No Consent, No Sale Bill 2019: Discussion

No. 4, the No Consent, No Sale Bill 2019, is a Private Member's Bill in the name of Deputy Pearse Doherty. I welcome the officials from the Central Bank of Ireland and from the Departments of Finance and Public Expenditure and Reform. The Central Bank is a separate entity from the two Departments and the committee acknowledges its independence. This joint session was suggested to be more time efficient.

By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the joint committee. However, if they are directed by it to cease giving evidence on a particular matter and continue to do so, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or entity, by name or in such a way as to make him, her or it identifiable.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official, either by name or in such a way as to make him or her identifiable.

The representative of the Central Bank will provide the first opening statement. We will take both opening statements and then proceed with questions. I call Mr. Sibley.

Mr. Ed Sibley

I thank the Chairman and members for the invitation to discuss the Central Bank’s views on the Bill. I am joined by Gráinne McEvoy, director of consumer protection and Vasileios Madouros, director of financial stability.

The Central Bank serves the public interest by safeguarding monetary and financial stability and by working to ensure that the financial system operates in the best interests of consumers and the wider economy. We treat the dual arms of our mandate – safeguarding stability and consumer protection – with equal weight. Our work in each domain is mutually reinforcing.

Over the past decade, the Central Bank has proactively worked in conjunction with the Oireachtas, the Government, State agencies and international counterparts to strengthen the solvency and stability of the financial sector and enhance protections for consumers. We believe that a strong consumer protection framework is essential. This is particularly the case for mortgage borrowers as a mortgage is the most significant financial commitment for most families and individuals.

That is precisely why we advocated for a legislative regime whereby borrowers would be protected regardless of whether their loan was held by a bank or a non-bank. This is now the case. Customers whose loans are sold to another firm maintain the same regulatory protections they had prior to the sale, including under the various statutory codes of conduct issued by the Central Bank. Firms must comply with these codes by law. This includes the code of conduct on mortgage arrears, CCMA, which was put in place in 2009 to ensure the fair and transparent treatment of financially distressed borrowers. The CCMA includes requirements that arrangements be sustainable and based on a full assessment of the individual circumstances of the borrower and that repossession be used only as a last resort. Firms must also follow the mortgage arrears resolution process when dealing with borrowers facing arrears.

There is significant support within the broader Irish consumer protection framework for those in arrears, including the Money Advice and Budgeting Service, MABS, the national mortgage arrears resolution service, the personal insolvency regime and a court mentor service. Collectively, these protections have kept the vast majority of distressed borrowers in their homes in spite of the scale of mortgage arrears experienced following the financial crisis.

At the end of 2018, fewer than one in 16 mortgages relating to private dwelling homes were in arrears of more than 90 days.

In 2018, there were 22,000 new restructure arrangements for mortgages relating to private dwelling homes. This brings the total number of private dwelling homes loans categorised as restructured to more than 110,000. In addition, more than 3,000 distressed borrowers have secured personal insolvency arrangements, which return borrowers to solvency, while keeping them in their home in more than 95% of cases .

The enactment of the Bill will not offer new or existing borrowers additional regulatory consumer protection and it could have negative consequences for the functioning of the mortgage market, with wider implications for all mortgage borrowers. Its enactment in its current form would hamper the ability of banks to access market-based sources of financing using mortgages as collateral, such as securitisations and covered bonds. Access to such forms of finance helps diversify the funding base and achieve lower funding costs relative to issuing unsecured bonds. Constraints on the ability to mobilise mortgages as collateral to raise funding through these market-based channels could ultimately limit the availability of mortgage credit or increase its cost. At a time the severe dysfunction in the mortgage market is finally easing, the Bill could unintentionally slow or even reverse that progress. It would certainly give further pause for thought for any firm considering entering the market as it would increase the cost of doing business in Ireland and effectively limit the funding available for mortgage lending. We do not believe this is in the interests of current and future mortgage borrowers.

During the financial crisis, the ability of Irish banks to post securitisations and covered bonds as collateral was crucial to allow them to borrow from the eurosystem to meet their acute liquidity needs. Total monetary policy lending provided to Irish-domiciled banks rose to a high of €140 billion towards the end of 2010, of which approximately 40% was collateralised by mortgage-related securities. The Bill would render the type of asset transfers required to use these instruments effectively impossible. The eurosystem would have concerns about the realisation of such collateral in the event of a counterparty default. This, in turn, has the potential to restrict the capacity of Irish banks to access central bank funding.

If banks cannot mobilise collateral quickly in times of financial stress, crises can get worse very quickly. Although the Bill makes an exception for failing or likely to fail banks, this is not sufficient. If banks are close to the point where they are deemed failing or likely to fail, they are likely to have taken actions, such as reducing the availability of credit, that will have harmed the economy. The entire focus of the resilience changes made over the past decade has been to try to prevent banks getting into a situation where they are failing or likely to fail, precisely to guard against the kind of events that trigger damage to the system, businesses, households and consumers.

The financial crisis serves as a stark reminder of the severe costs of financial instability to society as a whole. Although there has been significant progress towards repairing the banking system, legacy vulnerabilities remain. The restrictions imposed by the Bill would reduce the ability of the banking system to absorb future shocks. Ultimately, these costs would be faced by households and businesses in Ireland.

Over the past decade, much work has been undertaken to enhance the resilience of the banking system, including increasing capital, reducing non-performing loans, NPLs, and making funding sources more stable. We continue to expect banks to use a full toolkit to reduce NPLs. The ability to sell portfolios while ensuring full compliance with statutory consumer protections is important. Since the 2013 peak, the stock of NPLs held by the retail banks has declined by €67 billion. Approximately 12% of that reduction was achieved through residential loan portfolio sales.

In our view, the introduction of the Bill would significantly constrain the ability of banks to engage in portfolio sales and, thus, limit their ability to deal with outstanding vulnerabilities from the crisis. These constraints would hinder the continued post-crisis recovery of the system and, crucially, reduce the ability of the banking system to deal with any future macroeconomic downturn and deterioration in asset quality. Put simply, this means the banking system would be more likely to be impaired in times of stress and less capable of supplying credit to households and businesses.

As the Governor of the Central Bank noted at the meeting of this committee on March 26, the Central Bank has grave concerns about the Bill, given its far-reaching implications for the operation of the banking system and for consumers. Although designed to give effect to a voluntary code dating from 1991, the regulated financial services sector has changed fundamentally in the intervening three decades, and consumer protection has been significantly strengthened. The voluntary code has been superseded by statutory codes of conduct and strong and wide-ranging regulatory powers which are underpinned by intrusive supervision. As such, our view is that the Bill will not offer borrowers any additional regulatory consumer protection; rather, it could have significant unintended consequences to the longer-term detriment of all borrowers.

In that respect, we concur with the ECB's view that the Bill, at a minimum, should undergo a thorough impact assessment to ensure it is in the best interests of consumers as a whole.

Mr. Gary Tobin

I thank the committee for inviting the Department of Finance to address it on the matter of the detailed scrutiny of the Bill. I am accompanied today by Mr. Des Carville, head of the shareholding and financial advisory division, and Mr. John Palmer and Ms Gráinne Goggin of the banking division.

I welcome this opportunity to highlight briefly the Department's views on the Bill. As requested, the Department submitted a detailed submission, addressing specific issues as outlined in the new memorandum of understanding on Private Members' Bills. As the committee will be aware, the Department has engaged fully with committee members on a significant number of Private Members' Bills. These include Deputy Michael McGrath's Consumer Protection (Regulation of Credit Servicing Firms) Act 2018; Deputy Pearse Doherty's Central Bank and Financial Services Authority of Ireland (Amendment) Act 2017; Deputy Pringle's Fossil Fuel Divestment Act 2018; and Deputy Pearse Doherty’s Central Bank (Amendment) Bill 2018. In each case, we have sought to engage constructively in the pre-legislative scrutiny process. We have sought to give open and honest feedback regarding our views on the proposed legislation and the drafting of each of the Bills. In a number of cases, we have successfully worked with the Deputies to progress the draft legislation into law, following Government approval to do so. In particular, we have worked with Members to progress a number of Bills designed to enhance protection for mortgage holders who are in arrears with their lenders. Specifically, these are Deputy Michael McGrath's Consumer Protection (Regulation of Credit Servicing Firms) Act 2018 and the Land and Conveyancing Law Reform (Amendment) Bill 2019 tabled by the Minister of State, Deputy Kevin Boxer Moran.

On this Bill, we share the grave concerns expressed by the Governor of the Central Bank when he appeared before the committee last week. We have two types of concerns about the Bill. The first relates to the unintended consequences and the second to its timing. To deal with the second concern first, and as highlighted by the Governor last week, we are concerned about the implications of the Bill for the financial stability of the banking sector and wider economy, coming so close as it does to Brexit. As regards the unintended consequences, our assessment is that the Bill will lead to higher mortgage interest rates for consumers, reduced availability of mortgage lending overall, potential severe restriction of the Irish banks' capacity to access eurosystem credit, institutions losing their ability to use securitisation, an increase in repossessions by banks as their ability to reduce NPLs through sales would be severely reduced, a reduction in new entrants and less competition in the mortgage market and a significant reduction in the value of the State’s shareholding in the various banks.

The Government is strongly of the view that a money message is required. There are direct and indirect costs to the Exchequer, which we have outlined in our detailed submission to the committee. The Department also believes that the Bill is unconstitutional as it is currently drafted. The Bill overrides existing contractual rights for persons who issued mortgages to sell them on to third parties and purports to introduce a unilateral alteration of existing contractual terms for mortgages. The mortgage holders concerned would have agreed as a condition to borrow that the mortgage could be sold on. In doing so, the Bill is overriding or abrogating vested private property rights. Constitutionally, this can only be done in a proportionate manner and where justified by the exigencies of the common good. After consulting with the Office of the Attorney General, the Department of Finance is of the view that the interference proposed by the Bill is disproportionate and, therefore, unconstitutional.

I know that the intention behind the Bill is to help those who believe they will be worse off as a result of their loan being sold. However, the Bill will confer no additional protections and will only serve to cause significant harm to the mortgage market for consumers and to the economy more generally. We are happy to answer any questions the committee may have.

The Central Bank and the Department of Finance are independently opposed to the Bill. I want to be devil's advocate and flesh out how the Bill would not be of benefit to borrowers in difficulty with the banks.

Would it not give them more rights in terms of their loans? This is the premise and I want to test it. The point has been made that the Bill would bring about an increase in repossessions and interest rates and a lack of competition in the market. I will not deal with issues such as reduced securitisation, access to the ECB for funding, a reduced value of the State's shareholding or unconstitutionality. I am interested in the mortgage holders who borrow from banks in good faith and are then concerned when the loans are sold on to funds without them being consulted. We read in today's newspapers, as have many mortgage holders, that today is the closing date for AIB's €1 billion sale to Everyday Finance. Will the witnesses deal specifically with why mortgage holders would not be in a better position with regard to keeping their homes under the Bill than the position that pertains at present? I do not say I agree with the legislation but our job is to test whether the points being put by Deputy Doherty, the Department and the Central Bank stand up to scrutiny.

Mr. Ed Sibley

I thank the Senator for his questions. There is a lot of similarity between the opening statements of the Central Bank and the Department but they are not exactly the same. I did not mention some of the issues the Senator spoke about, such as constitutional rights, and I did not say that interest rates would necessarily increase. I understand the thrust of the question. Ultimately, the way I have been looking at the Bill is that it is as much a question about the overall protections in place for borrowers in distress. Comparatively, there are strong protections in place in Ireland for mortgage borrowers. My view, which based on a fair volume of work, is the protections in Ireland are stronger than anywhere else in Europe and probably beyond.

That is a bold statement. Many mortgage holders would not agree with Mr. Sibley on this.

Mr. Ed Sibley

If we look at the work we have done on the CCMA - and I am sure Ms McEvoy will speak on how it works - the broader consumer protection code framework, how lenders must engage with distressed borrowers, the other protections in place and the other facilities that have been put in place by State and non-State bodies, there are many protections in place. We can also see the effectiveness of these protections if we look at how many loans were in difficulty at the peak of mortgage arrears in 2013 and how much of the crisis has been dealt with through re-engagement and restructuring. More than 100,000 loan accounts on the books of the banks and non-banks have been restructured. While I appreciate that borrowers may be in difficult circumstances, so long as they engage with their lenders typically it has resulted in arrangements coming through that have kept them in their homes.

We could have a situation in which a borrower could be in compliance and up to date with his or her home mortgage but in arrears in other aspects of their loans. All of their loans could go as a group to a fund. There are aspects of how the banks operate with which I am not happy but the average mortgage holder has assurance that the banks are in the business of lending long term.

The banks structure a mortgage over 20 or 25 years. Their home loans could be sold on to a fund which might be borrowing short and which effectively may be structured to be a short-term loan vehicle, and which is itself borrowing money over a five-year period, yet it is suddenly taking on mortgages that might have 15 or 20 years left. What assurance can people have that they will get the same rights and conditions that pertain when they are with the bank?

Mr. Ed Sibley

We can talk a little about protections for those borrowers in distress and more broadly. The framework in place applies regardless of whether a loan originates with a bank or is owned by a non-bank. Indeed, the retail credit firms have originated about a third of the loans that are on their books. It would be an odd situation if the State was to be comfortable with a position where people are in a worse position if they take out a mortgage with a retail credit firm than they are with a bank. In fact-----

That is slightly different.

Mr. Ed Sibley

In terms of-----

In the time I have, I want to be quite narrow.

Mr. Ed Sibley

In terms of the experience, the approach, the codes and the regulatory requirements, there is no difference for a borrower who is with a bank or with a retail credit firm.

I am zoning down on one specific question. Let us say someone was with AIB yesterday and his or her loan is sold on to a fund. We are told that many of the funds have borrowed short term. In essence, they are highly geared and they are loan vehicles which borrow from pension funds themselves. The funds might have borrowed that money for a five-year period but they are taking on loans from banks that might have 20 or 25 years to run. We are at the coalface dealing with people whose loans have been sold on. The first inkling they get of their loan being loan sold on is when they get the letter through the post. We deal with these people on a daily basis and we know the impact is enormous. What is in the current legislation to address this? I have concerns and reservations about many aspects of this Bill and we are duty bound as a committee to test the veracity of all its aspects. No one denies what the Bill is looking to do but I am asking these questions so I can have comfort around it. Obviously, the regulation has been extended to funds whereas it was previously just with the agents that were operating in the country itself. What assurance can Mr. Sibley give to mortgage holders that, if their loans are being sold on from AIB, Permanent TSB or other institutions to a fund, they have as good a chance of staying in their homes as they would have if the loans stayed with the institution?

Mr. Ed Sibley

I will start with that and we can then talk a little more about the protections that are in place. The same regulatory protections are in place regardless. We engaged with the Oireachtas to make sure they stood both for banks and for retail credit firms - for non-banks - and that was amended in 2015 and, with Deputy Michael McGrath's Bill, it was extended in 2018. Regardless, all retail credit firms had to engage and comply with our codes. What we can see in terms of the evidence from our analysis of the information we get both from banks and non-banks is that restructures are taking place and engagement is taking place. Unfortunately, when there is a loss of ownership, it is in similar proportions to the level of distress in banks and non-banks, and there is not an increased propensity to foreclose in the non-banks to date, based on-----

Deputy John McGuinness resumed the Chair.

If this legislation was enacted, what would be the major consequences for the Central Bank in terms of the mortgage market, the way customers are treated and the cost to customers? What does Mr. Sibley believe would be the major impact?

Mr. Ed Sibley

As I have outlined, we would question whether it delivers much benefit in terms of actual, real regulatory consumer protections, notwithstanding that I understand the sentiment behind the Bill and the questions the Deputy raises. I would be concerned around what it means for the funding model of firms - of banks - and, overall, how the mortgage market functions in Ireland and the further discouragement for new entrants to lend into the Irish market. Not only are they using secured funding today but, in relatively recent history, at the height of the crisis, a very significant amount of money, some €140 billion, was the total drawdown from the euro system, 40% of which was based on mortgage security. At a time of need, the concern or difficulty in accessing that funding would have pretty acute consequences from a financial stability perspective.

What about the impact on consumers?

Mr. Ed Sibley

We talked a number of times at this committee about the price of mortgages and concerns around the level of competition in the mortgage market in Ireland. To my mind, this is not going to encourage any new entrants to come in because it limits the access to secured funding to fund mortgage lending. It would raise concerns about the legal framework in Ireland and mean they would be stuck-----

Before I go to Mr. Tobin, does Mr. Sibley believe it would drive up the cost of interest rates for mortgage holders and drive up the rate of house repossessions by the current mainstream institutions?

Mr. Ed Sibley

I do not have a crystal ball in terms of what will or will not happen. What I would say is that-----

Mr. Sibley’s job is to advise.

Mr. Ed Sibley

I understand that but I am not going to say that if this Bill is passed, we will immediately see interest rate hikes. What I would say is that what we have seen over the past two or three years is a degree of increased competition in the market and increased differentiation in offerings within the market in terms of interest rates being charged. However, with this Bill coming in, we would be unlikely to see new entrants, certainly new banking entrants, and so it would stymie competition. I am conscious we talked around the CCMA and the protections that are in place. Ms McEvoy might deal with that further.

Ms Gráinne McEvoy

The committee is familiar with the Central Bank’s consumer protection framework. In 2009, we introduced a code of conduct on mortgage arrears, which was of particular importance because we recognised that a number of borrowers had come through the financial crisis and were in financial distress. That code sought to introduce protections for borrowers who were in or facing arrears and it placed many obligations on lenders, particularly that lenders have in place fair and transparent processes and that they consider each individual borrower's case on its own merits and on a case-by-case basis. It is quite specific in terms of how lenders, be it banks or non-banks, engage with the borrower up to and including assessing their individual financial position and working with them to come to an arrangement that may, as the Deputy noted, allow them to continue to remain in their homes while still paying back their mortgages.

More importantly, as Mr. Sibley alluded to earlier, in 2015, when we saw a trend emerging of banks selling on loans to non-banks, we very much advocated for the introduction of the Consumer Protection (Regulation of Credit Servicing Firms) Act 2015, which ensured that the protections afforded under the CCMA follow with the borrowers. Irrespective of whether people are borrowing with a bank or a non-bank, the protections exist and remain. Furthermore, we undertook and published a review last year on the effectiveness of the CCMA. Our findings were very much in the public domain and very much found that, for borrowers who engage with their lenders, the CCMA is working as intended.

Mr. Sibley referenced these data earlier. There are more than 110,000 restructured arrangements. In 87% of those cases, the borrowers are meeting the terms of the arrangements and the arrangements are working for those borrowers. Our review also found that banks and non-banks are engaging with lenders, are continuing to put arrangements in place and are honouring existing arrangements. Where a loan has been sold by a bank to a non-bank, existing arrangements are honoured. We feel there are many protections in the existing consumer protection framework that keep borrowers in or facing arrears at the core of the process and protected.

What does Mr. Tobin think?

Mr. Gary Tobin

I thank Senator O'Donnell. This is an emotive issue. It is distressing for anyone to be affected by the issue of mortgage arrears. The Department, and everybody here, has tremendous sympathy for people faced with mortgage arrears and in this particular situation. We are here today, however, to address the question of whether this Bill actually helps people in those situations. I have no doubt that the Bill is well intended and I accept fully the bona fides of Deputy Pearse Doherty regarding trying to help mortgage holders in difficulty. Our role today, though, is to give our honest advice concerning our view of this Bill. Senator O'Donnell asked what we think are the specific implications for mortgage holders.

As distinct from the institutions.

Mr. Gary Tobin

I can see where the Senator is coming from. I will divide this issue into two. We have the current mortgage holder and then we have the future mortgage holder. We are not convinced this Bill will necessarily do very much for current mortgage holders. The reality is that if institutions cannot sell non-performing loans then the Central Bank and the regulators are still going to insist that they address those loans. One of the ways those loans could be addressed is by repossession. It is a plausible scenario that in a situation where loans cannot be sold we could see an increase in repossessions. Similar to Mr. Sibley, I do not have a crystal ball and I am not trying to predict the future. I am just trying to give an honest opinion of what might happen.

As I said to Mr. Sibley, however, Mr. Tobin is paid to advise. That is his role.

Mr. Gary Tobin

Indeed.

I remind Senator O'Donnell of the time remaining.

I am nearly finished.

Mr. Gary Tobin

Future mortgage holders need to be remembered as well. I am referring to people thinking of buying their first home who are struggling to put together a deposit and pay for a mortgage. Echoing what our colleagues from the Central Bank said, in a situation where secured lending is more difficult and where the rights of borrowers are even further protected, it is likely institutions will price that into the interest rates they choose to charge. I note that the Banking and Payments Federation Ireland stated today that this Bill will lead to an increase in the cost of mortgages for borrowers. The banks, therefore, certainly feel that they will have to price in the risk associated with this proposed legislation. That would mean higher interest rates. I cannot say definitively that is going to happen. It may or may not. It is, however, a concern we have.

Finally, why does the Department believe the Bill to be unconstitutional?

We again echo many of the sentiments in appendix 3 of the submission from the Central Bank regarding the constitutionality of the Bill.

How do the objections of the Department differ from those of the Central Bank?

Mr. Gary Tobin

I am sorry. I thought at the start that the Senator was asking the differences between the two organisations. There are many of those.

No. We will not go into that today. Are the two organisations on common ground?

I ask the Senator to conclude on this.

Mr. Gary Tobin

We have consulted with the Office of the Attorney General which takes a view regarding the constitutionality of legislation. Based on those consultations, our view is that the Bill's proposed interference with contractual law and property rights would be disproportionate and, therefore, unconstitutional. As the Senator knows, specific sections of the Constitution set out rigorous rights regarding personal property in Ireland. Those rights require any interference be viewed as proportionate. There are, of course, occasions when it is possible to interfere with personal property rights in Ireland. The marital home is one particular case in point. It is a question as to whether that interference is viewed as proportionate. Based on the discussions we have had with the Office of the Attorney General, we would not be of the view that this proposed interference is proportionate and the Bill is therefore likely to be unconstitutional.

I welcome the witnesses. The constitutionality of the Bill is an issue that has come up frequently in correspondence. Is Mr. Tobin stating that it is the Attorney General's position that the Bill, as currently drafted, is not constitutional?

Mr. Gary Tobin

Our view, based on our conversations with the Office of the Attorney General, would be that the Bill is not constitutional.

With respect, I am not asking for the view of the Department of Finance. I am asking about the view of the Attorney General. I hold that view in high regard in respect of constitutionality. I know what Mr. Tobin is saying is based on discussions with the Office of the Attorney General and the Department's resultant view is that the Bill is unconstitutional. Is that view, however, directly attributable to the Attorney General?

Mr. Gary Tobin

It is my understanding that it is. The Attorney General is not here and the Office of the Attorney General, in general, does not tend to give views on Private Members' Bills directly to the Oireachtas. Our understanding, however, is that the Office of the Attorney General regards this Bill as unconstitutional.

Advice from the Attorney General is not published but it is made available to the Government. Is that view in written form? I know we cannot see it, but has the Department had correspondence with the Office of the Attorney General regarding the Bill or was the view referred to communicated verbally?

Mr. Gary Tobin

Yes, we have had written correspondence.

On that basis then, Mr. Tobin is conveying to this committee the view that the Bill is unconstitutional.

Mr. Gary Tobin

It is likely to be unconstitutional.

Is that because of the retrospective nature of the application of the Bill to mortgage contracts already written? Is that the key issue in respect of constitutionality?

Mr. Gary Tobin

That is certainly one of the issues. There is also the broader issue concerning what is fair and proportionate interference with vested property rights in the State. We have concerns that there are clear constitutional and legal difficulties with the Bill. There are two provisions in the Constitution that deal with private property rights specifically, namely Article 40.3.2° and Article 43.

I am not a constitutional lawyer and do not claim to be an expert in constitutional law but the Bill appears to constitute an unjust attack on an individual's property rights and any encroachment on private property rights must satisfy a proportionality test. There is a question as to whether the Bill satisfies that proportionality test or not. The committee and the Oireachtas may wish to get its own legal advice on that and that is up to the committee but that is the Department's view on the legality issue.

The committee is engaging with the Office of Parliamentary Counsel which is an independent office. We have a preliminary paper from that office on that retrospective question but there will be a fuller assessment which will feed into the scrutiny report. We will be preparing a report and will have to come to a decision about the Bill so the constitutionality question is pertinent. The Attorney General will not come before the committee and give his view so this is our opportunity to tease that out. The Central Bank, in its detailed submission, also raised issues on that front.

I brought a Bill through the system relatively recently and Deputy Pearse Doherty has also brought legislation through the system. My experience is that, to get a Bill all the way through the system, enacted and into law, requires a lot of technical support, buy-in from the parent Department, parliamentary draftspeople and so on. Is it the position of the Department that it will not be co-operating or supporting the progression of this Bill because the Department is fundamentally opposed to it?

Mr. Gary Tobin

The Government has decided to oppose the Bill on Second Stage and we act at the pleasure of the Government so I do not think the Department is in a position to assist unless the Government changes its mind.

The Department will not be co-operating or supporting the progression of the Bill in any way unless the Government changes its mind. We might as well get down to brass tacks because I have been through this process and know how it works.

The Department has made predictions as to the consequences of the Bill. It is being quite definitive that it will mean higher interest rates, mortgage interest rates, reduced availability of mortgage lending and restricting the banks' capacity to access the euro system. We can focus on the last of those for a moment. Can Mr. Tobin take us through how this Bill, if enacted, would impair the ability of the banks to access liquidity on the euro system if it was so required? I will park that question if it is not for him to answer. I have separate questions to ask the witnesses from the Cental Bank and I could stitch that question into those.

Mr. Gary Tobin

Sure, yes. I think that, given the President of the European Central Bank, Mr. Mario Draghi, has written in the past 24 hours-----

Mr. Gary Tobin

-----it is perhaps more appropriate for the Central Bank to answer that question.

It is not for the Government to decide whether a money message is required or not but if the decision from Parliament is that a money message is required, then it is for the Government to decide whether to grant one or not. The preliminary view of Parliament is that a money message is not required. Does Mr. Tobin disagree with that view?

Mr. Gary Tobin

It is certainly the Government's view that a money message is required, for a variety of reasons. The Bill will have significant costs for the Exchequer, both directly and indirectly. We have grave concerns about the Bill and its potential implications for the banking sector and financial stability. We believe that we will need extra resources to assess, on an ongoing basis, the implications of the Bill. We tend to agree with the Central Bank that it would be appropriate that an ex ante, independent impact assessment of the Bill should be carried out. We have set out, in quite a lot of detail in our submission, the costs that will arise as a result of the Bill.

There will be additional costs for the Central Bank and the banks themselves. There will be a substantial amount of additional financial implications for the wider economy, not least the potential impacts if, for example, compensation was to be claimed against the State by individuals who felt that their property rights were being interfered with.

Suffice to say if the view from Parliament is that a money message is not required then that assessment does not come into play. It only comes into play if the decision is that a money message is required and the Government has to decide whether to grant it or not and I think we know what the answer would be.

Mr. Gary Tobin

The Department's view is certainly that a money message is required. I fully accept that Parliament ultimately decides that, as the Deputy is saying.

I want to move to the witnesses from the Central Bank. At the centre of all of this is the debate around non-performing loans, NPLs, and the requirements of the European Central Bank, ECB, single supervisory mechanism, SSM, to reduce the level of non-performing loans within the Irish banking system down towards European norms or the European average. Can the witnesses give us a sense of where we are on that front? AIB made another announcement only yesterday. All of the banks are now expressing confidence that they will have reached their required level of being at or close to the European norm by the end of the year. This is moving quickly and the question of whether the Bill applies or does not apply to existing mortgage contracts is pretty fundamental but can the Central Bank witnesses give us an overall sense of where we are on NPLs within the Irish banking system, what level they are at, taking account of recent announcements, and is it the case that they must be at 4% or 5% of a bank's loan book by the end of the year?

Mr. Ed Sibley

I touched on the issue of non-performing loans in my opening statement and they have come down a significant amount in the past five or six years. They are in or around 10% of the total loan books, having come down from approximately 31% or 32% at peak. There was a strong push from the Central Bank, before the single supervisory mechanism and as part of it, to continue to drive down non-performing loans in the system in a sustainable way. This European average is a benchmark, not a formal target. Typically there are many banks with low levels of NPLs and a few which have relatively high levels. There are few at the actual average level. There is a strong push to continue to address the NPL problem. We are making sure it is done in a way that respects the consumer and ensures they are protected. There is no hard target to hit European averages by the end of 2019.

That notion that, by the end of this year, the banks must have reached a certain level keeps reappearing. We were in Frankfurt a number of months ago and put it to the then chair of the ECB supervisory board, Ms Danièle Nouy, who categorically denied that there was any push on the banks to get to any particular figure. It keeps coming up and the banks keep telling us that they are required to reach the European average by the end of the year. It seems like someone is not telling us the full story.

Mr. Ed Sibley

This is consistent with what we were engaging with the banks about back in 2010. We have asked for clear strategies in order to bring down NPLs and the planned operational capabilities to deliver on those strategies. There is no requirement to hit a European average by the end of 2019. The European average is used as a benchmark to measure levels of non-performing loans, if banks are above and below that mark, but it is not a hard target those banks are required to meet.

Much work is being done on non-performing loans and their categorisation, including by the European Banking Authority, and on provisioning of non-performing loans to ensure that sufficient provisions are held against those loans. I am sure that is affecting the pressure, while the potential need to take additional provisions is affecting banks' desire to address the issue quickly, given that they are incurring additional costs as a result. It is probably in their interest to reduce the number of non-performing loans more quickly but there is not a hard target.

The Central Bank's detailed submission referred to its own legal advice and resources available to it. On the question of whether the Bill can be applied to existing mortgage contracts, that is, mortgage contracts already written where the borrower has signed up to a contract with a clause that explicitly permits the sale of that mortgage, what is the view of the Central Bank, in the light of its advice, as to whether the Bill could cut through those existing contractual provisions and set them aside?

Mr. Ed Sibley

Like Mr. Tobin, I am not a constitutional lawyer, nor is it the role of the bank to give advice on the Constitution. We have been asked for our opinion. Having examined the draft legislation, our in-house team highlighted a potential risk with the constitutionality. I did not refer to that in my opening statement, however, because it is not a matter for us to opine on. Nevertheless, it is clear that it needs to be considered.

It was mentioned in the ECB letter and referred to by Mr. Sibley that the Bill would benefit from an ex ante impact assessment before it becomes law. What would be the nature of that and what exactly would it assess if it were to happen?

Mr. Ed Sibley

It brings us back to my earlier comment. We can see the aspiration of the Bill and its intent, but we have raised the question of concern as to whether it will truly add to the regulatory protection that consumers have. One side of that impact assessment is to assess whether it will truly deliver additional protections for borrowers, while another side is to consider independently the risks associated with it. I have outlined our thoughts on the potential implications for the functioning of the market, from a competition perspective and from a financial stability perspective. That gives an opportunity to weigh up those implications in respect of the costs and benefits of the Bill. As one could reasonably expect of any intervention in such an important market, it would be worth doing an impact assessment to ensure that both the intended and unintended consequences are understood and weighed up.

On the impact that the Bill would have on the banks' ability to access funding, will Mr. Sibley explain the following reference in the ECB opinion, which is similar to what Mr. Sibley stated in his submission? The ECB stated it notes that under Irish law, in order for credit institutions to issue asset-backed securities, covered bonds or special residential mortgage-backed promissory notes, or to create security over pools of credit claims, the underlying residential mortgages must be transferred or, in the case of a security interest, be capable of subsequent transfer. It went on to state the Bill would render that difficult or impossible. In simple terms, what will that mean for the ability of the banks to access funding, and what will be the consequences of that?

Mr. Ed Sibley

In simple terms, it would make it difficult or impossible, which is what is stated in the letter. Perhaps Mr. Maduoros will comment further.

Mr. Vasileios Madouros

In practice, institutions can issue financial instruments that are backed by mortgages as collateral, such as securitisation or covered bonds. Financial institutions can issue those instruments to external investors to seek funding and, crucially, they can pledge these instruments as collateral with the euro system or central banks to seek funding, especially in periods of liquidity or stress.

Mr. Vasileios Madouros

Yes, ECB liquidity. Mortgage-related collateral is the vehicle through which Central Bank liquidity can be accessed.

If, as a result of the Bill, financial institutions cannot issue these mortgage-related instruments with mortgage as collateral, it will constrain their access to financial markets and their ability to access Central Bank funding in periods of stress, which is one of the reasons we have flagged, from a financial stability perspective, the concern about the reduced ability of the system to absorb shocks because it will have reduced access to Central Bank liquidity facilities.

Mr. Ed Sibley

To give a real example, although I do not mean to be alarmist, at last week's committee meeting we discussed Brexit and the associated risks. The view of the Central Bank is that those risks are manageable from a financial system perspective. I would have a hard time saying that if I was not confident that the banking system could access eurosystem liquidity if it needed it.

I welcome our guests to the session. When the Central Bank appeared before the committee last week, I outlined that the intention behind the Bill is not to affect the access to liquidity, passive securitisation or access to ECB collateral, and that will be easily addressed on Committee Stage. I would be surprised if other members had different opinions but that is up to them and the Bill is now the committee's Bill. On ensuring that those areas were exempt, the thrust of the Bill relates to the direct sale of a loan to a vulture fund. Financial stability was mentioned, but to what extent would that address the issue if those areas were exempt?

Mr. Ed Sibley

We were asked for our view of the Bill as drafted and that is the view we have given. If there was an ability to carve out eurosystem funding and wider securitisation, covered bonds and so on, that would address many of the concerns we have. I am not sure, however, that is so simple to do. In the example of Permanent TSB, it carried out securitisation through what was was effectively a sale. Getting into the detail to make that happen would be a challenge but it is one of our most significant concerns with the Bill, although Mr. Madouros might comment further.

Mr. Vasileios Madouros

There are also concerns about the ability of the banking system to restructure its balance sheets in future times of macroeconomic stress. In a future downturn, if there is a deterioration in asset quality, one of the main ways that the system can ensure that it will absorb shocks rather than amplify them would be if it has the capacity and a range of tools to deal with the future deterioration in asset quality. I am not sure, however, that exemption would cover it.

It definitely would not because that goes to the core of the Bill, which is that the Bill would not allow without the borrower's consent the bank to sell on the loan to a vulture fund, and that would apply for existing contracts henceforth. That would potentially remove a tool, given that it would be unlikely for many borrowers to give their consent to vulture funds, which I will come to in a moment.

The banks have taken a hit on these loans. Are there not a number of other tools to allow the banks to deal with those assets at that point? It is not the case that they would be left bare when dealing with distressed mortgages. There are a number of examples, some of which are contained within the code of conduct on mortgage arrears, that are non-obligatory and are not used by many banks, such as debt write-down and other measures that could be used.

Mr. Ed Sibley

We certainly continue to expect all banks and non-banks to use the full toolkit to address those loans that are in difficulty, which would include engaging and re-engaging with borrowers, restructuring loans and write-offs where relevant.

There are other solutions, such as mortgage-to-rent and the personal insolvency service. Ultimately, and unfortunately in a small number of cases, these affect security.

In response to earlier questions on the Bill, Mr. Tobin said that it may or may not cause an increase in mortgage interest rates. Which is it? The Department provided the committee with a written submission which was all over the media this morning and gives the impression that the Department had a crystal ball, which enabled it to determine that the Bill would result in higher mortgage interest rates for consumers. Will Mr. Tobin inform the committee if that conclusion was arrived at on the back of what bankers were telling the Department or did the Department undertake an analysis that led it to that determination? It definitely was not mentioned in the Central Bank's opening statement today. It is evident from the IBF press release issued this morning that I am ruffling a couple of feathers within the banking industry through this Bill.

Mr. Gary Tobin

Any proposed legislation that increases the cost of funding for banks will likely result in an increase in the cost of mortgages to households. That comment is not meant as a personal attack on the Deputy's legislation. Rather, it is a comment we would make in regard to any legislation in respect of which we believe the cost of funding for banks is likely to increase.

I do not want to nitpick but words are important. Mr. Tobin did not say, "it is likely to increase"; he said, "it will lead to." It is surprising that the Department was able to come to the same conclusion as the IBF.

Mr. Gary Tobin

And others, I think, as well.

The Central Bank did not mention it in its opening statement. The conclusion is almost identical to the conclusion the Department reached when Deputy Michael McGrath was pushing through his legislation to regulate vulture funds. That legislation was enacted six months ago. Have interest rates increased, as warned?

Mr. Gary Tobin

All we can do is give our advice based on our view of what is likely to happen. In our submission we say that a number of things are likely to happen. Ultimately, we are here today to try to tell truths to power, to tell the committee and the Deputy what we believe they need to hear and not what they want to hear. I am sure everybody would much prefer if we said that there will not be any impact on interest rates but our view is that this is potentially such significant legislation it could impact on the cost of funding for banks and, in turn, result in an increase in the cost of mortgage interest rates.

I do not want to be pedantic but what Mr. Tobin just said is different from what was said earlier. The Department issued a statement, which has been carried in the media, to the effect that this Bill will increase mortgage interest rates. In his opening statement, Mr. Tobin said that may or may not happen and he has now qualified that and said that it is likely it has the potential-----

Mr. Gary Tobin

With respect, I am reading from our submission to the committee, which states at paragraph 1.2 that it is likely to result in higher mortgage interest rates for customers.

In the submission delivered approximately half an hour ago, Mr. Tobin stated: "Our assessment is that the Bill will lead to higher mortgage interest rates", but the Department is not sure whether it will.

Mr. Gary Tobin

We think it is likely to.

It is likely to. Okay. In regard to the Consumer Protection (Regulation of Credit Servicing Firms) (Amendment) Act 2018, in Mr. Tobin's view, how is it the Department's observation did not materialise?

Mr. Gary Tobin

I do not think necessarily the two Bills are comparable in respect of the magnitude of impact. The Bill before us is considerably more radical in what it proposes to do.

The previous Private Members' Bill sought to regulate a particular actor in the market whereas this Bill essentially proposes to prohibit banks selling mortgages. The two Bills are somewhat different. This Bill is much more radical legislation which would likely have more radical implications as a result.

Mr. Tobin did not answer my question, which I will rephrase. Six months on from the enactment of Deputy Michael McGrath's legislation why, in his view, did the warning made on the record at that time by the Department of Finance, namely, that that Bill would lead to higher interest rates on consumers, not materialise? One could argue that interest rates have fallen. Has the Department carried out an assessment of why the Central Bank's position on that legislation, while was less radical in Mr. Tobin's view, did not materialise and the opposite happened?

Mr. Gary Tobin

As the Deputy said, that legislation has been on the Statute Book for only a short number of months and so we have not done any specific analysis of the implications of it. One of the likely implications of that legislation is that fewer buyers exist for portfolios of loans. A potential buyer now needs to be a regulated entity and some potential buyers will not want to go through that process. It may well have had an impact in terms of the price that some portfolio loan sales are attracting. I think that is a likely result of Deputy Michael McGrath's legislation. As it has only been in operation for a short time, it is too early to determine its full impact. All we can do is tell the committee what we think will happen. We are trying to be as open and helpful as we can with the committee. I am sorry if what I am saying is not what the Deputy wants to hear.

I appreciate that the views being expressed are validly and genuinely held by the Department. I am just trying to tease out and test them. We will not fall out because of any of them.

Mr. Gary Tobin

I hope not.

I will need the support of the Department and Central Bank in progressing this Bill through the Houses and signed into law by the President, because that is my intention. The regulatory framework for banks and vulture funds are not the same, which I believe underpins some of the assessment from the Department of Finance and the Central Bank. I do not dispute that. If Mr. Tobin had to choose, would he want to have his family home mortgage with a vulture fund or one of the mainstream banks?

Mr. Gary Tobin

Based on the evidence, I would have no particular preference.

I think the smile on Mr. Tobin's face reveals a little more.

Mr. Gary Tobin

I smiled because I thought it was a clever question.

I ask Mr. Sibley to respond to the question?

Mr. Ed Sibley

I understand why people are concerned given all that has been said about non-bank entities. I will answer a slightly different question, although I am sure the Deputy will push me on the original one. My advice to any borrower, particularly one in distress, regardless of whether the mortgage is held by a bank or non-bank, is to engage with the lender to work through the issues and to avail of the supports in place through the codes and the wider framework that exists in Ireland.

I would, and do, give the same advice to individuals. I will not push Mr. Sibley any further on the question.

Mr. Ed Sibley

I reiterate what I said earlier, namely, that I would have no compunction about taking out a loan with a retail credit firm or a bank.

That is a valid point. The issue here is that those who work at the coalface with borrowers and distressed debtors, for example, MABS, which was referenced in both opening statements, tell us that in approximately 75% of cases where loans have been sold advisors report that the sale has both slowed progress and limited options available to the borrower. That is the reality. If we were dealing with a fund such as Promotoria, it will not allow mortgage-to-rent. There are certain options available with a high street bank that vulture funds will simply not entertain. Is that not the crux of the issue? While they are regulated in the same way, and the CCMA applies to both in the same way, different offerings are available compared to a high street bank. One is seriously at risk when dealing with a vulture fund. Glenbeigh Securities, for example, is a fund that was set up a number of weeks before the sale of 6,000 loans. There is nothing to stop that vehicle or its servicing agents from increasing interest rates for those with a standard variable interest rate. However, it is also the case that there is nothing to stop the banks from increasing interest rates. The difference is that if the banks pushed up interest rates they consider agricultural loans, student loans and deposits. These vehicles have only one interest, which is to get as much money as possible and make as much money as possible from the sale of the loans from the regulated entity in the first place. That is where the risk lies, and that is why 95% of those who have had loans sold to vulture funds are in a position of personal distress as a result of this.

Mr. Gary Tobin

Looking at the review of the CCMA carried out by the Central Bank, I refer to figures Nos. 3 and 4 on pages 37 and 39 of that publication. They show the various arrangement categories for banks and non-banks. As the Deputy will be aware, some of the arrangements include interest only and term extensions, among other options. There are a whole variety of arrangements put in place by the banks and the non-banks, and arrears capitalisation is used by both. I have not seen the submission from MABS to the committee and so cannot specifically comment on it, but it is clear that banks and non-banks are choosing to put in place a variety of arrangements. They may choose to implement certain arrangements in different numbers, which may in itself reflect the fact that some of the non-banks tend to be dealing with people in very long-term arrears in many cases. This reflects the fact that the loan portfolios that are sold are made up of this type of customer. A different arrangement might be put in place for that type of situation than would be put in place for a customer with fewer arrears.

Looking at the latest repossession statistics, the banks are repossessing many more properties than the non-banks. The CCMA review carried out by the Central Bank said that it did not see an obvious difference in the treatment of mortgage arrears cases between the banks and the non-banks.

I do not have the report in front of me, but from memory, one of the comments made about the report was that it is early days in terms of the vulture funds because the transfers only took place recently.

Regardless of the CCMA, this creates a timing factor. Various steps have to be taken before the necessary legal proceedings.

Mr. Gary Tobin

That is a fair point.

Since the report there has been a doubling of the number of family homes sold to vulture funds. We discussed this matter with the Central Bank last week. MABS, which is involved now, or the Irish Mortgage Holders Association or the Free Legal Advice Centre, are all telling us a very different story. Those organisations are saying that this is not good. In 75% of cases they say that customers have reduced options as a result of having their mortgages sold to a vulture fund. The doors have to be closed. The banks are lining up to sell, and the vultures are hovering, ready to pick on the carcass of the economic catastrophe that happened in this State. We, as legislators, have a duty to protect citizens and to do that in a balanced way. Putting the code of practice, which has been in place for 28 years, on a statutory footing is the correct way to deal with that.

Mr. Ed Sibley

We have not seen the MABS submission, but would be happy to look at it and to engage with the organisation directly on it. However, what we have seen in terms of approaches being taken to comply with the CCMA, and in terms of coming up with restructuring arrangements that either have transferred as part of a sale or were put in place post-sale, is that the retail credit firms are complying with the CCMA, engaging effectively with borrowers and offering a range of options. Within the banks today there are different options and preferences in terms of how different borrowers are being treated and the solutions being put in place. That is the case in banks and non-banks; there is no difference. We can see that restructuring arrangements are being put in place. It is perhaps worthwhile to discuss how we have been engaging with both the bank and the potential buyer in the case of those most material loan sales. Permanent TSB and Pepper have both been here to discuss the transaction that took place last year, which was a significant transaction involving loans that had primarily been restructured at that point. We had a very high level of engagement with Permanent TSB, and will continue to have very high levels of engagement with any potential seller to make sure that the risks to individual borrowers in that circumstance are understood and are being mitigated, and that commitments are made by the purchasers to ensure that those risks continue to be mitigated and addressed in longer term, post sale. The Deputy is correct that we are in the early days of this process, but our engagement through the process, certainly for the most significant sales, makes sure that those risks are understood and that there are commitments from both seller and buyer. We can discuss that further if it is helpful.

My concern here is not just for the individuals whose loans are about to be sold off. The Central Bank report of last April discussed those in long-term arrears of more than 720 days. The Central Bank itself has said that more than 50% of those people are likely to lose ownership of their homes, through voluntary or non-voluntary repossession. That is a significant number of people, and represents some 15,000 homes. No loan is safe from sale to a vulture fund. There is nothing to prevent AIB, Permanent TSB or Bank of Ireland from selling a tracker mortgage or group of tracker mortgages in the morning because they believe them to be loss making. There is nothing that can be done to stop that from happening. In some European countries that would not be allowed. Austria and Denmark, for example, do not allow banks to sell performing loans in that way. Can Mr. Sibley comment on that?

The Department has made known its view on the issue of the constitutionality of the legislation.

I am mindful that the Department, or at least the Minister on the advice of the Department, told us the same thing when we discussed removing the bank veto. However, in 2016 the bank veto was removed and we allowed people appeal to the courts and have debt reduction imposed on banks. We were told that would not be constitutional.

The committee must do its own work and we have a preliminary view on the retrospective nature of the legislation and how it impacts on contracts. It is worth putting on record that this view does not state that the proposal is unconstitutional. We must wait until we have the full advice. With respect, the problem here is that the Department and the Central Bank, which has a role in consumer protection, are batting for the banks. While property rights are provided for in the Constitution, they are subject to clear limitations where social justice or the common good come into play. That is why legislation was introduced in 1976 providing that a married person needed the consent of his or her spouse before selling the family home. A clause in the Constitution relating to social justice and the common good allowed contractual rights to be torn up and it was specified that the consent of a spouse was needed before a house could be sold.

The constitutionality of this legislation must be tested in the courts. We have been here before with Part V, when we were told that it would be unconstitutional. We were also told that removing the veto would be unconstitutional and we have been told by the Department that it has been advised that this legislation would be unconstitutional. This should be tested in the courts and we should allow it to proceed because the social good is not served by allowing thousands of struggling homeowners' loans to be sold to unnamed vulture funds which refuse to come before this committee. None of us knows who they are. These are vehicles that are set up only weeks before the sales go through. We know the banks are rubbing their hands and could not believe that Permanent TSB got away with selling performing restructured loans. They are now all lining up to do the same. That is what is happening and unless we take action, we will see this calamity unfold. This legislation is part of addressing that.

On Deputy Michael McGrath's comment, if this committee agrees to move the Bill to Committee Stage, I hope the Department will proactively try to shape the legislation to ensure it has the best potential outcome, even if Mr. Tobin may have reservations about it. This was done previously when the Department opposed the Fossil Fuel Divestment Bill and subsequently became involved at a later stage. I hope there is a point where our paths meet and we can work together to have this legislation enacted.

Mr. Gary Tobin

Obviously, the Oireachtas is entitled to pass laws that are unconstitutional if it so wishes. We are simply giving the Deputy our advice as to our view of its constitutionality or otherwise.

I do not accept the Deputy's view that we are batting for the banks. We are trying to take a holistic view of the potential implications of this legislation. We are very mindful of the potential implications for people who are in mortgage arrears. We are concerned that there could be increased repossession if banks cannot sell their mortgages. That is one category. We are also very mindful of people who have existing mortgages, particularly those on standard variable rates who may end up having to pay more by way of higher interest rates because the banks find it more difficult to raise funding. We are also very mindful of people who wish to take out a mortgage to buy their first home in the future. As a result of this legislation, the number of lenders in the market may be reduced or there may be higher interest rates.

I fully accept and understand why the Deputy's focus is on those who are in mortgage arrears. However, while we must think of those people, given the potential radical nature of this Bill, we must also think of everyone else who has a mortgage and the implications for them. We must also think about all of those young people who do not yet have mortgages but who would like to have one and what implications this legislation may have for them.

I thank the Department and Central Bank for their opening statements. I am just reading on the RTÉ website that the Bill has already been passed by the Dáil. It passed Second Stage but we are now scrutinising it before Committee Stage. People following proceedings may conclude it has passed but it clearly has not passed. We are here to examine, test and try to progress the Bill, or otherwise. We have a series of briefing documents, including one from the Department of Finance running to 22 pages, a four-page opening statement from the Central Bank, and an European Central Bank opinion of nine pages. Many of the important points were covered by previous speakers.

The intention behind the Bill, from listening to Deputy Doherty and others, is to deal with the people who are in distress and unable to comply with the original terms of their mortgage and who find their loans being transferred to a vulture fund to enable banks to say they no longer have non-performing loans on their books. However, as Senator Kieran O'Donnell outlined, the view of many members of the committee, at least for as long as I have sat on it, is that vulture funds have a different agenda. They are not typically in for the long haul, unlike banks which have branches and a presence, are looking for new business and participate in communities to a greater or lesser extent. With vulture funds, it is a case of getting in, disposing of the assets and getting rid of the people in the houses being sold, whether tenants or owner occupiers, and, having extracted as much as possible, getting out of the country. In AIB's Project Beech, a vulture fund is paying 30 cent in the euro for the debt and I presume it will chase all of those loans. The State still owns three quarters of AIB. The hit for the write-downs on AIB's loans has been taken by citizens, the shareholder of the bank.

Viewed from the State's perspective - this probably applies more to the Department of Finance - when tenants or owner occupiers have to leave properties and subsequently present at a local authority seeking housing, the State incurs a cost. Has an impact analysis or examination of non-performing loans been carried out? It is fine to try to reduce the percentage of non-performing loans and there are many ways to do that, including restructuring and debt write-down. Nearly every bank has been before the committee and they all said they would not write down debts on an individual basis. They will not offer to sell people their loans for 30 cent, 50 cent or 70 cent in the euro, but they will offer these loans to vulture funds. Last week, the Governor of the Central Bank pointed out the value of having foreign investors because foreign money takes the risk and is coming into the country. I had not heard that point of view previously. Ultimately, people will be dispossessed and lose their homes. Maybe they made bad calls or took on too much debt. We acknowledge that but if they turn up at a local authority, the State has to rehouse them. Do the Departments of Finance and Housing, Planning and Local Government consider the possibility of the State acquiring some of the non-performing loans from the banks and dealing with them because ultimately we are passing on distressed loans?

Mr. Gary Tobin

I thank the Senator for his questions. I am looking at statistics for new mortgage lending. Back in 2006, we were lending around €39 billion in mortgage lending. That figure now stands at around €8.7 billion, which is a substantial increase on 2013 when the figure was €2.5 billion. We are probably not back to normal levels of mortgage lending.

Clearly, what was happening in the so-called bubble years was completely unsustainable and obviously the legacy of that casts a very long shadow. It has impacted on so many peoples' lives in really awful ways. The reality is that a lot has been done. As the Central Bank representatives have said, more than 111,000 mortgage restructures already have taken place. The personal insolvency legislation that was put in place here has been widely praised internationally. The Abhaile scheme being operated by MABS is helping. It should be noted that we have cases of very long-term arrears of four and five years here, which are not seen in other countries simply because others tend to repossess property much quicker than we do.

It is an absolute challenge to resolve some of these issues but it is beyond the purview of the Department of Finance to suggest more structures that could be put in place. That would probably be a matter for our colleagues in the Department of Housing, Planning and Local Government. Clearly the nature of banking in Ireland is changing right now. On foot of the financial crisis, the traditional banks have shrunk back from lending in a whole range of areas. They are being challenged by FinTech companies and others. The likelihood is that the role of non-banks, and I use that term very broadly, across the whole area of banking and not just mortgage lending, is likely to increase in the future. We may all wish that the traditional high street banks are the ones with which we have to engage forever more but that is not going to be the reality in the future. It is quite likely that people will be dealing with purely online banks very soon. It would be a mistake to think that there is only one type of institution that should be able to offer lending services in Ireland.

I never suggested that for one minute. I am not sure why Mr. Tobin is responding to me in that way because that was not the point I made. The point I made was that lots of people out there are potentially going to be affected by the transfer of loans to an entity that may not have the same longer-term interest as the entity from which the loan originated. By and large, the bulk of the €39 billion, which is a staggering figure, was primarily borrowed from the pillar banks at the time. I accept that some of them are no longer operating on this island but back then FinTech entities were not doing what they are doing now.

Of course, we can all look back at that time and ask what the banks were doing in throwing money at people with very few guarantees in many cases. They inflated the price of property enormously. I was a local councillor at the time and the price of property in south Dublin increased enormously because the banks were lending too much money. If one could get €500,000, one borrowed it and that meant that house prices rose to €800,000 and so on. These are figures that people in other parts of the country would find staggering but they were quite low at the time in parts of the area I represented. The banks lent out money which inflated the prices and ultimately, the whole thing came crashing down. People were left with enormous debts and the value of their properties collapsed. We know all of that but the point I was trying to make is that people will be turning up at the doors of public representatives, be they councillors, Deputies or Senators, whose homes are repossessed and we will have to find them a house. The State will either build them a house or accommodate them by way of the HAP or RAS schemes. The Government should be taking that into account and not allowing some loans to be transferred to vulture funds when those funds are possibly only getting involved to earn a quick buck. There should be some other vehicle that takes the non-performing loans off the books of the banks and deals with them. We may need a NAMA-type operation but I get the impression that such a vehicle does not exist.

Mr. Gary Tobin

I apologise if I misunderstood the Senator's question. Certainly from our perspective, some of this may be more appropriate to our colleagues in the Department of Housing, Planning and Local Government. I would contend that the State is already very involved in the housing market in Ireland and I would be concerned that when we make interventions in the housing market, there tend to be quite a lot of unforeseen consequences. It is not only with this Bill that we think there could be unforeseen consequences; it is always a risk when one is dealing with the property market. I am not sure that the Department of Finance would be recommending any further intervention in the property market right now.

I accept that. As far back as the time of the Bacon report, we were asking whether State intervention in the property market is a good thing. When it was looking at this Bill, did the Department advise that retrospection should apply?

Mr. Gary Tobin

On reading the Bill, our view was that it does appear to apply retrospectively.

The Office of the Parliamentary Legal Adviser, OPLA, has given a different opinion. It has said that retrospection does not apply currently but if it did apply, it would have a different opinion of the Bill. When it was forming its opinion on the legislation as currently proposed, the Department took the view that retrospection would apply. Is that correct?

Mr. John Palmer

May I answer that? Retrospection depends on what one is talking about. If one is talking about retrospection in the context of mortgages that have already been sold and transferred, that is not-----

I know that. One cannot un-sell loans that have been sold.

Mr. John Palmer

We take the view that the way the Bill is written - and we assume this is the policy intention - means it would apply to all existing future transfers of mortgages.

Future transfers of existing loans?

Mr. John Palmer

Yes. If that was not the intention, then Deputy Pearse Doherty can let us know. In that context, it is more than likely that there would be different advice from the Attorney General on that.

Obviously the legislation is much more useful with retrospection than if it were to only apply to loans taken out from the date of enactment but-----

Mr. Gary Tobin

Sorry to cut across the Senator but on that point, if we are applying something retrospectively, which is the intention, then in order for it to be constitutional it must be proportionate. That is where the rubber hits the road.

The Department describes it as disproportionate and therefore, unconstitutional. I am not a constitutional lawyer but is there a test whereby if something is disproportionate, it cannot be constitutional?

Mr. Gary Tobin

I think that is an important concept although I do not claim to be a constitutional lawyer either.

In terms of the reference to the voluntary code of practice, the Department of Finance is quite cutting. It argues that the draft Bill is essentially a copy and paste of the outdated voluntary code of practice. What is the Central Bank's view on the code of practice? Does it deem it to be outdated, voluntary or otherwise?

Mr. Ed Sibley

It dates back to a completely different time. In 1991 approximately 60% or almost two thirds of mortgage loans were with building societies. I was not around at that time and not many people who were around at that time are still with the Central Bank but I understand that there was a concern around some of the benefits associated with having a loan from a building society in the context of the demutualisation that was happening in that period. I think that was in the minds of those who were setting out the code. The mortgage finance market today is clearly very different today and is much bigger. It is many multiples of the size it was back in 1991 and there are no operating building societies in the State now.

Securitisation, the use of collateral, did not feature in the 1990s. It is a big feature now. The sophistication of the euro system support is there and, indeed, is acting as a lender of last resort. Using mortgage collateral has all changed.

As I understand it, we looked at the code back in 2012 in our review of the consumer protection code and decided at that point that we did not want to put it on a statutory basis. My personal view is that we should have removed it. I do not believe it is good practice for us to have voluntary codes that are not being complied with. We should not have them. We should have dealt with it then, but we did not. Our view is that it is being superseded by the nature of how the financial system has changed and, importantly, in the protections that are in place regardless of whether one has a loan with a bank or a retail credit firm.

Ms Gráinne McEvoy

I echo all the comments made and note as well that as a voluntary code back in 1991, the Central Bank's regulatory powers did not apply. The full suite of its powers could not be imposed on a voluntary code. Mr. Sibley rightly said both in his opening statement and just now that it has been superseded by a number of statutory powers through codes, legislation and otherwise, which allow the Central Bank to enforce its full suite of regulatory powers.

Does it still exist and is it about to be deleted or withdrawn? What is its status?

Mr. Ed Sibley

It still exists. We said in our submission and in the opening statement that it is superseded. We do not believe there is a place for voluntary codes generally. We give guidelines which we do expect to be complied with, but they are not on a statutory footing. We intend to remove it.

What is the timeline for that? Mr. Sibley is saying that, effectively, it is not being used but it is still there and available.

Ms Gráinne McEvoy

We view it as redundant because it has been superseded by so many regulatory and legislative powers. It is our intention in the near future to remove it from the website.

Is that in the next few months?

Ms Gráinne McEvoy

Yes.

The opening statement reads: "The enactment of this Bill will not offer new or existing borrowers any additional regulatory consumer protection and it could have negative consequences for the functioning of the mortgage market", which the witness has outlined. Are the witnesses saying there is no single benefit for an individual borrower from this legislation? There is nothing in it for them at all. We understand that it annoys banks.

Mr. Ed Sibley

To be clear about an earlier comment, I do not care a jot about individual banks. I care about the functioning of the system, how the system serves the economy and consumers, and ensuring that the events that happened in Ireland never recur. We are trying to give a view in the round of our perspectives on the functioning of the market and how this Bill connects with that functioning. As I said earlier, I understand why there is a nervousness about this issue and the narrative. Indeed, I am keen to see the MABS submission and obviously would take that into the increasingly intensive work we do with the retail credit firms. We are saying that from a regulatory protection perspective, what we expect of firms, bank or non-bank, exists whether a person's loan is with a bank or non-bank. The protections and our expectations are the same. We will be increasingly intrusive in our supervision based on the increasing prominence of the retail credit firms to make sure that is the reality. As has been mentioned and is already the case today, the retail credit firms are writing business in the State today. We expect that in the business being written and the business being bought, the individual borrowers are treated in exactly the same way and are subject to the same protections.

In terms of the vulture funds, they are probably a relatively recent concept in the Irish financial services sector.

Anybody would be a little worried if the person thought their loan was going to them, but Mr. Sibley is saying there is no greater value other than, perhaps, the existing banks have taken a more benign approach towards non-performers than the vulture funds are likely to do. Would that be a reasonable assessment?

Mr. Ed Sibley

We can see there are differences across the banks in some of the decisions they are making. There are some differences between the banks and non-banks in terms of the prominence of certain solutions. However, all firms, bank and non-bank, are engaging and offering restructuring. We can also see, and I appreciate that I am talking about individuals here, that as a proportion of the loans that are in distress, currently there is no greater propensity to take legal action by the non-banks than the banks. It is about the same. I appreciate how it feels for anybody in those circumstances, but that is the evidence we see. As I said, we are keen to understand what MABS has submitted and we will take it into our ongoing supervision.

I do not believe anybody else has covered this but the ECB issued its opinion yesterday morning. Obviously, the Central Bank is very much involved with the ECB as it is part of the ECB. Is there anything in its statement? We did not read it out but I read it. It is full of nice European jargon and plenty of references to articles, treaties and so forth. Ultimately, it is obvious that it is not keen on it, and it does not say anything different from what either the Department of Finance and the Central Bank has said. Is there anything Mr. Sibley wants us to pick up on from its statement?

Mr. Ed Sibley

The clear concern that emerges from the ECB opinion, to simplify it, is three things - the access to the euro system funding both in normal times and in distress, what that will do in terms of the normal functioning of the market, and the need to undertake an impact assessment.

Senator Conway-Walsh is next.

Many of my questions have been asked at this stage. The Central Bank's analysis identified all the negative externalities. Did it encounter any positive externalities, particularly for the consumer?

Mr. Gary Tobin

The only positive thing I can say about the Bill is that it is short.

What does Mr. Tobin mean by that?

Mr. Gary Tobin

It is only four or five pages so I appreciate that it is succinctly drafted, but I did not see any positive aspects for the consumer in the Bill.

Did the Central Bank see anything positive in terms of its consumer protection role?

Mr. Ed Sibley

We have tried to look at this in the round for all consumers and the functioning of the market for consumers. There are certainly risks for all consumers associated with how the market functions, the pricing associated with that and the wider stability of the system. I can understand why a perception is being articulated that borrowers would prefer not to have their loans transferred from a bank to a non-bank and I can understand why that would have perceived benefits.

Obviously we are talking about it being transferred once, but with many vulture funds this could be flipped over many times. Does Mr. Sibley see that as a negative or any negative consequences for the economy in terms of the same mortgage being sold over and over again?

Mr. Ed Sibley

Again, what we can see is what has been happening to date.

There are a range of potential investors. There are a lot of investors in Denmark, the Netherlands and other jurisdictions which are not banks but are typically pension funds and insurance firms looking for stable rates of return over a long period. There are various investors in the US and elsewhere looking for different things. They are not all looking to flip mortgages as has been described.

However the Central Bank does not have any control over how many times a mortgage is flipped or where it ends up. It is purely at the discretion of the vulture fund.

Mr. Ed Sibley

Ms McEvoy can talk more about this. If loans are sold, we expect sellers to engage with us on their intent and how any risks associated with those sales would be mitigated, so they-----

Are they legally required to do that?

Ms Gráinne McEvoy

Yes. Under the provisions of the Central Bank's codes any lender, whether it is a bank or not, that intends to sell the loan must notify the borrower two months in advance. The lender must provide the borrower with the name and address of the buyer of the loan. If it is going to be serviced by a different party, the lender must provide the contact details for that party as well. If a borrower is on an arrangement and is meeting its terms, we have very strong expectations for the arrangement to remain in place when the loan is sold. If the borrower's position changes and he or she is not able to meet the terms of the arrangement, the situation is assessed in line with the CCMA and the borrower's circumstances are taken into account. Some repayment model that best suits the changing needs or changing financial position of the borrower is then introduced .

Could loans be sold outside the EU? Does the Central Bank have any control of where they might end up worldwide?

Ms Gráinne McEvoy

A law introduced at the end of-----

Are the "strong expectations" to which Ms McEvoy refers legal requirements?

Ms Gráinne McEvoy

The Consumer Protection (Regulation of Credit Servicing Firms) Act 2018, introduced at the end of the year, requires anybody acquiring a loan to be located in the State.

As such, anybody from outside the State could not acquire one.

Ms Gráinne McEvoy

The legislation requires the loan-owner to be regulated by the Central Bank. That means the owner has to be established here.

Mr. Ed Sibley

Since 2015, the requirements when engaging with borrowers in distress have been the same for banks and retail brokers.

I am trying to understand this. For instance, it is confusing that we cannot find out who the beneficiaries of the sale of the Project Glenbeigh portfolio are. These mortgages keep getting flipped and there is less and less transparency around it. As consumers and as citizens, we collectively need to have confidence in the system.

Mr. Ed Sibley

I fully agree with that. That is why it is so important that any engagement between a borrower and a credit servicing firm, including the process of making decisions around restructuring, is regulated activity and subject to our codes. Under the legislation brought in last year, the new loan owner must have a vehicle in the State. We will see how that plays out and how those vehicles are set up in line with the legislation.

That just applies to the vehicle. It is not required of the final beneficiary of these mortgages. They can be outside the State.

Mr. Ed Sibley

This is the case with the ultimate owners of any firm and the ultimate beneficiaries of any profits made. One could say the same about the ultimate shareholders in banks and their impact on decisions.

Can Mr. Sibley see why people might have less confidence in a vulture fund than they would in a bank that they chose in the first place when making the big decision to take out a mortgage?

Mr. Ed Sibley

As I have said a couple of times, I can understand why people are concerned, particularly with the prevalent narrative. We have made sure that the protections in place are blind to whether the loan is owned by a bank or a non-bank. We will continue to discharge our responsibilities in intensely supervising those firms. The activity and engagement between borrower and lender is critically important.

I wish I could share Mr. Sibley's confidence. The witnesses have made assumptions about increases in interest rates, repossessions, etc. Could they envisage these properties being sold to vulture funds and flipped? Could that increase repossessions as well? The decision could be made overnight. Somebody is going to pull out of the market. These vulture funds will make hard business decisions.

Mr. Gary Tobin

I can certainly understand the question and where the Senator is coming from. Like Mr. Sibley, I fully understand that people may have concerns about their loans being sold to anyone other than the bank they are used to dealing with. However, the reality is that when loan-owners buy loans there is a profit motive. They want to realise a benefit as quickly as they can. To be quite frank, repossession is not a quick process in Ireland.

Let us say we are at the top of the housing market now or we are very near it. It is overheated. A firm might make a business decision on that. If it owns a lot of properties that are highly valued, in light of the impact of Brexit, etc., it may project that housing prices will fall. It may make the decision to sell, which could lead to a lot of repossessions. Could that happen? Mr. Tobin is very certain about repossessions.

Mr. Des Carville

The Senator mentioned the recent PTSB transaction concerning the Project Glenbeigh portfolio. One thing which was overlooked is that while the identity of the purchaser has not been disclosed, there is enough information out there to ascertain the type of purchaser. It is what we call "patient capital". It is a long-term pension fund investor that is interested in a very consistent yield rather than flipping an asset quickly. That is quite important. The business model of a lot of private equity firms is based around restructuring-----

I understand. I do not want to use up my time with that. I fully understand how they work and the models they use. I am trying to ask a simple question. If the vulture funds decided the market had peaked and to sell off many portfolios, could that lead to increased repossessions in the housing market?

Mr. Des Carville

At that stage the private equity owners would attract a higher valuation by selling a performing portfolio rather than a non-performing portfolio. Their business model is based on restructuring the portfolio rather than trying to repossess. That is why the repossession statistics are so low. They typically sell to somebody else who is looking for a long-term yield rather than a short-term asset play, that is, a quick flip.

I again do not share the witnesses' confidence in how the operation works. I would like to discuss the impact on the economy of introducing vulture funds in the first place and then allowing them to gain a greater foothold. Has the Department carried out an analysis of the cost of the tax loopholes, for example, under section 110 of the Taxes Consolidation Act 1997? How much do they cost?

Mr. Gary Tobin

We work in the banking division of the Department, so we do not work in the tax division. I am not aware of an impact assessment of section 110. Section 110 was introduced to provide for passive securitisation and bankruptcy remoteness.

To answer the question, I am not aware that there has been analysis, but that would be a matter for our colleagues in the tax division.

Mr. Tobin has said this is a cost to the Exchequer and that some of the language used is alarming, which indicates that if the Bill was to go through, we might have Armageddon. I am trying to look at what the delegates have compared it with. I would have thought it would be basic to look at the section 110 aspects to see what vulture funds were already costing us in terms of manipulation of the market and loopholes.

Mr. Gary Tobin

Again, I speak as somebody who does not work in the tax division. I am aware that a number of changes have been made to section 110 in recent years and in general. Deputy Pearse Doherty was probably heavily involved in quite a number of them. I imagine that, as part of the legislative process, an analysis would have been carried out of section 110. I am not aware if costings were made. Like any and all of these legislative provisions, they tend to be kept under review on an annual basis as part of Finance Bill process. That is probably as much as I can say.

It is very important that this issue not just be kept under review but also that a cost be put on the process on an annual basis. It is something at which we should look as a committee. I probably took it for granted that the Department would do this.

My next question concerns the loans identified as fitting the non-performing criteria. Are the delegates satisfied that all of the loans sold fit the non-performing criteria? Ultimately, the rationale for vulture funds is that we must reduce the level of non-performing loans. Do we know that this process is not reducing the level of performing loans?

Mr. Ed Sibley

Is that a question for the Central Bank of Ireland?

It is probably for both sets of delegates, but Mr. Sibley can begin, if he wishes.

Mr. Gary Tobin

It is an interesting question. There probably is not much of an incentive for banks to sell performing loans as they are making money from them. There certainly could be an incentive to sell non-performing loans because the banks may consider they are not making a return on them. I imagine that in general a bank would want to keep performing loans, unless it was exiting the market.

Mr. Des Carville

There was an example a couple of years ago of PTSB selling a loan book worth £6.5 billion sterling of performing loans. It was part of its EU-mandated restructuring plan. As Mr. Tobin said, these transactions occur, but they are generally the exception rather than the norm. In that case there was a very specific reason related to the state aid implications for the bank. Such occurrences are the exception.

I have come across people who have restructured their mortgage, but they are fulfilling all of their commitments. They are assuming that their loan is performing, whether they are paying interest only or making whatever reduced payment has been arranged. They have been shocked to find out that they are classified as non-performing loans.

Mr. Des Carville

It is a really important point as there is a very important difference between a restructured loan and a non-performing loan. The Central Bank of Ireland may be able to comment on this issue better than I can, but sometimes a restructured loan can still be regarded under European Banking Authority definitions as non-performing.

Mr. Ed Sibley

If it would be helpful, we could certainly provide more detail on the classification of loans, whether they are performing or non-performing, and what it takes for a loan to come back from being non-performing to performing. It is possible for a loan to be restructured and the terms still to be met terms and still to be classified as non-performing. There is some complexity attached to that matter.

If it does not meet the categorisation from a Central Bank of Ireland perspective, what would the bank do about it? If people indicated that their mortgage was performing and met the criteria, what would be the bank's course of action?

Mr. Ed Sibley

We spoke about this issue, but it is not for the Central Bank of Ireland to stop the sale of a performing or a non-performing loan.

That is what I mean.

Mr. Ed Sibley

We ensure the risks associated with loan sales to consumers are understood and mitigated. As I mentioned, there are differences in treatment across the banks and there is a difference in approach to what we would describe as "curing" a non-performing loan back to performing status. Some of the choices involve banks incurring more costs than they would like and result in their making different decisions. We can get into the process now if the committee wishes, although it is quite complex, but I am happy to follow up.

No, that is fine. The banks can sell performing loans without impediment.

Mr. Ed Sibley

Mr. Carville has given the example of PTSB. Yes, they can do it.

Part of the intention is to close off the option of selling the mortgage. Could it have the effect of forcing the banks to offer the write-down to the mortgage holder instead of the vulture fund? If they want to get a loan off their books, why would they not offer the write-down to the mortgage holder?

Mr. Ed Sibley

It is purely hypothetical, but if the banks were prevented from selling, they would have the same options available to them in dealing with a loan as the non-bank purchaser. We would expect them to try to re-engage with the borrower to the extent that they could do so, work through the individual circumstances and restructure appropriately according to the individual circumstances of the borrower and work it out as much as possible. If the borrower did not engage or if the loan was simply unaffordable, he or she would end up either going through the personal insolvency or legal process. I expect the process to be followed in the same way by a bank or a non-bank, regardless of where the loan resides.

It could include a haircut. I thank Mr. Sibley.

I thank the delegates for coming. They are most welcome.

The Department of Finance's submission states:

The Bill is overriding or abrogating vested private property rights. Constitutionally, this can only be done in a proportionate manner and where justified by the exigencies of the common good. After consulting with the Office of the Attorney General, the Department of Finance is of the view that the interference proposed by this Bill is disproportionate and therefore unconstitutional.

Essentially, on balance, so far there seems to be a complete clash of views between the committee and the delegations. Their view of the vested private property rights under discussion in this context - private property rights and the assets of funds - is that they are entirely superior to the rights of borrowers whose mortgages are being purchased by the funds. That is my reading of it and the delegates should correct me if I am wrong.

Both institutions have carried out some detailed work on the funds. Do they have studies of them that could be made available? If we could read them, perhaps they might give us a better insight into why the institutions are batting so heavily on the funds' side.

All of the supporting documentation is in the same vein.

I am sure the Department of Finance has carried out some kind of assessments of the funds which are buying in to Irish financial institutions, securitising debt and so on. On oversight of the banks and the Department, I am sure the Department has broadly considered the status of these funds and come to a view that they can properly buy the assets of Irish financial institutions. As I understand it, when one is carrying out due diligence on a matter one must look at what is happening all the way around in the transaction. Senator Kieran O'Donnell can correct me if I am wrong. Assuming that the Department has done the work on the funds, what has it done to assess the economic impact of the actions of the funds on distressed mortgage holders or non-performing loans? As Mr. Tobin stated, many of these people have restructured mortgages and they are paying them down. It is likely that the funds buy the loans at a discount of between 30 cent on a euro and 60 cent on a euro. I ask the witnesses to refresh their memories in that regard. I am sure Mr. Tobin is aware of the relevant figures for these acquisitions. What work did the Department carry out in terms of looking at the profile of mortgage holders who are adjudged to be non-performing even though their loans have been restructured and are being paid down? The crux of the dispute between members of the committee and the Department is that we cannot fully understand the perspective of the Department on this issue.

Mr. Gary Tobin

I will provide my viewpoint and the representatives of the Central Bank may wish to offer theirs. I thank the Deputy for her questions. On the constitutionality point which was the first issue raised by the Deputy, obviously, we consulted the Office of the Attorney General and it was on foot of that consultation that we came to the view that the Bill is disproportionate and, therefore, likely to be unconstitutional. The sale of mortgages is currently carried out with the consent of the owner. Consent is effectively irrevocably given pursuant to the mortgage contract when it is entered into. As the Deputy is aware, that tends to be what currently happens. When one takes out a mortgage, one signs the contract, the terms and conditions of which state that the mortgage may be sold on.

The extent to which property rights may be interfered with is, in our view, dependent on what is proportionate or, essentially, the extent to which the interference is justified and necessary. There is a justification to interfere with such rights in order to prevent the sale of a family home, such as in a case where the home is being sold without the consent of the spouse. The power to interfere with property rights in order to prevent the family home from being sold already exists in law.

Mr. Tobin is saying that if the borrower were married to the bank he or she would have a legal and proportionate right, but, as borrowers are likely to be married to another human being, that right does not exist.

Mr. Gary Tobin

The mortgage is owned by the bank, not by the person who took it out.

Mr. Tobin referred to spouses.

Mr. Gary Tobin

I did. What I am trying to say, although perhaps not very eloquently, is that one can interfere with property rights so long as the interference is proportionate. In the view of the Central Bank, there is a question as to whether the Bill is proportionate.

According to Deputy Pearse Doherty, it is not disproprtionate. However, in the view of others, it is.

On the analysis we have carried out in regard to the Bill, I would make the point that this is not our Bill. Rather, it was brought forward by Deputy Doherty. We have not carried out extensive research on the Bill because we never intended to put forward legislation such as this.

My question was whether the Department carried out extensive research regarding the funds acquisitions of the assets because, obviously, that has national economic implications.

Mr. Gary Tobin

To finish my point, we have not carried out extensive analysis of the Bill. We sought TO respond to the issues raised in the Bill in recent weeks when we were asked to appear before the committee. On the wider issue the Deputy asked around funds, perhaps Mr. Carville may wish to contribute.

Mr. Des Carville

We have information around the composition of portfolios that are sold and the pricing. Senator Horkan referred to a pricing level in the AIB transaction of 30 cent in the euro. I am unsure whether that is correct, although I am aware of reference to it in the media.

One reads of these matters in newspapers.

Mr. Des Carville

Absolutely. The bank or brokers commenting on that transaction stated that it was profit and loss neutral and resulted in a quarter percentage point increase to capital and was, therefore, capital accretive. We have much commercially sensitive information but I am unsure how much of it I may share as, ultimately, it is the bank's information. I am trying to see whether there is any way I could aggregate the information or try to help the committee by providing some kind of analysis on it. If it is acceptable to the committee, I will take that issue away and consider what we could usefully do in that regard.

Mr. Ed Sibley

We publish quarterly information on the profile of the accounts that are held by banks and non-banks, detailing loans without arrears, those with arrears, those in arrears for more than 90 days and those in arrears for more than 720 days. That information is split between bank and non-bank. We do a significant amount of work on mortgages within banks and non-banks. Most recently, we published the review of the code of conduct on mortgage arrears, CCMA, in the second half of last year. That was based on our work in non-banks and we can discuss it further if that would be helpful to the committee. Clearly, we will do more work in terms of the intrusive supervision which we undertake. We will continue to publish the data on what is happening in the system and, obviously, keep under review our ability to publish our findings from our ongoing work.

Ms Gráinne McEvoy

We published a report on the CCMA in October of last year. As members are aware, the CCMA is a statutory code that seeks to ensure that the interests of borrowers who are in or facing arrears are protected. The main finding of the review was that for borrowers who engage with their bank or non-bank lender, the CCMA is working effectively and as intended, particularly in regard to the sales of loans by regulated lenders to what were, at the time, unregulated loan owners. As has been mentioned on several occasions, the data contained in the CCMA report indicates that there were 110,000 restructures and that 87% of those borrowers are meeting the terms of their arrangements. The report also found that banks and non-banks continue to put arrangements in place and engage with borrowers throughout their relationship with them. In addition, it found that banks and non-banks have frameworks in place that support borrowers through transparent and open engagement and communication with the borrowers.

We have found that existing arrangements are honoured. When a loan sale is affected and a portfolio of loans is sold from a regulated bank to a non-bank the finding, at the point in time in October of last year, was that the existing arrangements are and continue to be honoured by the non-bank.

The constitutional issue seems to be the major difference between the committee and the Central Bank. Do the witnesses accept that there are competing rights in the Constitution? Do they accept that it is now widely held internationally that shelter is a fundamental human right? That right is recognised in the international convention on economic and social rights. It has also been recognised constitutionally in a series of court cases down the decades, for instance, that the vested private property rights do not always trump public rights, human rights or the social rights of the Irish people. It may be decided that a road or something like that is a public necessity and, therefore, a compulsory purchase of land may be in order to give effect to the road. The witnesses have told us about focusing on the transactional nature of the sale to the funds. What they are not telling us is what thoughts or examination they have given to the people whose mortgages are being sold on? Do the witnesses agree that economic precariousness is one of the great difficulties of this era? Jobs have become more precarious, people's access to housing, reasonable rent, affordable mortgages and so on has not become much more difficult in Ireland and globally, possibly, partly as a result of securitisation of a lot of financial assets.

It has become one of the fundamental threats to working democracy that one does not have a situation where there is an appropriate balance between the single individual, family, couple or person who entered into a mortgage and the financial institution with which they entered into it. That is why the committee has frequently focused on some protection of customer rights. Have the witnesses any sense of what they could offer to customers, who possibly were loaned too much money back in the day by banks that were very careless and subsequently went bust? Very often that situation was not the fault of the people who took the mortgages because stuff came in their letterboxes telling them how much they could borrow and so on. There is a context and history to how so many people got into difficulty. Do the witnesses have something additional to offer somebody who already feels precarious because they have been in mortgage difficulty and possibly lost their job? We know from all of the different hearings that the witnesses and ourselves have attended that people struggle to re-establish themselves financially. A lot of the people who are paying are doing that. Is there something that the witnesses can offer people who are concerned about the vested private property rights? They might also show an equal concern for the precarious situation that mortgage holders are finding themselves in. Instead of improving, unfortunately, the situation seems to be getting worse rather than better.

Mr. Gary Tobin

We are civil servants so we are simply trying to give the committee our view on the Constitution, as it is currently written, and particularly on Article 43 in terms of private property.

I am sure that it is no surprise to the Deputy that private property rights, under the Irish Constitution, are very rigorous. I am sure there have been many debates in the Oireachtas over many decades on whether those rights are too strong or strong enough. We are simply trying to give the committee our view on the constitutional provisions as we understand they now exist. Obviously it is a matter for the Oireachtas and Government if they wish to propose constitutional amendments on shelter for-----

That is a point of view. Is Mr. Tobin suggesting that the Department's point of view is that property rights trump individual, human, family, personal and social rights? There is a very wide constitutional view that those rights have a very significant status. We recognise private property rights but we also recognise human rights in terms of individuals, families and children. It is a matter of huge distress to many people at the moment that the number of homeless children is continually increasing and children now spend a long time in homelessness. One of the reasons people on the committee feel strongly about the Bill is that as this is now growing with the securitisation of an increasing amount of financial assets people who end up having to give up their homes, as a consequence of these sales - and this is what people are terrified about - will end up homeless with their children. There is a view in the Constitution on human rights as well as property rights.

Mr. Gary Tobin

Again Deputy, I am not trying to suggest that one type of right trumps another. As has been previously said by a number of people, I am not a constitutional lawyer. We are merely trying to put forward the fact that there are strong property rights in Ireland's written Constitution. That is a consideration that needs to be taken into account in terms of this Bill and is intended to be helpful to the committee. It is a statement of fact really. I do not know if the Central Bank representatives want to say anything.

Deputy Burton's time is up.

Yes. Does Mr. Tobin accept the following? Article 43.2.1° states: "The State recognises, however, that the exercise of rights mentioned in the foregoing provisions of this Article ought, in civil society, to be regulated by the principles of social justice." Article 43.2.2° states: "The State, accordingly, may as occasion requires delimit by law the exercise of the said rights with a view to reconciling their exercise with the exigencies of the common good." There is a view of property rights in the Constitution. I do not think any of us has any problem with that. We want to see the exercise of balance. As the Department of Finance is tasked with the economic good of Ireland I reiterate that precariousness in a modern economy, not just in Ireland, is one of the features that would appear to be undermining democracies. Democracy is also an absolute value of the Constitution. I recognise that the Department of Finance's first brief is the economic. The Department also has a brief to consider what is happening to Irish society in terms of the common good. Does the Department have any suggestions to offer? The committee would love to hear how we can balance the rights, and reflect and endorse the rights of the individuals whose mortgages are being sold on and who feel even more precarious, as a consequence of reading in the newspaper and knowing from other media, that it is likely these particular funds may well sell on within a timespan of five to seven years. This is like the sub-prime stuff in the United States; when it was first talked about in Ireland people could not even believe that it would exist here.

We are, however, looking for a solution that would allow the Bill to give comfort to those affected in order that they would be less among the precariat.

Mr. Gary Tobin

Again with the proviso that we are not constitutional lawyers, the important point is that any provision in legislation that relates to vested private property rights needs to be proportionate. We are certainly not convinced that the measures proposed in the Bill are proportionate. It is important to consider a proportionality test in connection with the Bill.

The issue of society becoming more precarious is a concern. In considering the Bill we have been careful to think not only about those in mortgage arrears but also about others with mortgages and those who one day would like to get one. The circumstances of all the people concerned could be described, in a variety of ways, as precarious from time to time. They also need to be considered in terms of the possible implications of the Bill, should it be passed. It is important that we do not just think about one category of mortgage holder. When we are thinking about legislation potentially as radical as this, we should think about the implications for all categories of mortgage holder.

I do not know how Deputy Pearse Doherty feels about this, but the media coverage of the Bill in the statements from all of the usual suspects rained heavily on him this morning. The language used could equate to an effort to scaremonger in getting the message out about banks not being able to raise money, interest rates going up and the next mortgage applicants not being able to apply to obtain a fair deal. The coverage was absolutely horrendous and unnecessary. We came here to listen to what the Central Bank and the Department had to state about Deputy Pearse Doherty's Bill and learn from it to determine whether we could in any way make progress on it, with the co-operation of the Department. However, the Central Bank and the Department of Finance have a very set view on it. Rather than getting lost in the legislation before us, let us examine what it is trying to achieve. It appears that we are up against the right and might of the bank. Do the delegates believe a person with a loan has the right to know where it sits and who owns it?

Ms Gráinne McEvoy

The provisions of the Central Bank's codes require that the borrower know the initial lender and that if the lender wishes to sell the loan to anybody else, it tell the borrower the name and address of that party, at least two months in advance. Equally, if the loan is to be serviced by another party, the contact details of that party are also given. That is very clear.

Recent sales have been characterised by a hierarchy of companies. There is the first purchaser and then there is the beneficiary. There is a confusing structure in terms of where the loan and its benefits will finally end up. We do not know and certainly the borrower does not know.

Mr. Ed Sibley

We touched on that a little earlier. It is critical that borrowers know who they are engaging with and who they should deal with if they have queries, want to discuss their particular arrangements or need to engage regarding their particular circumstances if in difficulty. It is absolutely a requirement.

Who owns the note at the end of it?

Mr. Ed Sibley

I appreciate the sentiment of the question. The nature not only of the financial system but also of the corporate system is such that beneficial owners are often far away from the company someone might be dealing with.

That is fine. I want to know who they are. If my loan with a bank is sold to another party, I might know who that party is in Ireland and who I have to deal with but I do not know who owns the note at the end of it. I do not know the reach of all of this. The Irish people have a right to know. Mr. Sibley might refer to the construct put on purchases by the banks and others in the world of finance but I am asking whether the borrower should know in the first instance. Are we prepared to allow the banks to hide behind all these entities? The borrower should ultimately know the party he or she is dealing with.

Mr. Ed Sibley

Again I appreciate the thrust of the questioning. The reality of the situation is what it is. I appreciate what the Chairman is saying and this is why we have focused on ensuring it is clear whom the borrower has to deal with. The requirements of the entity the borrower is dealing with are the same regardless of whether it is a bank or a non-bank. The regulatory requirements-----

But Mr. Sibley is not addressing the question.

Mr. Ed Sibley

I genuinely understand the thrust of it. As much as we could, we have tried to ensure the identity of the owner is clear but it is a matter of identifying the owner of each vehicle and who the shareholders are in the banks. It is a question of how it all comes through. It is part of how the system operates.

Should we not know all of that? It is a great mystery to the individual, who is not well versed in the language of the world of finance. Further mystery and secrecy are added by virtue of the fact that a party who is benefiting from the loan, by way of profit from the sale of the loans, is not known to the individual. Mr. Sibley might say that is the way it happens in the world of finance but we should examine what happens in the world of the individual and the rights of that individual.

Mr. Ed Sibley

What we are very focused on is making sure that, regardless of the ownership structure, the entity engaging with the borrower is subject to the same requirements, regulation and codes-----

Essentially, we are never going to know. That is really what Mr. Sibley is saying. We are going to get just enough information but not all the information. That is the nature of it. It is a matter of answering "Yes" or "No".

Mr. Ed Sibley

The legislation passed last year will give more information about an entity that is located, registered and regulated in Ireland. How far one can get beyond that-----

We do not know and we will not know. The next matter is the right of the individual to speak to the fund or representative of the fund, and the right of that individual not to be treated as a second-class citizen when dealing with that company.

I have to tell the Central Bank and the Department that the agents of the funds who are here, regulated and so on have a history of treating people very badly. It is not possible to get in touch with them directly by phone. If a person talks to one individual today, he or she might talk to another individual tomorrow. A customer who repeats the same story over and over and expresses a desire to have his or her rights fulfilled and information given is constantly stalled in that process to the extent that people now have to get financial advisers or solicitors or come to people like me and other Members of this House and the Seanad as they cannot deal with them. What infuriates me is that the Central Bank gives its side of the story, as it were, without acknowledging that there is a real problem which cannot be papered over any longer. When an individual writes to the Central Bank, it will not take up his or her case or comment on it. The person then writes to the Department, but it is driven by policy and so on. Who is going to stand up for the customer and his or her rights?

Mr. Ed Sibley

We were asked to submit our view and come here to give an opinion. We have given our view, in which I think we have been balanced in trying to look at the issue in the round, particularly the protections in place for consumers. I am talking about owner-occupiers primarily in respect of the coverage of the Customer Contact Management Association. As for the information provided for us, I have read all of the submissions the committee has sent to the Central Bank which we very much encourage and welcome. When we receive submissions from individuals, they form part of our approach to ongoing supervision. We will continue to do this. There are other protections for individuals, including the Ombudsman. We will continue to engage with them to make sure systemic issues are dealt with-----

The Central Bank is the go-to entity for a customer who wants to make a complaint. I have seen more written and heard more said about the rights of the banks than I have about the rights of the consumer, which concerns me greatly.

Mr. Ed Sibley

With the greatest of respect, what I have tried to outline - if I have not done it successfully, I am happy to try again and continue to try to do so - is the amount of effort and work we put in to ensure all borrowers are protected, regardless of circumstance. The approach we have taken through all arms of the Central Bank to make sure those borrowers who are in distress - a very large number in distress are protected - are being dealt with in a humane fashion, that their individual circumstances are taken into account and that they are offered restructures to deal with their individual circumstances and put them on a sustainable path. That has not been possible for every customer, but more than 110,000 owner-occupier mortgage accounts have been restructured. There are still unfortunately - it is desperately unfortunate - some borrowers in deep arrears who continue to need to work through the problem.

Yesterday I met a woman - she was not from my constituency - who had a thick file and was well versed in the world of finance. She told me that she had failed to get to anyone within one of the main banks to influence it in the context of a decision in her case. She was in her tenth year of trying. I come across a lot of such cases.

Some people quickly ignore that and say they are cranks or they are mad or whatever, to discredit the individual. The number of cases I am coming across is increasing. Hence the purpose of Deputy Doherty's Bill. That is not the only Bill. There were several other Bills all trying to do the same thing, all responding to the cry from people around the country for further protection. If the protection was as good as Mr. Sibley describes, these Bills would not be coming forward. The answer is always the same.

I want to move to the right to negotiate with the bank because this is critical in the context of Deputy Doherty's Bill. The banks are not engaging in the way they are pretending to. Too many people are telling us the same story about the lack of engagement for it to be true that they are engaging. They are, therefore, not engaging the way they should. What is wrong with forcing every bank to work out a sustainable position for the loans where they can? In the context of that right for an individual to work out the loan, why do the banks not do that? They do not use the full extent of the options they have.

Mr. Ed Sibley

There are considerable protections and requirements in place, more so for owner-occupiers than investment properties. Some of the correspondence I have seen has related more to investment and buy-to-lets than to owner-occupiers but there are considerable protections. There are requirements in place for banks to be engaging with their borrowers. The evidence across the system is that they are. Many other protections and supports are available. We can see an increasing use of the insolvency service and personal insolvency arrangements, which are being put in place to support borrowers who are in distress and, in the vast majority of instances, keep them in their homes.

I am suggesting to Mr. Sibley that a large number of people are finding it difficult to engage with the banks. They do not return phone calls, they take forever to deal with issues, and they wear down the individual so that at the end of it, he or she is beaten. If an individual is beaten by the system, having tried it, his or her family is beaten. It has terrible social consequences.

Mr. Ed Sibley

I genuinely understand the pain and distress associated with this. I urge them to continue to write to the Chairman and other representatives, who, in turn, would continue to write to us and we will continue to engage on the evidence that is put in front of us of problems in the banks. I do not see how that is solved by this Bill, which is about-----

No. I am trying to bring to the Central Bank's attention the reason for the Bill being here. The reason for this and the other Bills that are coming before us is Oireachtas Members are being approached by individuals who are telling us this story. We hear about the stress. We witness them crying with their children, in courts all over the country in the context of repossession. Deputy Doherty's response to it is this Bill. The response of the Central Bank and the Department of Finance is that they are doing all they can, the whole world will cave in if they do anything to upset the banks and Bills like this are left behind because when all fruit fails, bring in the Constitution. That will surely scuttle the Bill.

Mr. Ed Sibley

I made no reference to the Constitution in my opening statement.

I did not say Mr. Sibley did. I am saying this to the Department of Finance. That is what is going on here. It is amazing how quickly Mr. Draghi, I think it was, wrote to us.

Over there, they jump out of their skin to protect the banks by writing to committees such as this but whenever we try to protect the citizens of the State against a banking system that brought us to our knees, we get no response whatsoever. They have loads of opinions when they want to undermine the efforts of this House to bring about a balanced situation for people who are desperate, who have had to go before the courts and who have been bullied and intimidated by banks and the people who represent them.

In an earlier remark to a member, Mr. Tobin said he was here to speak truth to power. I think I am speaking truth to power on behalf of the people I represent. It seems to me that the banks have all the cards and they are dictating what happens. The citizen is looking for some tilt in that balance, so they can feel we are there for them, we understand their pain and we will do something about it. The world will not fall in if a version of the Bill which Deputy Doherty is bringing forward were to pass in the House.

Mr. Gary Tobin

That is the Chairman's view. We have tried to set out, in a clear way, what we feel are the likely implications of this legislation. Clearly we disagree on this. There are a lot of borrower protections in place in Ireland. There is a very, very low level of repossessions relative to other European countries. I have no doubt there are people who, as the Chairman described, are in mortgage difficulties and are experiencing extreme hardship. That is a terrible fact but, over the past number of years, there have been concerted efforts by various Governments to improve the situation. I am sure there is still more that can be done and we are certainly open to ideas. Unfortunately, we cannot come in here and tell the committee that this is great legislation when we think there are substantial flaws in it.

I accept that but I ask Mr. Tobin to accept that what he is telling us, and the statistics he has given, are not the full story. There is another side to this, which other members of the committee and I have described during this meeting and others. We are simply asking that what we say be recognised.

Deputy Burton made a point about the Constitution and the citizens of the State. By ignoring the plight of those people who are so marginalised by this State, it undermines the State and its institutions. Someone has to reach out to ensure that this body of people are assisted, by legislation or regulation, to have a life in spite of their bad mortgage. They went into a bank for a loan of €100,000 and came out with one for €200,000 and one or two cars. One cannot say it was the people who were at fault because they were all at fault, including the Central Bank, the Department of Finance and us as politicians. We are making an effort to ensure this is reasoned out and that those who want to pay, rather than those who do not, get a fair deal from their bank.

As a shortcut, however, the bank, with the sanction of this House, is able to dispose of loans overnight. In the context of Deputy Doherty's Bill, I am simply asking that the Department of Finance look at the social consequences of this, and not just concentrate on the financial institutions within a silo. There are social consequences to homelessness, kids on the street, families in hotels, 140,000 on our housing lists, and buy-to-lets being sold with people being asked to leave by the banks.

Mr. Gary Tobin

I agree with a lot of what the Chair said but the State acted very responsibly in many ways throughout the financial crisis, which was terrible in Ireland, to prevent large-scale repossessions. A lot of forbearance was shown to people in mortgage difficulties. This was hugely important for keeping our society together during a very difficult time. We are open to suggestions and ideas, but we can only give an honest opinion of this legislation, which is what we have been asked to do. Some of the matters the Chairman raised are policy matters for the Government of the day and we serve the Government of the day, whichever party is in power.

Does the Department serve us on this committee?

Mr. Gary Tobin

I would like to think we serve the Government and the Oireachtas and we have tried to assist in the passage of a number of Private Members' Bills. The Government has to agree to support legislation and the Department has to give an honest view of what we feel are the implications of proposed legislation. We are open to suggestions and ideas and the Central Bank is also open to looking at-----

It is all the one club. Why would the Department go against another member of the club? This is what people say. They say the Central Bank ignores the public and the plight of people. Perhaps the committee could have a full day's session with all the affected people and give a voice to everything that is happening, on both sides of this argument. I will put that to members at our next meeting.

I am trying to understand one particular point. The ECB gave us the money that helped us out in the crash.

Mr. Ed Sibley

There was a combination of financing. Some €140 billion was from the eurosystem so it came through the ECB, and funding was provided - primarily but not exclusively to Anglo Irish Bank - for emergency liquidity assistance.

Where did that come from?

Mr. Ed Sibley

That was, effectively, from the Central Bank of Ireland.

The money from Europe came through the Central Bank to the banks.

Mr. Ed Sibley

I am not entirely sure of the arrangements that were in place at that time but I believe it effectively came through us. I will have to confirm it and get back to the committee on that. It would have been funded by the eurosystem, rather than directly by the Central Bank.

Was the money backed by the loans of the banks? Were the loans taken as security for the funding?

Mr. Ed Sibley

Yes. A total of 40% of the funding from the eurosystem was backed by mortgages, while the rest was backed by other collateral such as other lending and Government bonds. Emergency liquidity assistance is granted where the quality of the collateral is not high enough for eurosystem funding.

There would have been other types of collateral, including ultimately the promissory note.

If these mortgages were put up against the loan from Europe, who was selling the mortgages? Was it the Central Bank or the group of banks?

Mr. Ed Sibley

Mr. Madouros may wish to explain.

Mr. Vasileios Madouros

Some of it would be securitisations. A bank would have sold the mortgages to a special purpose vehicle, SPV, which would then have issued securities that were retained by the bank. Those securities were then pledged as collateral with the eurosystem.

Does the Central Bank benefit from these sales? When a bank undertakes a sale to a fund, the Central Bank has an interest in it because there are mortgages involved that the Central Bank has put up as collateral for eurosystem money.

Mr. Ed Sibley

The Irish banking system had acute liquidity challenges at the time. It posted collateral, and needed to do some engineering in order to do so, with the ECB. That resulted in eurosystem funding being provided to the banks in order for them to maintain liquidity and be able to honour deposits, for example. They would pay interest on those loans in the same way as interest would be paid on any loan. They were borrowing from the eurosystem and paying interest on those loans, but I would differentiate that entirely from the private transactions under discussion.

If the Central Bank has mortgages as collateral and they are then sold by a bank, must the Central Bank release them?

Mr. Ed Sibley

The bank would have to pay back the borrowing in order to release the collateral and sell them.

That is what I mean. Let us say a vulture fund is paying bank A for 200 mortgages and the Central Bank has 100 of those mortgages-----

Mr. Ed Sibley

When I say "we", I mean the Central Bank and the eurosystem. The Chairman is referring to an historical point in time. At the height of the crisis, there was €140 billion of eurosystem funding.

Mr. Des Carville

Less than €5 billion.

I am sorry. What is less than €5 billion?

Some €140 billion was effectively borrowed through the ECB. That borrowing is now less than €5 billion. Does the Central Bank include the €30 billion promissory note in respect of Anglo Irish Bank's emergency liquidity assistance, ELA, in that €140 billion?

Mr. Ed Sibley

I think it is outside that. We are discussing eurosystem funding.

That is not quite-----

Mr. Ed Sibley

The ELA would have been on top of that.

I would not put that in the same category.

Mr. Ed Sibley

It is completely different.

With due respect, including the Anglo Irish Bank amount would not be putting like with like.

Mr. Ed Sibley

I can check the figures, but I think-----

I apologise for digressing. It is a technical point.

There is no release of mortgages in that sense.

Mr. Ed Sibley

No. If it was the case that there was still €140 billion borrowed and collateral was posted against it, that borrowing would have to be repaid before there was a sale.

The banks have paid back the eurosystem.

Mr. Ed Sibley

Compared with the height of the crisis and immediately before that, the banking system is much smaller today. There has been a considerable amount of deleveraging of balance sheets. As part of that, the eurosystem borrowing has been almost entirely repaid.

Is borrowing on the interbank market now functional?

Mr. Ed Sibley

Pre-crisis, much of the irresponsible lending that we have discussed was funded through secured and unsecured borrowings in the wholesale markets where there was ample and loose liquidity.

When that started drying up in 2007 and 2008, the banks simply could not fund the assets that were on their balance sheets. That is when we got into a sharp liquidity squeeze. They had to borrow from the eurosystem. When its criteria for lending money were considerably expanded, that gave banks, and Irish banks in particular, time to put themselves on a more sustainable, secure and resilient footing. Much of that work has been done, but there is still a little left to do.

Could the witnesses provide us with some-----

Mr. Des Carville

I have a lovely graph on this. It is on our website. One can see the whole ELA funding and how it is broken down. I will send it to the committee. It is nice.

If Mr. Sibley has any further information, he might add it to that.

Mr. Ed Sibley

Sure.

Given the arrangements that have been provided, selling to a fund should be a measure of last resort. The banks should have within them the skill sets to sort out these loans. They should have a responsibility. They undertook irresponsible lending. The ordinary mortgage holder looks at this and sees the banks getting off the hook for their mistakes by flogging the loans on to a fund. The loans are gone and not the banks' problem any more. There is a view among many people that the banks did not do enough in terms of putting arrangements in place for hard-pressed mortgage holders.

In some jurisdictions, instead of selling mortgages to funds, they are extended to 30 or 40 years and measures are put in place to keep people in their homes and restructure the banks' balance sheets. People have attachments to their respective institutions. They are Irish based. The witnesses might point out that their shareholdings change, but there is that degree of familiarity.

This is in the Central Bank's domain. Let the banks take responsibility for their reckless lending by putting in place alternative, longer term arrangements. Many of the people who approach us ended up with mortgages that they should never have got. Rules have been introduced and people say that they find some elements draconian. The rules are not perfect, but there are elements that are working. People believe that selling to funds is effectively a get-out clause for the reckless lending of individual banks so that they do not have to take responsibility for giving out loans that they should never have supplied. The loans are being sold on to a fund. Ordinary people are very nervous that their loans could be sold on time and again and that they would end up having no idea who they were dealing with. Does Mr. Sibley understand? Reverting to the Chairman's original point, how do we improve the lot of the person who is hard pressed and ensure that his or her loan is dealt with by the institution that made the loan to him or her on day 1 and that it takes responsibility for its actions? The borrower is required to fulfil his or her requirements under the terms of the loan. We are coming to a point where the banks are getting their second wind but many of those people whom we are dealing with are not. Does Mr. Sibley understand my point? Has the Central Bank examined ways of restructuring loans into having much longer durations and encouraging the banks to come up with more imaginative approaches instead of just selling loans on to funds?

Mr. Ed Sibley

There was a great deal in the Senator's question.

I am trying to be constructive.

Mr. Ed Sibley

I understand that. Ultimately, there will be different views on whether banks have done enough. If one thinks about where we were in-----

Based on the tracker-----

Mr. Ed Sibley

Will the Senator will let me finish?

Mr. Ed Sibley

The height of the number of people who were in distress and the number of accounts that were in difficulty was 2012 and 2013. Let us compare that with where we are today.

It is clear that significant effort has been made for mortgage holders and small and medium sized enterprises, SMEs, when one compares the number of people in distress and accounts in difficulty today to the position that pertained at the heights of 2012 and 2013. Some might not like the outcome of that or how that engagement has worked, but a huge amount of restructuring has been done. Approximately one owner-occupier mortgage account in six that is held within the banks has been restructured and approximately nine out of ten of those are meeting the terms of that restructure. Such loans started being restructured in 2012 and 2013, at which time many of them were interest only, part payment, or to which temporary forbearance applied. The dial changed on that because of the engagement of the Central Bank, this committee and other State agencies to ensure that the solutions being put in place to help borrowers stay in their homes were addressing the underlying issues. Measures such as a period of short-term forbearance to give the borrower time to get back on his or her feet, longer-term forbearance in restructuring the loan through split mortgages, extending the terms, arrears capitalisations and economic concessions have been put in place and there is much evidence of it happening.

We still have a circumstance whereby, unfortunately, too many borrowers are still in distress.

Mr. Ed Sibley

There is a legitimate question being asked by this committee and the Oireachtas as to what is the approach to dealing with those borrowers who are still in distress.

Mr. Ed Sibley

Many borrowers are very deeply in distress and the question is how that can be addressed. There are potential solutions. I look at what is coming out of insolvency services. I am sure insolvency is a very difficult process to go through but much work is being put in by the Oireachtas in setting up that process and refining it to ensure it is working effectively. More people are using that.

The most important thing is for borrowers in distress to engage with their lender, whether a bank or a non-bank, because they are required to do so. I appreciate the Chair's comments on that topic. The lenders are required to consider the individual circumstances of the borrower and are required to try and put in arrangements which work for those individual circumstances. We will always listen to and look at evidence where that is happening because a bank or a non-bank is required to do that.

What is Mr. Sibley's view on an extension to a 30-year or 40-year mortgage? What happens if someone in a 15-year mortgage cannot meet the requirements and they are spread out over a much longer period? I know that can become intergenerational.

Mr. Ed Sibley

Term extensions are relatively prominent although not quite as prominent as capitalisations or splits. The danger of term extensions is that it puts the borrower in a circumstance where the overall cost of credit is going up because they are paying interest for longer. Another question that arises is how a borrower will pay if their term of repayment pushes into retirement when his or her financial circumstances have deteriorated. Term extensions are a valid and viable solution but need to be tailored to the individual borrower's circumstances.

Mr. Sibley is not adverse to term extensions.

Mr. Ed Sibley

Absolutely not and they are happening. I would be concerned if term extensions were all I saw because it would indicate that the individual borrower's circumstances were not being taken into account.

Does Deputy Pearse Doherty want to say anything in conclusion?

May I ask a couple of questions to finish?

Yes, and we will wind it up then.

I apologise because I had to take something in the Dáil Chamber for a few minutes but I will read the transcript of the portion of the meeting I missed.

I particularly welcome the comments in the Central Bank's submission in appendix 3. It goes into the detail of some of the definitions and issues around enforcement and regulations, which is helpful as we continue to look at this legislation. I welcome that.

Mr. Sibley spoke about the impact of this Bill on financial stability and there has been much commentary about that. I outlined earlier that the intention of the Bill was not to deal with the issues of securitisation or the impact thereof, ECB collateral and a number of those other issues he identified. He said that would go a long way to addressing the concerns of the Central Bank.

Appendix 3 of the Central Bank's submissions deals with some of the definitions. Is there anything else, in Mr. Sibley's view, that needs to be addressed? The core part of this Bill prevents a lender transferring a loan directly to a third party, whether a vulture fund or otherwise, without consent. If the committee determines, based on its own legal advice and the committee's view, to pursue this legislation, does Mr. Sibley want to add anything else? I made the point earlier that it is my intention to have that area which was of greatest concern to the Central Bank excepted from the legislation.

Mr. Ed Sibley

That is certainly an area of significant concern for us. We have a broader concern about the functioning of the market for all. The retail banks in Ireland, certainly the domestically-owned ones, are currently largely deposit funded. There is a restriction on the banks' ability to raise funding from a Eurosystem perspective, as well as a potential restriction on being able to exit the market for new entrants. That is something to bear in mind. We have talked about that already but I wanted to make sure there was no misunderstanding.

We have concerns from a financial stability perspective as to what would happen in the event that a bank was to get into difficulty. How will this Bill interplay with a resolution and what would happen after a resolution event, or if we were dealing with a firm that was likely to fail? I appreciate there is some mention of that in the legislation. We have concerns as to how we would deal with a particular circumstance around financial distress. Mr. Madouros or Ms McEvoy might like to come in with specifics.

Mr. Vasileios Madouros

There is a comment here about looking at this in the context of the bank recovery and resolution directive, BRRD, which will update the resolution and recovery perspective. The Bill could be looked at next to the new BRRD regulation.

Ms Gráinne McEvoy

The point has been made on a number of occasions today but the Central Bank fully supports a full impact assessment of the consequences, or unintended consequences, of the Bill. That is a sensible measure.

I am only one member of the committee, albeit the sponsor of the Bill. I have talked about the issues which the Bill was crafted not to impact and those need to be clarified, but if that was accepted, why would there then be a need for a wider impact study? I understand that if the intention of the Bill was to impact on securitisation, or ECB collateral, or different ways in which the banks can secure finance such as covered bonds and so on, there would be a wider impact but this Bill is straight up and down. Under its terms, a bank cannot sell to a vulture fund or another bank without the agreement of the customer. I heard Mr. Sibley's sensible comment about a bank exiting and that needs to be dealt with. Where are the wider impacts of the legislation if those other areas are exempt?

Ms Gráinne McEvoy

It has to be bottomed out as to whether the Bill adds significant value or additional protections for consumers.

We have heard a good deal here today about the impact and the perception that consumers have of vulture funds or non-bank borrowers. It might be beneficial to do some assessment of whether there were any unintended consequences for consumers arising from the Bill.

I asked a question earlier and I want to tease it out. If the special purpose vehicle that bought the 6,000 loans from Permanent TSB decided tomorrow morning to notify customers that it would increase the standard variable rates by 2.5%, what could the Central Bank do?

Mr. Ed Sibley

We do not have responsibility around interest rate setting. I appreciate the risk the Deputy is raising. We are not seeing evidence of that today. We have had this discussion with Deputy Michael McGrath on another Bill relating to variable rate mortgages.

We have not seen it. There is a question around unfair contracts and whether it would amount to abuse of contract in such circumstances. Clearly, we would be very engaged if that was happening, but we have not seen it to date.

The point is the banks have the power. The banks and the funds have the power.

Mr. Ed Sibley

Subject to the terms of the mortgage, if it is what would generally be called a standard variable rate mortgage-----

Has the Central Bank ever seen a standard variable rate mortgage that limited the ability of the bank?

Mr. Ed Sibley

No, I was agreeing with the Deputy.

This is the point. We talk about regulation and the code of conduct and so on. I accept that they are in place. I accept the two entities are regulated in exactly the same way, although special purpose vehicles might be exempt from the regulation but I will highlight the issue another way. Is AIB likely to put up my standard variable rate loan by 2.5%? Which organisation is most likely to do that? That is where the risk appears.

Mr. Sibley may be able to clarify the point. I am hearing now that a fund that bought a certain number of buy-to-let loans from one of the banks – I will not mention the bank by name – is now issuing letters asking for the arrears to be paid within 30 days. If the arrears are not paid within 30 days then the organisation will appoint receivers. This is standard practice of the vulture fund now.

Mr. Ed Sibley

I am aware of the parliamentary question the Deputy submitted on the matter. It is difficult for us to get into the specific details at the committee. We will certainly respond on the specific question asked and we are engaged with that particular entity in respect of what is happening.

I appreciate what Mr. Sibley is saying. We have a sale by a main bank in this State to a vulture fund. It involves buy-to-let mortgages that were in arrears. The bank could do the same thing in the morning. It could have done exactly the same thing but it has not done so. However, I understand the vulture fund is doing it. Contractually, the fund has the right to instruct the borrower to settle the arrears within 30 days or it will appoint a receiver over the properties. That is why people do not want their loans sold to vulture funds.

Mr. Ed Sibley

I think it is important to distinguish between owner-occupiers and buy-to-let arrangements in terms of the level of protections. Clearly, we are talking about investment properties. The right to appoint rent receivers is in many of the bank contracts and has been exercised by the banks on rental properties already to a significant degree. We can argue the wrongs and rights of it but the ability to appoint a rent receiver is stitched into the majority of buy-to-let lending arrangements. It does not apply to all banks.

I am familiar with that and obviously a rent receiver in a place where a landlord is not passing on repayments is completely legitimate, but that is not the issue. This is nearly a strategic default. The idea is that the fund calls in all of the arrears within 30 days. That is next to impossible for someone who is trying to manage through an arrangement. These individuals are making repayments. However, the idea involves an instruction to clear up arrears in 30 days or else a receiver will be appointed. Then, when the fund appoints the receiver, it does not have to go through the court system.

Mr. Ed Sibley

Again, I do not know the individual circumstances. One would expect that if a borrower was engaged or up to date in terms of the restructuring arrangement agreed with the lender, then that scenario would not arise. However, I do not know the specific circumstances to which Deputy Doherty is referring.

I asked Mr. Sibley earlier about the April report by the Central Bank. The report identified that more than 50% of those in long-term arrears of two years or more are likely to lose possession of their homes either through voluntary surrender or repossession. Does the Central Bank still hold to those figures?

Mr. Ed Sibley

What we can see is that there are well over 20,000 accounts that are more than two years past due. A significant proportion of these are going through the legal process now. I am unsure how that plays through. Certainly, at the moment we can see from what is coming through the court system that not all cases go through the courts system. Less than half end up in a court order. Some are withdrawn or restructured or paid on the steps of the court. One can see that if a borrower is in deep arrears to that extent, the potential for loss of ownership exists. As I have said several times today and during other committee appearances, the most important thing is to try to engage with the supports in place. It is important to engage with the lender and use the advice and practical solutions from the personal insolvency service to try to keep it to a minimum. This is a harsh thing to say but at the end of the day, if we want a secure lending system – which I think is what we want on the basis of some of the other discussions we have had in these Houses - then that security has to mean something.

I have a final question for Mr. Sibley and then two questions for the Department. Does Mr. Sibley believe that a loan that is performing and has not fallen into arrears should be allowed to be sold? Should there be protection for such a loan so that it cannot be sold on without consent? Such safeguards are already in place in Austria and Denmark.

Mr. Ed Sibley

Maybe it would be worthwhile doing a real comparison across the jurisdictions of how the mortgage market works. It works very differently in different jurisdictions. We talked before about how there are long-term fixes in the system here and how they are funded. A great deal of really good information can be drawn from cross-country comparisons. I am genuinely of the view that we have a system today under which mortgages come through both banks and non-banks and that this will be increasingly the case. It is important that regardless of whether a loan has originated in a non-bank or was purchased by a non-bank, it should work in the same way. It is important that those involved comply and have the same code and regulations and requirements as the banks in terms of the treatment of the borrower. In that sense, I am okay with loans transferring.

Mr. Tobin has received a written submission from the Attorney General stating that the Bill is unconstitutional. Is that right?

Mr. Gary Tobin

There has been correspondence from the Attorney General. I am unsure whether I am allowed directly quote legal advice. Anyway, there is a serious risk that it could be unconstitutional.

There is a risk, which is fair enough. I see that as a fair comment. It is different from actually saying that the Attorney General is saying the Bill is unconstitutional, which is what some of the headlines have suggested. There is a risk.

We all know what the Constitution says. Property rights are protected under the Constitution but the protection is also limited. The real question is what is the common good and what are the limitations of social justice. That is what needs to be tested. Anyway, that is fair comment.

Does Mr. Tobin believe banks should adhere to the Central Bank's code of practice on the transfer of mortgages which, more or less, is this legislation?

Mr. Gary Tobin

The 1991 voluntary code of practice is arcane. It was put in place at a time when, as I understand it, building societies were demutualising and there was concern that if individuals' mortgages were sold, they could lose out on a windfall cash gain when a building society was demutualised.

When does Mr. Tobin believe it became obsolete?

Mr. Gary Tobin

Honestly, I do not know. That is my understanding of the circumstances surrounding its introduction.

When the then Minister for Finance, Deputy Noonan, answered a parliamentary question asked by the current Minister for Finance, Deputy Donohoe, he said: "Notwithstanding its voluntary nature, I expect that best practice dictates that the code be applied by all institutions to all classes of residential property." Did the Department have a view on that matter? Usually responses to parliamentary questions are signed off on by the general secretary of the Department. The Minister does not answer them without-----

Mr. Gary Tobin

When I hear the words "general secretary", I always think of the general secretary of the Communist Party, but it is the Secretary General of the Department of Finance. I am not aware of that individual parliamentary question, but the representatives from the Central Bank have said-----

I have made Mr. Tobin aware of it now and, like my Bill, it is nice and short. At the time the then Minister for Finance, Deputy Noonan, was the majority shareholder in three of the banks. I will read the response again. It states: "Notwithstanding its voluntary nature, I expect that best practice dictates that the code be applied by all institutions to all classes of residential property." The then Minister for Finance said this and obviously the reply would have been approved by the Department's general secretary or Secretary General; regardless of whichever version Mr. Tobin wants to use, it does not make much of a difference. The then Minister said the code should be applied. The change of heart seems to have occurred when somebody actually said: "Do you know something? Since 1991 no bank has ever applied this code and maybe we should do something about it." As soon as somebody says we should do something about it, officials are telling us that the sky will fall in.

Mr. Gary Tobin

I do not mean to put words into the mouth of the Central Bank. However, I believe it has stated the code is redundant and that it is intent on removing it. That is also our view.

Why did the Department sign off on it just seven years ago?

Mr. Gary Tobin

I honestly do not know. I was not working in the area seven years ago.

I ask Mr. Palmer if it was the view of the Department - obviously, it was - just under seven years ago that all of the banks should be applying the code, regardless of its voluntary nature, even though it now seems to have done an about-turn on it.

Mr. John Palmer

I will claim Mr. Tobin's excuse: I was occupied elsewhere in the Department. It is fair to say the issue certainly received much more attention and was studied more when the Deputy proposed his Bill.

We have had a long discussion. I thank the officials for their contributions and engagement which I hope will continue.

I thank both parties for agreeing to have a joint session. I again acknowledge the independence of the Central Bank.

The joint committee adjourned at 5.30 p.m. until 9.30 a.m. on Thursday, 4 April 2019.