Dáil Éireann debate -
Friday, 14 Dec 2012

Vol. 787 No. 1

Credit Institutions (Stabilisation) Act 2010: Motion

Minister for Finance (Deputy Michael Noonan)

I move:

That Dáil Éireann resolves for the purposes of section 69 of the Credit Institutions (Stabilisation) Act 2010, that with effect as on and from the date of this Resolution, in subsection (1) of the said section 69 for the words '31 December 2012' there shall be substituted the words '31 December 2014'."

The motion before the House seeks to have the period of effectiveness of the Credit Institutions (Stabilisation) Act 2010, known as CISA, extended for a period of 24 months up to 31 December 2014. Section 69 of the Act provides that the Act, other than sections 51 and 67, will cease to have effect on 31 December 2012 or a later date substituted by resolution of both Houses of the Oireachtas. The motion, accordingly, seeks to substitute "31 December 2014" for "31 December 2012".

For the benefit of the House, I will set out the background to the need for CISA. The rationale for the CISA legislation is expressed in the detailed set of recitals included in the Act. They highlight the adverse impact of the banking crisis on the economy and the need in the public interest for strong powers to resolve the threat to the stability of the financial system generally. The Preamble to the Act also stresses the necessity for the functions and powers provided under the Act to reorganise the guaranteed domestic credit institutions in the context of the National Recovery Plan 2011-2014 and the European Union-IMF programme of support for Ireland. The Preamble also reiterates the basic justification for the very substantial financial support provided by the State for the banking system. This is to make certain that these institutions continue to meet their financial and regulatory obligations in order to maintain public confidence in the banking system and, in particular, the security of deposits. The banking system and the economy have faced and continue to face extraordinary and exceptional challenges. There is a strong public interest in the continued availability of the extensive ministerial powers included in the Act, the details of which I will outline to the House.

The House is aware that CISA provides broad powers for the Minister for Finance to act on financial stability grounds to effect swift restructuring actions and recapitalisation measures as envisaged in the programme agreed with the external authorities. The purpose of the bank restructuring measures set out in the joint programme is to ensure the sector is proportionate to the size and credit needs of the economy.

The objective was to capitalise the banks to the highest international standards, thereby rebuilding investor confidence in the Irish banking system and in due course restoring their access to normal market funding. The aim was to facilitate a very significant reduction in the domestic Irish banking system's reliance on funding from the euro system and the Central Bank of Ireland, and put the Irish banking system on a more sustainable funding platform.

The range of powers provided to the Government under CISA remains at the core of the Government's ability to take the actions required under the troika's programme of support in addition to the national recovery plan for the period 2011 to 2014 in respect of the banking system.

The House will be aware that, under CISA, the Minister may, having consulted the Governor of the Central Bank and formed certain opinions, make four types of proposed orders addressed to relevant institutions, namely, direction orders, special management orders, subordinated liabilities orders, and transfer orders, after which the Minister then applies to the High Court for an order in those terms. The Minister may also issue a number of binding requirements under section 50. These are important powers and it is important that they be retained if we are to continue to have the necessary ability to manage our way out of this economic and banking crisis.

The Minister for Finance may make a proposed direction order, after which he must apply to the court for an order in those terms, directing a relevant institution to do or refrain from doing any act or thing, including directions to issue shares to the Minister or his or her nominee and increase the share capital of the institution to facilitate this; apply for the delisting of the relevant institution's shares; alter the institution's memorandum and articles, or equivalent, including changes to shareholders' rights, or dispose of a specified asset, liability or part of the institution's undertaking.

The Minister for Finance may also make a proposed special management order, after which he must apply to the court for an order appointing a special manager to take over the management of the business of a relevant institution to carry on the business as a going concern with a view to preserving and restoring the financial position of the relevant institution. A special manager will have all necessary powers to discharge his functions, including having the sole authority over the directors and employees of the institution.

The special manager will provide the Minister for Finance and the Central Bank with any reports or other information requested. The appointment of a special manager can prevent the winding up of the institution and other specified consequences. The special manager can, with the consent of the Minister and the Governor, substitute his or her decision for a decision of the shareholders. The special manager can remove directors, employees, etc. The special-manager power is designed to introduce stability into relevant institutions where that is necessary to ensure financial stability generally.

The Minister for Finance can, having formed certain opinions, make a proposed subordinated liabilities order in respect of certain relevant institutions and then apply to the court for an order in those terms. A subordinated liabilities order operates to impose burden sharing on subordinated creditors in that institution. In taking this action, the Minister may have regard to a number of specified matters including the extent and nature of financial support provided to that relevant institution, the amount of the relevant institution's indebtedness to its subordinated creditors, and other matters. Furthermore, the Minister must be of the opinion, having consulted with the Central Bank, that the making of the subordinated liabilities order is necessary to secure the achievement of a purpose of CISA, or for the preservation or restoration of the financial position of the relevant institution.

The Minister for Finance can make a proposed transfer order in relation to the transfer of assets or liabilities of a relevant institution and then apply to the court for an order in those terms. Transfers can only be made to a willing transferee and, to facilitate such a transfer, the Minister can provide financial incentives, including payments, loans and guarantees, to the transferee. CISA addresses the transfer of foreign assets and liabilities, including those situated outside the European Union.

CISA provides the possibility of recognition of the domestic measures I referred to by other EU member states through the mechanisms available in the European Communities (Reorganisation and Winding-up of Credit Institutions) Regulations 2011, which implement the CIWUD directive in Ireland. This is particularly important given that many agreements entered into by Irish credit institutions are governed by the laws of other EU member states. In addition, if required, the Minister may take proceedings in other jurisdictions to enforce an order made under the Act.

The House will be aware that CISA contains provisions to ensure there is appropriate judicial supervision of the exercise of the Minister's powers after the making of proposed orders. These include a formal requirement to obtain, in all but exceptional circumstances, a written submission from an institution prior to the exercise by the Minister of any particular power. The Act also contains provisions for court involvement in the process on an ex parte basis as part of the exercise of these powers by the Minister to ensure that the legislation offers appropriate legal and constitutional safeguards in light of the strong powers it confers on the Minister. Certain parties can apply to the court for the setting aside of orders made under the Act, which the court can direct in certain circumstances.

Let me outline how CISA powers have been used in the past two years. CISA powers have been exercised on 12 occasions, most notably in the first six months of 2011 when the banking system was fundamentally restructured to meet the 31 July 2011 troika targets for the system. On ten of those occasions, the use of the powers were assessed and sanctioned by the High Court as required by the Act. Most recently, the powers were exercised to enable the transfer of Irish Life to the Minister for Finance in March of this year.

CISA enabled the Minister for Finance to take these essential actions quickly, efficiently and with legal clarity. The level of restructuring of the banking sector which has been achieved would not have been possible without it. In addition, CISA is uniquely structured to prevent events of default on banks' financial instruments from arising where restructuring intervention was necessary to achieve the Government's goals. This allowed the restructuring to take place without triggering a right for the holders of senior bonds and derivatives to demand immediate repayment or termination.

The House should be aware that the subordinated liability order mechanism under CISA was at the heart of the State's ability to recover significant sums through the haircutting of subordinated bondholders in the relevant institutions. To date, every application to the Irish courts made by the Minister for an order pursuant to CISA has been successful.

Let me now consider how the Irish banking sector is doing. Much has happened in the Irish banking sector since the passing of CISA. The covered banks have continued to make overall progress under the financial measures programme – the rigorous analysis of the capital and liquidity requirements of the domestic banks presented in March 2011 – and have advanced in terms of recapitalisation, asset deleveraging, deposit inflows and restructuring plans.

The recapitalisation of the PCAR banks – Allied Irish Banks, Bank of Ireland, Permanent TSB and IBRC has been successfully completed. According to the survey on European banks carried out by the European Banking Authority and published late last year, the Irish banks more than met the minimum standard that was set down for core tier-1 capital ratios of 10.5%.

Deleveraging has been progressing well, and total covered bank deleveraging of about €63 billion has been achieved up until the end of September this year. Further significant disposals have also been targeted for completion by the end of the current quarter of 2012 as part of the pillar banks' planned run down of non-core balances.

With respect to funding, the banks' positions have improved significantly. Deposits in Allied Irish Banks, Bank of Ireland and in Permanent TSB have stabilised, with a gain in net inflows achieved since last year. International debt markets have opened up to the Irish banks, as we have seen recently, and reliance on ECB funding sources has decreased. Finally, as part of the EU-IMF programme, the Irish authorities had submitted revised restructuring plans for all the participating institutions by the end of September 2012.

With regard to the eligible liabilities guarantee scheme, ELG, a working group chaired by the Department of Finance and involving both the Central Bank and the NTMA has developed a strategy to exit the scheme consistent with preserving financial stability. In the context of the recent visit of the troika partners and the eighth review of the support programme, it was agreed that such a strategy would be finalised by the year's end.

The early indications from this strategy are that a withdrawal of the scheme could occur in the first quarter of 2013. Depositors will be given sufficient notice in advance of the withdrawal of the scheme and changes in that regard will be brought to the attention of the House as part of that process.

The House will be aware that much work has been carried out on the restructuring of the Irish financial institutions using the various powers provided for under CISA. However, this work is not yet complete and, without retaining CISA, is unlikely to be able to be completed by the Government. In particular, orders may be sought under CISA in a number of transactions, including possible further restructuring of the Irish banks that may require a direction order and-or transfer order to implement. It also continues the protection it affords the people from problems in the financial system while turbulent economic conditions continue internationally.

The Central Bank and the Credit Institutions (Resolution) Act 2011, known as the resolution Act, contain some comparable powers to those provided for under CISA. However, these resolution powers are vested in the Central Bank, not the Minister for Finance, and designed to be exercised where regulatory intervention is required because a problem appears in an individual bank in an otherwise normally functioning system. It can be referred to as a steady state resolution regime where the problem is in a particular institution in an otherwise fully functional banking system. Resolution Act powers are not designed for the comprehensive restructuring of the banking system and the triggers for the exercise of the powers are very different from those of CISA, which are based on the country's need to restructure out of the ongoing international systemic banking and debt crisis.

Overall, we have seen that much progress has been made in restructuring the banking system. However, it is not over yet and it is imperative that the Minister for Finance continue to be empowered with the statutory authority to take any remaining necessary step as may be appropriate to ensure this process is completed. We are getting out of the mess. Extending the period of effectiveness of CISA is crucial to our being able to meet that objective. The Governor of the Central Bank is in agreement with me that the provisions of the Act should, therefore, be available for an extended period to the end of 2014. I strongly recommend the motion to the House.

Deputy Michael McGrath

I thank the Minister for his remarks on the motion and confirm that Fianna Fáil will be supporting it. However, I take the opportunity to make a number of points on the operation of the banking system.

It is true to say there are signs of stability within the banking system. The Minister has highlighted that stability has been brought to the deposit base of the banks. As we all know, there was a massive flight of deposits from the banks in 2010 and 2011. International deposits fell by almost €100 billion, while Irish deposits dropped by approximately €60 billion, but certainly they have stabilised in recent months. The most recent data show that up to September deposits placed by ordinary households and businesses decreased slightly in the State-supported banks - Bank of Ireland, Allied Irish Banks and Permanent TSB.

In a number of respects, we need to ask the fundamental question whether the banking system is working, it is functioning in the way we want it to function and meeting the needs of the economy. On a number of fronts I do not believe we can say with certainty that it is, as the evidence before us is to the contrary. While there is certainly a greater degree of stability in the banking system brought about by the enormous recapitalisation of the banks by the State - ordinary citizens - I do not believe the banks are fulfilling their responsibilities and playing their part in the economic recovery we all want to see. It is true to say the targets for the financial system set out in the memorandum of understanding with the troika are being achieved in the deleveraging of the banks and loan to deposit ratios, which is to be welcomed, but much more needs to be done by the banks to ensure they do what is required in supporting economic recovery. In that regard, I want to highlight a number of issues.

The first which we have discussed many times in the House is the issue of credit. In the budget announced last week I welcomed the inclusion of new initiatives with regard to the National Pensions Reserve Fund. The Minister is proposing that there be a range of support funds available to provide equity finance, for restructuring and recovery investment for the SME sector, ranging in size from between €100 million and €400 million. In a sense, this is a recognition of the failure of the banks to do what they are required to do. What the Minister announced in the budget last week for the National Pensions Reserve Fund was related to what the banks should be doing. Despite all the protestations from the banks that they are providing credit and are open for business, regrettably, my experience of dealing with people involved in business is that they are still finding it incredibly difficult to obtain credit where it is most needed. I understand invariably that the ones that come to us are the cases where problems have occurred, but there is no question that the banks are not providing the level of credit for the economy that is required.

The Minister has said the pillar banks are required to provide €3.5 billion of new credit in the case of AIB and Bank of Ireland. I do not believe we have satisfactorily dealt with the issue of defining what new credit is and how it will be measured. When Mr. David Duffy, chief executive officer of AIB, came before the finance committee recently, he confirmed that of the credit it stated had been extended, the figure for new lending to the SME sector was €600 million so far this year. That is the actual amount of new money provided. Under the definition allowed, the renewal of existing credit arrangements counts towards the figure of €3.5 billion. The bundling and repackaging of existing credit facilities in a term loan, for example, are also reckonable. We should, therefore, cut to the chase and measure the amount going into the economy. I accept that there are difficulties on the demand side also because many businesses are in a weak position and many of them are cautious about drawing down additional credit at this time. Not of all the credit approved is drawn down in the economy, which is also an issue. I, therefore, ask the Minister to be more proactive in dealing with the banks on the issue of credit. He should bring greater clarity to exactly what they are required to achieve because, let us be honest, the €3.5 billion target is a joke. When AIB confirms its actual new lending figure is €600 million, can we nail down exactly how this will be measured and come to some agreement on that issue?

I have received a number of calls from people involved in business in particular, people who have commercial loans and people who invested in properties and who are coming under enormous pressure from the banks and it is not being done in a very nice way. It is not a pleasant business at the best of times, but the pressure on the people concerned is enormous. Unfortunately, I frequently hear of cases of suicide in which financial pressures were to the fore and the role of the banks has been brought to my attention. They are putting individuals and families under incredible pressure and in many cases there is a genuine inability to pay. I call on the banks to be more humane in their approach when dealing with distressed borrowers because behind the loan account on the computer screen is an individual and a family to whom they need to show a little compassion. The people came to the rescue of the banks when they were on their knees and there was a risk they would have to shut their doors. The people supported them and this is the time for them to treat people fairly and with a degree of dignity, which is not happening in all cases. It is regrettable that I have to say this, but some of the cases brought to my attention in recent weeks are very disturbing and sinister. I, therefore, call on the banks to be more humane and compassionate in their approach.

We will return to the issue of mortgage arrears later when we discuss the property tax Bill. Again, this is an area in which the banks have singularly failed to meet their responsibilities. The figures are getting worse every quarter when the Central Bank releases the official figures.

We now have a situation in which almost one in four family home mortgages is in some sort of distress. They are either in arrears or have already been restructured. We cannot ignore the fact that up to 24% of family home mortgages are in trouble. The insolvency regime will, hopefully, help many of those people to deal with their other personal debts on credit cards and unsecured loans. There is no doubt the mortgage arrears crisis is getting worse. When a director of the Central Bank publicly condemns the banks for failing to deal with the issue adequately, we must sit up and take notice. Much more work needs to be done in this area.

I also want to highlight the plight of variable-rate mortgage holders. Many of them are typically being charged 4% to 4.5% while someone on a tracker mortgage only pays 1.5% to 1.75%. That makes an enormous difference to level of monthly repayments. The banks cannot keep going back to the same well of variable-rate mortgage holders to cover losses made elsewhere in the banking system. When the banks appeared before the finance committee, one chief executive made the point that in the medium term variable rates could be heading towards 5% and 6%. That is a frightening prospect for families already struggling with mortgage repayments. There was much talk about negotiations being under way to move tracker mortgages out of the main banks and to warehouse them in IBRC, Irish Bank Resolution Corporation, where they would be underpinned by a funding stream from the European Central Bank, ECB. This would improve the funding position of the main banks and allow them not to have to penalise variable-rate customers as has been done heretofore. When wrapping up, the Minister might take the opportunity to inform the House whether there are any moves on this issue.

The Minister referred to the liability management exercises the banks have undertaken over the past several years under this legislation. Up to €15 billion has been saved by way of the imposition of losses on junior bondholders. The Minister made the point that any CISA, Credit Institutions (Stabilisation) Act, liability exercise that has been brought before the Irish courts has been upheld. However, it is not the case in the UK where a case was taken against IBRC and the UK court found in favour of the litigant. I accept this case is under appeal and will be heard in the new year. However, there is a potential risk to the banks, and by extension to taxpayers, that some of these savings could be unravelled. It has been reported that groups of bondholders in Bank of Ireland and AIB have lodged letters with the Department of Finance. These junior bondholders are seeking to unwind the liability management orders issued under this legislation. Will the Minister address that issue when wrapping up?

The Minister has commissioned Mercer to conduct a review of pay levels in the covered institutions, which it is hoped will be completed by Christmas. If the Minister is not satisfied with the report or does not get the co-operation from the banks to reduce pay levels in the way he wants, does he believe he has adequate powers under legislation to intervene and bring top-end banking pay to a more realistic level.

Ordinary staff members of the banks have borne the brunt of what has happened in the banking system. Thousands of them have lost their jobs and thousands more are to be made redundant in the next number of months and years. The Irish Bank Officials' Association, IBOA, has expressed concern about the lack of an overall plan for the banking sector, as well as for those who have lost and will lose their jobs. A specific plan needs to be tailored for staff who are exiting the banking sector to ensure they have the necessary training and skills to take up opportunities elsewhere in the workforce. It is unlikely, given the way the banking system is shrinking, that they will be in a position to find work opportunities in banking. There should be a plan for the model of banking we will have in the future. Most banks are closing branches, particularly in rural areas, with services being moved online or joined with the post office network. People want to know the vision for our banking system model. Are we trying to attract new banks into Ireland to provide a further retail presence, as well as competition on the high street?

Fianna Fáil will support this motion. Will the Minister address the issues I raised when wrapping up? We must ensure the banking system meets its responsibilities. It is fine to meet the troika commitments, which must be done. The banking system, however, is not meeting the needs of the economy.

Deputy Pearse Doherty

In his statement, the Minister pointed out how successful the banks have been in deleveraging, attracting and retaining deposits, as well as how well recapitalised they are and how they have been able to access moneys in the international funding markets without the guarantee. All of this is true and some of it is to be welcomed. The Minister, however, did not address how those who fund the banks - the customers, taxpayers and citizens - have fared since the introduction of this legislation two years ago. Customers of the banks are paying interest rates on mortgages that are way above the ECB rate. Even when the ECB has reduced its rate, several banks here have increased theirs. Two years since this legislation was introduced, where are the taxpayers and citizens regarding the money they have pumped into the banks? Have we seen any measures to claw back these moneys? The answer is simply "No". The bill still remains in the region of €64 billion and there is no concrete sign this will be reduced in the immediate future.

This motion proposes to extend the Credit Institutions (Stabilisation) Act by two years. When the former Minister for Finance, the late Brian Lenihan, proposed this legislation, the Minister, Deputy Noonan, and his government colleagues voted against it. They were joined in their opposition by the then finance spokesperson of the Labour Party, Deputy Burton, and the rest of the Labour Party. Both Fine Gael and the Labour Party were scathing of this proposal and Fianna Fáil's banking policy. Yet, here we are two years on into this Administration and the same failed banking policy of Fianna Fáil is not only alive and well but is set to continue for another two years. I remind the Minister that Fine Gael and the Labour Party opposed Fianna Fáil when it introduced the ELG, eligible liabilities guarantee, scheme in 2009 and when it was further extended in 2010. However, once these parties got into office, they extended the very scheme they opposed not once, not twice but three times.

When the Minister was in opposition he criticised the reckless way Fianna Fáil plundered the National Pensions Reserve Fund to recapitalise the banks. However, once he got into office he continued to pour taxpayers' money into the same institutions, some of it from the National Pensions Reserve Fund, to the tune of €21.4 billion. I remind the Minister that when he was in opposition he criticised Fianna Fáil for socialising the toxic debts of Anglo Irish Bank and for landing the State with an annual €3.1 billion repayment of the infamous promissory note. Despite this, in 2011 and in 2012 under the Minister's watch the Government has used public money to pay the same toxic debt.

With all of these reversals and U-turns, the Minister's head must be truly spinning. Does he ever take a step back to catch his breath and let the dizziness wear off? The answer is "No". What he has done is to pile on another U-turn by seeking to extend the Credit Institutions (Stabilisation) Act by two more years. Today, the Minister has come into the House and asked Deputies to support an extension of legislation which he, his party and the Labour Party vigorously opposed when in opposition. Like so many other principles and policies that Fine Gael and the Labour Party have abandoned since taking office, the Minister's opposition to the failed banking policy of Fianna Fáil must be an embarrassment to him now as he slavishly follows the same policies of his predecessors. The public should be reminded of what the Minister and his colleagues said when opposing this legislation in 2010. The Minister, Deputy Noonan, was at the time rightly concerned with the extensive powers given to the Minister for Finance and the potential impact it could have on the Governor of the Central Bank. The Minister said:

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

The Minister's colleague and the Acting Chairman today, Deputy Olivia Mitchell, said during the debate:

The Minister must be aware that this is possibly the most far-reaching and significant financial legislation to come before the House. It is potentially so far-reaching and draconian that it contains a sunset clause.

That sunset clause is now being disregarded by this motion. The Minister for Transport, Tourism and Sport, Deputy Leo Varadkar, was particularly exercised by the failure of the legislation to deal with the issue of unguaranteed senior bondholders. He said the legislation:

...does not contain any provision for the restructuring of the debts of senior bondholders, particularly those who are not under the guarantee. There is perhaps up to €16 billion of taxpayers' money that could be saved by imposing losses and haircuts on those bondholders. That is the key change of policy that needs to happen when we have a change of government in this country because the people are not responsible for the debts of those banks and should not be held liable for them. That is the big lacuna in this Bill.

There has been a change of government but there has been no change of policy and when the Minister extends this legislation he will be ignoring the comments made by Deputy Leo Varadkar during that debate. Deputy Joan Burton, speaking as Labour Party finance spokesperson, echoed the sentiments of her future Fine Gael coalition partners because at the time of the original legislation she told the House:

Today's stopgap Bill is too little, too late. It is too late because the horse has bolted since the expiry of the original bank guarantee, and too little because it does nothing to address the treatment of liabilities other than subordinated bondholders. It fails to address the issue of senior bondholders now out of the guarantee, the debts for whom amount up to €20 billion.

When the debate finished and the walk-through vote was called Fine Gael and Labour Party Deputies to a man and to a woman stood with Sinn Féin and voted against that bad legislation. I note the Minister's comments today. He said that a good deal of water has passed under the bridge since then. Fine Gael and the Labour Party have abandoned their opposition to the banking guarantee. They have abandoned their opposition to the payment in full of unguaranteed senior bondholders. Today, they are abandoning the last vestiges of their opposition to the failed banking policy of Fianna Fáil by proposing an extension of its policy, which the Minister once described as draconian, by two years.

Naturally, none of this will surprise anyone. No one at home or in here will be surprised by these U-turns because the story of Fine Gael and the Labour Party in government is the story of a steady stream of broken promises. They have broken their word so many times since taking office that it is impossible for us to keep count. Why should we expect anything different today? As in 2010, Sinn Féin will oppose the motion tabled today and we will oppose it for the same reasons that we opposed the original legislation, reasons which the Minister allegedly agreed with in 2010.

The failed banking policy devised by Fianna Fáil and now being implemented by Fine Gael and the Labour Party continues to cost the people billions of euro every year. What do we get in return for that policy? Do we have a banking system that has reformed since the excesses of the boom years? No. The excessive remuneration of bankers is alive and well in all of the covered institutions. We have the figures. A total of 3,000 of them are paid over €100,000 per year and 27 are paid more than €500,000. Some one and a half years since the election there is still no sign of the report on bankers' remuneration. When in opposition the Minister's party proposed an amendment, as did the Labour Party, to cap bankers' pay at €250,000. The only people in the House today who voted against that amendment were from Fianna Fáil. When in opposition the Minister wanted to cap their pay. Now, we have seen reports but 18 months later nothing seems to have happened. The budget was another missed opportunity.

Do we have a banking system that assists distressed mortgage holders to make their debts more sustainable? The obvious answer is "No". The covered banks continue to sit on their hands as the mortgage crisis escalates every day. The report that came out yesterday is a wake-up call for everyone, especially for the Government. During the summer months the Government was spinning that there was a flattening of the mortgage crisis, that we had seen the tip of it and that it would no longer get worse, but that is not the reality. Some 115 people have fallen into mortgage distress each day since the last report. One in four people who have domestic mortgages are in mortgage distress. The Bill before the House will not go far enough to deal with that issue. I do not make the point simply from opposition. I believe that the Minister believes this is unsustainable and that the banks must do more, but the banks have not done more. The Minister should bring in new powers to compel the banks to ensure debt relief for those who simply cannot afford to pay their mortgages.

Other questions need to be asked. Is the banking system lending to the real economy and helping employers stay in business? Deputy McGrath touched on this point and he was right. The answer is "No". New lending targets have not been met and access to credit for viable businesses continues to be restricted. Banks are playing with the numbers. It is clear that they have been facilitated in trying to massage the figures. The targets set down were not about restructuring or loans. They related to new additional lending to the economy. The Government must take the banks to task over this or at least stop perpetuating the myth that there is new lending to small and medium enterprises as per the numbers suggested.

The reality is that our banking system remains broken. The Government's banking policy is in tatters and the reason is simple: upon taking office, Fine Gael and the Labour Party have continued with the failed banking policy of their predecessors. The motion before the House is an extension of legislation that contained a sunset clause and was not supposed to exist after this year. It was bad legislation in 2010 and it remains bad legislation today. It should be allowed to fade into obscurity as section 69 of the Act recommends. Only then will we have a chance of developing a new banking policy that works, not just in the interests of the banks' shareholders, officials, executives or boards, but most importantly, a banking system that works in the interests of ordinary citizens.

Sinn Féin will oppose this motion, as it, Fine Gael, including the Minister for Finance, Deputy Noonan and the Labour Party did in 2010.

Acting Chairman (Deputy Olivia Mitchell)

The next speaker is Deputy Seamus Healy, whom I understand is sharing time with Deputy Boyd Barrett.

Deputy Seamus Healy

I will not be sharing time.

Deputy Michael Noonan

An early Christmas in Killiney.

Deputy Seamus Healy

I welcome the opportunity to speak on this motion. The extension of the Credit Institutions (Stabilisation) Act 2010 is inadequate in terms of protecting the interests of Irish people, bank customers and, to use the words of James Connolly, "The re-conquest of Ireland by the Irish people".

More than €60 billion in borrowed public funds have been poured into failed Irish banks, for which the State - I should say Irish families - will have to pay €9 billion in debt service in 2013. These are the same families attacked in a blunt and brutal fashion by this Government's recent budget, in which there was no sense of fairness or equity. These families are already under serious pressure and are unable to bear this burden. The banks have been allegedly recapitalised to enable them to alleviate the burden on hard pressed mortgage holders and to provide finance for small businesses. We now know that the banks are doing neither. Central Bank figures published yesterday indicate that one in four mortgages is in distress and 86,000 mortgage holders are in arrears of more than 90 days. The situation in the buy-to-let sector is even worse. The banks are doing nothing about this despite their having been recapitalised specifically to address mortgage difficulties. As already stated, mortgage interest rates are a rip-off of mortgage holders. We recently learned that the Government is to facilitate the banks in the repossession of homes by way of the introduction of new legislation.

Earlier this week we heard yet again that the rate of refusal of funding for small businesses has increased. This has led, and will continue to lead, to business closures and job losses. Every Deputy in this House knows that businesses in the high street of every town and city in this country are closing. Most of the businesses in Market Place, Clonmel have closed. The money poured into the banks was used to bail out European banks and finance houses that had over-loaned to Irish banks in a financial gamble. That is exactly what has happened.

The claims that he has no power under the Act to force banks to reduce massive salaries and pensions to current and former bank executives. Currently, a retired chief executive officer of the Bank of Ireland is being paid an annual pension of €650,000. Under public pressure, the retired chief executive officer of Allied Irish Bank voluntarily took a modest cut in his annual pension. It was stated - admitted might be a better word - at a recent Oireachtas committee hearing that €1 billion of recapitalisation money for Allied Irish Bank had been transferred to its pension fund to meet the cost of some of these enormous salaries and pensions. The Minister said he cannot force changes in this area for legal reasons, which is unacceptable. This matter must be addressed.

The Minister for Communications, Energy and Natural Resources, Deputy Rabbitte, recently stated that the promissory note in respect of Anglo Irish Bank, now, Irish Bank Resolution Corporation, was not paid last year. It is important to state that it was paid last year and that the State incurred additional costs as a result. A further €3.1 billion is due next March. This will cost an additional €1.9 billion in interest. This money should not be paid. Another matter that must be dealt with is that of public interest directors in the banks, of which there are two in Allied Irish Banks, Bank of Ireland and Permanent TSB, who were nominated by the previous Government and have, since their appointment, accumulated significant directors' fees. For example, the fees for the public interest directors on Allied Irish Bank, Mr. Michael Somers and former Tánaiste and Labour Party member, Mr. Dick Spring, are €248,000 and €132,00 respectively; for the public interest directors in the Bank of Ireland, Mr. Tom Considine and former Fianna Fáil Minister, Mr. Joe Walsh, are €240,000 and €217,000 respectively; and for the public interest directors in Permanent TSB, Ms Margaret Hayes and former Fianna Fáil Minister, Mr. Ray MacSharry, are €207,000 and €183,000 respectively. Between them, they have made more than €1 million in fees yet they have apparently never met or communicated with the current Minister in respect of their responsibilities. Why are these public interest directors in a minority on boards of banks in which the State has a majority shareholding at the same time as mortgage holders and small businesses are suffering on or going out of business?

The Government sold 35% of Bank of Ireland to an American venture capital company for just over €1 billion. The State owns 15% of that bank, for which it paid €5 billion in terms of recapitalisation. NAMA also purchased Bank of Ireland loans at a cost above their market value. Bank of Ireland is now more answerable to an American venture capital company, which purchased 35% of it for €1 billion, than it is to the Irish people who rescued it by way of recapitalisation of €5 billion. The recent call by the Minister of State, Deputy Joe Costello, for the former chief executive officer of the Bank of Ireland, Mr. Richie Boucher, to reappear before an Oireachtas committee is mere window dressing. Legislation is required to protect the interests of the Irish people in the banks and to make directors answerable to the Government and the Dáil.

Rather than extending this grossly inadequate Act, under which the Irish people are being swindled, legislation should be introduced to absorb the State-owned banks, Allied Irish Banks and Permanent TSB into the public service so that they can be brought under direct democratic control.

This is not an ideological issue. It is the only practical way by which the people can get their money back if the banks become profitable again. It is the only way by which mortgage holders can be dealt with fairly and adequate credit can be provided for small businesses. If, for instance, ownership of Bank of Ireland, Allied Irish Banks and Permanent TSB was transferred to the European Stability Mechanism or some other foreign entity at their current value of approximately €8 billion, although the State has borrowed approximately €30 billion to rescue them, citizens would have paid a huge debt and international venture capitalists would make huge profits on such a transfer. That simply must not happen. Such a transfer was suggested as a possibility, although I note that there has not been much talk of it happening more recently. The Government should take direct control of the banks to ensure the investment of the people is protected. Decisions on the pay and pensions of top executives and the disposal of assets should be taken by the Oireachtas in full public view and after adequate debate. The Government's policy is unacceptable. I will, therefore, be opposing the motion.

Minister for Finance (Deputy Michael Noonan)

I thank all of the Deputies who contributed to the debate and Deputy Michael McGrath for his support. A key commitment given in the troika support programme was that there would be comprehensive restructuring of the banking system. The Credit Institutions (Stabilisation) Act provides the broad powers needed to act, on financial stability grounds, to effect necessary restructuring actions and the recapitalisation measures as envisaged in the programme. The Act has enabled these necessary actions to be taken swiftly, efficiently and with legal clarity. The level of restructuring of the banking sector achieved in the past two years would not have been possible without it. The Governor of the Central Bank agrees that the provisions of the Act should be available for an extended period to the end of 2014. This will facilitate transactions, including possible further restructuring of the Irish banks that may require a direction or transfer order to implement. I have set out the instances where the powers available to the Minister under the Act have enabled the substantial and significant restructuring actions envisaged in the support programme to be progressed. I have also outlined the progress made in the banking sector. However, the sector is certainly not out of the woods and further actions may be required, for which the powers under the Credit Institutions (Stabilisation) Act would be appropriate.

Deputy Michael McGrath raised the issue of lending to SMEs. The Government imposed SME lending targets on the two domestic pillar banks for the three calendar years 2011 to 2013. Both banks were required to sanction lending of at least €3 billion in 2011, €3.5 billion in 2012 and €4 billion in 2013 for new or increased credit facilities for SMEs. They achieved their 2011 targets. The head of the Credit Review Office, Mr. John Trethowan, stated in his recently published ninth quarterly review that "€3.5bn of sanctions for each bank is a very challenging target, however the remaining five months typically show more lending activity and I am of the view that, after a slow start to the year, the targets will be a challenge but still may be achieved."

In addition to the lending targets imposed, the pillar banks are required to submit their lending plans to the Department and the Credit Review Office at the beginning of each year outlining how they intend to achieve their lending targets. The banks also meet the Department and the Credit Review Office on a quarterly basis to discuss progress. The office is also available to review cases where credit facilities up to €500,000 are refused, withdrawn or offered under unreasonable conditions. During recent appearances before the Joint Committee on Finance and Public Expenditure representatives of both banks were confident of achieving their 2012 targets.

The Central Bank has published a revised statutory code of conduct for business lending to small and medium-sized enterprises setting out new requirements for lenders when dealing with SMEs in or facing financial difficulties. The code came into effect on 1 January 2012 and a full review will be undertaken in the second half of 2013.

Deputy Michael McGrath also knows that an independent Mazars survey of SME credit facilities was published last year. On foot of this report, a series of seven regional meetings with local representatives took place in different parts of the country. These were hosted by the Minister of State, Deputy John Perry, and supported by Mr. John Moran, Secretary General of the Department of Finance. The aim of the meetings was to examine further the actions that might be taken to improve access to credit for SMEs.

In the Action Plan for Jobs a range of actions are outlined to encourage access to credit for SMEs and enhance the measurement and reporting by the banks of their lending to the sector. These include working with the banks on one-to-one firm issues and assisting them in a cultural shift in lending practices towards sectors critical to economic growth. We also want them to develop better protocols and enhance the sectoral expertise within the banks and the range of lending products to meet the needs of exporters and tourism providers.

Deputy Michael McGrath also raised the issue of mortgage arrears. The introduction of the new Personal Insolvency Bill will incentivise the banks to reach an agreed solution with individual borrowers in resolving mortgage arrears cases. The Bill will conclude its parliamentary process next week and the Government will press ahead with the establishment of the Insolvency Service of Ireland early next year. We expect the personal insolvency arrangements framework, which is part of this legislation, to provide for a more effective and efficient resolution process as an alternative to judicial bankruptcy for a greater number of insolvent debtors to address their insolvency. The primary purpose of the personal insolvency arrangement is to provide a realistic alternative to bankruptcy for insolvent debtors with secured debts. As an insolvency resolution mechanism, the personal insolvency arrangement is intended not only to address mortgage or consumer debt situations but also to be capable of dealing with insolvent debtors who have debts arising from a business, trade or profession. A functional repossession regime should, however, also be part of the toolkit to deal with unsustainable legacy debts. While repossession should remain a measure of last resort, it is important to maintain balanced incentives between mortgage borrowers and creditors. In this regard, the legal uncertainty arising from recent case law which identified constraints which could hinder repossession of collateral in some cases involving debtor default will be addressed some time next year.

At a future date we can deal with some of the other issues raised. The Mercer review is proceeding and I hope to receive a full report early in the new year.

Question put:

The Dáil divided: Tá, 85; Níl, 28.

Tá

• Bannon, James.
• Breen, Pat.
• Browne, John.
• Bruton, Richard.
• Butler, Ray.
• Buttimer, Jerry.
• Byrne, Catherine.
• Byrne, Eric.
• Calleary, Dara.
• Carey, Joe.
• Coffey, Paudie.
• Conaghan, Michael.
• Conlan, Seán.
• Connaughton, Paul J.
• Conway, Ciara.
• Coonan, Noel.
• Corcoran Kennedy, Marcella.
• Coveney, Simon.
• Cowen, Barry.
• Creed, Michael.
• Daly, Jim.
• Deasy, John.
• Deenihan, Jimmy.
• Doherty, Regina.
• Donohoe, Paschal.
• Dooley, Timmy.
• Dowds, Robert.
• Doyle, Andrew.
• English, Damien.
• Farrell, Alan.
• Feighan, Frank.
• Flanagan, Charles.
• Gilmore, Eamon.
• Griffin, Brendan.
• Harrington, Noel.
• Harris, Simon.
• Hayes, Brian.
• Hayes, Tom.
• Heydon, Martin.
• Hogan, Phil.
• Humphreys, Heather.
• Humphreys, Kevin.
• Keating, Derek.
• Kehoe, Paul.
• Kelleher, Billy.
• Kenny, Seán.
• Kitt, Michael P.
• Kyne, Seán.
• Lyons, John.
• McGinley, Dinny.
• McGrath, Michael.
• McLoughlin, Tony.
• Mitchell, Olivia.
• Mitchell O'Connor, Mary.
• Maloney, Eamonn.
• Martin, Micheál.
• Mathews, Peter.
• Murphy, Eoghan.
• Nash, Gerald.
• Neville, Dan.
• Nolan, Derek.
• Noonan, Michael.
• Ó Cuív, Éamon.
• Ó Fearghaíl, Seán.
• Ó Ríordáin, Aodhán.
• O'Dea, Willie.
• O'Donnell, Kieran.
• O'Donovan, Patrick.
• O'Mahony, John.
• O'Reilly, Joe.
• Phelan, Ann.
• Phelan, John Paul.
• Rabbitte, Pat.
• Reilly, James.
• Ring, Michael.
• Ryan, Brendan.
• Smith, Brendan.
• Spring, Arthur.
• Stagg, Emmet.
• Timmins, Billy.
• Troy, Robert.
• Tuffy, Joanna.
• Twomey, Liam.
• Wall, Jack.
• Walsh, Brian.

Níl

• Adams, Gerry.
• Broughan, Thomas P.
• Collins, Joan.
• Colreavy, Michael.
• Daly, Clare.
• Doherty, Pearse.
• Ellis, Dessie.
• Flanagan, Luke 'Ming'.
• Fleming, Tom.
• Grealish, Noel.
• Halligan, John.
• Healy, Seamus.
• Higgins, Joe.
• Mac Lochlainn, Pádraig.
• McGrath, Finian.
• McGrath, Mattie.
• McLellan, Sandra.
• Murphy, Catherine.
• Nulty, Patrick.
• Ó Caoláin, Caoimhghín.
• Ó Snodaigh, Aengus.
• O'Brien, Jonathan.
• O'Sullivan, Maureen.
• Ross, Shane.
• Shortall, Róisín.
• Stanley, Brian.
• Tóibín, Peadar.
• Wallace, Mick.

Tellers: Tá, Deputies Paul Kehoe and Emmet Stagg; Níl, Deputies Aengus Ó Snodaigh and Pearse Doherty.

Question declared carried.