Credit Institutions (Eligible Liabilities Guarantee) (Amendment) Scheme 2010: Motion (Resumed)

The following motion was moved by Senator Donie Cassidy on Wednesday, 29 September 2010:
That Seanad Éireann approve the terms of the draft scheme entitled Credit Institutions (Eligible Liabilities Guarantee) (Amendment) Scheme 2010, a copy of which draft scheme was laid before Seanad Éireann on 23 September 2010.

I will keep to my time. I have five minutes.

Innocent children are being lied to. There must be some level of judgment that a government can exercise or is required to exercise when it is told something by a financial institution rather than simply accepting it.

Senator Ross made another point. Even if we were to go along with the notion that the Government and we were lied to, how could it ever speak to those people again, if I could maintain the schoolyard approach to it? If people lied to it on such a spectacular basis and it was misled, how could it have any business dealing with any of them at any stage ever again, given that the implications of the lies are significant? It is beyond belief that a Government would consider maintaining a relationship with any of those individuals. What precise lies were told and have those people been asked about where they got the information about their institutions and why they believed imparting such spectacularly false information on their capital situation could be so easy?

I do not have much time. The proposal before the House is a net one. It does not re-open the scheme for debate, although it gives us an opportunity to touch on all of the issues relating to the guarantee and, when they have the time, Senators will grasp the opportunity to have that debate. It is about the extension of the time period. There are some other changes, but the only one of substance relates to the time period. I am right in that. If so, and I ask the Minister of State to address this issue if he has a chance, it is remarkable that nowhere in his speech from what I can see, with the possible exception of one reference, or in the speech of the Minister for Finance in the Lower House was a rationale given for the net issue of the three-month extension. Why is it three months and not two or four months? What is the necessity for the extension? I am not asking about the necessity for the guarantee, since I know the answer and we have had that debate. Somewhere in his speech, the Minister of State referred to the need for flexibility, but nowhere in it——

It has been the standard EU extension for a number of states. I mentioned this.

We are doing it because the others have done it. That answers it.

We are following the standard, is the answer to the question.

If that is the rationale, it is quite limited. It would have been nice had it been explained to the Irish people. We are simply doing it because 12 other countries have done it. When did we know they would do it? Did we know before the Houses took the break and, if so, why were we not told?

On 21 September.

Why has the Minister of State not expressly stated that the reason we are extending the guarantee is because those other countries have done so? He did not state it.

It was on the bottom of page 5.

He stated that the "phasing-out process must be measured, incremental and responsible". He might assist me as to where the section is precisely.

At the bottom of page 5.

Senator Alex White has one minute remaining.

According to the Minister of State, "the Minister sought a similar extension to 31 December". It is the same point. The Minister is telling the Houses that he is doing it because others are doing it. A debate in which we stepped outside the notion that we should do something because other countries do it would be nice. Had we debated the precise reason these decisions were being put to us, it would have made matters clearer and been of more help to the House. I am reading the Minister of State's speech as I speak. I do not see the clarity he claims it contains. It is not headlined.

I will be brief because I realise others are anxious to speak. I am conscious we have been asked why we criticise those who object to the scheme's extension. We were looking at a different situation two years ago. We did not know whether we would have a viable banking system in the morning. We sat all night and did our duty correctly.

The debate showed a major fracture between the Opposition parties on a fundamental issue. At a later stage, they must explain what they would have done in government. Would they have acted responsibly or broken up on this issue? I raise this matter because the State has been repaid more than €1 billion in fees for the guarantee and institutions that we did not know were viable are now capitalised. For example, Bank of Ireland has raised more than €3 billion in capital today on the stock market.

What about Anglo Irish Bank and AIB?

AIB has raised more than €1 billion. If Senator Twomey wishes to speak for Fianna Fáil, he should go ahead, but I am prepared to do so.

I would like to hear the Senator's views on AIB.

Senator Hanafin to continue, without interruption. We are short on time.

I will go through the list. AIB has raised more than €1 billion, Irish Life & Permanent has raised €379 million and EBS has received offers from five companies, with Americans prepared to pay up to €850 million to buy into it. Two other institutions are causing considerable difficulties and will see their assets transferred to the National Treasury Management Agency, NTMA.

Tomorrow, we will know the depth of what is due, but we hope the facts will not be misrepresented. The House saw misrepresentation when it heard that an increase in interest rates to 7% would be unsustainable. Let us and the media be clear, in that what we had in the 1980s would eat what we have now for breakfast. Unemployment was at 18%, inflation was at 22% and interest rates were at 20%. That was a deep recession.

We took early and immediate action that was copied throughout Europe. It has served the State well. It was necessary and proportionate. We are winding the guarantees down at full value, with shares in the banks, with full payment secured and €1 billion already in the bank. The scheme is serving us well, but we are winding it down appropriately. The action we took was necessary and correct.

I will also be brief in my remarks, as I understand we will have a further opportunity to discuss the economy in general terms tomorrow. I am concerned by this instrument and was concerned when it was introduced two years ago. I am unsure, but I have a feeling I voted against it. I remember asking about the extent of our possible exposure. I also asked what our GNP was. The debts we underwrote were twice what the country earned. That was madness. Even on a personal basis, one's finances would not sustain it.

Senator Hanafin, for whose opinions on economic matters I have a certain degree of respect and who spoke effectively this morning, pointed to a period some 25 years ago in the 1980s and claimed it made nonsense of the statements in the House to the effect that 7% was an unsustainable figure. It may not be unsustainable in strict logical terms, but it is insupportable morally. Why are we at three times the rate of Germany if, as many economists state, the fundamentals of the economy are sound? Apparently, it is because of market sentiment. I would like to consider this market idea. We are always told that market forces must prevail. If one has a house and takes the financial gamble of taking out a mortgage but is unable to repay it, one loses the house. Several Members on all sides have spoken effectively and movingly about constituents of theirs, people in their localities, who have been placed in this situation because market forces prevail against the small person. Sentiment apparently dictates to the market. That sentiment, in turn, is dictated by what I call, with the privilege afforded to me in this House, a criminal conspiracy. I am speaking about the ratings agencies. I ask the Minister of State to discuss with his colleagues in government and elsewhere in Europe whether it is possible for the economies of the European Union to band together to take on these agencies which have consistently got it wrong. They were involved in the toxic bundles and got it wrong in the cases of Enron and Greece, but still they have the impertinence to attempt without a scientific basis to dictate the interest rates this sovereign state pays.

As I stated this morning on the Order of Business, I do not approve of violent physical attacks on the Houses of the Oireachtas, but I understand the anger felt by the people. Senator MacSharry spoke very effectively about accepting what has happened and moving on. I was thrilled to hear his rallying call, but we must also recognise the mistakes made in the past. I look to Iceland, the former Prime Minister of which is about to be charged with a criminal offence. Nothing like that has been done here. Certain people can hive off millions of euro into their wives' accounts, while others are losing their houses. That is not acceptable.

I recall the comment made by Mr. Gerry Adams to the effect that the IRA had not gone away. The money has not gone away either; it has not evaporated. Somebody made a profit and is sitting on a nice pile of cash. In the past two years the transfer of wealth from the poor to the rich has been the greatest I have seen in my life and I will continue to express my doubts until somebody responds to them. Anglo Irish Bank should be allowed to fail because we owe nothing to the secured bondholders and corporate gamblers. However, I was told by the Minister for Finance that this could not be done because of our reputation and that the bank was of systemic importance. That means the system is considered to be more important than the people, a form of financial idolatry. We should take the opportunity to challenge the system because otherwise we will be left with what I described this morning as the Leona Helmsley effect. It is becoming true that only the little people are being pickpocketed to pay the bills. I listen with respect to those who are more versed in the economy, but I also understand the anger of the people and believe it is morally justified. We continually speak about market forces and moral hazards. Let us see these practiced universally rather than solely against the vulnerable.

The tragedy of these vast figures is what could have done with them for the welfare of the people. Earlier we held a debate on hospice care. An old friend of mine died last week after being dropped while on the way to the lavatory because of insufficient help. People are dying because of the lack of investment, but money is going into the pockets of the rich and the corporate gamblers. I am against this happening.

I thank all the Senators who contributed to the debate and acknowledge the spirit in which they spoke. It is perfectly legitimate to make critical points, as that is the essence of debate in a democratic House.

As the financial crises unfolded in the past two years, it became clear that solutions to the serious problems facing the international banking system would not be achieved overnight. However, the Government has taken significant steps to address the challenges facing the Irish banking sector and we will continue to take action, as appropriate, to ensure a return to a strong and fully functioning domestic banking sector in the long term. To achieve the restoration of the banking system, it is vital that banks can continue to access liquidity in the current difficult market circumstances. To ensure this access, it is necessary to maintain the bank guarantee in its current form until the end of the year. Accordingly, the ELG amendment scheme introduced today amends the guarantee by extending the end date to 31 December. As has been pointed out, this is the only substantive change being made to the scheme and the other amendments simply rationalise and update the drafting of certain of its provisions.

I remind the House that the credit institutions financial support scheme will expire at midnight and that any asset covered securities and dated subordinated debt covered under the scheme will no longer be guaranteed from that time. The House should be aware that retail deposits up to €100,000 are guaranteed under the deposit guarantee scheme which has no expiry date.

In the limited time available to me, I will respond as best I can to the issues raised. This debate is taking place against the backdrop of turbulence in the markets and the particular concerns that have focused on Ireland. The recent increase in our bond spreads is of concern, but progress is being made in resolving key issues which are partly responsible for the increase such as financial system issues and, in particular, Anglo Irish Bank. Other EU member states have also seen increases in their borrowing costs due to the continuing uncertainty in global financial markets. An important fact that many commentators overlook is that investor demand for Irish Government bonds has remained firm, even in the current difficult market conditions. Furthermore, the weighted average cost of funds raised in the bond market in 2010 is 4.7%, the same as the average funding cost achieved in 2009.

Senator Twomey and others raised the question of what would happen on 31 December. That date was chosen because the European Commission gave state aid approval to schemes for a period of six months and approval runs until 31 December. The Department of Finance and other relevant State agencies will, with the Commission, monitor market developments in the coming months to confirm whether the guarantee continues to underpin the core principles of financial stability and funding access for financial institutions. Subject to EU state aid approval, the Minister will bring the relevant statutory instrument to the Houses before they rise for Christmas should an extension be considered necessary. In view of the central role performed by central banks in resolution frameworks for financial institutions, the Department of Finance is in consultation with the Central Bank and the Financial Regulator regarding the development of draft legislative proposals which the Minister will consider in due course. This is a complex area where policy is still evolving internationally and the Minister wants to ensure any model introduced in an Irish context meets best international practice.

With regard to the solvency position of Anglo Irish Bank, the focus of the discussions on 29 September 2008, two years ago to the day, was on dealing with the severe liquidity difficulties facing the banks. Detailed information regarding the capital position of the banks, including Anglo Irish Bank, such as the PricewaterhouseCoopers report subsequently completed and published, was not available at that time. Whereas it was clear that Anglo Irish Bank was experiencing difficulties, the extent of that bank's capital problem was not evident at that time. Whether this comes down to insufficient or incomplete information or information which subsequently turned out to be wrong or false, it is a separate question whether this is down to action done in good faith, in an overly optimistic fashion or in a deliberate way in knowing the position. That period is still under detailed investigation.

It has often been debated as to why Anglo Irish Bank was included in the guarantee. Professor Honohan, now the Governor of the Central Bank, stated in a report that the systemic importance of Anglo Irish Bank at the time could not be seriously disputed. The report argues that the interconnection of Anglo Irish Bank to the Irish banking system meant that a disorderly failure of the bank would have had a devastating effect on the remainder of the Irish banks.

Another issue that is constantly discussed is the inclusion of subordinated debt. I have been advised from within the banking system that while in the cold light of day one can separate subordinated debt from senior debt, in the context and atmosphere of the time as it was, the separation was not as neat as is sometimes made out. It would have been legitimate to fear that the confidence impact could have spilled over. In any case, the guarantee to subordinated debt, which runs out, has not been called upon and therefore has not cost the State or taxpayer money.

I do not have time to go into the question which has been a matter of some frustration on all sides regarding the slow progress of investigations, including criminal investigations, of possible wrongdoing. They do not appear as of yet to have come up with definite conclusions or courses of action. This process, needless to say, must be independent both of the Government and the Oireachtas.

Senator Ross raised the question of all the banks being nationalised. I do not believe that would have helped confidence in our sovereign debt position and may have undermined confidence and led to even greater funding problems for all the institutions. It is important to continue to have market discipline applied to the operation and management of the banks. I will not go further into the Anglo Irish Bank issue as it will be dealt with in considerable detail tomorrow.

We do not normally discuss personalities outside the House but we have spoken about public appointments. Mr. Jim O'Leary was a very distinguished adviser to the Fine Gael-Labour Party coalition in the 1980s and has a long track record. Very few of us in any walk of life, including great experts, have never been involved in misjudgments of some issue or another. This should not be taken as somehow disqualifying a person from being competent to give advice. If one considers what some of the voices outside the Houses who constantly give us an expert view said in 2005 and 2006, some of the records would not be very good. There is always a balance between people with much experience, albeit with some mistakes, versus people with a virgin record and little experience.

There is a tangential point to Senator Alex White's comments. The European Commission will only give state aid approval for schemes for a period of six months at a time. That is why we are talking about something relatively limited in time. We do not have another option and this scheme, if it needs to be continued, must be reviewed regularly.

Amendment put.
The Seanad divided: Tá, 29; Níl, 21.

  • Boyle, Dan.
  • Brady, Martin.
  • Butler, Larry.
  • Carroll, James.
  • Carty, John.
  • Cassidy, Donie.
  • Corrigan, Maria.
  • Daly, Mark.
  • Dearey, Mark.
  • Ellis, John.
  • Feeney, Geraldine.
  • Glynn, Camillus.
  • Hanafin, John.
  • Harris, Eoghan.
  • Keaveney, Cecilia.
  • Leyden, Terry.
  • MacSharry, Marc.
  • McDonald, Lisa.
  • Mooney, Paschal.
  • Ó Brolcháin, Niall.
  • Ó Domhnaill, Brian.
  • Ó Murchú, Labhrás.
  • O'Brien, Francis.
  • O'Donovan, Denis.
  • O'Malley, Fiona.
  • O'Sullivan, Ned.
  • Ormonde, Ann.
  • Walsh, Jim.
  • Wilson, Diarmuid.

Níl

  • Bradford, Paul.
  • Burke, Paddy.
  • Buttimer, Jerry.
  • Cannon, Ciaran.
  • Coffey, Paudie.
  • Coghlan, Paul.
  • Cummins, Maurice.
  • Doherty, Pearse.
  • Donohoe, Paschal.
  • Fitzgerald, Frances.
  • Hannigan, Dominic.
  • Healy Eames, Fidelma.
  • McCarthy, Michael.
  • McFadden, Nicky.
  • Mullen, Rónán.
  • Norris, David.
  • O’Toole, Joe.
  • Ross, Shane.
  • Ryan, Brendan.
  • Twomey, Liam.
  • White, Alex.
Tellers: Tá, Senators Niall Ó Brolcháin and Diarmuid Wilson; Níl, Senators Paudie Coffey and Rónán Mullen.
Question declared carried.

When is it proposed to sit again?

Thursday, 30 September, at 10.30 a.m.