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Seanad Éireann debate -
Wednesday, 25 Feb 1976

Vol. 83 No. 11

Building Societies Bill, 1975: Second Stage (Resumed).

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

This is what might be described as a Committee Stage Bill. Senators generally will agree with me that the basic objectives of the measure is to modernise and improve the law relating to building societies. I am happy to say that the Bill has been welcomed generally by the Irish Building Societies' Association. Also I feel that investors with the societies and borrowers from them will appreciate that we aim to safeguard their legitimate interests. I accept that in a major measure like this, updating legislation enacted a century ago, there must be scope for improving the text as originally drafted.

It would have been quite easy for me to continue to examine proposals put before me as to how the legislation should be drafted. I could spend the next 12 months or two years drafting legislation and then bring in what I might consider to be a perfect specimen before the House, and find that everybody would be prepared to drill holes in it. Rather than do that, having got what I consider to be in a relatively short time, the best possible draft, I opened by saying that if the House considered that amendments should be made I would consider them and if at all possible, if I thought they would improve the legislation, I would be only too anxious to accept them.

It is on that basis that the Bill has been put before the House this evening. Discussion has been prompted even since the Bill was drafted, because it is amazing how people who do not consider it necessary to make any suggestion when there is no activity will suddenly find they have a lot of wonderful ideas as soon as they see something written down. As soon as the Bill was printed and became available to the general public a lot of people came forward with suggestions and so did the Building Societies' Association, and indeed the borrowers, who are a very important section in this, and we tend to forget their interests in it. As a result I have approximately 50 amendments. Following this evening I would not be surprised if we will have as many more from Members of the House. Possibly mine will dovetail with theirs and if so we will all be very happy. I will be prepared on Committee Stage to consider very carefully any suggestions they wish to put forward with the aim of improving the Bill.

Senator Lenihan criticised the undue degree of control envisaged under sections 37, 38, 76 and 77, and especially the powers to be given to the Minister for Finance. The Senator provided part of the justification for these controls when he mentioned that assets of the societies exceeded £300 million and they are growing rapidly, because as secondary banking institutions the societies must be subject to controls similar to but not as rigid or continuing as commercial banks. But in fact the societies themselves already accept the disciplines of the necessity for preserving responsible liquidity rates and reserves so that we have got from them, having had quite a lot of discussion with them, agreement that control is needed in their interests as well as in ours and in the interest of the people who lend money.

Following the representations from the Irish Building Societies' Association I will be proposing official amendments to sections 37, 38, 76 and 77 which will modify the nature and level of what Senator Lenihan called bureaucratic controls over the society. Perhaps it is not the best thing to have a Minister looking over the shoulders of what any society or organisation is doing, but in view of the experience over the last few years I think it is necessary because as somebody said— I am not quite sure who—what we are aiming to do is to bring the standard of the worst of the societies up to that of the best and try to have it fairly uniform. I have no hesitation in saying here, as I said outside that we did have rogue societies, we had societies who had no right to be building societies. It is our object to prevent people from setting up building societies and attempting to carry on a building society with no respect for anything except their own interests and the interest of the people who are lending money and the people who were borrowing money were not being taken into consideration at all.

Senator Lenihan strongly criticised the controls envisaged by sections 76 and 77 and particularly the powers to be vested in the Minister for Finance. This is an area in which I am prepared to recommend some modification of the controls proposed in the Bill as introduced. In section 76 I am considering a proposal to give the initiative in relation to management controls to the registrar rather than to the Minister for either Local Government or Finance and I have in mind also a fairly substantial relaxation of the controls proposed in the first draft of section 77.

Senator Lenihan suggested that the oversight of building societies might be given to the Central Bank. I suggest that before pressing this point on Committee Stage he might test the support which his proposal would get from the societies. I think that they would not be too happy about that. Somebody else—I think Senator Alexis FitzGerald—referred to the fact that there was no ministerial control over the Central Bank. That is something I regret from time to time, but the law is that there is no ministerial control over the Central Bank and that is something which perhaps in the years to come somebody coming after me might decide to do something about.

I agree with Senator Russell that controls over the societies should be kept to the minimum compatible with their position as one of the principal custodians of public savings, and particularly of small savings. It is extraordinary the number of small savers who have transferred their savings to the building societies from other investments, and indeed from in the country districts what was described for many years as under the bed— because that is where an awful lot of people kept their money, in a mattress or in a box under the bed or something like that. They just did not bother putting it anywhere.

The only safe place.

It is not so safe now. A lady in New York lost a lot of money in a handbag the other day. Many people find that they can invest safely with a building society and that in addition they do not have to pay income tax on the interest. This is a very important matter. The small savers are interested in this, and because they do not have to pay income tax on their savings with the building societies very many people have transferred there. The result is that there is a big upswing, and I am very happy to see this happening because the amount of money which is made available for house-building last year and this year of course is very encouraging.

I share Senator Russell's appreciation of the responsible attitude of the long-established societies which have helped so considerably with the Government housing programme. I was interested in Senator Martin's comment about a Minister being anxious to build a couple of thousand houses taking the money from the societies and doing that. I did not do that. What I did, and I make no apology for doing it, was to make it clear in the very early stages to responsible societies that accepted it that I did not want money which was invested with the building societies to be spent otherwise than for building houses. I did not want it used to buy farms of land or pubs or hotels. I have no apologies whatever to offer to anybody for that and the responsible societies were as anxious that this should be done as I was myself.

It was not personal.

As long as he stopped putting it under the bed.

I do not care where they take it from as long as they get it legally and invest it in building. I am aware that because certain controls proposed in the Bill have not been available some very important societies reached a position of insolvency within the past two or three years. But for the intervention of some of the major societies a crisis would have resulted which could have undermined public confidence in the whole building society movement. Some of the stories about building societies which were spread around a couple years ago did a tremendous amount of harm to them. One rotten apple in the barrel can do an awful lot of harm and it did in the building society case. However, they got over that.

Senators may also be aware of the emergence since this Bill was first mooted of mushroom societies which had neither the resources, the expertise of the level of public responsibility of the older societies. It is to deal with these matters that controls must be available. Though Senator Russell said he felt the amount of money which would be required from people setting up a new society or one which had been set up since the publication of the Bill was very large, I believe it is necessary to ensure that the people who are setting up building societies will be able to guarantee the money invested with them.

Senator Russell asked if it was necessary to have the word "permanent" incorporated in the title of a building society. It is not, of course. With regard to the trustee status, this matter will be decided by the Minister for Finance and it would be wrong to assume that trustee status will be confined to the so-called big five. I expect that any sound society which comply with the requirements in regard to reserves and liquidity will be considered for trustee status and the provisions of the Bill will facilitate this.

Senator Martin spoke of the need to strengthen the office of Registrar of Building Societies, and this Bill will do that. I intend to move some amendments on the Committee Stage which will considerably extend the powers and functions of the registrar. The Minister for Industry and Commerce has other independent proposals under consideration for amendment of the Friendly Societies Bill which will incidentally also increase the status of the registrar. As Minister, I would be glad to transfer as many as possible of the functions of overseeing societies from the holders of my office to the registrar. Senator Martin also referred to the situation in Britain, but under the Building Societies Act, 1962, in that country the functions of the registrar must be carried out by him subject in practically every case to the consent of the Treasury, so he is not as free as Senator Martin would suggest. He has Big Brother looking across his shoulder all the time.

That is right. That is as it should be.

I do not take the point that in some peculiar way Senator Martin feels that an official from the Treasury or somebody else would be better fitted to oversee than a Minister of State. However, perhaps on Committee Stage we can have further discussion about it.

We have no time to discuss it.

Not tonight. It is the intention of section 38 to broaden the area of investment for building societies so that the societies will get a better return for the money which they have invested.

I think those are the matters that were raised. I am very grateful to the Senators for the way in which they dealt with it. I am looking forward to the discussions which are likely to take place on Committee Stage. If I have 50 amendments and you are able to knock up another 50 we will have a lively couple of weeks here. The approach to the Bill by Senators so far has shown that they are as anxious as I am to see a Bill coming out of this House and the Dáil which will be a model. As I said at the beginning of the discussion I believe it will be a milestone. The only promise I can give Senator Alexis FitzGerald is that if in 80 years' time I find there is something wrong with it, I will come back and amend it.

Question put and agreed to.
Committee Stage ordered for Thursday, 18th March, 1976.
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