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Seanad Éireann debate -
Thursday, 12 Nov 2015

Vol. 243 No. 6

Finance (Miscellaneous Provisions) Bill 2015: Second Stage

Question proposed: "That the Bill be now read a Second Time."

I am pleased to present the Finance (Miscellaneous Provisions) Bill 2015 to this House. At the outset, it should be noted that this Bill is very much of a technical nature and is designed primarily to address certain national and international obligations arising from a number of issues associated with the EU financial services legislative and transposition agenda. There is also a technical amendment to the National Treasury Management Agency (Amendment) Act 2014.

There are five parts to the Bill. Part 1 - preliminary and general - covers sections 1 and 2, which are provisions of a standard and general nature. Part 2 - agreement on the transfer and mutualisation of contributions to the Single Resolution Fund - covers sections 3 to 5 and is necessary in order to enable the ratification of this intergovernmental agreement which is required to allow the Single Resolution Mechanism to operate. Part 3 - deposit guarantee scheme - covers sections 6 to 14 and involves a number of amendments to the Financial Services (Deposit Guarantee Scheme) Act 2009. These are necessary for two reasons: first, to put in place a transitional funding arrangement for the new deposit guarantee scheme contributory scheme in order to underpin it while its accompanying fund is being built up; and, second, to amend section 8 of the aforementioned Act in order to address ECB concerns regarding monetary financing in circumstances where the Exchequer is required to recoup the Central Bank where it contributes its own resources towards a deposit guarantee scheme compensation event. Part 4 - continuation of insurance regulations - covers sections 15 to 21 and the Schedule and is necessary in order to ensure the continuation of insurance regulation for companies outside the scope of the Solvency II directive, which is due to come into force at the start of 2016. This will apply only to insurance entities below a certain premium threshold or in wind-down. Part 5 - technical amendment to the National Treasury Management Agency (Amendment) Act 2014 - covers section 22 and is necessary in order to remove any potential ambiguity with regard to whether a directed investment made by the National Pension Reserve Fund Commission and subsequently transferred to the Irish Strategic Investment Fund, ISIF, pursuant to the National Treasury Management Agency (Amendment) Act 2014 remains a directed investment for the purposes of that Act.

I wish to emphasise the importance of an early completion of the passage of this Bill to enable implementation of significant elements of the EU financial services legislative agenda. This will underpin the stability of the financial system and increase the protections available for insurance policy holders, investors and depositors. In particular, I wish to highlight the need to ratify the intergovernmental agreement before 30 November 2015 as failure to do so would almost certainly lead to a delay in the implementation of the Single Resolution Mechanism.

I will now go into more detail on the main provisions of the Bill. The purpose of Part 2 is to enable the ratification of the intergovernmental agreement through the lodgment of the appropriate documentation with the general secretariat of the Council of the European Union. The intergovernmental agreement was negotiated in order to enable the Single Resolution Fund - a key element of the Single Resolution Mechanism - to be operationalised with effect from 1 January 2016. Its primary purpose is to transfer the contributions raised at national level, in accordance with the bank resolution and recovery directive and the Single Resolution Mechanism regulation, to the Single Resolution Fund and to facilitate a transition period of eight years to full mutualisation of the fund. It also prescribes how the Single Resolution Fund will operate during the transition period.

The agreement, which is relatively short at 16 articles, was negotiated to deal with a concern of certain member states that these changes could not be accommodated within the Single Resolution Mechanism regulation as, in their view, Article 114 of the Treaty on the Functioning of the European Union did not provide an appropriate legal basis to do so. Consequently, it was agreed that this issue should be dealt with through an intergovernmental agreement which would be formally ratified by each member state. The legislation covers just the core points of function of the Minister and the power to spend. The remaining commitments in the agreement are binding on the State at the state level and do not, therefore, require domestic legislation to give effect to them.

I would like to say a few words about the Single Resolution Mechanism in order to give Senators a sense of the importance of this intergovernmental agreement. In this regard, the Single Resolution Mechanism is the second pillar of the banking union and will ensure that if a bank subject to the Single Supervisory Mechanism, SSM, faces serious difficulties, its resolution will be managed efficiently with minimal costs to taxpayers and the real economy through a single resolution board and a Single Resolution Fund financed by levies imposed on the banking sector.

What this means in practice is that should any of our four major banks get into financial trouble, the decision about putting it into resolution will be made by the single resolution board rather than our domestic resolution authority. In addition, where bail-in of shareholders, capital instruments and eligible liabilities is insufficient to cover losses of the bank in question, there will be access to funds from the Single Resolution Fund. This will contribute to breaking the link between banks and the sovereign, something I know Senators on all sides of this House would like to see, and should help avoid a repeat of many of the issues faced by countries during the recent deep financial crisis. It should be noted that the target level for the Single Resolution Fund is at least 1% of the amount of covered deposits of all credit institutions authorised in all of the participating member states, which is to be reached at the end of eight years. This is estimated to be in the region of €55 billion. We estimate that the contribution of Irish banks to the Single Resolution Fund will be €1.8 billion over the eight years, which amounts to approximately €225 million a year. The contribution of international banks to this overall total is likely to be significant - in the region of at least 50%. Unfortunately, it is not possible to be more precise on this matter at this stage.

On the question as to whether a fund of €55 billion is sufficient, it should be noted that at the time of the negotiation of the Single Resolution Mechanism regulation, there was considerable discussion around this issue. However, the general view that emerged was that much of the losses of a bank should be covered by the bail-in of shareholders and creditors in line with the general philosophy underpinning the Single Resolution Mechanism regulation and the bank recovery and resolution directive. In this regard, a contribution to loss absorption and recapitalisation equal to an amount of not less than 8% of the total liabilities, including own funds of the institution under resolution, measured at the time of the resolution action, must be used before the Single Resolution Fund can contribute. This is a significant contribution to loss absorption and should in many instances mean that the use of the fund will not be needed. Therefore, in this context, the view of most member states was that a fund of €55 billion struck an appropriate balance between the need to establish a credible and effective fund while at the same time not overburdening the banking sector from a contribution perspective.

As mentioned at the outset, the purpose of Part 3 is twofold - first, to put in place a transitional funding arrangement in order to underpin the new deposit guarantee scheme while its accompanying fund is being built up; and, second, to amend section 8 of the Financial Services (Deposit Guarantee Scheme) Act 2009 in order to address ECB concerns regarding monetary financing in circumstances where the Exchequer is required to recoup the Central Bank where it contributes its own resources towards a deposit guarantee scheme compensation event.

The transitional funding arrangement is covered by sections 6 to 11, inclusive. Their primary purpose is to create a new legacy fund into which an amount equal to 0.2% of covered deposits of credit institutions will be transferred from the existing deposit guarantee fund known as the deposit protection account, and to establish under what circumstances money can be paid out from this new fund. The background to this proposal is the transposition of the DGS directive which is proceeding in parallel to this legislation. The directive will change the nature of our deposit guarantee funding arrangements from what is currently a ring-fenced deposit held by credit institutions in the Central Bank to a contributory fund. The difference in approach is significant and without this legislation we would be required to return all the deposits in the deposit protection account to credit institutions. The legacy fund is therefore necessary to ensure that we continue to have access to an adequate level of alternative funding during the period the new contributory fund is being built up.

The key sections for the transitional funding arrangement are as follows. Section 8 - amendment of section 3 of Act of 2009 - amends section 3 of the Financial Services (Deposit Guarantee Scheme) Act 2009 by providing for the establishment by the Central Bank of a new legacy fund to which I have referred. Section 9 - amount to be maintained in deposit protection account - amends the Financial Services (Deposit Guarantee Scheme) Act 2009, by replacing the existing section 4. It provides that a credit institution shall not carry out the business of such a body unless it has transferred 0.2% of covered deposits from the deposit protection account to the legacy fund on a date determined by the Central Bank.

Section 10 - order of payments - provides for the insertion of two new sections, 5A and 5B, into the Financial Services (Deposit Guarantee Scheme) Act 2009. The purpose of section 5A is to set out the order of payments in the event of a deposit guarantee scheme compensation event arising, to ensure a level playing field between existing credit institutions and new entrants to the market, and to provide that the amount a credit institution holds in the legacy fund is reduced on a yearly basis by its annual contribution to the contributory fund. The purpose of section 5B is to provide a basis for the return of legacy fund deposits, where there is any remaining, after three years to a credit institution which has ceased to carry on business.

Section 11 - charges on deposit protection account, etc. - amends the Financial Services (Deposit Guarantee Scheme) Act 2009, by replacing the existing section 6. It provides that any deposits by credit institutions in the legacy fund are protected from charges being placed upon them other than by the Central Bank.

There are two aspects to the amendment of section 8 of the Financial Services (Deposit Guarantee Scheme) Act 2009. The first involves a reduction in the time period from three months to two weeks within which the Central Bank is recouped by the Exchequer in the event that it contributes its own resources towards a deposit guarantee scheme compensation event. The second involves the deletion of the words "with the approval of the Minister" for such recoupment. These changes are covered by section 12. The background to these changes is a result of an initial advice from the Central Bank which indicated that the ECB was unhappy with the length of time for recoupment of three months. Consequently, this change was made in the first draft of the Bill, and in the interim, the Minister sought a formal opinion from the ECB on this article. In response, the ECB confirmed that the two week period for recoupment was satisfactory, however it pointed out that as the purpose of this provision is to reimburse the Central Bank for short-term loans it has provided to the DGS, the repayment from the Exchequer has to be automatic in order to comply with the prohibition on monetary financing as outlined in Article 123 of the Lisbon treaty. Consequently it suggested that the words "with the approval of the Minister" be deleted from article 8. As a result of this opinion, the Minister for Finance moved an amendment to delete these words on Committee Stage in the Dáil, as he is of the view that he could not proceed with legislation which would otherwise be in contravention of EU law.

In regard to Part 3, members should note that section 13 provides for the insertion of a new section, 8E, into the Financial Services (Deposit Guarantee Scheme) Act 2009. Its purpose is to enable the return of any money recovered by the deposit protection account to credit institutions after the coming into force of this Bill which results from a successful claim by the Central Bank against credit institutions or their liquidators which had commenced prior to its enactment. This provision is necessary, because credit institutions will at this stage be holding their requisite balance of 0.2% of covered deposits in the newly established legacy fund, and will therefore not owe it any more money.

Part 4 - continuation of insurance regulations, sections 15 to 21, inclusive - is for the purpose of establishing a regulatory regime for insurance undertakings that will be outside of the scope of the Solvency II directive. The directive excludes certain undertakings based either on size - small insurance undertakings below a certain insurance premium threshold - or on the basis that they will have wound down their operation in advance of 1 January 2019. It is essential that we maintain the current regulatory regime for such undertakings so as to ensure that there are no unregulated insurance undertakings in the State from 1 January 2016, when the Solvency II regime comes into effect. As the current regulatory regime is governed by EU directives that are to be repealed by the Solvency II directive, continuation of that regime can only be done by primary legislation.

The key sections are as follows. Section 16 deals with the continuation of certain regulations. The Solvency II directive repeals a number of EU directives relating to insurance and reinsurance. Section 16 continues in force the regulations transposing those repealed directives in respect of the undertakings excluded from the scope of Solvency II. Section 17 - portfolio transfers - ensures continuity and ease of reference, the provisions in the Solvency II directive governing portfolio transfers will also apply to the relevant undertakings covered by this Bill.

The Schedule lists all the revocations to be carried out in terms of the current regulations as all or parts of those regulations are no longer necessary. Part 5 is a technical amendment to the definition of a "directed investment" at section 37 of the National Treasury Management Agency (Amendment) Act 2014. Paragraph 22 of Part 6 of Schedule 4 of the National Treasury Management Agency (Amendment) Act 2014 provides that any direction given to the National Pension Reserve Fund Commission under sections 19A, 19AA or 19B of the National Pension Reserve Fund Act 2000 before the Ireland Strategic Investment Fund constitution date shall have effect on or after that date, until revoked, as if given to the National Treasury Management Agency under section 42, 47(4)(b) or (c) or 43 of the National Treasury Management Agency (Amendment) Act 2014, respectively. Section 37(a) of the NTMA (Amendment) Act 2014 provides that a "directed investment" means an investment made by the National Treasury Management Agency pursuant to a direction under section 42 or 47(4)(b) or the proceeds held by the National Treasury Management Agency pursuant to a direction under section 47(4)(c).

A potential ambiguity has been identified as to whether investments of the National Pension Reserve Fund Commission, which were directed investments at the time they were made and at the time of their transfer into the Ireland Strategic Investment Fund, are captured by the definition of "directed investments" at section 37 of the NTMA (Amendment) Act 2014. The amendment clarifies that "directed investments" made by the National Pension Reserve Fund Commission and subsequently transferred to the Irish Strategic Investment Fund by the NTMA (Amendment) Act 2014 are "directed investments" for the purposes of that Act.

While the Bill is technical in nature it is very important to provide for its swift passage in order to ensure the implementation of a significant portion of the EU financial services legislative agenda, which will result in increased protections for insurance policyholders, depositors and investors. We in this country, of all member states, know only too well the importance of putting such safeguards and protections in place for our citizens and for our financial services and for the stability of the country. I am also particularly keen that we ratify the IGA as soon as possible. This is an issue which Europe and the markets are watching closely and failure to ratify could have a negative impact on the wider banking union project.

I commend the Bill to the House.

I thank the Minister of State for his attendance. I wish to raise two issues which are dear to my heart. First, the capital gains tax relief regime is not competitive with the UK. The extension of capital gains tax relief is restricted to the first €1 million of gains. By contrast, the UK has a simpler, clearer and more attractive relief which applies a flat 10% rate to entrepreneurial gains of up to £10 million sterling. The £10 million sterling relief has increased threefold since the relief was first introduced. This was done by the British Government because it had a significant brain drain of potential entrepreneurs leaving the country for Australia and other countries. It got its act together and introduced entrepreneurial relief.

A number of other issues arise. An individual may hold shares directly in a company which engaged in a business or may hold shares in a holding company which in turn holds shares in companies engaged in business. The definition of a holding company, as currently drafted, is restrictive compared to the UK regime.

Entrepreneurs who are using a holding company structure are unlikely to be able to avail of this relief. The requirement that an entrepreneur is a full-time working director is very restrictive and would exclude entrepreneurs who have an interest in more than one company. There is no full-time requirement in the UK. The restriction that in order to qualify, shares are not listed on official lists of exchanges is an unnecessary limitation on the commercial freedom of a company in respect of whether to list its shares.

The Minister, Deputy Bruton, states constantly that he wants Ireland to be the global centre of start-ups, yet he is letting the Department of Finance dictate the way business is done. I am not being personal about the officials who are here today. The Bill, which is being delivered by officials in the Department of Finance, penalises start-ups. The Department of Enterprise, Jobs and Innovation has let the Department of Finance walk all over it. It is no wonder therefore that we have missed out on a massive business opportunity like the Web Summit. The Government clearly has not communicated or liaised with those who try to develop start-up businesses. Paddy Cosgrave, the founder of the Web Summit, summed up the situation well when he said:

I have absolutely no record of a single Irish Minister ever meeting a single high-level delegate. Last year the British Government sent a Minister here for two days. He didn't look for photo opportunities beside Enterprise Ireland or the equivalent of IDA stands.

Instead, like a good Brit, that Minister spent his time talking to people where he could do business and grow his business in the UK and create employment. There is an incredible gap between Department of Enterprise, Jobs and Innovation officials and those at the Department of Finance. I apologise but I am not being personal, I am just talking as an entrepreneur on behalf of business people. We are not at the races despite all the action plans for jobs, of which we have had more talk today. It is businesses that create jobs. This finance Bill does not go far enough, in contrast to the UK.

The other issue which is dear to my heart is that of inheritance tax. My proposals are as follows: to increase the threshold from the current €225,000 to €500,000, which was the 2008 level; cut the tax from 33% to 20%, the 2000 rate; and give a further 12 months to pay the tax instead of having to raise the money by October in the year of inheritance.

Over 1,000 people, mainly from south Dublin, signed a petition in favour of my proposals. They presented it at the Department of Finance on 30 September. In his Budget Statement, the Minister, Deputy Noonan, recognised there was an issue with inheritance tax, yet his concession of an increase in the threshold from €225,000 to €280,000 can only be described as miserly and minimal. With this so-called concession, the Department of Finance expects to collect even more next year from inheritance tax - a massive €375 million, up €5 million on the expected receipts for this year.

The underlying issue is that the inheritance tax is not taken seriously at Government level. Although in most parts of the country house prices are still low, prices in south County Dublin now average €520,000. That compares with €225,000 in Cork city, €223,000 in Galway city and €144,000 in Limerick city according to the daft.ie third quarterly report. No wonder inheritance tax is not an issue in these other cities. It is a real live issue for families in south County Dublin.

I think somebody gave Senator White the wrong speech on the wrong legislation as it was not relevant to any of this. I am glad Senator Barrett is here. We are about to head back to the windowless room next week.

My issue is with the amount of money in the €55 billion fund. I understand about the bail-in of shareholders and the other forms of money and other kinds of requests that will come before the fund is accessed. Given the number of institutions concerned, however, the amount seems very small. Myself and Senator Barrett looked at the information that was given to the former Taoiseach and former Minister for Finance on the night of the bank guarantee. They were told the cost to the Exchequer would be €4 billion but it was €64 billion. I hope that the amount of €55 billion is not as incorrect, by multiples, as that estimate was.

Another serious miscalculation was made by others in the Department of Finance or somewhere else, who were advising the previous Administration on NAMA. The Minister informed both Houses that the writedown on the loan book of €74 billion would be 25% but it was 58%. Again they were wrong by multiples. I use the term "wrong" and have stopped using "inaccurate" because that would suggest they were somewhere close to the figure.

I do not expect the Minister of State to respond to my concerns now. Perhaps on another Stage he could provide a more detailed note on how the figure of €55 billion was reached. I would be more comfortable if it was €550 billion.

I echo Senator D'Arcy's welcome to the Minister of State, Deputy Harris. I thank his officials for the speech which they supplied to us.

The first segment, as the Minister of State has said, contains the measures to deal with the single revolution - I am sorry - the Single Resolution Mechanism. It nearly became a single revolution mechanism when we were trying to perform the rescues a number of years ago, as Senator D'Arcy, myself and others are investigating. The mechanism is about 20 years too late. There should be a resolution mechanism and a rescue mechanism when a currency is launched.

I will accept any apologies which are unlikely to come from either Brussels or Frankfurt for doing things in such a hamfisted way, for which this country has paid the price. I heard Mr. Draghi respond to the Irish MEPs. I said earlier, during the Order of Business, that he sounded like a recruiting sergeant for euroscepticism. He has not really grasped that his duties are on behalf of the taxpayers and citizens of Europe. He put a limit of 15 minutes on the three Irish MEPs. By contrast, the Minister of State has been here well over an hour at this stage; we do not carry out our public business that way.

Mr. Trichet's statement to the Minister, Deputy Noonan, which he gave in evidence to the banking inquiry, that were the bondholders to be burned "a bomb will go off in Dublin", was also unacceptable. So was his conduct at the Royal Hospital Kilmainham. We still have a democracy here and the Minister of State is one of the shining examples of it.

The loss of the interest rate and exchange rate was a huge change to our banking system. The Bank of Ireland, with all its faults, had been there since Grattan's Parliament, since 1783. It took until the advent of the euro currency for it to go broke and then present the bill to Irish taxpayers, and it wiped out its own shareholders as well.

I sometimes think that neither Mr. Trichet nor Mr. Draghi realise the damage they did to this country. Better late than never that they are now coming up with mechanisms to deal with that problem. I note that some of them are somewhat delayed. The single resolution fund will not be self-financing until 2024. I accept the advice of the Minister of State that the 30 November deadline should not be obstructed by anybody in this House. It really has taken them an awful long time to get to the correct regulation of banking, however.

The design faults of the euro, which they continue to ignore, and for which they blame Ministers or people in countries like Greece, show that their performance in Brussels and Frankfurt is not good enough. It is no use turning up this late to remedy faults in the currency without a sign of regret or apology on their side. They are seriously undermining the European project in the way this exercise has been conducted.

With regard to the deposit guarantee scheme, Senator Michael D'Arcy noted that if the cost to us was €64 billion, a fund of €55 billion might not be enough. That will remain to be determined by negotiations. In the briefing notes, the Minister of State mentioned the correct interval for the transfer from the Government to the Central Bank under that scheme. I think the notes suggested that one week was the acceptable period but, whatever amendment occurs to the Minister of State, I believe we will facilitate it.

On the continuation of insurance regulations, we have just discussed this on the Order of Business. There are a number of aspects to it, for example, the moral hazard involved when banks and credit unions are included together, and insurance companies are grouped together. We have a record in Ireland of always bailing out insurance companies at the cost of the customers of the companies that did not behave recklessly. It goes through a list - Quinn, PMPA, ICI and, latterly, Setanta, which is a really peculiar case. It was a company in Malta for which, mysteriously, we turn out to be responsible. When will insurance companies ever reform if they know they are going to be bailed out when they go broke by companies which have not yet gone broke?

One also has to add the concerns expressed earlier by Senator Kelly in regard to increases of 30%, 40% and 50% in insurance premiums. We need the Motor Insurance Advisory Board back and we certainly need much stricter regulation of insurance companies. How can we have a situation where inflation has been taken out of the system and where huge increases in premiums are happening? With regard to health insurance, for quite a long time premiums were being increased by a very high annual percentage because the State owned a health insurance company, VHI, and it had to make that company viable. I did not see much interest in controlling costs on behalf of the consumer.

Insurance regulation in Ireland leaves much to be desired and there is much popular dissatisfaction out there. We need that to be dealt with and put on a sounder footing because the current performance of the industry is not acceptable, and the policy of bailing out companies which go broke by levies on consumers who buy insurance from other solvent insurance companies is not a correct one and is riddled with moral hazard.

I turn now to the question of directed investment as outlined by the Minister of State. I would make the contrary case that we should be getting away from directed investment. All the evidence heard by Senators D'Arcy and O'Keeffe, and the other members of the inquiry, is that the NTMA saw what was happening in Anglo Irish Bank and said it would not put the National Pensions Reserve Fund into this bank, and it was then directed to do it. That power of direction remains. Surely the correct approach is that if at least somebody sees that an investment is not a good place to put the National Pensions Reserve Fund, and he or she tells the Minister, the Minister should respect that view and cease directing people to put investments into suspect vehicles for that investment, Anglo Irish Bank being the classic one. Therefore, is it a good idea to extend that power now, given that, of all the public bodies we have looked at in regard to the collapse of the Irish banking system, the NTMA was right? This section will remove any ambiguity so a Minister can say, "Even though you do not think it is a good investment, I am now telling you to put public money into this company." It seems a strange lesson to take from what we have been working on.

As always, I thank the Minister of State for raising so many interesting issues and for the speech, which I will peruse at leisure. I wish him well in this endeavour, which raises very important questions. None of us, throughout the House, want a repeat of what happened with the collapse of Irish banking.

I welcome the Minister of State to the House. I agree with Senators Barrett and Michael D'Arcy on two points. First, as Senator Barrett said, it is too little, too late. The Irish people are paying the price for the failure to have a mechanism like this and we will continue to pay the price of that failure. No amount of legislation is going to change that, as far as I can see. I agree with Senator D'Arcy that one really has to wonder about the amount of money involved. The latest estimate I have seen is that €35 billion will be the ultimate cost to the Irish taxpayer of bailing out our banks, and that is on a good day and assumes we will get AIB back onto the market and do this, that and the other thing. There is a real issue here about whether the size of the fund is adequate.

Banking union, which is what this legislation is effectively about, has three components or pillars. The first pillar is the supervision mechanism, the second pillar, which is what we are here to talk about today, is the resolution mechanism, and, of course, the third pillar is the deposit guarantee scheme. There are 124 banks in the European Union that are subject to regulation by the European Central Bank. Where do we stand at the moment in terms of those 124 banks? How many of those 124 banks have failed to reach the requirements that have been put on them through the Single Supervisory Mechanism, SSM? Of those banks that have failed to reach the targets, do we have any idea what a failure in regard to any of those banks would cost the European Union? That is my first question.

My second question is this. Obviously, this is about creating a common pool of money that will allow for the efficient resolution of the collapse of a financial institution. I am aware there are other mechanisms in place and a recovery planning process for individual banks that fail to reach the standards, and so forth. One issues of concern is that, when a bank is in the recovery stage, it is the bank's funds that pay for the recovery process. How do we take a bank that is failing and ask it to pay for its own recovery process?

The SRF will have an eight-year horizon. It will have a fund of €55 billion and it can borrow from the markets, as I understand it. This is being front-loaded into years one and two - 40% and 20% - and the remaining 40% will be mutualised in instalments over the remaining six years. Does the Minister of State think that an adequate process? Is it a realistic horizon? Why are we front-loading and then allowing it to drift off for another six years? I understand the contributions are going to be adjusted in proportion to the risk profile of each institution and that there will be a common backstop to facilitate borrowings. Will the Minister of State explain this further?

Some questions remain. One debate that is ongoing in Ireland at the moment, and which is very relevant to the Irish people, is the whole issue of Brexit. As we know, the Taoiseach came out very recently expressing serious concerns over the prospect for Ireland of a British exit from the European Union.

As Members are aware, the United Kingdom remains committed to not participating in a banking union for any of its institutions and given its proximity to Ireland - I refer specifically to the City - how does the Minister of State think the United Kingdom's unwillingness to participate in banking union will affect the Irish financial sector in the future? Obviously, there are banks operating in Ireland that are subsidiaries of UK commercial operations. Does the Single Resolution Fund, SRF, have an impact on any of these entities in respect of the future resolution needs and how does the Minister of State believe this will play out for Ireland in practice? There is a general uncertainty about the balance between the national and European sources of funding in the case of a future bank crisis resolution. The Minister of State might go into further detail about the sequence of steps that will take place in the event of a bank or financial institution being obliged to enter into the resolution process.

I will conclude by making the point that the intergovernmental agreement was only established because several member states had expressed serious reservations about the legal status of transferring contributions from national resolution structures to the Single Resolution Mechanism. Is the Minister of State confident the legal concerns have been addressed adequately by this legislation both in Ireland and obviously at a broader European level?

Together with other Senators, I welcome the Minister of State to the House and I will try to be brief in my comments. As stated previously, this miscellaneous provisions Bill is a mishmash of a few different issues all in one and I will deal with each element in turn.

First, in respect of the Single Resolution Mechanism, all Members are aware it has been considerably more than half a decade since the banking crisis that had such a profound and catastrophic impact on Ireland. A recent European Central Bank, ECB, study highlighted how Ireland experienced the greatest drop in wealth of any eurozone country.

Since the financial crash, Members have been warned that Europe needed to act and that new banking laws and regimes would follow swiftly. Nevertheless, it is now approaching the end of 2015 and Members are still debating that new regime. However, in the view of Sinn Féin, recent years have seen a watering-down of the concept of a banking union designed to separate the link between banking and sovereign debt and as the Minister of State is aware, when the final vote was taken in the European Parliament my party did not support the diluted proposal.

This action was taken because Sinn Féin believes the taxpayer has not ended up being sheltered from another catastrophe and does not consider the new banking union to be a break from the past. During the first eight years, the national compartments in the fund will be the first port of call and it is only after this that the bail-in will happen.

During the debate on the fiscal treaty, much was made of the existence of the European Stability Mechanism, ESM, and it was heralded that it would help us to get some of our money back in the spirit of the new times. However, one does not really hear much about that use for the ESM nowadays and as this legislation shows, even in its primary purpose as a recapitalisation tool, it is not designed ever to be called upon.

Ten months also have passed since the option of applying for retrospective recapitalisation became available and the excellent report from the Comptroller and Auditor General puts the net cost of the banking crisis at approximately €43 billion as of the end of last year. As Members are aware, it is in the power of the Government to apply for this retrospective recapitalisation of the pillar banks but it is unfortunate this has not yet happened. This is one point that will stick in people's minds over the next couple of months, particularly as it was heralded as a game-changer and a seismic shift.

To turn to the deposit guarantee scheme, as the Minister of State said, the second Part of the Bill is to put in place a regime for the deposit guarantee scheme. At present, the deposit protection account holds €370 million, which is available for calls under that scheme and the plan is to hand €200 million of this amount back to the banks and other financial institutions, while the remaining €170 million will form part of a new legacy fund and this sum will cover contributions of the financial institutions for the first two years. Rather than some sort of new policy, for many banks this change in the short term will be a financial return. Furthermore, I wish to ascertain whether the credit union movement is expected to contribute to the deposit guarantee scheme and genuine consideration should be given to its arguments to contribute at a lower rate.

The section on insurance and continuance of regulation allows for the continuation of regulation of small insurance companies and those that are winding down. When Sinn Féin had first sight of this Bill in its own right in the legislative programme last year, my colleague, Deputy Pearse Doherty, and others were hopeful it was an antidote to the issues that arose with Setanta Insurance. There was disappointment this was not the case but the latest twist in the story is the Motor Insurance Bureau of Ireland is appealing the High Court ruling that it is liable for third-party claims at Setanta. This again has left the claimants in limbo, as they have been for many months, and this issue should be brought to a successful conclusion for the claimants as soon as possible.

The final element of the Bill is the amendment to the National Treasury Management Agency (Amendment) Act and it is clear this amendment has a single purpose, which essentially is to make it easier to sell AIB. This year, the State received €280 million in dividends from its shares in AIB, as well as €160 million in interest on its contingent convertible, CoCo, shares. Moreover, it will receive a further €160 million next year, plus redemption capital of €1.6 billion. I am aware that despite the spin suggesting otherwise, AIB is a long way from repaying the Irish people. Moreover, when speaking to the banking inquiry, the former National Treasury Management Agency, NTMA, chief executive and current AIB director, Dr. Michael Somers, essentially poured cold water on the idea of a gradual sale of AIB and suggested it could be more beneficial to the State to receive the annual dividends from a now-profitable AIB.

The Minister, Deputy Noonan, has also stated he will not sell the ordinary shares before the election, which I welcome, but there is no strategic, coherent vision of how to use our banking assets. It appears as though there is only a vague vision in this regard, which is to sell back to private investors what essentially cost us billions of euro. It is now time for strategic thinking on the role of AIB in the economy. It is a valuable State asset and influence should be brought to bear on it. While Sinn Féin is happy to allow this Bill proceed to the next Stage, it has concerns its Members have outlined both here and in the other House and we hope they will be addressed.

I thank Senators for their contributions and constructive engagement with this Bill. I look forward to a more detailed consideration of the provisions on Committee Stage and will revert directly to Members on some of the detailed questions posed during the Second Stage debate.

This Bill is designed principally to facilitate the implementation of the EU financial services agenda. It is important to note this intergovernmental agreement to which Members have made reference throughout this debate obviously was negotiated as there was a need to establish the Single Resolution Fund. It was signed on 25 May and a Government decision taken on 13 May 2014 approved that course of action.

As Members are aware, banking union probably has been the most high-profile EU legislative issue in recent years. I agree with those Senators who made the point that, effectively, we are retrofitting a currency with provisions and safeguards but there is a duty on those who find themselves in these positions at these times to take every course of action possible to ensure there are as many safeguards and protections in place for the citizens and for financial stability as possible. Banking union was seen as a necessary response to the financial crisis and its purpose is to put in place a more integrated and harmonised supervisory and resolution regime for the euro area banking sector.

At this stage, progress on the creation of a European banking union is at an advanced stage. The ECB took over its supervisory role in November last year and is working closely with national authorities to ensure that banks comply with the EU banking legislation. This was an important first step on the road to a banking union, as centralised supervision should ensure a high level of independence and objectivity and will help to rebuild trust and confidence in the European banking sector.

As for the valid question posed by Senator Hayden in respect of the 124 banks, it is more a matter for the regulatory structures but I will get that information for the Senator and revert to her directly in this regard. The next step was to ensure that if a bank gets into trouble, there are appropriate tools and powers to manage the failure in an orderly manner. In this regard, it was agreed that a Single Resolution Mechanism, SRM, would be established for this purpose. This should ensure an effective European response where a bank finds itself in serious difficulties. However, as the Minister, Deputy Noonan, has already noted, for the Single Resolution Mechanism to be made operational it is necessary to ratify this intergovernmental agreement to the Single Resolution Mechanism and to lodge the necessary documentation with the European Union by 30 November. The importance of completing this process on time cannot be underestimated and I welcome the support from Senators on all sides in this regard.

The rationale behind the main amendment to the Financial Services (Deposit Guarantee Scheme) Act 2009 seems to me to be clear. Its purpose is to ensure the scheme continues to have access to a reasonable level of resources as we move from the old regime to the new rules under Directive 2014/49/EU which are currently being transposed.

That is important from a confidence perspective as, while the likelihood of the fund being used is quite small, it provides an important reassurance to depositors that DGS funding is available if needed, as has been demonstrated in the cases of IBRC and Berehaven credit union.

In my opening speech, I made clear why we need to legislate for insurance continuation provisions, as in their absence, there would be no regulatory regime for insurance undertakings outside the scope of the Solvency II directive. There will be an appreciation in the Seanad that with the difficulties we have had with insurance companies in the past, to which Senators have referred, this legislation is essential in order to protect the position of policyholders.

The amendment to the National Treasury Management Agency (Amendment) Act 2014 is a technical amendment to remove any potential ambiguity from existing legislation and, therefore, from a substance perspective is not designed to change the underlying intention behind the original provision. A number of Senators, including Senators Michael D'Arcy, Hayden and Barrett, raised the sufficiency of the €55 billion. At the time of negotiation of the Single Resolution Mechanism regulation at European level, there was considerable discussion on this issue but the general view emerged from member states that much of the losses of the bank should be covered by the bail in of shareholders and creditors in line with the general philosophy underpinning the Single Resolution Mechanism regulation and the bank recovery and resolution directive. In that regard, a contribution to loss absorption and recapitalisation equal to an amount of not less than 8% of the total liabilities, including own funds of the institution under resolution measured at the time of the resolution action, must be used before the Single Resolution Fund can contribute. This in itself is a significant contribution to loss absorption and should, in many cases, mean that the fund in itself may not be required. Therefore, in this context the view of most member states was that a fund of €55 billion struck an appropriate balance between the need to establish a credible and effective fund while at the same time not overburdening the sector from a contribution perspective.

In terms of safeguards to ensure the lessons have been learnt from the past in relation to the regulation of insurance companies in this country, it should be noted that the underlying framework will be strengthened with the introduction of the Solvency II directive from 1 January next year. This system will be much more risk sensitive and demanding, with increased capital requirements which will be unified across all member states. The role of supervisory authorities will be significantly enhanced, including provision for more co-operation between member states and it should make previous scenarios less likely. In addition, since the issue with Setanta arose, the Central Bank has enhanced its market intelligence on freedom of services firms and will maintain regular contact with the regulators of those insurance firms with whom it has concerns. The Central Bank will also conduct more on-site inspections of intermediaries and managing general agencies who distribute products underwritten by FOS insurers.

In relation to retrospective recapitalisation, I wish to knock this issue on the head. While retrospective recapitalisation is potentially available as a tool for the Government to seek, it seems to me rather foolish that we would apply to sell a stake in a bank to one body, albeit this European body, when we now, thanks to the recovering economy and the position we find ourselves in this country, have an opportunity to sell those same stakes to a more competitive market where there may be more potential buyers.

I was asked what is the strategic vision of the Minister, Deputy Noonan, for AIB. It is very simple; to get every cent of taxpayers' money that was put into the bank back out of it and back to the taxpayers. If anyone thinks we should have a more lofty strategic vision, I would be interested to hear it but that is what my constituents and most citizens in this country want us to do, namely, get the money back that was put into AIB. That is what the Minister, Deputy Noonan, will do.

Advice is being sought in the Department of Finance and the process has nothing to do with electoral cycles. It will be done at an appropriate time and in the appropriate way to maximise the return for the taxpayer. We believe we now have a plan in place to get every cent of public funds that were put into AIB and other banks back over time, with the exception of Anglo Irish Bank and Irish Nationwide Building Society.

In response to the question on why demutualisation should take place over eight years, this was a political agreement that 60% of demutualisation should occur by the end of year two, with the balance occurring evenly over the remaining six years. What this means, therefore, is that the mutualised element of the fund makes a very significant contribution to the funding of resolution should that need arise within two years of commencement. That was the decision made at the time.

Reference was also made to the deposit guarantee scheme. In addition, a banking union deposit guarantee scheme is ultimately required if we want to complete banking union. The Commission is expected to present a proposal for such a deposit guarantee scheme before the end of the year. We will await the details of this scheme.

I hope there will be an opportunity to discuss the other matters raised by Senators as the Bill continues its progress through the Seanad. I thank Senators for their contributions and assure them that the Minister for Finance will give careful consideration to all the issues raised before we take the next Stage in this House. I commend the Bill to the House.

Question put and agreed to.

When is it proposed to take Committee Stage?

Is that agreed? Agreed.

Committee Stage ordered for Tuesday, 17 November 2015.

When is it proposed to sit again?

Next Tuesday at 2.30 p.m.

The Seanad adjourned at 1.45 p.m. until 2.30 p.m. on Tuesday, 17 November 2015.
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