Seanad Éireann debate -
Thursday, 18 Jun 2009

Vol. 196 No. 3

Financial Services (Deposit Guarantee Scheme) Bill 2009: Second and Subsequent Stages.

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

Minister of State at the Department of Finance (Deputy Martin Mansergh)

This Bill is one part of a two-stage package, the other being a complementary statutory instrument, which the Minister will make as soon as the Bill has been enacted, to amend and update the Irish deposit guarantee scheme, DGS, in line with the Government's announcement of 20 September last.

The main provisions of the Bill are to empower the Minister to make regulations prescribing the amount payable to an eligible depositor of a credit institution which fails and to empower the Minister to prescribe by regulation the contribution to be made by credit institutions to the Central Bank to fund the scheme.

The follow-on statutory instrument to be made by the Minister will increase the statutory limit for the DGS for banks and building societies from €20,000 to €100,000 per eligible depositor per institution; abolish the requirement for the depositor to bear the first 10% of his or her loss; extend the coverage of the scheme to credit union savers; reduce the minimum payout period within which duly verified depositor claims must be paid from three months, which can be extended by a further nine months in exceptional circumstances, to 20 working days and with the possibility of an extension of a further ten working days in exceptional circumstances; and make various other amendments, mainly of a technical nature, to update the 1995 scheme.

It is a very short Bill and almost half of its sections consist of provisions lifted from the existing 1995 statutory instrument, which is the basis for our deposit guarantee scheme. The provisions in question are being switched to primary legislation so as to give them a more secure legal basis. While the Bill itself is short, its importance lies in the fact that it gives the Minister the power to extend the provisions of our deposit protection arrangements to the 419 credit unions, which are currently outside the scope of that scheme and to give effect to reforms required by the EU, such as ensuring a quicker payout in the event of a credit institution failure.

I might briefly touch upon the background to deposit protection arrangements. The guaranteeing of deposits was pioneered in the US, with the creation of the Federal Deposit Insurance Corporation in 1934 in the aftermath of the Depression. In Europe and other developed countries, despite some precedents dating from the 1930s, it was not until the 1970s that deposit protection schemes started to become a feature of the institutional framework. Ireland came relatively late to this type of facility. The Central Bank Act 1989 established a deposit protection scheme involving the Central Bank setting up a deposit protection account and transferring to that account 0.2% of deposits of the licensed banks held by the Central Bank. This was repealed in 1995, when a new EU-wide scheme was established under the 1995 regulations, which I mentioned earlier.

The basic intention behind a deposit protection scheme is to reassure small and relatively unsophisticated depositors that there is a safety net that will enable them to recover all, or at least most, of their savings in the event of a failure of a credit institution. This reassurance, in turn, helps to reduce the likelihood of a run on an otherwise solvent bank, and thus helps to contribute to the stability of the financial system. A deposit protection scheme is not, of course, intended to cope with a systemic financial crisis. In such a scenario, Government intervention to restore confidence might be necessary, as we have seen both here and in other countries over the past year. Thus, deposit protection schemes are seen as just one part of the financial safety net, but they can be helpful in protecting an otherwise solvent institution from failure.

In the wake of the turmoil that has affected the global financial system over the past two years or so, there is a general acceptance that deposit protection needs to be enhanced, and also that information, funding and immediacy of payment are important factors in ensuring the effectiveness of a deposit protection framework in supporting confidence in the banking system. No doubt, economists and financiers will say the soundness of the financial system rests upon effective regulation and supervision by independent supervisors, together with adequately high levels of institutional development covering corporate governance, transparency, accountability and deterrence. Whatever about having robust systems of financial regulation in place, developments over the past few years have also highlighted the risks to financial stability if deposit holders are not assured of timely access to their funds in the event of their bank failing.

The EU directive which gave rise to and still underpins our current deposit protection arrangements specifically prohibits state funding of such schemes on state aid considerations. The industry itself is required to bear the cost. In Ireland, the scheme is funded by a contribution by credit institutions of 0.2% of bank deposits. These contributions are maintained in a deposit protection account at the Central Bank and Financial Services Authority of Ireland, CBFSAI, and the current total in the fund stands at €670 million. Should a compensation event arise subsequent to the failure of a credit institution, and if the funds in the deposit protection account prove to be insufficient to meet the required payout costs in full, then the Exchequer would have to step in on a temporary basis to ensure prompt payment of depositors. However, it would then have to recover the cost concerned from the industry as quickly as possible.

All institutions authorised by the Financial Regulator to carry on banking activities here are required to become members of our deposit guarantee scheme and to hold a balance in the deposit protection account at the CBFSAI. There are currently about 50 such institutions which have been so authorised by the Financial Regulator. To sum up, what the Irish deposit protection scheme guarantees is to compensate eligible depositors up to a maximum of €100,000 per depositor, per institution. It covers deposits held in current accounts, demand deposit accounts and term deposit accounts with banks, building societies and, as of last September's Government announcement, credit unions also.

The Government decision last September to increase the guarantee limit from €20,000 to €100,000 was prompted by a number of factors. First, there was the significant uncertainty in international financial markets at that time, and which had begun to play on some people's fears regarding the security of their savings in Irish financial institutions. Second, given the passage of time since the guarantee limit was last changed almost ten years ago and the very substantial growth in the number and value of deposits, the case for raising the payout ceiling of €20,000 had been clear for some time. Finally, the case for an increase in the limit had been made by various Members on both sides of the Houses of the Oireachtas.

The decision to remove the co-insurance requirement, whereby the depositor carried 10% of the loss on his deposit, was a necessary amendment because of the public's heightened sensitivity to the broader savings protection debate and, in particular, people's fear of losing even a small portion of their savings because of a credit institution becoming insolvent. It was important to remove any incentive for people to withdraw their deposits from credit institutions and to reassure those with relatively small deposits, in particular, that all of their savings would be protected.

As regards the extension of the scheme's coverage to credit union savers, this was based on the need to provide a level playing field for all depositors. In this connection, it should be noted that the Irish League of Credit Unions has, since 1989, operated on an all-island basis a savings protection scheme, or SPS, for credit unions. The SPS has to date operated on the basis that it stood ready to provide financial support to any of its member credit unions that got into difficulty. Fortunately, it has never been necessary for the ILCU to carry through on that promise, as no credit union has become insolvent and no member of a credit union has experienced any loss of shares or deposits. Nevertheless, last autumn there was a genuine concern that any difference in treatment of depositors could potentially have been very damaging for any class of credit institution which was considered by the public at large to have had inferior deposit protection terms, thus explaining why the decision was made to apply this scheme to credit unions.

It is important to stress that this legislative package complements the more comprehensive guarantee made under the credit institutions financial support scheme in October 2008. That wider guarantee scheme provides a State guarantee for all deposits and certain liabilities of the guaranteed institutions to the extent these are not covered by existing deposit protection schemes in the State or any other jurisdiction. In short, depositors must first claim from the deposit guarantee scheme and then move on to claim any balance from the credit institutions financial support scheme.

Accordingly, notwithstanding the wider scheme to safeguard the banking system, this reform must still be progressed in its own right, given the legal requirement for a compensation claim to be made first upon the deposit guarantee scheme. It is also important to emphasise that, whereas the credit institutions financial support scheme applies to the seven covered credit institutions, the deposit guarantee scheme applies to all credit institutions authorised in this State, and this now includes credit unions which did not previously benefit from statutory deposit protection.

Before I describe in detail the provisions of this Bill, I will explain why there has been some delay in bringing forward this legislation to confirm the reforms announced last September. The primary reason for that delay is that, just as we began to draft legislation to give effect to our own domestic reform, the EU Commission published its own proposal to amend the 1994 deposit guarantee schemes directive. The main elements of the Commission's reforms were, as with our own proposed changes at that time, an increase in the ceiling on pay outs and the abolition of the co-insurance requirement option. Other critical reforms announced by the EU in October related to the deadline within which compensation has to be made. As our deposit protection arrangements were based on the original 1994 EU directive, it made sense to cover our own domestic changes and the EU's reforms in the one legislative package.

The Government was of the view that its decision of 20 September 2008 on our own domestic changes to our deposit guarantee scheme provided a sufficient safeguard in the interim period. However, once the EU directive was finalised and published on 11 March 2009, steps were taken to finalise drafting of the necessary legislative amendments and to get the Bill published as quickly as possible.

I will now describe the main provisions of the Bill. Section 2 empowers the Minister for Finance to make regulations prescribing the amount of compensation payable to a person maintaining deposits with a credit institution. Its purpose is to give effect both to our own protection ceiling increase and to the recent EU amending directive on deposit guarantee schemes. It provides the power, however, to prescribe a higher level of coverage up until 31 December 2010 than that set out in the directive - the directive requires countries to increase coverage to €50,000 immediately, with a further increase to €100,000 from 31 December 2010.

Section 3 confirms the establishment of the deposit protection account in the CBFSAI, and was already catered for by Regulation 4 of the existing regulations. However, this is an example of a provision which is being incorporated into the Bill to ensure that it is safe from any legal challenge. Section 4 empowers the Minister for Finance to prescribe by regulations the amount of the deposit which a credit institution shall lodge to the deposit protection account in respect of its participation in the scheme. It also enables the variation by order of the amount payable by a credit institution or credit institutions or a class or classes of credit institution. The current level of contribution is set at 0.2% of a prescribed deposit base. It is not proposed to change that figure at this time, having regard to the significant charges already being levied on credit institutions participating in the separate, wider bank guarantee scheme.

Sections 5 and 6 deal with annual recalculation of the amount of deposit and charges on the deposit protection account respectively. They are being transferred from the existing regulations in order to strengthen the scheme.

Section 7 permits the payment of aggregate contributions on behalf of a group or groups of credit unions, and is being incorporated to facilitate the existing structure of the movement, and the administration of the scheme itself by the Central Bank, as it will facilitate a bulk payment in lieu of a plethora of small payments by individual credit unions.

Section 8 is being introduced to cater for a situation where, in the event of the insolvency of a credit institution and the funds available in the deposit protection account which funds the DOS not being sufficient to meet the required payout, the Central Bank might cover the shortfall with its own resources on a temporary basis. However, as ECB rules prohibit such monetary financing other than on a short-term and urgent basis, this section provides that the Exchequer will recoup the Central Bank for any outlay within three months. In turn, the remaining credit institutions would, over time, as the deposit protection account is replenished, repay the Exchequer.

Section 9 deals with offences and penalties and is currently set out in regulation 27 ofS.I. No. 168 of 1995, but is being switched into primary legislation so as to give it greater legal certainty. The text of the provision is also being updated.

Section 10 is a standard provision about the laying of regulations before each House of the Oireachtas.

Section 11, Amendments to Central Bank Act 1942, signposts some technical changes listed in the Schedule to the Bill.

Section 12, as well as setting out the Short Title, provides that section 4 of the Bill, namely, the amount to be maintained in the deposit protection account in so far as it applies to credit unions, shall come into operation on such day as the Minister for Finance may appoint by order.

Clearly, it will be necessary, after the passage of this legislation and the follow-on statutory instrument, to have further discussions with the credit union movement for its admission into the scheme from an administrative perspective. Lest there be doubt in anybody's mind, credit union savers now are and will continue to be covered up to the €100,000 compensation limit which the Government announced last September.

Once again, I emphasise the importance of having this Bill enacted in sufficient time to enable the follow-on statutory instrument under the provisions of this legislation to be made. Those regulations, in turn, must be commenced in law by 30 June to meet the EU's deadline for the transposition of its amending directive. The co-operation of Senators across the floor in helping to meet this deadline is fully acknowledged and is greatly appreciated. I commend the Bill to the House.

Senator Ciaran Cannon

I welcome the Minister of State to the House again. Long before this country was engulfed in its unique tsunami, concern was raised on both sides of the Houses of the Oireachtas about the need to update our national deposit protection scheme. As the Minister of State pointed out, the figure of €20,000 provided for in that scheme was hopelessly out of date as both the number and the value of deposits had increased significantly since the guarantee limit was established over ten years ago. For that reason, the update of the scheme provided for in this Bill was going to take place at some point, but last September we were faced with the imminent collapse of our banking system and a much more urgent intervention was required. Although we on this side of the House support the general thrust of this Bill and what it sets out to achieve, we must recognise also that it heaps another significant burden of responsibility on the hard-pressed taxpayers of this country.

The relationship between our taxpayers and our banking system is changing on an almost daily basis. To date, all the traffic seems to have been one way. We continue to pay up and the banks continue to refuse to pay out to struggling Irish businesses and mortgage holders. In a recent article outlining the banking crisis in the United States, Paul Krugman stated that what we have now in our global banking system is no longer private enterprise but is what he terms "lemon socialism", in which banks get all the upside but taxpayers bear all the risks.

In Ireland we have a particularly bitter brand of lemon socialism. Intervention after intervention has taken place and the workers of this country have been asked — I argue the correct word is instructed, or commanded — to dig deep into their pockets to bail out a sector that has spent the past five years shamelessly immersed in the most criminal and costly gamble this country has ever witnessed. The same taxpayers must continue to dig deep for many years to come. Although the Government guarantee, put in place on 30 September 2008, is due to expire in September 2010, the guarantee scheme which is the subject of the Bill is permanent and entirely open-ended.

Any Member of the House who campaigned during the recent elections must agree that our people are angry and utterly disillusioned. That was very obvious to me when I spoke to people during the campaign. They now realise that for a number of years a very small, privileged and totally self-interested group of people succeeded in running our country into the ground. The activities of these people were inadequately policed because those required to do the policing often moved within the same social circles and in some cases were often former colleagues of those who were gambling away our money. The alleged response from one such guardian of our financial system, when informed that a bank was about to engage in what they euphemistically described as "balance sheet management" was to say, simply, "Fair play to you, Willie".

Nine months after the September guarantee, when our public should be witnessing sweeping reforms of our banking and regulatory systems and when our taxpayers should see those who perpetrated this disaster being brought to justice, we are presented instead with a completely different vista. There is little or no sweeping reform of our banking system and no real punishment meted out to those who got us into this mess. Indeed, a number of them rode off happily into the sunset with their golden handshakes intact.

Is it any wonder, therefore, that our people are disillusioned? Most of our taxpayers are more than willing to fulfil their patriotic duty in ensuring our banking system does not go under but they are being asked to do so in a very real information vacuum. How much more will they be asked to stump up? Does anybody know? Does the Minister for Finance know? Does anybody know the true cost of our September guarantee? What is the total value of all the deposits guaranteed by this legislation? Do we know that figure?

There is another very worrying aspect to both this guarantee and that initiated last September, namely, the licence it might give to our less scrupulous bankers to continue the sort of risk taking that got us where we are today. The people who engaged in such risk taking in the past did so in the full knowledge that if matters went badly wrong we would be there to bail them out, and they were right — we have done so. To prevent such reckless risk taking taking place in the future, guarantees of this nature should be accompanied by stringent and effective regulation of our banking system. I am not so sure we are yet at a point where we have such regulation.

Even though our credit unions were already covered under the September scheme, I welcome their inclusion in this guarantee. It is only fair there should be equity across all depositors and the equity this legislation brings removes any fear the public might have about inadequate deposit protection in particular types of financial institutions.

When we discussed NAMA in this House, I asked the following question and I believe I should continue to ask it until such time as we get a satisfactory response. Why must all the traffic be one way? Why can the taxpayer not see any real benefit for his or her investment? For example, why can Irish banks not allow all borrowers on fixed interest rates the option of moving to a variable rate with little or no penalty, or perhaps the option of having the penalty spread out over the lifetime of the mortgage? I asked this question of the Minister of State, Deputy Mansergh, the last time he was in the House and in his response he said:

People entered these arrangements. There were pros and cons to the arrangements at the time and it is not possible for the Government to convert them however desirable that might be from a social and environmental point of view.

I am grateful the Minister of State admits that such a move would be desirable from a social point of view. However, neither he nor the Minister for Finance, Deputy Brian Lenihan, see fit to move in that direction. Therefore, the people who entered into these arrangements are to be asked to take their punishment on the chin, stoically, while those who got us into the current mess seem to get away scot free.

Only a few days after the Minister of State made that statement in this House, his colleague and member of Cabinet, the Minister for Social and Family Affairs, Deputy Hanafin, issued a press statement stating that the problems facing mortgage holders who were locked into a fixed rate were "undoubtedly an issue that should be addressed". The headline over the article in The Irish Times was: “Hanafin wants action on mortgage penalties”. That is exactly what fixed-rate mortgages have become — punitive and totally unjustified penalties on an already over-burdened Irish public. Is it too much to ask for one small gesture of appreciation for the taxpayer? Is the Minister even concerned enough about the plight of people on fixed mortgages to seek to establish what the likely cost of this intervention might be? I suspect it would represent only a tiny fraction of our recent investment in our banking system. Is it possible some traffic might head in the opposite direction or is the one-way street here to stay?

Senator Marc MacSharry

I welcome the Minister of State. I am glad of the opportunity to contribute on this Bill. By way of rebuttal, as someone who was involved in the recent election and who did many a doorstep canvass I too experienced the palpable anger of people that the world economy is in the situation it is in. I share that anger and am frustrated by the difficulties that have come to bear. There is no question there was an over-reliance here on a tax base that came from a property boom. We were all a party to that. While some people say we told you this or that, I would say a stopped clock is right twice a day. We still face these difficulties.

The fatal flaw of a single currency is that a country does not control its own fiscal policy and cannot adjust interest rates when it wants. The time we had 2% interest rates and 8% growth led to an overheating of the economy with which it was difficult to cope. If I remember correctly, the Opposition was critical at the time and wanted us to pay more to teachers, to spend more on public and capital sector expenditure and to spend in various other sectors. There was lobbying from all sides of the House to have stamp duty reduced, when we should have used that tool and increased stamp duty to begin to cool things off. However, we are where we are — in a difficult situation.

I regret we are in this difficult situation, but we are and must take the appropriate steps to get out of it. I am pleased the Minister for Finance and his colleagues have taken some decisive action since last September, with the guarantee scheme, the part-capitalisation of some of the banks, the nationalisation of Anglo Irish Bank and the establishment of NAMA, which is at an advanced stage. It is not proposed to let people get away scot free for any crimes they have perpetrated on the people, taxpayers included. However, there must be due process. I too would love my pound of flesh and to set up the guillotine in St. Stephen's Green where we could line them up. However, in the real world that does not and should not happen. This is not Iran; this is the Republic of Ireland and we have laws.

There are three separate investigations going on into Anglo Irish Bank and we will await their outcome. If it is found that people have broken the law, they will receive the full rigours of the law and whatever punishment our laws prescribe. That is what will happen. Therefore, this is not a case of looking after those who got us into the mess or anything like that, but about ensuring we provide the leadership and thoughtfulness to get us out of it, as best we can.

With regard to NAMA, we have much more information on the proposal following the recent meeting of the Joint Committee on Finance and the Public Service which was attended by Dr. Peter Bacon and Mr. Brendan McDonagh, who told us how they intend to go about it. NAMA will deal with the issue over a long period. NAMA will not operate like the Resolution Trust Corporation in the United States, which in the savings and loans fiasco gathered all the assets as quickly as possible and sold them off for whatever price was available. NAMA will be about working things out and will aim at achieving the maximum return for the people. Perhaps in ten, 15 or more years down the line we will end up making a profit out of it. Those are the facts. I believe the principle behind NAMA will be replicated throughout the eurozone in various ways — the principle of pooling all of the difficult debt, paying for it through government bonds redeemable against the European Investment Bank for capitalisation of the banks. I agree with that and think it is a good approach.

There is no question that the regulation system in this country has failed us over recent years. As the Senator said, the light touch approach carried out by many people who had worked in the same industry and done the same jobs was not healthy and did not serve us well. It did not serve any country well. What we need are agreed global principles to try and deal with the financial services industry. Yesterday, we saw President Obama came forward with a rewriting of the entire regulation system of the United States. We need to make improvements here. That is being done and that work will continue with the Minister.

The Bill provides for the welcome step taken by the Minister in September to guarantee small deposits. It is particularly welcome because it deals with the concerns of consumers about their bank savings. The guarantee is one of the many decisive steps taken by the Government to ensure we have a stable banking system. As the Minister of State, Deputy Mansergh, said, the Bill will give legislative effect to the amendments to the Irish deposit guarantee scheme announced by the Government on 20 September 2008. The reason for the delay in the Bill was that the European Commission issued a discussion document on updating the EU directive on deposit guarantee schemes. The European Council and Parliament passed Directive 2009/14/EC and the changes made in the new directive are incorporated in the Financial Services (Deposit Guarantee Scheme) Bill 2009 and its associated regulations.

Deputy Mansergh mentioned there are two parts to the Bill and has explained them. I will not delay the House by going into the specifics of it. Senator Cannon said Fine Gael broadly welcomes the Bill. I know Fine Gael has highlighted the changing shift in the relationship as between the taxpayer and the banking system for which we must cater, which I believe is being and will continue to be done. The Labour Party also welcomed the Bill in the Dáil, but commented that our regulation system was not up to scratch in recent years. I mentioned my views in that regard.

I welcome this legislation as a further step along what will be a long and difficult road to economic recovery for the nation. We hope indeed that this is a step towards global recovery, which is out of our jurisdiction. On the Order of Business today, Senator Paschal Donohoe mentioned that tough budgets lie ahead, and I agree. Painful steps must be taken by all. That is highly regrettable but is due to the unsustainable system we had, even though many on all sides thought it might last and thought we might only have an easing-off in the property market. We did not and I regret that. I wish matters were different, but they are not. Therefore, we need to take appropriate steps. We are doing that and I have confidence in the Minister and Minister of State and their colleagues that this will continue to be done. I commend the Bill to the House.

Senator Paschal Donohoe

I welcome the Minister of State. This is important legislation. The last time I had an opportunity to debate matters of this nature with him, I raised the issue of the accountability of banks. Given the fundamental change in the relationship between taxpayers and banks, what are we going to do to ensure banks are held accountable for the guarantees and support that will now be afforded to them by the taxpayer? I also asked whether our banking system had reached a point where no bank was ever too big to fail. The Minister poured scorn on my comment and said that was an unfeasible or utopian situation.

I note with interest what Mervyn King, the Governor of the Bank of England, said earlier this week. He made some points that are very relevant to this discussion. In his speech at the Mansion House — with Alastair Darling, Chancellor of the Exchequer beside him — he said:

If some banks are thought to be too big to fail, then in the words of a distinguished American economist, "they are too big". It is not sensible to allow high street retail banking with risky investment banking or funding strategies, and then provide an implicit state guarantee against failure.

He went on to say that those guarantees to retail depositors should be limited to banks that make a narrower range of investments and that banks which pose greater risk to taxpayers and the economy in the event of failure should face higher capital requirements. He concluded with a comment about the role of the Bank of England and said:

To achieve financial stability, the powers of the bank are limited to those of voice and the new resolution powers. The Bank finds itself in a position rather like that of a church whose congregations attend weddings and burials, but ignore the sermons in between.

If the Governor of the Bank of England made such points about how banks will be regulated in the future and we are having a discussion today about the deposit guarantee scheme we will extend to the banks, this raises questions to which I would like to hear a response. An OECD report published in 2008 on deposit guarantee schemes acknowledged that such schemes play a vital role in ensuring the banking system functions properly and serves the broader economy. It also noted, however, that guarantee schemes do not address the root cause of the crisis in the banking system. Of even greater concern than the lack of consumer confidence in the system is the lack of confidence banks have in each other. It was this loss of confidence that caused the liquidity crisis at the end of last year, the consequences and cost of which have become clear to us all.

While the Fine Gael Party supports the legislation in principle, it raises a number of questions which I propose to ask the Minister of State. The Bill will have important consequences for taxpayers and the country, providing as it does for a guarantee of deposits of up to €100,000. Will the deposit guarantee scheme encourage banks to engage in further irresponsible behaviour which is not in the interests of the broader economy? While this question may appear absurd in the current circumstances, if we have learned anything from the banking crisis, it is that the unthinkable is plausible and banks engaged in behaviour we hoped would not occur. What will the Government do if a bank uses its deposit base, which the State has guaranteed, to indulge in the type of behaviour that got us into the current unholy mess?

The legislation states that responsibility for the deposit guarantee scheme will reside with the Central Bank. This gives us an early glimpse into the type of new regulatory system the Government proposes to establish. Making the Central Bank as opposed to the other institutions involved in financial regulation responsible for the operation of the scheme is a noticeable departure from the current position. Will the Minister of State outline Government thinking on what type of regulatory system will emerge from the ashes? Who will have responsibility for ensuring there is no repeat of the systemic crisis in which we find ourselves?

It has become clear from recent events that the design of the institutions involved in financial regulation, in other words, the responsibilities devolved to them, the overlap in such responsibilities and the lack of co-ordination among these institutions, created a gap or hole which allowed risky behaviour to emerge. We are now dealing with the consequences of the problem. How will our banks be regulated in future and which institutions will be responsible for their regulation?

To take the nightmare scenario, if, despite this legislation, a future Government is forced to respond to a run on a bank by implementing the terms of the scheme and raising money to support depositors in danger of losing their deposits, where would the money be found? Would more responsible banks participating in the scheme be asked to stump up money to cover the cost of risky behaviour by another bank? Alternatively, would the European Central Bank provide this money, as it does at present, by injecting liquidity into the economy in exchange for Irish Government bonds? While it may appear slightly pointless to ask such a question given how unlikely this scenario appears, we must, as I stated, assume the unthinkable is possible. The position in which we find ourselves was considered unthinkable in the past. If the questions I ask were raised several years ago when earlier legislation was being introduced, we may not have found ourselves facing our current problems.

This has been a busy week for banking regulation. It has also been a disappointing week in that the major players, the United States, the European Union and the United Kingdom, have chosen to focus their efforts on different areas. The US has focused on banking regulation and consumer protection while the EU has focused on hedge funds. The UK, on the other hand, has started to fight a strong rearguard action against the EU proposals, arguing that they are too heavy-handed. The Chancellor of the Exchequer, Mr. Darling, has chosen instead to focus on corporate governance as a solution to the current problems. His approach is in marked contrast to some of the solutions proposed by the Governor of the Bank of England.

Only months ago, politicians all over the world argued they would never allow the problems in the financial sector to be repeated. In seeking to prevent such a scenario they have, however, produced different plans. This is important because it could result in what is known as regulatory arbitrage where different banks move to countries or areas where the regulatory environment suits their particular needs. It would be a great pity if we do not have a global response to the global crisis that has engulfed us. While this matter is clearly not addressed in the Bill, it is vital nonetheless that action is taken to address the consequences of the recent crisis.

Senator Larry Butler

I support the Financial Services (Deposit Guarantee Scheme) Bill 2009 which complements important legislation enacted some time ago, the Credit Institutions (Financial Support) Act 2008. The Government's speedy intervention in introducing the latter Bill late last year may have saved the entire Irish banking system and prevented a major run on the banks. A collapse of the banking system would have caused much greater economic problems than those we are currently experiencing.

While banks are not supporting small businesses, the lifeblood of the economy, the relative strength of our banking system has been achieved as a result of heavy investment provided by taxpayers through the Government. We must ensure the banking system considers the interests of the taxpayers who support it. Many people with fixed interest mortgages are concerned about unreasonable conditions being imposed by the banks on those seeking to switch to a variable interest rate. I ask the Minister of State to examine this issue. In light of the use of taxpayers' moneys to support the banks, it is important to have a social dimension to the banking system.

The penalty for switching from a fixed rate to a variable rate mortgage should be reduced to a reasonable level. Rather than having money change hands between banks and their customers, these penalties should be added to the mortgage. This would have the effect of safeguarding people who are now on a fixed rate of 4.5% or 5% and who, assuming they are not able to break their fixed rate, may find themselves in difficulty in two or three years' time when they move to the increased variable mortgage interest rate. No doubt interest rates will go up because at present they are at an all-time low. It would be in the interests of the banks and the Government to ensure such people were able to fix at lower rates so that they would have less trouble in years to come when homes could be repossessed because of very high interest rates. I ask the Minister of State to look at options in that regard.

While many say the Government is bailing out the banks, we have decided consciously to make an investment in the banks. Let it not be forgotten that there is a payback to the National Pensions Reserve Fund. We must bear in mind that this is an investment. In the long term, it will be a good investment and a much better one than those made overseas by pensions funds in the past year or two which lost between 45% and 52%. We are better off investing at home where we get a reasonable return on our money and the banking system is a good place to invest our money.

At present there is a major liquidity problem between the banks and small businesses. Conditions should be laid down in return for our investment in the banks. The latter must look at how they will provide liquidity to small businesses. Restocking is a major problem being encountered by small business people who come to my clinics. There was never a problem before when they went to the banks seeking to restock or upgrade certain parts of their businesses, but they are finding it very difficult now. It is often the difference between letting some of the staff go or closing the business. That is how seriously small businesses are being affected. The Government should have leverage with the banks at this stage. I ask the Minister for Finance to ensure this is seen to soon because it is affecting small businesses.

I can understand that banks will have more leeway once the National Asset Management Agency, NAMA, is set up and non-performing debts are taken from them. The purpose of NAMA is to ensure there is a lending system in banks and to look after the long-term non-performing debts over ten to 15 years. NAMA will be important and it will help the banks return to normal lending. I note that more than €55 billion of the €90 billion considered to be bad debt is performing very well and interest is being paid on it weekly or monthly. Even though it is approximately 2%, it will give NAMA working capital when it starts up. While I do not suggest the Minister of State should rush the legislation — we must get it right — we should get NAMA up and running as soon as possible because it will help small businesses.

Small businesses employ 440,000 people. That is a significant number and we do not want to see any more people joining the dole queue. By helping these small businesses we will keep them in business and in some cases they will expand. There has to be a credit system that works for the banks and for small businesses. While I would not suggest the banks should lend to businesses that do not have the capacity to repay, it is unfair of banks not to look after small firms with a good track record of loan repayments over many years, especially when Government has invested so heavily in the banking sector.

Senator Alex White

While it is perfectly reasonable for us to comment on the wider context of this Bill, including the Government's proposal on NAMA and the background to the development of this crisis, we must remind ourselves that this Bill deals with just one discrete element of what is described by the Government as a strategy for dealing with this crisis. While one could query whether the Government's approach constitutes a strategy, it is in any event a sort of drip-feed strategy in terms of its revelation to us as Members of the Oireachtas.

Obviously, the Bill is important and the Labour Party welcomes this deposit guarantee scheme, the extensions to it and the placing of it on a statutory footing. The increase in the amounts capable of being guaranteed, the question of minimum time limits for payout and the inclusion for the first time of credit unions are all advances to be welcomed. While I have questions on one or two of the details and will make some comment, it is important for us to be clear that this is just one discrete element of dealing with this overall crisis in the banks and financial institutions.

I am always struck when I hear Senator MacSharry and others seek to have us either set aside or forget what occurred in the past in favour of looking to the future. Looking to the future rather than the past is always a laudable objective and is what we all want to do because we want a bright future and to ensure it is brighter than it currently looks. That said, in response to Senator MacSharry's remark that we are where we are, I have said previously, perhaps to the point of repetition because when speakers on the Government side repeat their points, it falls to us to make the same responses, that the Government, and the Senator's party in particular, cannot seek to offload the substantial responsibility it holds for our being where we are. I am bound to suggest to Senator MacSharry, the Minister of State and others that it is not a question of us being where we are as if we had suddenly been carried here on a wave in a manner which suggested we had no influence on where we were going. Clearly, we did and to suggest otherwise can only be to suggest that governments have no influence or power to intervene or regulate, which of course cannot be the case.

I understand people arguing for and pointing to the need for more rigorous and robust regulation. Regulation of financial institutions and of the banking system is not a new concept. It has been around for many decades. It is simply absurd to seek to persuade people that now we will be good, now we will wake up to the need for regulation and now we will have all these measures, constraints etc. when it has been at the heart of the proper and prudent management of the banking and financial system worldwide, and certainly since the 1940s, that there should be strong and robust government regulation of banks and financial institutions. It is not good enough for Senator MacSharry or anyone else to say that everyone participated in a great party for ten years. It is part of the rhetorical attempt to spread the blame around by saying we all got something out of it, we were all involved and we all had a great time.

The lives of individual citizens and families do not work that way. People make economic decisions. People in a household or a family who sought to take out a mortgage, or a young couple who wanted to buy a house, were presented with the possibility of a 100% mortgage and in some cases higher than that. They availed of the opportunity presented to them, an opportunity which was sometimes pressed in their face and often included not just a 100% mortgage but also a car. People are rational decision makers in terms of the information available to them. It is not acceptable for us, as part of our so-called analysis, to say people who made those decisions, which now look as if they were not good decisions, were somehow part of the problem.

The economic and financial systems, including the availability of mortgages, needs to be regulated from the top. We have a Central Bank and a Financial Regulator, which supposedly backs that up. The Government cannot simply stand back and state it has an institution in place to deal with the situation.

I understand the Minister for Finance, Deputy Brian Lenihan, asked a perfectly good question in the other House yesterday on regulation in the future. He asked who will guard the guardians? He posed it as a perfectly legitimate question for the future and asked what kind of accountability the regulatory system will have to the Oireachtas or the Government. It is a reasonable question, but it is not new. That is the problem I have with the Government, namely, the suggestion that we will now look at the measures we will put in place to ensure we guard the guardians. The notion that the situation is new or we need to invent something new is not correct. I accept the system must be reformed and made more robust, but people should not be fooled or persuaded that this problem has only recently emerged and must be dealt with. It should have been dealt with all along and faced up to throughout the so-called splurge.

I apologise I did not have an opportunity to hear the Minister of State speak in this House. I had an opportunity to examine what the Minister for Finance said in the other House and he made some interesting points on regulation and the persons charged with it in the past. We know there have been some personnel changes, resignations and retirements in that regard. The Minister emphasised the question of who the persons were rather than the regulatory measures themselves. He emphasised the importance of ensuring the correct people are in place, and I agree with him on that. Where was that approach, policy and viewpoint when certain persons were appointed to the positions in question?

There was a less than oblique reference to a problem by the Minister in his speech to the other House. He said:

The far more important issue is that of the personnel who staff the entities because it is decidedly a question of men and women rather than measures. We must ensure that whoever takes over the position of regulator is a person who can ensure the regulatory system will be robust and can command confidence in the future.

That was a requirement of the Government at the time it appointed the persons previously appointed to such positions. It has not now become a requirement that the State should ensure the correct people are put in place, as the Minister now appears, from that comment, to believe. I invite the Minister to comment on whether my interpretation of those remarks is unfair in some way because that is what it appears to mean to me.

I understand proposals on regulation will be outlined this week by the Government. Will the Minister of State enlighten us on that? I understood from the remarks of the Minister for Finance that he would make an announcement later this week on new proposals and measures regarding regulation.

The Government, particularly the Fianna Fáil Members, become very exercised when the point is made by people on this side of the House that we are told Anglo Irish Bank is of systemic importance. This may not be the time to do so but I would like closer scrutiny of the word "systemic". I understand what the word means and we do not need to have it explained to us, but how or in what manner is Anglo Irish Bank believed to be a bank of systemic importance? We need detailed information. An answer that says, "It is pretty clear" is not an answer. I want demonstrated to the Oireachtas and the Irish people how and in what manner it is a systemic bank, through more detailed information. If one looks at the often-quoted example of Sweden in the 1990s, one interesting thing that happened was that the Government, instead of going straight to the floor of Parliament with all its proposals, which is what happens here, went to the Opposition parties first and sought, as far as it could, their agreement on the measures it proposed to take and then brought the proposals to the floor of the Parliament.

That has never happened at any stage in the discussions or crucially important debates we have had in these Houses in the past seven or eight months. There have been meetings with Opposition spokespersons but there have been no meetings of a satisfactory nature where real and detailed information is imparted to them. There should be clarity on what the Government is aware of regarding the exposure of the State to Anglo Irish Banks and the guarantee extended to the covered institutions, and what it believes the exposure and liabilities are.

There are sensitivities and confidentiality provisions, but the Government could impart far more information to the Oireachtas and the public about what is going on, which could make for a far more helpful public debate. It could assist in what Members opposite often look for, that is, a greater level of bipartisanship across the board on such a fundamental issue, namely, the future of the country and the banking system.

One cannot expect people to agree to proposals of which they are not aware. One cannot expect Opposition parties to simply nod through proposals of significant importance and seriousness if information is not shared with parties, politicians and representatives in advance. Senator Boyle referred to a wider level of political co-operation on these issues in the past. However, co-operation can only occur among serious politicians if information and clarity is made available to people whose agreement and support the Government is seeking.

The Bill and the extension of the deposit guarantee scheme are appropriate. It is appropriate to put it on a statutory footing. It is welcome that credit unions are included in the measure.

I am grateful to the Oireachtas Library and research service, which is very helpful in providing information on our discussions, particularly the more complicated ones, for putting together a digest. I note from reading it a comment by former Taoiseach, Garret FitzGerald, in 1989 when the scheme we are discussing was first set up under the Central Bank Act. He queried whether it was appropriate or right that there should be the same level of risk across the board. Each of the institutions must pay 0.2% of deposits towards this level of protection. I wonder if what he suggested in 1989, some 20 years ago, might still be case. I am thinking in this regard of a comparison between the position of credit unions and banks. Credit unions are required to pay the same amount as the banks. Is it appropriate or fair that credit unions have to pay that level of cover and are some of the banks being asked to pay a sufficient amount for it?

The point former Taoiseach, Dr. Garret FitzGerald, was making was whether people could forum-shop or consider placing their money in more risky institutions, thus gaining higher returns from their deposits and investments, in the knowledge they would still have this protection at the end of the day. Surely there should be some risk spreading in relation to the different types of institutions that are availing of the cover. The Minister of State might consider this question if he has the opportunity.

The broad thrust of this measure is to be welcomed.

Senator Dan Boyle

Senator Alex White asked, in respect of Anglo Irish Bank and the option taken by Government in September-October last year, whether that institution was of systemic importance to the Irish economy. Taken on the level of whether it was run competently and whether those involved in it were offering a useful service to its customers and the State, it would be difficult to argue that. It has been an institution with a deposit base greater than the annual spend of this country in terms of its current expenditure. In terms of its overall asset base, had a run occurred on its accounts this would have had a significant impact on this economy. There was already the lesson, such as it was, of the effect of Lehman Brothers in the United States. Given the need to make quick and decisive decisions I believe the right decision was made.

It is often forgotten that in addressing the deposit guarantee put in place then, and that which we are enhancing through this legislation, that a deposit guarantee already existed. If even that had been exercised in September-October of last year, the cost to the Irish taxpayer would be already many times the amount expended trying to resuscitate and retrieve Anglo Irish Bank in its current incarnation.

That said, I hold no brief for the individuals who ran that institution into the ground and is now represented as something tawdry in the commercial and financial life of this country. I find inexplicable and continue to seek explanations as to why it is the case that an individual, a former chairman and CEO of that institution, continues to receive pension payments from an institution that is now State owned. If we cannot address that question now, it will need to be addressed either by way of ministerial action or through other legislation. I am not prejudging any decisions that will be made by other agencies or individuals. Given that this institution was run into the ground and was seen to benefit such a small coterie of individuals, I cannot accept that the payments being made to such individuals can ever be acceptable. Decisions need to be made in this regard and need to be made quickly to ensure public confidence in the future of our financial system.

The Bill is welcome in that it is another progressive step in terms of our moving away from the events of September-October 2008 in respect of which Government decisions had to be necessarily reactive, decisive and quick. We are now getting a better understanding of the scale of the problem and the degree to which the problem exists in particular financial institutions. There is no doubt that we continue to face a huge problem in terms of trying to resuscitate our financial institutions. Proper acts of due diligence have been done in relation to our two largest financial institutions and others are ongoing in regard to some of the smaller ones. In terms of ensuring public confidence here and internationally in our financial institutions, it is important this legislation is enacted thereby ensuring the commercial health and financial stability of these institutions can be achieved in the quickest possible time. That said, this is only another step in the process. Further questions need to be asked about the organisation of financial institutions in this country.

A welcome aspect of this Bill, subsequent to a promise made by the Minister for Finance, is its inclusion of credit unions and the question of social finance. While deposits in credit unions are not as large as deposits held in most financial institutions, and are possibly not as great a risk, they are the type of deposits that might have a particular impact on local communities and individuals in such communities. It is right and proper that such a guarantee be given. The legislation is vague in terms of how the guarantee can and should apply to credit unions. I am hopeful that the regulations, when released by the Minister for Finance, will clear up that ambiguity. I believe particular treatment should be given to credit unions and I acknowledge the point made by Senator Alex White in this regard.

Another aspect that needs to be addressed, in terms of the type and number of institutions we have, is the question of mutuality in our remaining financial institutions. We have two mutual societies, the Educational Building Society and Irish Nationwide Building Society. I have been extremely critical of the activities of those involved in Anglo Irish Bank and I believe what we are learning on a daily basis in terms of what went on at Irish Nationwide Building Society, while not in terms of scale, are also beyond belief. The extent to which the State must pick up the pieces for the activities of that particular organisation is something the people will find hard to justify. I suspect, in looking at the future of these institutions, given that Anglo Irish Bank has been nationalised and that Irish Nationwide Building Society is probably the most weakened of the remaining five institutions, that this is an issue the Government will need to address quickly. I again accept the point made by Senator White that this is an issue that needs to be addressed with the widest degree of consultation and co-operation within the political system given we are talking about our financial systems and public confidence in it.

We need to know the health and viability of our two main banks and what is happening in regard to mutual societies and social finance, micro-financing and community finance through the credit union movement. This Bill is helpful in our taking another step in that regard but it is only another step in what will be a long and difficult process in which all within the political system need to be engaged. This is not an issue that will be easily resolved. However, I am confident that the right decisions have been and are being taken and that they will eventually be viewed as the right decisions.

Senator Paul Coghlan

I welcome the Minister of State, Deputy Mansergh, and thank him for his attendance. He has always been one the better performers from the Seanad's point of view. He also did great work when a Member of the Seanad. I thank the Minister of State for his overview of the Bill, which we welcome.

Some interesting questions have been posed by colleagues from all sides of the House. I look forward to hearing the Minister of State's response to the questions posed by my colleagues, Senators Cannon and Donohoe. I welcome the main provision of the Bill which is to increase the deposit protection guarantee from €20,000 to €100,000. We are all agreed the latter figure is outdated given the changes in values and so on. The removal of the provision which requires that depositors must bear the first €10,000 of any loss and the extension of this guarantee to all credit union depositors, is also welcome. Credit unions are utilised by so many it is unbelievable we did not have in place this necessary protection, although I accept they had their own scheme in place. Given self-regulation has been abolished it is only right and proper credit unions should be covered by the State guarantee scheme.

I welcome the transfer of responsibility over this area from the Financial Regulator to the Central Bank. We have seen in the recent past that the regulator was not fit for purpose and performed disastrously.

The Bill before us deals with a guarantee scheme for deposits but what about the ability of banks to raise finance through inter-bank lending? Legislation provides for a guarantee in this regard until September 2010. Given that bonds will be rolled over, it is important that the guarantee is extended. I ask the Minister of State to comment on the matter. Banks could run around a short corner with bonds of up to €5 billion coming up for renewal. I am sure the Government intends to extend this guarantee beyond 2010 given the State's preference shareholding in Allied Irish Bank and Bank of Ireland.

Confidence is intangible but it is vital for our future that we nurture it. The delay in producing legislation on NAMA has triggered profit taking in the markets, which is perhaps a natural reaction among investors. According to the Minister for Finance, we will be more lenient than the UK on capital ratios. Perhaps the State's preference shareholdings is intended to offset this leniency. I understand the legislation for NAMA will be approved by the Cabinet on 23 June and published on 4 July, although we will not take it before the recess. Given the urgency of the matter, surely it is preferable to deal with the legislation before we rise for the summer. Any slippage would be unhelpful because we need certainty to build confidence. We might not like the way in which the markets perform but we must recognise their effects on confidence. NAMA is at present working in shadow form and is seeking to recruit people of the utmost probity. Major decisions will have to be made but I do not know how much can be set out in legislation regarding discounts on the book value of the properties taken over by the agency or valuations on the assets behind impaired loans. I accept this matter is not relevant to the Bill before us but I would be grateful if the Minister of State could throw light on it.

All Senators have heard stories about how the lack of credit and working capital is squeezing small businesses throughout the country. These businesses are the lifeblood of financial institutions and the economy and I do not want to see them disappear. I recently outlined for the Seanad a case involving a bank which reneged on a deal despite having a written undertaking from a solicitor. We should not allow people to act in this manner.

The correct decisions were made on Anglo Irish Bank and I recognise that an orderly write-down will be required. The bank was badly run by a small number of people but I wish the Director of Corporate Enforcement well in his ongoing investigation. I am saddened, however, by the cross-transactional nature of these events, particularly given that the Office of Corporate Enforcement lacks the power to investigate Nationwide Building Society. I have proposed legislation in that regard which the Government might consider including in law.

Senator John Hanafin

I support the Financial Services (Deposit Guarantee Scheme) Bill 2009 and thank the Minister of State for his continued support to this House.

The Government has been berated for failing to predict our current difficulties. However, I recall the debates held in this House on what was called at the time the soft landing for the economy. We knew the property market would slow down and we naturally made provisions on the basis of what was before us. Up to 70,000 job losses were predicted in the building industry, many of which would involve people who could take up new opportunities in their home countries in eastern Europe. The economy was powering along at an exceptionally high annual growth rate of 7% and it was believed that export led growth would allow for a very soft landing. The pretensions by members of the Opposition that they knew what would happen to the world markets simply do not stand up to scrutiny. During the 2007 general election campaign, every Opposition party called for substantially increased public spending. If a downturn was coming it would have been impossible to substantially increase spending.

When the difficulties arrived, certain parties took a politically expedient view and made statements that were harmful to the economy. I refer in particular to the Labour Party's finance spokesperson, who accused the Government of bailing out Anglo Irish Bank to save Fianna Fáil's developer friends. That claim, which went around the world, is untrue. The head of Anglo Irish Bank told the Joint Committee on Finance and the Public Service that no developer would be bailed out and that he had not experienced any political interference regarding the bail out of individual developers. We are faced with a crisis, and how we deal with it is how we will be judged in the long term.

I heard an interesting story on the radio recently about a Louisiana politician. This person beat both the Democrats and the Republicans but only served one term. A journalist with him was watching how this politician operated and found it was a very simple operation. He basically told people, "Don't tax you. Don't tax me. Tax the guy behind the tree." That means we could agree with everyone and tax no one.

Consistently in this House we have asked for a two-day debate in which every political party would produce an account of the way they would deal with the €20 billion budget deficit and indicate the taxes they would increase and the cuts they would make. They have been asked to have those figures audited independently. That will never happen because the Opposition would like to pretend it need tax no one, increase public spending and let the Government take the blame for everything that happens.

We are in difficult economic times, yet I am very hopeful. This Government has taken the correct action. It has not been palliative. I know it is difficult to sugar-coat necessary cuts but this Government ensured, at a difficult time, that our banks are solid and secure. We have been through much more difficult times. I am conscious that we were able to repay our debts when debt levels were 130% of gross domestic product, inflation was 18%, unemployment was near 20%.

It is disappointing to see our credit rating affected, especially by companies like Standard & Poor's which gave fine credit ratings to sub-prime mortgages for Lehman Brothers, Bear Stearns and Goldman Sachs. In the changes it might have changed its own name to "poor standards", which might be more appropriate in the context.

The deposit guarantee scheme is essentially an enabling measure which empowers the Minister for Finance to make regulations to amend the European Communities (Deposit Guarantee Schemes) Regulations 1995. We have extended that statutory instrument already in place but it now gives the Minister the power to increase the amount to €100,000 on deposit and to forgo the first 10%. That guarantee is essential in ensuring we get stability in our finances.

Yet again this morning there were calls, which there are consistently despite this question having been answered on many occasions, for people on fixed-rate mortgages to be released from them. If cases can be found where super normal profits were made, I would agree with changes being introduced, but having worked in a financial institution for 17 years, I am aware that in many cases when a fixed-rate mortgage is given and set out in a tranche of mortgages, a fixed-rate deposit is guaranteed by the bank at the other side, and the bank makes the margin in the difference. In other words, it guarantees to pay 3% for ten years if it is lending out a mortgage at 4% for ten years. If the guarantee of the 4% to the bank is broken, one will also have to deal with the people who are receiving guarantee of 3%. In other words, one is breaking the legal contract of the depositors. Will the Opposition explain that to the depositors? If they intend to break the fixed-rate mortgages, they believe the old Louisiana story: "Don't tax you. Don't tax me. Tax the guy behind the tree."

Minister of State at the Department of Finance (Deputy Martin Mansergh)

I thank all Senators who contributed to this debate for their broad support for the Bill and for its speedy passage. Before I address the points, I compliment Senator Paschal Donohoe, Senator Alex White and Senator Dan Boyle on their participation in the recent elections, two of them in by-elections and one in the European elections. I firmly expect the two Senators to be elected to the Lower House in due course and I am sure they will make as good a contribution in that Chamber as they do here.

Senator Paschal Donohoe

I thank the Minister of State.

Deputy Martin Mansergh

Inevitably in a debate on a Bill such as this, which is relatively narrowly focused, as Senator White pointed out, it is easy to be invited to go down many highways and byways, and I will not entirely resist the temptation.

Senator Cannon asked if there was any estimate of the level of deposits guaranteed. The answer is that there is a rough estimate by the Central Bank of the value of deposits covered by a deposit guarantee scheme where there is compensation at a rate of €100,000. Its estimate is based on the total value of deposits surveyed for the 11 institutions which were potentially eligible for the Government guarantee, approximately €170 billion, and the bank indicates that these form the vast majority of the deposits covered by the deposit guarantee scheme. It estimates that approximately 40%, or €70 billion, of these deposits would be covered by the deposit guarantee scheme. On top of that we can add the €12.4 billion of deposits held in credit unions thus giving an overall figure of approximately €82 billion covered by the deposit guarantee scheme.

Senator Cannon laid some emphasis on the burden on the taxpayer and made the point that the traffic was one way. It is worth pointing out that most of the moneys deployed to support the banking system have been drawn from taxpayers' money put aside in the National Pensions Reserve Fund, in other words, not taken out of this year's taxes. Because the Government had the prudence to establish the National Pensions Reserve Fund, which has been done by very few other Governments, that has given us a means of addressing a crisis of this sort. While the traffic may seem all one way at this stage, if things go according to plan further down the line a significant benefit could accrue to the Exchequer.

There is general frustration, which we all feel, that the wheels of justice turn slowly, but as the saying goes, they do grind exceedingly small. I would have a firm expectation that we will see developments in due course if crimes and offences have been committed.

With regard to the issue raised on both sides of the House of fixed and variable rate mortgages, to which Senator Hanafin responded, when a bank enters into a fixed-rate mortgage agreement it takes out a swap agreement with the market to cover that liability. Breaking that swap carries a cost which must be borne by the borrower. The current situation is tough on a great many people but I do not see that a softening on that is a real option for the Government.

Senator MacSharry made a strong speech, but I pick him up on one word. He referred to the fatal flaw of the single currency, but to use the word "fatal" implies we should not have gone into the single currency, which is not something to which I would subscribe in any way. However, this requires a major adjustment in behaviour and expectations. Last night I read a supplement from last week's edition of The Economist on the eurozone, which made the point, while not understating any of our difficulties, that Ireland was adjusting and adapting relatively rapidly. While this might surprise us and we may have thought we lived in a more rigid and less adaptable framework, the degree of willingness and adaptation is a credit to all parties involved, and I am not talking about political parties. I note that the staff of Senator Alex White’s former employer, RTE, voted yesterday to accept pay cuts, which is one small illustration of this willingness.

Senator Paschal Donohoe had a number of questions. The Bill is not, nor was it presented in the speech as being, a complete answer to all possible problems. It is one instrument among others, one part of the financial safety net, but it can be helpful in protecting an otherwise solvent institution from failure.

The Senator also referred to the question of risky behaviour and queried whether this might encourage a revival of irresponsible risk-taking, if not in the short term then further down the line. The Minister has the option of introducing a risk-based system if he deems it appropriate and, if introduced, this could act as a deterrent to banks engaging in risky behaviour. I personally take the view that it will be some time before that sort of behaviour becomes a risk again but, equally, anybody who knows history knows that, with time and given the assumption that we get out of the current situation, confidence grows. There is a certain cycle in human affairs and I suppose the idea that we will be able to prevent for all time risky behaviour by banks that cause financial problems is on the utopian side.

I remember debates in this House on an issue in which the former Minister for Justice, Equality and Law Reform, Mr. Michael McDowell, took a deep interest. A few years ago the idea of regulation was to separate as far as possible the prudential functions of the Central Bank from the regulation designed to protect the consumer so that, while still under the one umbrella, the Central Bank and the Irish Financial Services Regulatory Authority had a certain arm's length relationship. That has all had to be revisited in the restructuring of financial regulation in Ireland and the Minister for Finance has indicated that a Central Bank commission will be set up, for which details are still being worked out. The Cabinet has not finalised its decisions on this reform yet but the changes will be significant.

With regard to the question of liquidity, which was raised by a number of Senators, particularly Senator Larry Butler, the National Assets Management Agency Bill will be very complex and will probably run to over 60 sections. Hopefully, when the institution is fully operational, the commercial banks will be in a position to offer increased lending to small businesses.

Senator Coghlan said that this legislation should be before the Houses before they rise for the summer recess. The Taoiseach dealt with this matter yesterday on the Order of Business. While he did not tie himself down absolutely in terms of timing, he did not think it would be ready for discussion before the recess and thought it more likely to involve a recall of the Houses in September.

In response to Senator Alex White, I am a sometime historian so I never have a problem in looking back. While I would not spend my whole time looking back, I would strongly defend it and feel it is important to gain perspective, to learn lessons as to where things have gone wrong and sometimes to draw inspiration from options that were considered at a particular time, which was perhaps not right for them, but for which the time is now right. I have no problem whatsoever in looking back as well as looking forward — I very often find looking back is a help to looking forward.

As I said on another occasion, although I cannot remember in which House I said it, there is an interesting debate with regard to the influence of a government in a social market economy. I made the comment that during the boom years, parties opposite in both Houses were disinclined to give too much credit to the Government and attributed the boom to many outside factors and other forces in society. I would not in the least claim, and I did not claim then, that the Government was mainly or wholly responsible for the boom.

Senator Alex White

Some of the Minister of State's colleagues claimed it.

Deputy Martin Mansergh

We would have said that our success of the past 20 years was a collective effort.

Senator Alex White

The Minister of State was more generous than some of his colleagues.

Deputy Martin Mansergh

However, while it would be odd to say the Government deserves no credit for the boom, suddenly, when things go wrong, it would be equally odd to suggest it is entirely responsible for everything that has gone wrong. Particularly as we are discussing banking credit and financial institutions, there is a huge global dimension in this which is absolutely undeniable.

Last October at the IMF a senior US treasury official admitted that the decision on Lehman Brothers had triggered the global financial crisis. The way in which that affected individual countries depended on their position and what decisions had been taken. I admit freely that we are not the worst affected, but among the worst affected, a reasonably objective way of putting it. The mantra was repeated, not only by the Labour Party but the newly elected Deputy for Dublin South, with whom Senator Alex White competed, that the country was awash with money until a year ago. That was always the premise and it followed that, because the country was awash with money, the Government could afford to do A, B, C and D. There was no real sense in most political debate that resources were constrained or that they should be used prudently. We believed we were operating within a much greater margin of safety than was the case. There was either a surplus or we operated underneath a 1% deficit in government borrowing when the ceiling was 3%. This is not only our experience. I suspect the list of countries still adhering to the Maastricht criteria for government deficit is rather short.

I appreciate the Senator's compliment of the Leinster House research system. I was a member of the Houses of the Oireachtas Commission when a decision was made to expand the service considerably. The Senator raised the question of whether Anglo Irish Bank was a systemic institution. A principle underlying the Bill is that confidence in not necessarily rational-based. It may be possible to put forward a rational argument that Anglo Irish Bank was not or should not have been systemic. However, if confidence in the banking system was to collapse by letting it go to the wall, the rationality or otherwise would not really have mattered. Much of the purpose of the Bill relates to credit institutions in which there may be non-rational loss of confidence and which remain solvent institutions. Were such a loss to take place, a given bank could argue until it is blue in the face that it is solvent but it will not prevent a serious situation from arising.

I dealt with the risk differential question and it is something the Minister for Finance may act upon if he sees the need.

Senator Boyle referred to the pensions of former senior executives of Anglo Irish Bank. Needless to say, this matter is not the subject of the legislation. I presume the payments are being made on very strong legal advice, but the appropriate redress is to ensure whether people acted within the law through investigations and, if they did not do so, to take the appropriate action.

Senator Paul Coghlan referred to credit unions, which are utilised by so many people. They play a very important function in our economic life and are relevant for many people.

Senator Hanafin called for a debate in which all parties would put their cards on the table, including detailed plans of what they would do. He expressed an equally realistic expectation that this would not necessarily take place. To be fair, the roles of Government and Opposition are different. A major part of the role of the Opposition is to play devil's advocate. It is the existence of democratic opposition that distinguishes democratic government from any other form. I recall when we were in opposition and the conditions applied as much then as they do now for the parties opposite. Oppositions take up positions that they would not necessarily take up in government but simply because part of its job is to represent the other point of view. In the case of a general election there would be an onus on parties, in their own self-interest and not because of any preaching from this side of the House, to set out in more detail their approach to problems. There have been instances in which things were going so much in one direction that Opposition parties had to put very little on the table in that regard. While general abstract statements have been made about taking tough decisions and cutting expenditure, in terms of detail the approach has been very soft-focus. All the emphasis has been on positive suggestions on taxation and expenditure which would cost money in the context in which there is already a very significant €20 billion gap, as Senator Hanafin remarked. I expect the debate will intensify in the coming two or three years in one form or other. I trust I have addressed as many questions as possible. I thank Senators for their contributions and for their support for the Bill on Second Stage.

Question put and agreed to.

An Cathaoirleach

When is it proposed to take Committee Stage?

Senator John Hanafin

Now.

Agreed to take remaining Stages today.

Bill reported without amendment, received for final consideration and passed.