Dáil Éireann debate -
Thursday, 21 Mar 2013

Vol. 797 No. 2

Priority Questions

Mortgage Arrears Proposals

Michael McGrath

Question:

1. Deputy Michael McGrath asked the Minister for Finance the way he will ensure that the balance in power between financial institutions and distressed borrowers is not altered in favour of the financial institutions as a result of recently announced measures to deal with the mortgage arrears crisis; if he will commit to putting in place clear guidelines as to what a sustainable solution means for borrowers in terms of day to day cost of living expenses; and if he will make a statement on the matter. [14404/13]

Minister for Finance (Deputy Michael Noonan)

The Deputy will be aware that on 13 March 2013 the Central Bank announced new measures to address mortgage arrears, including the publication of performance targets for the main mortgage banks and a consultation process on changes to the code of conduct on mortgage arrears, CCMA. This new approach is aimed at ensuring banks offer and conclude sustainable solutions for their customers in arrears by setting specific performance targets and proposing revisions to provisioning standards. The Central Bank also proposes to update the CCMA so it continues to provide protection to customers who co-operate with their banks while facilitating and promoting the resolution of arrears cases.

The consultation paper on the review of the CCMA includes a number of proposals intended to clarify and strengthen protections for borrowers. These include clarifications of the definition of "not co-operating" to ensure lenders and borrowers know what type of engagement is expected; safeguards for borrowers, including specific requirements for interaction by lenders with borrowers classified as not co-operating; and a new requirement for lenders to draw up and implement a contact policy, to be approved at board level, which ensures unsolicited communications are not aggressive or intimidating, that borrowers are given sufficient breathing space following each unsolicited communication and that future contact is agreed in advance where possible. Also included are increased provision of information requirements to ensure transparency on alternative repayment arrangements offered, including the reasons the alternative repayment arrangement offered is considered to be appropriate and sustainable for the borrower, the frequency with which the alternative repayment arrangement will be reviewed and the potential outcome of these reviews. These provision of information requirements also cover the implications of options such as voluntary surrender or trading down for the borrower and his or her mortgage loan account, including associated costs or charges; how much, if any, of the outstanding arrears must be repaid; the impact on the borrower's credit rating; and the importance of seeking independent advice on these options.

The Central Bank has informed me that in determining whether a proposal constitutes a sustainable solution, the lender will need to evaluate actual and prospective affordability for the distressed borrower and the capital implications for the credit institutions in terms of their prudential responsibility in order to minimise losses.

While the Central Bank does not mandate any particular model of restructuring and while sustainable solutions will be arrived at on a case-by-case basis, some fundamental principles must be respected. These include an affordability assessment of the borrower based on his or her current and prospective future servicing capacity for all borrowings; a realistic valuation of the borrower's assets, particularly his or her property; and the use of an appropriate interest rate when discounting future income flows, which should take account of the lender's cost of funds.

The Central Bank has advised that it will assess compliance with these principles in its supervisory audit of compliance with the targets, including through analysis of a sample of modifications. Other initiatives which the Deputy will be aware of, such as the mortgage advisory function and the personal insolvency reforms, will also contribute to ensuring a fair balance in the interaction between distressed borrowers and lending institutions.

Deputy Michael McGrath

I thank the Minister for his reply. My fear following last week's announcement about restructuring of mortgages is that it very much puts the banks in the driving seat. The banks will now be judge, jury and executioner when it comes to dealing with the individual mortgage account of any family in the country. When one looks at the requirement to put a sustainable solution in place, the bank will decide what the sustainable solution will be. The definition requires that the bank be satisfied that the arrangement provides a sustainable solution. The overall package, comprising the revised code of conduct and the legislation promised to reverse the Dunne judgment, and taking into account the banks' veto in the personal insolvency service, means the balance of power has shifted very firmly in favour of the banks compared to mortgage holders.

The second part of my question relates to living expenses. Reports in the media today state that minimum income guidelines will be issued by the new insolvency service and the Minister for Justice and Equality, Deputy Alan Shatter, next week. Will these guidelines also be used by the banks when they deal with individual mortgage holders or are they merely designed to deal with cases that go before the new insolvency service? We all accept the need for consistency of treatment for all borrowers, including those in arrears and those who are just about managing to pay their mortgages at present. Will the Minister clarify the role of these guidelines in respect of individual mortgages and what their status will be?

Deputy Michael Noonan

The banks do not have a veto and will engage with persons who have impaired mortgages in a number of different circumstances, which of course, they do already. There will be face-to-face informal contact between banks and persons with impaired mortgages, which can take the form of speaking to the bank manager or the person who arranged the mortgage in the first instance. Although this is face-to-face informal contact, there is a code of conduct on contact developed by the Central Bank, which is now being modified. The exchanges will be governed by this. A person will not be entirely on his or her own. MABS has up to 2,500 qualified accountants on its books who are available to help people in exchanges with their lenders.

The second area is more formal and this will be under the remit of the insolvency legislation. The director of the insolvency service, who was appointed in October, will make a public announcement on 27 March launching the service. He has retained and employed a cohort of personal insolvency practitioners. Under the Act they will formally be available to persons with impaired mortgages to work out matters. The banks do not have a veto, because if they do not agree to an arrangement under the insolvency service their position will worsen if a person drifts into bankruptcy. There is no veto.

Deputy Michael McGrath

The Minister often refers to the independence of the Central Bank and states that an independent body oversees mortgages. This is true in that it provides the overall framework, but it does not get down to the level of individual mortgages and arbitration between mortgage holders and banks to achieve fair solutions, and ultimately this is the weakness in the strategy.

I wish to ask about the minimum income guidelines. They are designed to be used by the insolvency service, but will they also be used by the banks in dealing with people in mortgage arrears who have not yet ended up or will not end up in the insolvency service? What will be the standing of these guidelines? Today we have read reports about second cars, Sky Sports, holidays and health insurance being under threat. I acknowledge there must be consistency and fairness in how borrowers are treated, but people deserve to know exactly where they stand. Will these guidelines be used by banks outside the insolvency service? If so, what will be their status? Will they be binding or will they merely be guidelines, which is what was announced today?

Deputy Michael Noonan

With regard to the role of the Central Bank, as well as establishing the blueprint, which it announced last Wednesday, and laying out the timescale over which impaired mortgages will be dealt with until the position is resolved, it will also supervise and monitor the arrangements being made by individual banks with mortgage holders.

It will take a representative sample of the arrangements made to see if the case studies they examine correspond to the guidelines that have been set down.

As regards the set of issues concerning the living income for a family, there is a statutory obligation on insolvency practitioners to come up with guidelines. They are working on it and will have the guidelines very shortly when an announcement will be made. That strictly applies to arrangements made within the remit of the insolvency legislation. However, this is a small country and all these people talk to each other. One would expect, therefore, that what is developed by the insolvency service will become the norm for the informal dialogue as well. I will make sure that the Deputy's views are expressed to the Central Bank and the other banks so that people are not operating to different guidelines or no guidelines. That is what the Deputy was saying.

Deputy Michael McGrath

Yes.

Deputy Michael Noonan

If one is developed by the statutory agency, the Deputy is right to say that it should apply universally.

Bank Staff Remuneration

Pearse Doherty

Question:

2. Deputy Pearse Doherty asked the Minister for Finance his plans to reduce the salaries of senior executives at bailed-out banks, as opposed to reducing the payroll more generally, in view of the fact that more than 6,400 staff in these banks earn more than €100,000, 165 top executives in Bank of Ireland and AIB are receiving salaries in excess of €200,000 per year, 55 of these are earning more than €300,000 per year and 28 are earning more than €400,000 per year. [14401/13]

Deputy Michael Noonan

When publishing the Review of Remuneration Practices and Frameworks at the Covered Institutions, on 12 March 2013, I indicated that the Government had formed the view that with the remaining covered institutions still incurring losses it was an inescapable conclusion that the cost base of the institutions needs to be reduced further. This is essential if they are to return to profitability, be in a position to support the economy and repay the State's investment through a return to private ownership.

On behalf of the Government, I have now directed the banks to come up with plans as to how they intend to address this issue in a manner that can help meet the State's objectives. I expect the value of those plans to mean a saving of between 6% and 10% of total remuneration costs through reductions in payroll and pension benefits, new working arrangements and structures that deliver efficiency gains. In the circumstances, the Government has not focused on individual salaries, employees' levels or specific measures. While the three remaining covered institutions face equally daunting challenges, they are individually at different stages in addressing their particular needs in their respective drives to return to profitability and are best placed to respond to the wishes of the Government.

The Deputy will note that the review opined that salaries at the senior executive level and above, at the three remaining covered institutions, are generally behind the market as compared to quoted Irish companies and the Mercer European Financial Services survey based on measures implemented to date, namely but not solely due to the withdrawal of incentives. It also stated that when incentives are taken into account this disparity widens significantly. There is always a difficult balance to be struck between rewarding and retaining talent at this level, ranged against the financial circumstances of the banks and the measures imposed upon citizens to address our current challenging economic and fiscal circumstances. Simply reducing salaries above the €100,000 level would not generate sufficient savings to tackle the issue. If remuneration costs are to be reduced with the aim of returning to profitability, then sacrifices at all employees' levels will be required.

It can never be forgotten by management and employees of these banks, both past and present, that without enormous cost to Irish taxpayers these institutions would not have survived and that this needs to be borne in mind during future discussions.

Deputy Pearse Doherty

I thank the Minister for his response, albeit a disappointing one. Does the Minister remember voting to legislate for a €250,000 cap on bankers' pay in the covered institutions? Can he recall pressing the button on this side of the House and believing that it was the right thing to do? We have finally had sight of the Mercer report on high-level bankers' pay that was promised for the past two years. Some €120,000 later we have now seen it. Last week, it was announced that Mr. Richie Boucher has taken home €843,000.

The Minister's response to the Mercer report is that the banks must reduce their payroll costs, which does not target those whom he believed just a few years ago, when in opposition, should have been capped. There are many in the banking system who did not cause the crisis and were not in Mr. Boucher's position in 2008. They are now under fierce pressure because the Minister has announced that there has to be a payroll reduction of between 6% and 10%. As we know, payroll reductions can come in many forms, including efficiencies or staff reductions.

Why has the Minister not dealt with the 6,400 staff who are earning above €100,000 per annum, the 165 top officials who earn in excess of €200,000, the 55 who earn over €300,000 or the 28 who earn over €400,000? When Fianna Fáil defended the €500,000 cap for bankers' pay, the Minister - who was in opposition - accused the then Minister for Finance of bottling it. May I say, with all justification, that the Minister has bottled it when it comes to bankers' pay.

Deputy Michael Noonan

The issue of bankers' pay and bonuses is a fraught one, both in Ireland and other jurisdictions. It is only two weeks since the capital requirements, or CRD IV, directive from Europe was under discussion. The UK authorities were pushing in the opposite direction to allow much higher bonuses than would prevail in any other jurisdiction. Around the same time there was a referendum in Switzerland which sought to draw up new rules for bankers' pay and bonuses.

We have agreed with the covered institutions caps for chief executives and chairpersons. We have also agreed that no bonuses of any sort will be paid. Internationally, bonuses are much higher than basic salaries in the banking profession.

It is an issue that arises periodically. It came up here extensively before Christmas with questions from many Deputies across the House but, in my view, it generated more heat than light. I wanted to act but on objective criteria, so I engaged Mercer to do an objective study. Mercer came up with the answers to what the remuneration levels were across the banks. The IBRC was the outlier and they were significantly higher for reasons referred to in the Mercer report, but we had liquidated IBRC by the time the report was published. We are therefore left with the three covered institutions.

In respect of the Bank of Ireland and the gentleman whom the Deputy has named in the House, it should be remembered that the State is a minority shareholder in that bank. We have 15% of the shares. The investors saw fit to reward that individual and made it a condition of their investment that they would retain him as chief executive. We are minority shareholders.

Deputy Pearse Doherty

The Minister holds the shares of this State in the Bank of Ireland. They are in trust to him as the Minister for Finance who is a 15% shareholder. However, the Minister has not once uttered a word about the fact that Mr. Richie Boucher was paid €910,000 last year, the same as he was paid the year before. His base salary is above the cap, his car expenses are €34,000 and his pension comprises an annual contribution above €186,000. Not once, however, has the Minister ever raised the issue as a shareholder with a 15% share in that bank, which is probably bigger than any other shareholding. The Minister has bottled this issue.

Why did he stand as a member of the Opposition and demand that a cap of €250,000 be imposed? Can he justify that? One of the public interest directors who sits on the remuneration board, is a former Minister, Mr. Joe Walsh. That wee, cosy relationship was created many years ago whereby former Ministers and former Secretaries General of Departments were put in as public interest directors. Mr. Walsh sits on the remuneration committee and gets €90,000 for his work. One public interest director told me that equates to about 30 days' work. Given the state this country is in, can the Minister justify paying a public interest director €3,000 per day, while they allow the chief executive of the Bank of Ireland to walk away with €840,000?

Deputy Michael Noonan

First, Mr. Boucher's pay and conditions were set out by the previous Government and the previous Minister for Finance and I inherited them as a matter of contract. As I stated, the Government is a minority shareholder, as it was fortunate enough to attract private investment from Canada and the United States into the bank. The Deputy will notice that since the private investment came in, while the shares were offered at 10 cent, earlier in the week they were trading at 16 cent or 17 cent. Therefore, it is difficult to put a case that a good job is not being done in there at present. The Deputy is accusing me of not attacking Mr. Boucher and other people personally. That is not the way I do politics. I do not organise lynching parties for individuals. That might be the way Sinn Féin does politics but I do not do it that way.

There is a general issue that the cost base of all the banks is too high. I have instructed the banks to get their cost base down and am giving them the kind of flexibility that my colleague in government, the Minister for Public Expenditure and Reform, Deputy Howlin, gave to the public service unions, wherein one size does not fit all. There are different ways of getting down the cost base and I want them to match their strategies to the circumstances of the individual banks. However, I want to get the cost base down and will do so. As for the former Minister, Joe Walsh, I do not know anything to suggest he is not a good director or that he is not carrying out its functions as a director.

An Leas-Cheann Comhairle

Go raibh maith agat.

Deputy Michael Noonan

This is another example of how, because he is a former Fianna Fáil Minister, the Deputy wants to hang him in public.

Deputy Pearse Doherty

No, the issue is paying €3,000 per day.

Deputy Michael Noonan

Everything I know about him suggests he is a good director and a decent man. Why pillory him here in the House for the sake of a cheap headline?

An Leas-Cheann Comhairle

We must move on.

Tax Code

Luke 'Ming' Flanagan

Question:

3. Deputy Luke 'Ming' Flanagan asked the Minister for Finance if his attention has been drawn to a complaint (details supplied) regarding the failure of the Revenue Commissioners to investigate the non payment of VAT; if the Revenue Commissioners have been notified of this complaint; and if he will make a statement on the matter. [14403/13]

Deputy Michael Noonan

I am advised by the Revenue Commissioners that no complaint has been formally brought to their attention by the European Commission regarding the matter raised by the Deputy. The Revenue Commissioners have received a copy of the complaint that appears on the website of the entity named by the Deputy, which mentions anti-competitive practices and policies relating to the Minister for Agriculture, Food and the Marine and the VAT situation of the bodies named in the complaint. I point out that the grounds for a complaint to the European Commission include that a member state or public body has not complied with Community law. On receipt of a formal complaint from the European Commission, Ireland will examine and respond formally to the Commission. As for notifications made to the Revenue Commissioners on this issue, I point out that Revenue is precluded, under section 851A of the Taxes Consolidation Act 1997, from providing taxpayer-specific information to third parties, including elected representatives. As such, they cannot comment on actions, if any, taken or planned regarding the two named entities.

Deputy Luke 'Ming' Flanagan

Perhaps the Minister can answer the following question. Were the Irish Horse Board and Horse Sport Ireland granted public body status? If not, how have they ended up being exempt from paying VAT? Can the Minister explain this because it does not appear to add up?

Deputy Michael Noonan

I wish to point out that to be treated as a public body for VAT purposes, a body must be established as such by enactment. In this context, since neither of the entities mentioned by the Deputy is a body established by an enactment, they cannot be afforded the VAT status of a public body. This appears to answer the Deputy's question.

Deputy Luke 'Ming' Flanagan

That is fair enough. Consequently, should they be and are they paying VAT? If not, what is being done about it?

Deputy Michael Noonan

The Deputy will find this response to be highly unsatisfactory, as do I, but the answer I have to hand is that the provisions of section 851A of the Taxes Consolidation Act 1997 are designed to protect taxpayer confidentiality and they preclude the Revenue Commissioners from providing taxpayer-specific information to third parties, including the Minister for Finance. The Deputy might think of something about which we need to have a cup of coffee.

Deputy Luke 'Ming' Flanagan

I am glad someone still wants to have one with me.

IBRC Liquidation

Michael McGrath

Question:

4. Deputy Michael McGrath asked the Minister for Finance the action he will take to address the losses incurred by credit unions and other fixed deposit holders arising directly from the liquidation of Irish Bank Resolution Corporation; and if he will make a statement on the matter. [14405/13]

Deputy Michael Noonan

I have been informed there are a number of deposit accounts not entitled to full compensation under the deposit guarantee scheme, DGS, or the eligible liabilities guarantee, ELG, scheme or both due to the nature of the products or deposit options in which those account holders invested. These include investments by credit unions and other fixed deposit holders. The proceeds from the disposal of IBRC’s assets will be used to repay creditors in accordance with normal Companies Acts priorities and, consequently, preferred creditors will be paid first and then the debt which NAMA will have purchased from the Central Bank will be paid. If there are proceeds available after repayment in full of the NAMA debt, these proceeds will be applied to remaining unsecured creditors. This would include credit unions to the extent that their deposits are unguaranteed.

I am advised by the Central Bank of Ireland that certain tracker bonds sold to credit unions, which were liabilities of IBRC at the time of the liquidation, have a structured deposit element which is covered by the DGS for that element of the product. As a result, the first €100,000 of any claim from these depositors is covered under the DGS. The bond itself is not covered by the ELG scheme as it predates that scheme. Credit unions affected have been advised to deal with the special liquidator regarding this matter. Any issues regarding losses incurred by other fixed deposit holders are also a matter for the special liquidator.

In respect of credit unions, the Government already has provided €500 million of taxpayers’ money to support the stability of credit unions through resolution and restructuring. In addition, the credit union movement has its own stabilisation fund.

Deputy Michael McGrath

I thank the Minister for the reply. This issue is one of the unforeseen consequences of the liquidation of IBRC or at least it was unforeseen on this side of the House, because Members were not aware of it in advance. While this is not a disaster for the credit union sector as a whole, it is a significant issue for the credit unions affected. The Minister has confirmed the involvement of up to 16 credit unions with investments totalling approximately €15 million. Under the deposit guarantee scheme, such credit unions will get back up to €100,000 each and consequently, the credit union sector faces net losses of €13 million to €14 million as a result of the liquidation. They consider themselves very hard done by and they have a legitimate case. Essentially, these were deposits in a State-owned bank and the liquidation of that bank and the losses thereby imposed resulted from a policy intervention by the Government. As the Minister is aware, virtually all other deposits in IBRC were transferred to AIB prior to the liquidation of the bank. I should point out that many individuals also invested in this product. Two cases have been brought to my attention. The first concerned a widow who deposited €200,000, of which she will now lose €100,000. The second was a 69-year-old pensioner who placed his entire savings of €450,000 in the product, of which he will now lose €350,000. This is extremely harsh and my purpose in tabling this question was to achieve finality on this issue. Is the Minister stating it is not possible to intervene or that he will not intervene or that essentially, those concerned will get €100,000, after which they will join the queue of unsecured creditors? I am attempting to get to the end point in this regard.

Deputy Michael Noonan

First, the Deputy may be interested in the type of investment product into which they had put their money. It was called the Anglo Irish Bank Credit Union Bond 2005 and my understanding of this bond is that it was an equity-linked bond, marketed exclusively to credit unions by Anglo Irish Bank private bankers in 2005. This bond was never covered by the eligible liabilities guarantee. It was linked to the performance of the Euro Stoxx 50 index and as outlined in the prospectus, in the event of Anglo defaulting, the investors' capital will not be guaranteed. The bond offered annual liquidity, that is, it could be cashed in once a year over its eight-year term. I do not understand, when the State moved out virtually all deposits, the reason credit unions stayed in, when the prospectus has stated that in the event of Anglo defaulting, the investors' capital would not be guaranteed, when they were not locked in and when they had the option of getting out each year on an annual basis.

That said, to answer the Deputy's questions, in the first instance, €100,000 is safe. Second, they will join their place in the queue with other creditors to share any residue. In addition, however, if the hit on an individual credit union is such that it comes below the required reserves, it should take up the matter with the Credit Union Restructuring Board, ReBo, because the credit union movement has its own internal fund and the State also has provided €500 million in a fund to help the capital requirements of impaired credit unions.

That is the series of issues.

Deputy Michael McGrath

It is reasonable to ask why they did not transfer it out. The answer probably is that it was Government policy that there would be a gradual wind down of IBRC up to 2020. This particular tracker bond, as the Minister calls it, was due to mature over the next number of months so they had a reasonable expectation that it would be allowed to mature in full and they would realise the full value of the investment. It has a structured deposit element, as the Minister's reply indicated. Is there any way to separate the deposit element from the equity linked aspect of the investment product and at least secure the deposit element of it for the investors?

Deputy Michael Noonan

Some of them have €1 million in.

Mortgage Arrears Proposals

Pearse Doherty

Question:

5. Deputy Pearse Doherty asked the Minister for Finance the reason in view of the crisis in mortgage arrears he did not take the power away from the banks and appoint an independent body with the power to compel banks to come to binding agreements with mortgage holders in last week’s mortgage arrears plan; if he considered this option; and if so, the reason he did not include it. [14402/13]

Deputy Michael Noonan

The Deputy will be aware that last week the Central Bank announced new measures to address mortgage arrears, including the publication of performance targets for the main mortgage banks and proposed changes to the code of conduct on mortgage arrears, CCMA. The consultation paper on the review of the CCMA includes a number of proposals intended to clarify and strengthen the resolution process for arrears cases.

Specific targets have been set by the Central Bank to require banks to work through their mortgage book systematically and to offer durable solutions to mortgage holders for arrears cases that are 90 days or more overdue. The Central Bank will also, over the coming period, set targets for the conclusion of durable solutions and for the sustainability of such solutions. The targets should provide a better measure of progress on a more consistent basis and promote a movement away from temporary forbearance measures which are not sustainable in the long term. In addition, the banks will also be set specific, non-public, targets, principally relating to handling of early arrears cases. The Central Bank is working with individual institutions to incorporate these measures which will be set in line with each institution's capacity, processes and systems. These targets will be adjusted quarterly to ensure they are ambitious.

The banks will be required to publish their performance against the targets for the year end December 2013 and make quarterly reports to the Central Bank. Banks are also required to make regular returns to the Central Bank on their performance against targets. The Central Bank will consider each bank's performance against the targets, including assessing whether sustainable solutions have been offered to customers.

Separately from this Central Bank action, the new personal insolvency system, in particular the new resolution frameworks provided for in the Personal Insolvency Act, will also shortly be available to borrowers who are in significant difficulty in their mortgage repayments. Utilising this process, the borrower will be in a position to consult an independent personal insolvency practitioner and where necessary to make a formal and realistic personal insolvency arrangement proposal to all eligible creditors, including a mortgage lender. In such a situation the creditors will be obliged to consider formally and vote on the arrangement as proposed by the debtor. In the event of a refusal by creditors, the debtor will also have access to the reformed bankruptcy framework, which has significantly reduced the automatic discharge period to three years. I also remind the Deputy that, under the mortgage advisory service developed by the Department of Social Protection, independent financial advice is available to borrowers who have been offered a long-term forbearance option by the lender and a panel of 2,000 to 2,500 qualified accountants is now in place to provide this service.

Deputy Pearse Doherty

The mortgage crisis and the approach that has been taken to it for the last number of years were not created by the Minister. The crisis has been there for the last four or five years. However, the problem now is that the Minister has again left it with the banks and, as Deputy Michael McGrath said, the same concerns exist. I genuinely hope the targets and the approach being taken by the Central Bank produce results, because we need those results and more mortgages back in a sustainable, restructured position. However, all the evidence points to the fact that the banks will do the bare minimum. We own AIB. It has been recapitalised to write down the value of those properties to current market value, so the only threat the Central Bank can impose on AIB is that it will write down the value of those loans to the current market value, which it has been recapitalised for anyway. Where is the incentive for AIB to deal with this issue in a proper fashion?

We will probably see in the first quarter what loans are restructured and we will hear on the grapevine about what is happening, but if this does not work will the Minister move speedily to set up an independent body, over and above the Central Bank, the banks and the mortgage holder, that can impose a settlement? Will he consider that option to deal with this issue once and for all?

Deputy Michael Noonan

Our view is that the best way to move forward is on a case by case basis, where lenders and borrowers come to an equitable and sustainable arrangement. That is done in the first instance under the monitoring systems of the Central Bank. As I said to Deputy Michael McGrath earlier, the Central Bank will sample the restructured cases to ensure the system is operating satisfactorily. In addition, under the independent Insolvency Service of Ireland other arrangements will be made. On the one hand there is the independent Central Bank quantifying what needs to be done, setting that against a timeline and monitoring it as it proceeds. On the other hand there is an independent insolvency agency under the direction of the insolvency director which has a more formal process. In both cases, there are two independent agencies doing this work. The piece that does not match the Deputy's requirements is that they do not impose solutions. However, the imposition of the solution will follow. If the insolvency arrangement on the bilaterals does not reach agreement and the person who is insolvent moves on to bankruptcy, then the solutions are imposed under bankruptcy law. That is the sequence.

Deputy Pearse Doherty

That is not a solution for the vast majority of people, and the Minister knows that. If one is bankrupt, one loses one's house. That is not a solution for the approximately 186,000 people who are in mortgage distress. The problem is that while it is good that the Central Bank is looking at the banks and will study what they do, the banks have basically refused to listen to the Minister, other Ministers and the Central Bank for the last two years. They have not dealt with this crisis. The only thing the Central Bank can do, if it finds after studying their documents that the banks have not done this, is make them make provisions against the loans, and the State-owned banks have already been recapitalised to make those provisions. I will continue to return to this issue but, hand on heart, I hope this does resolve it, because people need a little light at the end of the tunnel.

I was struck by something Matthew Elderfield said at the press conference when the Minister launched these measures. My understanding of what he said was that for those who will enter restructuring, the bank will look at the long-term gain for all the different options that are available. However, where the value that the bank can get back in the restructuring is less than the current value of the home, the bank will look at repossessing the home. That is a very dangerous situation. Basically, Matthew Elderfield referred to what is more beneficial for the bank in the long term. If somebody has a mortgage of €400,000 and the current market value of the house is €200,000, and the bank comes to the realisation that the most it can get back from the individual is €180,000 with all the different restructuring instruments it has available, it is beneficial for the bank to repossess because it can make €20,000 profit. However, that is not something we should countenance. I was alarmed when Matthew Elderfield said that. Will the Minister comment on that? Does he believe that should be the case or that banks could follow that approach?

Deputy Michael Noonan

My personal opinion is that it is not that the banks were not acting on this over the last two years or so but that many of the solutions put forward were not sustainable. At the end of December, for example, there was a total stock of 79,852 mortgage accounts that were categorised as restructured. Of these restructured accounts, 42,037 were not in arrears.

The arrangement appears to have been sustainable for one half of them and unsustainable for the other half given that half of them were in arrears again.

Of the restructured accounts, 37% are on interest only arrangements and a further 17,000 mortgages are on payments that are greater than interest only, in other words, interest plus some capital. What we want are arrangements that are sustainable. When someone enters into an arrangement, the matter should be done and dusted and the person should be able to move on, provided there is no dramatic change in his or her income. Obviously, the arrangement will change if somebody wins the lottery or an unemployed partner returns to work. We want sustainable arrangements and the reason we want the Central Bank to monitor and random sample the arrangements that are being made is to test their sustainability. It is not the case that nothing was being done but that what was being done was not satisfactory.

Deputy Pearse Doherty

What about the comments made by the Financial Regulator, Mr. Matthew Elderfield?

Deputy Michael Noonan

I cannot speak for Mr. Elderfield. He is an independent regulator and I cannot put words in his mouth.