Central Bank (Supervision and Enforcement) Bill 2011: Report and Final Stages
I welcome the Minister of State at the Department of Finance, Deputy Brian Hayes.
Before we commence, I would remind Senators that a Senator may speak only once at Report Stage, except the proposer of an amendment who may reply to the discussion on the amendment. On Report Stage each amendment must be seconded.
I move amendment No. 1:
In page 33, between lines 9 and 10, to insert the following:
"(4) The Bank shall publish in its Annual Report a statement of the reforms undertaken by bodies in respect of which reports of breaches were made.".
I welcome back to the House the Minister of State, Deputy Brian Hayes.
As the Cathaoirleach will be aware, we discussed here on the last occasion that this is a serious problem in Ireland, more serious than in any other country that we have come across except, perhaps, Iceland. The view from these benches was that whatever assistance the Minister needs to strengthen the regulation of banks would have our support. I did not recall any pro-banker party emerging in the Seanad or, indeed, anywhere else, particularly since the tapes became public.
On a serious national issue, we must control this sector because of the vast amount of damage which it has done to this economy. We all came here after the last election to assist the Taoiseach and his Ministers in getting the country out of a dark place and we have known which sector bears the bulk of the responsibilities for that.
The content of the Anglo tapes did not come as much of a surprise. I share the disgust of the President, Chancellor Merkel and others about it. On page 237 of Mr. Simon Carswell's book, Anglo Republic, one will see an interview given to Mr. David McWilliams by Mr. Seán FitzPatrick. It states:
[FitzPatrick] came closer, squeezed my arm and practically hissed between clinched teeth---
Is that the Minister, Deputy Shatter's, book?
I thank Senator O'Brien. It is an expletive deleted book. It continues:
"No [expletive deleted] Protestant is coming near us. Those establishment [expletive deleted] and Bank of Ireland have been running our country before we came along, and those [expletive deleted] are not going to bring me down. None of them are ever going to look down on us again. We are the outsiders, and this is our moment. Those [expletive deleted] don't own us any more."
In a sense, what the Irish Independent found in the tapes Mr. Carswell and Mr. McWilliams found some time previously.
It is a sector which has done immense damage. We need to regulate it much more strictly. We need much higher capital requirements. The Minister has my support in that regard.
Amendment No. 1 inserts, "The Bank [that is, the Central Bank] shall publish in its Annual Report a statement of the reforms undertaken by bodies in respect of which reports of breaches were made." On Committee Stage, the Minister was concerned that we referred to what had happened to the individuals. The object that we had in mind was that if Mr. X made a complaint, where is he now? The Minister was concerned that complainants should have anonymity and we have rephrased that to put the emphasis on the reforms.
I mentioned on the previous occasion - it is mentioned in the briefing notes that the library service helpfully prepared for us - that the misgivings of Ms Estelle Feldman, who has studied this in Trinity College, Dublin, about breaches and whistleblowing are that the organisation never gets reformed and the whistleblower is punished. I am also concerned that in some banks this has been going on for decades. I refer to the ICI affair in the 1980s, the offshore deposits that were not offshore at all, secret pension funds for executives in the Caribbean, and then the gold medal one on 29 September.
We must be able to measure progress as we try to eliminate these malpractices from Irish banking. There have been a serious number of insurance collapses also. How does the Central Bank know if we are making any progress in these matters? Is it worthwhile reporting any breaches at all? Nothing happens, they continue on as before, they get bailed out and the taxpayer gets stung again.
We have rephrased the amendment in light of the Minister for Finance's concerns which, of course, we accept, in that we were not protecting anonymity. How do we know if this is having any effect at all? From listening to radio programmes, the furious wish of the Irish people is that the banking system should reform itself. Can we have a measure of progress?
As with all of these amendments, if they are of use to the Minister, we offer them in that spirit. If Deputy Brian Hayes finds that they are not, it will not cause any great annoyance. The public wants a new regime for regulating banks and these are suggestions from me and my colleagues on these Independent benches that could be off assistance. If they are worse than that and might obstruct the Minister in the reforms, obviously, we would not push them.
They are offered in the context of the anger since the release of the Anglo Irish Bank tapes about the conduct of banking in Ireland and the need for a stricter regulatory regime. Every day in the House, Senators on all sides express their conviction that we are not making progress and that Irish banking is unreformed. Banks do not treat people who fall into arrears well and they try to induce people to get away from their tracker mortgages. Paddy O'Gorman of RTE discussed in the last couple of days cheque cashing services coming within the general remit of financial services. Where one seeks to cash a cheque for €50, one receives €38 in cash. This happens where people cannot wait five days for the money. Why does it take five days for a bank to perform cash transmission in the era of electronics? No credit is available for businesses. This is about dealing with breaches, reforming the sector and looking for evidence that it has reformed. Deputy Hayes and the Minister for Finance, Deputy Noonan, must deal with these issues on a daily basis. I am not so sure the corporate culture has changed. It must be sent a message from the Houses of the Oireachtas that we are opting for stricter regulation. In that spirit, I offer my proposal to the Minister of State. If it helps his hand, that would be good. If there is no positive impact on what he is trying to do, that is fine. We tried.
I am happy to second the amendment. The Minister of State is very welcome. I hope he accepts the amendment. When the Minister for Finance was in the House, he paid particular attention to the very points which Senator Barrett has made. Senator Barrett listened very carefully to the Minister and has removed the word "anonymity" from the amendment. Certainly, I got the impression that the Minister was willing and listened very carefully to what Senator Barrett said. The Minister indicated that he would give the matter some thought. I assume on that basis and because the anomaly has been removed, the amendment will be accepted.
The issue of the whistleblower being blamed was serious enough before the tapes were released. Suddenly, with the tapes now coming out, we hear the manner and disdain with which the people involved were treating the State and customers. It is outrageous. The amendment seeks to provide that "The Bank shall publish in its Annual Report a statement of the reforms undertaken by bodies in respect of which reports of breaches were made". It seems so simple, easy and understandable. It should be accepted. Certainly, we had the impression that it would be, particularly if Senator Barrett adjusted the wording to remove the term which was causing the Minister some concern. I urge the Minister of State to accept the amendment. I am not quite as easygoing as Senator Barrett who said it is all right if the Minister of State decides not to accept it. He has put a great deal of work into it and it should be accepted.
The Minister of State is very welcome. I am taking up advice I received from the Leader of the House, Senator Cummins, this morning-----
-----and to follow the words on reform which Senator Barrett spoke. We all want the banking sector to be reformed. The amendment is sensible and I hope the Minister of State will accept it. I have participated in the debate on the Bill from Second Stage on. A great many good suggestions have been put forward by Members on all sides. In the context of banking reform and Central Bank supervision and enforcement, I wonder how the Central Bank operates currently in dealing with the newly published code of conduct for mortgage arrears, which, in effect, gives the banks everything they want. While the Government is apparently reforming, as is badly needed, the banking sector, we have opened the floodgates for the banks. They have the nod of Government and the Central Bank. We have set aside the previous statutory code of conduct which provided for a 12-month moratorium before a bank could move on mortgage arrears.
That is a separate issue completely from amendment No. 1.
It may be. I have tried to raise it on a number of occasions over the past week in advance of this being published. I was told this morning by Senator Cummins that the opportunity to raise it would be here this evening during the debate on the Bill. I see that there is a problem with doing that, but we have not, unfortunately, been provided with any time to discuss the new code of conduct on mortgage arrears. The Central Bank, which is the subject of the Bill, is allowing the banks to make as much contact with customers as they deem fit. The limit of three times a month which was set out in the previous statutory code is gone. The Central Bank says it will allow proportionate and not excessive contact. However, there is no definition of that.
I cannot allow the Senator to keep raising this on the Bill. If I do, we will have Senators raising everything on Report Stage.
I respect fully what the Cathaoirleach is saying. The protection that was previously afforded to those in mortgage arrears has been removed.
My next point may be more in order. We talk about supervision and enforcement in the Bill and we would like the banks to co-operate. Banks refer consistently to co-operating and non-co-operating borrowers. Has Government, or the Central Bank, set out a definition of "non-co-operating bank"? In the new code of conduct, all power is vested in the banks and the Government has not taken into account the need for an independent mortgage appeals office, as called for by many, to take matters out of the remit of the banks, which did such damage to the country. When one adds the figures for those in arrears of 90 days or more, those in arrears of 30 to 90 days and those who have had their mortgages restructured, one sees that 20% of all mortgages in the State are in distress. While Central Bank supervision and enforcement, which is the subject matter of the Bill, are very important, we have taken the legs from under citizens who are paying for the very banks that ruined the economy. I am wrong about many things, but not on this.
The Senator is moving away from the amendment.
The Government and, in particular, the Central Bank have removed many of the protections which were there. I am interested to hear from the Minister of State what the rationale was for loosening or removing the safety net for those in mortgage arrears. Having spoken to people in all walks of life, it appears the code of conduct is far from what is required. It worries me immensely. Is it the case now that we will trust the banks again? Previous Governments were proven to be wrong to trust the banks and the information they provided. Why should I or any citizen trust any bank to deal fairly and even-handedly with those in mortgage arrears when the Government has removed the safety measures included in the previous statutory code of conduct?
I apologise to the Cathaoirleach and thank him for indulging me.
I call Senator Michael D'Arcy.
On four occasions, the House has voted down an opportunity to discuss this. I hope the Minister of State might refer to it.
To respond briefly to Senator Darragh O'Brien who asked for an example of an unco-operative bank, Anglo Irish Bank, which then became IBRC, which was then liquidated by the Government, is his answer.
In the context of those in mortgage arrears.
In response to amendment No. 1, proposed and seconded by Senators Barrett and Quinn, respectively, I accept the bona fides of both Senators. The Minister for Finance and I accept fully what has been said by Senator Barrett, whose only objective is to improve the Bill. He seeks not to stand in the way of its passage but to add to it. The Bill, which I took on Report Stage in the Dáil, has been hanging around, as it were, for the past 18 months. It came in as one Bill, but was substantially amendmended on foot of two very significant Private Members' Bills introduced by the Fianna Fáil spokesperson on finance, Deputy Michael McGrath.
These were inculcated into the Bill and it showed a readiness on the part of the Minister for Finance to respond to good ideas on the part of Opposition Deputies and Senators. He has continued in that vein with this Bill.
I take the point that the Senator raises and I will explain the reasons we think the amendment is superfluous. It is important to put this on record because these matters are often referred to in court. Having the opportunity to explain them gives an insight into the minds of the Oireachtas Members in terms of the passage of any amendment to the legislation. Amendment No. 1 seeks to include a new provision into Part V of the Bill, which requires the Central Bank to include in its annual report a statement of the reforms undertaken by financial services providers on foot of whistleblower disclosures. I remind Senators that the Minister introduced an amendment in the Dáil in response to concerns raised by Opposition parties on a similar point. This is effectively section 38 of the Bill, the new section introduced by the Minister on Committee Stage on page 28. The amendment inserts a new section into the Bill requiring the Governor to report to the Central Bank Commission on whistleblower disclosures and the action taken by the Central Bank on foot of them. In this way, there will be appropriate oversight of the Central Bank's responsiveness to whistleblower disclosures. Section 38(4) reads:
(a) The Governor shall provide a report to the Central Bank Commission at least annually on any action taken or not taken in response to protected disclosures.
(b) The Central Bank Commission shall determine the form and content of the report to be provided under paragraph (a).
In our view, what Senators Quinn and Barrett are looking for is already contained in the legislation. The report will be given, in the first instance, by the Governor to the Central Bank Commission and the commission will issue a report on an annual basis.
In the course of performing its function under the Central Bank Acts, the Central Bank receives information through a variety of means, including the provision of information by firms in response to statutory requests, information from authorised officer inspections and information obtained through regulatory returns. The Central Bank also receives information through voluntary disclosures by financial services providers through routine reporting and other engagement on compliance issues. It is a matter for the Central Bank to decide what action, if any, is required on foot of it receiving particular information, whether through whistleblowers or other means. Based on its assessment and on subsequent investigations, the Central Bank may require action by the financial service provider. The action may include compliance with regulatory direction, the provision of customer redress, administrative sanctions or the prosecution of an offence. The Central Bank cannot require action on foot of the whistleblower disclosure alone. It must first satisfy itself there are sufficient grounds that warrant action. The action may only be required following due process and fair procedure. In such cases, financial services legislation already provides for the publication of details of the action to be taken, the nature of the sanction or direction, albeit subject to some ground rules including, for example, ensuring the publication of the administrative sanction does not inhibit the prosecution of an offence. On that basis, I am satisfied there are appropriate measures in place to ensure oversight of Central Bank action and transparency on the action required to be undertaken by financial service providers following due process and fair procedure. This addresses much of the substance of the points raised by Senator Barrett. The Minister for Finance is more than happy that the Senator is raising this issue again this evening.
I agree that what is required is a strong regulatory regime, which is clear and transparent for all to see. Senator Barrett referred to Estelle Feldman, who is a friend of mine and who has written extensively on the topic of whistleblowers. She is also a distinguished academic in Senator Barrett's university. She has done much of the pioneering work in this area and has helped Opposition Deputies in producing legislation. The Minister for Public Expenditure and Reform, Deputy Howlin, would make the following point if he was here. It is firm intent of the Government to produce, for the first time ever, legislation to protect whistleblowers across Irish public administration. It is a key part of what we want to do in the political reform area and much of what Ms Feldman has written about over the course of the past decade and a half in her extensive research has greatly helped the Government and informed it of the legislative approach it should take. We need to protect people who have information and use it in such a way as to act in the public interest. We also need discretion for public agencies to investigate these matters and to come to a view on the substance of the allegations being made. With regard to amendment No. 1, it is already provided for under section 38. The Minister responded to an Opposition Deputy on Committee Stage in this respect.
I thank the Minister of State for his response. We are ad idem on this. In response to these appalling bank crises and flops in the country, let us consider what was the reaction to the first crisis. It was that banks shall not buy insurance companies, or certainly not the one that bought an insurance company in London. We took action against the illegal offshore accounts and the pensions in the Caribbean for bank executives. All of this happened in one bank. There was an array of policy responses to the people who bankrupted the country. For Ireland's credibility internationally, we protected the whistleblower. However, what about the rest of us? Are we protecting society from this kind of conduct, which we all agree has been appalling?
I might have tackled the problem in a different way but I share the goal of the Minister of State. My concern is that it is not locked away in subsection 56. When the Minister of State goes to European meetings, he can say that it is in our report that we took certain measures. It is in section 38 and presumably it can be announced in reply to parliamentary questions in the Dáil. We might have been ripped off on the first occasion but we took measures to ensure it does not happen again. Everyone who lends money to the country will want to know what we did in response to the people who wasted it previously. It is important the Seanad has received from the Minister of State a strong undertaking that we cannot keep doing this and that we will take measures to prevent a recurrence. That is what the Minister of State said and it is what I am seeking. I will not press the amendment but I thank the Cathaoirleach for his forbearance. This is important because otherwise banks will shrug their shoulders and continue on as before. Many people in the House and in the country are wondering when the banks will reform. They seem to be wonderfully oblivious to the harm they have done and that is what has annoyed people about the tapes.
Amendment, by leave, withdrawn.
I move amendment No. 2:
In page 44, line 5, after “with” to insert the following:
“The Competition Authority, the National Competitiveness Council and”.
These amendments are allied. We were talking to the Minister for Finance, Deputy Noonan, last Thursday and saying that we must distinguish, according to the American model, between Wall Street and Main Street. Regulation of banks in the interests of banks is what we have had up to now.
Attempts to correct the problem through quantitative easing promote asset bubbles which are again in the interests of banks and stockbrokers and not in the interest of the wider economy. The shortage of capital as we try to develop a new entrepreneurial economy will not help. The Minister's view last Thursday in the House was that he hoped that the competitive aspect of Irish banking would be improved by banks coming in from abroad. He was hopeful that we would attract an industrial bank, which would provide competition. While it had to be done at the time, the pillar bank concept is flawed in that it lead to a duopoly. It may be such a duopoly that no foreign banks will want to set up here and that deterrent would not be in the interests of the wider economy. Bearing in mind that the Minister says the State could try to develop a more competitive banking system and discussions may be taking place, we have a problem with the banking sector.
The June 2013 edition of the Compecon publication dealing with regulatory easing and competition states it is important to analyse competition agency decisions. At EU level and in most member states, competition agencies are responsible for investigating and deciding on alleged infringements of competition law. Ireland is somewhat unique in an EU context in this regard. The Competition Authority's role is limited to carrying out investigations while it is for the courts to decide if parties have broken the law. Central Bank regulation of banking failed spectacularly in 2008. The Government is trying to get the regulation of banks out of a silo. They have a blinkered look. What is this doing to the economy, asset prices and people's living standards? Why can housing or industry not be funded in a different way?
We experienced a classic case of regulatory capture prior to 2008. The agency which was supposed to regulate banks in the wider public interest was captured to the extent of staff playing golf and winning prizes with the people they were supposed to regulate. It was a disgraceful performance. The Minister of State will note the deficiencies in our policy highlighted by Pat Massey in the Compecon paper. Banking is too important to be left to bankers. The new Governor, who is a former colleague of mine in the economics department of TCD, will seek to steer a different course given that his predecessors were captured.
This is not unique. I asked on Second Stage who is supposed to regulate accountants. They prepared accounts for the banks and the bankers were not regulated. The State has tame regulators for electricity where the chief executive officer earns multiples of the Taoiseach's salary and the same can be said of the airport and transport sectors. I am worried about sectoral regulation by regulators who have a tradition of being tamed and utterly dominated by the sector and who operate regardless of the consequences for the rest of society. It is necessary to have somebody say a sector is not competitive and it could be made more competitive if the Competition Authority was brought in. The competition regulator in Ireland is much weaker than in other countries, as Pat Massey says, which damages our competitiveness. Having an input ensures we do not drift back to a regulatory regime where banking is unduly influenced by bankers attaining control over the Central Bank as they did so ignominiously in the past.
The amendment is an attempt to make the control of banking more of a team game in the interest of the public. Perhaps if the Central Bank, Competition Authority and Competitiveness Council look at the competitiveness aspects, they will diverge but we badly need new insights into what banking has done to the rest of the economy. Currently, the emphasis is entirely on restoring the financial health of the bank. We know in this House, as does the Minister of State, that we are trying to restore the economy and the two are not the same. The two certainly were not the same on 29 September 2008. That is why I have tried to broaden the way we look at banking. It is interesting that the Irish-Canadian, Mark Carney, has taken over as governor of the Bank of England. He is trying to broaden bank regulation. He comes from a highly successful background in Canada where none of these banking problems occurred and economic growth continues. We need more inputs to get away from a silo. If we had more inputs, the problem we are trying to correct now would not have happened. I am not interested in prosperous banks; I would much prefer a prosperous economy. I would like the other impacts to be considered.
I second the amendment. It was interesting to read British financial newspapers over the past week and see references to Mark Carney and Canada being saved because of his regulation. We got used to light touch regulation over the past 20 years and it seemed to do a world of good for some aspects of the economy until everything went wrong. I did not realise that Ireland had such a weak regulatory system. We thought we had a good system, not only in the banking sectors but in other sectors. It appears we were incorrect and the light touch regulation got us into trouble. Senator Barrett's amendment is worthy of consideration. It takes a long time to get anything done in Ireland and not only in the context of regulation. The US, UK and Japan moved much more quickly than we did to deal with criminal offences in the banking sector. We take a long time. That may protect some citizens but that also damages other citizens who think it unlikely anyone will suffer.
I thank both Senators for raising this issue. The prosperity of the economy is inextricably connected to the prosperity of our banks because we own most of them and the greater part of one of them. The only way we will get our money back in some shape or form is to bring them back to some trajectory of profitability over the years. Given the enormous amount of taxpayers' money put into these entities, the only way to get it back is to bring them back to a financially viable position. We need a change of culture in banking where bankers know their business no different from Senator Quinn when he was in the retail business or Senator Barrett when he taught young people in TCD. One has to knows one's business. The great dilemma in the banking system was bankers were disconnected from their business. They did not know the people who had deposits in their banks and regarded them with arrogance. They did not make prudential investments in businesses or entrepreneurs and put all their money into bricks and mortar.
We need to imbue a fundamental change of culture and I hope this legislation, which has been hanging around for a long time, meets the challenge of better regulation and exposes us to international experience. Senator Barrett's point in this regard is well made. We need to expose our entire regulatory establishment to the international rigour other countries employ. It is more important in Ireland than other countries because we are small and highly deleveraged. We have a huge private sector economy vis-à-vis our public sector economy. The financial services sector comprises 16% of the economy, which is large, although it is 30% in Luxembourg. In a large financial services sector, which the State wants to expand, a regulatory environment is needed within the Central Bank culture which meets that need and which people say meets the international standard people will stand over. I very much agree with that.
I very much agree with that.
On the substance of the amendment, section 49 already provides for the Central Bank to consult with any entity it considers appropriate, so the consultation envisaged by Senator Barrett is already permitted under the Bill. Section 49(1)(c) provides that the Central Bank may consult with such other persons as the bank considers appropriate to consult in the circumstances. There is no difficulty with the Central Bank consulting with the Competition Authority and the National Competitiveness Council, as it sees fit. As the Minister for Finance pointed out earlier today in the Lower House, ultimately the Central Bank is independent of the political system. It must be, by definition. Unless it is we will not have a regulatory environment or culture that is free of the political shenanigans that can sometimes take place. Section 49 empowers the Central Bank to consult with whatever it chooses in its work.
I read the transcript of the Senator's discussion with the Minister, Deputy Noonan, on Committee Stage. It was an interesting discussion in which the Senator discussed the issue of competitiveness. We need a competitive model in this country. The Senator suggested that the pillar bank model will not fit the bill and will fail. It is a little like the French Revolution in that it is probably too early to tell. However, the Senator is at one with the Minister for Finance when he speaks about competition. In a series of later amendments we try to address that in respect of foreign banks from outside the European Union. We would allow those banks to open branches following approval of the Central Bank, to encourage the type of competition the Senator wishes to see. There is nothing to stop such banks coming to this country at present. The success and stability of the Irish economy is predicated on more international banks coming to invest in Ireland and seeing Ireland as an opportunity. They will not come unless they see a future for the country. The Irish economy and the banks are inextricably linked.
In amendments Nos. 5 and 6 we will deal with the lack of competition issue, which the Senator discussed with the Minister for Finance. It is on foot of that discussion that the Minister has tabled amendments Nos. 5 and 6 to try to deal with that issue and to have a more flexible approach for encouraging non-EU banks to come to this country to establish branches. That will provide the competition and international experience suggested by the Senator.
The Irish banking system has gone through a torrent of change and it is only fair for Senators to ask if that has led to a cultural change. That is the kernel of the issue here. We have set out our stall in terms of the pillar banks. The banks have become smaller entities and following the Mercer report the Government is now seeking reductions of between 6% and 10% in pay and remuneration across the banks. All of the boards have effectively been taken out. There is now more international experience within those banks. If one examines the stress testing that followed the establishment of the pillar banks in March and April 2011, there was a very strong tiered capital ratio of 10.5%. The likelihood is that when the new EU stress testing of banks emerges in the first quarter of next year the capital ratios will be approximately 9.5%. There has been much change within the banks, and they need to get on with that change and make sure they have the people in their retail and commercial settings to deliver the model that is required. Fundamental to that there must be a regulatory environment that works for everybody.
The collapse we experienced was not just a banking collapse but essentially a collapse of the entire regulatory system. There is no doubt about that. It is a matter of huge concern to the Irish people. I agree with the Senator's remarks earlier about the tapes. People want to get to the bottom of this. They want answers and, ultimately, they wish to see prosecutions in the courts. All of these matters will be resolved, hopefully to the satisfaction of the public and these Houses, through the inquiry system the Government intends to put in place. All of those banks, regardless of whether their tapes have been published so far, would have to make themselves available with that information to an inquiry, were it to be established. That point has been made very forcefully by the Minister for Finance today.
While I welcome the Senator's amendment, there is no need for it. Under section 49 the Central Bank can consult with any entity it chooses in respect of the competition issue. We are hoping to deal with the substance of the Senator's point about competition in amendments Nos. 5 and 6.
Section 49 provides that it may consult with such other persons as the bank considers appropriate. That is what happened. We now have a Central Bank Governor who I hope, and particularly if he is listening to this debate, will consider what something is doing for competition and competitiveness in the Irish economy. However, if the bank does not consider that appropriate, it will not happen. Obviously, in the past it did not consider it appropriate because that is how we got into trouble. My preference would be to push the Central Bank to take a wider interest and, as the Minister of State said, to take a look at what the new governor of the Bank of England is doing. We have referred to bad banks but we probably had a bad Central Bank as well which did not do its job up to 2007. If they gain control of the Central Bank again, they might say they will just consult with the people they like because the choice is entirely theirs under section 49, which provides that the bank consult such persons as it considers appropriate to consult in the circumstances. We are trying to provide that it should include the interests of competition and competitiveness.
Our ability to draft these amendments was limited. When the debate was adjourned last Thursday it was adjourned to Tuesday. Tuesday means mañana in the Seanad, as the Minister of State will know from his time here, so we did not expect it to happen on Tuesday. There was hardly any time to frame amendments because they had to be tabled by 11 a.m. on Friday and we finished late on Thursday. I had hoped the Minister was moving towards running banking in the interests of the wider economy and not just as the bank considers appropriate, given that this institution really let the country down. One version of what happened is that the Central Bank was the bigger failure and the banks just did whatever they got away with. That was massively damaging to the country. At this stage, I would not be interested in what the Central Bank considers the appropriate way to regulate banks because whatever the model was it did not work and we are now paying the bill.
Why will it not consult widely before it makes regulations, as we are asking it to do in this amendment? Is it that in Ireland we always think in silos and people do not venture outside their own narrow patch, so nobody is looking after the wider national interest? Who in the Central Bank or in the Department of Finance does not want to consult the two bodies mentioned? It is really silly that they will not. Why is the Central Bank seeking such power whereby it will decide whom it will consult? That is the way it is phrased at present in that it can consult such other persons as the bank considers appropriate. The Central Bank failed and we, as legislators, are telling it to do things better in future even if, informally, it could assure the House that it will never again be dominated by the sector it is supposed to be regulating in the national interest. That is the silo mentality we have, with people not thinking outside the box or looking at other areas of the economy and the damage they do to those areas.
I regret that the amendment is not acceptable.
It would improve the Bill if it was. The Central Bank, the Department of Finance and the banks have to up their game on what they did to this country. I do not understand why the Minister of State was advised not to accept even a mild amendment like this, particularly as we thought the Minister was heading in our direction before the debate had to end rather suddenly and it turned out to be a real rather than mañana Tuesday. We hoped he would think about it more.
I do not know how this will be read outside Ireland. The Government is not willing to accept a statutory consultative role for the wider economy in the way we run banks so soon after the banks developed a rather strange and unacceptable vocabulary, as the German Chancellor, Angela Merkel, and the President have said. It is a strange and unacceptable way of running banks. It indicates a certain dismissive nature towards Parliament when the Minister of State is advised to respond in this way. It would not have done any harm. A few egos may have been bruised a little but that is mild compared to what has happened to the rest of the country. The Minister of State has had to deal with that in terms of special needs assistants and reductions in pay and child benefit.
It is strange that we cannot have a mentality that it is a good idea to have people on board discussing what this will do for competitiveness and competition. As we have said ad nauseam, Ireland has high cost and sheltered sectors, which restricts our ability to develop competitive international sectors. Banking is one of those sectors; no other sector has imposed such a burden on the rest of us. It is regrettable that there is a mentality of not reforming what should be reformed and continuing to defend what we used to do in the past, given all the evidence of the damage that has been done to the country.
It is not fair to say we are in disagreement on this. I hope people outside the House will listen to what I have to say. We would expect in the normal course of events that the Central Bank would engage in discussion with the various agencies to which the Senator referred in his amendment, namely, the Competition Authority and the National Competitiveness Council. In the normal course of events such discussions will take place.
I agree that wider influences would have to be brought to bear in making any regulations. The section is about consultation before regulations occur. Specifying one or two agencies may lead to difficulties, rather than stating a bank be given the power to consult with whatever it so chooses because it is independent of Government. It represents the Irish taxpayer and the ECB system, one could argue, given its legislative role, but in its functions it is independent of political interference. I have absolute no difficulty in saying to the Senator publicly that we expect this would happen in the normal course of events. It may be an issue on which the Governor wants to comment when he comes before committees or is questioned by Members of Parliament. To stitch it into the legislation is not necessary per se but we appreciate the point the Senator is making.
As I said, if one included two agencies there would be an argument for including 105 other agencies. There are only 48 because we got rid of half of the quangos. Why would one limit the Bill to that? There is nothing to stop banks from having the consultation we expect in the normal course of events.
I thank the Minister of State.
Amendment, by leave, withdrawn.
Amendment No. 3 arises out of committee proceedings. Amendment Nos. 3 and 4 are related and may be discussed together by agreement of the House. Is that agreed? Agreed.
I move amendment No. 3:
In page 58, to delete lines 42 to 45 and in page 59, to delete lines 1 and 2 and substitute the following:
“(5) A regulated financial service provider falls within this subsection if, in the preceding financial year, a complaint relating to the regulated financial service provider which has been made to the Financial Services Ombudsman has been found by that Ombudsman to be substantiated or partly substantiated.”.
I will keep my comments short and will not press the amendment. On Committee Stage the Minister was very helpful and positive in saying he would have his officials in the Central Bank look at proposals that were made. The amendment is self-explanatory. It makes a small but important change to the current proposal. Rather than being empowered to detail complaints against certain providers where three complaints have been upheld, the amendment would allow the Financial Services Ombudsman to detail the complaint where one has been upheld if he or she believes it is in the public interest to do so. I ask the Minister of State, if he can, to commit to having his officials in the Central Bank examine the proposal.
Is the amendment seconded?
I move amendment No. 4:
In page 59, between lines 12 and 13, to insert the following:
“(d) the measures undertaken by the financial service provider in response to complaints made under this section.”.
I wish to discuss the amendment briefly. I do not wish to detain the Minister of State.
The amendment proposes that the ombudsman report include information about complaints. We seek to add what is stated in the amendment. The rest is covered, such as the name of the regulated financial provider, including any trading name, the identity of any group of which the regulated financial services provider is a member and the number of complaints signed to be substantiated or partially substantiated in respect of the regulated financial services provider in the preceding financial year.
There was a complaint yesterday about a situation in which a bank decided not to charge a person €12 to cash a €50 cheque. These organisations have a tradition of cocking a snook at the Government, the Central Bank and the rest of us, and are still talking to us through their tapes on a daily basis. We need to know what happened and whether the abuses were addressed and corrected. This is against the background of the work of Estelle Feldman, whom the Minister of State mentioned. She fears that organisations do not reform and whistleblowers are penalised.
There was a report on 22 April 2012 by Daniel McConnell and Tom Lyons on the whistleblowers' dire warnings which were silenced by senior finance chiefs. It quotes Robert Pye and Marie Mackle. Ms Mackle said, "I've paid the price for being an internal whistleblower. As matters stand currently, I am completely ostracised and my work is ignored." If people are going to go out on a limb we have to know whether anybody listened when they drew to our attention what happened and whether the reforms that took place can be included in a report. This is a good place in the Bill to introduce that.
As the Minister of State said, we are trying to change a corporate culture. I appreciate what he said but many in the House would see it has not changed. Banking in Ireland used to be a utility service. People lodged savings which were looked after and ready for them when they grew old. It inculcated a habit of thrift among young people. That was replaced by the managerial casino generation which wrecked banks. I am not sure whether the latter group has been fully expunged from the banking system, because it is not the picture painted in the House on a daily basis.
This section gives the Government a mechanism to ask what happened in regard to complaints.
The Financial Services Ombudsman will then be able to include that information in his or her annual report. The banks might not like this proposal, but the rest of us who are paying dearly for their actions will not tolerate a situation where they are not held fully accountable. Ensuring full accountability is the object of this proposal. Representatives of the banks have been before the Comptroller and Auditor General and the Committee of Public Accounts, but we are still not getting the whole story. We must use every piece of armoury at our disposal to make institutions accountable, which includes a requirement to report on how they responded to complaints made against them and the reforms they introduced when whistleblowers exposed the many abuses in the system.
Senator Sean D. Barrett makes a very good case in regard to transparency or the lack thereof in the financial services sector. We would do well, however, to note that a lack of transparency is not confined to the actors in the financial market. There seems to be a certain lack of transparency within the Central Bank and certainly the Department of Finance. On Committee Stage I referred to the case of an alleged whistleblower in UniCredit Bank who had reported suspected and substantial liquidity ratio breaches in that institution to the Central Bank back in 2007 but no action had been taken. Having spoken to the individual in question more recently, I submitted a freedom of information request to the Department and wrote to the Central Bank. While both were willing to confirm that no action had been taken in this matter, neither would even confirm whether a complaint had been received. When we speak of a lack of transparency, we should be conscious that such failing is not necessarily confined to the financial actors.
I second Senator Sean D. Barrett's amendment. He has explained its objective clearly and it makes a great deal of sense. I urge the Minister of State to accept it.
I agree with the substance of Senator Sean D. Barrett's argument for this proposal. His contributions are always very inspiring. It is a shame that the Central Bank did not have his expertise as an economist in recent years. Quality economic expertise seems to have been in very short supply within that institution and the Department.
There is still an issue with micro-management at the Central Bank. On Friday, for example, I took calls from people throughout County Clare who had serious concerns about the bank's new code of conduct on mortgage arrears.
The Senator is straying from the legislation. I know that Clare is a lovely county, but Members must confine themselves to Report Stage of the Bill.
I am dealing with the substance of the amendment.
The Senator is somewhat ultra vires.
It is extremely worrying, even at this stage and in the context of the numbers involved, that the Central Bank sees fit to release the financial institutions to harass and harangue customers. I raised this matter earlier today. I was not, unfortunately, in a position to support the amendment to the Order of Business, even though it was very well intended.
Senator Martin Conway is way outside the scope of the amendment.
I understand there is no time limit on contributions on Report Stage.
Members are obliged to speak to the amendment under discussion. The Senator is rambling around west Clare.
The Minister of State, Deputy Brian Hayes, is very welcome. I expect that he is more in tune than most of his Cabinet colleagues with the difficulties affecting people in our society. The code of conduct on mortgage arrears should be reviewed in three months time. It is a retrograde step. There were operational issues with the previous code, but the new one will bring out the vulture element in the banks yet again. In line with Senator Sean D. Barrett's amendment, actions speak louder than words and louder even than legislation. If the Central Bank is not capable either of micro or macro-managing itself, the Government must step in to do so.
I call the Minister of State to reply. I suggest the contribution of his colleague, Senator Martin Conway, might be more appropriate to a meeting of the Fine Gael Party.
I thank the Leas-Chathaoirleach for his latitude.
Amendment No. 4, the subject of our discussion, seeks to require the Financial Services Ombudsman to include in his or her report the responses of financial services providers to complaints made against them and reported by the ombudsman. I am satisfied that the naming provisions in the Bill are sufficiently robust to provide consumers with information to assist them in making decisions about availing of the services of particular providers. A requirement for a response by providers is not necessary to strengthen this provision. Such a requirement would be unduly burdensome without adding a great deal of value.
This section is concerned with the outcome, which one hopes is satisfactory, to complaints made to the Financial Services Ombudsman by individuals. We are talking about people who have submitted a complaint and had that complaint resolved to their satisfaction. In that scenario, the amendment would not add a great deal of additional information to what is included in the existing provisions. In investigating any complaint against a financial services provider the ombudsman would seek a response from that provider before making a decision on whether to uphold the complaint.
Section 72(2) which amends section 57BF of the 1942 Act includes a provision that was inserted by way of amendment on Committee Stage in the other House. It refers to making provision for "the form and manner in which the information specified in the report is given, including provision for the categorisation of the different classes of regulated financial service providers identified in the report, the different classes of financial services to which the complaints by reason of which they are so identified relate, and the different descriptions of these complaints". The subsection which the Minister accepted on Committee Stage, by way of its provision regarding the categorisation of complaints, effectively allows for what the Senator is seeking in his amendment and adequately addresses the point he is raising. Accordingly, I am not in a position to accept the amendment.
The section does not, however, make any provision for reporting on the actions taken by banks in response to complaints. That is the problem. As well as the categorisation of complaints, we must have categorisation of responses. To say the sector would find anything this Parliament does "unduly burdensome" suggests the people who are supposed to be regulating the banks have some neck. The sector has cost this country something short of €64 billion and may end up costing us €90 billion, yet a small amendment from the Seanad is deemed unduly burdensome. Is the Minister of State trying to win a prize for irony? It is an amazing statement which I find unduly burdensome to entertain.
We must consider the realities of the situation. People are protesting at the gates of Leinster House, yet the banks consider it unduly burdensome to set out their responses to complaints made against them. Is the Central Bank still captured by the commercial banks? Is there any hope at all that we can ever put manners on the sector? One can only wonder at the notion that a small request from Parliament is considered unduly burdensome.
I am saddened by this, because I came here to help the Government to make reforms. This sector needs reform, but I am told that a reform as minuscule as this is unduly burdensome. It is about time some of these people did an honest day's work. They do not see it as unduly burdensome to us when they walk out with €64 billion, heading for €90 billion, nor do they see as unduly burdensome the manner in which they treat their customers. Yet they are able to persuade the Government that to implement this section would be unduly burdensome. The spirit of what we tried to achieve last Thursday, in co-operation with the Minister for Finance, Deputy Noonan, is eroded by a response such as this. No sector has been more burdensome on this economy than the sector we are trying to regulate here.
Rather than express the anger I feel, I will sit down. However, I find it amazing that the briefing note suggests this proposal is unduly burdensome for a sector which has done so much damage to every person in the country, from the youngest to the oldest. Some 300,000 people have left this country. Unemployment has risen from 4% to 14% and there is massive youth unemployment, but the banks which caused this find this proposal unduly burdensome. I am saddened by that, but I will not push the amendment. The failure to accept the amendment indicates to me that the balance of power between the banks, the Central Bank and the Department of Finance is still overwhelmingly weighted in favour of the banks. I do not believe they deserve that kindness. The rest of us deserve to be considered instead.
Before we lose the run of ourselves, we are talking here about the ombudsman's report in respect of complaints. What this section deals with is a situation in which there is an outcome in favour of an individual who brings a complaint and that complaint is satisfactorily resolved. Where an action is clear and where the ombudsman has been given that view, it will be acted upon, ipso facto. There is no dramatisation at that point; it will be acted upon. Later in the section, there is provision for a categorisation of those complaints where there has been an outcome in favour of the customer or client who made the complaint. In the context of the report from the ombudsman, there can be a categorisation of the nature of those complaints. Therefore, there would be no circumstance, where a complaint was brought to the attention of the ombudsman on which a decision had been taken, in which the banks would not implement that decision.
I gather from the rejection of the amendment that the banks do not want the rest of us to know about these decisions. We need a reformed banking system. When people make complaints, the rest of us are entitled to know what was done about them. Or should banks just continue doing what they have been doing for probably well over a decade?
I think the Senator misunderstands this, but we need to be clear on it. We are talking here about individual complaints in regard to a financial service provider. This is not a systemic issue nor a problem regarding a range or category of products that have been fraudulently imposed on people. We are talking about individual complaints made to the ombudsman regarding cases in which a decision has been taken and an outcome obtained. The company concerned simply acts upon the decision. This is not a systemic problem. If it was, that would be a totally different issue. As I understand it, this section deals with individual complaints made to the ombudsman about individual companies. It does not deal with systemic problems.
With regard to individual complaints, last week we asked for the banks' attention to be drawn to the suggestion that triple damages should be paid. That was rejected and the Minister was supposed to be considering the position. I want to record my disappointment that when it is a case of Parliament versus the banks, the banks always seem to win. I regret that. This is a section stating the ombudsman's report is to include information about complaints and yet it is not to include what reforms, if any, are to take place. I am saddened that the Department and the Central Bank are again standing beside the banks and against customers. We are entitled to know how the banks react to our complaints.
I will not push the amendment, but I am extremely saddened by what is going on in this section. Everybody outside of this House has had it up to here with the banks, yet the Minister will not even make provision for the banks to account for how they responded to complaints made by customers. Therefore, the Bill is going to go through without any improvement from the Seanad. The Seanad has not been abolished yet and what we have to say should register sometimes, particularly when we are dealing with a sector that is probably the most deserving of reform, not just in this country but in the world. We see from the repeated rejection of amendments that this sector is getting away with what it is doing. That saddens me as a Member of the House and as a citizen. The wrong people are winning this debate.
Is the amendment being pressed?
No. With deep regret I withdraw the amendment. However, I really regret what is happening here this evening.
Amendment, by leave, withdrawn.
Amendments Nos. 5 and 6 are related and will be discussed together.
Government amendment No. 5:
In page 59, after line 47, to insert the following:
73.—The Central Bank Act 1971 is amended—
(a) in section 7—
(i) in subsection (1) by inserting “or authorisation under section 9A” after “licence”, and
(ii) in subsection (6)(b) by inserting “or authorisation under section 9A” after “licence”,
(b) by inserting the following sections after section 9:
9A.—(1) In this section and sections 9B and 9C—
‘branch’ means a branch of a relevant credit institution;
‘EEA Agreement’ has the same meaning as it has in the European Communities (Amendment) Act 1993;
‘EEA state’ means—
‘relevant credit institution’ means a credit institution whose head office is located in a state or territory other than an EEA state and which holds an authorisation to carry on banking business in that state or territory from the authority that exercises in that state or territory functions corresponding to those of the Bank under this Part (‘relevant third country authority’).
(2) Subject to the provisions of this section, the Bank may grant an authorisation to a relevant credit institution to operate a branch in the State for the purpose of carrying on banking business in the State.
(3) The Bank shall not grant an authorisation under subsection (2) unless it is satisfied that—
(a) the relevant credit institution is subject, in the state or territory where its head office is located, to regulatory or administrative provisions relating to authorisation to carry on banking business in that state or territory and supervision corresponding to those in the State, and
(b) protection of deposits with the branch, corresponding to the protection provided by the European Communities (Deposit Guarantee Schemes) Regulations 1995 (S.I. No. 168 of 1995), is available to depositors.
(4) An application for authorisation under subsection (2) shall be in such form and contain such information as the Bank may from time to time determine.
(5) The Bank shall notify the European Commission, the European Banking Authority and the European Banking Committee of any authorisation granted under subsection (2).
(6) The grant of an authorisation under subsection (2) shall not constitute a warranty as to the solvency of the relevant credit institution to which it is granted and the Bank shall not be liable in respect of any losses incurred through the insolvency or default of a relevant credit institution to which such authorisation is granted.
9B.—(1) The Bank shall not refuse to grant an authorisation under section 9A(2) unless it is satisfied that the grant of the authorisation would not be in the interest of the orderly and proper regulation of banking.
(2) Whenever the Bank proposes to refuse to grant an authorisation under section 9A(2) it shall—
(a) within the period of 6 months after the date of the receipt of the application for the authorisation, or
(b) where additional information in relation to the application has been sought by the Bank, within the period of 6 months after the date of the receipt by the Bank of the additional information or the period of 12 months after the date of the receipt of the application for the authorisation whichever period first expires,
notify the applicant for the authorisation in writing of its reasons for the refusal and the applicant may, within the period of 21 days after the date of the giving of the notification, make representations in writing to the Bank in relation to the proposed refusal.
(3) The Bank shall, before deciding to refuse the authorisation, consider any representations duly made to it under subsection (2) in relation to the proposed refusal.
9C.—(1) The Bank may revoke an authorisation granted under section 9A(2)—
(a) if the holder of the authorisation so requests,
(b) if the holder of the authorisation—
(c) where the holder of the authorisation no longer holds an authorisation from the relevant third country authority to carry on banking business in the state or territory where its head office is located,
(d) if the business of, or the corporate structure of, the holder of the authorisation has been so organised or the holder of the authorisation has come under the control of any other undertaking not supervised by the Bank such that the holder is no longer capable of being supervised to the satisfaction of the Bank,
(e) if, since the grant of the authorisation, the circumstances relevant to the grant have changed and are such that, if an application for an authorisation were made in the changed circumstances, it would be refused.
(2) Whenever the Bank proposes to revoke an authorisation under subsection (1) (otherwise than in circumstances to which paragraph (a) of subsection (1) relates)—
(a) it shall notify the holder of the authorisation in writing of the reasons for the revocation and that the holder may, within 21 days after the date of the giving of the notification, make representations in writing to the Bank in relation to the proposed revocation,
(b) the holder of the authorisation may make such representations in writing to the Bank within the period referred to in paragraph (a), and
(c) the Bank shall, before deciding whether or not to revoke the authorisation, consider any representations duly made to it under this subsection in relation to the proposed revocation.
(3) Where an authorisation is revoked under subsection (1) and the holder of the authorisation is not a company which is being wound up—
(a) that person shall continue to be subject to the duties and obligations imposed on it by or under the Central Bank Acts 1942 to 2013 until all liabilities of that person in respect of deposits (including deposits on current accounts) or other repayable funds accepted by it from persons (in this subsection referred to as ‘depositors’) pursuant to the authorisation have been discharged to the satisfaction of the Bank,
(b) that person shall, as soon as possible after the authorisation is revoked—
(c) in the case where—
(4) Where a direction to which subsection (3)(c) relates is given the provisions of section 21 shall apply with any necessary modifications.
(5) The Bank shall, before deciding to revoke an authorisation under subsection (1), consult with the relevant third country authority provided however that if immediate action by the Bank is called for it shall not be necessary for the Bank to consult as aforesaid but in such a case the Bank shall notify the authority concerned of the revocation of the authorisation.
(6) In this section ‘control’ includes any power, whether arising from a contract or agreement or otherwise, whereby one party can direct the affairs of another and a parent undertaking shall be deemed to control its subsidiaries and ‘parent undertaking’ has the meaning assigned to it by the European Communities (Companies: Group Accounts) Regulations 1992 (S.I. No. 201 of 1992).".".
On Committee Stage the Minister indicated that he would introduce this amendment to the Central Bank Act 1971 to provide an authorisation regime for branches of third country banks. These branches would be subject to the same standard of regulation as those branches currently passporting into Ireland from within the European Union. The Central Bank Act 1971 provides the statutory basis for the authorisation regime for credit institutions in Ireland. The 1971 Act and the related European directive - the capital requirements directive - also provide the basis for the passporting regime within the European Union. Passporting is a system which allows financial services operators legally established in one member state to establish and provide their services in the other member state without further authorisation requirements.
These amendments insert three new sections into the Central Bank Act 1971 to provide an authorisation regime for credit institutions which are authorised outside the European Union to operate a branch in Ireland. These third country banks would be able to apply to the Central Bank for an authorisation on the basis that the institution would remain under the responsibility of its home regulator in terms of prudential regulations, but would be subject to Central Bank rules on the conduct of business. The new section, 9A, provides that the Central Bank can only grant an authorisation where the credit institution is subject to a regulatory system in its home territory, which is at least as robust as the Irish system. Furthermore, the level of protection afforded to deposits by virtue of the bank's authorisation in its home country must be at least as robust as that which operates in Ireland under the deposit guarantee scheme.
The Central Bank is also required to notify the relevant European authorities of any authorisation under this section. This arises from the requirement in the directive that third country branch authorisations should not offer more favourable terms to credit institutions passporting from outside of the European Union than would be available from within the European Union. This will act as a further check on the system to ensure that this regime does not act in any way to dilute the standard of regulation that applies.
The new section 9B sets out the provisions that are to apply where the Central Bank refuses a grant of authorisation and is based on the system that already applies to domestic credit institutions. In short, it affords an opportunity to the applicant to make representations where the Central Bank is minded to refuse the application and before the Central Bank has issued its final decision.
The new section 9C sets out the provisions that are to apply where the Central Bank revokes a third country branch authorisation and is also based on the system that already applies to domestic credit institutions. The grounds for revocation include circumstances in which the holder becomes unable to meet its obligations to its creditors; no longer provides security for the assets entrusted to it; is convicted on indictment of an offence under the provision of the 1972 Act; is convicted of an offence involving fraud, dishonesty or breach of trust; is a company that is being wound up; or no longer holds an authorisation from the relevant third country authority. In this case, the provisions afford the opportunity to the institution to make representations before the Central Bank has issued its final decision.
The Central Bank must also consult the third country authority unless immediate action by the Central Bank is required, in which case only notification is required. This section also sets out the responsibilities on the branch after its authorisation has been revoked and these mirror the provisions that apply to domestic credit institutions. In brief, the institution's responsibilities towards deposits and with regard to other repayable funds do not change post-revocation until those responsibilities have been discharged to the satisfaction of the Central Bank.
I indicated earlier that we would be moving with these amendments. The Minister flagged these amendments on Committee Stage. It is hoped these will add some dimension of competition to the Irish domestic banking situation in order to encourage the third country banks to establish branches in Ireland. They would be subject to the same oversight and regulatory environment as other institutions in this country. If such banks could be encouraged to come to Ireland, albeit in a small way, this would be a means of ensuring a competitive banking system.
We acknowledged on Committee Stage that the Minister had accepted quite a few Opposition amendments from the Dáil. This is a technical and complex piece of legislation. I acknowledge the significant work on the Bill on the part of Senators Barrett and Darragh O'Brien, Michael D'Arcy and also myself, if I may say so. The Seanad has proved its worth in this regard. Our colleagues in the less deliberative environment of the Dáil did not notice this omission in the Bill which we flagged here on Committee Stage - I flagged it myself - and which resulted in an amendment which is four and a half pages long. Senator Darragh O'Brien and I wondered if these amendments would have found their way into the Bill if the Seanad was not here, considering the Bill had passed through the Dáil with such great scrutiny and yet these amendments were missed. I am pleased that I and my colleagues here have played some small part in dissecting, analysing and scrutinising this highly complex and technical piece of legislation. In my view the Seanad needs to acknowledge itself and its good work.
That was a good spot by Senator Gilroy. I note the irony of the Minister of State's remarks on the day that Ulster Bank, which is an established bank, is closing 40 branches. This shows the difficulty faced by anyone wishing to establish a bank here. There is a further difficulty and it is a case of which comes first, the chicken or the egg. The existing pillar banks are not lending to the companies who are starved of cash flow because they are not profitable enough. They cannot become profitable enough because the cash flow is not being made available to them. Until these companies become profitable these banks - which are primarily based in other jurisdictions - will not even look at this country. They will not look at this country because businesses are not in sufficient profit.
I question whether this new section in the Bill will be of any real benefit in the near future. The country is now going back to depending on AIB and Bank of Ireland. When he was a Member of this House, Deputy Shane Ross called them the fuddy-duddy banks for not keeping apace with Anglo and Irish Nationwide. I have a real concern that this section will not be relevant for perhaps decades. It will not be of use to the entrepreneurs, the people who take risks, because they will not be given the short-term funding they badly require now.
I welcome the insertions and I commend Senator Gilroy on raising this point on Committee Stage. I am on the record as opposing the pillar banks approach because I thought we missed an opportunity by subsuming EBS into AIB as outside investors were interested in doing that. Competition will be the issue. The Minister's amendment attempts to entice competition into the market. The only other bank which is expanding in Ireland is KBC, a Belgian bank. It is opening new branches and is beginning, tentatively, to lend in the first-time buyer market. It is not operating in the commercial and business sector and that is a problem. The past few years have seen massive changes in the banking sector and this Bill will create further changes. I agree these two amendments are important. I think the EBS is now effectively dead. It was the largest lender to first-time buyers even in the period 2009 to 2010. It is finished now and it has no real lending capacity in any shape or form. The credit unions have also been reined back - correctly so in some instances and not so in other instances. Many businesses were obtaining loans from credit unions but their lending have been restricted.
I hope that in ten years time we will not rue the day when we did not sell EBS in late 2010, early 2011, when the deal was done. The Minister for Finance, Deputy Noonan, for his own good reasons, decided to subsume it into AIB and to create, in his view, two strong banks, Bank of Ireland and AIB. However, Senator D'Arcy is correct. Ulster Bank is shutting down 41 branches and reducing its activity in the market. I suggest that if it were not for its technical IT issue over the past year, the bank would have announced these closures earlier, perhaps one year ago. That is what former colleagues of mine in the market tell me. We will need to be very careful to see what decisions Ulster Bank will make. I refer to the comments of the Chancellor of the Exchequer that Ulster Bank had to be propped up by the British Exchequer and that British banks should concentrate their business. We need to watch very carefully with regard to Ulster Bank's future in the Republic.
I agree that these are sensible amendments which are needed. I wish to put on the record of the House my opposition at the time to the pillar banks approach. I hope I am wrong and I hope we will see competition in the market because it is desperately needed.
I support the Minister's amendments. It will be extremely difficult to introduce competition into the Irish market in this way because the two pillar banks are so protected. We were doing the same for VHI for a long period and also for CIE and Aer Lingus. If outside investors see one or two companies being supported utterly and totally by the taxpayer, they will find it very difficult to put a proposition to their boards that they should enter the Irish market.
As other Senators said, Ulster Bank seems now to have been as irresponsible as any of the indigenous banks and the British taxpayer had to bear the burden for it. It is probable that Bank of Scotland Ireland was even more irresponsible than the others. The first understanding is that the British taxpayers will pay if any of these banks goes broke. We have been caught to pay for the Irish ones. Even then there is a downside risk because the first bank in this country to go belly-up was DEPFA. Much of the subsequent hostility of Germany towards Ireland was that DEPFA bank was not sufficiently regulated within the IFSC.
That cost the German taxpayer dearly. New banks are needed. As the other Bill before the House has in mind the separation of utility banking and casino banking, perhaps we might rebuild banking. The irresponsibility that took over Irish banks - Anglo Irish Bank, AIB and Irish Nationwide Building Society were appallingly unregulated businesses - has cost us dearly and left us in a most unsatisfactory position. So far our experience with foreign banks has not been good.
I wish the Minister of State well. Unfortunately, it will be a long time before any Member of the House feels the benefit of the new banks. Perhaps, in retrospect, the Industrial Credit Company had an expertise on which a completely property-based associated bank system was based and we have to try to recreate it, perhaps through the foreign banks the Minister of State mentioned. I know the Minister for Finance is keen to get his money back, as all of us are, but I no longer see the banks as entrepreneurial activities. They do not have the abilities, training or capabilities to do that work. Inventing new kinds of bank, on which the Minister was very keen the last day and which the Minister of State has mentioned again, will be the way forward. Bringing them in, as proposed in these two amendments, is an advance. Like other Senators, I wish the Minister well in these endeavours, but I would like to be much more optimistic that this will work as it deserves to. We need that expertise. As an alternative to pouring good money after bad, it is well worth exploring.
In the current edition of The Phoenix there is a downbeat assessment of where AIB stands as one of the pillar banks. I know the Minister is reasonably optimistic, but unless the corporate culture changes and the banks improve - we in this House would like to see evidence of this - I do not believe they will play much of a role in promoting the economy in the future. What the Bill has, therefore, is a very good set of amendments which I will support.
I thank all Senators for their contributions. It would be unfair to suggest the contributions, from all sides, have not been useful. In the discussion we have had on the sections they have been useful, specifically on these two amendments. Senator John Gilroy spoke about this. Equally, it is fair to say the Bill has been in gestation for some time and has been amended and changed significantly to take on board the issues the Opposition has raised. This is certainly not the Bill we started out with; it is, effectively, a completely new one and has been greatly strengthened as a result.
Much of our discussion has been about what happened in the past. There comes a time, however, when we have to talk about what is happening now and the future and where we see the economy growing. It is absolutely the case that there can only be a successful economy where there is a competitive banking model underpinning it. I always refer to the point that when we first came into office, had I been told at the end of December of that year we would own only 15% of Bank of Ireland, I would have asked for the chaps in the white coats to take me away because that would not have been possible. However, it did happen, which was an extraordinary boost of confidence in the new Government's ability to sell a substantial amount of Bank of Ireland to get it away into the private sector. We have seen the benefits that can accrue. I have no doubt that the reason sentiment in the country has changed is there is a view abroad that finally we have got our act together in banking, not only in terms of the new regulatory system to be established under the Bill but also in terms of the decisions we have taken on the pillar banks.
I concede, however, that the devil is in the detail and, more importantly, the delivery. We now have to deliver the things we said we would. I refer to the mortgage issue mentioned by a number of Senators. We have set very clear targets for what has to be achieved and must deliver on this and ensure it is done in terms of the Central Bank's dialogue with the individual banks concerned. Equally, when it comes to lending into the real economy, a commitment was given by the pillar banks to lend over a three year period more than €21 billion - as it were, a kind of Irish quantative easing. The banks were, effectively, stuffed with cash in order that they would lend into the real economy. It is a case of the chicken and the egg. In circumstances where people cannot get credit and appeal to the Credit Review Office the decisions in 60% of cases are overturned, which proves the system is working. Unless we are talking about a positive future and mindful of the mistakes we made in the past, we will not get the country to a better place and will certainly not get the banks to a better place.
There was a comment on the fact that Ulster Bank intended to close 41 branches. That is an unfortunate indication of where modern retail banking is going. It does not see its role to have large branch networks up and down the country. The advances made in Internet and online banking have meant banks can do things differently and deleverage their own systems, reduce their cost base and, in consequence, focus on their core business. The same applies to Ulster Bank, as it does to other banks, notwithstanding the difficulties this causes in communities, which I fully accept.
What we are getting at in both amendments is summed up in an awful modern phrase which I will use because it probably explains what I am trying to say - bespoke banking. I do not believe the banks that will come in, as Senator John Gilroy remarked, are going to be the large-scale, high street banks which will establish networks willy-nilly around the country. However, specific banks will come in that have specific market interests. For example, one of the things in which I am most interested is Islamic banking, which offers extraordinary opportunities. The Islamic banking model has been hugely successful. It deals with the issue of prudential risk, invests long term and does not go for the speculative property bubble, in the way many of our commercial banks did. There is now an opportunity for an Islamic bank to come to Ireland. There is also aviation finance - a big issue in Senator Darragh O'Brien's constituency - which is hugely important business for Ireland. We are a world leader in this regard and there is no reason we cannot make an opportunity for third country banks through the use of aviation finance. Third country banks could have the opportunity, by way of a bilateral arrangement, to come and use the existing network of banks and branches. That is provided for. Do I see this immediately as a new opportunity? I do not, but by the provision of these sections there is now the opportunity, if banks want to invest in this country. That has happened as a result of observations made in this House, on which I congratulate Senators. Senators might be feeling unloved in the current environment with Madame la Guillotine hanging around the place.
We are all right; do not worry.
However, on my own behalf and that of the Minister for Finance, I assure them the observations made in this House are always useful, constructive, positive and greatly help us to improve legislation that has already gone through the tumble dryer in the past 18 months or so. As a result, the legislation has been substantially improved in comparison to the Bill first proposed by the Government. We deeply appreciate the observations made in this and the other House that have improved the legislation.
In spite of the fine words, our great qualities will not be sufficient to save us.
Amendment agreed to.
Government amendment No. 6:
In page 76, to delete lines 34 to 38 and substitute the following:
(a) In paragraph (d) of the definition of “related body” substitute “Part 3 of the Central Bank (Supervision and Enforcement) Act 2013” for “Part 5 of the Central Bank Reform Act 2010”.
(b) Insert the following definition:
“ ‘European Banking Committee’ means the committee established pursuant to Commission Decision 2004/10/EC1;”.
In subsection (1) delete “on behalf of any other person”.
Insert “or authorisation under section 9A(2)” after “licence” in each place.
(a) In subsection (1) insert “and of the holders of authorisations under section 9A” after “licences”.
(b) In subsection (2)—
(i) insert “or authorisation under section 9A” after “licence”, and
(ii) insert “European Banking Committee” after “European Commission”.
(c) In subsection (3)—
(i) insert “and of the holders of authorisations under section 9A” after “licences”, and
(ii) insert the following after paragraph (d):
“(dd) the European Banking Committee;”.
(a) Insert “or authorisation under section 9A” after “licence” in each place.
(b) In subsection (1) insert “or holders of authorisations under section 9A” after “licence holders”.
Insert “or authorisation under section 9A” after “licence” in each place.
(a) In subsection (1)—
(i) insert “or authorisation under section 9A” after “a licence”, and
(ii) insert “or authorisation” after “the licence”.
(b) In subsection (2) insert “or authorisations under section 9A” after “licences”.
Insert “or authorisation under section 9A” after “licence” in each place.
Insert “or authorisation under section 9A” after “licence” in each place.
Insert “or authorisation under section 9A” after “licence” in each place.
Insert “or authorisation under section 9A” after “licence” in each place.
(a) In subsections (1), (2), (3) and (6) insert “or authorisation under section 9A” after “licence” in each place.
(b) In subsection (4) insert “or authorisations under section 9A” after “licences”.
In paragraph (a) insert “or authorisation under section 9A” after “licence”.
Insert “or authorisation under section 9A” after “licence”.
Insert “or authorisation under section 9A” after “licence” in each place.
Amendment agreed to.
Bill, as amended, received for final consideration and passed.
When is it proposed to sit again?