Dáil Éireann debate -
Wednesday, 17 Oct 2012

Vol. 779 No. 1

Leaders' Questions

Deputy Micheál Martin

Yesterday, the head of banking regulation at the Central Bank, Ms Fiona Muldoon, made a very frank and honest statement in which she outlined what was not being done about the mortgage crisis. We have raised this issue on a continual basis for the past 18 months. Yesterday, it was confirmed that half of the 168,000 owner-occupier mortgage holders in arrears have no formal arrangement in place and the losses already incurred have not even begun to be cleaned up. It was revealed for the first time that 48,000 buy-to-let mortgage holders who are €13 billion in debt are in financial difficulty, and the banks were berated for not acting on the issue. Ms Muldoon called for urgent action and condemned what she saw as bankers behaving like unruly teenagers in dealing with the mortgage debt crisis. She stated there was a lack of urgency of purpose in dealing with the mortgage arrears crisis and that the banks needed to get busy fixing the issue. The Central Bank was very robust in its comments yesterday and was far more assertive than the Taoiseach has been on this issue. Last week, I raised the issue of AIB raising its standard variable mortgage interest rates and the Taoiseach defended the bank and stated he could not intervene.

In addition to Ms Fiona Muldoon's comments, the Secretary General of the Department of Finance stated very clearly a much more dramatic write-off of debt was required in respect of households in unsustainable situations and unable to pay. It took a civil servant to say what the Government has refused to say on debt forgiveness for the past two years. It raises fundamental questions about Government policy. What is Government policy on debt forgiveness? With regard to the Personal Insolvency Bill, the Taoiseach proposed the unruly teenagers would have a veto on mortgage debt and the resolution of household debt. It is time the Taoiseach re-examined the Bill and took on board the suggestion we put forward in the Debt Settlement and Mortgage Resolution Office Bill tabled by Deputy Michael McGrath, which would create an independent objective arbitrator to resolve debt issues between customers and banks. By any yardstick the performance of banks to date can give no one any confidence they will deal adequately, properly or in a sustainable way with customers and people experiencing pain because of the scale of mortgage arrears they are in.

The Taoiseach

Last week, at a Dublin Chamber of Commerce function, I stated publicly there was no demonstrable evidence of a functioning banking system in the country and that the banks were not doing enough. Deputy Martin is only too well aware that the Government had to restructure and recapitalise the banks, change the boards and remove the perks. The Government has had regular meetings with the banks through the Economic Management Council. The regulator requires the banks to submit to the Central Bank their forbearance schemes to deal with mortgages and persons in distress covering a range of issues from mortgage to lease, mortgage to let, mortgage to rent and split mortgages. It is a fact that the Government would like the banks to sit down and conclude arrangements in every case on a bilateral basis. This facility is there and the banks have been advised, encouraged and pressurised to do so. I wrote to the regulator last year and advised him that if he needed further powers to act with regard to the banks, the Government would give him those powers. The regulator replied that he did not at that stage require further powers.

The Deputy is incorrect to say it was a public servant who first mentioned debt write-off. The Minister for Justice and Equality on Committee Stage of the Personal Insolvency Bill made this very point. I note the points made by Ms Muldoon and the Secretary General, Mr. Moran, and the comments of the Governor of the Central Bank. The message to the banks is that they are in a position to sit down and negotiate on a range of areas with persons with personal debt, in mortgage distress or in arrears. The personal insolvency legislation will be in operation by 1 March which means if banks do not settle on a bilateral basis with their clients, these clients will have recourse to new measures to reach agreement on their problems through the insolvency agency. The legislation will allow for debt write-down. Banks have an opportunity. They have been recapitalised and they have been well advised to sit down on a bilateral basis with their clients and I hope they do so. What the public servants said yesterday follows what the Government has been saying for quite some time. It is time to move and demonstrate that their powers, the range of the facilities under the code of conduct and recapitalisation mean they have the capacity to sit down with every individual and work out an individual solution. If they do not do this, the insolvency system will kick in on 1 March.

Deputy Micheál Martin

They are not doing that. That is the point. The Taoiseach's response is that the Government would like the banks to sit down with their customers but they are not doing so. That is what Fiona Muldoon, the head of banking regulation at the Central Bank, and the Secretary General of the Department of Finance clearly said yesterday. The Taoiseach wrote last year to the regulator and notes what the head of banking regulation and the Secretary General have to say but we have gone beyond noting. Does he agree with what they have to say? Does it not call for a fundamental change of direction and a change in the orthodox approach to banks to date, which is a non-interventionist orthodoxy, articulated by the Taoiseach last week when he said he could not intervene? Given what we are hearing, the regulator is barking very loudly and the Taoiseach is not listening to what is being said. Particularly in the context of personal insolvency, he proposes to give the very people about whom he has just spoken the veto in terms of resolving household debt. That is the point. How could he have confidence in the banking leadership, or lack thereof as articulated by the head of banking regulation? How can he trust that establishment to fairly, objectively and resolutely deal with an issue that is causing immense pain to hundreds of thousands of families across the country when it is making no sustainable effort to deal with it?

Deputy John Deasy

Fianna Fáil trusted them.

Deputy Micheál Martin

As a follow-on, it is causing immense damage to and is a huge drag on the domestic economy.

Deputy John Deasy

One would swear Fianna Fáil had nothing to do with it.

Deputy Micheál Martin

It is time for action and to change the orthodoxy of the Taoiseach's approach which has not worked to date. It is not I who is saying it has not worked but the Secretary General of the Department of Finance and the head of banking regulation. I ask the Taoiseach to look again at the Personal Insolvency Bill 2012 and to remove the veto he proposes to give banks in terms of resolving household debt.

Deputy Peter Mathews

Fianna Fáil revered the bankers four years ago.

The Taoiseach

The banks have been given no veto. Committee Stage of the Personal Insolvency Bill was completed in September. As Deputy Martin is aware, the personal insolvency arrangements constitute a mechanism to arrive at a resolution in every case - in appropriate circumstances, debt forgiveness or write-down. If the banks do not sit down with their clients, the client will by law be given the opportunity to go through the insolvency arrangements which, as we know, is complex legislation but which will be in operation from 1 March 2013. Everybody knows the pressure people are under. Quite a number of mortgages have been restructured or rearranged but not enough is being done. This is why the Central Bank required the banks to submit to it what they proposed to do on a timeline basis by September. So they had better do so because the insolvency legislation is moving through the Dáil and will be operative from 1 March.

Deputy Michael McGrath

They are not afraid of the Bill.

Deputy Micheál Martin

They are happy with the Bill.

The Taoiseach

There is no veto in the legislation, which allows for debt write-down or forgiveness.

Deputy Micheál Martin

It gives banks a veto.

The Taoiseach

The banks are forewarned that clients have the opportunity to go through the insolvency arrangements if the banks do not sit down and reach a conclusion. Deputy Martin is wrong in his assertions.

Deputy Billy Kelleher

Members of the Government did not see it coming either. They were buying properties madly at the time.

An Ceann Comhairle

Would Deputies please remain quiet? Deputy Adams, without interruption.

Deputy Gerry Adams

Ba mhaith liom an cheist chéanna a chur agus cúpla moladh a dhéanamh. Déanann daoine teagmháil le mo oifig gach seachtain. Tá a fhios ag an Taoiseach go bhfuil daoine ag dul i dteagmháil le gach Teachta sa tslí sin. Tá daoine i bponc de bharr fadhbanna lena morgáistí. Níl cuid acu in ann a morgáistí a íoc. Yesterday, as we heard about and read, Fiona Muldoon sharply criticised the banks for failing to deal with indebted homeowners. John Moran, Secretary General of the Department of Finance, has also called for the banking sector to resolve all the arrears situations. Depending on who one listens to, there are 129,000 families in mortgage distress. The Personal Insolvency Bill 2012, which is the Government's one contribution to this issue, apparently will not be operational until next year and gives the banks a veto over debt write-downs.

When the banks were in crisis, the Government and the previous Government gave them €64 billion. When citizens are in crisis, the Government stands off and does nothing. Variable rate mortgage holders in banks which have received billions of taxpayers' money are paying well above the ECB interest rate and, again, the Government has done nothing about that. I have a number of suggestions for the Taoiseach in terms of actions the Government could take in helping citizens deal with this serious mortgage distress. The first is to bring forward legislation to cap mortgage interest rates, the second is to remove the banks' veto from the Personal Insolvency Bill, the third is to ensure that Ulster Bank passes on additional mortgage interest relief to those in negative equity and the fourth is for the Taoiseach to make a commitment that those in negative equity will not be subject to the property tax. Will he announce these steps today?

The Taoiseach

Deputy Adams is aware that the Government has made no decisions in respect of the property tax and will discuss the matter in due course. All of the suggestions people make will be taken into consideration before that decision is finally made. I welcome the statement by Ms Muldoon from the Central Bank. The setting up of the mortgage arrears resolution committee has been attended by either Mr. Matthew Elderfield or Ms Muldoon and Mr. Moran from the Department of Finance. I welcome their statements and the fact that pressure is being put on the banks by the Central Bank to whom the banks have reported with their various schemes for dealing with mortgage distress for those with high levels of debt.

It is important to say that the strategy here is to focus on people who are not in a position to pay as distinct from those who can pay and continue to do so. Government strategy clearly has to focus on the first group. The regulator must drive this and I wrote to him on the Government's behalf last year telling him that if he required further powers from the Oireachtas in respect of his dealings with banks, he would get them. He was kind enough to respond very quickly to say that he did not consider that he needed further powers at this time.

The Bill being piloted by the Minister for Justice, Deputy Shatter, through the Dáil in respect of personal insolvency and the personal insolvency agency will give clients caught in this trap an opportunity to have a different structure to deal with their mortgage distress or arrears or level of debt if the banks have not been in a position to sit down with these clients and sort it out. I assure Deputy Adams that everybody wants to see people keep the roof over their heads and a resolution worked out. I agree that this is a source of enormous pressure, anxiety and concern for families every day of the week. However, we have inherited a mess which we have now changed in terms of the downsizing, restructuring and recapitalisation of the banks and the requirement of banks to report their schemes to deal with these areas to the regulator. We meet with the banks on a regular basis and tell them that they should now be sitting down with their clients to work this out because the Personal Insolvency Bill is moving through the Houses of the Oireachtas and will become law. At that stage clients will have an alternative method for having a conclusion reached in respect of their mortgage distress, insolvency or debt problems if the banks decide not to do that in the meantime. So it is for them to arrange to have qualified personnel work out solutions, which are all different. The Bill provides those in this category with the opportunity to avail of debt write-downs or forgiveness under the insolvency agency.

Deputy Gerry Adams

I am very disappointed with the Taoiseach's answer. The social cohesion of communities and our society is under threat, not least because of the austerity policies pursued by his Government.

In this Republic, there are disadvantaged people who never benefited from the Celtic tiger. We have heard reports of what is happening in St. Patrick's detention centre. There are people in rural and urban areas who are totally impoverished. Recently, we heard that 10% of people, including children, are subject to food poverty. This is a mark of our Republic. However, there is now a new shift because, according to the newspapers and what one hears in constituency offices, some of those who never saw themselves as economically vulnerable and who never did anything but pay their taxes, invest in their families and try to buy their homes cannot even put food on the table every day. They certainly cannot pay their mortgages.

There are social consequences associated with choices. I have four propositions for the Taoiseach that would deal with these issues. The Government is very clear when it is dealing with the small people. It has no problem cutting home help hours or the carer's allowance, but when it comes to dealing with the big people, the golden circle and big bankers, there is much convoluted verbiage. Will the Taoiseach not just make a commitment now to implement any of my four propositions? He should introduce legislation to cap mortgage interest rates, ensure Ulster Bank passes on the additional mortgage interest relief, deal with the relevant issues through the insolvency Bill, which gives a veto, and commit that those in negative equity will not be subject to the property tax.

The Taoiseach

I am sure the Deputy understands the scale of the dysfunctionality that obtained in the banking system a very short time ago. I am sure he appreciates that the restructuring of the banks, involving a reduction from six banks to two pillar banks, the recapitalisation and other changes are important elements of putting in place a banking system that can actually function in the way the country needs. I would like to see Allied Irish Banks and Bank of Ireland operating as private banks doing what they should be able to do for every citizen, with proper systems, efficiency and competency. The fact of the matter is that the State has a share in Bank of Ireland and owns Allied Irish Banks.

The regulator, Mr. Elderfield, of the Central Bank of Ireland, has required the banks to submit to him their proposals to deal with distressed mortgages. This includes split mortgages, trade-down mortgages, the restructuring of mortgage payments and forbearance. As a consequence of their having to have made a submission by September, the banks are now required to implement their proposals. This means sitting down with those who are distressed, anxious and concerned and, in some cases, those who simply cannot meet the mortgage repayments to which they signed up with their banks in the first instance. That is the difficulty in many homes, daily and nightly. I and every other Deputy encounters it. This is why the structure is now in place for banks to be able to deliver on a range of solutions for those with distressed mortgages and who cannot pay, as distinct from those who can pay.

The Government introduced the insolvency legislation. It is being taken through the House by the Minister for Justice and Equality and it will become operational in March 2013. This will allow a different structure and approach for persons in the categories I have mentioned such that the problem will be sorted to their benefit.

It is not a case of the Government standing idly by while this matter boils away and creates even more problems. While it is a matter of major distress for our economy and a cause of a lack of consumer confidence, the process is now clear. The banks have had to submit to the Central Bank their options, which must now be implemented. In addition, the Government is moving on the insolvency legislation.

Deputy Gerry Adams

Why does the Taoiseach not act on my constructive suggestions?

The Taoiseach

The Deputy makes constructive suggestions every week. We have had long discussions with the banks about steps they could take to help persons in mortgage distress. The regulator required the banks to submit to him, by a certain date, their proposals for persons in mortgage distress. I expect that banks will now answer the calls made yesterday by Ms Muldoon of the Central Bank and the comments made by the Governor of the Central Bank and the Department of Finance pursuant to what the Government has been saying, that is, that we need to prove there is now a functioning banking system and that the facilities given to banks are implemented. In addition, we are moving forward with the personal insolvency legislation.

Deputy Shane Ross

The problem for the Government is that the bankers are being included as part of the solution. They should no longer be regarded as such, as stated by Ms Muldoon yesterday. She said the bankers are in denial such that they deny there is any problem at all. Like Mr. Micawber in David Copperfield, they are looking for something to turn up. Ms Muldoon was saying the banks are waiting and postponing. They are waiting for the economy and housing market to improve. They are waiting for anything to come to their rescue, including the insolvency Bill. However, this will not sort out the problem, which has the potential to make the night of the bank guarantee look like a picnic. This is because the banks involved are not just in denial, they are, according to Ms Muldoon, involved in a policy of "extend and pretend". That means denial but it also means delay and deceit. The Government is trying to involve people, who are well practised in this area, in what it regards and what may well be a logical process of insolvency. The process the Taoiseach has outlined will not succeed if those people and their institutions carry so much influence.

We know the bankers have been involved in deceit not just in this matter but in respect of the amount of money they claim is being given to small businesses. They have lied to the Government, the Central Bank and the people. They are pretending that what they had as old loans, including those associated with Anglo Irish Bank and Bank of Scotland (Ireland), represents new lending. It is not new lending. The banks are lying about these figures and other matters. These bankers cannot be treated as normal human beings, nor can their practices be treated as normal. This is what Ms Muldoon was saying yesterday. The banks are frustrating Government and Central Bank policy and they are delaying and obscuring. This was echoed by Mr. John Moran when he said the banks would have to recognise that some debts would not be paid. Is the Taoiseach satisfied that State-owned bodies, which are ultimately under his control, are patently frustrating the wishes and designs of his regulator?

The Taoiseach

I am most certainly not satisfied with the pace of resolution. As I stated, the Government, when appointed, examined the mess in the Irish banking system, from which capital was haemorrhaging. Some 250,000 jobs were lost and there was hopelessness, despair and disillusionment in many business circles. This is why the Government acted as it did to restructure, recapitalise and reorganise the banks. The Government consulted the Governor of the Central Bank on the regulatory authority and the requirements to regulate banks and have a code of conduct. As a consequence, the banks were asked to submit, before a given deadline, their proposals to deal with mortgage distress, arrears and debt.

The Government said that we stood ready to give extra authority and powers if necessary.

Only this morning the Minister for Jobs, Enterprise and Innovation signed off on the partial loan credit guarantee scheme following on from the micro-finance agency, which the Government introduced recently so that small and medium-sized enterprises and those involved in business could get credit. The Government has also promoted very strongly the Credit Review Office, which in a small number of cases has overturned decisions of banks not to give credit to businesses in the first instance.

I am not satisfied that the level of engagement for resolution is at the pace that it should be. We have met the banks on a number of occasions at the Economic Management Council. They have been told in very plain English what is the requirement. Banks have responded by saying that they are recruiting individuals who have a competency in dealing with people who are in distress, anxiety and concern. I want to see that happen.

In parallel to what can be done today, tomorrow and the day after, legislation will proceed through the House regarding insolvency arrangements, including debt forgiveness and debt write-downs. The banks know that if they do not deal on a bilateral basis with their clients, those people are going to have the opportunity to have a different structure available to them to bring about a resolution to what is causing them so much stress and concern every day.

Deputy Shane Ross

I thank the Taoiseach for his reply and I am glad to hear that his level of satisfaction is rising by the day and that he was encouraged by the two civil servants yesterday. The Government is unwilling to take sufficiently strong action on this matter. The words used by Ministers and the Taoiseach are to the effect that the banks are "being advised," "being encouraged", "being pressurised" and have been given various advices "in plain English". Bankers do not take advice. They do not listen to encouragement.

Deputy Brendan Howlin

The Deputy advised them for a long time.

Deputy Shane Ross

The Central Bank has stated that under the guise of a commercial mandate, the two pillar banks and other banks are still practising as though they were independent bodies irrespective of the wishes of the Government and the Central Bank. The Government should put the boot on the necks of the banks and give them specific instructions. If this means, as Deputy Adams suggested, that legislation must be introduced to ensure Government control over areas where the banks are abusing mortgages and interest rates, it should be done. Will the Taoiseach outline the specific measures the Government will introduce to enable it to force the banks to behave on a day-to-day basis in a manner that is acceptable to it and in the national interest?

The Taoiseach

The Deputy advised banks himself for a good while over the years. I am not sure that they listened to him in his professional capacity. He talked about putting the boot on the necks of the banks. We rely on external investment into the banks to keep the system moving. This is important as the economy begins to turn around. Banks are regulated, as the Deputy is well aware, by the regulator. We have had interaction with the regulator, who is exceptionally competent in the work that he does. He has required banks to submit to him their proposals on implementing a range of measures to deal with mortgage distress and persons who are in arrears or who have debts. They have outlined these to him, some in a very complex form. The regulator has reported on this matter regularly at EMC meetings.

In plain English, banks have been made aware of their requirements and of what the Government wants them to do. In reality, this means that the family that is distressed today because it cannot meet its mortgage repayments for whatever reason will not have its situation sorted out unless the banks sit down with the client - the family, the husband and wife - and set out the range of issues, solutions and options that they want to talk to the family about. Arising out of those discussions can come a solution to the particular problem. If that does not happen, the insolvency Bill will require the banks to deal with the family's particular problem.

I would like to think that following these genuine interactions, banks will respond and prove that their activity levels are being seriously upgraded to deal with the number of people who are waiting to have resolutions brought about in their cases. This is in respect of those who are not in a position to pay as distinct from those who can. From this point of view, if the Government receives a request from the regulator that further powers are required, further powers will be given.