I move:
That Seanad Éireann approves the following Order in draft:—
Trustee (Authorised Investments) Order, 1983
a copy of which Order in draft was laid before the House on 14 October, 1986.
Trustee (Authorised Investments) Order, 1986: Motion.
The draft order before the House provides for amendments to the list of investments in which trust funds may be deposited unless forbidden by the deed of trust. Although some trust deeds permit a wide range of investments, other are restricted to those on the authorised list. In order to provide a wide range of suitable investments the list is amended when appropriate.
Under the terms of the Trustee (Authorised Investments) Act, 1958, the Minister for Finance may vary, by order, the list of trustee investments by addition or deletion after a draft of the order has been laid before the Houses of the Oireachtas and approved by each House. The Act requires that the following referees must be consulted in regard to the terms of the draft order before it is laid before the Houses of the Oireachtas:
A Judge of the High Court nominated by the Chief Justice; the Governor of the Central Bank; the Public Trustee; the Chairman of the Irish Banks' Standing Committee; the President of the Incorporated Law Society of Ireland; the President of the Stock Exchange — Irish.
These referees have been consulted and have raised no objections to the proposed order. The present draft order provides for three additions to the list — interest-bearing deposits in two banks: Ansbacher & Company Limited and Smurfit Paribas Bank Limited, and also units of Bank of Ireland Gilt and Bond Fund.
The Central Bank have recommended that trustee status should be granted to the two banks involved. The bank use the following criteria when assessing the suitability of a licensed bank for trustee status: the institution should be of high standing, have satisfactory capital levels, have a satisfactory record of compliance with Central Bank licensing and supervisory standards and have gross assets and gross domestic assets of at least £25 million in each case. The gilt and bond fund's policy is such that it invests only in securities authorised for trustee investments.
The draft order before the House also provides for the deletion from the list of deposit accounts with Royal Trust Company (Ireland) Limited which was formerly Royal Trust (Ireland) Limited. The bank ceased banking operations when its parent, a Canadian trust company, decided to wind up operations here as part of a rationalisation programme. No depositors or other creditors lost funds through this move as the bank was both profitable and solvent. I am satisfied that these amendments to the list of authorised investments are appropriate. I commend the motion for approval by the House.
We support this motion. As the Minister has stated the order is to provide a wide range of suitable investments. The list is amended where it is appropriate and that is very important. My only concern is that there might be a loss of funds to the depositors. I understand from the Minister's speech that no depositors or other creditors lost funds through this move as the bank was both profitable and solvent. According to newspaper reports over the past few days, bank profits are enormous. I spoke on this issue last Wednesday with regard to the entire banking system in this country. While I know this motion does not directly relate to what I said, I would still like to draw the attention of the Minister to the banking system. Some alternative facilities should be provided in order to accommodate the business sector in this country, but that is not directly related to this motion which I endorse.
I support the motion. There are a few general comments I wish to make in relation to it. I have been encouraged to make these observations in view of the two institutions that are being added to the list, Ansbacher & Co. Ltd. and Smurfit Paribas Bank Ltd. There is a continental ring about both these institutions. I believe they are German and French. I presume Ansbacher are a German bank. I believe the prevailing rate of interest charged by the German banking system to its customers is less than 6 per cent at the moment, which is approximately one-third of the rate that the licensed commercial banks charge for operations in this country. I want to give every advantage to Ansbacher arriving on this scene. I would like the Minister to comment on what restrictions are being removed. Are there restrictions to prevent Ansbacher from making their German Marks available to the businessman in this country at the German rate? If not, why not? I would not be surprised if we are obliged to make this order in relation to these two banks because of our involvement in the EC. I never cease to wonder as far as banking and interest rates are concerned that, while it would be reasonable to assume that we should have all the benefits of membership, this is one area where we have failed to gain any advantage.
The banks are having a very good recession.
I feel we are doing this because it is part of our obligation as members of the EC. Perhaps the Minister will tell me if I am wrong in that. If we are why are there other aspects of banking to which the business community are denied access? It is our membership of the EC which is responsible for having this matter before us today. There should always be balance. It was always the intention that there would be fair and open competition for everybody. If we are providing a facility to a German and a French bank which was not available prior to the making of this order, I am asking the Minister, that having extended that facility, are there restrictions on these two EC banks from providing the entire range of banking facilities to the Irish community which they provide to EC citizens in their countries? If that is not the position there is something seriously wrong and perhaps we should consider rejecting the making of this order. There is far too much of a grey area here which has existed for far too long. We are extending a facility here by virtue of our obligation as members of the European Community. Restrictions should not exist on one side or the other. This will become a very live topic when we begin to discuss the Single European Act.
I am afraid I might hear somebody suggesting that the Minister nationalise them and then we would be in a lot of trouble.
With these comments and on the clear understanding that the banking system right across the EC with all its advantages is open to everybody in the community, I am happy to support this motion.
I am glad the House has welcomed the motion. Senator Lynch mentioned the question of the deletion which arises in the motion. I can assure the House that there is no problem there. The bank in question made a normal commercial decision in an honourable fashion and discharged its obligations in winding down its operations.
On the question of bank profits generally this is an issue which perhaps should be discussed by the Houses of the Oireachtas in all its phases and manifestations. We are merely touching on a very minor aspect of banking in relation to this motion. There are different views in relation to bank profits. Some people look on bank profits as being an indication of the strength of an economy. Others will say that banks need to make profits to ensure that they can discharge their responsibility to their shareholders but, more importantly, that they can build up their reserves. On the other hand there are people who will suggest that bank profits are excessive. It is too wide a subject to get into because whatever side one is on there is a contrary point of view.
I would prefer to take the view that where an economy is recovering it is an indication of that recovery to see banks having substantial profits and engaging in wider expansion operations which some of our banking groups have done. However, it is a very broad issue and rather unrelated to this motion. Perhaps it is worthy of full debate in the House. I will be glad to come back for such a debate if the House so decides.
Senator Howard referred to the two new additions to the list. Despite the name — perhaps from a family point of view there may have been Teutonic origins at some stage — the bank in question, Ansbacher, is a wholly owned subsidiary of the Ansley family trust which is an American concern. Effectively the headquarters are in America but Ansbacher & Co. Ltd. is registered and licensed here. The other bank, Smurfit Paribas Bank, is in fact a joint venture between Smurfits and the French bank Paribas which is the thirty-first largest bank in the world and the fifth largest in France.
On the question of the type of business these banks do there should be an understanding that they are commercial banks. They are not retail banks in the sense of the major associated banks. That is the correct name for the big banks with branches throughout the country. These banks are not involved in what is referred to in the UK as high street operations. They do not have branches around the country, they do not have current accounts, their main business is in dealing in large scale operations with the commercial and business sector.
Senator Howard touched on the question of interest rates. We should be a little careful here when we compare the money market rates, for instance in Germany, as opposed to the rates here. The important thing to be borne in mind is that there is no restriction on business in borrowing abroad. Of course they carry the exchange rate risk. That is a factor that has to be borne in mind, and obviously is borne in mind, by business and commercial operations in deciding where they will arrange their borrowings.
It is interesting to note that in the most recent report of the Central Bank there is a reference to the strong shift in the currency composition of bank lending. There is the observation that in the seven and a half months to mid-August of this year lending in Irish Punts fell while foreign currency denominated credit increased by a sum of £442 million. They state that this at least in part reflected the significant difference between IR£s and D.M. interest rates. The point raised by Senator Howard is valid in that in fact already from the business point of view there has been some shift to borrowing in foreign currencies.
I do not know if the Cathaoirleach, wants me to go into the whole question of the interest rate situation here and the problems associated with it. It is a little bit far from this particular motion. The House is probably fully aware of the impact of public sector borrowing on the domestic market and the effect that has on interest rates. It is also fully aware of the effect of any proposals to increase public sector borrowing and the impact that would have on domestic interest rates. It is no harm to take the opportunity to reiterate the absolute relationship that exists between public sector borrowing and the level of domestic interest rates. It is very easy to draw the conclusion that if public sector borrowing is curtailed it will have the impact of bringing down interest rates. On the other hand those who suggest that there should be substantial increases in such borrowing must do so in the full knowledge that it will probably force interest rates up.
I have chased after a few of the hares that have been raised here. The debate brings home the need for a full scale discussion in relation to banking and interest rates generally. It would be very useful to have such a discussion in the House at some stage. I conclude by reiterating the purpose of this motion — to provide a wider range of authorised investments for trustees. That is essentially what we are about. Obviously the additions which are now proposed have been carefully checked out and are put forward in the full knowledge and confidence that they have passed muster with the resident bodies. From that point of view it is, I believe, in the interest of everybody that the motion go through and that these particular additions be included.
Question put and agreed to.
Sitting suspended at 12.55 p.m. and resumed at 2 p.m.