Seanad Éireann debate -
Wednesday, 18 Dec 1963

Vol. 57 No. 5

Central Bank Bill, 1963—Second Stage.

Question proposed: "That the Bill be now read a Second Time."

Minister for Finance (Dr. Ryan)

The purpose of this Bill is to make three minor amendments in the Central Bank Act, 1942.

Section 1 will empower the Central Bank to acquire securities of the International Bank for Reconstruction and Development—usually known as the World Bank—which was established in 1944 and of which Ireland became a member in 1957. Countries which are members of the World Bank are expected to assist it to raise capital by investing in the securities it issues at market rates on the international capital markets. The proceeds of these issues go to finance the World Bank's activities which are mainly concerned with productive projects in the less-developed countries. Section 7 (1) (h) of the 1942 Act already empowers the Central Bank, for the purposes of or through its General Fund, to buy, hold or sell securities issued by or guaranteed by any Government. The members of the World Bank are Governments but because its securities are not directly guaranteed by member Governments they are not covered by Section 7 (1) (h) of the Act. It is, therefore, proposed to amend this section and to do this in general terms so that the Central Bank will have power, if it so desires, to acquire securities which may be issued by any other international bank or financial institution formed by Governments.

Section 2 of the Bill will replace the provisions in Sections 19 (4) (a) and 23 (6) of the 1942 Act which disqualify the Governor and Directors of the Central Bank from nomination or election to the Dáil or Seanad or as Uachtarán. The Constitution provides that every citizen who has reached his 35th year of age is eligible for election to the office of President; it does not provide that disqualification in this respect may be imposed by law. The provisions in the 1942 Act that the Governor and Directors of the Central Bank are ineligible for election to the office of Uachtarán could, therefore, be regarded as unconstitutional, and the Bill will repeal them.

The 1942 Act also disqualifies the Governor or a Director, while he holds office, from being nominated or elected and from sitting or receiving payment as a member of Dáil Éireann or Seanad Éireann. On the principle that the legislature should have first claim on a person's services, these sections are being replaced by provisions that the Governor or a Director of the Central Bank who is nominated, with his consent, as a candidate for election to either House of the Oireachtas, or is nominated as a member of Seanad Éireann, shall thereupon cease to be Governor or Director of the Bank, and that any person who is for the time being entitled to sit in either House of the Oireachtas shall, while so entitled, be disqualified from being or becoming Governor or Director of the Bank. The existing provisions are being repealed in Sections 3 (ii) and (iii) of the Bill.

Finally, Section 3 (i) of the Bill will remove the bar on the payment of interest on deposits made with the Central Bank by Ministers of State, public authorities and the commercial banks under Section 7 (1) (b) of the 1942 Act. This will make it feasible for these institutions to keep their liquid assets with the Central Bank rather than in London. Up to now, such assets were kept mainly in London because the Central Bank was not in a position to offer the inducement of an interest payment such as these assets could earn in London. It is clearly desirable that the Central Bank should be in a position to attract the liquid reserves of these institutions and thus strengthen its own capacity to discharge its functions as lender of last resort. I recommend this Bill to the House.

Mr. Lindsay

Insofar as the provisions of this Bill are purely fiscal, we do not see any objection to them and accordingly do not oppose them. The clarification of the law vis-á-vis the Constitution and the Act of 1942 relating to people holding certain positions, and thereby rendering themselves ineligible for membership of either the Dáil or Seanad, or for holding the office of Uachtarán, is a welcome clarification. It is a matter, however, which should be examined further in future legislation because it is rather difficult to grasp in the somewhat prosy passages of legislation why men cannot be trusted in dual offices, as it were. I do not suppose that is the full import of the matter. The Minister has pointed out that, as far as public service is concerned, membership of the Dáil or Seanad has the first claim, the purpose being to avoid any kind of clash of interest. The provisions would seem reasonable.

The provision enabling public authorities, the Minister and the commercial banks to keep their assets with the Central Bank rather than in London is a very desirable one. It is one which will be welcomed by every interest in the country. We welcome the Bill, as I said, and we do not oppose any part of it.

Professor O'Brien

There are three principal objects in this Bill. The first is to enable the Central Bank to purchase securities in the World Bank, or other international banks, the financial resources of which are issued by Governments. That is very commendable. It is something to which no one could object. The funds in the World Bank are used in the development of underdeveloped countries and it is pleasant to know that we are doing our share in that direction. One of the objectives of the Second Programme for Economic Expansion is that we should assist in the development of underdeveloped countries. By allowing the Central Bank to take shares in the World Bank we will be enabled to do our part in this wholly admirable work.

The second matter in the Bill is one on which I differ from the Minister, and have done so on more than one occasion. I really cannot understand why anybody should not be a member of the Central Bank and a member of the Dáil or Seanad. We have discussed this on many occasions. When any sort of new public authority is being set up, it seems to me that the parliamentary draftsman invariably and automatically, and without consideration, puts in a clause stating that members of the board of this new authority cannot be members of either the Dáil or the Seanad. Now that seems to me to be something that requires explanation. Surely experience gained in the Central Bank would be of considerable use to members of either the Dáil or Seanad in considering financial business. The experience gained in the Dáil or Seanad could, I think, add to the qualifications of a Central Bank Director.

It seems to be accepted in this country now that no one can take part in politics and in the administration of a State body at the same time. That seems to be accepted without question. I have raised this here time after time —I am, I think, the only person who has raised it—and I have had no explanation. There is no barrier in England to a member of the Board of the Bank of England being a member of either the Lords or the Commons. The Bank of England is a very much more powerful body than our Central Bank and, if it can stand the presence of parliamentarians, I really do not see how the administration of our Central Bank could be injured by the presence of members of either the Dáil or the Seanad. It has never been explained. No reason has ever been given for it. If any new Bill is being drafted to set up any new board, the parliamentary draftsman puts it in automatically. It has a very deleterious effect in keeping people with a great deal of business knowledge and experience out of the Dáil and Seanad and in keeping people with a knowledge of the political affairs of the country from taking part in the administration of the Central Bank.

The third object of the Bill is one of which we can all approve. It is to enable the Central Bank to pay interest on deposits. In the Central Bank Act, 1942, the Central Bank was authorised to accept deposits from banks and certain other institutions, but not from the general public. That section was drafted on the report of the Banking Commission published in 1938, of which I was a member. In those days it was usual for central banks not to pay interest on deposits. Since then, there has been a change in world practice. This section simply brings our Central Bank into line with what takes place in other central banks.

It has the advantage that the liquid assets of the associated banks and other credit institutions can be employed in Dublin instead of in London. At present, credit institutions with liquid assets have either to deposit them in the Central Bank without interest or to employ them in London. This will enable them to deposit in the Central Bank and to get a rate of interest on their deposits. It is quite possible, of course, that the Central Bank itself may have to invest these liquid assets in the London money market. However, that is a question that does not arise on this Bill.

It certainly is an improvement that the depositors in the Central Bank, who do not include the general public, should receive interest on their deposits, just as the people who make deposits in the ordinary banks do. It should be made clear to the Seanad that these powers are purely permissive. There is nothing in this Bill to force anybody to make deposits with the Central Bank and nothing to force the Central Bank to take them. It is a minor alteration, but it is in the right direction. It increases the powers of the Central Bank. It tends to make the country financially more autonomous and to give the banks the possibility of deriving some interest on their liquid deposits in our Central Bank instead of employing them in London.

To my mind, the disqualification of members of the Dáil and Seanad from sitting on the Board of the Central Bank is quite unjustifiable. Otherwise, this is an excellent Bill.

Professor Dooge

I should like to support Senator O'Brien's remarks in regard to Section 2. He has put the case quite squarely, that there should not be, in the case of a person considered eminent enough to serve as a director of the Central Bank, any doubt of his capacity to act both as a member of a House of the Oireachtas and as a member of the Central Bank. There is undue anxiety on this point. Members of the House only have to keep the last speaker, Senator O'Brien, in mind to realise that he is both eminently qualified and valuable as a member of the Seanad as he equally would be as a director of the Central Bank.

I want to go a bit further than Senator O'Brien. He has made the case that it would be wrong that a person be prohibited from serving in both capacities. But this section is even more restrictive and undesirable than that. This section does not allow a person who is a Governor or Director of the Central Bank to be nominated for either House of the Oireachtas. It is the mere act of nomination, and not the act of election, which disqualifies him from the governorship or directorship of the Central Bank which he previously held.

This is altogether intolerable. We could well have a case of a most eminent person acting as a Director of the Central Bank. He could be nominated by one of the vocational nominating bodies for Seanad Éireann. We know only too well what has been in the past the fate of several eminent people nominated by vocational bodies for election to Seanad Éireann. In these cases, nomination and election are two things with a very wide gap between them. Whatever case there is to be made for forbidding a person being a member of both Seanad Éireann and of the Board of the Central Bank, it is going altogether and utterly too far to put a prohibition on a person being at the same time a nominee for election to Seanad Éireann and a member of the Board of the Central Bank. I agree completely with the case Senator O'Brien made. Even if that case is not granted by the Minister, surely this particular section could be amended, so that the prohibition would operate only in respect of persons elected to either House.

Professor Quinlan

I wish to join with previous speakers in protesting against Section 2 of this Bill. It is something we have protested against many times in the past. Where a State board or other State company is set up, we see this infamous clause coming in at all times. In some Bills it appears somewhat less restrictive than this in that the disqualification begins when a person is elected to either House. I have noticed in the past two years a tendency to become more extreme and to make it a disqualification even to be nominated for the Dáil or Seanad.

It ill-becomes the Government or their advisers to insert such a clause at a time when all Parties are appealing for people to come forward and serve in Parliament. We are all too conscious of the many classes prevented from serving here. Public servants and local authority officials are either actively prohibited or de facto prohibited in that they cannot make the sacrifice involved. The Seanad is a place where, as Senator Dooge said, many men could serve with distinction while serving on another body as well. Certainly, this Seanad would be a far better place if some of the Directors of the Central Bank were here as members. I am sure they would lend enlightenment and guidance to many of our debates. To quote the example given by Senator Dooge, Senator O'Brien would be an ornament on the Board of the Central Bank if called on to act. Likewise, our Cathaoirleach, a distinguished economist, would be an ornament on the Board of the Central Bank.

I do not see any reason for this, apart from the growing tendency of our bureaucracy to try to arrogate to themselves an ever-increasing control over our public life. This anxiety to spread bureaucracy is shown by the effort to restrict membership of the Dáil and Seanad to a few classes of people—mainly self-employed people, such as farmers, publicans, shopkeepers and a few other categories. We cannot have a balanced Parliament when such restrictive practices are in operation. If it is right and proper, as I believe it is, that a distinguished civil servant can be a Director of the Central Bank, I cannot see the logic of saying that a distinguished parliamentarian cannot equally sit on that Board.

This is a section we will have to fight with all the resources of the Seanad on Committee Stage and right on until this Bill leaves here. In bringing this into an institution—the Central Bank—where it did not exist previously, the Bill is yet another step in the strangulation of our public life, and we should not subscribe to it.

Mr. Boland

The Minister should consider adopting the procedure followed in the case of ESB employees. At one time they could not be nominated and I am almost certain that provision was amended to enable them to be nominated. A member of the ESB was elected to the Dáil as a member of our Party at one time and the question arose as to whether he would lose his seat and whether there would be another election in that constituency. I think the relevant provision in the legislation was amended and the rule now is that a person may be nominated and that while he is actually a member of the Oireachtas, he may not remain in the ESB. The Minister might consider something along those lines.

Mr. Murphy

I am equally disturbed by the way this sort of provision seems to be automatically written into Bills coming before us but there is less to be said against the provision here than there is in regard to other semi-State undertakings that are dealt with in legislation. I should hope that the Central Bank would be more an instrument of Government policy in finance and economic development, an extension of the Government's arm. As such, there would not be a very good case for allowing Directors of the Central Bank to be members of the Oireachtas. As I say, this provision is not as objectionable here as it is in relation to other semi-State undertakings. Therefore, there is probably a better case for excluding members of the Oireachtas from the governorship of the Central Bank.

To come down to the section itself, I am wondering is it really operative as it is written. It says that if a Governor of the bank or a Director is nominated with his consent, he then automatically ceases to be Governor or a Director. Under recent electoral legislation, a person can now be nominated for a Dáil election simply by somebody putting his name on a nomination paper and depositing £100. I do not think there is any provision in regard to consent. I may be wrong but my memory is that there is no such provision. I have no ambition to deposit £100 in favour of any Governor or Director of the Central Bank but if my memory is correct, there could be a peculiar situation. A person could be nominated, £100 being deposited on his behalf. How do we deal with the question of his consent? Will he make a public statement saying this was without his consent or who will judge whether his consent is there or not? That is not covered in this section. My memory may be at fault and perhaps the Minister will say what is the exact position in this respect.

Mr. Fitzpatrick

I should like to add my voice to the protest made against Section 2 and in doing so, I should like to ask the Minister to tell us what principle, if any, is behind this section. I understood him to say in his speech that the section was thought desirable because the Oireachtas should have first claim on its members. Most of us here—in fact, I might say all of us—are part-time politicians. Most members of the Dáil are not members of that House on a full-time basis. All of us have other interests. Whatever may be said about having such a prohibition in the case of members of the Dáil, it is very hard to make a case for it in this House.

If we believe what we are told about this House, it is a vocational body, a non-political assembly. That is what we are told here from time to time when we speak about Parties. At any rate, the members of this House are elected on such a basis as to make it very unlikely that one member would have a very big influence on a vote. The Government of the day see to it in one way or another that they have an absolute majority. Therefore, I cannot see how a case can be made in favour of Section 2 as far as this House is concerned and, as has been said by other speakers, why it is necessary to disqualify a director just because he is nominated as a candidate for the Dáil or Seanad.

As Senator Quinlan has said, people have been nominated for election to this House and they did not get a single vote. The records will prove that. It might be a good thing to allow people who are eminently qualified to sit in this House to be nominated so that the electorate in general can see what happens. This principle has crept into legislation of disqualifying people who succeed in being nominated for election to Dáil Éireann from sitting on semi-State bodies. It is a bad principle and one which should be reconsidered at the highest level, with a view to deciding whether it should not be modified, if not abandoned altogether.

Mr. Yeats

I would certainly agree with those who have spoken on Section 2 so far that, generally speaking, sections of this kind are undesirable. Everyone nowadays will agree it is ridiculous that a minor official of some semi-State body should be prevented from being nominated for the Oireachtas or from being a member of it, but the position is entirely different in regard to Section 2 of this Bill and I certainly hope the Minister will not agree to make any change in it.

One of the most important factors in the financial and economic administration of the country over the past few years has been the existence of the Central Bank as a completely independent, non-political, non-Party body which is able to give advice to all Governments, irrespective of what Party are in power, and which, in fact, has severely criticised almost every Government in office since the Central Bank was first formed. Because of that, because of the very valuable service which it performs on an independent basis, it is very undesirable that there should be any suggestion that any Governor or Director of the Central Bank had even the remotest connection with party politics. I think that position is entirely different from the position of a minor official in the ESB perhaps. I think the fact of being nominated is as much an open avowal of party politics as being elected.

Senator Fitzpatrick made the point that it is conceivable that a non-political non-Party person could be elected to the Seanad. It could happen, but we must be realistic. Generally speaking, members of the Seanad have certain Party interests. Even if one visualises a completely non-Party member of the Central Bank becoming a member of the House, I am not at all sure that it would be a good idea to have a member of the Central Bank put in the position of having to make pronouncements in this House in the debates on the annual Finance Bill or other financial business. I think the whole value of the Central Bank is that they are not thrown into the public field. Their reports can be unbiassed. They are not connected with party politics, and they have not published debates or discussions of the kind that go on here. Therefore, this section while it is extremely undesirable in many other cases as we have seen from time to time, is entirely necessary in this case.

Mr. Desmond

It could be a very open question whether there could be certain regulations governing the Directors of the Central Bank, in that even if they were eligible for election as any other member of the community whether or not they might succeed in getting elected, their positions as Directors might not be just so simple. It is a very debatable point whether or not they would be eligible.

The Central Bank can be a very important institution in the work of the nation dealing with finance. I should like to hear from the Minister what part the Central Bank play in general, or intend to play, in directing the financial policy of the country. They have quite a lot of work to do. This is a rather burning question as it affects the people from time to time, especially people who need credit from the banks, or from what are fairly well known as credit companies, or from the local authorities, particularly where the interest rates charged on loans are concerned. I do not know how far the Central Bank have influenced policy, but they could make clear to the people what they think the interest rates should be.

The interest charges on borrowed money are regarded by sections of the community as a rather big problem. I might quote the case particularly of members of the community who build their own houses and have to borrow money from the banks or the local authorities, or from some person who has money to give them.

An Cathaoirleach

The Senator is going outside the scope of the Bill.

Mr. Desmond

I accept that, in relation to the exact proposals before us, but I was anxious to make that point to the Minister. The Central Bank can be very important in influencing policy and dealing with finances on a commercial basis, and with what the interest rates generally might be. The point has been made in different parts of the country that by the time a borrower has paid back a loan for the building of a house, the interest rate has involved him in the payment of almost double the price of the house. However, I am not permitted to proceed on that line. I was asked to get the Minister's views on whether the Central Bank would be able to advise on what interest rates might be.

Dr. Ryan

The big discussion on this Stage of the Bill has been on the question of the eligibility of members of the Oireachtas to be members of the Central Bank. We are not changing policy very much. We are only reversing it, as it were, because up to the present a member of the Central Bank could not be a TD or a Senator. We are saying now that a TD or a Senator cannot be a member of the Central Bank. In other words, the banks are making their own rules and saying: "We do not care who is a member of the Oireachtas, but whoever he may be, he cannot join this Board." In fact, it amounts to the same thing so far as policy goes.

All I can say is that this question of policy in regard to State boards has come up many times, and the major Parties seem to agree that it is undesirable that members of the Oireachtas should be eligible for membership of State bodies. I should not like to state categorically that that rule was made entirely in the interests of the country. There may have been some element of consideration for the Parties themselves. It might be awkward for Parties to be compelled, as it were, from time to time, to put a member on these boards.

I was never a very disinterested advocate on one side or the other of this question. One good argument I have heard against it is that they are put in a peculiar position because these bodies are subject to review from time to time by the Houses of the Oireachtas, especially when an amending Bill, such as this, is before the Houses. There is an opportunity for members to state their views with regard to the activities of the boards. It has been argued that if there were members of the Seanad who were also members of the Board of the Central Bank, their opinions would carry undue weight here in regard to the activities of those bodies. In other words, it would be difficult to expect an objective approach from members of the Seanad who were also members of those bodies. That is one good argument against it.

I am not altogether in favour of one side or the other, but I think that if we make it a rule that a member of the Seanad cannot be a member of the Board of the Central Bank, we must logically say also that if he allows himself to be nominated for election to Dáil or Seanad, he thereby disqualifies himself from being a member of the Board. That might not apply so very cogently to the Seanad as to the Dáil because one can imagine that when a person is nominated for election to the Dáil, he has to take part in electoral activities where his public statements and so on might not go so well for the board on which he is acting.

Senator Quinlan referred to the restrictive practices which deprive us of service on these boards, but if we look at it carefully, we will find the number is small. Taking all the State boards, I do not believe the number would add up to 100, and 100 people from this State are a very small proportion indeed.

Senator Boland raised the matter of ESB employees. I think employees are in a different category. It did happen on one occasion that a man was selected to stand for election for the Dáil and had to resign his job in the ESB. He was defeated in the election and found he could not get back his employment in the ESB.

That is a very good reason for making the amendment as far as employees are concerned, so that they will not lose their connection with the particular body with which they were employed unless they were elected, that the body would await the result of the election. In the case of boards, the situation is different. In practice, what happens is that a member of a board resigns; he goes up for election and if he fails, he goes back and asks for renomination.

Mr. Fitzpatrick

If there were a change of Government?

Dr. Ryan

Even with a change of Government, it has been done on a few occasions.

Mr. Fitzpatrick

I am very glad to hear it.

Dr. Ryan

In the new Electoral Act, the question of consent comes in; a board member seeking election to the Dáil must give his consent before he can be nominated because, as Senators are aware, the process of nomination is very much simpler than what it was and it would be bad if the consent of the person concerned were not given. Any two people can nominate a person now and therefore it has been made part of the procedure that the person's consent is given.

In Seanad elections, the situation is not quite so clear. It is laid down that the President must have consent before he nominates a person. I know that consent is not required in regard to university nominations but I am not quite sure how it applies in regard to the different panels. In this Bill it was thought desirable that consent should be necessary. Let us say the chairman of a board felt it was his duty to see that the law was carried out to the full. He might call on a member of his board to resign because he was nominated for election. Then if the person says he had not given his consent to such nomination, he is all right and he is not asked to resign.

A point raised by Senator Yeats was that in respect of this Board there might be something more to be said for the exclusion of members of the Oireachtas than in regard to other State boards. I agree. The Central Bank is a very important body in respect of which the Government are very much concerned. The Central Bank should, I believe, be expected to facilitate the Government. The Government do not require, and we would not expect, that the Central Bank should go beyond what is right and proper for such an institution.

As Senators are aware, the Government usually get a lecture once a year on the Government's activities for that year from the Central Bank. As far as I am concerned, I have always welcomed it, always looked upon it as a constructive criticism of what the Government have been doing. I have tried, as far as possible, to take this yearly lecture to heart.

Mr. L'Estrange

What about their advice of last June about the export balance?

Dr. Ryan

As I have said, I have tried to take the Central Bank's advice as far as possible and I would be very sorry that the Central Bank should be perhaps influenced in its lecture to the Minister for Finance because it had a few chauvinistic members of Fianna Fáil on its Board. That would be very bad in the end and I agree with Senator Yeats it is very important that members of one side of this House or the other should not be on the Central Bank Board.

The last point raised by the last Senator to speak was whether or not the Central Bank has any great influence in the country. I believe it has. It has not an influence on what the commercial banks do in certain respects, but before there is a change in the rate of interest, the commercial banks always consult the Central Bank and from my experience, I know that the Central Bank takes a very strong line in regard to rates of interest. Therefore, in that matter, its influence is felt by the commercial banks. I can say to the Senator, therefore, that the influence of the Central Bank is effective in many cases and I have no doubt that that influence will become more and more effective.

The last clause of the Bill deals with the payment of interest on the liquid assets of the commercial banks, among others. That, too, will give to the Central Bank more influence and more power. If Senators will look at the balance sheets of the commercial banks, they will become aware that our commercial banks hold a considerable proportion of their assets in foreign places, such as London. One of the results of that is that if a commercial bank here has a fair amount of money on tap and if a sudden movement takes place and they want to be in a position to pay, they must have liquid money, money they can lay their hands on immediately.

The only place at the present time for that type of source of quick money is the money market in London where a commercial bank here can invest money at call, as they say. They can call that money back in an hour's time, a day's time or two days' time, if they want it.

We are trying to build up that facility for our commercial banks here with the Central Bank. It is something that will have to be done gradually— it will not bear full fruit for a very long time—but I hope that in time a fair amount of the money now going to London to provide liquidity for our commercial banks will be held by the Central Bank. It must be remembered that for a long time the Central Bank will have to provide for its own liquidity but not to the extent of 100 per cent of the amount of money placed with it at the moment because it will be in the position that a number of the commercial banks will be depositing with it and the Central Bank would be safe in retaining at least a small amount of that money itself and still be retaining its own liquidity requirements.

Question put and agreed to.

Tomás Ó Maoláin

Is it agreed that we take the remaining Stages today?

Professor Quinlan

I do not like to press the point, but if we could leave over the Committee Stage until after Christmas, until some time in January, it would be possible for those of us who are very concerned about this prohibition section to go back over the legislation during the past 20 years and to trace the gradual growth of this prohibition clause so that the Seanad may see——

An Cathaoirleach

A discussion of that nature would not be in order on Committee Stage.

Professor Quinlan

If I put down an amendment to the section, I must give reasons for it, and in doing so, one would be tracing the gradual change in this position in legislation over the past 20 years.

Mr. Lindsay

In view of the largely constructive suggestions in regard to Section 2 that have been made, the most noteworthy coming from Senator Boland on the other side, I think possibly in the interests of the good working of the Seanad, the Minister perhaps might not ask for all Stages today unless there is some good reason why he wants this Bill immediately. I do not think it is right that Senators should be precluded from putting down amendments.

Dr. Ryan

I agree with the Senator.

Committee Stage ordered for next sitting day.