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Seanad Éireann debate -
Tuesday, 6 Jul 2010

Vol. 204 No. 1

Central Bank Reform Bill 2010: Second Stage

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

The Central Bank Reform Bill 2010 is the latest part of our legislative response to this most serious economic and financial crisis in which regulatory failures played no small part. There are indications that the economy may be over the worst and the latest data provide grounds for optimism about our short-term economic prospects. As the international recovery gains momentum, we should see a full year of economic growth in 2011. In that context, I welcome international recognition of the credibility gained by this country in both addressing the fiscal crisis and in stabilising the banking sector. Just last week I heard Ms Gillian Tett, the respected commentator from the Financial Times, refer to Ireland as the country that has acted most decisively in dealing not only with our fiscal difficulties but also in addressing our financial crisis by measuring the extent of the problems in our banks and moving decisively to recapitalise them. Last week’s CSO national accounts figures for the first quarter of 2010 show that gross domestic product expanded by 2.7% between the final quarter of last year and the first quarter of this year. This provides concrete evidence that the co-ordinated measures taken by Government to address competitiveness, the public finances and the banking system are paying off, with improved confidence and clear evidence of a return to growth in output. The latter is an essential prerequisite for employment growth. The CSO figures suggest the prospects for growth this year are somewhat better than previously assumed. They also show that exports are performing strongly while consumer spending has stabilised. This, coupled with the figures for consumer confidence since April, bodes well for the remainder of the year.

Unemployment is unacceptably high. The best way to create and protect jobs is to return to growth in output. Every measure the Government has taken in the past two years was aimed at getting those who have lost their jobs back to work. The CSO figures show that the policies we have been pursuing are the right ones and that we must continue with our plan. In the period 2011 to 2014, it is expected that growth will return to the economy on an annual basis and that sustainable growth in tax revenues will resume.

The Government is keen to ensure this momentum is maintained by the reform and reconstruction of the financial system. The reform of financial regulation is on the agenda of political leaders worldwide and has dominated political discourse in the United States and the United Kingdom as well as at multilateral forums such as the EU and the G20.

The Central Bank Reform Bill 2010 is a crucial step in a comprehensive programme to put in place a domestic regulatory framework for financial services that meets the Government's objective of maintaining the stability of the financial system, provides for the effective and efficient supervision of financial institutions and markets, and safeguards the interests of consumers and investors. This is the first step in a three-stage legislative process to create a new, fully integrated structure for financial regulation. It provides a statutory basis for the new structure that will replace the existing Central Bank and Financial Services Authority of Ireland, CBFSAI. A second Bill, to be published in the autumn, will enhance the powers and functions of the restructured Central Bank in regard to the prudential supervision of individual financial institutions, the conduct of business, including the protection of consumer interests, and the overall stability of the financial system. A third Bill will consolidate the existing statutory arrangements for the Central Bank and in respect of financial regulation in the State.

The Central Bank Reform Bill underwent an extensive examination in Dáil Éireann during nine days of debate. I thank Deputies on all sides for their contributions to that debate. I look forward to constructive engagement with Senators on the Bill in this House.

We know from the two preliminary reports into our banking crisis that the regulatory system was wholly inadequate and badly in need of reform. A good start was made to the reform process by the appointment of Professor Patrick Honohan as Governor of the Central Bank and Mr. Matthew Elderfield as Financial Regulator. Both of these appointments have boosted public confidence in the system. The bank has also moved to bring high calibre expertise into its organisation through recent senior appointments in the areas of market supervision, enforcement and risk assessment.

The Central Bank Reform Bill 2010 provides the job specification for these important positions. It sets out a fit-for-purpose, unified Central Bank which will ensure problems do not develop in the cracks between organisations. As the Governor of the Central Bank observed in his recent report, the complex structure which obtained in the CBFSAI "could have exposed the system to the risk of some ambiguity in the assignment of responsibilities". He also stated that "few would now defend the institutional structure invented for the organisation in 2003". The Central Bank recently published an ambitious new approach to banking supervision under a four-part plan to institutionalise the lessons from the financial crisis. This plan is predicated on the changes to the supervisory structures brought about by the Bill.

The Financial Regulator recently completed a consultation process on a new code of practice for corporate governance which proposes new standards for Irish boardrooms and which will be implemented from October. Once the Bill is enacted, the way will also be clear for the introduction of a new fitness and probity regime to ensure those in positions of responsibility meet the high standards expected of them.

The head of financial regulation has also announced a review of the approach to how overcharging is dealt with under the consumer protection code. He has stated that it is clear from recent cases that change is needed in respect of how firms deal with charging and pricing issues and he is conducting a review to resolve overcharging problems and to strengthen the grounds for enforcement action.

It is clear we need to put legislation in place without delay to ensure the reconstituted Central Bank will have the legislative backing it requires to deliver on this ambitious programme of reform. We must emphasise to the industry that the old way of doing business is over and that all has changed in the world of financial regulation.

The two preliminary reports on the banking crisis by Professor Honohan and Messrs. Regling and Watson present an expert analysis and assessment of the issues. The Government welcomes the reports and commends the analysis of the issues undertaken by their authors. Their findings provide the basis for the preparation of terms of reference for a statutory commission of investigation.

The reports have drawn attention to a number of significant issues that require further consideration, including bank practices, risk management and governance failings in the covered institutions, the performance of the Central Bank and the Financial Regulator, and the role of fiscal policy and the macroeconomic management of the economy overall. The Government has accepted the findings of the reports and has referred them to the Oireachtas Joint Committee on Finance and the Public Service. I attended meetings of the committee on two occasions, most recently yesterday, and have had very constructive discussions with its members on the scope of the terms of reference for the commission of investigation. The Government decided upon those terms of reference this morning. A motion providing for the establishment of the commission of investigation will be tabled in the House in the days ahead.

I have also agreed with the joint committee the scope of the motion of referral on policy lessons on macroeconomic management to be referred to it. These policy lessons arise from the conclusions of the Regling and Watson report and the committee has agreed to consider these issues and to report back to both Houses by 30 October next. On the basis of the committee's agreement to both of these issues, the Government proposes to table before the end of the current session in both Houses a motion to approve the draft order to establish the commission of investigation and a motion of referral of the policy issues to the committee. I propose to set out the issues in more detail when tabling those motions.

Senators will be aware that there is to be an independent review of the Department of Finance by a small group of experts with relevant international and domestic experience. The purpose of the review is to evaluate the systems, structures and processes used by the Department of Finance during the past ten years in providing economic advice to successive Ministers for Finance and the Government.

The Central Bank Reform Bill 2010 is necessarily complex but its central aim is to put in place a unified and integrated structure for the bank. The changes to the current arrangements are the creation of a new Central Bank commission, the dissolution of the Irish Financial Services Regulatory Authority, IFSRA, the establishment of a new management structure within the bank, and the introduction of new accountability measures, particularly those which will ensure enhanced accountability to the Oireachtas.

Sections 5 and 6 carry over the terms and conditions of employment of existing Central Bank employees and set out the arrangements whereby staff of the bank may be seconded or transferred to the National Consumer Agency to carry out functions now being transferred there. Sections 7 to 12 set out the continuity provisions that enable the Central Bank to carry on various activities it is inheriting from the previous regulatory structure. These include the continuation of legal instruments, superannuation arrangements, applications for licences and permissions and regulatory actions.

Part 3, covering sections 18 to 44, inclusive, provides for a fitness and probity regime to be applied by the Central Bank. The Bill provides new powers for the bank to ensure the fitness and probity of nominees to key positions within financial service providers and of key officeholders within those providers. It was my view that rather than waiting for the next Bill, which will enhance regulatory functions, these powers should be brought forward in this legislation because of their importance in helping to set the tone of the new regulatory arrangements. These new powers for the bank will help to restore confidence in the management of financial institutions, both domestically and in international markets.

Schedule 1 contains the key reforms to the structures of the bank. Items 1 to 19, inclusive, set out various changes to definitions and interpretation provisions. Items 20 to 27, inclusive, relate to the establishment of the Central Bank of Ireland, its functions and objectives and other related matters. The bank's primary objective is to maintain price stability. Among its other objectives and functions are the stability of the financial system overall, the proper and effective regulation of financial institutions and markets, the provision of analysis and comment to support national economic policy development, and monitoring of the provision of financial services having regard to the public interest and the interest of consumers.

Importantly, item 23 inserts a new provision which puts beyond all doubt the independence of the bank, the Governor and the Central Bank commission in matters relating to the Treaty of Rome and the Statute of the European System of Central Banks. I welcome the recent opinions of the European Central Bank on the Bill. As I have indicated, I am keen to work closely with the ECB to ensure the best possible reform of the structures of the Central Bank of Ireland. The ECB's opinions are an important part of that process. The Department of Finance has been examining the opinions in conjunction with the Office of the Attorney General. Two amendments were introduced on Report Stage in the Dáil to take on board some of the main independence issues raised in the opinion. One of them is intended specifically to reinforce the Governor's sole responsibility for the performance of the bank's objectives regarding ESCB related tasks. I will consider any further legislative changes that might be appropriate, and how they might be implemented, in the context of the second Bill in the autumn.

Item 28 substitutes new sections into the Central Bank Act 1942 relating to the new board room arrangements for the Central Bank commission. The commission will consist of the Governor, who is the chairman of the commission, the two heads of function, the Secretary General of the Department of Finance and between six and eight other members to be appointed by the Minister for Finance. The Bill provides new powers to enable the commission to establish advisory groups with a specific requirement that groups be established on consumer functions and credit unions. I will return to the issue of credit unions later in this speech.

Items 30 to 34, inclusive, deal with the Governor. To underpin the independence of the Central Bank, they provide that the Governor has sole right to determine budgetary or funding issues in respect of the bank. The Central Bank Act 1942 is being amended to remove the requirement for a unanimous resolution of the board of the bank to request the removal of the Governor for specified grounds of serious misconduct. This requirement was an anomaly in the original legislation that did not make sense. In removing it, there is no diminution of the security of the Governor in his post but merely a more logical procedure for an admittedly unlikely scenario. The Minister for Finance may appoint members of the commission if he or she is satisfied that the nominees have knowledge in a relevant field of expertise, such as financial regulation, banking, insurance or consumer interests. Members are ordinarily appointed for a term of five years, except for the Governor, the heads of function and the Secretary General of the Department of Finance, who serve as members for as long as they hold their respective offices. There are exclusions for Members of the Houses of the Oireachtas, the European Parliament and local authorities, as well as people who consent to be nominated to become members of those bodies. They are not eligible to hold the office of head of function or to become a member of the Central Bank commission.

Item 39 sets out the management, finance and accountability provisions for the Central Bank. I am pleased to be able to enhance the role of the Oireachtas in overseeing the performance of the bank. This was a major consideration for the Government when deciding on the crucial elements of the reform package. The bank is required to submit a strategic plan every three years to the Oireachtas, through the Minister for Finance, specifying the bank's objectives and its plans to achieve them. An annual regulatory performance statement must be prepared and presented to the Minister for Finance which will include details of the activities of the Registrar of Credit Unions. This performance statement will form the basis of an examination by the relevant Oireachtas committee which may require the Governor, the head of financial regulation or the head of central banking to appear before it to be examined on the contents of the statement. This will ensure regular parliamentary consideration of the state of financial regulation in Ireland and help to ensure there is no repetition of the mistakes of the past. A feature in the Bill relating to the performance statement is that it gives the Minister for Finance the power to require the bank to report on any matter in the statement. This important oversight provision will add to the accountability of the institution.

The bank will also undergo an international peer review of its performance by another national central bank or other suitably qualified person at least every four years. Part 5 of Schedule 2 provides for the transfer to the National Consumer Agency of certain functions formerly performed by the consumer director, such as the provision of information to consumers in respect of financial services, the promotion of the development of financial education. The supervision and regulation of products, markets and institutions from a consumer perspective will remain with the Central Bank. The consultative consumer panel and the consultative industry panel are being abolished and replaced by new and better arrangements through which the bank will have the power to establish expert groups to advise it on the exercise of its functions. Specifically, it must establish a group to advise on consumer functions. Amendments that were introduced on Committee Stage in Dáil Éireann have further strengthened these arrangements. Consumer functions will have to be planned and reported on in the regulatory performance statement. The bank's performance in this area will be subject to Oireachtas scrutiny and oversight. The bank will be required to report on all advisory groups in its annual report.

I am aware that Senators are interested in the credit union provisions of the Bill. I am a strong supporter of credit unions. I recognise their special place in communities throughout this country and their civic-minded nature. The Government is aware that banks have let us all down very badly, whereas throughout the same period the credit union movement has continued to meet its mandate and provide a valuable community-based service to its members. I reiterate that credit unions are and will remain an important part of the financial sector in Ireland. The credit union movement continues to play a critical role in meeting the financial needs of our communities. The Government is fully committed to a financial and regulatory system in which credit unions can develop and expand their activities.

The Government is seeking to copperfasten the place of credit unions in Irish life and their central role in local communities. The shock waves of the financial crisis do not necessarily respect distinctions between banks and not-for-profit and voluntary institutions like credit unions. Mistakes within the mainstream financial sector are wont to rebound without discrimination. Credit unions are seeing this in their client base and are feeling the reverberations within their own organisations. Naturally, credit unions wish to show flexibility towards those who need to reschedule loans. The Bill makes important changes to allow for this. The lifeguard also needs protection from the current, however. The Bill provides counterbalancing measures to ensure credit unions can offer assistance from a position of strength. As with any counterweight, calibration is the key to striking the right balance. The changes introduced since the publication of the Bill achieve this balance by ensuring that any additional regulatory requirements are proportionate to the flexibility being introduced and the associated risks. This Bill is not about pitching banks against credit unions. It is about fashioning a space for credit unions to help those in need without exposing the system to destabilising forces that would weaken the ability of the credit union movement to continue its valuable work.

As this is an issue on which Senators may wish to focus, it is worthwhile to take a moment to outline in more detail how the changes being put before the House evolved. There have been extensive and detailed consultations with the credit union representative bodies on the measures being introduced. Following general discussions in early 2009, the detailed views of credit union representative groups on the section 35 issue were sought and obtained last summer. The provisions to be included in the requirements to be made by the registrar have undergone considerable adjustment following discussions between the registrar of credit unions and both credit union representative bodies. More recently, following the publication of the Bill, I engaged in detailed discussions on the Bill with the credit union representative bodies, ILCU and CUDA. I met each body on two separate occasions in May and June this year. I have also met members of the Joint Committee on Economic Regulatory Affairs on this issue.

Having reflected on the views expressed, I introduced eight measures on Report Stage in the Dáil to amend significantly the section 35 proposals in the Bill as published. I will set out the eight measures for the House. The proposed sections 35A and 35B in the Bill as published are deleted. The easing of section 35 lending limits is now linked directly with the necessary balancing provisions in a cohesive framework within section 35. A specific statement is introduced in section 35(2C) to provide that the Central Bank may give notice to credit unions with regard to lending requirements only where it considers it necessary for the adequate protection of members' savings. A further new provision means that in applying requirements in respect of lending by credit unions, the Central Bank must have regard to the lending framework provided for in section 35. Wider powers originally intended for the Central Bank in relation to loans, or specified classes or types of loans, under section 35A(1) as published have been dropped. Wider powers to enable the Central Bank to impose requirements other than by making rules under section 35A(3) as published have also been dropped. The systems, controls and reporting requirements originally provided for in section 35A(1)(f) are now specifically tied into the lending requirements in the section. The Central Bank must establish an advisory group on the exercise of its powers and functions relating to credit unions.

I wish to make it clear that I have gone a long way, having listened to the concerns that were expressed, but I am limited in what I can do. Credit unions cannot be entirely free of financial regulation. The regulator has written to me about his concerns in these matters. As Minister, I have a duty to act on his concerns. I am only prepared to act on them in the context of maintaining a vibrant and viable credit union movement. Taken together, the eight measures represent a significant change which will establish a lending framework through which the Registrar of Credit Unions can give notice of requirements arising from the relaxation of lending limits in section 35 in a prudent, balanced and proportionate manner, but no more than that. Reasonable conditions and generous transitional arrangements will also apply. The new advisory group will provide a forum through which the bank will access the views of credit unions in a more effective and direct way. These changes go a considerable way towards meeting the concerns of credit unions.

At the same time, there is an irreducible minimal level of protection which depositors, credit union members and the public are entitled to expect. Overall, the measures contained in this Bill provide for this level of protection.

This Bill is urgent and essential. I am confident the approach we are taking is the correct one and that the new structures we are putting in place will help to ensure a robust regulatory system which will win confidence at home and internationally. I look forward to hearing the views of Senators and commend the Bill to the House.

I welcome the Minister to the House to discuss this important Bill. The Minister enjoys reading and also, when possible, putting forward a very strong defence of the Government. Given those two factors, I recommend a recently published book to him that covers both those levels, What Did We Do Right? by Michael O’Sullivan and Rory Miller. It makes for very good reading in the present environment because with regard to all the factors we are reviewing — the difficulties we face, the challenges, the things that went wrong and those for which this Government was responsible — the book details the different things that went right in Ireland during the past 20 to 30 years and that played a role in delivering economic security and prosperity for a period to our country. We want to see that situation return and because we do, it is incumbent on us at times to reflect on what went well and why.

The book introduces an idea I had not come across before and which came to mind when I was preparing to discuss this Bill. It is the idea of "intangible infrastructure". This is an interesting concept given that today is also the day that cutbacks in the more tangible end of infrastructure have become apparent. The work defines intangible infrastructure as meaning successive factors that develop human capability and permit an easy and effective growth of business activity. This can cover a great variety of things, for example, faith in law, faith in the institutions that are meant to govern us, concepts such as intellectual property and ensuring such concepts are implemented and done well. Most pertinent to this Bill and our discussion is the focus on the role of our banking institutions and banking regulators in creating an environment within which people can have trust and faith that our banking institutions are working and, more specifically, that these are being well regulated. Within that area people are given the confidence to spend and businesses the confidence to invest.

That is why in any legislation or move by any Government that seeks to deal with the difficulties our banks and regulatory structure have faced, there must be factors we welcome. There are many important parts to this Bill, which, having considered and reviewed them, I believe merit welcome. They will make a difference. Sadly, I also have some grave concerns about the operation of this Bill which make me question whether the lessons we spoke about have truly been learned and whether the intent exists to learn from what happened and ensure it does not happen again.

The Bill is very important legislation. It proposes one of the most important changes in our regulatory architecture since 2003 and the legislation that put in place the Central Bank and Financial Services Authority of Ireland. This moves away from such a structure to creating one in which the Central Bank commission will have a far more central and co-ordinating role to play and to which some of the agencies in question will report. I welcome some aspects of this Bill. Those items that are worth welcoming are the role the Bill gives to allowing the regulated capture of individuals not doing their role properly or in line with the expectations of the regulator. The phrase used in the Bill is "probity and fitness". We can see how this would be defined and how it allows the new regulator to understand whether people are performing in line with that standard.

There are a number of different powers detailed in this Bill which I believe will make a difference but that difference will relate to individuals. These are the powers in regard to pre-approved controlled functions where the new system will nominate particular roles across the banks it regulates and will play a role in ensuring the people in those roles are displaying probity and fitness, as outlined. The Bill also makes clear what will happen if those qualities are not displayed. The ability of this system to deliver a suspension is mentioned, as are its powers to investigate and ensure the right powers are in place to understand whether an individual is doing his or her job well. Some items in the Bill represent improvements and a step forward but I am very concerned that in two areas there is what I consider to be a step backwards. There is also what I see as a missed opportunity.

I refer to the credit union movement and the points the Minister made in that regard. What disturbs me most about the legislation is the structure laid out in regard to the appointment of the commission which will have considerable power in terms of guiding this new body and ensuring it does the job intended. I am not sure whether the Minister's speech laid out what that structure will be. If it did, I apologise for missing it. However, it specifies the three different groups or kinds of people who will play a role in it. First are the chairman of the commission, those who will play a role in financial regulation and the person who will play a role in central banking functions. Second is the Secretary General of the Department of Finance. The third group are those members of the commission who will be nominated by the Minister and the Department of Finance, and this is where my concerns and reservations become apparent, and in two areas.

Why is it necessary and why does the Minister believe it important that the Secretary General of the Department of Finance sits on this body? The Minister has acted very well by bringing outsiders into very important roles within our regulatory system. Mr. Elderfield and Professor Honohan are people who bring experience beyond that they would have picked up within the Department of Finance or in business in Ireland. One reason I welcome that action so much is that it allows an escape from the culture that would be created for someone who works for a long time within a particular Department or area of Government. Given the work the Minister has done in this regard, I question why it is important the Secretary General of the Department of Finance be on this body. Does it not provide a mechanism within which it might be perceived that the views of the Minister would in some way be relayed indirectly to the commission through his Secretary General?

The other area, which is perhaps of greater concern, concerns the powers presented by the ability of the Minister for Finance to appoint six to eight members of the board, as specified in the Bill. I have no doubt about the Minister's good faith or bona fides in this area but I have severe doubt — as history will corroborate — about many of the people who have been appointed to positions of authority within our semi-State and regulatory bodies in the past ten to 15 years. Can we not learn from this experience and put in place a mechanism whereby the people who are to be appointed to this commission, which we trust will ensure this situation never happens again, are appointed without political influence from any Government, whatever its political hue or make-up? We have seen repeatedly that where appointments are made, as influenced by Government or a political party, questions will arise regarding the ability of those appointees to perform their role and regarding the attitude they bring to the role. One of the big lessons we must take on board is that the people who are to be appointed to these roles not only must be free from political influence but, more importantly, must be seen to be free.

Our country should consider putting in place organisations and bodies, on which there is no political influence and which are genuinely independent, that can provide a second opinion on the work that Government and the Department of Finance is doing. In that spirit, putting in place a commission to which political appointments will be made raises the spectre for me of the establishment here of the forces of crony capitalism reasserting themselves at some point in the future. Given the number of Members of this House who have pledged that this will never happen again, why are we putting in place a mechanism that at least provides the potential for this to happen again? This is one of the reasons we will not be able to support this Bill and one of the issues to which I would like the Minister to respond.

The second reservation I have about the Bill is that it in many ways represents a missed opportunity. I was here the night the Minister brought in legislation to provide for the bank guarantee scheme and I noted the sweeping powers that were put in place to allow his Department to examine the structure of our banking system and make decisions in regard to it. As I was preparing for the debate on this Bill, I came across a person who knows a great deal more about banking than I do who summed up very well the situation in which banking globally and in Ireland finds itself. This person's name is Nouriel Roubini. He was one of those people who appeared to have called well what was going to happen. He wrote we are now in the worst of both worlds where many too-big-to-fail institutions have been bailed out and expect to be bailed out in any number of future crises. He further wrote that they as of yet have faced no sustained regulatory scrutiny and no system has been put in place to put them into insolvency should the need arise.

In a week where the European Commission has published major reservations in regard to the Government's plan for Anglo Irish Bank——

That was last March. That report is inaccurate, but I do not fault the Senator for that in any way. That was a letter written by the Commission in March. There is no question of any problem. A new plan was submitted at the end of May and the Commission is quite supportive of it. It is not the Senator's fault if he read a report that is not fully accurate.

I thank the Minister for that information. The point I mentioned was made in that report, which I had the opportunity to see.

Does this Bill not represent an opportunity to examine mechanisms that could be introduced to create living wills for banks, to provide that if they do not deliver and if there is a risk of them becoming insolvent, an organisation such as this would have the power to ensure the costs of banks becoming insolvent or not having the ability to carry out their own business would not be sustained by the taxpayer in the future? Does this Bill not also represent an opportunity to use an organisation such as this to ensure that bondholders, the people who invest in these banks, are the people who take more responsibility for the losses sustained by banks in the future rather than only the taxpayer?

I appreciate the Minister's detailed comment on the credit union movement, particularly in regard to sections 35A and 35B and the changes he has made. Notwithstanding that, why does he consider it appropriate to insert in this legislation such detail regarding the percentage of the book value a credit union can lend and the period of time for which this can be done? The level of detail in the Bill regarding the lending activities of an individual credit union, to the best of my knowledge, appears to be ahead of anything we have seen for individual banks.

While there are many aspects of this Bill that can be supported, for the reasons I outlined it represents a missed opportunity in two areas. I would appreciate an answer from the Minister to my question on the credit union movement.

I join others in welcoming the Minister, Deputy Brian Lenihan. It is great he is here to take this Bill.

I also welcome this opportunity to make a few points on the Bill in the form of a mild rebuttal of the previous speaker's two main objections to it. The Senator's second point related to a letter that was written referring to something last March, which was superseded. It was highly irresponsible of the media of cover this in that way and I am sure the Minister will raise it with them.

In terms of perception, when boards for semi-State companies or otherwise are being put together and if a nomination is made by the Government, we often hear that it must mean cronyism in the extreme. It is worth noting that David Begg is on the board of the Central Bank and he is hardly the epitome of what one would call cronyism. Apart from that, I have respect for the institutions of the State and whether it was Fine Gael, Fianna Fáil or whatever other party that is in power, I believe in its capability to identify people who have the appropriate expertise, experience and capabilities to do a job. With some 6 million people on the entire island, it is conceivable that one can trace, by six degrees of separation or less, a line of direct lineage to somebody who may have once voted Fine Gael in, say, the local elections of 1967 or otherwise. The old crony capitalism debate does not hold much water with me. If any Government in the history of the State has made more advances in the context of improving the levels of corporate governance and standards in this area, it would have to be the current Administration and, in particular, the current Minister.

The Minister has given a detailed outline of the Bill, and other contributions will also be made. Senator Donohoe has been broadly supportive of the Bill. However, before making some brief points on it, it would be remiss of us, having the Minster in the House, if we did not welcome today's interim report by Hugh Cooney's interim group on mortgage arrears. The interim group has come up with some thoughtful recommendations which, as the Minister said in his contribution, can be implemented very quickly in terms of the mortgage arrears resolution process that will be established, the changes to the code of conduct in mortgage arrears which the regulator will introduce and the standard financial statements to which it is anticipated the various financial institutions will sign up. I hope they do that and that these measures can be implemented very quickly. In terms of the group I established, the prevention of family home repossessions group, the interim group's recommendations go some way towards incorporating the recommendations we made. We met the Minister, and we are thankful for that meeting and that Mr. Cooney's group has reflected our recommendations, but we look forward to the final report being issued towards the end of September. As with all the many initiatives in the past number of years from a legislative perspective, I commend the efforts of the Minister and the Government and look forward to more in that line.

I welcome this opportunity to make some brief points on this Bill. The financial crisis of the past two years has highlighted the weakness of the financial regulatory systems here and throughout the world and how much they permitted. I refer to the reckless level of lending that took place. We are seeing reform in the financial sector throughout Europe and America, on which I have made points in the House previously. I am not as confident of the international focus on regulatory reform as I am of our Minister in his introduction of the first of three Bills in this area that will be brought forward, not least the other measures. In his concluding remarks the Minister might tell us some more about his views of what is going on in the international sphere to try to ensure we will not have a repetition of the disastrous lending and lax regulatory environment we have seen which led to these crises.

The light-touch regulatory models have proved to be inadequate to the goal of having sound financial service providers. The consumer consultative panel of the Financial Regulator, 2009 stated that complacent and permissive was how Professor Patrick Honohan described the Irish Financial Regulator before becoming Governor of the Central Bank. As the Minister mentioned, the preliminary report of Regling and Watson on the sources of the banking crisis highlighted the main failings of supervision. The supervisory culture was insufficiently intrusive, and staff resources were seriously inadequate for the more hands-on approach that was needed. Governance failures were not addressed sufficiently. Macro-financial vulnerabilities were underestimated. These are all lessons from which we have been happy to learn.

Professor Patrick Honohan's report found three root causes for the lack of financial regulation. The regulatory approach was perceived to be excessively deferential and accommodating, insufficiently challenging and not persistent enough. That was in an environment which placed undue emphasis on fears of upsetting the competitive position of domestic banks and on encouraging the Irish financial services. It also said there is an under-resourced approach to banking supervision and an unwillingness by the regulator to take on board sufficiently the real risk of a looming problem and act with sufficient decision or force to head it off in time.

The Minister has gone through in some detail the main provisions of the Bill. I welcome in particular the provision regarding the head of financial regulation. We can clearly see the work Mr. Elderfield has been doing. I also welcome the second position of head of the Central Bank. The Central Bank will have the statutory power to regulate sensitive or influential points in regulated financial services providers, including the power to direct that a person should not be appointed to perform a control function. Those that carry them out must meet and adhere to standards of fitness and probity. It also includes the power to direct that a person should be removed or suspended from the performance of a control function where the bank is satisfied the person is not a fit and proper person to perform such a function. I very much welcome these additions to the Bill.

It may be covered in the Bill, but I wish to refer to the kind of financial advice members of the public require when they wish to procure a pension, savings product or whatever. Senator Ross heard me make this point many times. It is an impossibility to receive objective advice in a sales targeted environment where a bank manager, teller or whatever member of staff in the financial services sector has sales targets for a particular product. There is no question that a member of the public can secure independent advice which is appropriate to his or her needs when targets exist. I do not know what the solution is but we will have to come up with some kind of structure which allows for that. There may be scope for it in future under MABS or another structure but there is a need for it.

People go to their accountant, solicitor or estate agent to seek this kind of advice. I remember a number of years ago the joke about a particular insurance product was that it advertised that it would educate one's children, the joke being that the only children who would be educated by the product were the broker's children because it was based on commission rather than on what one would manage to save. The Minister understands the point of view and perspective from which I am coming with regard to that. It is something we need to address, perhaps not in this Bill but in another Central Bank Bill.

The issue of credit unions was raised and while I appreciate the detailed response of the Minister, clearly they do not share the confidence he has at this point that they will be able to continue the good work they are doing. One general manager of a credit union who worked with me on the prevention of family home repossessions group made the point that when they are potentially at their most valuable in how they can assist families, there are aspects of the Bill which will limit them. While I appreciate that, out of the some 505 credit unions we have nationally a handful were not doing their business in a way which would inspire confidence. I understand those that had difficulties managed to resource them from their own resources and protection funds. That does not in any way suggest they should not be fully regulated; indeed they wish to be regulated.

At a time when we are seeing an increased number of families and the public seeking the services of credit unions they have concerns that this may introduce a level of regulation which, in advance of the review announced by Mr. Matthew Elderfield of the Irish League of Credit Unions, may be premature, pending his investigation into what regulation is needed. Following his review he may say more regulation is required. At this moment it has those concerns. While I appreciate the Minister has made the position clear I ask him to reflect a little on it.

There has not been much comment in the media, nationally or otherwise, on the Bill in recent days. The ECB, as the Minister said, welcomed the restructuring but called on us to ensure the independence of the Central Bank, the Governor and the new commission in the exercise of the European system. The Minister pointed that out clearly in his contribution. As a further step on the road to the rehabilitation of our financial sector and to complement the balance of our books and our pursuit of bringing our deficit under control I commend this Bill and the Minister's continuing efforts on our behalf to the House.

I came into the House with my mind made up about how to vote on this Bill and I am now undecided. It is rare for people to say that in this House. I have listened to the Minister and Senators Donohoe and MacSharry. There are two ways of considering this Bill and I am now considering it both ways. One is to say it is the first of three extremely constructive and very important measures which are being taken to reform the banking and regulatory system. As that sort of measure, it is good and we should support it. The other way is to ask if it goes far enough to clean up the problem of details we have within the system and if it tackles the real problem.

The Bill is strong on the structures and attacks the problems we have had with supervision, systems, the lack of inspection and all those areas. What is described as fitness and probity is strong and a great improvement. It lacks strength in that it attacks the fundamental difficulty which was so apparent and which caused or was partially to blame for the Irish banking crisis, namely, the closeness between politicians, the Central Bank or the Financial Regulator and the banks. Politicians are members of that club to a lesser extent than the Central Bank and the Financial Regulator. While it passes the test on structures and supervision as the first of three Bills, on the second issue it fails abysmally and Senator Donohoe pointed that out very tellingly.

The problem of regulation of the banks before the end of September 2008 was that there was no regulation at all. The reality is that the banks had run amok. The Financial Regulator was allowing them to do pretty well what they liked. There was no supervision. There was what was known loosely as a principles-based form of regulation which meant it was left to the banks to do what they wanted to do, and they did what they wanted to do, namely, ignore and break the rules, doctor the books and conduct themselves in a way which brought this country into a dire financial situation.

What is quite apparent from the new attitude and remedies which are proposed is there is at the very least — I do not like talking in terms of principles-based regimes and rules-based regimes — an absolute determination that there will be what is called an intrusive interest in what is going on in the banks. The Financial Regulator will be sitting on the banks, what they are doing and their supervision and systems from now until, it is to be hoped, forever. The next Bills, which will have a more detailed emphasis on these things, will ensure that is enforced.

This Bill, which goes into the area of enforcements and appointments of people inside the Central Bank, is very worthy. The Minister must be applauded for several of the appointments he has made, in particular in the State sector. I have no hesitation in saying he has been magnificent in his appointment of the Governor, Mr. Patrick Honohan. The appointment, election or selection of Mr. Matthew Elderfield was one which we have to applaud and it is certainly Government driven, if not Government selected. There have been others, which is undoubtedly a vast improvement. These appointments are already producing a change in culture in the Central Bank, the office of the regulator and other areas. I am on record as stating that in my experience Deputy Lenihan has, without a doubt, been the finest Minister for Finance. I say this in front of him and I have been in the House for 30 years. He has had to deal with hard times, whereas his predecessors had it so much easier and his performance has been absolutely magnificent. It has been almost impeccable. I have never come across a Minister who has performed so well in such difficult times and with such courage, determination and incisive understanding of his brief. However, there is always a "but". While his appointments to the Central Bank and elsewhere in the State sector have been strong, the appointments made in the banking system have been appalling. It is deeply regrettable that the banks continue to be directed by insiders, even after the events of 30 September 2008. I am particularly distressed by the appointments to Anglo Irish Bank, the State's bank. I cannot understand why the Minister appointed Mr. Gary Kennedy and Mr. Aidan Eames. I never heard him speak about this issue, but Mr. Kennedy is an insider — I have mentioned him before in the House — and was financial director of AIB when the property boom was at its height between 1997 and 2005. It is the worst appointment I could possibly conceive. On the same day Mr. Kennedy was appointed Mr. Aidan Eames was appointed to the board. Mr. Eames is, undoubtedly, a good solicitor, but he is also a Fianna Fáil fund-raiser, election agent and ex-Senator.

He is a former Member of this House.

That is my point; he is a former Senator from the Fianna Fáil Party. He has a loyalty to a party which we could do without while occupying a crucial position. That is why the appointments were bad. Thousands of people were available and capable, but we had to come up with the ultimate insider in the banking system and an insider in Fianna Fáil. That is why I have problems with the Bill. Whereas the Minister's appointments to the Central Bank have been excellent, how are we to trust any Government — the tradition in this country is appalling in that regard — to make independent appointments to the board of the office of the regulator? Including the ex officio members mentioned by the Minister, the Bill provides for between six and eight political appointments.

I will not discuss the individuals concerned in the Central Bank, but we cannot be proud of the record of any party on political appointments, even the most sensitive ones. I would have thought this Bill, on which the financial credibility of the State rests, would change the record. If we make the wrong appointments and global investors who have a favourable view of Ireland because of the Minister's record see the Central Bank or the regulator being treated like a quango, their confidence in these bodies will drop, with our credit rating. The proof of the pudding will be in the eating and, while I acknowledge the Minister does not make all the appointments himself, the record of the Government in its appointments is no better than any other's. I do not trust Fine Gael and the Labour Party to refrain from putting their own people in the Central Bank. Legislation such as this is not made for the incumbent; it is made for successive Governments in the next 30 or 50 years. The Bill creates the potential for abuse in a particularly sensitive area. Even the Green Party is nominating its own people.

One per cent of all appointments.

What percentage of the vote did the Green Party achieve? It is putting its own people in CIE, as well as here, there and everywhere. The people concerned are identifiably loyal to the party. This is a pity and a flaw in the system. The Bill offered us an opportunity to part company with that principle.

The Minister outlined the protection given by the Joint Committee on Finance and the Public Service to witnesses appearing before it. Several weeks ago I had an experience at the committee, at which a ministerial appointee, the chairman of Anglo Irish Bank, refused point blank to answer perfectly reasonable questions. I asked him about his involvement in the selection of Mr. Kennedy and Mr. Eames and how the process worked. Mr. Dukes refused to answer my questions. If this legislation is to work, the Minister should assure us that non-executives and members of the commission, as well as the Governor and executives, will be required to answer questions before the appropriate Oireachtas committees. They should not be allowed to say, "Sorry, I am not going to answer that question," unless it would involve giving commercially sensitive information. If it concerns a politically sensitive issue, let us hear the replies.

My main reservation about the Bill is that the flaw I have identified is so big it will discredit the sincere intentions behind it. I note the consumer functions provided for in the Bill.

The Senator has one minute remaining.

I ought to conclude with the one point I really want to make.

The Senator has covered the board.

I took rather a long time.

It has been well covered.

The Minister addressed the Anglo Irish Bank issue in his interruptions of Senator Donohoe but perhaps he might expand on the issues regarding NAMA he raised at the meeting of the Joint Committee on Finance and the Public Service yesterday. NAMA's optimistic profit forecast has suddenly turned into a pessimistic loss forecast. Is he satisfied that the banks have been telling lies about the prospects for their loans and assets? Will he tell us whether rents were being paid or loans serviced? If they have been misleading the National Asset Management Agency, Government and nation, what does it tell us about reform of the banks, other than the central banking system which the Minister is doing very effectively? Are the banks running rings around the Financial Regulator and Government? As each step comes, are they one step ahead? Is it true that they have been misleading us about the state of their assets and, in particular, the servicing of their assets, the rents being paid for them and the manner in which they are being treated?

As an Opposition spokesperson in the other House in 2002 and 2003, I debated two Bills on the Central Bank and Irish Financial Services Regulatory Authority. Much of the debate focused on whether the recommendations of the McDowell group, which was chaired by Mr. Michael McDowell before he was appointed Attorney General and subsequently joined the Government, were being followed through and an appropriate balance was being struck between the prudential and consumer protection roles. Much of the debate missed the central point of what was necessary.

The disintegration of the Chinese walls between the Central Bank and the Irish Financial Services Regulatory Authority appears to have been at the root of many of the problems that arose subsequently. The Central Bank and IFSRA were given strong powers but we have since learned they chose not to use many of them. While the Bill provides for many improvements in the structure of the regulatory system, it also makes changes to the powers that officeholders in the relevant institutions need to exercise. An act of faith is still required, however, in terms of a belief that the individuals who exercise these powers will perform their jobs correctly and diligently. We are lucky to have appointees of the calibre of Professor Patrick Honohan and Mr. Matthew Elderfield, the Governor of the Central Bank and Financial Regulator, respectively. These appointments have created more confidence than there would have been otherwise. The new structure must ensure that such confidence can be maintained when changes in personnel take place in both offices, including changes in board membership.

On leaving office, one of the Minister's predecessors made dozens of appointments to IFSRA committees and made great play of the fact that none of them was politically influenced because all appointees were drawn directly from the financial services industry. I am not sure the same boast would be made today given that one of the flaws of the previous system was that all the internal committees were populated by the financial services industry. This resulted in a low level of self-regulation and caused the malaise we are experiencing.

Senator Ross is correct on several points. Maintaining the power to select the right people for the right reasons is at the heart of the Bill and will inspire confidence. The Minister is inspiring such confidence and while subsequent appointments will need to underline this confidence, I expect this objective to be achieved.

The improvement in the structure of the regulatory system is the all-embracing approach taken to all financial services, extending from banks to the insurance industry to the financial services provided in the social economy. Much of the debate, especially on Committee Stage, will centre on credit unions. While we have been dealing with bank losses and assets, albeit diminishing assets, of billions of euro, the role of social finance has been put on a back burner. This issue will excite more discussion in this debate than the asset base of social finance would lead one to expect. We must ensure that in rescuing financial services as a whole, we do not resuscitate the old banking structure. We must give an enhanced role to credit unions and social finance. For this reason, the debate on section 35 will be important.

I am pleased the Minister saw fit, prior to the debate in the other House, to meet representatives of the Irish League of Credit Unions and make appropriate changes to the legislation. While credit unions do not appear to be satisfied with these changes, there is little room for manoeuvre. Given the approach taken by the new Financial Regulator, a message must go out that all financial institutions will be regulated to a particular standard in future. This requires specific rules on reserves. That said, difficulties arise with regard to how one records what is a performing loan in a credit union. For example, a person who repays a loan at €5 per week may miss a couple of weekly repayments and then pay €15 or €20 one month later. Credit union loans are not measured in exactly the same way as loans provided by other institutions. Perhaps the Minister will indicate how he expects the necessary additional diligence and regulation applied to credit unions will be tempered given that they have smaller reserves and tend to offer smaller loans than other financial institutions. It will be necessary to ensure the type of lending provided by credit unions increases because smaller, more localised loans will resuscitate the economy quicker and more effectively than would otherwise be the case.

The structure proposed for the Central Bank has generated considerable debate. That it has received favourable comment from international institutions inspires some confidence. Nevertheless, structures are only half of what is required. The crisis was caused by the culture that prevailed in the financial sector. The House awaits reports from the commission of investigation and Committee on Finance and the Public Service on developments in the banking sector. These reports must identify which individuals in the sector were directly responsible for the difficulties we are experiencing.

There is some truth in the statement that we have had significant changes in the composition of bank boards. It will be necessary to retain institutional memory as we proceed. The commission of investigation and other inquiries will show that certain individuals were culpable for what has taken place. I do not know who these individuals are and I am unable to identify them directly but when the findings are made, the individuals in question must vacate their positions. The Governor of the Central Bank, the Office of the Financial Regulator and the Minister must act on this matter in the timeframe identified. If many answers have not been provided and action taken in the coming six to 12 months, I fear much of the ongoing misrepresentation will continue. We had a further example of such misrepresentation today when most of those who have opposed the concept of asset management chose to concentrate on the worst case scenario of a number of scenarios cited in a report on the National Asset Management Agency.

We need to create public confidence that the institutions of the State will be in a position to run the banking system effectively. This Bill is an important piece of the jigsaw in that it gets the structures right. However, much more work needs to be done on the larger part of the equation, namely, the need to correct the culture that gave rise to the current malaise.

Listening to Senator Boyle it struck me, as it has often struck me while listening to speakers from the Government side, that if the Government were to be more realistic and less robust about some of the claims it makes on the impact of some of its policies, its expectation that critics would temper what may be exaggerated criticism would be easier to accept. I say to Senator Boyle, that there are problems on all sides of the argument. The Minister might reasonably say with Senator Boyle's support that the critics always go for the worst case scenario. Even in the economic context, the Minister's speech tonight contained claims, which one often hopes are true, about turning corners and other such phrases. Nobody sees these corners or feels that we are turning any corners. However, claims are constantly made that this is the case. I cite the example of the costs for NAMA. I do not have the exact quotes from the Minister. However, I can certainly recall being told in this House that the NAMA project would not cost any money——

And it will not.

——and would be likely to attract a profit. The Minister does not know that.

It is still the case today.

Of course, the Minister does not know that; he just cannot say.

The Senator should read what the report——

I am reading plenty of things. Of course the Minister does not know definitively——

The Senator does not know either.

——any more than I do. That is precisely the point I am making.

This could be a lawyers' argument.

The former Fianna Fáil people who are heckling me from beyond do not know either. Let us try to be more realistic. I am urging those on both sides — I am prepared to take on board some of this myself — that if we are more realistic in the claims we are making and sometimes in some of the criticism, we might make more progress in what we are trying to do with the economy which is in such a serious state. The Minister talks about growth — I hope he is right. If it is growth, the difficulty is that we are likely to face a period of relatively jobless growth. History tells us that is what happens coming out of recession. The other downside is that even if we have growth of 3%, 4%, 6% or 8% — God help us, will we ever see it again — unfortunately we will still be holding a multibillion euro bill for what has had to be done with the banks. That is the true context of what we are dealing with.

On Second Stage we are usually urged to look at the general philosophy behind a Bill. Sometimes we forget that is what we are called to do. I am somewhat critical of the Minister's speech in that regard. Why is that so? I remember in 2003 when the last regime was introduced, it came off the back of considerable debate in Government and more widely as to perceived flaws in the regulatory system including in the Central Bank. These radical changes were introduced in the 2003 legislation. Rather than the Minister simply saying that in order to avoid the mistakes of the past we need to have the legislation, I would have preferred the Minister — not for the purposes of brickbats from my side but for the purpose of us having a genuine and intelligent debate — to outline the mistakes to which he refers. It is not for the purpose of him flagellating himself or anything, but so we can debate the matter and understand what was wrong with the 2003 regulatory system that now needs to be changed. It is not enough for the Minister to say things we do not like have occurred. That is a matter of fact and there is evidence that there was insufficient regulation and that was one of the factors that needs to be addressed — I do not know if it is the gold, silver or bronze medal in Professor Honohan's sense. Precisely what was wrong with the 2003 regime that needs to be changed now, seven years later? It is almost like an alibi to say that because there have been very unsatisfactory developments, to put it mildly, poor regulation and breakdown in regulation, we will therefore change the system. What precisely in the system needed to be changed? That would take us into a broader debate.

Let us not forget that the light-touch regulation that Senator MacSharry rightly criticises and drew into question in his speech was an absolute article of faith for many people, including many of prominence in his party, one of whom was Minister for Finance. Light-touch regulation was not something that happened by accident. The Minister said these things needed to be done in order to have the sort of Central Bank that would best serve our interests. The entire financial system is based on having an independent central bank, a Government bank that stands aside from the fray and overlooks and supervises the operation of the financial system. That has certainly been the case since the settlement after the Second World War. The philosophy behind central banks is that they should be robust and engage. They should be monitoring and understand.

What has happened is a source of amazement to people. Everybody has these anecdotes. When I was buying my first house and when many of us here were looking for loans for the first time, we were told we could not get more than 80% and no more than 2.5 times one's earnings and perhaps once the earnings of one's spouse or the person earning less money. Those regulations were always very irritating to us when we wanted to get loans, but those were the rules that were in place. What happened to them? The Minister is not inventing something new in putting in place a robust and proper regulatory system. He is going back to what should have been in place all along and what was in place for many decades — a far more interventionist Central Bank.

What happened for it to change? There was a change in political approach and philosophy which won through. It was not just that we drifted into light touch; an actual decision was made to do that. That is why there is political sensitivity on the Government side to these issues being addressed. They are not simply technical mistakes that somebody made at one stage. It was not that somebody did not get up early enough in the morning or did not add up the figures properly. That is not what occurred. An entire edifice of control of financial institutions and the banking system, not just in this country but also in other countries admittedly, was actively changed. It was not just by drift. It was done for a reason.

Professor Honohan talks about the system being overly deferential. I will not upset the Minister or anybody else by going back into the crony narrative. However, we should think about what he is talking about there. He may not necessarily be talking about a tent full of people who have an unhealthy relationship, whether across banks, developers and politicians. However, there is certainly a clear statement by him when he talks about a deferential culture of something going on which is entirely different from what one would expect from a regulatory system such as the kind of system we always should have had and did have for a very long time. Only a few months ago — I believe it was at the opening of the Aviva Stadium or something like that — when the former Taoiseach, Deputy Bertie Ahern, was asked about macroeconomic policy, tax incentives and so on, he was quoted in the newspapers as having said that endless pressures were put on him and the Government. Government Members cannot say that the Opposition politicians and critics of the Government are making all this up. This is the relatively recently departed former Taoiseach acknowledging the existence of these endless pressures.

I would have preferred the Minister to have elaborated on the elements of the 2003 legislation that needed changing. I would have thought there is much in the Bill before us that is quite acceptable, correct and appropriate. My quibble is that although we had much of this type of approach in the past, we threw it away and now we are just going back to it. It is not a new invention. That we had a departure from that regime was rooted in a particular political and, if I may say so, ideological philosophy in respect of the proper role of an independent Central Bank. It might be better to address other issues on Committee Stage that have only been touched on such as the role of credit unions. However, I would like the Minister to address the so-called mistakes of the past. What were the problems with a system only put in place in 2003? What was the mischief he felt he had to address? I would appreciate it if he looked at this in detail.

I welcome the Minister. In supporting the Bill I am very cognisant of the fact that we will adodpt an integrated approach. I share the views of my colleagues who spoke about light-touch regulation and the subsequent events which proved that this was not the correct way to proceed. Now that this has become apparent, we are proceeding on a different line.

The purpose of the Bill is to provide for the creation of the Central Bank commission, the dissolution of the Irish Financial Services Regulatory Authority, the establishment of a new management structure within the bank and the introduction of new accountability measures, especially enhanced accountability to the Oireachtas. Each of these measures is to be welcomed. There seems to have been a shared responsibility and there are always difficulties when this occurs. The Central Bank, the paymaster, should have been the body in control at all times.

People now think there should not have been light touch regulation. Clearly, we agree that this is the case. However, one cannot look back and say that at all times people knew and had warned that this was not correct. That simply did not happen. In fact, it was the international practice. The policy of Mr. Alan Greenspan, the head of the Federal Reserve in the United States, was to increase and decrease interest rates according to need. There was an immediate and severe decline in the US economy after the events of 11 September 2001; interest rates were reduced to zero and the economy turned around quickly. Similarly, Mr. Gordon Brown was quoted as saying the United Kingdom had seen the end of boom and bust economics. Therefore, this was not something that just occurred in the Irish economy, it was international best practice.

There is another element to the difficulties experienced in the financial sector, the supra-national nature of international funding. It has also become clear that where a foreign institution has a large interest in the economy, this should automatically be regulated by the Central Bank to the extent that it is able to impose conditions to prevent malpractice. I am thinking in particular of hedge funds.

The correct action was taken on 29 September 2008. I agree with Senator Ross who has explained at every turn, in every possible way, how we arrived at this difficulty. We would not have started at this point if we had known that this was going to be so difficult. We did not know whether the world economy would survive. Many talk about Lehman Brothers, but it was not just Lehman Brothers; it also involved Goldman Sachs, AIG, Freddie Mac, Fannie Mae, UK banks such Northern Bank, Lloyds TSB and other major funds. The world economy was on the precipice. On the night of 29 September 2008 we started to take the correct road, supported by Fine Gael but not by the Labour Party. At every turn since we have made the correct decision. Having made the correct decisions, one commentator after another has written about how the economy has been managed, including The Wall Street Journal, the Financial Times, the European Union, the OECD and the IMF, and they have all said we are doing it right.

The positive sign is that technically we are out of recession. I cannot mention this without mentioning job creation, but I will come back to this. Being out of recession means that we now have the opportunity to regulate as necessary, whether it is local or international banking. We must implement decisions to ensure we will never face this situation again because financial memories are short. The lessons of the early 1930s were not learned; the warnings given at the time about the extension of credit and the use of merchant banks to extend credit were not heeded in time. The overuse of credit facilities was not and is not an answer to our economic difficulties.

We now have a strong handle on the economy. There has been an appreciation in the value of the US dollar by 15% and sterling by about 8%. Given that we export 50% of everything we produce, we have the most open economy in the world, excluding the city states of Singapore and Hong Kong.

The outlook for the future is positive. It is time we started saying it is possible. When the Americans started from the same position, they believed and said, "Yes we can". We started to say, "What would you expect?" If we expect all that is best, we will get what is best. We will deal with whatever difficulties we will face in the financial services sector. The Central Bank Reform Bill 2010 is part of that process.

I welcome the Minister and thank him for his detailed overview of the Bill. Nobody doubts his bona fides or his intent. He has done many good things, all of which we welcome, beginning with the appointment of Professor Honohan as Governor of the Central Bank and Mr. Elderfield as Financial Regulator and the provision of the preliminary reports on the banking crisis by the Governor and Mr. Regling and Mr. Watson, both of which he accepted. He also sanctioned an independent review of his own Department, something none of his predecessors would have attempted to do.

I welcome the central tenet of the Bill, that we unify the various financial regulatory bodies in an integrated structure. I might be old fashioned, but I never believed in the twin pillar approach, of which Senator White seemed to be very critical. The fitness and probity provisions included in sections 18 to 44 are welcome.

I cannot accept that any of those responsible for steering the ship onto the rocks should be left on the bridge. The Minister represents the taxpayer at board level and I am fully behind him, especially in respect of the activities of the two main systemic banks, AIB and Bank of Ireland, in which he has had to take an increasing shareholding. Such persons are members of risk and credit committees and in senior management. Now they are talking about reducing staff numbers, which may be necessary. Staff numbers should not be reduced until all those responsible for the appalling mess in which this country is in are removed. Perhaps then, the Minister can examine what is necessary. I earnestly request him to be on guard when dealing with these people.

I very much welcome the appointment of John Trethowan, the trusted banker, as the credit reviewer. In the interests of all those in small business and in business generally, it is important they have somebody reliable to whom they can appeal — a prudential banker, not a cowboy.

Sadly, this Bill is being rushed through the House with undue haste. It is significant reforming legislation and it needs to be considered carefully. I object to all Stages being railroaded through the House this evening. We have often said that is bad practice and I am sure the Minister agrees. That kind of thing makes for bad law.

This is an area which deserves proper and careful consideration. The extent of the regulatory failure we have witnessed in the financial services sector highlights the major structural problems in that sector, which need to be corrected. I hope the structure proposed in this Bill will deliver the changes which are so necessary but I have concerns that what is proposed may not go far enough in terms of achieving the level of structural reform required to deliver a dynamic, vibrant and compliant financial services system.

The commission should be given every opportunity to up its game and change the regulatory landscape here. It must move quickly to establish its credibility in financial regulation and show that the lax regulatory standards of the past are history. We must never again have the level of regulatory capture and failure which has caused untold damage to our country. We must also ensure the structures for holding regulatory authorities to account are robust and that they cannot hoodwink the public or Members of the Oireachtas with banal assurances that everything is fine and dandy in financial regulation in Ireland.

It is important that we distinguish the situation with credit unions from the position involving banks. It would be a travesty if failures in the banking sector led to a disproportionate and burdensome level of regulatory imposition on credit unions. To date, no credit union has failed, no taxpayers' money has gone into credit unions, no credit union has been nationalised and no credit union assets have been taken over by the banks. The regulation of credit unions has worked.

It is vital that we remain vigilant with the protection of members' savings in credit unions and that they operate to the highest standards of corporate governance. However, it is also vital that we are proportionate in our response to them and recognise that they are completely different from banks, have a strong social and community focus and are run by people on a voluntary basis. Their orientation, purpose and outlook is so different from the grab and greed motive and approach that sadly underpinned so much of Irish banking in the past ten years. They provide a beacon of light in the financial services world as a community-based, socially aware and connected local service.

Excessive and disproportionate regulation of credit unions runs the very real risk of wrecking the very strong volunteer ethos that has underpinned the movement since its establishment. Sadly, I fear that some within the Financial Regulator's office may not have the understanding of the importance and role of the credit union movement in an Irish context. I hope they will become acquainted with the movement here and will not act in a zealous way which undermines its role, purpose and function.

It is my strong view that the provisions of this Bill which deal with credit union regulation should be removed and addressed in regulation that is specific to credit unions. Addressing credit unions in the same context as the banks leads to a blurring of issues and a risk of contaminating credit unions with some of the regulator blight which has covered banks in recent years. That is unfair, unnecessary and unjustified in the context of the huge input of the movement nationally and locally. It is also unfair to the thousands of volunteers in credit unions who give willingly of their free time to support their local community's financial initiative.

I do not contend that credit unions should suffer from lax regulation rather that they should be regulated in a proper and considered context. I hope the Minister will look again at the provisions of this legislation as they apply to credit unions and either remove them or put them in abeyance pending a proper consideration of the regulatory issues that relate to credit unions.

I welcome the Minister and thank him for what he has done in recent years in his finance portfolio. I do not know of anybody who, on coming into office, has had to deal with so many things at the one time. He did us proud internationally and at home. It is important we say that and that we restore confidence in the banking sector. This Bill gives us confidence in that regard.

It is important the public and those who bank with our banks have confidence in their investments and that they are protected. The Central Bank has a major role to play in that regard. Light touch regulation did not help us but we must acknowledge that it was accepted internationally. Many of our problems were due to the availability of cheap money internationally. The markets have tried to wean the European banks off this cheap money and allow them to provide money for themselves. That has not suited the markets too well either and we saw what happened.

The Minister has restored confidence in the banking sector. It is important to consider how we will ensure the economy benefits from what he has done. Our budgetary situation has improved fantastically. Other countries, such as the UK, are only now beginning to do what we did two and a half years ago. That is due to the Minister's oversight of the economy and ensuring we spent only what we could afford to spend.

The Minister must find an additional €3 billion this year, which will be quite difficult. However, he has the courage to ensure we take the steps necessary and that we do not find ourselves in the position in which Portugal, Greece and other countries found themselves.

The Minister for Enterprise, Trade and Innovation said during the week that we should prioritise a guarantee scheme. The guarantee scheme would underpin the €3 billion provided in respect of NAMA and 160,000 jobs. It is important that our banks release money into the system in order to maintain jobs.

The legislation will ensure we do not go back to the old ways of doing things. While the old ways worked for a while, we all know that the provision of 100% of the value of a property could not last. I understand banking to a certain extent but if one gives 100% of anything, the value is gone immediately. That was not a system we should have condoned in the first place. We did and it was light touch regulation. We are addressing the issue in this legislation.

It is important that credit unions are regulated. However, there are those who say they should not. We thought the same about the banks. The Minister is correct. We need to bring credit unions within the terms of this legislation. The Minister has suggested how this might be done. We all know that some of the investments made by credit unions were not the best and a number of court cases have been taken. In some cases, when credit unions bought products which were found to be unsuitable, they pleaded that they had not understood them. The purpose of regulation is to ensure organisations such as credit unions understand investments, that those who are saving money with them and borrowing money from them are protected and that such organisations are properly run. The Bill will deal with that issue.

I welcome the interim report of the mortgage arrears and personal debt review group. Some argue in favour of the introduction of a property tax. The people cannot afford a property tax. They are struggling to pay their mortgages. The imposition of a property tax would be a mad idea and an outrageous proposal when we are trying to revive those who are struggling. Furthermore, those who invested in property for pension purposes now find they cannot afford to pay the mortgage on their investment property. In that situation a property tax would drive them through the floor. It would not be feasible and is not the way to go at this time. Perhaps when we are a little better off and the property market has recovered, we might look at the introduction of a reasonable property tax. Someone who pays stamp duty on the purchase of a house and then pays taxes should not be made to pay a property tax.

I thank the Minister for bringing the Bill before the House. I welcome the new approach taken by him.

I welcome the Minister. Fine Gael welcomes, in principle, the tightening of regulation and structures that improve it. Our amendments will be proposed in support of the principle of regulation and its improvement.

Not only did we have light touch regulation; for years we had almost no regulation. There is a trail of human misery and people throughout the country are suffering hugely as a consequence. They are suffering on an emotional level and, in some instances, children are suffering deprivation. The principle of regulation is, therefore, not at issue. There is a continuing need for the tightening of regulation, both domestically and internationally. The Regling and Watson and Honohan reports underscore the dearth of regulation and the irresponsibility that obtained. The reports indict bankers, the regulatory process and the Government of the time. It is important that we move from that situation.

While we welcome, in principle, the concept of a commission controlling the Central Bank and banking, we are concerned about the appointment of eight of its members by the Minister, on whom this is not a reflection. The issue concerns political appointments. Fine Gael proposes an independent, objective, testable and observable process outside party politics. This is a prerequisite to ensure transparency, public confidence and effective ongoing regulation. We feel strongly about the issue and urge the Minister to review this aspect of the Bill. We will make this suggestion on Committee Stage. An objective and transparent process capable of being publicly monitored outside party politics must be established. The history of regulation of banking and the dangerous and sinister interconnection between party politics and banking practices make an unanswerable case for the Fine Gael proposals.

In the midst of the recent financial morass, bubble, hubris, greed and all the awful things that happened and which we collectively regret and seek to put right, the great beacon of light and hope and the champion of the people was the credit union movement which made a difference in the social lending sphere and kept the fabric of our small communities and families together. It has been exemplary. There was no light touch regulation. There were the occasional errors, alluded to by the previous speaker, but there will be human error in every endeavour. There was, essentially, a highly principled, socially motivated, consumer oriented, well directed and regulated process within the credit union movement. That needs acknowledgment at all levels. Credit unions hold a separate and distinct position in the financial system and should be regulated differently. They exist to help and serve members who have long been associated with them. Their loans are also stressed, in many cases by virtue of banking practices that have impinged on families. Often, when the mortgage must be paid, the credit union loan for the car, home improvements or holidays becomes stressed.

Flexibility must be applied to credit union loans. The Bill allows 30% of credit union loans to be extended for a period greater than five years. That is an improvement on the figure of 20% originally mooted of credit union loans to be allowed to go through this process. However, credit unions should have a greater level of discretion. Those which are dealing with small loans to families and individuals within a community setting should have even greater flexibility. We must not throw out the baby with the bath water. In the rush to correct years of dalliance, laissez faire practices and roguery and clientelism in banking and high finance we must not do down the single institution which is the people’s friend in every village and town. Even the figure of 30% is tight. Moreover, the reserves credit unions are being asked to hold are excessive, to the extent that they will not be in a position to lend adequately.

I appeal to the Minister to put the credit union regulatory element of the Bill on hold, to carry out a review of the credit union movement and to look at a separate regulatory process for credit unions. These are very distinct institutions with a very distinct role and societal function. I believe the public would thank us for that. I appeal to the Minister to do it. We cannot paint all with the one brush and we cannot be excessive in our regulation of credit unions. I appeal for reason and for adjustment.

I welcome the Minister. For those of our colleagues who were not present when Senator Ross spoke, he said that in all of his time here, Deputy Brian Lenihan was the best Minister for Finance.

We were agog listening in our rooms.

He went on to say that his criticism was that NAMA had been led astray again by the banks. It will be interesting to hear what the Minister has to say in that regard in his summing up.

We saw from the reports of Professor Honohan and Regling and Watson that there were serious inadequacies and failures in our banking regulatory system. The whole purpose of this Bill is that we would have credibility at home and internationally with reform of the Central Bank. It represents a significant package of changes which will establish a lending framework to repair and improve the supervision of our financial system. The point is to create a Central Bank that will take on the responsibility of ensuring the stability of the financial system. It is a three-stage legislative programme to create a new, fully integrated framework for financial regulation, meaning everything will come under the Central Bank and its Governor will have ultimate responsibility so no cracks can arise in the system as we progress.

There is a fear that the Minister could damage the credit unions in this Bill. It is well worth repeating on the record what he said in this regard earlier in the debate:

I am a strong supporter of credit unions and I recognise their special place in communities all over this country and their civic-minded nature. The Government is all too aware that banks have let us all down very badly whereas, throughout this period, the credit union movement has continued to meet its mandate and to provide a very valuable community-based service to its members. Let me reiterate that credit unions are, and will remain, a very important part of the financial sector in Ireland. The credit union movement continues to play a critical role in meeting the financial needs of our communities. The Government is fully committed to a financial and regulatory system in which credit unions can develop and expand their activities.

The real issue with credit unions is that they would prefer if a decision was not made on section 35 but that we would wait until the review process, which I believe is currently out to tender. This makes common sense. Many Members have been approached by representatives of credit unions, who call for the legislation to be deferred until the strategic review, which the Minister requested and is setting up, returns its findings in December 2010, as is expected.

The review will have two parts, first, a risk assessment that will determine the appropriate financial management required for credit unions and, second, the strategic options for the future of the credit union movement. It is the belief of the credit union movement that only when the findings of the strategic review are completed should the appropriate powers be directed to the registrar.

On behalf of all on both sides of the House, as Senators Ross and Butler said, I wish to state that the Minister has been exemplary in his dedication to cleaning up the financial mess that our little country——

——found itself in. It is an international issue, with a banking crisis throughout the world. There is a financial crisis in the United States, the United Kingdom——

We have an amendment which is suitable for the Senator.

There should be no interruptions.

It is thanks to the Minister for Finance, the Taoiseach and the Government that we are not being lobbed in with Spain, Greece, Portugal and Italy.

What of the PIGS? The "I" does not stand for Iceland.

We are being lauded by the Financial Times and our austerity programmes are being lauded.

The Senator should support amendment No. 23.

If the Financial Times and The Wall Street Journal were being critical, Members would be shouting it from the beautiful ceiling here in the Seanad Chamber.

Credit unions fear that any new legislation will be a blanket across all individual credit unions, of which there are 1,400. It is only natural there would be a review, to which there is no objection.

The Senator should support our amendment.

However, we must listen to——

We have to listen to the regulator as well. It is a difficult balance.

I agree. I compliment the regulator, Mr. Elderfield. Every time I hear Mr. Elderfield's name, I relax.

I am not sure the Minister does.

Perhaps Senator White will not relax when she hears what he has to say later.

There should be no interruptions.

I know we are in good hands. I knew that the first time I saw the regulator in action, and the same applies to the Central Bank Governor, Professor Honohan. They have been outstanding appointments by the Government. Those on the Opposition side should be appreciative of the great work being done by the Minister for Finance.

The Senator should consider amendment No. 23.

I welcome the Minister and join in the compliments. He is a man of sterling qualities and I hope among them is contained an element of sardonic humour underneath that impassive ministerial mask because, otherwise, I do not imagine he could have sat here for several hours without feeling the effects. I am very glad to see him back in full health and vigour and able to withstand this. I understand he has had an attack of influenza recently and it is refreshing to see him back in the House.

I must respectfully disagree with my colleague, Senator Mary White. Two reports have been referred to, about which I have spoken at some length and I will not reiterate all of that now. These reports indicated very clearly that this was not a vanilla bubble of boom and bust——

——but a plain vanilla bubble that was caused directly by Government policies. The Minister has been honest enough in addressing these matters and I will leave it at that because he is both a decent and honest man.

I agree with him that it is important that we stress the good things that have been happening. Some good indicators have occurred, although it will be quite a long time before we catch up in terms of employment. The economic indicators are to a certain extent academic at this stage, although I welcome some of the measures. I welcome the creation of the Central Bank commission and the dissolution of the Irish Financial Services Regulatory Authority, which is about bloody time. Did it not disastrously let us down? It is one of the most shocking things that the body that was supposed to be independent both of the markets and of political direction should so signally have failed to act as the watchdog. I also welcome the introduction of new accountability measures. The Minister was present, manfully, during the debate on NAMA and he knows perfectly well that Senator Joe O'Toole, seconded by myself, got significant amendments accepted by Government here in the Upper House, giving a degree of Oireachtas supervision to the NAMA legislation.

I will probably not take my full time to speak. I noted with some wry entertainment that some of the other speakers appeared to be embarrassed by the amount of time they had and had significant difficulty in using it.

There will be plenty of time tomorrow.

However, I will say this. The Minster knows perfectly well that I have been concerned about Anglo Irish Bank, and that concern is now clearly shared by the Commissioner responsible, who has indicated these concerns. That does not give me any pleasure but it is a plain fact. I also said this very early on, about January, but there was some confusion because I was interrupted and heckled. I was telephoned afterwards by the parliamentary reporters, who do a superb job, but I am not sure I got it right. However, I will say now what I said then, namely, that I believed it was not a tsunami or an earthquake but a man-made situation; therefore, it was susceptible to a man-made solution. We can consider what worked. In the National Treasury Management Agency I suggested a national property management agency and prior to this I suggested the amalgamation and nationalisation of the principal banks in a clean surgical move. I suggested towing Anglo Irish Bank into the sea and sinking it.

The Minister for Finance, Deputy Brian Lenihan, told the House this could not be done because the bank was of systemic importance. I am interested in the language and this tells me the system had to be saved. This was not so. As it is a world problem, we should address the issue on a worldwide basis.

I remember Gerry Adams saying "They haven't gone away, you know", in reference to the IRA. The money has not gone away either and someone has it. There has been an increase of 25% in the number of billionaires in the United States of America and in the worst of times, the wealth has become more concentrated. We have seen throughout the world and this country the greatest transfer I have ever witnessed from the poor to the wealthy, which is wrong. The system should be examined.

I have been attacking Standard & Poor's, Fitch and Moody's for 18 months and at last the political establishment has caught up. These types of firms were involved in derivative products and helped to sell them when they either knew or should have known that they contained toxic elements. Despite this they kept pushing such products, precipitating the crisis. They got it wrong about Enron and Iceland and were involved to a certain extent in Greece with partners in the form of Goldman Sachs.

I am not proud of the fact that an Irishman was sitting on top of that particular cake. It is disgusting. I read an article in one of the leading London newspapers at the weekend and I hope the facts therein are wrong. Facts and figures were provided indicating that Goldman Sachs was knowingly involved in the precipitation of a famine in places like Ethiopia through the use of devices and financial instruments to obtain a position where it could gamble on food futures. That is a disgrace and people died as a result. Such firms should be held to account and I would like a radical examination, not just in Ireland but throughout the globe, in that respect. I have not used my full allocation of seven minutes of speaking time.

It is very difficult to follow Senator Norris in full flourish. I do not know how many minutes I will use but I welcome the Minister, Deputy Brian Lenihan, to the House. I commend him on much of the work he has done in recent years in the financial sector. Although I do not agree with everything and not everything he has done has been right, I trust his judgment and I wish him well in his position.

There is not a hope at this point.

I am not joining anything yet.

He is not going. He is staying with us.

In light of the engagement the Minister, Deputy Brian Lenihan, has accepted for August, he might be coming over to this side. I wish to make a couple of points on the Bill, although I do not want to repeat everything that has been said on the financial disaster which the country finds itself in currently, especially our difficulties in banking and bank regulation. I echo the comments of Senator Norris on the recent banking reports which clearly outline that although there was an international dimension to our difficulties, quite a significant proportion of our problems were home grown. I do not blame the Minister for this and I quite clearly state that he was deliberately kept down politically in the Government for a long time while others were in charge. Other people made the calls on economic matters and more is the pity that he was not in his current position much sooner. Many people in the country would agree with that point.

I wish to raise my concerns on the credit union issue as well and ask the Minister, in his concluding remarks, to clarify one of the eight measures which he pointed out would be introduced following discussions in the other House. He referred to a specific statement introduced in section 35(2C) meaning that the Central Bank may give notice to credit unions with regard to lending requirements only where it considers it necessary for the adequate protection of member savings. Will the Minister clarify that statement? I may have missed other points but that goes to the central argument that many people in the credit union movement have with some of the recommendations in this legislation.

As Senator O'Reilly has pointed out, the credit union movement has been a shining light in many isolated parts of the country in getting access to credit for ordinary citizens over the years. Crucially, people have been able to get access to credit other than from the moneylender, a creature reappearing in different parts of the country. The credit unions deserve much recognition for combating this problem.

I welcome the appointment of Mr. Elderfield as the regulator, as he is doing a good job. Most the people involved in the implementation of regulation prior to our banking collapse are still there, although we may have changed some of the top people involved. Most of the rest of the structure remains and even with this realignment, as proposed in this legislation, of the regulation function, these people will still be in the relevant positions.

There is a lack of confidence on behalf of the credit union movement in the people who have been regulating it, and there is certainly a lack of confidence among the public. That is the great strength of the credit union movement, which represents the public. The Government cannot have it both ways with regard to the credit union movement. The central plank of the changes in this legislation for the credit unions as I understand it would be to introduce binding regulations, as opposed to the current guidelines, with regard to lending practices for credit unions. The Government cannot on the one hand accept and endorse the co-operative movement under which the credit union leagues operate while on the other hand removing the autonomy they have to perform their functions. The one-size-fits-all approach will not work for the credit union movement and there is a danger that this legislation will make them more like the banks, which we should be trying to avoid at this juncture.

The credit unions have a unique and different function which has been fulfilled very well over the years. As other Senators have pointed out, no credit union in the country has been forced out of business recently and credit unions have not come to the Government looking to cash in bonds. There should be cognisance of that. Reforms are necessary in the credit union movement and although many of the larger credit unions are adopting bank-type lending policies, they do not have the necessary equivalent funding-type policies. We should ensure credit unions do not engage in long-term investments unless they have the same long-term funding to back up those investments. There is a potential for difficulty unless some action is taken in that regard.

That is about all I wanted to say on the legislation. I have no difficulty with much of it but I would be interested in the Minister's clarifications of earlier comments regarding the autonomy that credit unions will have after this legislation is enacted if there is no amendment dealing with lending policies into the future.

I thank Senators for the constructive manner in which they have approached this legislation and for the many kind comments they made about me. Senator Donohoe led the comments on the Bill for the Opposition and made a number of pertinent points.

He was concerned about the position of the Secretary General of the Department of Finance and whether that person should be on the board of the Central Bank. It has been traditional to have the Secretary General of the Department on the board and the Secretary General is named in the legislation. The Secretary General is not there as a representative of the Minister for Finance, which is an important point, but is there as the administrative head of a Department which has a vital bearing on the finances of the State. It is important that there be a sharing of information between the Secretary General of the Department and the Central Bank. The Secretary General is not present to supervise the Governor or hold him to account on behalf of the Government, rather the Secretary General's job in this regard is to exchange information and reflect on the operation of the bank in the context of its essential function in maintaining monetary stability. I cannot speak for former Ministers for Finance in this regard, but I am in a position to state that neither of the two Secretaries General with whom I have worked has commented in any detail on the proceedings of the board of the Central Bank. I do not believe it would be normal practice for them to do so. It is valuable to have that linkage to which I refer in place. I accept that Senator Donohoe did not make a major point in respect of this matter and raised it more to seek clarification.

The Senator and others, including Senators Ross and O'Reilly in particular, did make a major point in respect of who, under the legislation, should have responsibility for appointing the members of the Central Bank commission. One of the difficulties I have with this aspect of the debate is that it begins with the presumption — I find it extraordinary that such a presumption is made by the seasoned politicians who populate the Opposition benches — that "politics" is a dirty word. It is stated we should not introduce politics to the debate when it comes to the question of making appointments. However, we must introduce politics because we are elected by the people to make decisions on their behalf. That is the function of Members of the Dáil and, on an advisory basis, the Members of this House. There is that mandate from the people, either directly or indirectly, and we are obliged to discharge it. If we commence our consideration of legislation by presuming politics is wrong, the Oireachtas should not really exist as a body. I am not referring solely to Seanad Éireann in this connection; I refer to both Houses. We must have some pride in ourselves as public figures and politicians and account for our decisions.

In an interesting contribution Senator O'Reilly stated we should establish a commission to make all public appointments. It is worth considering this proposal to identify what might be its impact. Under the Senator's proposal, the power the Government exercises in the making of appointments would be removed and vested in a commission. Senator Ross, as is his absolute democratic entitlement, referred to certain appointments made to the board of Anglo Irish Bank and I must account for these appointments. It may not be appropriate to comment on the matter during this debate, particularly as it is not directly relevant to the legislation. However, as Minister, I am accountable in this regard, a fact to which the Senator has referred in various newspaper articles he has published. One issue that occurs to me in respect of Senator O'Reilly's proposal is how we would question the commission about decisions it might make in making appointments to the board of the Central Bank. I do not understand how the establishment of an appointments commission would be of assistance in addressing the issue of who should take responsibility for the making of appointments.

Another suggestion frequently advocated in debates on this matter in the House is that the Oireachtas should have responsibility for making these appointments. The Dáil already has responsibility for forming a Government. If the power to make appointments was vested in the Oireachtas, it is not obvious to me that it would be necessarily responsible to anyone for any appointments it might make. The only exception in this regard is that general elections and Seanad elections take place every four or five years and the Members of the Houses might then be held accountable.

The question of appointments is a difficult one and was also raised by Senator Ross. In so far as the Central Bank commission proposed under the legislation is concerned, I will be obliged to make appointments thereto in a very speedy manner. That is, of course, based on the assumption that certain Opposition amendments which have been tabled will not be accepted. This is a matter with which I will be obliged to deal in an extremely serious fashion.

It is important that the legislation specifies the qualifications which persons for appointment must possess. However, I do not like the argument that involvement in politics should disqualify people from appointment. Under this argument, it is axiomatic that involvement in politics should disentitle one from being appointed to anything. That seems to be the presumption underlying some of the arguments made. I accept, however, the argument made — in good faith — that some of the appointments made by all parties have been of poor quality. If we are devising a system, the best one to adopt is that of accountability. If a Minister knows that Senator Ross is going to question or criticise him or her in respect of appointments he or she has made, he or she will think twice before making certain appointments. That is the most valuable sanction. I am not convinced that an independent commission would be accountable to anybody. I am also not convinced that the Oireachtas, in respect of a collective decision it might make, would be more accountable than an individual Minister. However, I am sure this matter will be teased out on Committee Stage.

Senator Donohoe referred to living wills — in the context of the banks — and commented on how the banks might be restructured in the future in cases of insolvency. The Central Bank has published a document on this matter and considered the various options. Legislation has been promised in other jurisdictions, but it is far from easy to devise it. The more detail one includes in the living will, the less confidence the investor has in investing in a particular bank. Legislation such as that to which I refer is essential because we must ensure that in the future we will be in a position to deal with banks which are of importance.

It is clear from the progress of banks throughout Europe since September 2008 that the option of a classic liquidation was not available to any government. However, there seemed to be no intermediate solution between liquidation and providing unlimited taxpayer support for these institutions and underwriting their losses. When Axel Weber, president of the German Bundesbank, visited Dublin recently, he stated no institution was too small to be saved in September 2008, particularly given the fragility of financial markets at the time. It is extraordinary that few, if any, financial institutions in the eurozone have been allowed to fail during the crisis. One extremely small Dutch building society was liquidated, but that occurred some considerable time after the onset of the crisis in September 2008. The legislation in question is extremely important and the Central Bank has published a document on the area to which it refers. The Government is committed to introducing such legislation.

Many Senators referred to the arrangements made for credit unions. I remind the House that the Government has an obligation to ensure those who entrust their savings to credit unions are properly protected. The Government has given legal effect to extending the deposit guarantee scheme which was announced on 20 September 2008 to credit union savers. Since the implementation of the Financial Services (Deposit Guarantee Scheme) Act 2009, the guarantee is now applicable to all savings of up to €100,000 in credit unions. The guarantee covers the majority, if not all, of members' shares in the relevant credit unions. The State will, therefore, be exposed if proper prudential considerations are not observed.

It was at the request of the credit union movement that I examined the section 35 requirement. The credit unions wished to be put in a position where the write-off of loans could be extended more easily by them in respect of members who found themselves in difficulty in the current financial circumstances. I was of the view that this was a worthy objective and that we should take action in respect of it. We took such action in the relevant legislation. However, the Government decided to put in place countervailing safeguards in respect of regulation. This was not an arrangement into which it entered lightly. It was, in fact, advised to take this course of action by the Financial Regulator. Since the debate on the legislation in the Dáil, the regulator has written to me welcoming the fact that it was passed and was before the Seanad. He is aware of the continuing opposition on the part of some to the proposed amendment to the Credit Union Act 1977. As head of financial regulation, he has extremely strong views on this matter and is of the opinion that section 35, as drafted, is sensible and prudent. He would have viewed the original version of the section as even more sensible and prudent.

I was prepared to meet representatives of the credit unions and did so on two occasions in order that I might, at least, address some of their concerns about this matter. As Members of the Houses, we have certain responsibilities. Those who suggest public figures are somehow captured by the banking interests are very wide of the mark. There is no interest which captures public representatives in this or the Lower House more than that of the credit union movement. However, we are required to make a distinct determination as to what is required in the public interest. This requires that there be minimum protection for depositors who are now covered by the guarantee. The Financial Regulator has advised the Government that this is essential.

I have tried, in so far as is possible, to meet the concerns of the credit unions. The crucial point with regard to the amendments that have been tabled is that which provides that the exercise of power by the regulator, through the registrar, must be proportionate. This is not a blank cheque that is being given to the regulator — the regulator is being given the power to exercise controls in a prudential and proportionate way. That is very important. Public confidence in the credit union movement has to be sustained. Throughout my discussions with the movement, I have stressed the importance of working together in this regard.

It is not the case that banks are being treated more leniently than credit unions. Credit unions are financed by the highly liquid demand deposits of their members, rather than by the mixture of deposits, bonds and equity that is common in other financial institutions. If we are to make provision for arrears and the rescheduling of loans, it is critical that we have a basic prudential framework in place. That is why these provisions were introduced. It is not as if some bureaucrat in the corner decided this should be done — it is the considered view of the regulator, which I have taken into account. I have not gone the entire distance requested by the regulator. After I met the credit unions, I decided to temper some of the regulator's requirements with the need for proportionality. I agree with Senators who have made the point that one size does not fit all. There is a huge diversity of types of credit union. Some credit unions have embarked on extensive lending, whereas other credit institutions continue to be quite small in scale.

I heard some Opposition Senators, including Senators Coghlan and Alex White, argue that this measure should be deferred while a review takes place. We cannot defer issues all the time by organising strategic reviews. When the regulator advises one that a matter needs to be addressed, we have an obligation to heed his views and act on the matter. We cannot simply decide to postpone our consideration of this difficult issue for a year or two while we have another debate and another round of lobbying about it. This matter requires attention now. The guarantee for the credit union movement has been in place and will be in place into the future. I am proud to be the Minister who introduced the guarantee, which is very important. I agree we do not want the credit unions to be assimilated into the banks. The provisions contained in this legislation, which are specific to the credit unions, give the registrar certain powers. We can make progress on these issues if the regulator works with the credit union movement.

The credit union sector will be very important in Ireland in the future. It has not been as important in recent years due to the high interest rates that have been offered by some of the financial institutions on the markets. That led to an ageing in the membership profile of many credit unions. In this financial crisis, we have seen how the other traditional mutual model has disintegrated in this country. Our two mutual building societies will not be mutual societies indefinitely into the future. The credit union movement has an important role to play in providing finance in communities. Credit unions provide the type of service that was extolled by many Senators. If we are to learn anything from our experiences of recent times, it should be that such a type of service can only be provided in the context of a definite regulatory framework. The idea that every time one tries to regulate a credit union, a lobby can be mounted to resist it is unrealistic in light of all we have learnt about the financial crisis of recent years. I do not suggest that the credit unions made all the mistakes the banks made. Nobody in the credit union movement would pretend that the movement did not make some mistakes. The regulator has made it clear that we need a regulatory system. I have had to act on that advice. That is the position in relation to the credit unions. It may be difficult for Senators to accept.

Senator MacSharry spoke about mortgage arrears. He has always been a strong advocate of the protection of those who are in financial distress with their loans. This afternoon's interim announcement in that regard was made by a group that is working very well. It has prepared a set of recommendations, some of which are being implemented by the regulator and others of which are being implemented by the Minister for Social Protection. There will be a further instalment of change in that regard.

Senator Ross made an interesting contribution. I thank him for his kind words. He was careful to criticise certain appointments with which he did not agree. I am not sure whether this debate is the appropriate place for me to reply to the issues he raised. I can say that some of the names were proposed by the bank itself as part of a panel. I wish to say, in response to the comment about the need to appoint someone with legal expertise to the board, that I was not disposed to appoint someone from one of the larger firms, which would have excited a degree of criticism among commentators as well.

The Minister has given them enough already.

I decided to appoint a commercial solicitor of considerable experience who is a former Member of this House.

On the question of NAMA——

Time is moving on.

Senator Ross asked a question about the publication by NAMA this afternoon of a number of documents, including its business plan. The original draft business plan was prepared by the interim NAMA executive, at the request of the Opposition parties in the course of a Dáil debate. That plan clearly rested on assumptions and information provided by the financial institutions at that stage. As Senator Ross pointed out, it is clear that many of the assumptions that were relied on by the banks were inaccurate and wrong. The chairman of NAMA, Mr. Daly, made the same point this afternoon. I am glad to say the legislation provides that it is a criminal offence for a financial institution to provide wrong information, in the context of the institution itself. Of course the information in this case was provided before the NAMA legislation came into force. Having said that, I maintain that what has happened since last autumn has entirely vindicated the Government's decision to establish an asset relief agency. It is clear that we needed an independent statutory valuation of these assets. The argument that was made by many people at the time, including some Members, although not all of them, on the Opposition side, was that the banks should be left to their own devices in arriving at valuations. I suggest it was a very fallacious argument. Given the scale of the problems at the banks, it was clear this country needed an independent statutory valuation of these loans. If we are to draw any happy conclusion from this most unhappy episode, it should be that NAMA at least ensures we have first mover advantage in recognising the reality of how great the losses were in the banking system. It is clear that not all European countries have been in a position to do that yet. The first mover advantage we obtained when we forced the banks to recognise the losses they had on their books will assist our banking system in time.

The next question that was raised by Senator Ross was the close proximity between regulators and the banking system. This cultural problem, which was also mentioned by other Senators, was at the core of many of the regulatory difficulties we experienced. I am not suggesting there was actual corruption, or anything like it. I am suggesting the regulatory system displayed an unhealthy subservience to the banking system. That cannot be repeated. Senator Alex White asked why the architecture should be changed. One of the features of the architecture designed in 2003 was a great lack of clarity, for a small country.

In a small country like Ireland, there is a clear need to relate the stability function of the Central Bank in a clear and transparent way to the regulatory function of the regulatory system itself. We will have a unified board over which the Governor will preside, and to which the head of central banking and the head of financial regulation will be accountable in their own distinctive capacities. We need that type of structure to prevent a repeat of what we saw in the past. I agree with the many Senators who said that regardless of the structures that are devised, men and women rather than measures are decisive at the end of the day. In all of these matters, careful attention to appointments is of decisive importance.

Many other points were raised. I have tried to deal with as many points as possible.

The business that was ordered today limited the amount of time available for the Minister's reply.

I thank Senators for their attention.

Question put and agreed to.