crisis was reinforced in a widespread international belief in the efficiency of financial markets, talking about group think and the herd mentality in believing that nonsense. Nyberg recognises the pursuit of profit over every other consideration by the financial crisis is the reason we have this crisis but the ECB, in its guidelines for dealing with the banks, says we must not divert from the goal of profit maximisation. We have learned nothing; the report tells us what the problem is, then the ECB tells us we must do nothing about it. Any measures we take must do nothing about it and the public must bear the cost. That is the reality of the Bill. All it says is that if there is another crisis, we will have some sort of fund the banks will put some money into so perhaps the cost to the public will be minimised, never questioning the driving force behind the crisis, the pursuit of profit at all costs.

It is not necessary to be a socialist or revolutionary——

——to understand the need for a different type of banking system. Deputy Higgins earlier said the way to deal with this is to bring the banking system, which is simply the system to control surplus wealth, the savings produced by ordinary working people, under democratic control. Banks simply operate the investment funds and those who own the funds should decide what they are invested in and how our society is developed. Is it not obvious that to avoid the sort of financial crisis we have just witnessed those surplus funds should be under public and democratic ownership so we as a society can democratically decide our priorities for investing and lending? Would that not be fair?

Even in the United States, where they are not socialists and where they are not advocating the views of Deputy Higgins or me, the Federal Reserve has three goals: to prevent inflation, to protect home owners and ensure employment. The European Central Bank has only one concern — inflation, or in other words the protection of price stability and the interests of business. The demands of the EU-IMF and the deal to recapitalise the banks means ten of thousands of people might lose their homes. The banks will not lend into the economy to restart growth and get people back to work because recapitalisation of the banks is the major priority of the ECB, the EU and the IMF and that is because profit maximisation is the bottom line; the balance sheet is all that counts.

To prevent a recurrence of the economic crisis we do not need pathetic, meaningless measures about what will happen after the next crisis, we should put in place measures to ensure there will not be another crisis by reining in the vampires and sharks of the international financial system and putting them and our banks under democratic control so we dictate their lending and investment policies, policies that are concerned with job creation, strategic industry and keeping people in their homes. If we did that we might prevent another crisis. This Bill will do nothing to prevent such a crisis.

I share the suspicions and mistrust about any Bill that has come to this House at the whim of the IMF and EU. Why is it necessary to introduce a Bill of this sort at this time? The timing is to show us doing our obedient best for our masters, the ECB, the EU and the IMF. This might have been an opportunity, because it is not an urgent Bill, for us to say "no", that we would not introduce the Bill yet, we would introduce it when we get something back, and we all know the minimum we are looking for from the EU-IMF, a change in the interest rate, which has not been forthcoming.

This Bill, described by one speaker as closing the stable door after the horse has bolted, is clearly a Bill that is only applicable in the case of Armageddon. These are emergency measures for when Armageddon hits the nation. Unfortunately Armageddon has come and gone and this Bill is to sort out a problem that has mushroomed out of control.

It is obviously a Bill aimed at a similar crisis in the future and it is a perfectly natural reaction to the impotence the Minister for Finance and the Taoiseach felt that day in September 2008, when the banks came knocking at their door. The IMF and the Department of Finance, which is in its pocket and in the pocket of the EU, decided if these resolutions had been in place on that date, something would have been different and it would have been possible to deal with the crisis in a different way that would have allowed for it to be remedied. I do not see any evidence that the Minister and Taoiseach would have made any other decision in this Bill.

I say that because things have not changed in terms of the balance of power between the banks, the Government, the Department of Finance and the central banks, and the interlinking, incestuous relationships between them. On that night, the decision by the Taoiseach and the Minister for Finance was to give a blanket bank guarantee because a gun was put to their heads by the bankers. They were impotent and had no other weapons at their disposal, as might have been the case under this Bill, but mostly they did it because they were the junior partners in that relationship and lacked the knowledge, expertise and bottle to do anything else. It is my guess that power, which rested with the banks and the Department of Finance on that night when the politicians found themselves helpless and paralysed by their lack of expertise, is still in the same place.

There is plenty of evidence that points to that. We can look at what has happened within the banks, which are the main culprits, if not the only culprits, in the crisis that the Bill is addressing. There have been efforts by this and the previous Minister for Finance to tackle what appeared to be the symptoms of the problems in the banks.

This Minister recently asked the banks for a board review. The response of the banks has been pitiful. Bank of Ireland responded in a brazen way to his request at the AGM two weeks ago. Instead of removing directors who had been there pre-2008, as was the intention, five out of six of the non-executive directors who had been there pre-2008 were re-elected at the AGM. That was really giving the Minister two fingers for his ambitions in that particular sphere. That was the opportunity for the Minister to insist that the Bank of Ireland would get rid of the guys who were there at that time, who were part of the rotten old regime and to put in new people. Bank of Ireland did allow two directors to retire who had been there at the same time. The extraordinary gap in not putting in new people was quite difficult to understand. The governor stayed in place and five of the six directors for re-election were there at the time of that particular crisis as it broke. In other words, they were in place when the property frenzy was indulged by those banks.

Why is that? I cannot understand it. My only explanation is that the big banks in this country still feel powerful enough to say to the Government, "We do it our way, not your way". Otherwise, they would have bent the knee, got rid of those directors and replaced them with others. That is what is happening and the indication is that it will continue to happen. The culture in those banks has not changed. The way to address the problem may be in the language of transfer orders, SMOs and bridging banks. That may be part of it, although that is down the road, but the immediate problem is not being addressed and is being ducked and funked by politicians who tend to listen too much to the Department of Finance, which is so much part of the establishment and which has been in the pockets of the banks and the Central Bank for so long that it cannot extricate itself from them.

We have the boards in that situation. They were part of the incestuous relationship which has been touched on in recent days by the rather high profile controversy surrounding a member of the board who is a member of the board of the DAA as well. We have boards that are patently policed and peopled by insiders. What is so disappointing — this is not a criticism of this Minister, it is a criticism of the previous Minister, but I hope this Minister will do something about it — is that the public interest directors who were appointed by the previous Government supposedly to watch those directors who have been presiding over the disaster are also people who are patently not experienced in banking or allied areas but are representatives of insiders from the Department of Finance and other Departments and some of whom are ex-politicians from this House. There is absolutely no reason people who are part of the governing party or ex-Ministers should be put on the boards of banks except that the Government feels comfortable with them, but I do not believe they have done anything in the interests of the taxpayer.

Talking of insiders, why are the banks allowed to continuously reappoint the same auditors — companies which have permitted padded valuations to go into the accounts of Bank of Ireland, AIB, Anglo Irish Bank and Irish Nationwide for years and years? Why has the Government not stepped in and said "No, we have got to have new auditors because these people have failed." The auditors have their noses in the trough. For instance, PwC has got more than €100 million in fees from the Bank of Ireland in the past ten years. No wonder it is reappointed and signs the books all the time. The relationship is too cosy.

The response of the Government is questionable. I do not question its bona fides, I question its weakness. The idea that we are going to sort out the banking problem, not just through the Bill, which I have not got to yet, for which I apologise, but by introducing a system of what is known as pillar banks is very dangerous. One man's pillar bank is another man's cartel. The idea of putting two major banks, a duopoly bank, and encouraging a lack of competition in the banks suggests to me that we are building huge trouble for ourselves down the road. It was in the period of the previous duopoly when retail banking was dominated by AIB and Bank of Ireland that we had the most extraordinary controversies in the areas of overcharging and consumer suffering.

I wish to share time with Deputy O'Donnell.

I am pleased to have an opportunity to speak on the important Bill before the House. From listening to Deputy Ross there is no doubt that what happened in the banks was truly unbelievable to all citizens. People are at a loss as to how it all happened. It is a huge problem not alone for this generation but it will have an impact on the country, the economy and the lives of many. People have had to leave our shores and get jobs overseas. They are suffering. In the same way as everyone else, I am amazed that this was allowed to happen and that it did happen. Questions must be asked. However, we are where we are and we must deal with the situation. That is why I welcome the opportunity to say a few words on the Bill. I commend the Government on introducing it and the seriousness with which it is going about its business in terms of solving the problem or avoiding problems in future.

The Bill provides the Central Bank with the necessary powers to take swift and effective action in credit institutions including building societies and credit unions that are failing or are likely to fail. It will also protect the stability of the financial system and the economy. The Bill has followed best international practice in other jurisdictions that have introduced special resolution regimes. The Bill has two main powers — first, the power to transfer assets and liabilities of a credit institution to a third party or pending a transfer to a bridge bank. Second, the Central Bank will have the power to make a special management order appointing a special manager to run an authorised credit institution. The purpose of the special manager is to manage the business of an institution to facilitate the development of recovery and resolution plans or to wind down the institution.

The Bill also provides for the establishment of a resolution fund to minimise the exposure of taxpayers to future financial sector difficulties which would be funded by contributions from the credit institutions. The rate of contribution will be prescribed by the Minister for Finance in respect of each institution.

We only have to look at what has happened internationally to assess the impact this type of legislation will have. Special resolution regime measures were used last year in the United States where 151 banks failed. In Britain a similar type of legislation was enacted in 2009. Even though it was too late for the collapse of Northern Rock it was in place in time for the Dunfermline Building Society, which many commentators believe was a successful example of a special resolution regime exercise. The Dunfermline Building Society was once the largest building society in Scotland and the 12th largest in the United Kingdom. In March 2009, reports indicated the society was no longer viable, and it was put up for public sale to be managed by the Bank of England, which transferred the core parts of the society to the Nationwide Building Society. This followed a sale process conducted by the Bank of England under its special resolution power. The social housing loans of Dunfermline's customers were transferred temporarily to the DBS Bridge Bank limited, which was owned and controlled by the Bank of England. This allowed the Bank of England to support the social housing portfolio and provided time to secure a permanent solution.

It is business as usual for all the customers of Dunfermline Building Society. Their deposits continue to operate normally. Branches and telephone banking continue to operate during their normal hours, and customers can deposit and withdraw their money in the usual way. Savers can be assured that their money is safe. Loan and mortgage customers continue to contact the bank in the usual way and to make payments as normal. All of the staff in the bank were transferred to Nationwide.

This Bill is a necessary measure to ensure a systematic process is in place if a bank, building society or credit union should fail or appear likely to fail. However, we must make every effort to ensure this situation does not arise. I would like to echo what I have said in this House in the past about the power of the local bank manager. Many years ago, branch managers knew what was happening in each part of the areas they controlled. They knew their individual customers; they knew the local shopkeeper, the local farmer, the local blacksmith and all the various areas of business across the county. However, modern banking practices have changed all that. In recent years, when people went to the local bank manager, he would say their applications had been sent to the head office and that more information was required or an issue had been raised. In the last 12 months in particular, dealing with many small businesses in my own constituency, I have seen the frustration caused by these head offices and the pressure they are putting people under.

I question the way banks have done their business. It is all about doing one's best for the customer. I appeal to the banking institutions, which are subject to regulations to improve their business practices, to consider the way they deal with their customers. I appeal to them to think back to how things used to be and give the local bank manager more of a say. That alone would restore major confidence among the community of small business owners who are struggling, day in day out, to create jobs for people. There is major potential for job creation, but the one big obstacle is the bank manager. The way banks should do business in the future is to be more in touch with what is happening on the ground. It would be better for this country, for the Government and for the many people who are unemployed.

I welcome this legislation and congratulate the Minister on its introduction. Had it been there at the time of the bank guarantee back in 2008, Anglo Irish Bank would have been dealt with in a very different fashion and we might not have had to pay out so many billions of euro in taxpayers' money. When I talk about taxpayers I am speaking about all individuals, whether they are paying tax or on social welfare. People on social welfare have paid PRSI and made a contribution. The term "taxpayer" includes all people living in Ireland.

It is interesting to note that when the Committee of Public Accounts examined the documents provided at the time of the blanket bank guarantee in September 2008, they showed clearly that the Government, the Financial Regulator and the Central Bank had considered the issue of a special resolution mechanism for banks. It was not as if they were not aware of it; they were. In 2009 the UK introduced such a resolution mechanism. When the current Financial Regulator, Matthew Elderfield, appeared before the Joint Committee on Finance and the Public Service in the previous Dáil, I asked him about the special resolution mechanism, and he said his understanding was that it had been considered prior to the introduction of the blanket guarantee in September 2008 but had not been introduced. My view is that it should have been introduced. We should consider the knock-on effects of what happened to Anglo Irish Bank — the bank was nationalised, NAMA was brought in, and the discounts on the NAMA loans turned out to be significantly higher than expected. My understanding was that the transfer of loans to NAMA was supposed to be based on long-term economic value. The haircuts on the Anglo Irish Bank loans were so large — up to 60% — that the international markets looked in and concluded that the level of banking debt the Irish State had to take on was significant. Thus, Anglo Irish Bank was a major contributor to the rise in our bond yields.

Our bond yields are rising at the moment because of external factors such as the situation in Greece. I welcome the fact that austerity measures have been passed in the Greek Parliament tonight, but the important thing, which has been discussed at length by both the Minister for Finance and the Taoiseach, is that we are different from Greece. I hope that on this occasion Greece will seek to meet its targets because it is in the interest of everyone in Europe. The situation of Ireland brings to mind the parable of the prodigal son. We are the son that continued to do his daily work, while Greece is the prodigal son. I hope that when the Greek situation is resolved with a second rescue package, the interests of Ireland are taken into account at European level and we get the attention and priority we deserve.

We are now establishing a special resolution mechanism, as countries such as Denmark, Germany and the UK have already done. I understand similar mechanisms are under consideration in Europe and will be introduced next September. It is important that we have a Europe-wide mechanism. If the issue is addressed at European level, that will be to the benefit of all of Europe, including Ireland. We are very much to the forefront in this area.

The Bill provides for the setting up of a credit institution resolution fund, which I welcome. It is systematic, providing for bridge banks to deal with institutions that are felt to require intervention. The special management order is a practical measure, ensuring that if an authorised credit institution runs into difficulty, the Central Bank, along with the Minister, will be able to ensure the issues with the specific bank are addressed without bringing contagion to the general financial markets in Ireland, as Anglo Irish Bank did. If a special resolution mechanism had been in place, similar to the one we had called for when we were in opposition, it would have prevented contagion from Anglo Irish Bank spreading to other institutions. I welcome the fact even in the short time he has been in office, the Minister has introduced this mechanism.

Earlier, Deputy Shane Ross commented on the idea of the pillar banks. The mechanism the Minister has put in place is practical and puts the banking system on a sound financial footing. While there may have been too many banks in the market in the past, if it begins to do well again, there may be new entrants, all properly licensed. The pillar banks' commitment to provide €10 billion per year over the next three years and to concentrate on specific small and medium-sized enterprises, SMEs, is to be welcomed.

There is a need for an enhanced Credit Review Office to ensure effective credit availability. Currently, the office can only examine credit or loan applications up to €250,000, a threshold that should be raised. I have constituents with small businesses that cannot access credit for various reasons. The proposed partial loan guarantee scheme will make a significant difference in this regard. When working as an accountant, I knew of cases where a small business, employing three or four people, might need an increase in its overdraft facility of €10,000. It was often easy to come to an arrangement with the business's bank to avail temporarily of such a facility. These days, however, the banks are so risk adverse they will not even provide such temporary small-scale credit facilities. The partial loan guarantee scheme will give comfort to the banking system, taking on some of that risk and allowing a credit flow to be provided.

The small and medium-sized enterprise sector will be instrumental in taking us out of recession. More than 700,000 people are employed in SMEs, making the sector one of the key contributors to the lifeblood of the economy. While the multinational sector is important, particularly in the mid-west and Limerick, the SME sector needs to be encouraged with programmes such as the jobs initiative and reductions in PRSI and VAT rates.

We have succeeded in ensuring the banks are sound financially. Now, we must concentrate on getting them to lend again, the next part of the process. We must also ensure the banks can operate in an independent manner. In time, the banking debt needs to be separated from sovereign debt to allow a return to a normal market economy. The plan with the pillar banks will lead to these outcomes. Deputy Shane Ross's point on them does not stand up to scrutiny or take into account what is best for Ireland in the medium to long term.

Deputy Tom Hayes's point about how bank directors ran the banks is valid. When the chief executive officer of Anglo Irish Bank became its chairman, he remained in the same office, effectively being as involved in the bank as chairman as when he was chief executive officer. That was no way to run a bank. We also need to ensure those bank directors at the time of the bank guarantee are no longer around.

The Central Bank and Credit Institutions (Resolution)(No. 2) Bill 2011 is welcome legislation in the overall banking sector reform plan. It will ensure at an early stage that banks that run into difficulty can be dealt with effectively without affecting the rest of the system. When the bank guarantee scheme was introduced, we were told the problems with the banks concerned only liquidity. However, Anglo Irish Bank's problem was insolvency. If such a resolution mechanism were in place at the time, it would not have led to that bank's contagion spreading to the other banks.

I commend the Bill to the House.

I wish to share time with Deputies Catherine Murphy and Mick Wallace.

We are told the Central Bank and Credit Institutions (Resolution) (No. 2) Bill aims to ensure the taxpayer will not bear the cost of any future bank bailouts. This is clearly a sentiment appreciated by all citizens considering the monumental debacle our banking sector has become, the cost of which has been foisted on to our shoulders and that of future generations. This Bill follows on from the Credit Institutions (Stabilisation) Act 2010, which already has cost the taxpayer €46 billion with costs to go even higher. Once that money is pumped into the banking system, we will see this legislation kicking in to deal with more normal failures in the banking system, if such events exist.

The elephant in the room, however, is that the bondholders have been left out of the equation. No measure is proposed in this legislation which would ensure the losses of a failed bank would be shouldered by the bondholders. Depositors are correctly prioritised in the legislation but the senior bondholders are given the same level of protection. This pinpoints how weak and irrelevant this legislation will be in dealing with bank losses in the future. I hope substantial amendments will be made on Committee Stage to address this shortcoming.

Much play has been made of the legislation's proposal for the banks to contribute to a special fund to cover the future costs of a troubled bank. It raises more questions than answers, however. The provision states contributions would be made by the authorised credit institutions but also by the Minister for Finance, subject to certain parts of the legislation. How much will the levy for this fund be? How will the Minister raise it? Little or no information is given in this regard. It appears a new power will be given to the Minister for Finance to legislate for a new national levy to ensure the banks are paid for by some sort of a national banking fund. What guarantee is in place to ensure this will not end up on taxpayers' shoulders?

I have a problem with the Central Bank being cast as the knight in shining armour in this Bill.

Debate adjourned.