I move:
That Seanad Éireann approves the terms of the draft scheme entitled Credit Institutions (Eligible Liabilities Guarantee) (Amendment) Scheme 2012 a copy of which draft scheme was laid before Seanad Éireann on 26 November 2012.
Credit Institutions (Eligible Liabilities Guarantee)(Amendment) Scheme 2012: Motion
I welcome the Minister of State at the Department of Finance, Deputy Brian Hayes.
I thank Senators for the opportunity to come before the House. The motion before us was passed earlier by Dáil Éireann and I believe Senators will also see the justification for approving the scheme the Government has placed before the House. What is proposed is a practical step whereby the credit institutions (eligible liabilities guarantee) (amendment) scheme will be extended into 2013, although it is intended to wind down the scheme as soon as is practicable. While the details are still being worked out and finalised, the scheme must be kept in place to ensure the transition is smooth.
Events in the European Union continue to be of concern to the Government. Notwithstanding that the agreement reached this week with respect to Greece has been helpful, macro-financial conditions are not as settled as we would like them to be. Nevertheless, they have improved to the point where the argument for the necessity of the eligible liabilities guarantee is no longer compelling.
We consider the next phase in the normalisation of the banking industry to be the prudent disengagement from the eligible liabilities guarantee, ELG, scheme, commencing in the first quarter of next year if possible, subject to conditions remaining favourable. In these circumstances, it is important that this motion be recognised for what it is, namely, a sensible step that, notwithstanding the fact that it provides the legal basis for the continuation of the ELG scheme, will facilitate bringing closure to an unwelcome episode in our financial history and constitute another element in restoring our domestic banking system to full health.
Therefore, I will turn to the motion before the House to approve the draft statutory instrument, entitled the credit institutions (eligible liabilities guarantee) (amendment) scheme 2012. I shall give some details of the scheme and the reasons for its proposed continuation. The guarantee in its original form was known as the credit institutions (financial support) scheme, or CIFS, and was introduced by the then Government on 20 October 2008 following on from the declaration of the blanket guarantee on 29 September. Subsequently, a successor scheme - the ELG - was introduced on 9 November 2009 and has since been extended a number of times from its original conclusion on 29 September 2010, most recently to the end of the current year. 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 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 European Commission.
Regarding deposits, it needs to be emphasised that, as qualifying retail deposits of up to €100,000 are already guaranteed under another scheme, namely, the deposit guarantee scheme, DGS, the ELG scheme only guarantees sums above this figure in such cases. Other deposits, mainly corporate, in participating institutions are normally guaranteed exclusively under the ELG scheme. The distinction between the two schemes is important because, for most people classified as falling within the customer base of the retail banking sector, the DGS is the only scheme of relevance. This is due to the fact that it covers qualifying bank, building society and credit union accounts of up to €100,000, an amount that is well in excess of the average cash holdings of the majority of people. Furthermore, this coverage is per institution. The potential amount of an individual's money that may be guaranteed in this fashion is only constrained by the number of qualifying credit institutions operating in the State. This serves to illustrate the rather limited nature of the ELG scheme as it applies to most individuals and the importance of not exaggerating the significance of its role.
As a banking guarantee scheme, the ELG scheme falls within the scope of state aid and is subject to six-monthly approvals by the European Commission. Since its inception, it has been reviewed on a regular basis and, if appropriate, renewed for six months at a time as befits what was only ever intended as a temporary measure, albeit one designed over the years to help provide certainty of security to a particular category of depositors and holders of unsecured bank debt in the participating credit institutions.
Some 16 institutions are participating in the ELG scheme, the main ones being AIB, Bank of Ireland, Permanent TSB and the Irish Bank Resolution Corporation, IBRC, formerly Anglo Irish Bank. Participating institutions benefit from the Government guarantee provided under the scheme, which covers deposits taken or debt issued by them, provided those liabilities qualify as eligible. The scheme is a time-limited one and requires that any proposal to extend it in law be brought before the Houses of the Oireachtas for approval. The relevant legislation governing this matter is section 6 of the Credit Institutions (Financial Support) Act 2008, as amended.
Last December the scheme was extended in national law for one year to run from 1 January 2012, with the result that the scheme would expire at the end of next month were no further action taken. If the scheme is to be prolonged, it needs to be amended in two respects to effect a date change in each case. In addition, this opportunity is being taken to make a technical amendment to the scheme to update a cross-reference made in the ELG scheme to the CIFS scheme in 2008.
Beginning with the latter, the three amendments set out in the draft statutory instrument are as follows. The first will amend Article 3 of the scheme so that the reference there to section 6(3B) is replaced by section 6(4A) following on from changes to the CIFS Act made by the Credit Institutions (Stabilisation) Act 2010. The reference in question is to the provision in the CIFS Act concerning the legal basis for the making of a financial support period order.
The second will amend paragraph 3.1(b) of the Schedule to the scheme, which sets out the period within which institutions may apply to join it. The amendment will extend this period of application in order that the current date of 31 December 2012 will be replaced by 31 December 2013, subject to the continuing approval of the European Commission.
The third will amend paragraph 11.1(c)(ii) of the Schedule to the scheme, which deals with the period during which eligible liabilities will be incurred if they are to be considered eligible under the scheme. This amendment would replace the current end date of 31 December 2012 with 31 December 2013, subject to the continuing approval of the European Commission.
The condition relating to the second and third amendments of the approval of the European Commission is necessary because all banking guarantee schemes are subject to EU state aid rules, which provide that such schemes must 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. Approval from the Commission has already been sought and is expected to be formally given shortly. When given, this will mean explicit EU approval for the scheme until 30 June 2013. It is also necessary to seek the opinion of the European Central Bank in these matters. That opinion is awaited.
The participating institutions to which I referred are those credit institutions that joined the ELG scheme after its commencement. They may take deposits and issue debt of the type 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 that the institutions joined the scheme to the scheme's end date, currently 31 December 2012.
In comparison with the liabilities covered by the CIFS scheme at its inception, which totalled €375 billion, liabilities outstanding at the date that the new ELG scheme began to operate alone in the second half of 2010 had reduced to €147 billion. At the beginning of 2012, this figure had decreased further to €102 billion and has since fallen again to €78 billion. When one considers the historical import of the guarantee, one can see the incremental progress that has been made in shrinking the umbilical cord - the State guarantee - since the height of the crisis.
One can see the type of sustained progress that has been made in trying to breathe life back into the Irish banking sector. Among the factors accounting for this fall during 2012 are the following. First, in the normal course, bank debt held by the banks has matured and has not been replaced by new issues, which is good news. Second, as a consequence of Irish banks' UK subsidiaries reducing their participation in the ELG scheme, deposits under guarantee have fallen by approximately €11 billion. The EU subsidiaries do not have access to a guarantee because they are EU banks with subsidiaries in Ireland. Third, there has been the welcome success of some of the participating institutions, Bank of Ireland and Allied Irish Banks, in raising unguaranteed deposits totalling approximately €11 billion, as well as the recent opening up to the banks of access to the international debt markets.
On that point, it is worth mentioning that for a sustained period, because of the difficulties that have emerged across the eurozone, the pillar banks had no access to the interbank lending markets that are normally in place. As those difficulties subsided and normality returned, these opportunities in terms of accessing money on the interbank markets are presenting for the pillar banks, which is a significant development which the Government welcomes.
Effectively, the scene has been set to push on from these developments, in particular the mechanism used in the case of the participating institutions in the UK whereby the Minister for Finance, under paragraph 13 of the Schedule to the ELG scheme, allowed certain categories of deposits to fall away from guarantee coverage from a given date in the future. Together with the power given to banks by the Minister in November 2011 to issue unguaranteed deposits in certain cases, these two approaches to reducing liabilities under guarantee have been instrumental in laying some of the groundwork for a more comprehensive strategy to winding down the scheme.
The Governor of the Central Bank is of the view that an extension of the ELG scheme until June 2013 is necessary and would facilitate an orderly withdrawal from the scheme when macro financial conditions are conducive to such a step. The operator of the scheme, the National Treasury Management Agency, has also been consulted in this matter and is of a similar view. While it believes the removal of the guarantee would be seen as a further positive step in restoring normal market conditions in Ireland in the context of its sustained return to the capital markets, it believes it is important the ELG scheme would be renewed until conditions are judged appropriate by the authorities to move to end the scheme.
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 bank guarantee schemes and which are based, first, on recommendations of the Governing Council of the European Central Bank on government guarantees for bank debt and, second, on subsequent recommendations from the European Commission. The latest changes to the pricing regime were introduced on 1 January 2012.
The cost of the fees and its effect on the profitability of the banks is significant and has been one of the driving factors behind their anxiety to try to move away from dependence on the guarantee for their funding. While initially fees were quite low, at 25 to 50 basis points, the cumulative effect of the Commission recommendations on fees was a gradual increase in average fees payable by the institutions over the course of 2010, with the actual level of fee applicable dependent on the type and maturity of the debt concerned and on the credit rating of the institutions involved. Subsequently, in 2011 and during the course of this year, the average fee payable levelled off at around 110 basis points. In monetary terms, for example, this meant that in respect of average monthly liabilities under guarantee of about €112 billion during 2011, annual fees of some €1.23 billion were paid. This is effectively the amounts the banks give us for providing the guarantee. Total fees generated by the participating institutions last year for the purposes of providing the guarantee were approximately €1.23 billion and this year will be just over €1 billion.
Currently, the fee structure applicable to eligible liabilities is as follows. For debt or deposits with a maturity of 90 days or less, the guarantee fee is generally 160 basis points. As the debt maturity increases, so too does the number of points. The total of fees arising from the ELG scheme and paid to the Exchequer to date is some €2.83 billion. Approximately €741 million has been incurred in respect of the first three quarters of 2012 as compared with €951 million paid for the corresponding period in 2011. When one compares the first three quarters of this year with the first three quarters of last year, there is a natural weaning away of the fees as a consequent reality of the amount which is held under the guarantee reducing because of the ability of the institutions to obtain funding in the normal way.
I should mention that there are also two amending orders of a consequential, technical nature which will have to be made if the statutory instrument amending the scheme before this House is passed. These are called financial support orders and will be made in exercise of the powers conferred on the Minister for Finance under section 6 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 on the proposed amendment to the scheme being passed in the first instance. I have explained the first order and will take questions on the second order at the end of the debate.
The motion is one which warrants the full support of this House. It should prove to be an essential last step which maintains support for the domestic banking system for the present while facilitating a timely exit from the scheme in the very near future. It must be borne in mind that it was never intended that this scheme would be maintained indefinitely and that it would last only for as long as was considered necessary for financial stability reasons. This is reflected in the regular assessments that have had to be carried out by the Irish authorities and the state aid criteria that have had to be met to persuade the European Commission that prolongation of the scheme to date has been warranted. The Commission and the ECB are fully aware of the Government's intentions to move to end the scheme. They also accept that the timing needs to be as right as it reasonably can before a winding-down process can be initiated. This is being worked on at present by the relevant authorities.
It would, of course, be better if there were no need to extend the ELG scheme beyond the end of this year, but we need to be practical. Preparations, in operational terms, will need to be made by the participating institutions and reasonable notice given to customers that the guarantee will be ending for new deposits made or debt issued after a given date. The guarantee remains for existing maturity up to five years. That is an important point. At the same time, a decision will need to be taken that market conditions and the macro financial environment at that point are conducive to withdrawal of the scheme. A measured, well thought out approach is required, therefore, in reaching this point, and the prolongation of the scheme into next year will ensure the maximum flexibility can be availed of in implementing these plans.
I do not believe there is any doubt about the fact that we are now moving towards the end of the guarantee. This will be an important step towards normal market conditions and another staging post towards this country coming out of the very severe difficulties it has faced as a consequence of the appalling banking mess that emerged in 2008 and 2009.
We are asking for the approval of this House - we received that of the Lower House today - to allow us to extend this scheme. As famously stated by a former Member of the Dáil, in looking for approval, we are hoping that the scheme will come to an end in the shortest possible time next year. If this is possible for the participating institutions and the Government to achieve, it will be another milestone along the road towards recovery for this country.
This has been a difficult chapter for the people, the country and taxpayers who have committed significant sums of money to the banking sector for the purpose of propping it up while the banks return to profitability. The task in all of this has been to see the new banking sector, with the newly configured pillar banks, as a means through which we can obtain economic recovery.
In seeking the support of Senators for this motion to extend the scheme, we do so in the firm and honest belief that the life of this scheme is coming to an end and to tell the world and domestic audiences that we have done a good day's work and taken another step on the road to recovery.
The Government has a hard neck and some cheek to ask the Parliament to renew this bank guarantee. In a speech before the general election, the current Minister of State eviscerated and castigated the former Government for tabling the same motion in 2010. Fine Gael and the Labour Party attacked us. We were called economic traitors by the Labour Party. We were told that it was Labour's way or Frankfurt's way. We were told that we were rolling over for the banks. How ironic is it that the Minister of State is the one now asking us to "roll over", as mentioned on page 12 of his script? While in opposition, current Government Members unpatriotically criticised everything the Fianna Fáil Government did.
Rightly so.
Now that they are in power, they are doing exactly what they castigated us for doing in 2010. They are doing this without shame, sorrow or apology to the people for breaking their solemn pre-election promises. It is outrageous and shameful and the electorate will wreak a sorry revenge on Fine Gael and, in particular, the Labour Party.
The motion is the right decision to make in the country's interests. For this reason, Fianna Fáil will support it. The Minister for Finance has no option but to table this motion, just as the former Minister, Mr. Brian Lenihan, had no option but to take this decision in November 2010. At the time, Fine Gael and the Labour Party did not view the national interest as being important. They saw their electoral and personal interests as being more important. We rise to support the motion, but if anyone should choose to challenge it, we will facilitate a division to show the hypocrites in the Government parties for what they are. They said one thing before an election but another thing once they got into government.
In the context of decisions such as these, the current Tánaiste alleged that Mr. Brian Cowen was an economic traitor and that Fianna Fáil was guilty of economic treachery. The definition of treachery is "a breach of trust". Consider all of the trust the Government has broken in terms of health, possibly child benefit, and the property tax that it opposed before the election. The electorate will give its verdict. Nowadays in politics, people are educated, inform themselves and know what is happening. They are watching what promises are made and examining what people are doing in office. Judging by the opinion polls, they are not happy.
We will support this motion because it is in the interests of Ireland and the people, but it is right to recall the utter hypocrisy of Fine Gael and the Labour Party.
If memory serves me correctly, Fine Gael had a reason for not being too happy with this scheme at the time. Through this guarantee for the banks, the State was taking on a liability of €375 billion. No matter how one views it, though, it is turning out to be a success because the liability has been reduced to €78 billion. That is some reduction. However, it has come at a price. According to the Minister of State's figures, the liabilities outstanding under the eligible liabilities guarantee, ELG, scheme was €147 billion in the second half of 2010. It fell to €102 billion and again to €78 billion. This reduction of almost €70 billion occurred during a 24 or 27-month period. As anyone who has been in business knows, if one pays off one debt, something else gets left behind. In this case and as I have often stated, that something is the effective lending to businesses. One cannot pay down at that rate and loan money while still owing the emergency liquidity assistance, ELA. Although the scheme is proving to be a success for the Government in terms of removing the liability from the State, as is appropriate, it has a cost, namely, the difficulties being faced by businesses of every type. Will the Minister of State comment on this point? The charge that we are receiving is reasonable in terms of the short money.
I will put my hands up and agree that Senator Byrne's remarks on Fine Gael and the Labour Party were somewhat accurate. However, he must remember that, if one picks up something mid-stream, one cannot revert to a point from which one would have liked to have started. For us, that point would be never to have commenced this scheme in the first place. To cite Senator Barrett, a shady deal was done that night up the back stairs on Merrion Street. No description is more apt.
Senator Byrne accused Fine Gael of being unpatriotic. We pulled on the jersey-----
Six weeks before the election, Fine Gael voted against the same motion.
Senator Michael D'Arcy to continue, without interruption.
We pulled on the national jersey because, on the basis of the information provided for us, it was the right decision to take.
That was a different guarantee.
Senator Byrne, please.
That guarantee, the credit institutions (financial support) scheme, CIFS, led to this guarantee. It is the same. While some of what the Senator claims is correct, he should try to be fair and reasonable to those of us who pulled on the jersey.
Is being called an economic traitor fair or reasonable?
The murky deal was done on the night of 29 September 2008.
Through the Chair, please. The Senator should not invite a response.
I apologise. With the exception of the Labour Party, almost everyone got aboard that train, including Sinn Féin. When we got into government, we took the position of meeting the troika, the Central Bank and others - those who are funding the State - and telling them that we were not satisfied. I was not a party to those conversations, but I do not doubt that the people guaranteeing more than €300 billion, the ELA and the State to keep bank machines working and public servants paid had something to say about our preferred starting position and direction.
The good news from the Minister of State lies in Table 2, in that the €375 billion has been reduced to €78 billion. It was a disaster for Ireland. Many of those responsible have managed to escape. Today, we are finally catching up with the accountants. Did they sanction money going into a bank at 11.50 p.m. and exiting at 12.10 a.m. for years? We have asked questions. When will the Chartered Accountants Regulatory Board, CARB, break into a trot and do something about these matters? Too many of the people who caused our problems have managed to escape scot free.
We sleepwalked into the euro. Design faults were well known at the time and highlighted by people such as Milton Friedman. For example, there was no banking regulation, nothing to defend a small country from tsunamis of credit from large countries, the loss of the interest rate as an instrument of economic policy - when we needed higher interest rates, Germany gave us lower ones - the loss of the exchange rate, which we used fairly effectively in the 1990s, and no fiscal federalism. We need to increase the level of economic expertise available to governments.
I do not know whether there are still incorporeal Cabinet meetings, but the case in question was disastrous.
Some Ministers were in Sandymount and not told the meeting was on and another would have come from Limerick had he known there was a meeting. We should do our business properly in governing the country.
There are very enthusiastic Europeans in the Government and the public service and we tend to be naïve. The euro, as a product, should have been properly analysed, and we have a chance to remedy much of that when we take on the Presidency. We are not there to cheer defective European institutions and policies as we have paid a significant price for some of those policies. Better business, including the same reforms that are to be implemented in this country, may have to be put in operation in Europe.
There should be control of lobbying. Bankers were able to do this and the record of the construction industry in this area does not do much when we are trying to promote fiscal responsibility, as the Minister is trying to do. There must be better control of public finances. Yesterday we heard that €1.5 billion is being spent on a rail safety budget, with over €200 million on new railway signals between Lansdowne Road and Howth Junction. Do some Departments still not analyse projects properly? Are the Houses allowed to analyse such issues? There are too many redacted documents issued by big spending Departments.
I wish the Ministers and Minister of State every success but even if we had not got into trouble with the banks, there was a tendency to overspend in the country. As others have said, we can see the consequences now with 14% unemployment where the rate was 4%, as well as the problem of massive negative equity that the Minister for Justice and Equality, Deputy Shatter, is trying to tackle. We must learn many lessons from the period between 2008 and 2010. Sometimes people have got away scot-free and we have papered over cracks. There has been a tendency to hire more public relations personnel and take laps of honour. All Members of the Oireachtas, including those in this House, were elected to change a system that had run onto the rocks. We must never lose sight of the need for that reform agenda.
I compliment the Minister on decreasing those debts which came about under the guarantee scheme but what defence will we have when another industry goes broke? Is it too easy to achieve regulatory capture of the Government? What defences do citizens have, as we were powerless for many of those years? The people made the decision in the spring of 2011, and the previous Government with 85 seats was reduced to an opposition party of 19 seats. Too many of the other institutions which got us into this problem are still there and acting with impunity. We must never lose sight of the objective of bringing them to heel for the damage done to this country.
I welcome the Minister of State to the Chamber for what I call the annual parade in front of the crocodilian Fianna Fáil Party, members of which will wave their handkerchiefs and shed salty tears.
We are supporting the Government.
They will criticise the Government for implementing the guarantee when Fianna Fáil saddled the country with the "cheapest bailout" in history, which cost a mere €64 billion in linking the sovereign with the banking debt. That bound us tightly to a course of action which we in the Labour Party opposed. We still think it was unhelpful and Senator Barrett has called it a disaster. We are nonetheless stuck with it. If I am to continue with my reptilian metaphor, in addition to crocodilian Fianna Fáil we will no doubt also be exposed to the chameleon Sinn Féin. That party supported the banking vote on that fateful night. It would make me laugh if I was not so close to crying in thinking about what happened to the country on that night.
We have been left with a scheme that was roundly criticised not just by the Labour Party but by our European partners. The Minister of State might indicate if he believes this has made our job even more difficult in every other area. The French and British would remember the scathing attack on Fianna Fáil at the time because it unilaterally moved to implement the guarantee without consulting European partners, demonstrating that when push came to shove, Ireland under Fianna Fáil acted in its narrowest self-interest, without waiting to see the benefit of being a member of a European Union. If we had acted in consultation with partners, we would not be stuck with the damage to our reputation foisted on the country by Senator Byrne's party. To sit here and listen to the Senator criticising us-----
That is hypocrisy.
-----is something that makes me want to laugh if I was not so close to crying.
Hypocrisy.
Senator Gilroy to continue, without interruption.
I wonder how much damage to our reputation stems from the decision.
Within the framework of the guarantee and the awful constraints imposed on us, our strategy has been fairly successful. We have been calm and steady when it would have been easier, politically, to roar and shout about what we were doing. We secured a deal on interest in June of last year which saved the country-----
The Taoiseach had said he was not looking for such a deal. It landed in his lap.
We secured a deal on the junior bondholders which saved the country another €5 billion.
The Labour Party voted against the credit institutions Bill in the Dáil in December 2010. It allowed the burning of junior bondholders. It is a fact that junior bondholders were burned as a result of legislation that Fianna Fáil passed but which was opposed by Fine Gael and the Labour Party.
Senator Byrne should resume his seat. In fairness, he was not interrupted by the Opposition when he made his contribution. Please respect the Chair and the House.
Interest rates on our debt have fallen by more than 10% in the past 12 months. Rates this morning were at approximately 4.47%, and the returning confidence is a result of sound stewardship of the economy under our Government. We have seen an oversubscribed return to the financial markets by two of the pillar banks without the cover of the guarantee. It is likely we will be able to exit the guarantee scheme very soon and perhaps as early as the first quarter next year. That may be optimistic but the indications are in that direction. I am happy about that.
If we thought the recovery was down to other factors, as the Opposition might suggest, we could look at some of the suggestions from non-Government parties about how to approach this. There was an argument for burning the bondholders and rejecting the European Stability Mechanism. Even this morning, somebody in this House called on people not to pay their mortgages. This plays well with sections of the public but if we take on board such advice, we would be in a very different place, perhaps even south of where Greece is now. Nobody wants that.
I notice that in the other House this morning the Fianna Fáil spokesperson was critical of the position taken by the Labour Party. It disappoints me that Senator Byrne continues to be disappointed-----
We are not disappointed. We are going up in the polls.
The spokesperson in the Dáil and Senator Byrne protest too much. The contributions seem to be a product of a guilty conscience. Most people would privately agree that guaranteeing the banks in such an extensive manner was a mistake and once agreed, it set us on a course of action that prevented us from leaving the scheme without incurring additional damage.
The Lehman collapse left a bill of approximately €680 billion, shaking the confidence of the global system. That system seems to have recovered four years later, although there are slight reverberations still to be felt. The worst effects had passed within two years. If we had not offered such an extensive guarantee, particularly with regard to Anglo Irish Bank, although we would have experienced severe difficulties, we would have been in a much better place after four years.
The Senator should read the reports his party called for. The findings are not in agreement with the Senator.
Senator Byrne, please.
A guilty conscience prevents Senator Byrne from remaining silent and listening to my contribution, however humble it is. The eligible liabilities guarantee scheme for new depositors will conclude soon - the sooner the better - and it is important that no confusion comes from the Chamber. Deposits under €100,000 will continue to be protected by the guarantee scheme; that is important. When talking about people's deposits, it is very easy for there to be misinformation or confusion.
We are stuck with the guarantee but we must make as good a job of it as is possible. We have done just that. I hope this will be the last time the Minister of State will come to the House looking to renew the scheme. I am not happy about having to support it.
The key point is that we must support it.
I welcome the Minister of State to the House. As Senator Gilroy mentioned, we debate this issue annually and, therefore, I will not engage in the usual tango back and forth. I will instead make some comments, ask the Minister of State some questions and try not to get into any dramatics or engage in name-calling.
The Senator has the protection of the Chair.
The Senator has a lot of sense.
In terms of the Minister of State's contribution, I cannot help thinking of Frank Sinatra singing: "And now, the end is near; And so I face the final curtain." The Minister of State referred to "as soon as is practicable" and "the first quarter of 2013" in his contribution. How long will the process of disengagement take? If we start it in June 2013, how long does the Minister of State believe it will take to complete and under what conditions will it be deemed appropriate to end the scheme? The Minister of State said it is being worked on but can he give the House more detail?
Last Friday I attended a conference in Dublin Castle on the Irish Presidency and the first session was on the economic and monetary union, EMU, and the banking union. Some presentations called for a measured bail-in for creditors, the need to have risk-sharing mechanisms for big fiscal costs, and the need to resolve legacy problems quickly. I may be going off on a tangent and there is little point in rehashing old arguments but I ask the Minister of State to outline how the extension of that scheme would fall into the moves being made at EU level towards a central banking system. Will he give some detail, especially the proposals on supervision, bank resolution, and deposit guarantee schemes?
I said Sinn Féin would be short and sweet in terms of our position. We will not support this measure, and we opposed it in the other House today. I would like more information, especially in terms of the wind-down and given that the Minister of State and the Department are hopeful it will be wound down as soon as is practicable, I hope in the first quarter of next year. I would like more information on the form that process will take, the banking union, the bail-in of creditors and other such issues and what that will mean for us. Many people are disenfranchised in terms of not getting the deal on the banking debt and the sovereign debt that we want. It is all well and good to hear we are a special case but people want to see action. I ask the Minister of State to make some comments on that issue.
I congratulate the Senator on a constructive and to the point contribution.
It was the only one.
I would expect that from her and she has not let us down in that regard.
I remember distinctly the morning after the night of the guarantee because, for my sins I was a member of the Fine Gael Front Bench and we were asked to meet in emergency session that morning following a conversation the late Brian Lenihan had with the then Leader of the Opposition, Deputy Enda Kenny, and the then Fine Gael spokesperson on finance, Deputy Richard Bruton. As a member of the Fine Gael Front Bench I recall that meeting and there is an inevitability when an Opposition party, particularly the principal Opposition party, is asked by the Government party to support an emergency measure, be it a defence or financial emergency measure or whatever. The natural inclination is to support that because some urgent issue has arisen and the immediate advice open to Government is to advance this particular policy. For the sake of the country, one feels a natural patriotic duty to stand by the Government in what it has to do in the circumstances it faces, albeit without all the information. I recall the discussion we had in the Fine Gael Front Bench meeting on that occasion and, despite our reservations, which were articulated in the Dáil, we believed the right thing to do for the country was to support the guarantee on the basis of the information available to us.
This goes back to the point Senator Gilroy made, and this is the crucial issue. We should never have been in that position. The country should never have been in that position. This decision was foisted on the people without any consideration at an EU level by our significant EU trading partners. With the greatest respect to the people who made that decision, and I am not casting any aspersions on their character, at the heart of that latent decision they wanted to make, and asked us and the Dáil to make, was an internal arrogance because of their closeness to the banking circles in this country. That is the problem we faced. We did not take advice. When all the great generals of the Irish banking sector, with their arrogance and sense of entitlement, rolled up that evening to the Department of Finance and gave information to the then Minister for Finance, the late Brian Lenihan, and the then Taoiseach, Brian Cowen, a man for whom I still have the greatest admiration and respect, the natural inquisition that should have taken place did not because of the closeness between the political system and the banking sector that had developed over a generation and a half. Senator Gilroy made an excellent point. Those who knew better and could advise better consequently felt that they could make this enormous decision on behalf of all of us without any consultation with our colleagues in Europe and, as they say, the rest is history.
To come back to the point Senator Barrett made, at the heart of this is enormous political failure added to the dreadful banking failure because of the policies upon which the banking model was pursued in this country. I refer to the boom to bust cycle of support for the construction sector, representing up to 20% of GDP at one stage in the economy, added to the regulatory failure. This was a collapse of authority in Ireland and a political, regulatory and banking failure.
What we must do now is restore the country after this collapse. Fianna Fáil has taken its hit for this in that its vote has collapsed. That regulatory system is no longer in place. We have a new regulator and a more robust system, and we now have a new banking system, but whether we have a new culture in that banking system is the question that must be posed and answered by colleagues on all sides. There is this triumvirate of failure - political, regulatory and banking - and one of the prerequisites in terms of recovery is to wean our new banking sector off the original guarantee that was put in place in 2009 and the subsequent eligible liabilities guarantee, ELG, scheme.
To take the point my colleague, Senator Reilly, made, what we are talking about has nothing to do with the EU-wide bank deposit guarantee which is in place up to €100,000. What we are talking about is approximately 2% of the total, that is, above that amount and the great majority of corporate cases.
In terms of what the Government has attempted to do, within a month of coming into government our first big decision was to restructure the entire Irish banking sector around two pillar banks in a statement made to the other House and to this House in March 2011 by the Minister for Finance, Deputy Noonan. That was the first major decision taken by the new Government in March 2011 based on the results we obtained from the Blackrock assessment in terms of the loan to liquidity that exists in the Irish banking sector.
In terms of what followed that, there was a commitment from the pillar banks, built on the traditional AIB and Bank of Ireland, that, over a three-year period, €21 billion would be invested in the Irish economy by way of new or existing lending to businesses that needed lending to retain jobs; a radical deleveraging of those businesses; a sell-off of their successful components in third countries as a means of helping the capital ratios within those banks; a new banking unit in the Department of Finance which was to lead bilateral and multilateral discussions among the banks, the Central Bank and the Government on behalf of a smaller, more focused Department of Finance whose task would be banking recovery; new directors; entirely new management within those pillar banks - we have flushed out all those who were there at the time of the collapse and replaced them with new people to lead the new banking sector; and a new regulatory structure which would oversee the way in which the new banking operations and culture would act.
If someone told me in March 2011, when 100% of AIB and Bank of Ireland was owned by the State, that by December of that year, 15% of Bank of Ireland would be in the ownership of the State and the other 85% in private ownership, I would have thought the person was a lunatic.
That is correct.
How impossible that seemed, yet it happened as a result of the decisions taken by the Government in March 2011. We now have one arm of the pillar under State ownership but we own only 15% of the other bank. It happened as a result of the change from the policy followed by Senator Thomas Byrne's party to the policy followed by the parties now in government. We stand over that change, defend it and are proud of it. The new banking structure we have put in place is a key policy difference, and it will hold this country in good stead.
There is no point in changing the structure and capital ratios, making the banks smaller and deleveraging unless we change the culture, hubris and arrogance. That is the challenge for the Minister for Finance and his colleagues in government. We must make sure the banks understand our language and lend in a prudent, sustainable way. They must see risk in a proportionate way and be at the heart of their communities. I am 43 years of age and I remember when I was 18 or 20, bank managers knew people in the community. That did not happen in the past ten years when an unsustainable banking model was pursued. We must get back to the local banks knowing the communities they serve. We must replicate what the credit union movement has been doing. We hope our policies, implemented within a month of being in government, make a difference in terms of getting the banks to a better place culturally.
When we came into government, the banks were bankrupt and in an appalling condition in terms of any sense of the future. The banks are still in the accident and emergency ward but let us look at what has happened in the past two weeks. Independently of the guarantee, Bank of Ireland raised substantial sums of money on the open market for the first time since 2009. AIB, which is 98% or 99% owned by the State, raised significant sums of money yesterday for the first time in three years. The demand was three or four times what one would expect. That is an example of slow but sure incremental progress in the Irish banking sector. We make this point in today's proposal. We are rolling over the eligible liabilities guarantee, ELG, scheme, but we are doing so for a reason. The reason is to bring to an end the ELG scheme as soon as practicable and possible. It will be a good day for the country, the banking sector, public utility companies, and the sovereign debt exposure we face when we can set the guarantee to one side. It will be a good day for Ireland and will show a sign of positive development and that the banks are beginning to get to a new plateau and move away from the umbilical cord inherent in the ELG scheme. When the Government came into office, the cost of borrowing ten-year Irish debt paper on the international money markets was 15%.
It was not 15%. That was the peak under the current Government.
Last night, the cost was 4.6%. We are slowly beginning to present this country as less of a sovereign risk and more as a sovereign opportunity. This year, the NTMA has raised in excess of €5.5 billion at a time when alleged commentators in Europe said we would need a second bailout, which is looking increasingly unlikely, and that no money would be raised this year. Some €5.5 billion has been raised this year, admittedly in short-term paper. It is another example of the incremental progress we are trying to make as a Government, given the appalling legacy and mess left by the previous Administration. The motion we are asking the House to accept, in terms of advancing the position and getting to a point next year when this will no longer be needed for the banking liabilities, will be seen as a positive step in that direction. It will be another milestone towards recovery and away from the bankruptcy the Government found when it first came to office.
Senator Kathryn Reilly asked about the conditions we are awaiting before exiting the scheme. We are in the midst of ongoing discussions with the EU about managing the sovereign crisis across the European Union, particularly in Greece and Spain, as we have seen in the past week. The outcome of the eurozone Ministers meeting and the deal reached to put money into Spanish banks, while at the same time agreeing in principle on a debt reduction programme for Greece, is the type of improvement we need in the general financial environment. Once we see economic stability return to the Union and the eurozone, this country, more than any other country, because of our exposure to exports and because this a small, open, trading economy, will benefit more than any other because of our exporting potential. We have a solid economy. There is a strong private sector economy waiting to emerge when it sees stability re-emerge across the European Union. The conditions at the eurozone level, in terms of Spain and Greece, help us greatly in our task to reposition the country.
On the question of fees, the State obtains €1 billion per year for the provision of the ELG. By the end of January or February, if the guarantee no longer existed, we would still obtain fees from the existence of the guarantee because it is on a five-year maturity basis and only comes to an end at the end of five years, even if the guarantee is no longer in place. It is not the case that the income the State receives from the guarantee will completely disappear overnight. The State will be weaned off and we are factoring that into the macroeconomic framework in terms of next year and the resources available to it.
I ask the House to accept that Ireland is a small country that has come to an appalling time in its economic history. Dreadful mistakes were made in terms of the decisions taken, as Senator Barrett and others said. We will come back from this and the only way to come back is to have a viable banking sector. That is why the decisions the Government has taken in terms of restructuring the banking sector in Ireland are essential to recovery. What do we want more than anything else? We want our money back. We want the money invested in these banks over a period of years to be returned in order that, for taxpayers in the future, the funds can be used for investment, jobs and development purposes. That is the ambition of the Government and the passage of the motion will help us to reposition the Irish banking sector towards more normal, profitable and positive territory.
Question put:
The Seanad divided: Tá, 37; Níl, 4.
Tá
- Barrett, Sean D.
- Bradford, Paul.
- Brennan, Terry.
- Byrne, Thomas.
- Clune, Deirdre.
- Coghlan, Eamonn.
- Coghlan, Paul.
- Conway, Martin.
- Cummins, Maurice.
- D'Arcy, Jim.
- D'Arcy, Michael.
- Daly, Mark.
- Gilroy, John.
- Hayden, Aideen.
- Heffernan, James.
- Henry, Imelda.
- Higgins, Lorraine.
- Keane, Cáit.
- Kelly, John.
- Landy, Denis.
- Leyden, Terry.
- MacSharry, Marc.
- Moloney, Marie.
- Mooney, Paschal.
- Moran, Mary.
- Mulcahy, Tony.
- Mullen, Rónán.
- Mullins, Michael.
- O'Donovan, Denis.
- O'Neill, Pat.
- O'Sullivan, Ned.
- Quinn, Feargal.
- Sheahan, Tom.
- van Turnhout, Jillian.
- Walsh, Jim.
- Whelan, John.
- Wilson, Diarmuid.
Níl
- Cullinane, David.
- Norris, David.
- Ó Clochartaigh, Trevor.
- Reilly, Kathryn.
Tellers: Tá, Senators Paul Coghlan and Aideen Hayden; Níl, Senators David Cullinane and Kathryn Reilly.
Question declared carried.
Senator Thomas Byrne voted in Senator Darragh O'Brien's seat, but that does not affect the result of the vote.
Wishful thinking by Senator Byrne.
The coup has taken place.
He would be delighted to be rid of the job.