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Seanad Éireann debate -
Thursday, 1 Dec 2011

Vol. 211 No. 16

Credit Institutions (Eligible Liabilities Guarantee) (Amendment) Scheme 2011: Motion

I move:

That Seanad Éireann approves the terms of the draft scheme entitled Credit Institutions (Eligible Liabilities Guarantee) (Amendment) Scheme 2011, a copy of which draft scheme was laid before Seanad Éireann on 28th November, 2011.

For the benefit of Members a briefing document has been circulated giving details of the scheme.

Earlier today, the Minister for Finance, Deputy Noonan, proposed this motion to the Dáil, where it was passed. I am confident that the Seanad will also see the need for the scheme and the merit in approving it.

The Minister of State did not see the merit of it last year.

Everyone is aware of the backdrop against which we are holding this debate.

I rise on a point of order. It is scandalous that a Minister of State would come to the House and completely ignore the way he and his party voted last year, when his party excoriated Fianna Fáil for supporting this measure. He has come to the Seanad as if nothing has happened. It is scandalous.

That is not a point of order. Senator Byrne should resume his seat.

This is a scandal and a disgrace. It is as if nothing had happened and as if Fine Gael had never been against this measure.

Senator Byrne has made his point. He should resume his seat.

We are all aware of the seismic events in Europe and the uncertainty in the markets which the ongoing developments are causing. This makes it all the more necessary that the motion is recognised for what it is: a sensible step which will play its part in bringing certainty to a vital element in the economic and financial measures being taken as part of our economic adjustment programme. I am referring in particular to the actions that have been and continue to be taken in restoring our domestic banking system to health.

The Government announcement on 31 March last of its plans for the recapitalisation and re-organisation of the banking sector had a number of key elements. These were: the provision of additional capital to ensure adequate capitalisation under a rigorous stress scenario established by the Central Bank; the creation of two universal pillar banks in AIB and Bank of Ireland, with consequential mergers and restructuring; a significant deleveraging involving amortisation and sale of non-core bank assets totalling circa €70 billion; the provision of credit to SMEs and other important sectors; and a focus on addressing the banks' funding concerns through reaching a more prudent loan-to-deposit ratio, especially through first maintaining and then rebuilding deposit levels. The eligible liabilities guarantee, ELG, scheme remains of great importance in helping to achieve this latter objective.

Therefore, I would like to turn to the motion before the House to approve the draft statutory instrument entitled the Credit Institutions (Eligible Liabilities Guarantee) (Amendment) Scheme 2011. The ELG scheme is one which has to be renewed, and indeed reviewed, on a regular basis. This is because it is not intended to be in place indefinitely but rather is of a short-term nature to deal with what we hope will be a short-term problem. I am speaking of the fact that the scheme is a backstop measure designed to provide absolute certainty to depositors and holders of unsecured bank debt in the credit institutions participating in the scheme that their money is secure. The institutions that originally joined the scheme, and are defined as participating institutions, are AIB, Bank of Ireland, Irish Life & Permanent and the Irish Bank Resolution Corporation, formerly Anglo Irish Bank and the Irish Nationwide Building Society, together with their subsidiaries, including EBS. Participating institutions benefit from a Government guarantee which covers deposits taken or debt issued by them, provided these liabilities qualify as eligible. This guarantee remains extremely important in providing confidence and security to the holders of eligible bank debt.

The scheme is a time-limited one which requires that any proposal to extend it be brought before the Houses of the Oireachtas for approval. The relevant legislation which governs this is Section 6 of the Credit Institutions (Financial Support) Act 2008, the CIFS Act, as amended. In November last year the scheme was extended in national law for a year with the result that, at present and without any prolongation, the scheme would expire at the end of this month if no action were taken. For this reason, the scheme needs to be amended in two respects.

First, amendment No. 1 will amend paragraph 3.1(b) of the Schedule to the scheme which sets out the period within which institutions may apply to join the scheme. The amendment will extend this period of application in order that the current date of 31 December 2011 will be replaced by 31 December 2012, subject to the continuing approval of the European Commission. The amendment reflects the proposed extension in law of the scheme itself to 31 December 2012.

Amendment No. 2 will amend paragraph 11.1(c)(ii) of the Schedule to the scheme, which deals with the period during which eligible liabilities must be incurred if they are to be considered eligible under the scheme. The amendment will replace the current end date of 31 December 2011 with 31 December 2012, subject to the continuing approval of the European Commission. Again, this amendment reflects the proposed extension of the scheme in law to 31 December 2012.

The condition, in both amendments, of the approval of the Commission is necessary because all banking guarantee schemes are subject to EU state aid rules and these provide that such schemes be approved for a maximum period of six months in advance only. Therefore, in accordance with established practice, the ELG scheme will remain subject to six-monthly Commission approval, notwithstanding the proposed one-year extension in national law. This approval has already been sought from the Commission and is expected to be formally given within a matter of days. When given, this will mean explicit EU approval for the scheme until 30 June 2012. It is also necessary to seek the views of the European Central Bank in these matters and it has already given a favourable opinion on the proposed extension of the scheme, stating: "Taking into account financial stability considerations, a further extension of the ELG scheme would be beneficial." The authorities will review the requirement for the continuation of the ELG scheme in consultation with the Commission and the ECB in advance of 30 June 2012.

I shall now move on to details of the scheme itself and the reasons for its proposed continuation. The scheme, which commenced in December 2009, has been extended twice already from its original end date of 29 September 2010, to the end of that year and, subsequently, from that date to 31 December this year. It succeeded the CIFS scheme which had been introduced following on the announcement by the then Government of a blanket guarantee for all bank liabilities in September 2008. The ELG scheme is narrower in scope than its predecessor and does not guarantee asset-covered securities or dated subordinated debt. The scheme covers eligible liabilities as defined in paragraph 11 of the Schedule to the scheme. These eligible liabilities are: deposits; senior unsecured certificates of deposit; senior unsecured commercial paper; other senior unsecured bonds and notes; and other forms of senior unsecured debt specified by the Minister for Finance and approved by the Commission.

As regards deposits, it needs to be emphasised that because retail deposits of up to €100,000 are already guaranteed under another scheme — the deposit guarantee scheme — the ELG scheme only guarantees sums above this figure in such cases. Otherwise, all deposits, retail or corporate, in participating institutions are normally guaranteed under the ELG scheme. The participating institutions I have referred to are those credit institutions which joined the ELG scheme after its commencement. These institutions may take deposits and issue debt of the type I have described as eligible liabilities, with a maximum maturity date of five years, provided the liabilities have been incurred during what is called the issuance period. This runs from the date the institutions joined the scheme to the end date of the scheme, currently 31 December 2011.

There are approximately €100 billion in liabilities guaranteed under the scheme. This figure is significantly reduced in comparison with that covered by the CIFS scheme at its inception, €375 billion, and that subsequently covered by both schemes, €256 billion, just before the expiry of the CIFS scheme. At the time that the new ELG scheme began to operate alone in the second half of 2010, the liabilities covered had further reduced to €147 billion. Much of the reduction from €256 billion to €147 billion can be explained by the fact that certain liabilities, namely, senior unsecured debt and deposits under the CIFS scheme, were not renewed. In addition, asset covered securities and dated subordinated debt which had been covered under the CIFS scheme were excluded from eligibility under the ELG scheme. Another factor, especially in the second half of the year and which accounted for a further fall in liabilities guaranteed to €113 billion by December 2010, was that the banking system lost access to market funding and that corporate deposit outflows accelerated against a background of an unsustainable rise in the cost of Government debt and negative market sentiment about our economic situation. The position since around June of this year is relatively unchanged on the whole, however, when account is taken of NTMA deposits covered by the ELG scheme that were withdrawn from inclusion in the scheme and converted to capital in the banks.

Because of the current weak state of the market in terms of funding for the Irish banks, it is vital that we act in such a way so as to ensure that confidence in the banking system is maintained, especially in the critically important retail and corporate deposit sector. These deposits account for approximately 60% of the eligible liabilities of the participating institutions in the scheme and their importance cannot be underestimated. Present market conditions do not allow alternative sources of funds, such as debt securities, to be accessed in any significant quantity by the institutions. In these circumstances, the Governor of the Central Bank is of the strong view that an extension of the ELG scheme is essential to help maintain and promote confidence over the short term and that it would continue to complement the other initiatives that have been taken to stabilise the domestic banking sector. The bank therefore considers that the extension of the scheme for one year in national law is reasonable, while acknowledging that approval of the scheme beyond 30 June 2012 would be subject to Commission approval. The bank has pointed out also that one of the working assumptions made in the context of the prudential capital assessment review last March is that the guarantee would remain in place in 2012, again of course, subject to Commission approval.

The operator of the scheme, the NTMA, has also been consulted on this matter and is of a similar view. It believes that the continuation of the scheme is of paramount importance if the institutions are to be successful in normalising their funding profile and in reducing their reliance on Central Bank funding. In return for the guarantee provided by the Minister for Finance in respect of liabilities deemed eligible under the scheme, the participating institutions pay fees to the Exchequer. The fee structure is set down under recommendations which apply to all EU banking guarantee schemes, which are based on recommendations, dated 20 October 2008 of the governing council of the European Central Bank, on government guarantees for bank debt and on subsequent recommendations from the Commission set out in a DG competition staff working paper, dated 30 April 2010, which apply state aid rules to government guarantee schemes concerning bank debt issued after 30 June 2010.

The effect of the Commission recommendations was a gradual increase in fees payable by the institutions over the remainder of 2010. The level of fee applied was dependent on the maturity of the debt concerned and the credit rating of the institutions involved. The objective was to incentivise a reduction in dependence on short-term funding, especially that of less than three months' duration. The fee structure applicable to eligible liabilities is as follows: for debt or deposits with a maturity less than 90 days, the guarantee fee is 160 basis points, excluding retail deposits, which attract a fee of 90 basis points, while all debt and deposits with a maturity of between 90 days and one year attract a fee of 90 basis points also. For longer maturity debt, the fee is between 126.5 and 134.5 basis points.

As a result of the revised pricing structure now applicable, the level of fees earned by the Exchequer has increased in spite of a decrease in the amount of the liabilities guaranteed by the scheme. Participating institutions now pay an average of 100 basis points compared with the 50 basis points for short-term debt that was charged at the beginning of the scheme. The value of fees paid to the Exchequer to date is €1.8 billion. In excess of half of this amount, or €947 million, has been incurred in the first three quarters of 2011 compared with €855 million paid for all of 2010. It is understood that a new Commission fee structure will be in place from 1 January 2012 which will leave fees unaltered for short-term debt but may result in a small fee decrease for debt whose maturity is greater than one year.

In regard to the amending draft scheme, I have already detailed the two specific amendments proposed. In reality, they are, in themselves, minor amendments since the objective is to change the operative dates involved and thus extend the life of the scheme rather than make any substantive amendment to the provisions of the scheme as a whole.

There are also two amending orders of a consequential, technical nature which will have to be made if the statutory instrument amending the scheme is passed. These are called financial support orders and will be made in exercise of the powers that are conferred on the Minister for Finance under section 6(3B) of the Credit Institutions (Financial Support) Act 2008, as amended. These orders do not have to be placed before the House as they are consequential to the proposed amendment to the scheme being passed in the first instance.

The first order specifies the issuance period during which financial support, that is, the Government guarantee, may continue to be given, in accordance with section 6(3B) of the Credit Institutions (Financial Support) Act 2008, in respect of liabilities incurred under the ELG scheme. Effectively, this allows the current end date of the scheme of 31 December 2011 to be extended to 30 June 2012 for the purposes of allowing the guarantee to continue to apply to new eligible liabilities incurred. The new issuance period will, therefore, run from 1 January 2012 to 30 June 2012, that is, the period approved by the Commission under state aid rules. It replaces the existing issuance period which runs from 1 July to 31 December 2011.

The second order sets down the end date for financial support in accordance with section 6(3B) of the Credit Institutions (Financial Support) Act 2008 which allows the Minister for Finance to specify the date beyond which such support cannot be given. This date will now be extended to 30 June 2017 instead of the current date of 31 December 2016. The objective is to guarantee those liabilities under the ELG scheme which may have a maturity of up to five years and which would, therefore, have to be covered even if the scheme itself were to expire on 30 June 2012. For example, a depositor who made a fixed-term five-year deposit with an institution on 31 May 2012 would enjoy a guarantee of the sum involved up until 31 May 2017.

Before concluding, to signal a positive note, I wish to mention a recent development relating to the scheme, of which Senators may be aware. There have been some recent indications that there may be a nascent demand from some quarters for the placement of unguaranteed deposits with the participating institutions. This manifested itself formally in written requests from these institutions to the Minister for Finance, made in accordance with paragraph 13 of the schedule to the ELG scheme, to be allowed to offer unguaranteed deposits to certain corporate customers. The Minister responded positively to this request by publishing the necessary technical notice under paragraph 13 on 16 November last which allowed such offers to be made subject to certain conditions. These make it quite clear, inter alia, that unguaranteed deposits must be clearly described as such in the relevant terms and conditions that apply to them. Moreover, since the unguaranteed deposits are aimed at corporate and institutional investors only, there is no risk of the normal retail investor being confused.

I suggest the development I have described and initiated by the institutions is a positive sign which is also a necessary one if a start to the removal of the guarantee is to be made. However, one must wait to see if this new capability on the part of the institutions can be translated into a significant contribution to a growth in unguaranteed corporate deposits.

This motion deserves Senators' approval in order to ensure that an essential cornerstone of the support for the domestic banking system remains intact. It would be better if there were no need to extend the ELG scheme but unfortunately, we must deal with the situation as it is and the situation demands that the essential support and security provided by the guarantee for both banks and customers, respectively, be continued. However, the need for the bank guarantee will be reviewed. In this regard, the requirement to obtain formal EU state aid approval every six months will ensure that the ELG scheme will be extended again only if necessary and only after a full consultation has taken place with the authorities concerned. I commend the scheme to the House.

That was enlightening. I thank the Minister of State, Deputy Perry, for his attendance. I have much personal regard for him but I think most colleagues would agree it is somewhat disappointing that neither the Minister for Finance nor the Minister of State at the Department of Finance are here. That is no reflection on the Minister of State.

This is an important extension of the bank guarantee scheme. According to the Minister for Social Protection, Deputy Burton, the Labour Party stood alone in October 2008 in opposing the blanket nature of the guarantee. She said: "The wisdom of our position has been vindicated by events since then." That totally contradicts what the Minister of State said here on behalf of the Minister for Finance and what the Minister for Finance said in the Dáil today that the situation demands that the essential support and security provided by the guarantee for both banks and customers, respectively, be continued. That is perfectly correct. What is the difference between now and 2009, in particular, when the guarantee was amended? I am glad this has been a road to Damascus conversion. It has been a long road for the Labour Party, in particular, and we will note with interest how it votes this afternoon. Perhaps the Labour Party Senators will take the line of their colleague, Deputy Broughan, in the Dáil earlier or perhaps they will do a total flip-flop like Senator Whelan yesterday and what the party has continued to do since elected to government, that is, saying one thing and doing another. That will be tested this afternoon.

Fianna Fáil believes the extension of this scheme is crucial, although it is not something the previous Government wanted to do but, of necessity, it was done. Fine Gael and Sinn Féin supported the original blanket guarantee in 2008.

That is not true.

Sinn Féin abstained.

If someone is going to make statements, they should be truthful. We voted against the scheme on the Final Stage, as Senator Reilly indicated.

Senator Darragh O'Brien is wasting time. Some speakers will not get in.

Obviously, some people's sensitivities are affected.

There should be no interruptions, please. Given the time schedule, some speakers might not get in and they will be disappointed.

To get back to the kernel of the motion, it is important this guarantee is extended. There is no alternative to this, particularly in light of the ongoing crisis in the eurozone.

I refer to the new Government's banking policy. The Minister of State and the Minister for Finance have taken a lot of the commendations they have been getting from the ECB and other commentators across Europe, although, effectively, it was the previous Government's banking policy, which is good. The only thing the Government has changed is that it is proceeding with the two pillar bank approach which is something this country will regret. If anything can be learned from the past number of years, it is that if we allow our banks to get too big — bigger than the economy itself — the risk to the State is grave. By insisting on the EBS which was the only lender lending to first-time buyers being subsumed by AIB which is lending nothing, we will, effectively, have only two Irish banks, namely, Bank of Ireland and AIB. Thanks to the British Exchequer, Ulster Bank operates in Ireland. There was an opportunity to sell the EBS to a US consortium, which would have created a proper third banking force and we will regret that lost opportunity.

It is welcome that the covered institutions must pay fees. How much will be paid in cash or preference shares? Understandably, Bank of Ireland was mentioned prominently by the Minister of State. Two weeks ago the Government organised a perp walk to Government Buildings. It dragged in the banks and told them to pass on the 0.25% rate reduction or else. As the Minister for Finance, Deputy Michael Noonan, commented, AIB did it when it was probably the only one with a reason not to do so. Why have Bank of Ireland and the ICS Building Society not done so? The Taoiseach and the Tánaiste promised legislation to give the regulator power to insist on ECB rate decreases being passed on to customers. Where is that legislation? When the Government asked the regulator whether he wanted that power, he said, "No." As I have been reminding colleagues in the House, the Government is meant to govern. It is not meant to ask the regulator what he wants. It should do what the public wants. The extension of the liabilities guarantee should have given the Government a large stick with which to beat Bank of Ireland and AIB, not just in terms of mortgage interest rates, but also in terms of the €3 billion per year that they have promised to lend, something they did not do under the previous Government.

What steps has the Government taken? Although propping up the banks and saving their bacon again is the right action for the Exchequer to take, it is not pleasant. Why has the Government not insisted on the ECB rate cuts being passed on to customers? Why will the Government not insist on the covered institutions lending in the real economy? There is no lending. Day after day, businesses are folding because they are not receiving the same support we are giving to the banks.

In this debate I hope we will stop trying to rewrite history.

It is the Government side which is rewriting history. The Members opposite voted against this measure last year, but they are now telling us with straight faces that all is well and that what happened last year was a mistake.

Please, Senator.

The Minister of State told the people lies in County Sligo and has told lies again today.

The Senator should, please, resume his seat, as he is wasting time.

On a point of order——

The Minister of State cannot raise a point of order. He should allow Senator Michael D'Arcy to resume. If Members continue to interrupt, someone will run out of time, as I will be stopping at 4 p.m. on the dot. I have no choice.

It is the legacy we inherited from the previous Government.

How can the Minister of State sleep at night?

Senator Michael D'Arcy to continue, without interruption, please.

Senator Thomas Byrne is obviously not sleeping well.

He has a short memory.

I voted for this measure last year and will vote for it again today.

Fianna Fáil caused the problem.

The Minister of State should allow Senator Michael D'Arcy to proceed.

We will try not to rewrite history. Fine Gael supported the previous Government because it believed it was the right choice to make. In my opinion and that of many others, the previous Government introduced this scheme because the then Minister, the Department and the then Government had been given incorrect information. I am being fair and honest. Sinn Féin also supported Fine Gael that night. The only party that stood outside was the Labour Party.

On that night, but let us be clear on the issue.

The Senator is splitting hairs.

I am being accurate.

I support the Senator in that respect. At least that bit is accurate.

I am trying to be fair. The circumstances changed and people did not believe some of the information revealed.

And voted against the measure.

Positions changed. Let us stick with the facts and try not to rewrite history. There is no choice but to support this measure. I would like the €100 billion liability removed from the State, but there comes a time when there is no choice. This is such a time. Some €80 billion of the amount guaranteed is made up by accounts of less than €100,000 held in the retail banks by Joe Citizen. If someone walks out of the Chamber and does not support the scheme and something occurs——

The Senator is referring to a separate guarantee scheme.

It is all part of the guarantee.

According to the note, this is the aggregated figure. Anyone who does not support the scheme is not acting in the public interest. We must address these facts. Other deposits are guaranteed——

The Government is acting in the interests of the banks and bondholders.

This measure relates to deposits of more than €100,000.

Senator Michael D'Arcy to continue, without interruption, please.

Senator Thomas Byrne is correct.

I am addressing the matters involved in an open and fair manner. I know what I would like to tell the unsecured bondholders who account for a figure of €38 billion, but there comes a time when one cannot change course, even after one has been handed new information. For this reason, Fine Gael and the Labour Party in government are advancing the scheme. Handed it in mid-stream, we can either drop the ball and see where the cards fly or we can maintain the scheme in a correct and prudent manner by passing the motion.

On the night of 28 September 2008 the figure guaranteed was €375 billion, a colossal sum. From my memory of that debate, the only person who questioned whether it was a liquidity or an insolvency crisis was Deputy Michael Noonan, now Minister for Finance. The clear answer from the then Minister, the late Brian Lenihan, was that it was purely a liquidity crisis. We now know this was incorrect.

I have only one minute remaining, but as I was interrupted, like Senator Darragh O'Brien, I would like some leeway.

I have been harsh on Bank of Ireland. While the guarantee is expensive, a great deal of money has accrued to the Exchequer in 2011 as a result. Bank of Ireland has behaved treacherously towards the State. It has taken and taken, but it only gives to its clients when it is charged a fee. My accusation of treachery relates purely to its treachery towards its clients who are being overcharged.

The State's third banking force is Ulster Bank. That there will only be two pillar banks is a concern. When there were only two banks in the 1950s, 1960s and 1970s, they loaned in a very conservative way. I do not want to revert to that scenario and hope Ulster Bank can return to profitability soon in order that it can be more competitive. Other correctly capitalised banks will have an opportunity to enter the Irish market.

I commend the motion to the House. Like every Senator, I would prefer not to be here, but there are options. Not extending the guarantee is not one of them.

This is a technical extension of the——

What does the Senator mean?

Is it technical or is it not?

No more than the guarantee which the Senator's party has bitterly opposed for the past few years but for which it is now voting.

No interruptions, please. Please allow Senator John Gilroy to speak.

Does he remember the phrase "economic treason"?

That is what the Labour Party accused us of doing. I got that phrase in the neck on the streets of my constituency. I was an "economic traitor". The Senator's party leader accused us of that because of the guarantee the Labour Party is now cynically supporting.

The Senator should resume his seat.

The Labour Party does not care about the people.

The Senator should respect my decision and resume his seat. Another minute has been wasted.

Senator Thomas Byrne is constantly shouting down speakers. He did so last night also for reasons to do with petty party political point scoring.

This is sickening.

Clearly, he has nothing sensible to add to the debate. We should carry on and ignore him. Does the Minister of State agree?

"Just ignore it," is that what cancer sufferers in County Sligo are saying?

I hope the Leas-Chathaoirleach will allow me to recover the one minute I have lost.

I will, but the Senator should try not to draw fire either. He should not be like the bee in the honey pot.

This measure is required if we are to retain personal and company depositors' confidence and avoid causing unnecessary concern or undermining the fragile confidence we have painstakingly built since entering into government. The Governor of the Central Bank has strongly recommended that we take this course of action.

The Governor of the Central Bank also recommended it last year, when Senator Gilroy's party voted against it.

We are slowly but surely returning to a more normal banking system and it is crucial that we maintain the course. We can see evidence of this in the fact that the Irish banks have successfully issued €6.7 billion worth of unguaranteed bonds over four months. That is a clear indication of the bank policy we are pursuing.

Senator Gilroy should try to say that with a straight face.

The Labour Party did not support the bank guarantee scheme in 2008, not because we were fundamentally opposed to it but because we were worried about the extent of the liabilities covered by it. Our position has been proved correct. The Labour Party was the only party to do so——

That is not correct.

——and when the previous Government entered into this contract, it became a contingent obligation for the Government to follow the course of action. We have no choice. We would prefer not to——

We said that last year and the Labour Party voted against it.

We were not in government last year.

This is the same old nonsense.

Fianna Fáil is doing the right thing now, not just opposing it.

Senator Gilroy should be allowed to make his contribution.

This is the worst day for democracy in this country ever.

If we have regard to the law of the land, it is a contingent obligation that we pursue the contracts entered into by the previous Government.

This is a renewal, the Government does not have to do it.

The strategy pursued has been a difficult one and the original amount guaranteed by the previous Government was a crippling €375 billion——

That was amended in 2009.

——because it covered all historic issuances and exposed the country to a very grave risk, one that has been described by most commentators as reckless. Today, the guaranteed amount in credit institutions is €100 billion, which remains an enormous amount of money. However, these funds were issued in the window since 2009. It allows banks to access current funding. Would we prefer if banks could not access current funding? Perhaps some people here would.

We are supporting the scheme.

This is entirely consistent with the position adopted by the Labour Party. The key points, which some Opposition Members do not understand, and which some choose not to understand, is that the narrowing of the parameters of the guarantee reduces the exposure of the State——

When was that narrowing done? It was in 2009 and the Labour Party opposed that as well.

——and if our position had been adopted at the time, things might work better.

Who is rewriting history now?

The argument has moved on since 2008, having regard to EU state aid rules and the opinion of the European Central Bank. It has been said that the train has left the station and I suppose it has. We need to move with the changing situation. We have secured a substantial discount in our interest rates and while we have not claimed to have cured the situation, we are moving in the right direction. Any fair-minded commentator would agree with that. The Labour Party is supporting the extension because we do not wish to return to the uncertainty and chaos caused by the Fianna Fáil-Green Party Government. If we are to reach our goal of reclaiming our economic independence, protecting jobs and adding and maintaining confidence, it is vital that we do so today.

I welcome the Minister of State to the House. Every day realises the damage that banks have done to this country. In one sense, they have achieved political unanimity in the Joint Committee on Finance, Public Expenditure and Reform under the chairmanship of Deputy Alex White. Every member of the committee, from Deputy Richard Boyd Barrett to this Barrett, agrees that the banks do not realise the damage they have done to the country and have been largely insulated from the consequences of what they have done. The lesson is that Parliament in general must watch what the regulators are up to. The regulation of Irish banks was appalling.

The meeting in late September 2008 was not a proper Cabinet meeting; it was incorporeal and that is not the way to do business. The guarantee that was given surprised Madame Lagarde and the UK Chancellor, Alistair Darling, in its generosity. During the committee meeting one of the bankers said, in reply to Deputy Pearse Doherty, that he had been subject to unfair criticism. Relative to GDP, this was the biggest case of regulatory capture and the largest guarantee ever given. We suggested that they had got off lightly although the criticism was deserved. This was the failure of financial regulation in Ireland.

The defective design of the euro was pointed out from Japan today. We must consider these faults. They are putting in temporary money but we must reform it. There is no exit mechanism and there was a one-size-fits-all design, which gave us low interest rates and a property boom when we needed higher interest rates because the economy was doing well. The IMF is keen on a mechanism where, if a small country such as Ireland faces massive capital inflows from a country such as Germany, there are methods of sterilising the money before it destroys the real economy, as it did here.

Yesterday, we debated legislation to ensure that people in a field were of good repute, professional competence and good financial standing. It referred to bus drivers and truck drivers and it is a pity we did not have it for banks. It is a pity we still do not have it for the banks. The reform of banks, and the criteria for people to be directors of banks, has been promised by Mr. Elderfield but is now overdue. The other reform we need is after the chartered accountants regulatory body, CARB, reports. Accounts were prepared for the banks whose representatives walked into Government Buildings in September 2008 and walked away with a huge guarantee. Where are the accountants? Small accountants down the country are charged with producing misleading accounts for a vegetable business. If we are to restore any credibility, those accountants must come up with some decision about the accuracy of the accounts prepared for the banks we had to rescue.

The idea of too big to fail turns out to be too costly to save. As with other Senators, I am a sceptic about the pillar bank idea. Page 4 of the document refers to the fact that new institutions may apply. I hope not and I hope this is a period we have put behind us and that we never get caught in this exercise of extending such a provision. The Minister referred to outflows from the banks. The banks must reflect on how they conduct themselves in this House when they appear before the Joint Committee on Finance, Public Expenditure and Reform and the way they treated their shareholders with contempt. AGMs of the Soviet party under Mr. Joseph Stalin treated the members of the audience with more respect than the banks treated their shareholders. It is no wonder that people pulled their money out.

I welcome the statement on page 14 of the Minister of State's speech that there is a revival in unguaranteed deposits but the Parliament must assert itself. We should not have had those Cabinet meetings. People say that we should now reflate the economy once again but we now know some of the costs. One of them is that the banking system becomes obsessed with lending to Government and loses all contact with the real economy. We must try to restore banks to do what they are supposed to do.

I refer to the power of the lobby groups. The debt mountain grows each time and absorbs more tax revenue, which builds up a huge bureaucracy. We do not need to go back to the markets but back to balanced budgets. I support the Minister of State's proposal. This is a period in Irish economic policy from which we need to learn many lessons of regulatory behaviour, the behaviour of banks, the need for more competitions, the behaviour of lobby groups and their easy access to government, with the way Parliament was bypassed. With regard to the way we will reform the Seanad, checks and balances and scrutiny of events such as this will be part of the continuing active role of this House in Irish public life. This is an episode, the like of which, from every point of view, must never happen again.

This is a U-turn. Members may recognise this from Fine Gael and Labour Party U-turns on issues such as increases in the college fees, hospital closures and cuts to child benefit or social welfare. Today we have another U-turn, one on which election promises were made and votes were hard won. This is the U-turn that brought phrases such as "not one more red cent would go into the banks", "Labour doesn't do blank cheques" and that the Government would "break the vicious cycle of the massive dependence of the banks on the State". Today we are being asked to saddle the Irish State and the Irish taxpayer with an unknown liability on top of the existing guarantee of €100 billion. We are being asked to write a blank cheque for the banks, including Anglo Irish Bank. Given the volatility in the eurozone, it is likely that the scale of this liability will increase. The Government is asking us to do this as uncertainty and volatility in the banking system increases and, with it, the level of risk to the taxpayer. The Government is asking us to support a decision that Fine Gael and the Labour Party rejected numerous times in 2009 and 2010. They want us to give a vote of confidence to Fianna Fáil's banking strategy, to which they were vehemently opposed. So much for the programme for Government's commitment to end the previous Government's "blank cheques for banks policy".

Sinn Féin voted for it.

The Labour Party is voting for it today.

We are the only consistent party on this issue.

The Senator has only two minutes and it is very unpatriotic to interrupt her.

The truth hurts. The Labour Party might want to highlight the fact that it alone rejected the bank guarantee and is only dealing with the legacy of the mess left by Fianna Fáil but it is wrong. Today does not just herald that U-turn, marked by Deputy Doherty in the Dáil, it happened in June behind closed doors in Government when the ink on the programme for Government was barely dry. The Cabinet, including Deputies Joan Burton, Richard Bruton and Michael Noonan, vocal opponents of the bank guarantee legislation, agreed to extend the guarantee to the end of this year and sought Commission approval for it.

Today the Government Senators must vote to endorse what is universally regarded as the most costly and damaging decision ever taken by an Irish Government. Sinn Féin will vote against it, as we voted against the previous ELG extensions. If the Senators want to look at the response from the Minister for Finance to a parliamentary question, "The formal statutory legal basis for the guarantee was provided by the Credit Institutions (Financial Support) Act 2008 and the Credit Institution Financial Support Scheme 2008. That was formally approved by both Houses of the Oireachtas on 17 October 2008." Sinn Féin voted against that and no banks were able to sign up to it until 24 October. If Senators read the transcript, it is there and they will see it.

The Labour Party accused Mr. Brian Cowen of economic treason and is doing exactly the same here today. Labour's way or Frankfurt's way; it is obviously Frankfurt's way.

The House will excuse the passion of my interjections today but I am passionate about this issue because I am passionate about consistency, honesty and decency in politics.

On a point of order, Senator Byrne said the worst day for democracy was today but the worst day was the day the previous Taoiseach was drunk on the radio.

That is not a point of order.

I have never done that on the radio, and I have never told people with cancer that they would get services when I knew they would not be delivered.

On a point of order, in fairness I do not think Senator Michael D'Arcy meant to say that and I ask him to withdraw those remarks.

I will withdraw those remarks.

I will withdraw the L-I-E word from earlier because I realise that it is unparliamentary. This is a dark day for democracy, it is a day that proves there is no honesty and the public are right to be cynical about politicians. All of us are done down because of that.

We will not take a lecture on honesty from Fianna Fáil.

Fine Gael was opposed to the very same motion last year; it voted against it. Now it comes in with a straight face hoping we will support this very necessary measure. Yes, we will support it, we have a consistent position, it is our policy and we will not run away from it, we will not do a U-turn, we will not lie to the people, we will not tell them one thing and then do another, which is exactly what Fine Gael is doing. This is the bonfire of the promises and the people of Ireland are at the top of the bonfire and that is the uncomfortable truth for the Labour Party. The Labour Party Senators should show consistency and decency like Deputy Broughan, who believed in something and said he could not support a measure because it was wrong. I disagree with him but he is consistent.

The public voted for change but it got much worse. Politics and democracy are at stake. How can people trust anyone running for election given the record of the Government parties? They should have been honest and admitted that they would have to vote for it; they still would have been elected to Government but it is in the nature of Fine Gael and the Labour Party to tell people one thing and do another. The civil servants sitting there are the civil servants who did an excellent job in recent years in advising Ministers, even though the Labour Party and Fine Gael were highly critical of them personally in recent years.

Let us try to be honest, let us try to have a new day for democracy in politics, when representatives vote according to what is right for the people. Fianna Fáil is starting that today by voting for the Government motion, even though we are right to criticise it for the inconsistencies and untruths told to people. Let us do a deal with the people that this will not happen again because it is shameful and disgraceful and the Government consistently voted against this before the election.

On a point of order, it is absolutely outrageous that on an issue such as this, which is of fundamental importance, only one hour was given to discuss extending a guarantee that will cost this State a fortune; €38 billion more of senior unguaranteed debt being signed off here today. We have been accused in the past of being asleep at the wheel. A single hour of debate is a disgrace. The Government should be ashamed of itself.

That is not a point of order. The Order of Business was agreed this morning. The Senator must resume his seat.

The Labour Party and Fine Gael should be ashamed of themselves.

The Order of Business was agreed and there was no vote on it. Sinn Féin agreed to it.

As we must conclude at 4 p.m., I ask Senators to allow the Minister of State to respond.

I thank Senators for their contributions on this important motion. We are a peripheral country and our economic welfare depends on the influence of the wider European and global economic environment. It is within this context that we must continually review our policies and make adjustments to meet the challenges the situation brings. The motion before the House today to approve the draft statutory instrument amending the end date of the ELG scheme is a reflection of the Government's commitment to restoring the banking sector to financial health and, in this way, to contribute to the overall recovery of the economy as a whole.

All important deliberations, such as the request for the approval of today's motion, must be realistic and objective in assessing the facts before reaching a conclusion. What are the facts relevant to this motion? We are making progress in restoring stability to the Irish banking system through the combination of interlocking initiatives that make up the financial measures programme referred to earlier.

A key element is to address the funding problem being experienced by the participating institutions in the deposit and debt issuance markets. Part of the approach used in the bank funding area is the eligible liability guarantee scheme. We have seen progress on funding on a number of fronts here, with the cessation of deposit outflows from institutions in the past six months and a marked reduction in dependence on the European Central Bank funding since April. A number of liability management exercises since April, which led to savings of approximately €15.2 billion, have been completed within two of the participating institutions. Large international banks have recently given an indication there may be some demand in the near future for non-guaranteed deposits for certain corporate customers.

Notwithstanding these positive indications, market sentiment continues to be negative towards the participating institutions and the Irish sovereign as the external economic environment has deteriorated with the intensification of sovereign debt concerns in Europe, turbulence in the global financial markets and concerns regarding world economic recovery.

The main reason for the motion to approve the extension of the ELG scheme is the considerable uncertainty regarding the impact on individual banks and domestic financial instability that could result from non-extension. The risks posed and the potential consequences of the non-continuation of the guarantee are too great to ignore, including a threat to bank deposits. In this context the Minister for Finance has been advised by the Governor of the Central Bank and the NTMA that an extension is essential in present circumstances to maintain the competence of investors and deposit holders in the banks and to ensure the continued recovery of the banking sector. The Commission and the ECB agree the scheme should be extended. The requests for the extension of the ELG scheme should be seen in the light of the consensus of the Irish and European authorities that such an action is absolutely necessary. The announcement to extend the guarantee helped to raise, support and promote the continuing work of the Government and Irish authorities in repairing and restructuring the banking system.

Senator Darragh O'Brien asked about the interest rate cuts. Bank of Ireland operates at arm's length from the Government, and its management assesses mortgage and deposit rates in a very competitive environment. The State shareholding is approximately 15% following the sale of the equity stake to a consortium of international investors. The regulator has stated that he does not require legislation to manage mortgage interest rates. The topic remains an area of focus for the Government and the Department of Finance. The fees for the ELG have been paid on a quarterly basis in cash, not preference shares.

I am sorry to interrupt the Minister of State but as it is 4 p.m. I must put the question.

Question put.
The Seanad divided: Tá, 35 35; Níl, 3.

  • Bacik, Ivana.
  • Barrett, Sean D.
  • Bradford, Paul.
  • Brennan, Terry.
  • Burke, Colm.
  • Byrne, Thomas.
  • Clune, Deirdre.
  • Coghlan, Paul.
  • Conway, Martin.
  • Cummins, Maurice.
  • D’Arcy, Jim.
  • D’Arcy, Michael.
  • Gilroy, John.
  • Harte, Jimmy.
  • Healy Eames, Fidelma.
  • Heffernan, James.
  • Henry, Imelda.
  • Higgins, Lorraine.
  • Keane, Cáit.
  • Leyden, Terry.
  • Moran, Mary.
  • Mulcahy, Tony.
  • Mullen, Rónán.
  • Mullins, Michael.
  • Ó Murchú, Labhrás.
  • O’Brien, Darragh.
  • O’Donovan, Denis.
  • O’Keeffe, Susan.
  • O’Neill, Pat.
  • Power, Averil.
  • Sheahan, Tom.
  • van Turnhout, Jillian.
  • Whelan, John.
  • White, Mary M.
  • Wilson, Diarmuid.


  • Cullinane, David.
  • Norris, David.
  • Reilly, Kathryn.
Tellers: Tá, Senators Paul Coghlan and Susan O’Keeffe; Níl, Senators David Cullinane and Kathryn Reilly.
Question declared carried.