Commission of Investigation (Banking Sector) Order 2010: Motion

I move:

That Seanad Éireann:

having regard to the significant public concern about the scope and cost of measures that have been necessary to stabilise the Irish banking sector;

noting the recommendations of the reports, ‘The Irish Banking Crisis: Regulatory and Financial Stability Policy 2003-2008', by the Governor of the Central Bank, and ‘A Preliminary Report on The Sources of Ireland's Banking Crisis', by Klaus Regling and Max Watson, which were laid before Seanad Éireann on 9th June, 2010;

noting the Government decision of 9 June, 2010 referring these reports to the Joint Oireachtas Committee on Finance and the Public Service for its consideration and input into the preparation of the terms of reference for a commission of investigation;

noting the acceptance by the Government of the seven key policy lessons outlined in Part IV of the report by Klaus Regling and Max Watson and the proposal to refer for further consideration by the Joint Oireachtas Committee on Finance and the Public Service the macro-economic policy lessons arising from the reports;

noting that it is the opinion of the Minister for Finance that a commission of investigation represents the best method of further investigation of specific serious lapses in respect of specified credit institutions;

further noting that a draft Order proposed to be made by the Government under the Commissions of Investigation Act 2004 (No. 23 of 2004) has been duly laid before Seanad Éireann in respect of the foregoing matters referred to, together with a statement of reasons for establishing the commission under the Act;

approves the draft Commission of Investigation (Banking Sector) Order 2010, copies of which were laid before Seanad Éireann on 7 July, 2010."

Last January the Minister for Finance set out in the Dáil a framework of investigation into the problems that arose in the Irish banking sector. He stated a comprehensive understanding of the events that took place in the banking sector in recent times was an essential component of recovery. He noted that, as a Government and Members of the Oireachtaqs, we had a duty to ensure not only that the origins of the crisis were understood, but that lessons were learned and that international and domestic confidence in the banking system was restored in order that the economy could return to growth and employment creation.

As the first stage of the process of investigation, the two preliminary reports prepared by Klaus Regling and Max Watson and the Governor of the Central Bank, respectively, provide a comprehensive and authoritative examination of the crisis in the banking sector in Ireland. The authors have given us a detailed and insightful analysis of the global, European and domestic macro-economic factors at play in the relevant period. Governor Honohan's report details the failures in our regulatory and supervisory arrangements and the weaknesses in the evaluation of the stability of the banks.

The reports draw attention to a number of issues which require further analysis and provide a sound basis for the further investigation of these significant issues. The Government welcomes their direction in this respect. They were laid before the Houses of the Oireachtas on 9 June and debated. The Joint Committee on Finance and the Public Service has had two separate and lengthy engagements with the authors and subsequently with the Minister to discuss how we should proceed. The meetings allowed a comprehensive airing of the issues raised in the reports and a necessary rebalancing of the initial interpretation and media commentary by highlighting the complex interplay of factors at work that culminated in the extreme turbulence that impacted on the banking system in September 2008.

In their report Klaus Regling and Max Watson distinguish between those issues that are amenable to further investigation through a legally orientated process and other issues which are less concrete and verifiable and may be more appropriately the subject of policy review. This distinction formed the basis of the Government's proposed approach to the next steps in the process.

I draw the attention of the Seanad to a number of points about the findings of the preliminary reports. Both reports, in particular that of Mr. Regling and Mr. Watson, describe in some detail the nature of the explosion in the availability of credit in the Irish banking sector and characterise the failures in governance and risk management in the banks as "disastrous" and ultimately leading to systemic difficulties in the financial system. What went on in the banks leading up to the crisis remains a cause of significant public concern. The public interest demands that we investigate the very serious failures in the standards and controls that should have ensured prudent risk management policy and procedures.

It is clear that there were particularly egregious failures in corporate governance and risk management at Anglo Irish Bank and Irish Nationwide Building Society. Certain matters are already the subject of investigation by the relevant authorities and I do not propose to comment on these. However, there is a clear need to examine more deeply and broadly what went wrong in these two organisations, while taking account of the other investigations. That is why the draft terms of reference prepared by the Government specifically set out the need for a full examination of the business models and strategies adopted by the boards of these institutions and the implementation by their senior managements of business and lending practices which resulted in these institutions experiencing such uniquely severe financial distress. The investigation will cover the period from 1 January 2003 to 15 January 2009, the date on which Anglo Irish Bank was nationalised.

Building on the need to investigate failures in governance and risk management, it is proposed that the commission also investigate whether the external auditors commented in their audit reports on the standards and controls and risk management policy and procedures, or on the business models and strategies and business and lending practices that led to the severe difficulties experienced by the banking system.

On foot of the analysis by Governor Honohan of the failures of financial supervision, there is a need for further examination of the nature of supervision and oversight of the banks by the Financial Regulator. For this reason, it is proposed that the commission examine the failures of the Central Bank and the Financial Regulator to regulate and supervise the covered institutions and maintain financial stability.

The terms of reference in the draft order laid before the Houses address each of these points in the light of the findings of the preliminary reports. Under the Commissions of Investigation Act 2004, a commission of investigation may be established by the Government, with the approval of the Oireachtas, to investigate any matter considered to be of "significant public concern". There can be no doubt that the banking crisis and its origins fall squarely within that category. It has had a profound impact on the State and its financial position and we will live with its consequences for some time to come. It is essential that we identify what went wrong and why and that we learn the lessons of the past to ensure we never make the same mistakes again.

The Minister announced this morning that Mr. Peter Nyberg, the former director general for financial services at the Finnish Ministry of Finance, has agreed to lead the commission. Mr. Nyberg has all the necessary experience to undertake this important role. He will be supported by the expertise he requires and provision has been made in the Estimate for the Department of Finance for this year to cover the costs of the commission.

There are ongoing investigations by the relevant regulatory and other authorities into specific matters of a serious nature in a number of institutions. The commission of investigation will not supplant or hinder these investigations. In fact, it is open to the relevant authorities to initiate further investigations into additional possible breaches arising from any findings the commission may make.

The motion before the Seanad seeks approval of the draft Government order laid before the Houses yesterday providing for the establishment of a commission of investigation into the banking sector.

I draw the attention of the Seanad to the Government's decision, following the recommendation of the Joint Committee on Finance and the Public Service, to extend the period to be covered by the commission of investigation from 1 January 2003 to 15 January 2009. This means the commission will now be in a position to examine all relevant matters relating to corporate governance and risk management in each of the banks covered by the Government's guarantee up to the date of the Government's decision to nationalise Anglo Irish Bank.

The second motion before this House seeks to refer certain macro-economic policy lessons to the Joint Committee on Finance and the Public Service arising from recommendations set out in the Regling and Watson report. As is clear from that report, these policy issues can be divided into two groups — those that relate to macro-economic management and those that relate to financial stability and prudential-supervisory matters. The former are primarily the responsibility of the Minister for Finance in the first instance and the latter fall within the remit of the Central Bank and Financial Regulator.

The Government is, therefore, proposing that the joint committee, taking account of the emerging EU proposals on fiscal and economic governance, examines the following matters highlighted in the Regling and Watson report: the role of macro-economic management and surveillance in securing the long-term sustainability of Ireland's economic performance and also in responding on a timely basis to risks and imbalances that may build up in both the private and the public sectors of the economy, including external imbalancesvis-à-vis other euro area members and the funding of any imbalances that might arise; the role of fiscal policy in securing an appropriate alignment of the national business cycle with monetary conditions in the economy; the requirement for the design and conduct of budgetary and taxation policies to take account of the cyclical nature of particular revenues as well as their temporary nature in certain circumstances in order to maintain an appropriate and effective tax base; and the case for the establishment of new institutional structures to provide an independent validation of economic and fiscal projections as well as for the introduction of domestic medium term fiscal rules.

Following discussions between the committee and the Minister, it is understood the committee is agreeable to the main elements of the overall proposed scope. It is proposed that its deliberations be concluded by the end of October in order to publish and report back to this House and to the Dáil by 4 November 2010.

In regard to the issues within the remit of the regulatory system, the House will be aware that the Central Bank published a report on 21 June setting out its proposed approach to future regulation of the banking sector. This report also addresses how the range of measures it is putting in place will address the issues raised in the Governor's report and that of Messrs Regling and Watson. This is another step in the road to the recovery of our banking system.

It is the Government's view, underpinned by the two preliminary reports, that certain decisions and processes, which are fundamentally political in nature, are not amenable to an investigation, the purpose of which is to make findings of fact. The Government will not be changing its position on that point and there are no good reasons for it to do so.

It must also be made clear that the Department of Finance will feature in significant ways in both of these investigations. First, the terms of reference of the commission require it to examine whether any advices or directions given by the Department of Finance to the Financial Regulator were, in any way, relevant to failure of the Financial Regulator in the performance of its supervisory functions. Second, in regard to the proposed policy review by the committee, the Minister has already indicated his availability to meet the committee as the accountable Minister to assist it in its deliberations as necessary. The Minister and the Government have at all times remained accountable to the Oireachtas for decisions taken. That will continue to be the case.

In addition, as the Minister has already indicated, he is establishing an independent review by an international expert or experts with relevant international and-or domestic experience to evaluate the systems, structures and processes used by the Department of Finance in providing advice to the Minister and the Government. The review will examine the Department'srole and performance in the past ten years in providing advice for the Minister and the Government.

The matters we are discussing are important and will have enduring consequences for future economic and financial policy. It is appropriate, given the scope and cost of measures that have been necessary to stabilise the Irish banking sector, that it be fully and completely investigated and the lessons learned in order to put in place the best systems and structures in the future so this kind of crisis can never happen again. I commend the motion to the Seanad.

I apologise to Senators for galloping through my speech but time is limited and it was for the purpose of allowing them to have their say.

I welcome the investigation of the banking reports by the Joint Committee on Finance and the Public Service, the establishment of a banking inquiry and the review of the Department of Finance over the period to which the Minister of State referred. However, there are other very important issues. There is a need to ensure there is a rapid investigation by the Garda and State authorities to restore confidence in our economic system. It has been a long time since the Garda went into the headquarters of Anglo Irish Bank. We need to know how that investigation is proceeding and whether prosecutions will be forthcoming from it. If anything issub judice, it will hinder the work we can do in regard to other aspects of the investigation.

We have put much time and money into NAMA but we now find that the information we were given last October is complete bogus. We cannot allow that sort of thing to happen. We cannot investigate this crisis, the way it has affected taxpayers and what it will cost them in future only to find the banks are giving us the wrong information, either deliberately or because they are somehow not capable of putting the information together. That does not inspire taxpayer confidence in the Government's ability to handle this crisis.

I hope we will see genuine changes in the way budgets are prepared in future and that all the announcements are not just made on budget day and that we are given some indication as to the position for the following year or the following couple of years.

Will the Minister of State indicate whether there will be interim reports? We do not want to wait three or four years before the final reports land on a Minister's desk when many of the issues about which we are talking will be resolved and the information may well be out ofdate.

I commend the motion. It is important the commission of investigation gets under way quickly. I welcome the appointment of Mr. Nyberg, former director general for financial services at the Finnish Ministry of Finance, and the work of the Joint Committee on Finance and the Public Service, of which I am a member. I look forward to both these investigations bringing more clarity to the mistakes of the past. It is a great sign of the maturity of our democracy that we are prepared to take the time to examine the mistakes of the past and learn from them. These processes will do that and will build on the already good work done in terms of the structural changes we have made in the past couple of years. I thank the Minister of State and commend the motion.

I thank the Minister of State for coming to the House to explain this. I welcome the fact the commission is being set up. It is obviously required after the two earlier reports. There is a danger that we will have five reports in the same area fairly shortly, including the Honohan report and the Regling-Watson report. The Minister of State can correct me if I am wrong but there will be three inquiries going on. We will have this commission of inquiry, the policy inquiry and the inquiry into the Department of Finance, which is an awful lot. I am not sure whether they will overlap.

I worry about some of the limitations of these inquiries. The terms of reference are very important and are quite confusing when one looks at them. My understanding is that a very sensible concession was made at the Joint Committee on Finance and the Public Service last Monday in response to a motion tabled by Deputy Burton asking for an extension of the time. The Minister very sensibly extended the time to the date of the nationalisation of Anglo Irish Bank.

I worry about that. One of the problems with the last report was that there was a limit on the time until the end of September 2008. A legitimate complaint at the time was that it did not cover important matters such as the Anglo Irish Bank-Irish Life and Permanent deal, a few other deals and the Sean FitzPatrick deal in which he moved his loans. This will cover that area and other very sensitive areas, which we have not covered before. That is very mature. It will also cover the actual process of the nationalisation of Anglo Irish Bank, which will be fascinating and useful.

Why does it stop there? I am not being pedantic. I am interested in what the Minister of State has to say about this. He said one never knows when to stop when one is holding inquiries, and I accept that. However, stopping there is not necessarily a good point. The Minister of State will be aware, as will all Members of the House, that what had been going on in the banks into which we are inquiring did not stop on 15 January 2009. It did not stop on 15 February 2009 or even on 15 February 2010. It has not stopped yet.

The evidence for this is what Frank Daly, chairman of NAMA, said this week. The NAMA business plan was revised because the banks had been telling lies, certainly until early this year. Frank Daly said we are not 100% certain we have sorted the problem out yet. He said we have got the majority in line but we are not 100% certain of that. The result of the banks' lies is that the NAMA projected profit, which is fantasy, has been turned into a loss. I do not believe the figures one way or another. I never did and no one should. However, the projection went from a profit of €4.8 billion to a possible loss of €800 million. This was because the banks had been telling lies about what percentage of their loans were being serviced. They were giving these lies to NAMA. NAMA was accepting them and making business projections on the basis of them. The figure has now been revised from 40% to 25%, which means the projections have gone west.

Frank Daly said the banks had been misleading NAMA and getting away with it for a long period. If this was going on, we need inquiries. We need to find out how they continued to be able to do this. Right up to a couple of months ago they were pulling the wool over the eyes of NAMA as well, but our inquiry will stop on 15 January 2009. I have no objection in detail to this but I object to it in principle. The inquiry should probably have no time limit on it. One must restrict its terms somewhere because we do not want it to be like the Mahon tribunal and go everywhere. I see the problems we will have if we do that. However, if we restrict the commission's time, we restrict its pursuit of the themes and details, which are so important. Will the Minister of State explain why the inquiry stops at that point? I do not want him to say one must draw the line somewhere. I want him to explain why it stops there and why the inquiry cannot at least pursue a line it is following beyond that date.

Patrick Honohan did that in his report. He went beyond his terms of reference, as far as I can remember. The Minister may not be grateful to him for that but that is what makes him so useful. He stands up to those who appoint him and does not say exactly what they want him to hear. He is a wonderful appointment. I do not know anything about Mr. Nyberg but I accept what Senator MacSharry says about his bona fides. Let us accept him on face value, not criticise him and hope he is the sort of guy we are looking for. He is an outsider, which is tremendous. In that respect, the Minister of State and the Minister have dealt very well with the area of appointing outsiders. The appointment of people to the Central Bank, to the inquiries and to the regulator's office have been excellent. I will not say the same about bankers but in that area things have been done extremely well. Some very good, although unfortunately mostly foreign, appointments have been made.

I have a reservation and a worry that the restriction to that date means the inquiry is restricted on up-to-date things. It also restricts inquiry into people who are in positions of power. That probably plays into the pitch of the golden circle.

Am I limited in time?

We are finishing at 7.20 p.m. and two Senators remain to speak.

I propose that the debate be extended to 7.30 p.m.

I apologise. I did not realise I was taking other Senators' time. If the inquiry is restricted to that period of time, it will tend to restrict itself to the fallen personalities rather than the present ones, and personalities are important. One of the values of the report will be that the commission will be in a position to criticise those people who are exercising power in the banks at present. That is very important.

The report on the Department of Finance, which is peripheral to this, is also important. That should examine the people in the Department of Finance and not just, as we continually hear, the systems, procedures and structures. It is fine to talk about systems, procedures and structures but let us also get a look at the mandarins and see what they were doing, who was advising the Minister well, who was advising him badly and who was saying what to whom and when. This is a people business and not just a structural business.

I welcome the fact that we are setting up this investigation. I wish it well. I also wish the Minister well in his endeavours.

I agree with the motion. Questions have been asked as to whether the right methods of inquiry were being followed, whether the right questions were being asked and whether the right people were involved in the process. There is still dissatisfaction with individuals who fail to take responsibility for what happened and we all share that frustration and impatience. Nevertheless, the inquiry process has worked well. People have been identified who were not part of the clique which brought us to where we are. Some of them are from outside the State and are not part of what is loosely described as the golden circle. Patrick Honohan has been appointed to the Central Bank and Matthew Elderfield to the Office of the Financial Regulator. The report was commissioned from Klaus Regling and Max Watson. Now Peter Nyberg will head the commission of inquiry. The right approach has been taken and will pay dividends in providing a long-term analysis of why things went wrong and what we need to do to avoid repetition of them.

That said, I agree with Senator Twomey. If we are to restore public confidence we must also use the other methods available to us, such as the judicial system and the prosecution services, to identify the key individuals who were involved in these institutions and who made the decisions that brought us to where we are. I share Senator Ross's view that the impact of both the internal review of the Department of Finance and the commission of inquiry report itself will be in identifying individuals who are still in the system and who had a direct decision-making impact, whether through the provision of wrong information or in taking decisions that led to the State, through the taxpayer, picking up the tab. Those procedures still have to be put in place.

As a member of the Joint Committee on Finance and the Public Service, I am confident that its element of the process, concentrating on policy decisions and the co-operation of those who were involved in the formulating of them, will work very well. It is important that the three facets — the commission of inquiry, the work of the joint committee and the internal review of the Department of Finance — take place within a very tight timeframe of six months to a year. This mitigates against the extension of the period to be examined, which Senator Ross proposes. If we keep extending the date we will make it difficult to complete the inquiries in that narrow timeframe. The Minister has been very accommodating in placing the nationalisation of Anglo Irish Bank as the key date in this process. We will learn more by having a definite date and waiting for the reports that arise from it.

The more information and analysis we have the better. I acknowledge that the Regling-Watson and Honohan reports are extremely rigorous and helpful in making an assessment or analysis of what has occurred. Although I have never heard of the gentleman who has been appointed to lead the commission, I have no reason to believe Senator MacSharry is incorrect when he says he is a person of integrity and experience. I am sure we will find out more about his level of experience and background in the coming days. Therefore, we will not hold up this discussion by going through his CV.

One of the points that strikes me about the sheer number of reports available is that there is at least a risk that various aspects of the problem will be analysed and scrutinised separately from each another. While perhaps to some extent that is necessary or inevitable given the structures involved, some in the private sectors, for example, the banks, and others in the public sector, for example, the Department of Finance as a discrete body with regard to macro-economic policy decisions, a different approach is required by an outsider. While I understand this, my concern is that, whereas we might end up with a proliferation of reports, each one of which might be important, stand on its own and contribute to the discussion, ultimately we will all have to pull together. We can have a debate between ourselves that is purely political in terms of who we say is responsible for what happened and the decisions made by politicians which were were wrong or questionable, but that will remain at the level of a political contest until both sides are armed and equipped with the details of what, in fact, occurred. That will inform the debate and we will find it more satisfactory to have discussions and even disagreements if they are based on factual information and analysis.

One of the points that concerns me about the second of the two issues we are discussing relates to the Joint Committee on Finance and the Public Service. I am probably the only one present who is not a member of the committee.

Senator Ross is also not a member. It is an important exercise. There was much debate about this issue a few months ago and I recall the Taoiseach being anxious to say he would be available to come to the committee to answer questions. However, because of the way the terms of reference have been drawn up, they do not suggest the Taoiseach will be going before the committee or will be involved in dealing with issues that were within his remit when Minister for Finance. I very much hope he will appear before it. Lest I am accused of what Senator MacSharry used to suggest, namely, of wanting to have a guillotine on St. Stephen's Green, that is not what I am interested in. However, in so far as Ministers made decisions which might be open to question and criticism and were put under pressure to make them, this should be analysed and debated. I raised the issue in the House previously in the context of a recent statement by the former Taoiseach, Deputy Bertie Ahern, who is never mentioned on the other side of the House any more, which is probably understandable.

Yesterday's man.

He is still around and will still feature in all of this as our former Taoiseach. While I do not want to personalise the issue, I raise his involvement for one reason only, that he himself said this recently when asked about his role in what had occurred:

‘Even the self-criticisms in it I accept also, which was mainly the tax incentives. We probably should have closed those down a good bit earlier, but there were always fierce pressures, there was endless pressures to keep them. There was endless pressures to extend them.'

He said the pressure had come from developers, owners of sites, areas that didn't have the developments, community councils, politicians and civic society.

That is a very significant statement by the former Taoiseach, one that requires further analysis, scrutiny and debate. I would have thought that this exercise would occur at the Joint Committee on Finance and the Public Service, although I may be naive in thinking that. I also thought that all the people mentioned, including the current Taoiseach, had said they would be happy to go before the committee. However, the terms of reference do not suggest that will be the nature of the inquiry at the committee. Will the Minister of State comment on this?

I accept there is a wider political environment. It is a matter for political parties and politicians to analyse the issues involved as they see fit and bring forward proposals, analysis, attack lines and so on. However, there is also a role for a committee of the Oireachtas to examine policy making, policy decisions and the pressures to which the former Taoiseach referred. I did not say it; he did.

I thank Senators for agreeing to the motion which obviously was the subject of substantial discussion between the parties.

On Senator Twomey's remarks, there are many who would like to see outcomes, to put it tactfully, to the work of the Director of Corporate Enforcement, the Garda Síochána and so on. Certainly, what we are establishing will not interfere with this, but, equally, the Government is precluded from interfering. Nonetheless, the public's wish for developments is nearuniversal.

With regard to NAMA or anything else being set up, it would be wonderful if one could foresee perfectly all of the difficulties, hitches and developments along the road. That is not always easy, but, at the same time, because of the extreme importance of the issue which is constantly debated and the subject of questions and media coverage, we also need structured investigations and reports. I am not concerned about the fact that there will be five reports. The importance of getting to the bottom of all aspects of what went wrong is so great that one has to examine the issues involved from different angles and through different lenses. Obviously, there will be overlaps, but it is important to synthesise to reach a conclusion. I do not believe it is a situation where, although investigations are important, one investigation will provide all the answers.

The crucial period is the years leading up to the crisis in 2008 and its early stages. I am very happy the remit has been extended to cover the period leading up to nationalisation of Anglo Irish Bank on 15 January. However, the Government does not consider there would be additional value, at least at this stage, in extending any later the period the commission of investigation will be asked to examine, having regard to the need to ensure it will undertake its work in as efficient a manner as possible and the requirement in the draft order that it complete its report no later than six months from the date of establishment.

Certainly, listening to debates in this and the other House, Members do not want investigations to continue interminably. As we have found with many other inquiries — Senator Ross mentioned some of the tribunals — if their scope is widened too much, the investigation is prolonged. There is nothing to stop the Houses from deciding when it comes to November and the report can be debated that further action is needed. One must take the process a step at a time and we may want the report in November extended to 15 January 2010, which was argued for by the Labour Party and which makes sense. We should get to November first.

I am sure the Taoiseach and former Taoisigh will, if called upon in an appropriate context, be willing to answer questions. I agree with Senator Alex White with regard to the quotation from a former Taoiseach, Deputy Bertie Ahern, about tax incentives and the endless pressures to keep and extend them. I can express a personal view on those and other pressures. The Houses have been discussing non-financial legislation over recent weeks and people have tried to exert enormous pressure in this regard. We need to get better at dealing with, withstanding and resisting such pressure because many people seem to believe that legislators such as Deputies and Senators can be pushed around, bullied, intimidated and harassed by groups who very often do not represent any kind of majority but rather represent a vehement view.

We must get better at combating this. There was an amendment in the Finance Bill where people wanted to create financial incentives for building primary health care centres. I was lobbied on the subject but I did not bother either the Minister or the Department of Finance and told the parties involved they were part of a wealthy group and if the complexes were worth building, they could do it on their own. I argued that incentives had got us into trouble and said goodbye to them.

Question put and agreed to.

When is it proposed to sit again?

At noon on Tuesday, 13 July 2010.