Dáil Éireann debate -
Tuesday, 10 Nov 2015

Vol. 895 No. 3

Single Resolution Fund: Motion

Minister for Finance (Deputy Michael Noonan)

I move:

That Dáil Éireann approves the terms of the Intergovernmental Agreement on the Transfer and Mutualisation of Contributions to the Single Resolution Fund as required under Article 29.5.2° of the Constitution, signed at Brussels on 21 May 2014, a copy which was laid before Dáil Éireann on 9 October 2015.

I seek the approval of the Dáil of the motion on the terms of the intergovernmental agreement on the transfer and mutualisation of contributions to the Single Resolution Fund which will enable the subsequent ratification of the intergovernmental agreement to the Single Resolution Mechanism. This motion was considered by the Select Sub-Committee on Finance on Tuesday, 3 November. Approval of this motion is an important part of the overall ratification process, with the other major element being the enabling legislation in Part 2 of the Finance (Miscellaneous Provisions) Bill 2015, Report Stage of which will be dealt with shortly. There is a requirement for the member states to ratify the intergovernmental agreement before 30 November for the Single Resolution Mechanism to come into force by 1 January 2016. As Members are aware, the Single Resolution Mechanism is a very important part of the banking union agenda and it is essential that it is ratified on time. That is why I am seeking support for this motion.

The intergovernmental agreement was negotiated to enable the Single Resolution Fund, a key element of the Single Resolution Mechanism, to be put into operation. The Single Resolution Mechanism will have a fund known as the Single Resolution Fund which will be financed by the banking sector. In an ideal world, such a fund would have been fully mutualised from the outset. However, because of concerns about legacy issues from a number of member states, this was not possible. Consequently, the intergovernmental agreement was negotiated to facilitate a transition period of eight years to full mutualisation of the Single Resolution Fund by requiring that the contributions from the banking sectors of the participating member states are paid into national compartments within the fund in this time. This structure enables the progressive mutualisation of the fund by requiring that in the event of a call upon it, the national compartment of the affected member state pays first before, if necessary, the other compartments make a contribution. As the transition proceeds, a smaller percentage is taken from the affected national compartment and a greater percentage is taken from the other compartments, until after eight years when full mutualisation occurs. From that point, any funds required for the resolution of a bank or banks will come from the Single Resolution Fund as a whole.

I will give a brief overview of the Single Resolution Mechanism. It is the second pillar of the banking union and will ensure that if a bank subject to the Single Supervisory Mechanism faces serious difficulties, its resolution will be managed efficiently, with minimal costs to taxpayers and the real economy through a single resolution board and a Single Resolution Fund financed by levies imposed on the banking sector. The Single Resolution Mechanism applies to all credit institutions in the banking union. The single resolution board is responsible for the effective and consistent functioning of the Single Resolution Mechanism but the operational side of its work is split with the national resolution authorities. In this regard, the board is responsible for drawing up resolution plans and adopting all decisions relating to resolution from significant institutions, the category into which our four major institutions fall. They are AIB Bank, Permanent TSB, Bank of Ireland and Ulster Bank. National resolution authorities, on the other hand, will be responsible for similar decisions for small institutions, except where the use of the Single Resolution Fund is required, where the board shall adopt the resolution scheme.

What this means in practice is that should any of our four major banks get into financial trouble, the decision about putting it into resolution will be made by the single resolution board rather than our domestic resolution authority. In addition, where bail-in of shareholders, capital instruments and eligible liabilities are insufficient to cover the losses of the bank in question, there will be access to funds from the Single Resolution Fund. This has the aim of breaking the link between banks and the sovereign and thus avoiding a repeat of the issues faced by countries during the recent financial crisis.

It should be noted that the target level of the Single Resolution Fund is at least 1% of the amount of covered deposits of all credit institutions authorised in all the participating member states, which is to be reached at the end of eight years. This is estimated to be in the region of €55 billion. We estimate that the contribution of Irish banks to the Single Resolution Fund will be €1.8 billion over the eight years, which amounts to approximately €225 million per year. The contribution of international banks to the overall total is likely to be significant - in the region of at least 50% - but unfortunately it is not possible to be more precise in the matter at this stage.

On the question of whether the fund of €55 billion is sufficient, it should be noted that at the time of the negotiation of the Single Resolution Mechanism regulation, there was considerable discussion around the topic. However, the general view that emerged was that most of the losses of a bank should be recovered by the bail-in of shareholders and creditors in line with the general philosophy underpinning the Single Resolution Mechanism regulation and the bank recovery and resolution directive. In this regard, a contribution to loss absorption and recapitalisation equal to an amount of not less than 8% of the total liabilities, including own funds of the institution under resolution, measured at the time of the resolution action, must be used before the Single Resolution Fund can contribute. This is a significant contribution to loss absorption and should, in many instances mean that the use of the fund will not be needed. Therefore, in this context, the view of most member states was that a fund of €55 billion struck an appropriate balance between the need to establish a credible and effective fund while at the same time not overly burdening the banking sector from a contribution perspective.

As noted at the outset, the passing of this motion is an essential part of the ratification process for the intergovernmental agreement and I would appreciate Members' support.

Deputy Charlie McConalogue

I welcome the opportunity to speak on behalf of Fianna Fáil to the motion approving the terms of the intergovernmental agreement on the transfer and mutualisation of contributions to the Single Resolution Fund. The Single Resolution Fund is an integral part of the banking union process that is designed to break the link between weak banks and taxpayer bailouts. Fianna Fáil supports the concept of banking union while maintaining our belief that Europe has still not made good on the commitment it entered into in June 2012 when it pledged to break the link between bank debt and sovereign debt.

Until such time as this is resolved, Ireland must continue to press its case for meaningful relief from the debt which was taken on to rescue the banks. In the short time available for debate on this motion I will focus on three aspects of it: the size of the Single Resolution Fund, the period over which it is being implemented and the ultimate need for treaty change to underpin the process.

As my colleague, Deputy Michael McGrath, has pointed out, the Single Resolution Fund is likely to be too small for the purposes for which it is intended. It is also not being implemented soon enough and is likely to suffer from political difficulties relating to its implementation. I will start by addressing the size of the fund. I concur with the principle that the Single Resolution Mechanism should in so far as possible be constructed with the intention of minimising the recourse to national taxpayers' money. This would ensure that where a regional banking crisis develops, possibly for reasons outside the control of the national government, that country will not be overwhelmed by the cost of rescuing its banking sector. As it stands, banks will contribute to the costs of resolution through the collection of levies, and where there is a shortfall, through ex post levies.

The initial target level of funding for the Single Resolution Fund is €55 billion, to be achieved by 2024. This is the estimated value of 1% of deposits of all institutions authorised by the relevant national authorities. However, the eurozone banking sector is more than three times the size of the wider eurozone economy. In that context, will the resolution fund be large enough to underpin the €33 trillion eurozone banking sector? The Open Europe organisation has estimated that a fund would need to be around €500 billion to €600 billion to provide a viable backstop for a banking sector this size in line with international comparisons and standards.

One of the most concerning aspects of the process is that so-called national compartments of funding for resolution will not be phased out until 2024. This is a very long period when individual countries will be largely left to their own devices for resolving a banking crisis within their own borders. It is a long way short of the notion of banking union and mutual support across countries. There is every chance that a banking crisis will hit an individual member state before full introduction of the Single Resolution Fund.

The final issue I want to touch on is the potential need for treaty change to underpin the process for rescuing banks. Under the current process, the single resolution board will make the initial assessment of whether a bank needs to be put into resolution. It has the task of putting in place the rescue plan and deciding whether a call will be made on the Single Resolution Fund. As current EU treaty provisions preclude the delegation of policy-making powers to a subsidiary body such as the single resolution board, it will be necessary for the European Commission to take the final decision to trigger resolution and use the fund. This is where potential political difficulties arise. There is still a mindset whereby European Commission members act primarily in what they perceive to be their national self-interest. Any proposal for a streamlined process to remove the final decision-making power from the European Commission and vest it in the single resolution board will almost certainly meet with resistance from the German authorities. If necessary, Ireland should seek to be build a consensus for treaty change to remove this potential roadblock to the successful implementation of the Single Resolution Mechanism. Unless this happens, it is likely that the less than perfect system being presented to us will remain in place for some time to come.

Deputy Peadar Tóibín

Gabhaim buíochas as ucht an deis labhairt ar an rún seo. Since the crash, we have heard many times that the Government seeks to break the link between the sovereign and the bank and that link needs to be separated fully. Here we are, almost in 2016, and the final pieces of this process are coming together, but what we have is something that is watered down beyond recognition. There is still a risk between the banking system and the sovereigns. This period of eight years of mutualisation, which the Germans sought and got, will allow this risk to continue into the future.

In addition, many organisations around Europe have argued that the fund being set up is too small to deal with the potential size of a banking crash and the procedures put in place do not go far enough to safeguard citizens from reckless bankers. My colleague, Deputy Pearse Doherty, raised with the Minister at committee the fact we are not convinced there is a full understanding of how new entrants or legal changes to existing banks, such as the change we saw in Ulster Bank recently, are going to be dealt with under these new rules. It seems there is a major gap and Frankfurt will decide in the future.

The crucial failure, and this is very important, is that none of these new procedures that are being put in place throughout Europe after years of the EU stumbling and lunging around will do anything for Ireland's banking legacy debt. That is one of the biggest issues at the heart of society and the economy at the moment. The towel was thrown in on the Anglo-Irish Bank debt in February 2013 and that toxic debt has been placed on the shoulders of citizens of my generation and of the next generation. Even their children will probably be paying for the mistakes of the Government on that toxic debt. At the same time, some of the speculators involved in that are on course to benefit to the tune of hundreds of millions of euro on that toxic debt.

The other chunk of debt, the pillar bank debt, was subject to the great game changer, the seismic shift. We were told that Ireland would be able to apply retrospectively for recapitalisation. Some of us called it correctly at the time. We said the Government was over-egging what was in fact a vague commitment. Here we are in 2015, approaching 2016, and they still have not bothered drawing up the rules on how a country can retrospectively recapitalise and how that system can work. That is quite shocking. We had the Taoiseach coming back to the State, like Neville Chamberlain, nearly saying "peace in our time" and that we had resolved this recapitalisation. Now we are being told by the same Government that it is not even in our interest to apply for that money back. Defeat is dressed up as victory. When it comes to our banking debt, the Government has failed significantly twice and has called it victory both times. It was unambiguously Frankfurt's way all the time.

While Sinn Féin does not oppose this motion, as it is a technical one, I want to put on the record our party's distrust over the increasing powers being handed over to the ECB. The undemocratic nature of that organisation has become increasingly clear. It is entirely unaccountable to the national parliaments and to the citizens of the European Union, yet it increasingly oversees whole chunks of our economy. My understanding is that even at the highest level of Europe there is little clarity as to the extent of the ECB's powers and that it will be decided on a case by case basis exactly what its competencies will be. This is a very large issue at the heart of this process with regard to the ability of this State to determine its economic future. I appeal to the Minister to stand up to Europe on it.

Deputy Paul Murphy

We can date this agreement back to the infamous summit in June 2012. At that summit two clear commitments were made: affirming that it is imperative to break the vicious circle between banks and sovereigns and making a commitment to examine the situation of the Irish financial sector with a view to improving further the sustainability of the well-performing adjustment programme.

I will deal with the first commitment presently.

The second commitment was translated in the heads of the Taoiseach and the former Tánaiste and Minister for Foreign Affairs and Trade, Deputy Gilmore, into a game changer, a seismic shift and a promise that there would be retrospective recapitalisation of the Irish banking system. Taxpayers in Ireland would get back some of the 42% of the total cost of the European banking crisis that they paid. It was something which the media at the time fell for entirely, despite some of us pointing out the reality that was not contained in what was agreed and that it was an element of the kind of dreaming that goes on in the Taoiseach's head, a similar example being the ATM machines and the soldiers. As Deputy Tóibín mentioned, the Government not only has been defeated on it but also has tried to present that as a victory. It never applied for recapitalisation and it has no intention of applying for recapitalisation, and that should be noted now at a time when the Single Resolution Mechanism is being set up, by which time we were meant to have all of this sorted out.

I want to deal with the idea that this breaks the link between the sovereign and the banking sector, or as the former Commissioner for Internal Market and Services, Mr. Michel Bernier, stated, "that taxpayers no longer foot the bill when banks make mistakes". It is simply not true. The big banks and their massive lobbying in Europe to the tune of €120 million a year and 1,700 lobbyists, have shaped the Single Resolution Mechanism and taken any significant punch out of it to serve their interests. This does not mean the public will not bail out banks in the future. Banking union has been used as a mechanism by the big banks primarily to further liberalisation and deregulation throughout the European Union. That is the reason the big Association for Financial Markets in Europe, AFME, welcomed banking union as a vital project which should advance market integration.

The Single Resolution Fund is entirely inadequate. I thought it was best explained by Mr. Wolfgang Münchau who wrote that the ECB will end up as the supervisor of 128 banks which have assets of between €26 trillion and €27 trillion. He wrote:

The bank resolution fund for this new banking union will be built up over 10 years through bank levies. At the end of that period it will have reached €55bn – a mere 0.2 per cent of the asset base. Most of these banks have assets of more than €30bn. In a systemic crisis, in which banks can suddenly collapse, the whole European resolution fund could easily be swallowed by a single moderately sized bank.

If that happens, it is the European Stability Mechanism, ESM, which is funded by taxpayers and will have conditionality built into it, as happened in Spain in the form of the demand for more austerity, that will pick up the can. The Minister, if he had the chance, could point in response to the 8% of liabilities to be paid for by investors, but what about Anglo Irish Bank? It far exceeded 8%. What about the exceptions? What about the various classes of investors who will not be included and who will not have to pay the 8%?

The reality is that we do not have fundamental change and public money will still be used to bail out private banks. The European Central Bank has been further empowered. It is the most powerful unelected and unaccountable institution in the world. It serves the interests of big banks, hedge funds and financial markets. It does not serve the interests of ordinary people. One need only look at the incredible dictatorial role it has played in the European crisis in Greece, Spain and Italy. This simply empowers it further. Those who oppose it should vote against this motion and not go along with it.

The alternative is proper regulation of our banking system, genuinely preventing banks from becoming too big to fail but also fundamentally saying that we do not accept that we run society in the interests of private banks that are interested in maximising profit. The massive resources that exist in the financial sector should be in public hands and used as a public utility, democratically controlled to serve the interests of society to provide funds, loans and so on necessary to provide infrastructure for small businesses and for others who need access to funds.

Question put:

The Dáil divided: Tá, 74; Níl, 12.

Tá

• Adams, Gerry.
• Aylward, Bobby.
• Buttimer, Jerry.
• Byrne, Catherine.
• Byrne, Eric.
• Calleary, Dara.
• Cannon, Ciarán.
• Carey, Joe.
• Colreavy, Michael.
• Conaghan, Michael.
• Connaughton, Paul J.
• Coonan, Noel.
• Corcoran Kennedy, Marcella.
• Costello, Joe.
• Coveney, Simon.
• Cowen, Barry.
• Creed, Michael.
• Deasy, John.
• Deenihan, Jimmy.
• Deering, Pat.
• Dooley, Timmy.
• Dowds, Robert.
• Doyle, Andrew.
• Durkan, Bernard J.
• Feighan, Frank.
• Ferris, Martin.
• Fitzpatrick, Peter.
• Fleming, Sean.
• Grealish, Noel.
• Hannigan, Dominic.
• Hayes, Tom.
• Healy-Rae, Michael.
• Howlin, Brendan.
• Humphreys, Heather.
• Keating, Derek.
• Keaveney, Colm.
• Kelleher, Billy.
• Kenny, Enda.
• Kenny, Seán.
• Kyne, Seán.
• Lawlor, Anthony.
• Lowry, Michael.
• Lynch, Ciarán.
• Mac Lochlainn, Pádraig.
• McConalogue, Charlie.
• McDonald, Mary Lou.
• McEntee, Helen.
• McGinley, Dinny.
• McHugh, Joe.
• McLellan, Sandra.
• McLoughlin, Tony.
• Mitchell, Olivia.
• Mulherin, Michelle.
• Murphy, Dara.
• Murphy, Eoghan.
• Neville, Dan.
• Nolan, Derek.
• Ó Caoláin, Caoimhghín.
• Ó Snodaigh, Aengus.
• O'Donnell, Kieran.
• O'Donovan, Patrick.
• O'Dowd, Fergus.
• O'Reilly, Joe.
• O'Sullivan, Jan.
• Phelan, John Paul.
• Rabbitte, Pat.
• Reilly, James.
• Spring, Arthur.
• Stagg, Emmet.
• Stanley, Brian.
• Tóibín, Peadar.
• Tuffy, Joanna.
• Twomey, Liam.
• Varadkar, Leo.

Níl

• Boyd Barrett, Richard.
• Broughan, Thomas P.
• Collins, Joan.
• Fleming, Tom.
• Halligan, John.
• Healy, Seamus.
• McGrath, Finian.
• Mathews, Peter.
• Murphy, Paul.
• Pringle, Thomas.
• Ross, Shane.
• Shortall, Róisín.

Tellers: Tá, Deputies Emmet Stagg and Joe Carey; Níl, Deputies John Halligan and Paul Murphy.

Question declared carried.