Seanad Éireann debate -
Tuesday, 26 Jan 2010

Vol. 200 No. 3

Banking Sector: Statements.

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

I welcome the opportunity to speak to the Seanad on the Government decision last week to establish a framework for a comprehensive investigation into the causes of the systemic failures in the banking sector which culminated in the need for the State intervention. The Government has taken this decision in recognition of the public expectation that there be a full examination of what went wrong in our banking system.

The mistakes that were made have required the Government to introduce the bank guarantee scheme in September 2008 and to make some very significant interventions since then to ensure financial stability. These measures include the recapitalisation of our two biggest banks, AIB Bank and Bank of Ireland, the nationalisation and recapitalisation of Anglo Irish Bank, the establishment of the National Asset Management Agency and the recent introduction of the eligible liabilities guarantee scheme.

The proper functioning of the banking system is critical to the economy and therefore must be protected by the Government. In all the steps we have taken as a Government, our overriding objective has been to maintain a functioning banking system that will ensure a flow of credit to viable businesses and households in this economy.

We are all aware that the global international crisis has created extreme stress for the financial system worldwide. The drying up of funding in international credit markets and the huge write-downs of securitised assets has generated a financial shock which has resulted in the most negative economic conditions since the Second World War.

Ireland's exposure to the sharp deterioration in international financial conditions has been significantly exacerbated by practices which failed to address unrestricted credit growth in the Irish banking system. We know that this credit growth was facilitated by access to wholesale financial markets with no exchange rate risk and low interest rates and was both driven by and facilitated an unprecedented property boom and an unsustainable increase in property development lending.

The international context provides only a partial explanation. The State has been required to pour very significant, scarce resources into our banks arising from decisions that were made specifically by Irish banks over a number of years. Therefore, it is essential that we learn the lessons of our recent experiences as we set about the task of re-fashioning our banking system to restore trust in that system and to enable it to perform its proper role in meeting the needs of the economy.

The Government's framework for inquiry will have two stages. The Government will first commission two separate reports, one from the Governor of the Central Bank on the performance of the functions of the Central Bank and the Financial Regulator, and the second from an independent wise man or woman with relevant expertise to conduct a preliminary investigation into the recent crisis in our banking system and to inform the future management and regulation of the sector. These reports will also consider the international, social and macroeconomic policy environment which provided the context for the recent crisis. Both reports are to be completed by the end of May this year and laid before the Houses shortly thereafter.

The second stage of the inquiry will be the establishment of a statutory commission of investigation which will be chaired by a recognised expert or experts of high standing and reputation. The terms of reference for this commission will be informed by the conclusions of the two preliminary reports. The aim will be for the commission to complete its work by the end of this year. Its report will then be laid before the Oireachtas for further consideration and action by an appropriate Oireachtas committee.

These reviews will build on important work being done at international level. Over recent months substantial analysis of the failures of the banking sector has been undertaken elsewhere. The analysis to be commissioned by the Government will complement and build upon, for example, the European Commission's High Level Group on Cross-Border Financial Supervision, the de Larosière report, and the British Financial Services Authority's Turner report. These reports have recommended an extensive programme of reform of financial regulation at EU and international level which is now being put in place. These reforms will make a major contribution to underpinning the stability of the financial system both in Ireland and the EU in the future.

The commission of investigation will examine and report on the causes of the systemic failures such as corporate strategy, governance and risk management in the Irish banking sector. The terms of reference for the statutory inquiry will be shaped by the conclusions of the two preliminary investigations and in consultation with the Oireachtas. There are clearly a number of broad themes that ought to be examined thoroughly and these include the performance of individual banks and bank directors where wrongdoing and lax practices have contributed considerably to the crisis; the performance and structure of the banking system generally; the performance of the regulatory and Central Bank systems; and the response of the relevant Departments and agencies, including the linkage between the banking crisis and overall economic management. The two preliminary reviews will prepare the ground for the formal inquiry and ensure it is effective and efficient.

There was extensive debate in the Dáil last week on the appropriate role for the Oireachtas. For reasons that the Government has already set out, a committee of the Oireachtas is not best equipped to conduct an inquiry or investigation of this nature. Unlike the Committee of Public Accounts DIRT inquiry, the issues in the banking situation are significantly more complex and will require a greater range of expertise. Indeed the PAC itself was able to draw upon a comprehensive investigation into the DIRT issue by the Comptroller and Auditor General. In addition, the issues involved continue to be current issues rather than issues simply of the recent and more medium-term past and Members of these Houses continue to be engaged in debate on these issues. There could be some mitigation of these effects by confining the remit of the inquiry, but this clearly would not satisfy the need for a comprehensive investigation of all the relevant issues. The advice the Government has received from the Attorney General is that such an investigation would also require legislation following the Supreme Court judgment relating to the Abbeylara inquiry.

Notwithstanding this, an Oireachtas committee will have a vital function in this process through assisting in the formulation of appropriate terms of reference with regard to where the inquiry goes at the conclusion of the scoping exercise and exercising its constitutional role of examining matters of public policy arising from the findings of the statutory inquiry. Specifically, the Oireachtas will be involved at each stage of the planned inquiry process. An appropriate Oireachtas committee will meet both the governor and the independent expert at the outset of their work to be briefed on the members' priorities for investigation. The two preliminary reports, when completed, will be laid before the Houses of the Oireachtas and the Oireachtas committee will be invited to consider the findings of the reports. The terms of reference and draft Government order to establish the statutory commission of investigation will be laid before the Oireachtas and the report of the commission of investigation will, when completed, be laid before the Oireachtas for further consideration by the committee. It is open to the committee to hold public hearings on the report.

It is important to underline a point which is relevant to the debate on the role of the Oireachtas in this inquiry. The Governor of the Central Bank, in his appearance before the Oireachtas Joint Committee on Economic Regulatory Affairs at the end of last year, said that the banking crisis was bigger and more complicated than one that could be accommodated by an Oireachtas inquiry. He went on to say the question would not be sufficiently answered by a judicial inquiry because it was not simply a matter of establishing the nature of what had happened and the sequence of events and that an inquiry should involve experts in economics and social science and politicians. He continued:

The crisis is not simply a question of discovering who did what and who knew what. Uncovering the deep roots of the crisis will require expertise and broad social scientific understanding more than merely forensic skills.

The Government's agreed approach will allow for the timely completion of expert, authoritative and structured examinations of the financial crisis. It will form a comprehensive framework of investigation into the recent crisis in the banking sector which will enable us to understand its origins and help us to learn lessons that will inform our future management of the banking sector. The framework will involve the Oireachtas at each stage. It will be efficient and cost effective. Most of all, it will restore trust and confidence in the banks in order that they can play their full and proper role in promoting economic recovery. This will allow the Government to assess how lessons can be learned to inform our future management of the sector, both in respect of institutions and their management and direction and regarding the management of risks and stability issues within the regulatory and governmental systems.

I would like to add one or two other observations. The causes of the domestic and international banking crisis and remedies to prevent or mitigate against recurrences are under serious investigation in every country affected by it and in international economic forums. This week's Davos meeting is preoccupied with precisely that subject. For example, today's Financial Times contains a heading on the meeting in Davos that reads: “The great reckoning”. The global fiscal crisis demands a shift in philosophy. The issue is too important for crude polemicisation. What is to blame matters as much as who is to blame. When I first entered this House in mid-2002, one of the first Bills discussed was the Central Bank and Financial Services Authority of Ireland Bill 2002 on foot of the McDowell report. We did not go as far as recommended in separating completely the FSAI and the Central Bank. I wish to quote what I said during that debate:

As an observer in a previous capacity, without having been involved directly, I was always of the view that one could not separate the regulatory and consumer protection functions. Senator Higgins said the two were at opposite poles but I am not sure that is true. The worst prejudice to the consumer is if a financial institution collapses and he or she loses money.

I must admit that, like nearly everyone else, I was nonetheless too optimistic that the solution had been found, but it is worth recalling that the opposition to and criticism of the Bill came from the point of view that the two authorities should be completely separated instead of remaining under the umbrella of the Central Bank. In effect, the thrust of the legislation is now likely to be reserved.

I forget who, but a commentator stated today or yesterday that we could save ourselves an inquiry by reading approximately half a dozen recent books written by columnists of broadsheet newspapers. In my contribution in the Dáil last week I raised the issue of the extent to which the property supplements for which these columnists and authors wrote had played a part in fuelling the property bubble. My argument was that they excoriated poor decision making and regulation and cronyism, real and alleged, but rarely made any reference to the relentless hype in property supplements that had fuelled what has been described elsewhere as "irrational exuberance" — this phrase has been picked up by Mr. Jim Power — caused many of our current problems and, in the prevailing climate, would be difficult to contain or control. To be fair to Senator Ross, he often raised in the House the issue of what he considered the sharp practices of estate agencies in terms of guide prices, published prices and so on.

Interestingly, my point was also made by Deputy Upton on behalf of the Labour Party in the Dáil. She referred to the complicity of the media in stroking the property bubble, that they had been so great an earner for newspapers that property sections were often as large as the rest of the newspaper. They happily quoted pet economists in banks who told us that the property sector remained strong and its fundamentals were sound. She also stated the role of the media and others with a financial interest in encouraging or scaring people into purchasing houses at grossly inflated prices needed to be investigated. We are good at discovering the beam in other people's eyes but do not look sufficiently at the mote in our own. On this point at least, the Labour Party and I are in agreement.

Senator Ciaran Cannon

I welcome the Minister of State, Deputy Mansergh, to the Chamber and thank him for his recent visit to east County Galway in an effort to address the flooding crisis that affected the area so badly.

For 12 years the nation was afflicted with a hear nothing, see nothing and do nothing Government. The nation looked to the Government, but it looked away and we had to struggle with the old enemies of peace, business and financial monopoly, speculation and reckless banking. These enemies had begun to consider the Government as a mere appendage to their own affairs. President Roosevelt uttered the following words more than 70 years ago: "We know now that government by organised money is just as dangerous as government by organised mob." Last week President Obama stated:

This economic crisis began as a financial crisis, when banks and financial institutions took huge, reckless risks in pursuit of quick profits and massive bonuses ... And that rescue, undertaken by the previous administration, was deeply offensive but it was a necessary thing to do ... And last week, I proposed a fee to be paid by the largest financial firms in order to recover every last dime. Never again will the American taxpayer be held hostage by a bank that is "too big to fail".

In this country it is seemingly impossible for political leaders to use such firm and unequivocal language. Contrast these words with the mealy mouthed ducking and diving engaged in by our leaders last week. We were told that a banking inquiry was not necessary because, according to the Taoiseach, the priority for the moment had be to solve the problem and then deal with its sources. This begs the question of how should one go about solving a problem if one does not first establish what caused it. We need to understand the regulatory, governance, auditing and political failures that allowed the banks to swell their balance sheets unchecked. I agree with the Minister of State, Deputy Mansergh, that it is a matter of finding out what is to blame, not necessarily who is to blame.

Later in the week we had to endure the Minister for the Environment, Heritage and Local Government, Deputy Gormley, telling us that the proposed banking inquiry would not be held in secret but in private. The only time in recent months that we heard anything close to clear and definitive language was on budget day when the Minister for Finance, Deputy Brian Lenihan, pointed to the inevitability of cutting public expenditure by €4 billion. He did exactly this. Both the Minister and his departmental officials seem to be able to show one face in dealing with the public finances and another to the bankers and developers who contributed so significantly to their collapse.

We have been told over and over again that the support provided for the banks through NAMA and recapitalisation have one predominant aim, namely, to restore the flow of credit to businesses. Unfortunately, this lifeline to the business sector has not been restored and will not be for many months to come, if at all. Last week the House debated the issue of unemployment when many Members opposite correctly criticised the banking sector for not playing its part in employment recovery. The Minister of State with responsibility for trade and commerce, Deputy Kelleher, also called on the banks recently to provide credit for the small and medium-sized business sector as a matter of urgency. He said the banks had received Government and taxpayer support at a very low rate through the State guarantee and that they, in turn, had an obligation to support SMEs in the economic downturn. However, one would not be encouraged by the utterances of Mr. Eugene Sheehy, the outgoing CEO of AIB. He was refreshingly honest in saying clearly that NAMA would not make it any easier for individuals and companies to borrow next year. His emphatic message was that the real function of NAMA was to create a mechanism to stabilise the banking system which might lead to further lending when the banks were out of trouble. He said money had to be handed over to the banks and that it would be used to shore up their own reserves rather than lend to business. He went on to say that once these reserves were bulging again, the banks would be in a position to begin lending. This very revealing intervention by Mr. Sheehy, coupled with the fact that the NAMA process is now over two months behind schedule, should give us all serious cause for concern.

The latest information to hand suggests approximately €19 billion worth of loans will be transferred to NAMA next month, with the remainder to be transferred by the end of September. At a conservative estimate, this means it could be late next year before the banks get round to lending again to small businesses, assuming that they will begin to lend again, as there is nothing in the NAMA legislation to oblige them to do so. Unfortunately, late next year will be far too late for hundreds of businesses. Every employers' group, from the Small Firms Association to ISME to the Restaurants Association of Ireland, continues to point to the crisis in business lending. The Government needs to take a firm hand with the banks to ensure credit lines are restored immediately, not in 12 or 24 months. If this requires a Government-backed working capital guarantee scheme, it should be seriously considered. Such a scheme is already working in other countries and could work here. The bottom line is that we urgently need some radical thought applied to the credit crisis, as waiting another 12 or 24 months for the credit tap to be turned back on is simply not feasible.

The timely update from the Edelman Trust Barometer released this morning makes for sobering reading. It concludes that Ireland is continuing to experience a "profound" and continuing trust crisis. The level of trust in government and business here is the lowest in Europe, with the level of trust in government dropping to an all-time low of 28% from 31% compared to a global average of 49%. In Europe, Ireland was the only country surveyed that had experienced a fall in the level of trust across all four institutions — business, government, media and even NGOs. The bedrock of economic recovery must be trust. These figures indicate how far we have to go in this regard.

What is the Government's response to this trust crisis? How does it intend to build public confidence in order that we can move forward collectively with trust restored? It proposes to hold what is probably the most important inquiry in a generation in secret or in private, if one prefers the terminology used by the Minister for the Environment, Heritage and Local Government, Deputy John Gormley. That is how utterly detached from reality our leaders have become. The valuable opportunity to hold what could be an open and transparent inquiry which could have a cathartic effect on public trust has been lost by our leaders. The head of the Law Reform Commission, Ms Catherine McGuinness, is absolutely right in saying the public will have no confidence in such an inquiry. There is a significant demand from the public for an inquiry, with 91% of respondents in the latest The Irish Times poll backing it. There is no doubt that the people concerned do not want an inquiry held in secret in a manner controlled by a Government it does not trust. The same poll also concluded that almost two thirds of the people did not believe the worst was over for the economy. If we are to restore hope and trust, we need to hear the forceful and inspirational language used by Roosevelt and Obama. We need to convince the people, those who elect us, that we are firmly on their side. Immediately restoring credit to struggling businesses and announcing a full public inquiry must be the first two steps along the long road to recovery.

I will refer to two issues raised by the Minister of State, Deputy Martin Mansergh. He said that, unlike the Committee of Public Accounts DIRT inquiry, the issues in the banking sector were significantly more complex and would require a greater range of expertise. If that is the case, provide the expertise and require that it be provided for the Committee of Public Accounts to do the work that it is well capable of doing if given the resources that it badly needs.

The Minister of State also referred to the advice received from the Attorney General that, following from the experience of the Abbeylara inquiry, we would also require legislation following the Supreme Court judgment. That is certainly the case and seems to be backed up by a number of sources. If we require legislation, we could have it in a number of weeks or months. We were able to pass legislation to guarantee the banks literally overnight. There is no reason similar urgency could not attach to the legislation required in this instance.

Senator Marc MacSharry

I join other Members in welcoming the Minister of State, Deputy Mansergh. I am glad to have the opportunity to make a few general points on banking. As we have all seen in the past few years, there has been an unprecedented crisis in the sector. The Minister of State outlined the reasons we had a property boom that fuelled the economy and a level of exuberance that has led to a great many difficulties.

It is interesting as one flicks through the websites of the various financial institutions that one can see stated a business mission and ambitions which in general terms are to provide a business activity of accepting and safeguarding money owned by individuals or entities and lending that money to earn a profit. At its simplest, that is what it is all about. One wonders how we got so far from the basic business when one considers the derivatives and complexities of banking today. Senator Ross and others can go into the more complex issues but I would like to keep it a bit more simple in my contribution. It is interesting to see the mission statements of the institutions which contain words such as "value" and "service", with phrases such as "deliver the highest standard of service in banking", "take personal responsibility", "to rigorously manage our costs" and "to act ethically and professionally, with integrity and commitment to our customer". My own nominating body, the Institute of Bankers in Ireland, the Irish Banking Federation and even the banks know these core values are expounded by many financial institutions filled with staff of the highest calibre. We know individuals from among our families, friends and neighbourhoods who have gone about their daily business in the most responsible manner, but all of this has drifted away in the past decade, during which we saw a national and international regulatory regime which was reckless in the extreme, thus permitting the exuberance and abuse to which I referred and which led to what is not just a national crisis but a very deep international problem.

I will consider the question of an inquiry, but I wanted to express a few basic thoughts of my own on the regulatory system in Ireland. There is a concept of targeting; banks are set up in such a way that they must make a profit for shareholders or owners. Many of us go to a bank for objective advice on the best place in which to invest, make a deposit and the type of account one should use to do this. We may want to know what product to buy if we are to achieve A, B or C. It is impossible to receive objective advice from the most decent and conscientious of staff members, however, if they are driven by targets. It is impossible for them to provide objective advice, although I am not saying some do not do so. From a regulatory perspective, we cannot nurture a regime to provide for the provision of so-called objective advice for clients when there are sales targets for the various products on offer. As we have seen in the past few years, there is far too much of a focus on short-term rather than long-term achievements.

This targeting issue will be extremely difficult to deal with and I do not know the precise solution but it is a good starting point. State entities could provide such advice on whatever products are available from the various commercial banks and financial services operators. I assume there would be a huge cost to all of this, but nevertheless it is an area that should be examined.

The Minister of State and some Senators from Fine Gael mentioned that Ireland's path to recovery has involved our State guarantee for deposits and other covered liabilities to the banking system, the recapitalisation of Bank of Ireland, AIB and the nationalisation of Anglo Irish Bank. We are set to have further capitalisation and further moneys will be put into those institutions, giving the State more ownership of them. We have also seen the establishment of NAMA, and I join the call made on the Order of Business today that we might have a debate on NAMA and its progress so far. Senator Regan made that call and I certainly welcome it. He stated that he was at the European Commission yesterday to see the details of the scheme put forward by the Government to the EU. I am sure we could all benefit from a debate of that nature in this Chamber, so I look forward to it in due course.

One of the key areas is in the reform of our financial regulatory system. We have created the Central Bank of Ireland Commission which replaces the old structure of the Central Bank the Financial Services Regulatory Authority. The new commission has presided over the appointment of the head of financial supervision, Mr. Matthew Elderfield, who will report to the commission on the regulatory and supervisory functions of the new structure. He was appointed in October 2009 and is not an Irish national. We look forward to him bringing his expertise and experience to that position. The Governor of the Central Bank will report on the performance of the Central Bank and its functions, and Mr. Patrick Honohan was appointed to this position in September, the first outsider, as it were, to be in this position. These moves have been welcomed nationally and internationally. Since these measures were introduced, our credibility, ratings and the perception of what we are doing have been extremely positive.

The lack of a global approach to a few basic parameters on financial services worries me. Governments should sign up to a basic set of regulations and parameters to prevent against this kind of crisis happening again. A new regulatory agenda, stronger co-ordinated supervision and effective crisis management procedures were announced by the EU in October 2008. In the last week, we have all seen the copy of the draft EU legislative package on reform of its financial supervisory and regulatory framework, which has been welcomed by most. The new legislation will create the European systemic risk board, which will carry out macro-prudential supervision across the EU. My worry is that recommendations made by the board will not be legally binding, but recipients are expected to act on a comply or explain basis. That kind of light touch suggestion is potentially one of the things that contributed to the difficulties we have had throughout the world. I think the recommendations should be made legally binding.

The second part of this legislation will see the establishment of the European system of financial supervision, which will create three European supervisory authorities, namely, the European banking authority, the European securities and market authority and the European insurance and occupational pensions authority. These will contribute to the development of a set of harmonised rules across Europe. They are welcome, but any recommendations need to be legally binding.

We have been cautioned not to rush this legislation, but it has been broadly welcomed by all our European counterparts, the Department of Finance, the Oireachtas Joint Committee on European Scrutiny, the Irish Bankers Federation and Financial Services Ireland. Senators referred to plans by President Obama to crack down on US banks by banning their ability to own, invest in or sponsor a hedge fund or private equity fund or to make bets with their own money under proprietary trading. He also introduced a ten-year levy on banks to recoup the losses taxpayers will incur on bailed out funds. We also have the option in the NAMA legislation for the bank surcharge.

The Minister of State went into detail on the banking inquiry. While I welcome the approach, we do not need the type of public hearing we have had with tribunals. I am confident that the two reports being carried out by the Central Bank and by the wise man or woman yet to be named will help us to have terms of reference which will make the statutory commission much more effective than the tribunals, which have not served us well at all other than to enrich certain quarters and provide easy copy for lazy journalists. I believe in the capability of the Oireachtas to assess those initial reports when they come, to ensure the correct terms of reference are provided, and to ensure the Joint Committee on Finance and Public Service can and will hold public hearings after that statutory commission has reported. If there are cases to answer, legally or otherwise, we will achieve our pound of flesh on behalf of the public. There is much justified anger and we are all entitled to have answers to the questions.

When the treasury select committee in Britain was trying to identify lessons to be learned from the banking crisis, it received 6,000 written questions from the public. We should encourage that here. Whether it is in Mr. Honohan's report, the report of the so-called wise person or the report of the commission itself, we should allow members of the public to put forward their questions so that they are considered. That worked exceptionally well in the UK, and I note that the journalist who mentioned it in The Irish Times, Ms Elaine Byrne, has set up a website which she hopes will attract some of those questions, namely, www.bankinginquiry.ie. We should welcome that.

I have been pushing for quite some time for changes to the Enforcement of Court Orders (Amendment) Act 2009 which will prevent against the granting of repossession of a primary family residence unless a complete analysis is done of the repayment capacity of the borrower and the original underwriting quality of that application, and that a list of alternative actions other than repossession be assessed. These might include interest-only payments, the institution taking equity and so on.

The higher interest sub-prime personal debt lenders such as Provident plc and another company in Cork are legally charging 187% APR, which is disgraceful. We need immediate reform in this area, as 30% or less is more than enough for any institution to charge. A collector for Provident plc admitted to me today that a formal instruction from his boss is to discourage engagement with the money advice and budgeting service, MABS. That is scurrilous and reprehensible. This is a licensed lender in this State. These are the kinds of reforms I would like to see and I look forward to debates on these issues.

Senator Alex White

I welcome the Minister of State to the House to talk about the promised inquiry that is to be instigated into the banking system and related issues that have brought us to this position. I have had the opportunity to read his speech but I did hear him deliver it, so I do not know if he spoke about whether the investigation of the commission — most people accept that the preliminary stages ought properly to be held quickly and therefore in private — should hold public hearings. That would be a matter for the terms of reference but these should be set by the Oireachtas. There is some suggestion that will be the case. I invite the Minister of State to agree that it would be appropriate for the default position to be that the commission of inquiry would hold its hearings in public. There could be circumstances in the course of its investigation that it might decide a particular hearing should be held in private but the default position should be that proceedings would be in public.

The question of trust is at the heart of this whole controversy and debate. The Minister of State touched on that in his speech. One cannot restore trust by simply asking people to trust. It does not work that way, certainly not in view of what happened in this country in the past two years. Far too much of what has gone on has occurred behind closed doors. People do not trust a whole range of actors, from politicians and the Government in particular to the banks and the construction industry. People cannot be expected to trust an inquiry held predominantly in private. People argue against this by suggesting we want a public execution in St. Stephen's Green and that we will bring on the guillotine, as if this is the only basis for calling for it to be heard in public. I disagree with some members of the Opposition who give the impression, perhaps unwittingly, of wanting an inquiry that would be a public execution, whether of the Taoiseach or anyone else. If the Taoiseach is to be executed politically it will be done at the time of the next general election. I very much hope it is done but that is a matter for the general election. That does not undermine the proposition that a commission of inquiry ought to be held in public to examine the grave issues the Minister of State touched on in his speech. Why should there not be a presumption of hearings in public, with perhaps some allowance for the inquiry to make an ad hoc decision on a particular part of the inquiry to be held in private? I will not re-engage with the differentiation between private and secret drawn on some radio programme, where the Minister for the Environment, Heritage and Local Government, Deputy Gormley, got himself into trouble.

What is the problem for the Government? The Minister for Finance made some reference to it costing €150 million for lawyers. I do not accept this. If people seek to have lawyers representing them, this will be true whether the inquiry is in public or private. If it is contemplated that there should be a cost, there is no way around the argument that if this is not held in the public eye it will not deliver the restoration of trust we all wanted to see. This is an argument the Green Party made, unsuccessfully as it turns out. If this is not held in public, it will not deliver the restoration of trust we all want to see.

There is much talk of the Supreme Court decision on the Abbeylara case when discussing whether this should be considered by a committee of the Oireachtas. It is well worth reading the decision to see what it says. Much as I would like to see committees of the Oireachtas made more robust and holding public inquiries, I do not think a committee of the Oireachtas should be in a position to make findings of guilt of a criminal nature in respect of any citizen in this country. I do not think that is our role. I have no difficulty with that.

Last week Mr. Michael Casey posed 16 questions on this topic in The Irish Times. Senator MacSharry mentioned Elaine Byrne’s article in The Irish Times this morning. She included questions she saw as appropriate and we all have our list of questions. I read Mr. Casey’s 16 questions but I will not detain the House unduly in this regard. I could not find a single question that could not be dealt with by an inquiry staying away from the notion of individual culpability. For example, Mr. Casey asked:

Why did boards and senior management not worry about excessive growth of credit, especially for commercial and residential property? What kinds of discussions took place between boards and management on portfolio diversification and "value at risk"? What, if any, warnings were given by internal auditors, risk managers and credit committees? To what extent were the bonuses and incentives geared to growing the balance-sheet at the expense of quality? What discussions took place on the question of banks depending more on borrowed funds than on deposits? How did banks' internal stress tests compare with those submitted to the Financial Regulator?

Some 16 questions were submitted by this one commentator who was a former senior employee at the Central Bank. We can assume he has some knowledge of this. The public is entitled hear the answers to a range of crucial questions, as it is entitled to view and absorb the process of engaging with those questions and receiving the answers. People are also entitled to see witnesses asked supplementary questions and cross-examined on their answers. The Abbeylara decision does not preclude that kind of inquiry. Of course it can and should stay away from any findings of individual culpability to the extent at issue in the Abbeylara case. At least two of the Supreme Court judges, whose judgment I read earlier, made it clear the decision was to be confined specifically to that inquiry which concerned a tragic incident at Abbeylara and which clearly involved the possibility of findings of individual guilt or criminal guilt. It was not appropriate for the Houses to be engaged in such an inquiry but this seems entirely different.

We do not know how some elements referred to in the speech of the Minister of State will play out. We must take some of this on trust in terms of what the Government will do when the time comes to set the terms of reference for the commission. I was happy to hear the Minister of State saying the initial report would consider international and social issues and the macroeconomic policy environment that provided the context of the recent crisis. The Minister of State referred to the unsustainable increase in property development lending as one of the factors that drove and facilitated an unprecedented property boom. The property boom did not sprout like a beanstalk. It had to be fostered, fanned and sustained by political decisions made by the Government on tax incentives or the rural renewal schemes that were valuable when set up but overextended.

A self-serving attempt is being made in some quarters to reduce everything to wrongdoing by, for example, individual bankers and individual decision makers. We have all made speeches about how horrific were some of the decisions made by some of the banks under investigation by the Director of Corporate Enforcement and the Garda authorities, but much more is involved than individual acts of fault or wrongdoing. I am as critical of those individuals as the next person but the story is much greater and wider than that. It includes political decision making and the kind of culture that fostered links between different sectors of society, including a particular political party. The question arises also in respect of regulation and its quality. It also applies to property incentives and tax incentives for the hotel industry or the refurbishment of a luxury ship on the back of the taxpayers. This was one of the more extraordinary episodes referred to in one of the trio of books published over Christmas. All of these matters turn on how the political system conducted itself and, in particular, how the Government conducted itself. This does not point to individual wrongdoing in the criminal sense but it involves people making bad calls, bad decisions and wrong decisions. The people are entitled to have those who made bad or incorrect decisions scrutinised in public.

I welcome the Minister of State's comments on lax practices in the banking industry, the performance of the regulatory system and the Central Bank and the response of the relevant Departments and agencies, although he was slightly more anodyne than I would prefer. I am pleased that it is not proposed to overly restrict the inquiry's remit but I will have to wait to see precisely how much is achieved by the two initial reports.

I acknowledge the existence of an underlying political tension which will continue to play out in public until the next general election, whenever that may be. However, while this will undoubtedly remain a live political issue, the Government is responsible for more than simply protecting its own position. I do not seek to wage a direct attack on particular individuals when I advise the Government to resist the temptation to use this process to protect itself. The people need a comprehensive, warts and all, inquiry. I may be accused of being naive in even allowing for such a possibility but, the suggestion of an Oireachtas inquiry having been rejected, I would prefer the proposed commission of inquiry to achieve something. We all have an interest in encouraging people to look to the future rather than back at what has happened. The single biggest decision the Government could make would be to deal with these matters in public. I concur with Senator Boyle and his colleagues in this regard. A commission of inquiry in the United Kingdom is at present publicly scrutinising former senior Ministers about their decision to go to war and thereby sacrifice people's lives. If that commission can openly inquire into such a subject, there is an unanswerable case for holding our inquiry predominantly in public, with the proviso that certain matters can be heard in private for given reasons.

Public confidence will not be restored simply by asking people to trust us to produce a report in a year's time. At that stage, any report deliberated on by an Oireachtas committee would be a fait accompli. Let us be straight with each other rather than claim something is in public when in fact it is in private. The Joint Committee on Finance and the Public Service will never be able to scrutinise these matters properly because the inquiry will have concluded. I ask that the public not be told that black is white, that public is private or that secret is open.

Senator Dan Boyle

According to the Order Paper, we are making statements on banking, which is an appropriately broad description given the financial sector's impact on our economy over the past 18 months. In reality, however, we are speaking about the value of a banking inquiry. Strange as it may seem in light of the contributions by certain speakers, I believe we are unanimous on the need for an inquiry. The decision to hold an inquiry having been made, we are now quibbling over the form it should take. It was never going to be a Star Chamber or the political points-scoring exercise some in the Opposition and many in the media wanted. The process has to be able to establish facts in the shortest possible period and the most cost effective manner. Two major tribunals are about to report to the Houses of the Oireachtas. One examined events in 1995 and the other began its deliberations in 1997. In light of where we stand as a country, it is important that we find a better way of answering our questions.

The proposed model has much to commend it. Many assumptions have already been made about whether the inquiry will satisfy people's demands for openness. I happen to believe it will be sufficiently open and responsive but these matters have not yet been determined. The first step in the process will be the determination by an Oireachtas committee of the terms of reference for the commission and the manner in which the committee itself will deliberate the ensuing report. That is an open process. The legislation which governs commissions of inquiry does not prohibit a commission meeting partially or overwhelmingly in public and the deliberations of the Oireachtas committee will be open and full.

This is a time-defined process. The opening stages will have to be completed by 31 May. I do not think four months will be needed, however. The commission will have to be established before 30 June and will meet for only six months. The Oireachtas committee will be able to decide how much more time will be needed once the commission has finished its work. This process can be completed within 15 months.

The process will involve establishing facts rather than identifying particular individuals or key events. Throughout this crisis, the leader of the Labour Party has masked paranoia with leadership in his obsession with the bank guarantee. I have no doubt the bank guarantee and the circumstances which led to it will be investigated. The guarantee was the correct decision, however. The prediction that the State would lose €400 million has not come true. In fact, revenue has accrued to the Exchequer even as we regularised our financial institutions.

Other political points could be scored in regard to the resources that are being invested in recapitalisation and NAMA but these decisions will also have to be investigated by the banking inquiry. At the end of the day, we must ask ourselves whether we are serious about discovering the truth at an acceptable price for the citizen and taxpayer. Many in the Opposition simply want to point fingers and score points. Questions could even be asked about the much vaunted DIRT inquiry, which did valuable work on behalf of the Oireachtas. I question what that process changed in the banking sector and who lost his or her job or faced any kind of legal sanctions as a result. Were many of the people criticised by the Oireachtas investigation the very same people who continued to be employed within the financial institutions and who made decisions that led us to the crisis we are now experiencing? I argue that what we need is a process whereby we get to the truth and the truth is acted upon because that is something we as a country have been singularly unsuccessful in doing in the past.

Many of the contributions from the Opposition are exaggerating, misleading and misrepresenting what is likely to occur over the next 15 months. Given the reportage that has accompanied the recent Government decision, I suppose this is politically fair game. However, I am confident that the process that will follow is the one that will bring us to where we need to be in terms of establishing matters of fact and learning the political and societal lessons that need to be learned from this economic catastrophe.

What has to be the result is that we do things differently and those who were individually responsible for bringing us to where we are will be removed from having any role in how we progress our financial systems and institutions and our regulatory system. If this is not to be the case, then many of the criticisms being made now will be valid. For those on the other side of the House and for many in the media to have decided now that a process is invalid, without seeing how such a process will be fully constructed and operated, is a negation of democracy in itself. If people want their circus, if they want a Star Chamber, then we will not get the truth. The facts will not be established nor will those who individually and collectively brought us to where we are be identified. If the political system is serious about establishing that truth and making things better for the people who live in this country, we need to agree on the processes. I believe the first step of this process, the scoping investigation by an Oireachtas committee, is the key element of this inquiry. How that Oireachtas committee determines how the commission operates and how the Oireachtas committee subsequently decides on the findings of fact of that commission will determine how acceptable, transparent, open and public this process is. On those grounds I ask for a degree of honesty that is singularly lacking among Opposition politicians at the moment.

Senator Paschal Donohoe

We do not need lectures on honesty.

Senator Dan Boyle

We will have a banking inquiry; how effective it will be depends on the Oireachtas.

Senator David Norris

I listened with great interest to Senator Boyle's contribution and wish to make a couple of comments on it. The inquiry should be held in public. This is our money. There has been a failure and it has been at the top. We know the people involved; we do not need to identify them and know that largely they are still there. I am not looking for what Senator Boyle called a circus or a Star Chamber. I know well historically how they operate. That is not what we want in a democracy. However, we want answers and need them in public.

I do not believe the Abbeylara judgment is directly relevant and I am supported in this opinion by a distinguished professor from Maynooth who specialises in this area and who made it perfectly clear to the people on television within the past week. He made the clear point which I had already thought of myself — I was very glad to be sustained in this view by so distinguished an academic — that an Oireachtas committee was perfectly competent and responsible to take decisions in the finding of facts. There is a difference between the finding of facts and the determining and apportioning of guilt and this is where the Abbeylara judgment is relevant. I do not believe it would be impeded by an inquiry carefully established — not to be a Star Chamber because that would be wrong and not a court of law because that would transgress, apart from anything else, against the separation of powers — to examine matters of fact.

I am also concerned about the dating of the terms of reference as we understand it. The Government has been very clear about this. There will be a cut-off point which will ensure we will never know because it will neither be disclosed in private nor in public exactly what threats were used by the bankers which forced the Government into taking the crisis action it took and, in particular, into the rescuing of Anglo Irish Bank which, as I said at the time, was a great mistake. The Minister of State, Deputy Mansergh, has said there was a systemic failure in the bank which could lead to a systemic failure in the banking system. "Systemic" is just jargon. I do not believe for one second that if Anglo Irish Bank had been allowed to collapse, the Irish banking system would be any worse off and that we would have incorporated the element of moral and prudential risk. The people concerned are going to be at it again and we only need to look at America where they are at it again already. The ethos and the profiteering still obtain but at least in America they have open inquiries, bankers are hauled up and seen by the public and the proceedings are recorded in public. In Britain, at the Iraq inquiry, former Prime Ministers, senior Cabinet Ministers and senior advisers are giving evidence in public and seen nightly on television. I do not understand why we cannot do this. The Committee of Public Accounts or some other specially constituted committee would be capable of undertaking this work on our behalf.

The Minister of State makes an attempt to be honest about the situation and accepts that the international context provides only a partial explanation but he frontloads it as if it was the principal explanation. With regard to the constitution of the inquiry, he invokes the notion of a wise man or woman — I imagine it is probably more likely to be a wise man, funnily enough, which I do not find very satisfying, as we are relying on some unspecified person. In order to have confidence, we need to know exactly who this person will be and what their qualifications are. I do not like the idea of relying on one person selected by the Minister.

With regard to the role of the Oireachtas, the Minister of State says the Committee of Public Accounts would need greater expertise than it possesses. That was also true of the DIRT inquiry. The committee is able to summon witnesses, bring in expert advice and witnesses. I am worried that this is a further downgrading and bypassing of the Oireachtas in a manner that the public will see as deeply duplicitous. This is all of a piece with the financial ethos that still prevails in this country which is worrying for ordinary citizens.

Within the last week I had a communication from a constituent who had sent a round robin letter on this subject. He signed himself as "a voter". As always when a person signs a letter as "a voter", I reply by saying I do not believe he or she is a voter and that he or she should prove it. However, I do not care because I take up issues on their merits, not whether I might get a vote or two out of it. The person concerned wrote back and said he was a voter, that he was, in fact, a former colleague of mine, a retired member of the staff of the College of the Sacred and Undivided Trinity near Dublin. He drew my attention to a matter which was very worrying and which impacted on this whole matter of banking. He is raising the matter of the Flavin-Fyffes-DCC case and asks if it is all right to put the opinion of a lower court and a court inspector above that of the Supreme Court. This is worrying. The outcome of this calls our entire financial ethos, the financial system and regulation into considerable question. This is a case of a gentleman. It is no longer sub judice so I can talk about it. It is a matter of historical record. He was a director of both DCC and Fyffes. As a director of Fyffes he came into information about the possible future value of the shares. He unloaded a considerable quantity of shares, thus making a vast profit. The question was whether this was insider trading. A decision was made on the matter by the Supreme Court. The judgment of Mr. Justice Niall Fennelly was as follows:

It used not to be considered any sort of sin to profit financially from the use of secret, private or privileged information. That was how fortunes were made. Now things are different. To trade on the use of inside information is recognised for what it is. It is a fraud on the market. The insider who exploits his access to the special knowledge he enjoys for the purposes of the company in his capacity as executive or director of a company commits a crime. He may be made, additionally, to answer for the profits he has made.

The deal involved in this case concerned €108 million. The question to be considered by the court was the negative trading information that was available to Mr. Flavin by way of his being a non-executive director of Fyffes, but not available to the market. Mr. Justice Fennellysaid:

The appeal turns on the assessment of the likely price effects of a limited body of comparatively simple facts. In large measure, as I will be saying later, they are the sort of facts upon which common sense judgments and opinions can be formed without the input of an extraordinary degree of expertise.

In other words, the information possessed by Mr. Flavin could be analysed by someone who was not expert, an ordinary man in the street. It would be perfectly clear to an ordinary person that the shares were going to tumble in the market in the comparatively near future and it would be prudent to unload them on the basis of that information. The shares were sold by DCC in early February 2000 and on 20 March 2000 Fyffes issued a statement to the market on its trading situation. Over two days its share price fell by 25%. A 10% change is considered material for insider dealing cases. This case was two and a half times the required standard for insider dealing, yet Ms Justice Laffoy found that this event was not of evidential value. However, the Supreme Court judges disagreed with her.

Mr. Appleby applied to the High Court advising of his concerns on the matter. He sought the appointment of an inspector and the court approved the appointment of Mr. Bill Shipsey, SC. Mr. Flavin then resigned. The civil action taken by Fyffes only needed to show that Mr. Flavin, its former director, had dealt while in possession of information that was price sensitive. That was inarguable. As a director of both companies he unquestionably had that information. Mr. Shipsey's report found that Flavin's decision to trade while he was in possession of the negative trading information was a genuine error. The conclusion was that he had made an honest mistake. Mr. Shipsey stated: "Having questioned him at great length, I have concluded that Mr. Flavin genuinely believed he was not in possession of price sensitive information". I would call that a fool's pardon. It is difficult to believe that anyone in Mr. Flavin's position would not have been possessed of the necessary acumen. We were told by the Supreme Court that any ordinary person would be able to analyse the information. One did not have to be a director. We are talking about a man who traded over many years as a brilliant exploiter of the stock market, yet Mr. Shipsey thought he was not capable of coming to a conclusion on the matter. That is an extraordinary state of affairs.

The relevance to banking is given to us in an editorial in The Irish Times on last Wednesday, 20 January. The concluding paragraph is as follows:

There is a palpable sense from the testimony given to Mr. Shipsey that corporate Ireland's top echelons have closed ranks to protect themselves. It is understandable; Mr. Flavin was, they say, the epitome of Irish corporate probity. His peers cannot damn him without, in effect, damning themselves. But [here is the nub of it] they need look no further than the wreckage of the Irish banking system to realise the extent to which low standards in high places have damned us all.

After all this, a decision was taken by the Office of the Director of Corporate Enforcement to take no further action in regard to insider trading at DCC. That is an astonishing decision and requires explanation. How could it be that when the facts are established that this information was the kind contemplated by rules governing insider trading and it was in the possession of this man, nothing was done? Nothing has been done about this by the Office of the Director of Corporate Enforcement, the Director of Public Prosecutions, the Garda or the Financial Regulator despite the fact that DCC had to pay massive damages of €41 million and yet that was seen as merely some kind of error of judgment, an understandable misunderstanding.

That is the kind of thing that, in the same way as the banking scandals, has done immense damage to the reputation of this country in terms of the standards of corporate governance. The phrase "corporate governance" is bandied about often but in the context of this case and of the corruption of the banks, the fact that so many people are still in place makes them as bad if not worse than the bishops of the Roman Catholic Church who have taken a similar stance of digging in their heels. In this situation we were right to be concerned. We were right to demand answers and we were right to demand them in public.

Senator Larry Butler

I welcome this timely debate. I note much time has been spent on the investigation into the banks, which is terribly important. Senator Norris is correct that we must ensure our banking system is of the highest standard and has the highest standards the public will accept. It is also important to have international standards in order to have standing internationally.

At the time the banking crisis occurred the Government did the correct thing. First, it stabilised the banks to ensure the banking system would not fail. That was the purpose of the Government's stance. It has done an important job in that regard. We have now stabilised the banks. We all know why we had a failure in the banking system. Banks lent too much money. They borrowed cheap money from Europe. The squeeze on the banks to send that money back began when Lehman Brothers crashed. It was very simple. The over-borrowing from outside the State will be evident when we hold the inquiry. The world banking crisis caused our banks to collapse because they had over-borrowed. We must ask why the management in the banks over-borrowed. That will be what the inquiry will set out to do.

I have observed people from the banking world attend Oireachtas committees. I do not believe some committee members are up to scratch in terms of asking the right questions. A specialist organisation is required to carry out the scoping inquiry which will flush out all that happened behind the scenes. That is vital. The Government has correctly identified how that can be done. When the information comes to light in the report, which it will do, then it can be discussed in public. This is the whole question of credibility on which this inquiry should stand or fall. Whatever is found will be discussed publicly in the Oireachtas, which is very important.

I do not want to spend any more time on the inquiry because the banks have a more important function than that. Our whole industry and commerce, and the life of the country, depends totally on a good banking system and how it functions. We all know there has been a credit squeeze since the banking crisis. All small businesses and industry have been badly strapped for cash. Small companies which could normally have traded themselves out of difficulty, even with the world downturn, have found that, because of the short credit situation, they have had to lay off staff. This has been particularly seen in the construction industry, which has collapsed.

The construction industry played a major role in the strides we made for some ten to 12 years. However, it must be said that developers and builders over-built with regard to the supply that was required in the market. When something like that happens, it is because of bad business decisions. It is important to examine both banking and the construction industry in conjunction. When construction was doing extremely well, as we all know, anything up to €25 billion in tax was coming in from that industry. While nobody was complaining about that, everybody had a fair idea this could not last, but nobody was prepared to shout "stop". Now, in an example we heard last week, a lady running a small business in Wicklow who had not paid €250 on her account was threatened with the closure of her business account. We cannot allow that type of thing to happen in a banking system which the Government is supporting.

I wish to refer to the EBS-Bloxham Stockbrokers report on mortgages. We have a major problem in that 35,000 people are more than six months in arrears on their mortgages and a further 20,000 people are more than a year in arrears. The Government cannot stand idly by and not ensure that proper regulations are put in place in the banking system on the basis of the EBS-Bloxham report. There is an opportunity with the Finance Bill to legislate for sub-prime lending. The banks we are supporting at present are going along with the regulation we have put in, although we have not put in enough regulation. However, we need to regulate the whole banking market and there is an opportunity to do so through this inquiry to ensure a better, fairer banking system.

Joe Public, who is supplying the money to keep the banks in business, must have a fair shake. We are not suggesting for a minute that people should default on their mortgages or that mortgages should not be paid. We are suggesting that a moratorium of at least two years be introduced to allow people to add on to the end of their mortgage. Also, we must ensure this operates across the whole banking system, not just for these six banks, because it is mainly the other banks which are causing us problems.

We must ensure that good regulations are in place in the banking system when the inquiry is finished. We generally know how the whole situation has happened but it is important we do not make the same mistakes again, and that we put checks and balances into the system to ensure we have a more hands-on approach to the banking system. This is an opportunity to do that.

It is important the inquiry is carried out and it must be done in a proper, methodical way. We have all seen what Star Chambers do. We have had inquiries for the past 12 or 14 years but what did they do? They made already wealthy people in the legal profession wealthier. We need to be very careful in future to ensure we do not have a similar episode, with inquiries running for so long and costing the taxpayer close to €1 billion, which could happen. What we were doing in Dublin Castle, chasing people for £100 here or £500 there that they got as political donations, was crazy. The really criminal situation, if one read the newspapers last week, was that 20 or 30 people became millionaires over and over through making inquiries into people who were getting £100 or £500. That is the scandal. Hopefully, we will ensure we do not have a continuation of that because it was the worst value for money the taxpayer ever got. This is proved by the fact most people are saying we should close that inquiry down.

Senator Paschal Donohoe

There is a need for plain speaking in regard to the discussion we are having. The reason there will not be a public inquiry into the causes of our banking crisis is that the Taoiseach and his predecessor do not want to find themselves in a situation where they are being questioned or interrogated in public regarding their role in the creation of the current difficulty. That is it. The Taoiseach, who previously acted as Minister for Finance, was at the heart of the regulatory regime and the financial environment that created the difficulty our country is now dealing with. The single reason this will not happen in public is that the Taoiseach and his party do not want it to happen in public because they do not want to find themselves in a situation where the public can see them questioned and challenged on the role they played in creating that difficulty.

I have heard other colleagues refer to the Chilcot inquiry that is taking place in the UK at present into the reasons the British Government took its country to war. If that Government can mount an investigation in public about why its country went to war, why are we as a country not capable of delivering a process and a platform that in public will question and seek to understand the causes of the huge, historic difficulty our country now finds itself facing?

If one types "Chilcot inquiry" into an Internet search, one can see the process taking place live. Members of the public have a right to attend and to understand what has happened because of the war their country is in, and the loss of life the country faced which has been incurred in Iraq and elsewhere. We have heard members of the Government offer justifications as to why the inquiry cannot be held in public. They have said there is not the level of expertise required in the Oireachtas to do this work properly, but we are the people elected to take responsibility. Members of this Chamber and the Dáil supported the Government and passed legislation when it was needed to allow the banking system to survive, to put in place an agency to enable the banks to be kept in place and monitored. We are the people, to whom the public look to be responsible, to lead the country and take responsibility for the national finances. However, the Government concludes that we are not capable of carrying out an investigation into why this happened. The Abbeylara judgment will be rolled out as a reason the investigation cannot take place in public. Many of my colleagues have spoken about how irrelevant that argument is to this discussion. This investigation will not be about the guilt of individuals but having an forensic understanding of the role agencies and bodies played in creating this huge mess that will have to be paid for by this and the next generation of taxpayers.

Senator Butler who has considerable expertise and knowledge in this area has said we know the reasons, on which I have to completely disagree with him. We do not know how this crisis happened. We do not know why the Irish regulator stood by and watched the banking system put in place the seeds of its own destruction. We do not know why there was complete regulatory failure for three, four or five years in the run-up to implementation of the banking guarantee scheme. Furthermore, we do not know why the then Government decided to put in place a regime of tax breaks that supported one sector of the economy, despite the fact that members of my political party, to whom the Government would not listen, and organisations such as the OECD and the IMF said it was risky, not sustainable and would create trouble for the future. This inquiry is relevant not only because of the cost with which the taxpayer will have to deal or the tens of thousands of jobs that have been lost owing to what has happened in the banking system, but also because if we do not do this work properly, we will run the risk of the country finding itself in the same situation, facing the same costs as a result of the same mistakes being made again.

A recent study of the history of financial crises was published in the United States by two respected academics who titled their book, This Time Is Different. It shows how governments of all persuasions, regulators, shareholders and commentators, each time a country was in the middle of a huge boom which appeared to be unsustainable, convinced themselves that this time it was different, that it was not the same as the last crash and that the boom would be sustainable. We cannot allow that to happen anymore because the cost of economic crashes is increasing. The cost of this crash and the effect it has had on the national finances and will have on future generations are immense. It is simply unthinkable that this would happen again.

It is also unthinkable that putting in place a process such as this will placate and satisfy taxpayers who will have to pay for it. It appears to be easy to lose one's sense of outrage about what is happening. It is easy to assume that all of this is normal, that it is just part of the new political events with which we will have to deal. It is easy to say that what we need to do is to default back into normal political and business life and that everything will be okay. However, at the heart of the current economic depression, most of which we inflicted on ourselves, is the political failure of the Government to challenge the decisions the institutions made, to say they were unwise or unsustainable, and to sound warning bells.

The process that is to be put in place in private is being put in place for explicitly political reasons. This is being done to allow the Government to avoid being subject to criticism and castigation. However, far more worrying is the fact that we will deprive ourselves of the opportunity to learn the lessons that should be learned and participate in the process to make sure this will not happen again. That is truly unforgivable.

Senator Jerry Buttimer

I welcome the Minister of State, Deputy Haughey. Senator Donohoe was right in saying there would not be a public inquiry because those in government were afraid to be held accountable in public for a failed policy of regulation at State level, in the Central Bank, the office of the regulator, the Department of Finance, the Cabinet room and at the top in the Taoiseach's office. We need — to use that dreaded cliché — openness and transparency more than ever. As Senator Donohoe said, there is an economic depression and a malaise among the people, not because they want to be depressed but because they were placed in a position where the banking system almost collapsed and they, in turn, lost everything. I do not subscribe for one minute to the idea that there should be a witch hunt, a star chamber or anything like it because I am not interested in such an approach. What I am interested in was touched on by Senator Quinn who spoke on the Order of Business about brand Ireland, rebranding Ireland as a country with a highly educated workforce, open for business to the world — the west and the east — and an economic tiger ready to do battle again. Unfortunately, that will not happen.

The Green Party huffed and puffed and, unfortunately, blinked. The Minister for the Environment, Heritage and Local Government, Deputy Gormley, Senator Boyle and others spoke about the need for an open inquiry. They went to the Cabinet and had a meeting with the Taoiseach behind the scenes but the outcome is that we will have a secret private inquiry.

Bruce Arnold wrote about the impotent bank inquiry being the product of a castrated Dáil. Is he right? He might not be far wrong. This is not about distant individuals but about the operation of the State in not being managed properly. The banking system in Ireland has managed to inflict significant damage to itself, as Senator Donohoe said. It did so by abandoning the rules governing the availability of credit, borrowing and the granting of loans and it lost a sense of morality, value and respect for people. The ordinary staff member in the Bank of Ireland in Wilton which I frequent or the TSB bank is abused and blamed because he or she is on the front line rather than their superiors. That is unfortunate.

When the American banking system was in turmoil, an inquiry was immediately initiated and the people had results pronto. Compare that to what has happened here; belatedly the Government has proposed an inquiry, the outcome of which will be a hodge podge of a commissioned report and a commission of investigation. The best way to restore trust in the banking system is to have an open and transparent inquiry to delve into the system, Government economic policy and the lack of regulation, not only during the past 12 months but also in the period leading up to the recapitalisation of the banks.

The current situation is predominantly the product of the Ahern era. In the case of the Murphy report, to their credit, Archbishop Martin and Cardinal Brady asked everybody concerned to co-operate. They told everybody to surrender documents, hand over everything that was required and co-operate fully. What happens if our banking people decide otherwise and say they will not participate or will only co-operate partially with the inquiry? It is incumbent upon the Minister to issue a decree that all members of banks — governors, directors, chief executive officers and those involved in staffing — are to comply fully with this investigation. If they do not, the banking inquiry will be a wasted opportunity and will let those who need to be brought to account off the hook.

The public has lost faith in the Government, the regulatory authority and the banking fraternity itself. Deputy George Lee stated: "The collapse of trust has led to the breakdown of the banking system and a further deterioration in faith in the regulatory system". We need to allow our banking system to gain trust and work with the people. I doubt that what is being proposed by the Government will achieve that. We must demand answers and we must have results from this inquiry. If we do not have accountability, what will happen in the future? What will happen to the ordinary person, an gnáth duine? We have an opportunity to work with what we have. We may not like it but it is an opportunity that must not be lost, because if it is, the noose will hang empty of those who brought this upon us.

I hope this inquiry will show not just what went wrong and the bad decisions and policies, but how we can prevent it from happening again. We must never again have a situation in which ordinary people, small and medium-sized enterprises and those who put away their life savings are left penniless. A woman came into my office yesterday who, because of the malaise in the banking fraternity, has lost everything. She is left with nothing because she saved money for a rainy day or for her retirement. This inquiry must work. I am afraid I have no faith in what has been proposed, but I hope I am wrong. The Minister must listen to the clarion suggestions being given by the Opposition, not just here but also in the other House.

Senator Paul Bradford

I am glad to have an opportunity to say a few words on this important subject. I look forward to hearing from the Government over the next few weeks a more fleshed out presentation of what the banking inquiry will comprise. I am at one with my colleagues in saying I hope and demand that it be as public and as transparent as possible. In the words of the old adage, not only does justice need to be done, but it must be seen to be done. There are many people out there who want to see hard questions asked of politicians, regulators and bankers in public so we can pin down the policy decisions that have brought us to our current state of economic chaos and by whom they were made.

We are in a state of economic chaos and we can only hope that from the embers of the Celtic tiger we will be in a position to achieve growth in the economy and rebuild the country. It will require a new type of politics and a new ethos in both public and economic life. I will repeat what I have said here many times over the last number of years: regrettably, greed took over our society from top to bottom. A person's standing in society was no longer related to the person's contribution to society or to their community but was based on an appalling flaunting of wealth and property. When the new culture of celebrity took over, with the back page of the Sunday Independent telling us whose birthday party took place where, and became more important than real news stories about public life, investment and job creation, we went down a very sad road. A whole new generation of people took over as the men and women to look up to, and we lost our values and sense of proportion. It is no wonder people were under enormous pressure to borrow money they could not afford to pay back and, shockingly, banks provided funding for the sort of lifestyles that could not be sustained.

When the banking inquiry concludes, the answers will not be surprising. Too much money was given out, improperly, to too many people for projects that were dreams rather than reality. However, we are where we are, as the cliché goes, and we must try to work our way out of here. It is to be hoped the inquiry will at least allow the Irish public some degree of satisfaction in terms of hard questions being asked and, more importantly, answered. From the top of our political and banking establishments to the bottom and from one regulatory body to another, there are profound questions to be asked.

The problem was the loss of proportion and the political choices that were made, particularly in the period from 1998-99 to 2001-02. In the 1977 election manifesto we probably saw the worst example of buying of votes through budgetary policy, and it was a disaster that brought the country to the verge of economic ruin. We thought we had learned from the experience, but there was a repeat of that sort of policy in the latter years of the 1990s and the early years of the new millennium. There are substantive political questions to be asked about the decision making process at that time. As Senator Donohoe said, there is a large body of evidence that in terms of our reliance on the property market, and from the points of view of taxation and job creation, we were going far down the wrong road, yet we continued with those policies.

I concede, from the perspective of those who are in politics, that it is often difficult to say "stop." If money is available to carry out projects which in the short term are seen to bring in taxes and create employment, demands that an alternative course be charted are not popular. There was not much protest from most sections of the political establishment, although a number of figures will stand out, to their eternal credit, for calling a spade a spade. My party colleague Deputy Richard Bruton, for example, was sound in his economic assessment.

The subjects of the policy decisions taken, the failure of the regulator and the broader policy on banking are worthy and demand the deepest possible level of investigation. As one or two of my colleagues have said, we are not looking for a witch hunt. If one reads the newspapers or listens to chat shows on the radio, there does appear to be a certain witch-hunt mentality, but that will not butter anyone's bread. We need a calm, reflective, yet thorough analysis of what went wrong.

It is obvious that the more public the inquiry, the better. I concede that for the benefit of the country it may well be necessary to do work relating to sensitive economic and banking information in private, but it is important to assure the public that the investigation will be thorough and complete while ensuring as much as possible of the inquiry will be held in public. We do not want a tribunal or committee that will take ten to 12 years to report.

I was a Member of the Lower House when tribunals were set up in the late 1990s with the expectation of an early conclusion. I saw an image of a much younger David McCullagh, the RTE political correspondent, on "The Week in Politics" last Sunday week. It was from the autumn of 1998 or 1999 and he was proclaiming that the Moriarty tribunal would complete its work by the following spring or summer. He was only a decade out. We are not seeking a tribunal of inquiry. A mechanism is needed which is much more precise, definitive and conclusive and which will allow the questions on people's minds to be asked clearly and precisely and as publicly as possible. For all our sakes, I hope the Government gets the balance right and that we learn from the political, economic and banking mistakes for which the country is paying a high price.

Senator Paddy Burke

I welcome the Minister of State and I am grateful for the opportunity to contribute to the debate. I wish the Minister for Finance the best with his illness but I am disappointed he is not present.

Senator Donohoe put his finger on it when he said there should be a great deal of straight talking. One wonders about all the fuss over a banking inquiry and how sophisticated it needs to be. I am most disappointed by the Government's attitude. It is an indictment of the Government parties that an Oireachtas joint committee is unable to conduct the investigation. When one considers the investigatory work done by Dáil committees over the years, one has to wonder why the Government is taking this position. Oireachtas Members lead the country and the Government is saying Members who are elected to run the country are not able to carry out an investigation into what went wrong in our banking system. It is a shocking indictment of the Government parties that they would say that about themselves, given they have a majority on parliamentary committees. The Taoiseach is saying his own colleagues in this House are not capable of carrying out an inquiry into the banking system.

Such an inquiry should be simple. Not many questions have to be answered or conclusions reached. Government parties did not listen to what people were saying over recent years. Many Members, during debates, referred to 100% and 120% mortgages and the Government did nothing about them. It was crazy that people could take out a mortgage to buy and furnish their houses and to buy one or two cars. The bankers knew what was happening and the Government must have known as well. It would not take much organisation to bring in the previous regulators and ask them why they did not do something about this and why, when Anglo Irish Bank's loan book went bananas during the final few years of the bubble, they did not act. That is unbelievable and I cannot understand why the Minister of State said the Governor of the Central Bank pointed out that elected Members who run the country would not be capable of carrying out this investigation into the banking fiasco of recent years. That is an unbelievable comment. If I was a member of a Government party, I would take issue with these comments at a parliamentary party meeting.

The Government failed in its duty. The McCarthy report clearly illustrates how Exchequer finances went out of control from 2003 onwards. The spending gap widened and surely the Department of Finance saw this. Officials should have done something about it but, to bridge the gap, the construction boom was fuelled by repealing section 23 tax breaks. There were many section 23 developments in counties along the Shannon basin such as Roscommon, Leitrim and Longford which are in trouble now. Longford featured on "The Frontline" last night and the problems that have resulted were highlighted. These developments were built in many other towns and tax breaks were provided for the building of hotels and car parks. The Government closed off section 23 by saying builders who had planning permission had to complete their work by 31 December 2006. There was a race to finish which put pressure on all sectors of the construction industry because workers were scarce. This drove prices higher and fuelled the bubble. The Department of Finance should have known this would happen. It would not be difficult to ask officials in the Department why they abolished that tax break in 2006. A general election was pending and the Government wanted to take in additional revenue to keep the coffers full and to ensure the gap in expenditure would not widen. The officials involved are still in place and they know what happened. They were culpable in all this. They were part of the problem.

These simple questions could be asked by an Oireachtas committee. It would not take long, following the appointment of a wise man, to find out what happened. I do not know which wise man or woman will be appointed to head up the Government inquiry but I presume if it was four or five years ago, the wise man would probably have been Seán Fitzpatrick and the wise woman would have been Gillian Bowler. I do not know who will be the wise man or woman on this occasion. Many wise men were interviewed on television during the boom and they all had their own view. The people want to know immediately what happened because they are suffering. Bank managers are calling them up to ask them to pay their loans where they have lost their jobs. Ordinary people, for whom I have much sympathy, are experiencing great hardship.

If a simple investigative committee was put in place, it would ask plenty of questions and would, more than likely, get some of the answers in a short period of time with little cost to the Exchequer.

Minister of State at the Department of Education and Science (Deputy Seán Haughey)

I thank Senators for their considered and useful contributions to this issue. I will attempt to respond to as many as possible of the points raised by Senators in the time available to me.

As Members know, last week the Minister for Finance announced the Government's decision to set up two reviews and a statutory commission of inquiry to complete an expert, authoritative and structured examination of the financial crisis and its impact in Ireland to understand where the crisis in the banking system originated and assess whether lessons can be learned to inform our future management of the sector, both in regard to institutions and their management and direction and in regard to the management of risks and stability issues within the regulatory and Government systems.

Over the coming months, a significant amount of work needs to be completed to return our banking system to health. We need to complete the first stage of the critical transfer of assets to NAMA, we need to agree the banks' restructuring plans and their future capital requirements and we need to progress the consolidation of the building society sector. I remind the House that the banking system is still fragile; we are not out of the woods yet. It is important that the work, as outlined by the Minister of State, is completed before we turn our attention to the formal inquiry we all agree must take place. That is why the Government proposes the multi-stage investigation. That investigation will be completed by the end of the year.

I wish to address the issue of holding the inquiry in public which was raised by Senators Alex White, Norris, Donohoe and others. Providing for a commission of investigation to conduct its business in private would allow for the restructuring of the banking sector and the recapitalisation of relevant institutions to proceed in advance of a public debate by the Oireachtas committee. Under the legislation, the commission would be able to conduct specific parts of its investigation, for example, into the affairs of individual institutions, in private. This will minimise the risk of interfering with the ongoing Garda and Office of the Director of Corporate Enforcement investigations. Later stages of the commission's work dealing with the other institutions and the broader system could, subject to the agreement of the parties involved, take place in public.

The Oireachtas will be involved at each stage of the planned inquiry process. An appropriate Oireachtas committee, the Oireachtas Committee on Finance and the Public Service, which would seem to be the most relevant, will meet the governor and the independent expert at the outset of their work to be briefed on the members' priorities for investigation. The two preliminary reports, when completed, will be laid before the Houses of the Oireachtas and the Oireachtas committee will be invited to consider the findings of the reports.

The terms of reference and draft Government order to establish the statutory commission of investigation will be laid before the Houses of the Oireachtas and the report of the commission of investigation will, when completed, be laid before the Oireachtas for further consideration by the committee. It is open to the committee to hold public hearings on the report.

There has been some reference to the DIRT inquiry as a possible model for the inquiry into the financial crisis but investigative work in that inquiry was done by the Comptroller and Auditor General. An Oireachtas committee cannot be a court of judgment on private individuals and cannot find on disputed issues of fact. That is why the Government has decided to adopt the commission of inquiry mechanism and why it has chosen a framework for investigation that is most effective and efficient.

For an investigation to proceed speedily and cost effectively, it must be able to conduct its business in private. The only other alternative that allows us to investigate a matter conclusively is a tribunal of inquiry. The Dáil and, I believe, a majority in this House are unanimous in the view that a tribunal is too expensive and too protracted. That was why the Oireachtas enacted the Commissions of Investigation Act 2004.

The establishment of the two reviews and the proposed statutory commission of investigation will provide the Government and the Oireachtas with the necessary information to identify the lessons to be learned from the crisis and to put in place the necessary systems and structures to manage more effectively banking and the financial services sector. It will also enable banks to resume their essential role in the economy, the extension of credit to business with opportunities to invest. This, together with the initiatives the Government is pursuing to restore competitiveness and put the public finances in order, will result in Ireland being well placed to take advantage of the economic recovery beginning to take hold around the world.

Again, I thank Senators for their constructive contributions.

An Cathaoirleach

When is it proposed to sit again?

Senator Marc MacSharry

Tomorrow at 10.30 a.m.