I welcome the Minister of State at the Department of Finance, Deputy Cullen, and his officials to the meeting. I suggest we consider the Bill until 6 p.m. If we have not concluded our consideration of it by then, a further meeting will be arranged by agreement.
Assets Covered Securities Bill, 2001: Committee Stage.
I wish to make a short opening statement. It might also be helpful to respond directly to some of the remarks made on Second Stage because I did not have time to do so in the House. Should I proceed, Chairman?
That is fine.
Time was short on Second Stage and I did not have the opportunity to respond fully to some of the points raised by Deputies McGrath and McDowell. I would like to address these issues before going on to the main proceedings.
Deputy McGrath raised the cost of mortgages. The main factor influencing cost to consumers is competition in the market, of which I am totally in favour. However, I want to ensure that the domestic mortgage sector is well equipped to compete. Specifically, we need to ensure that domestic institutions are enabled to raise funds on terms similar to foreign institutions, who are in a position to raise capital through the issue of their own mortgage covered securities. The Bill will remove the structural disadvantage that could otherwise affect Irish capital markets through the undercutting by foreign financial intermediaries of the rates offered by their Irish counterparts. It should also, through the long-term financing it offers institutions, facilitate the introduction of more attractive and longer term fixed rate mortgages which will provide greater security for borrowers.
Among other things, the legislation provides that the rights of building society members whose mortgages are securetised are to remain unaffected by these securitisations. Deputy McDowell mentioned that already there has been some mortgage securitisation in Ireland, including by the building societies, and raised the question of the effect of these securitisations on the rights of members. The position currently is that the Building Societies Act, 1989, which is the governing legislation, is silent on the implications of securitisation for building society members. However, in previous securitisations, the rights of borrowing members have been unaffected. For example, when one building society, First National, demutualised, becoming First Active PLC, the rights of borrowing members were not impacted on by securitisations which had taken place prior to the conversion, that is, members whose housing loans had been transferred retained their voting rights and entitlement to any resultant windfall payment. This is the way in which borrowing members of remaining neutralised societies are also treated. The provisions in this legislation, which amend the Building Societies Act, 1989, and confirm that members' rights are unaffected, are for the avoidance of any possible doubt rather than to correct a situation where members are unilaterally deprived of their rights. These amendments were specifically sought by the building societies themselves.
Deputy McDowell also raised the issue of the inclusion of substitution assets and cover assets pools. The inclusion of substitution assets is vital to the success of the product. It should be remembered that substitution assets are very secure. Their inclusion in the pools confer three particular assets: they provide for diversification of the cover assets pool; they increase the liquidity of the cover asset pool, which is very important; and they ensure that there will always be a ready pool of assets to be placed - mortgage credit assets or public credit assets which have to be removed from the pools. In addition, the inclusion of substitution assets in the pools has been discussed in detail with the rating agencies, which are satisfied that the proposed Bill strikes the correct balance between caution and flexibility in this area.
The Bill is conservative regarding the holding of assets in OECD countries outside the EEA and the G7. Such assets may comprise no more than 10% of a designated credit institution's balance sheet unless a ministerial order is made increasing this percentage. Furthermore, these assets may not be included in cover asset pools. However, to provide flexibility here and to ensure that we can respond to the market as it evolves, there is a provision in the Bill which enables the Minister to make an order allowing for the inclusion of assets from specified OECD countries in the pools.
I hope this deals with the substantive points raised on Second Stage. We should be able to deal with other matters that arise during our examination of the Bill today. There are a number of amendments and the Bill has been read widely in the financial services industry since its publication in July. I received many suggested amendments and I have incorporated those suggestions in my list of amendments where I felt they would improve the Bill. However, some of the suggestions from the industry were received very late and my Department has not had a chance to finalise all amendments in time for Committee Stage. I refer specifically to Schedule 2, Part I, concerning amendments to the Building Societies Act. I will propose some amendments to this Schedule and bring them forward for consideration on Report Stage. I am also examining section 77, concerning the rights of preferred creditors to cover assets, and some technical issues regarding the wording of the section. If an amendment is necessary, I will bring it forward on Report Stage.
Sections 1 and 2 agreed to.
SECTION 3.
I move amendment No. 1:
In page 10, line 28, to delete "Companies Act, 1963 to 1999" and substitute "Companies Acts, 1963 to 2001".
This is a drafting amendment to take account of the enactment of the Company Law Enforcement Act, 2001.
Amendment agreed to.
I move amendment No. 2:
In page 12, to delete lines 6 and 7.
This amendment deletes the definition of financial contracts. This definition is not used in this Bill.
Amendment agreed to.
I move amendment No. 3:
In page 12, lines 14 and 15, to delete "mortgage credit institution or a public credit institution" and substitute "designated mortgage credit institution or a designated public credit institution".
This is a drafting amendment. The Bill defines designated mortgage credit institutions and designated public credit institutions. The terms mortgage credit institution and public credit institution have no meaning.
I take the Minister of State's point but is there a question about whether mortgage credit institutions should be designated? For example, should institutions looking to make use of the refinancing mechanism contained in the Bill be designated as particular types of institutions rather than taking existing credit institutions and designating them? Should they be specialised institutions?
My view is that is not necessary. I am looking at the breadth of the Bill and of the companies covered as well as the designations they will have. I am certain there is no need to designate between the two - the mortgage credit institution and the public credit institution. That does not really have any meaning or impact. If I were to go down that road, I would only define something that would give rise to the possibility of having to make more interpretations of those designations.
Is the Minister of State saying there is no such thing as a public credit institution in Ireland? Is that the size of it?
No, in the context of the Bill.
Is there otherwise?
No.
Amendment agreed to.
I move amendment No. 4:
In page 12, line 18, to delete "or not".
This is a drafting amendment relating to the definition of a holder of an asset-covered security. It makes clear that the holder of an asset-covered security may have either a direct or indirect interest in the security. An investor in a mutual fund would have no indirect interest in a security. It is a drafting amendment.
Amendment agreed to.
I move amendment No. 5:
In page 13, to delete lines 1 to 5, and substitute the following:
" "non-performing' means-
(a) in relation to assets or property of any kind - such of the assets or property as are in the course of being foreclosed or otherwise enforced,
(b) in relation to mortgage credit assets for which the related mortgage credit is of a kind referred to in section 4(1) - such of those assets in relation to which one or more payments of principal or interest payable on that credit are in arrears under the terms of the security documents governing that credit, but only if those payments are referable to a period of 3 months or more, or
(c) in relation to kinds of assets or property, other than mortgage credit assets referred to in paragraph (b) - such of the assets or property in respect of which one or more payments of principal or interest payable on the related credit are in arrears for 10 days or more under the terms of the security documents that govern that credit;”.
Non-performing, as defined in the Bill, refers to non-performing assets that must be removed from cover asset pools and replaced with new assets. The current definition of non-performing provides that any default in the terms of security documents governing a contract is included in the definition. The amendment is to ensure that the definition of non-performing relates only to failure to fulfil financial obligations agreed to in security documents and not any other non-financial obligations contained in such documents, for example, reporting arrangements.
The amendment also sets down periods which must elapse before financial obligations are treated as non-performing. This is to avoid situations where obligations are declared non-performing because of a minor delay or temporary break in payments. These periods are three months for mortgage credit assets and ten days for other assets. The longer period for mortgage assets is to ensure that mortgages of persons who may miss a payment or not make a full payment do not have to be removed from the pools unless the problem persists. It is self-explanatory.
Amendment agreed to.
I move amendment No. 6:
In page 13, line 16, after "given", to insert "by".
This amendment corrects a typographical error in the text.
Amendment agreed to.
Amendments Nos. 7, 8, 9, 112 and 114 are related and are to be taken together by agreement.
I move amendment No. 7:
In page 13, between lines 17 and 18, to insert the following:
" 'preferred creditor' ", in relation to a designated or formerly designated credit institution, means all or any of the following persons-
(a) the holder of an outstanding asset covered security issued by the institution,
(b) a person (other than the holder) who has rights under or in respect of any such security by virtue of any legal relationship with the holder,
(c) a person with whom the institution has entered into a cover assets hedge contract, but only if the person is in compliance with the financial obligations imposed under the contract,
(d) a person who is a super-preferred creditor in relation to institution;”.
These amendments are concerned with those given preferred creditor status under the Bill. The definition of preferred creditor provides for the enhanced security of claims of securities holders in the event of an institution's insolvency. This is the key feature of the legislation.
In the event of the insolvency of the issuing institution, the cover assets must be used first to meet the claims of preferred creditors. We spoke about this at length on Second Stage. Ordinary creditors may not make a claim against these assets until the full obligation due to the investors in the securities and other preferred creditors under this Act has been discharged. This feature of the product makes it particularly attractive to investors and helps achieve the high credit ratings which enables designated credit institutions to access cheap funding by issuing securities at relatively low interest rates. Preferred creditors are security holders, hedge contract counterparties, cover asset monitors and managers.
Amendments Nos. 7 and 8 move the definitions of preferred creditor and related company from Part VII to the general definitions section due to some redrafting in other amendments. These definitions are now used in other parts of the Bill. Amendment No. 7 also clarifies that hedge contract counterparties are given preferred creditor status only if they are in compliance with their financial obligations under the hedge contract. In a typical hedge contract example, an interest rate swap, there will be payments from each party to the other. Under the amendment definition, a hedge contract counterparty who is not making his or her payments to the designated credit institution will lose his or her preferred creditor status.
Amendment No. 9 introduces a new definition to the Bill, the super-preferred creditor. These are the cover asset monitor and the manager. This definition is used in amendment No. 114, which corrects an omission in the published Bill. The purpose of this subsection is to ensure that the cover asset monitor's claims and the manager's claims take precedence over those of the bondholders and the hedge contract counterparties. This is because if these persons are not paid, there is nobody to ensure that the pools are properly administered so as to ensure payments to bond holders and hedge contract counterparties. The amendment gives these persons this higher status.
Amendment No. 112 is a consequential drafting amendment so that the reference to preferred creditor in section 76 is consistent with the movement of this definition in section 3. It is very complicated.
Deputy McDowell, do you have a question?
I presume we are talking about the costs of the cover assets monitor and the payments made to the cover assets monitor. Basically they are the effective equivalent of liquidator costs in this context, is that correct?
Yes.
Amendment agreed to.
I move amendment No. 8:
In page 14, between lines 19 and 20, to insert the following:
" 'related company', in relation to a designated or formerly designated credit institution, has the meaning given by subsection (6);”.
Amendment agreed to.
I move amendment No. 9:
In page 15, between lines 3 and 4, to insert the following:
" 'super-preferred creditor', in relation to a designated or formerly designated credit institution, means a cover-assets monitor or manager appointed in respect of the institution;".
Amendment agreed to.
I move amendment No. 10:
In page 15, lines 15 and 16, after "supplementing" to insert "any".
This amendment corrects a typographical error in the text.
Amendment agreed to.
I move amendment No. 11:
In page 15, lines 25 to 27, to delete all words from and including "but" in line 25 down to and including "asset." in line 27 and substitute the following:
"but does not include-
(a) in the case of a designated mortgage credit institution - property that comprises a mortgage credit asset or a substitution asset, or
(b) in the case of a designated public credit institution - property that comprises a public credit asset or a substitution asset.”.
Designated credit institutions are allowed to engage in limited business activity outside of their core mortgage or public sector lending business. However, this activity is confined to limited deposits and certain high quality assets - tier 2 assets. Tier 2 assets are assets which credit institutions may place with their national central banks as collateral for loans. As this limited business activity is to be separate from a designated creditor institution's core mortgage or public sector lending business, designated mortgage credit institutions are not allowed hold mortgage credit assets as tier 2 assets and designated public credit institutions are not allowed hold public credit assets as tier 2 assets. However, there is no reason designated mortgage credit institutions should not hold public credit assets as tier 2 assets or designated public credit assets should not hold mortgage credit assets as tier 2 assets. Although this is prohibited by the current text of the Bill, this amendment removes this prohibition.
I do not understand this. Why can they not hold mortgages as tier 2 assets if they are mortgage credit institutions? It is not going to get any easier.
I know. I assure the Deputy that I have spent a great deal of time trying to understand this. The simplest straightforward answer is they cannot hold both and they cannot hold their own, but they can hold the alternative. That is the way.
Why not? That is what I do not understand.
I think it is to protect the validity of the assets themselves in order that they cannot be used in any other way and that they are just used in very specific ways. It keeps the strength of the pools and of the funding where they are used on a very solid basis.
I cannot claim to understand the logic of it but I take the Minister of State's word for it.
I am not an expert on it as the Deputy will be aware. To satisfy the concerns of members, the important thing is that there has been an enormous amount of discussion with the Central Bank and, indeed, with the banking federation. It is a very technical Bill. We all were trying to struggle through it on Second Stage. The consultation was extremely deep between the parties and anything I am proposing here would have been fully discussed, and particularly satisfied, within the Department.
It is important to say at the start that this is the sort of technical Bill which, to be blunt about it, the committee is simply not geared to deal with because we do not have the sort of back-up which will allow us to do that. That said, I have had the opportunity of speaking to the Minister's officials and I have taken some trouble to look at it and to speak to the industry. Clearly it is of some importance to the industry as a mechanism of refinancing and could conceivably, and hopefully will, be of benefit to mortgage holders in Ireland.
However, trying to deal with it leaves us in some considerable difficulty. The Minister of State will forgive me if I ask a few questions because I do think there are things which we need to get on the record. While it may not be of crucial importance to those of us here and perhaps to many people listening to us, it is of considerable importance within the sector.
The principle of the Bill is of enormous importance and Deputies McDowell and McGrath recognised that on Second Stage but it is difficult and complicated getting to a point where it delivers the end product.
Amendment agreed to.
I move amendment No. 12:
In page 15, between lines 27 and 28, to insert the following subsections:
"(2) For the purposes of this Act-
(a) the country in which a mortgage credit asset is located is the country in which the property asset that secures the relevant mortgage credit related to the mortgage credit asset is situated, and
(b) the country in which a substitution asset (other than a deposit of money) is located is the country where the entity that has the primary financial obligation in respect of the asset is formed or established, or
(c) the country in which a substitution asset that is a deposit of money is located is the country in which the place of business of the financial institution that is holding the deposit is situated.
(3) In subsection (2)(b), ’primary financial obligation’, means the financial obligation that enables the asset to qualify as a tier 1 asset.
(4) For the purposes of this Act-
(a) the country in which a public credit asset is located is the country in which the entity that has the primary financial obligation in respect of the asset is formed or established, and
(b) the country in which a substitution asset (other than a deposit of money) is located is the country where the entity that has the primary financial obligation in respect of the asset is formed or established, or
(c) the country in which a substitution asset that is a deposit of money is located is the country in which the place of business of the financial institution that is holding the deposit is situated.
(5) In subsection (4), ’primary financial obligation’ means the financial obligation that enables the asset to qualify-
(a) as a public credit asset, or
(b) in the case of a substitution asset that is a tier 1 asset, as a tier 1 asset.
(6) For the purposes of this Act, a company is related to a credit institution if-
(a) the institution is its holding company or subsidiary,
(b) more than half in nominal value of the company’s equity share capital is held by the institution and companies related to it (whether directly or indirectly, but otherwise than in a fiduciary capacity),
(c) more than half in nominal value of the equity share capital of each of those bodies is held by members of the other (whether directly or indirectly, but otherwise than in a fiduciary capacity),
(d) the institution, or a company or companies related to it or to the institution together with a company or companies that are related to it, are entitled to exercise or control the exercise of more than one half of the voting power at any general meeting of the company,
(e) the businesses of the institution and the company have been so carried on that the separate business of each of them, or a substantial part of it, is not readily identifiable, or
(f) there is another company to which both the institution and the company are related.
(7) For the purposes of subsection (6)-
(a) ’company’ includes any body that is liable to be wound up under the Companies Acts, and
(b) ’holding company’, ’subsidiary’ and ’equity share capital’ have the meanings given by section 155 of the Companies Act, 1963.”.
I presume the committee wants me to keep reading the notes as I go through these amendments. Therefore, I will proceed to do so unless asked to do otherwise.
The definition of location is important in the Bill as there are restrictions on the amount of assets which designated credit institutions may hold from different geographic areas. This amendment does two things. First, it moves the definition of location from sections 36 and 39 to section 3 as it is used in other parts of the Bill. Second, the original definition of the location of a substitution asset, which was a deposit that defined the location as the branch of the financial institution where the deposit was situated, raises the issue as to what happens if an institution has one office and no other branches. Subsections (2)(c) and (4)(c) remove this ambiguity by replacing the word branch with the term "place of business".
This amendment also defines a related company generally for the purposes of the Bill. This term is important as Part VII of the Bill provides that the preferred creditor status and the ring-fencing of cover asset pools under this Bill still applies when a company related to a designated credit institution gets into financial difficulties.
Again I am not clear in my mind about what we are talking here. My understanding was that the mortgage credit had to be mortgages on property within the designated countries and it did not matter where the bank's place of business was located. Is that correct?
Yes.
Likewise with public credit, as long as the credit was for state institutions or Governments in the OECD areas, it does not matter that the bank was located in the Cayman Islands, for the sake of argument. Is that correct?
Yes.
Amendment agreed to.
Section 3, as amended, agreed to.
SECTION 4.
Amendment No. 13 in the name of the Minister. Amendment No. 15 is related. We will discuss amendments Nos. 13 and 15 together by agreement. Is that agreed? Agreed.
I move amendment No. 13:
In page 15, lines 42 and 43, to delete subsection (4) and substitute the following:
"(4) The Minister may, in an order made under subsection (3)(a), declare-
(a) that section 30(1), 30(2), 31(10) to (12) or 32(2) does not apply to mortgage credit assets consisting of mortgage credits of the kind specified in the order, or
(b) that all or any of those provisions apply to those mortgage credit assets only with such modifications as are so specified.”.
Under the Bill as originally drafted, section 4 allows the Minister to make an order designating credit of a specific kind to be mortgage credit for the purposes of the Bill. The amendment proposed would extend the remit of an order made under the section to enable the Minister to disapply or modify certain provisions of the Bill.
The provisions which may be disapplied or modified related to loan or value ratios and to holdings of mortgage credit assets in G7 countries outside of the EEA, Switzerland and other OECD countries. The reason for putting this flexibility into the Bill is that, as drafted, there would be difficulties in including securitised mortgages in the definition of mortgage credit if the European asset covered securities market develops in that way and the inclusion of such assets is considered desirable. The main difficulty arises because the loan to value ratio concept has no meaning with regard to securitised mortgages. A second less immediate difficulty would be if high quality mortgage backed securities were issued by institutions outside of the EEA or if such assets were collateralised by a pool of EEA and non-EEA mortgages. While in this latter case I have no particular product in mind, it would be better to build flexibility into the Bill to ensure that the Irish asset covered security market can respond to developments in the sector internationally.
Amendment No. 15 is an analogous amendment for public credit.
The loan to value aspect is obviously of some importance in terms of defining the whole thing. Maybe the Minister could let us into this thinking in terms of defining the 60% figure, which is obviously crucial. I do not quite understand why loan to value has no significance in the context of securitisation.
When you have the bond, you cannot define and break down, within that, all the different mortgages. Therefore you just take the bond at face value. That is the point there.
How does one guarantee the creditworthiness of the asset pool in those circumstances if it includes securitised mortgages?
It would have a rating, such as a triple A rating or whatever. In the context of the pool within which one would be operating, or the pool set up, the rating of the assets involved would be the marker. That is why the monitor is involved. The monitor and the Central Bank would obviously have to put their stamp of authority on it, so to speak, as to its quality.
Is there some mechanism for dealing with the possibility of the devaluation or degradation of mortgages which have been securitised - the securitised assets? Does the Minister of State appreciate the point I am making? If one securitises a certain amount of mortgages by way of a bond and the property which underlies that is reduced in value——
I take the Deputy's point. I will paraphrase what I said on Second Stage. If the scenario outlined by the Deputy occurred, the option would be to remove that bond from the pool and replace it with something else. If it was felt that there was a degradation or, for whatever reason, the value had disintegrated, one would then have to replace that aspect of the pool with another which was approved. That is the whole purpose of this measure.
That is the point I am making. The LTV ratio is not there anymore because one cannot assess it. How does one assess whether it has devalued?
By the rating which would drop dramatically and would then have to be removed from the pool as it would not meet the requirements.
Let us get to the bottom line. Does the Minister of State envisage that securitised mortgages will form a significant part of the asset pools?
We have been talking about this. I will have to come back to this issue on Report Stage, but it is under discussion at present. I am not sure whether we will include securitised mortgages. This aspect came to me very late. We were discussing it this morning and I was trying to get a handle on it. There are aspects of it which appeal to me, but I am not in a position to fully understand at this stage whether this is the right decision. I have an open mind on this and will return to it on Report Stage. If securitised mortgages are included it may be with regard to a limited percentage to make up the asset pool. That will probably be the mechanism if this approach is taken.
My understanding of the Bill is to ensure that there is no competitive disadvantage in the market, particularly regarding operators in this country. That is what I am trying to achieve. In terms of influencing the Bill, my thrust comes from trying to ensure as level an international playing field as possible for those operating from this country.
Surely there is a case for some kind of standardisation across the EU.
It is possible, but there is a difficulty. Discussing another Bill with the Deputy when we talked about this issue, we saw a difficulty because there are different modus operandi for mortgages in different countries. It is not as easy as the Deputy suggests. I agree it would be preferable if there was a general rule of thumb to which everyone adhered. However, that is not the case.
Some of my later amendments try to include some flexibility for the development of markets on a worldwide scale. I am trying to ensure that there is a flexibility but that there are also safeguards. This is new territory. The instrument is clear, but we have to be conservative about the definitions and how it may operate and unfold. I can be somewhat flexible, but I do not wish to go too far without coming back to primary legislation.
I agree with the Minister of State that we have to go down this road. My instinct is to be reasonably conservative in terms of defining the security of the underlying assets. I am conscious of the fact that this is most likely to be used by banks and credit institutions which are not Irish, but which could use Ireland as a base if we push this out too far. We should be careful not to undermine the entire business by being too loose in terms of the requirements. It would be preferable if there were defined standards, particularly within the EU.
I could not agree more and the Deputy's summary is probably correct at this stage. However, it is important that Irish financial institutions can get into this from their own points of view, but particularly from the point of view of Irish consumers. The question is how that evolves. Whether they operate independently or pool assets or whatever remains to be seen, but the Deputy is correct in that we are trying to be conservative in the roll-out so we do not create a significant loophole or whatever. As well as this is understood after much discussion between the Central Bank, the regulator, the banking federation and Department officials, we are trying to avoid being ultra conservative. We are being conservative but allowing for flexibilities which we think are reasonable and which can be controlled quickly if things were going wrong.
Returning to the amendment, I would be concerned if securitised mortgages were suddenly to form a substantial part of the assets.
We would also be concerned if that were the case. I agree with the Deputy.
Would the Minister of State acknowledge that the mortgage situations in Ireland and the UK are quite similar, but different to those in the rest of Europe in the sense that we have a high residential property ownership rate as distinct from Spain, France, Germany and Italy? Would he also agree that, on that basis, there are different criteria under the tax codes, incentives and so on for people in this country to own their homes as distinct from people on the Continent who rent property? In that context, should this Bill not provide for a unique structure regarding securitised bonds and mortgages in Ireland rather than something which is based on German or continental systems?
I understand what the Deputy is saying. However, the difficulty arises from the fact that the Irish market is too small. We have to be able to access international markets. It is not just a case of basing one's mortgage assessment on high ownership rates in Ireland and low ownership rates in other countries. That is the case. However, we must also include the definition of mortgages as between countries. How such mortgages are set up is substantially different between countries such as France and Germany, irrespective of ownership. We are trying to access and operate in this pool. However, the criteria differ between countries and this Bill must develop a scenario which allows Irish and IFSC companies to access this type of low cost finance and, hopefully, ultimately benefit the Irish consumer.
At the outset I stated that this Bill should enable mortgage holders in the Irish market to be able to get better longer term fixed mortgage rates than have been available heretofore. I would welcome such a development as one can get a 20 year fixed mortgage in many European countries. I do not see why that facility should not be available to Irish consumers if they require it. We may have strayed from the point, Chairman.
Amendment agreed to.
Section 4, as amended, agreed to.
SECTION 5.
I move amendment No. 14:
In page 16, subsection (6)(b), line 44, to delete “an asset” and substitute “credit”.
This amendment corrects a typographical error in the text.
Amendment agreed to.
I move amendment No. 15:
In page 16, after line 45, to insert the following subsection:
"(7) The Minister may, in an order made under subsection (6)(a), declare-
(a) that section 43(1) or 45(2) does not apply to public credit assets consisting of public credits of the kind specified in the order, or
(b) that either or both of those provisions apply to those public credit assets only with such modifications as are so specified.”.
Amendment agreed to.
Question proposed: "That section 5, as amended, stand part of the Bill."
This section deals with the definition of a State or governmental agency. I presume this would include, for example, semi-State bodies. For the sake of argument, would it include Aer Lingus?
For a semi-State company to gain access, its loans would have to be guaranteed by the Government. That is the only kind of loan that would stand up.
I do not think that is stated in the Bill.
I am not sure where exactly it is defined, but it is included.
It does use the phrase"governmental or public entity established in acountry . . . ".
Yes, it is the risk weighting. Section 5(1)(d) states:
subject to subsection (3), any other governmental or public entity established in a country to which paragraph (a) or (b) relates whose financial obligations have a risk weighting of 20 per cent or less for the purposes of the Codified Banking Directive, or . . .
That part covers the definition in the question posed by the Deputy. It is the risk weighting. I have gone further than that and have been quite specific that it would concern only Government guaranteed loans.
Right. What is the current practice in Ireland, for the sake of argument? Are semi-State companies that borrow money guaranteed by the State?
Not all the money they borrow is so guaranteed.
For example, if the ESB borrows money does that credit form part of it?
State aid legislation cuts off an awful lot of that now, so it does not occur.
Indeed.
It was the practice in the past, but not so much now; in fact, not at all.
In the past there were, in effect, guaranteed loans. Take the case of Bord na Móna which had bonds of about £100 million. When they were examined it was found that, in essence, they were Government guaranteed loans, hence the company had to be bailed out. More modern thinking is that State institutions take loans of their own volition.
What is State or public credit? Is it simply Government bonds?
Largely Government bonds.
And is that true of other EU, EEA or OECD countries?
It would be. Where EU regulations on State aid apply, we are playing under the same rules.
Yes.
In other cases, for example with regional governments, it would be somewhat different.
In this context, where would a local authority fit in? It is a Government entity as such, yet it is independent of the Government in terms of borrowings? Later on we will be discussing the rates of equity that will be allowable for domestic mortgages. It might be worthwhile for local authorities to avail of such finances to fund social housing schemes. Would local authorities then be envisaged as being part of these Government agencies or public entity establishments?
We could get into a philosophical discussion here but the Deputy has raised the wider question of the structure of local government in this country, which is different to other countries. In many European countries local government has the opportunity to, and does, impose taxes and levies, but as the Deputy knows we do not do so in Ireland. There has been a long standing argument about this over many years.
Does the Minister consider a local authority as coming within——
That arises elsewhere. The Deputy should stick to the point.
No. We are dealing with the definition of public credit. Does the Minister consider that local authorities come within the definition here?
In a sense, they certainly come within the definition but at the weakest point. For instance, they impose rates at local level and one could say that would be part of the definition, but whether that is grade A securitised funding is a moot point. In the context of the question the Deputy asked regarding this section, my understanding is that the answer is no because we do not operate a local or regional government structure akin to many other countries. For example, the Basque country in Spain has a regional government structure which imposes taxes and levies. The Lander system in Germany is another example. That is the type of structure I am talking about as opposed to the Irish structure of local government which is extremely weak in this area. It does not have the sort of powers that regional and local governments have in many other European countries. That is the route we have chosen to take and that is my view.
Do German banks use Lander loans to back this sort of system?
Yes, they do.
Before we move on to section 6, I wish to raise a broader point to which we will come, eventually - that is, the power of the Minister to designate particular types of credit or institutions. What are the intentions? Section 5(6) states:
The Minister may, by order notified in Iris Oifigiúil-
(a) designate credit of a specified kind to be public credit for the purposes of this Act, or. . .
It is simply a catch-all provision.
What does the Minister envisage will happen in the first instance?
Nothing.
So it is basically to clarify whether something is public credit?
Yes.
If, for the sake of argument, the Government was to decide to issue bonds backed by the pension fund, the Minister could designate it as public credit under this Bill, could he not?
That is hypothetical.
We will leave that for another day.
Deputy McDowell is very sharp this morning.
One has to think ahead.
Question put and agreed to.
SECTION 6.
I move amendment No. 16:
In page 17, subsection (3)(a), line 13, to delete "purpose of subsection (1)(c)" and substitute "purposes of this Act".
As it stands, the section only allows the Minister to declare assets which he has previously declared substitution assets by order under section 6(1)(c) to no longer be substitution assets. The amendment gives the Minister wider power and enables him to remove any substitution assets from the list of eligible substitution assets. It is consistent with the approach taken in sections 4(3) and 5(6) to mortgage credit assets and public credit assets, respectively. We are simply bringing uniformity into it.
Will the Minister explain what a substitution asset is?
A substitution asset is a Government bond. It is also an asset that could be substituted.
I do not have a problem with going into private session if the Minister wants to do that at any stage, although I am not suggesting he do so.
My understanding is that a substitution asset would be available for the pool.
I understand the concept but I am wondering what sort of assets we are talking about.
Government bonds, commercial papers and very secure cash deposits.
What are very secure cash deposits?
The Central Bank.
Does the Minister mean spending as opposed to——
Yes, exactly. Real money as opposed to unreal money.
When one takes the liquidity ratios into account, deposits on the balance sheets of banks - which, on the face of it, are paper deposits - do not necessarily exist.
We want to make sure there is liquidity in the pools as well. It is important to keep that liquidity and I may build a bit more flexibility into that in certain circumstances for short periods. We will come to that later.
Government bonds and commercial papers?
High quality.
Is mortgage insurance part the top up as well?
No, they are in the definition I have just given.
Amendment agreed to.
Section 6, as amended, agreed to.
SECTION 7.
I move amendment No. 17:
In page 17, line 30, to delete "section 2(3)" and substitute "section 2(3)(a) or (b)".
The purpose of the amendment is to exclude section 214A of the Companies Act, 1963, from the grounds on which a designated credit institution may become insolvent. Section 214A states that "a company may be declared unable to pay its debts if it does not pay a debt of £1,000 on demand to a creditor within three weeks". This is too stringent a requirement to place on large institutions involved in high value transactions.
Amendment agreed to.
Question proposed: "That section 7, as amended, stand part of the Bill."
I assume that if a liquidator is appointed, for the sake of argument, to an insolvent bank or credit institution, that liquidator cannot interfere with the cover assets in the course of the 30 days or so before——
Of course. Even though they would be on the balance sheet, they are absolutely designated to the holder.
Question put and agreed to.
Sections 8 and 9 agreed to.
SECTION 10.
Question proposed: "That section 10 stand part of the Bill."
Is the Central Bank geared up to do this? In the time I have been Finance spokesperson of the Labour Party, we seem to be constantly expanding the regulatory role of the Central Bank. I sometimes wonder if it has the people, the power and the functions to carry out that role.
It is working hard to gear up for this. There have been ongoing discussions on this and it was centrally involved in drafting the legislation. What we are witnessing is a general change. With the establishment of the ECB and so forth, the role of individual national central banks is changing. I often heard it said during debates at the start of that process that national central banks would become irrelevant but the opposite is happening. We are redefining their role. The Deputy is right that they will become more directly involved in a regulatory role.
As a general rule, the Central Bank of Ireland does not regulate banks whose primary offices are elsewhere. If one is dealing with a bank that is based in Germany, for example, which just has a subsidiary office here, the German Bundesbank regulates it, not our Central Bank. It will primarily be foreign based institutions that engage in this type of activity here and they will probably operate from the IFSC. Does the Central Bank have some role in that regard?
It does. I accept the point being made by the Deputy and in many cases it may be correct. However, in the case of many of the banks that have a subsidiary here, the subsidiary would be licensed by the Central Bank. In that sense, it would be the Central Bank here and not the central bank in Germany that would be responsible.
The banks that have approached us are based in the IFSC. Do they have licences here?
Yes.
Question put and agreed to.
Sections 11 and 12 agreed to.
SECTION 13.
Question proposed: "That section 13 stand part of the Bill."
The process is defined in simple terms as to how one applies. Who is the Minister expecting to apply?
It is up to whoever.
If, for example, ACC as a bank decided it wanted to get into this business, would the Minister expect the company to set up a subsidiary or a free standing institution to do it or would the bank itself apply?
It will depend on the individual case. The criteria the bank would have to meet to get into this business might not be possible under its existing banner, as it were, because of the scope of business it does——
That is the point I was making.
It might well set up a subsidiary, therefore, and vest those assets which meet the criteria within the subsidiary. The subsidiary company would then access this type of business. It is open to any institution to do that. The Deputy is correct that some of the institutions as they stand would not be able to do it.
That defines it more cleanly, in a sense, because one knows exactly what one is dealing with.
Yes.
Question put and agreed to.
SECTION 14.
I move amendment No. 18:
In page 21, subsection (6), line 6, after "designated" to insert "mortgage credit institution or designated".
The purpose of this subsection is to ensure that the Revenue Commissioners are informed whenever a credit institution is given designated credit institution status. As the section stands the authority is only required to inform the Revenue Commissioners in the case of designation of public credit institutions. The amendment extends the reporting requirement to include mortgage credit institutions.
Amendment agreed to.
Section 14, as amended, agreed to.
SECTION 15.
I move amendment No. 19:
In page 21, subsection (4)(b), line 39, after "subject", to insert "to".
This amendment corrects a typographical error in the Bill.
Does the Minister foresee the certificates of designation being open ended?
It is up to the bank. It is probably likely that they will be open ended, like an ordinary banking licence.
Presumably there are provisions in the Bill for revocation of certificates in certain circumstances. Are they analogous to the bank licensing arrangements?
Yes. The tenor of the Deputy's remarks is right. The regulatory function of the Central Bank is crucial in the implementation of this.
The Bill poses an extremely broad obligation on the Central Bank to regulate. My first concern is whether the bank can do this and, second, whether it is notional in any case. Are we talking about the Central Bank seeking to regulate foreign based credit institutions who merely using Ireland as a means of refinancing or getting into the business of refinancing? That is my point.
Definitely not, and I have confirmed that to the committee. Even with regard to the foreign based banks that are operating in the IFSC, a large proportion are licensed by the Central Bank. One must have an Irish licence to operate under the Bill, so it specifically relates to the Central Bank of Ireland. The Deputy is right that the Central Bank will have a substantial role and will have to have the capacity to deal with it but it is gearing up for that. Time will tell.
Why would a German bank seek to use its base in the IFSC rather than using its base in Germany in order to get into this business which is not really Irish related anyway? Is it to do with tax?
No. It will do both. It can already do one part, which is directly within its own country. It just creates a bigger pool and bigger opportunities for developing the project. It will allow the Irish operation to operate in Ireland through the Irish system rather than doing it through the head office in Germany. It is also important that Irish institutions access——
I have the feeling I am missing something here.
I do not think so.
Perhaps I am being unduly sceptical.
This will undoubtedly benefit the IFSC companies. Irrespective of that, however, Irish institutions were already at a severe disadvantage in the wider market in terms of accessing the type of finance that would be available at the rates that would be available. That is my intent and my understanding of the legislation. For the IFSC companies, it just broadens the base or the pool and broadens the possibility of operations in terms of introducing those products into Ireland. As we are now seen as an important element in the European, if not worldwide, banking system, these facilities should be available. It is ridiculous that that are not.
I would not like to think that we are encouraging business into the IFSC simply because, for example, there was an expectation of lighter regulation or the like.
Absolutely not.
That is my concern.
That is certainly not the intention. I have no intention of creating a regulatory system through this Bill that would be perceived as being in any way weaker than anything else that might exist. That would undermine the financial services industry in this country and I have no intention of doing that.
It is good to put that on the record.
Amendment agreed to.
Section 15, as amended, agreed to.
SECTION 16.
I move amendment No. 20:
In page 22, subsection (1), lines 1 and 2, to delete "to be heard by, or to make written representations to," and substitute "to make written representations to".
The Central Bank has power under the Bill to set and vary conditions with which a designated credit institution must comply. Designated credit institutions may make representations to the Central Bank regarding these conditions. As the Central Bank's decisions may be appealed to the High Court, it is considered safer that all representations on a decision be in writing. The Bill, as currently drafted, allows oral representations. The amendment confines all representations to writing and that is a better way forward.
Amendment agreed to.
Section 16, as amended, agreed to.
SECTION 17.
Amendment No. 21; amendment No. 81 is cognate. Amendments Nos. 21 and 81 may be discussed together by agreement.
I move amendment No. 21:
In page 22, subsection (3), line 14, after "designated" to insert "mortgage".
This amendment corrects a typographical error in the text.
Amendment agreed to.
Do other countries maintain registers of designated credit institutions? Is it intended that the registers of other EU countries, for example, would be imported into Ireland?
Perhaps we should go into private session to answer that question.
The Select Committee went into private session at 12.31 p.m. and resumed in public session at 12.34 p.m.
Section 17, as amended, agreed to.
Section 18 agreed to.
SECTION 19.
Amendment No. 22; amendment No. 23 is cognate. Amendments Nos. 22 and 23 may be discussed together by agreement.
I move amendment No. 22:
In page 23, subsection (3)(b), line 44, to delete “Authority” and substitute “Minister”.
The purpose of the amendment is to replicate the provisions of section 34 of the Central Bank Act, 1989, which deals with the revocation of banking licences. Under section 34 the institution whose licence is being revoked may make representations to the Minister, not to the Central Bank as currently provided for in the Bill. The amendment directs representations to the Minister. It makes it consistent.
Can the Minister of State take me through what happens? I remember a couple of years ago when we were discussing the possibility of banking licences being revoked for particular reasons of default or misbehaviour, it became clear that the consequences of revoking a banking licence were so catastrophic one would be extremely slow to do it. Is that the situation here as well?
That is a reasonable comment. The consequences of revoking a banking licence——
Only the nuclear option was available. Unless one wanted to completely screw up the bank's customers, one could not effectively revoke the licence because it would only be done in the most extreme circumstances.
That is fair and right. However, given what has happened in recent years, particularly in terms of the legislation with which the Deputy is familiar, the regulatory system and responsibilities have changed. The legislation has tightened it up. It is making it more difficult to reach the type of situation the Deputy outlined.
There must be measures which the bank and the authority can take which are short of revoking a licence. There are directive measures.
Yes.
Amendment agreed to.
I move amendment No. 23:
In page 24, subsection (4), line 3, to delete "Authority" and substitute "Minister".
Amendment agreed to.
Section 19, as amended, agreed to.
SECTION 20.
Amendment No. 24. Amendments Nos. 26, 27 and 29 are related to amendment No. 24. Amendments Nos. 24, 26, 27 and 29 may be discussed together by agreement.
I move amendment No. 24:
In page 24, lines 23 to 47, and in page 25, line 1, to delete subsections (2) to (7).
Sections 20 and 21 enable the Central Bank to give a direction to a designated credit institution preventing it from carrying out specified activities, such as dealing in its assets, engaging in transactions and making payments, unless it receives permission from the Central Bank to carry out these activities. The purpose of the section is to give the Central Bank emergency powers to protect the interests of the holders of the institution's securities and those of its other creditors. Essentially this enables the Central Bank to freeze all activity in a designated credit institution. The sections are analogous to section 21 of the Central Bank Act, 1971, which allows the Central Bank to prohibit the making of payments and the taking of deposits by a licensed bank without Central Bank approval where the Central Bank is of the opinion that the bank concerned may be unable to meet its obligations to its creditors.
The housekeeping provisions with regard to the making of directions are primarily contained in section 20. These include provisions of when directions come into effect, an extension of directions and when directions cease to have effect. They should also, with minor modifications, apply to section 21. The purpose of the amendment is to consolidate these housekeeping provisions in the new section 21(a) and apply them to both sections 20 and 21. Section 25(4) allows designated credit institutions to appeal Central Bank directions to the High Court. It should apply to directions under both sections 20 and 21 rather than just those issued under section 20. This is achieved by amendment No. 29.
Is it possible for the authority or the bank to give a direction in relation to a specific asset as part of the cover assets pool?
Yes.
That would be removed from the pool and substituted with something else. Does the bank have that type of specific authority?
Yes. The cover asset monitor would get involved in that case. That relates specifically to what the Deputy said about why the cover asset monitor is involved and why such a position is being created.
Amendment agreed to.
I move amendment No. 25:
In page 25, subsection (9), line 13, to delete "that" and substitute "because".
This amendment corrects a typographical error in the text.
Amendment agreed to.
Section 20, as amended, agreed to.
SECTION 21.
I move amendment No. 26:
In page 26, lines 23 to 26, to delete subsection (7).
Amendment agreed to.
Section 21, as amended, agreed to.
NEW SECTION.
I move amendment No. 27:
In page 26, before section 22, to insert the following new section:
"22.-(1) A direction given under section 20 or 21-
(a) must include a statement of the Authority’s reasons for giving the direction, and
(b) remains in force for such period (not exceeding 6 months) as is specified in the direction.
(2) Unless the High Court otherwise orders, a direction given under section 20 or 21 takes effect from the date of the direction or, if a later date is specified in the direction, from that date, irrespective of whether or not the institution appeals against the direction under section 25.
(3) The Authority may, by notice in writing given to the institution concerned, amend or revoke a direction given under this section.
(4) Without limiting subsection (3), the Authority may from time to time, by notice in writing given to the institution concerned, extend the period during which a direction remains in force by one further period not exceeding 6 months.
(5) A direction given under section 20 ceases to have effect-
(a) at the end of the period specified in the direction, or if the period is extended under subsection (4), at the end of the extended period,
(b) on the making of a winding up order in respect of the institution,
(c) on the revocation of the registration of the institution under this Part, or
(d) on being revoked by an order of the High Court, whichever first occurs.
(6) A direction given under section 21 ceases to have effect-
(a) at the end of the period specified in the direction, or if the period is extended under subsection (4), at the end of the extended period, or
(b) on being revoked by an order of the High Court, whichever first occurs.
(7) A credit institution that fails within the permitted period to comply with a direction given under section 20 or 21 commits an offence and is liable on summary conviction to a fine not exceeding €1,900 (£1,496.37).”.
Amendment agreed to.
Sections 22 and 23 agreed to.
SECTION 24.
I move amendment No. 28:
In page 27, line 3, to delete "Central Bank" and substitute "Authority".
This amendment corrects a typographical error in the text.
Amendment agreed to.
Section 24, as amended, agreed to.
SECTION 25.
I move amendment No. 29:
In page 27, line 20, after "section 20” to insert “or 21”.
Amendment agreed to.
Section 25, as amended, agreed to.
SECTION 26.
Amendments Nos. 30, 32, 52 and 53 are related and may be discussed together, by agreement.
I move amendment No. 30:
In page 28, to delete lines 32 to 40 and substitute the following:
" 'credit transaction', in relation to a designated mortgage credit institution, means-
(a) placing a deposit with an eligible financial institution designated or of a class designated under subsection (4), or
(b) dealing with or holding a financial asset, or
(c) any other kind of transaction designated by an order made under subsection (4)(a);”
Section 26(1) enables the Central Bank to designate deposits with financial institutions as substitution assets. As section 26 stands, these substitution assets are also being designated as credit transaction assets. This is incorrect. Substitution assets and credit transaction assets should be mutually exclusive. Amendments Nos. 30 and 32 achieve this exclusivity by enabling the Central Bank to specify a separate list of financial institutions with whom deposits may be placed by designated mortgage credit institutions as substitution assets and credit transaction assets. Amendment No. 30 also removes the phrase "in order to facilitate the prudent financial management of property of the institution," as this does not add anything to the definition. Amendments Nos. 52 and 53 are analogous amendments in relation to designated public credit institutions.
I fail to understand that but it is not sufficiently important to object.
Amendment agreed to.
I move amendment No. 31:
In page 29, line 2, to delete "public credit asset,".
Only assets which a designated mortgage credit institution may hold in other ways, i.e., mortgage credit assets, substitution assets and tier 2 assets, should be excluded from the definition of credit transaction assets. However, as the Bill stands, designated mortgage credit institutions are prohibited from holding public credit assets as credit transaction assets. This amendment removes this prohibition.
Amendment agreed to.
I move amendment No. 32:
In page 29, between lines 14 and 15, to insert the following subsection:
"(4) The regulations must provide for one or more financial institutions, or financial institutions of one or more specified classes, to be designated as eligible financial institutions for the purposes of paragraph (a) of the definition of ’credit transaction’ in subsection (3).”.
Amendment agreed to.
Question proposed: "That section 26, as amended, stand part of the Bill."
It might help to understand the definition of "located." I understand subsection (a) and (c) but am not sure about (b), “in relation to a substitution asset, the country in which the entity that has the primary financial obligation in respect of the asset is formed or established.” This is the point we touched on earlier. Subsection (a) says that property on which the mortgage is situated is the country in which the property is actually located. I understand that, and the bit about the deposit being where the institution actually is. However, I am confused by subsection (b).
If one had a guarantee, it is the person who gives the guarantee not the company. This is qualifying and protecting the person that gives the guarantee. It is tracing it back to where the person came from.
Is that the original?
Yes, the original guarantee.
Must that person or company be located in type A countries?
Yes.
Question put and agreed to.
NEW SECTION.
Amendment No. 54 is related and it may be taken with amendment No. 33 by agreement.
I move amendment No. 33:
In page 29, before section 27, to insert the following new section:
"27.-A designated mortgage credit institution may not carry on a business activity other than a permitted business activity. However, this section does not prevent such an institution that is also a designated public credit institution from carrying on business activities that can be lawfully carried on by a designated public credit institution.".
The purpose of this section is to prohibit a designated mortgage credit institution from carrying on any activities other than those permitted by this Act. However, a designated mortgage credit institution which is also a designated public credit institution may of course carry out activities of a designated public credit institution also. There have been queries from the industry as to the exact meaning of this section. The question has been raised as to whether a credit institution which has been registered as a designated credit institution may continue to carry on the general activities of a credit institution. The purpose of the amendment is to clarify that this is not allowed. Amendment No. 54 is analogous in relation to designated public credit institutions.
I will take a former building society, First Active, as an example. It now carries on some of the functions of a bank also. Can it continue to do that without restructuring if it wants to become a designated institution?
If I am correct, this is where such an institution could form a subsidiary.
Must it do that?
Yes. They do not meet the required criteria as presently constituted. They must form a subsidiary, vest those assets that qualify and then they may go into the pool.
Amendment agreed to.
Sections 27 and 28 agreed to.
SECTION 29.
I move amendment No. 34:
In page 30, subsection (7), line 27, to delete "the" and substitute "any".
This amendment relates to a typographical error in the text.
Amendment agreed to.
Amendments Nos. 35 and 55 are related and may be discussed together, by agreement.
I move amendment No. 35:
In page 30, between lines 28 and 29, to insert the following subsections:
"(8) A designated mortgage credit institution shall remove from its register of mortgage covered securities business the entry relating to a contract of the kind referred to in subsection (3), but only if-
(a) the contract has been discharged, or
(b) the person with whom the contract was entered into has agreed.
(9) Subsection (5) ceases to apply to a contract of the kind referred to in subsection (3) when the entry relating to the contract is removed from a register of mortgage covered securities in accordance with subsection (8).”.
This amendment will enable designated mortgage credit institutions to remove cover asset hedge contracts from cover asset pools. They can be removed in two circumstances - when they are no longer required provided that the counterpart agrees, and when they are finished. Amendment No. 55 is analogous for designated public credit institutions, in other words, the mortgage would be paid off.
Can they just take hedge contracts out and substitute them?
It does not say anything about them specifically.
I do not understand the Minister. I understood that one could replace hedge contracts if they were a part of one's asset pool.
No.
So, can one only now do this in the specified circumstances proposed in the amendment?
Yes. It is to make the matter tight. I presume that down the road we may look at these when we see how the system operates. For the moment, it is to keep a tight rein on it so that people do not find loopholes or go against the intent of what we are trying to do. It is quite specific.
Amendment agreed to.
Section 29, as amended, agreed to.
SECTION 30.
There are a few important sections here, Chairman. I would appreciate a speaking note on section 30.
We will come to that at the end.
I move amendment No. 36:
In page 30, subsection (1), line 30, after "mortgage" to insert "credit".
I am only proposing a typographical change.
Amendment agreed to.
I move amendment No. 37:
In page 30, subsection (2), line 40, after "by" to insert "the".
Amendment agreed to.
I move amendment No. 38:
In page 30, subsection (3), line 47, to delete "the" where it secondly occurs.
Amendment agreed to.
Question proposed: "That section 30, as amended, stand part of the Bill."
The section sets out restrictions on the business activities of designated mortgage credit institutions. The purpose of these restrictions is to ensure that such institutions will not hold risky assets which might impinge on their ability to meet their obligations to holders of asset-covered securities. The restrictions are based on maximum percentages of particular assets which a designated credit institution may hold. These maximum percentages have been discussed with the rating agencies and are designed to ensure that securities issued achieve a triple-A credit rating. It should be noted that the value of assets for the purposes of this section must be calculated in accordance with the criteria set out by the Central Bank regulation under section 38. This is to ensure that assets are valued in a prudent and conservative manner so as to ensure that designated mortgage institutions will always be in a position to meet their obligations to holders of asset-covered securities.
Will the Minister of State take us through this?
Section 31 prohibits a mortgage credit institution from holding mortgage assets if this would make its aggregate loan-to-value ratio greater than 80%. This percentage may be varied by the Central Bank regulation. It ensures that the percentage may be changed in light of market conditions.
Will the Minister of State give us an idea as to how that would relate to the typical mortgage business of an Irish building society as things stand? Does he have any idea of what the story might be?
In that context, many people buying houses are getting mortgages for 92% of the value of the property. I understand that 40% of all business done at present has a value-to-asset ratio in excess of 75%. In other words, people are getting mortgages way above the 75% value of the asset. We are talking here of young couples and first-time buyers. They are the people caught in that scenario.
Regarding the value-to-asset regulation the Minister of State refers to - one of his amendments refers to 75% - how will that affect mortgage business in Ireland? Will it rule out all that new business? If it rules out that new business, will it prohibit the possibility of cheaper long-term loans?
I know exactly the point the Deputy is raising. We had some discussion on it this morning and it will arise later also. The issue we are dealing with now relates to 80% as the aggregate of the book on all the mortgages. The answer to Deputy McDowell's question is that I do not know, but I can find out. I am sure we will have it before we finish. I do not know the precise figure. I will come back to the question the Deputy raised as it will come up in relation to a slightly different issue. I am happy to deal with it later.
Section 32 prohibits designated mortgage credit institutions from holding mortgage credit or public credit assets in any country in which it is permitted to hold assets outside the EEA, G7 or Switzerland. If this would cause the value of such assets to exceed 10% of the institution's total holding and mortgage credit in substitution assets, I would limit it to that. In any event, these assets may not be included in cover assets pools unless the Minister makes an order under section 32(3) allowing the inclusion from countries specified in that order. Institutions may wish to hold such assets because they do business in a particular country or because they wish to build up assets and business in an EU applicant country with a view to including those assets and pools post-EU membership. I have put in the limiting figure here of 10%.
Applicant countries are not yet members of the OECD but no doubt they will, or some of them will.
Some of them may well be already.
Turkey and Mexico are members of the OECD.
Yes.
I know this sort of business is quite commonplace and that the applicant countries are keen on financing through this sort of mechanism. This runs contrary to what I have been saying earlier but maybe the 10% figure is a little low.
Putting on the socialist hat again.
The Deputy's point is a valid one. It is conservative enough but there has been a lot of discussion on this and there is no unhappiness with the figure. That is a sensible approach at this stage. I cannot say that is the absolute figure through all of Europe but it is certainly in or around that figure.
I understand that the mortgage part is relatively new in the applicant countries of eastern Europe. It is likely to be financed directly or indirectly rather more in that way than is our current experience in western Europe. There may well be an opening there in the not too distant future. I know the Minister of State has the discretion to change that anyway.
I do not disagree——
Those percentages can be changed under the regulations, can they not? They do not require legislation.
By order.
By order.
This comes back to a point we discussed some time ago, that we want to be sure this works and that the legislation is proper. Will I continue?
Regarding the prudent market value idea - I appreciate this is less than what you or I would consider to be market value - will the Minister of State give me a fix on how he reached this figure? For example, if I think my house is worth €300,000, how does one reach the prudent market value?
That is a good question. We do not, but the Central Bank does and is working it out at present. It is an important issue.
I am just wondering how it would be done.
Section 30, as amended, agreed to.
Will we suspend for half an hour or three quarters of an hour?
Unfortunately, I have an appointment at 1 p.m. It will not take me any more than an hour when we come back at 2 p.m., if that is agreeable.
Sitting suspended at 12.55 p.m. and resumed at 2 p.m.
SECTION 31.
Amendments Nos. 39 in the name of the Minister. Amendments Nos. 40, 46, 58a, 60 and 62 are related. We will discuss amendments Nos. 39, 40, 46, 58a, 60 and 62 together by agreement. Is that agreed? Agreed.
I move amendment No. 39:
In page 31, subsection (5)(d), line 42, to delete “under section 34(9)”.
These amendments deal with the Central Bank's general powers under the supervisory enactments to give directions to credit institutions. This power to give directions also applies to designated credit institutions. Sections 31(5) and 34(5) prevent a designated mortgage credit institution from placing an asset in a cover asset pool if a direction listed in section 34(9) has the effect of prohibiting.
Amendment No. 39 is required as section 34(9) does not contain a power to make directions. It merely lists directions which the Central Bank may give under the supervisory enactments. Amendments Nos. 40 and 46 are housekeeping amendments moving the list of directions to where they are referred to in the text of the Bill. Amendments Nos. 58a, 60 and 62 are analogous amendments for designated public credit institutions.
Amendment agreed to.
I move amendment No. 40:
In page 32, between lines 4 and 5, to insert the following subsection:
"(6) For the purposes of subsection (5)(d), ’relevant direction’ means a direction issued under-
(a) section 11 or 21 of the Central Bank Act, 1971,
(b) section 26 of the Trustee Savings Banks Act, 1989, or
(c) section 40(2) of the Building Societies Act, 1989.”.
Amendment agreed to.
I move amendment No. 41:
In page 32, subsection (8)(a), line 31, after “respect” to insert “of”.
This is a typographical amendment.
Amendment agreed to.
I move amendment No. 42:
In page 32, subsection (8)(b), line 36, after “respect” to insert “of”.
Amendment agreed to.
Amendment No. 43. Amendments Nos. 1 and 2 to amendment No. 43. Amendments Nos. 43 and amendments Nos. 1 and 2 to amendment No. 43 may be taken together by agreement.
I move amendment No. 43:
In page 33, between lines 10 and 11, to insert the following subsections:
"(12) For the purposes of subsection (10), the mortgage loan to value ratio is-
(a) 75 per cent in the case of a mortgage credit asset that comprises residential property, and
(b) 60 per cent in the case of a mortgage credit asset that comprises commercial property,
or, if an order made under subsection (13) specifies some other percentage, that other percentage.
(13) The Minister may, by order notified in Iris Oifigiúil, vary the percentages referred to in subsection (12).”.
I move amendment No. 1 to amendment No. 43:
In paragraph (a) to delete “75” and substitute “70”.
(a) in the case of a mortgage credit asset where the related property asset comprises residential property, 70 per cent.
These subsections set out a maximum loan to value ratio for mortgages which may be included in the cover assets pool. While mortgages of a loan to value ratio greater than this may be included in the pool, the excess is discarded for the purposes of valuing the pool. It should be noted that the loan to value ratio is based on a conservative valuation of the property which must be done in accordance with the criteria laid down by the Central Bank under the Bill. These subsections were inadvertently dropped out of the Bill at the printing stage and are now being re-included.
However, the loan to value ratio for residential mortgages is being raised to 75% - there was some discussion on this, as the Deputies will be aware - from the 60% intended at publication stage. This change has been made as a result of discussion with the rating agencies and with the approval of the Central Bank. It will make the issue of mortgage covered securities more attractive to domestic institutions.
My amendment addresses the issue raised in Deputy McGrath's first amendment. It allows for a higher loan to value ratio than that suggested by the Deputy. Therefore, I ask the Deputy to withdraw the amendment. The issue is covered.
Deputy McGrath's second amendment was raised with me by my Department and the industry very recently. However, given the large volume of changes which the industry was seeking and the time constraints involved, it was agreed with the industry that we would prioritise their concerns and this was one of the issues with which it was agreed not to proceed. The amendment raises prudential issues and I would like an opportunity to consider it further. I would, therefore, ask the Deputy to withdraw the amendment on the basis that I will consider it further before Report Stage. I do have some reservations about it. We told the industry this and it is happy that we would come back to it. I am signalling now that I will.
This has to do with the credit enhancement.
Yes.
This is indemnity bonds basically.
My amendments were submitted prior to me seeing the Minister's amendments and hence they can be withdrawn at this stage. On the first part, regarding the deletion of "75" and the substitute of "70", obviously if we had known the Minister was proposing 75% we would not have bothered with the 70%. Therefore, I am happy to withdraw that amendment. On thecommercial side, the Minister has endorsed that 70%.
The next part of it relates to credit enhancement. It is my understanding that it could be of significant benefit to mortgage holders in Ireland if this part of the amendment is agreed. The amendment gives proper status to mortgage insurance which people use to cover mortgages which would be in excess of the mortgage limit of 75%, and that could have knock-on effects, particularly for first-time buyers who may be able to get cheaper mortgages if this amendment were accepted.
If the Minister has discussed the amendment with the interested bodies and he will come back to us on Report Stage, I am prepared to withdraw it pending him possibly tabling his own amendment on Report Stage.
A few years ago we all would have been very comfortable to see figures of 75% or even higher being included as part of a secure asset pool, but I am not so sure now. Let us be honest, none of us can dismiss out of hand the possibility of, at the very least, a reduction in overall property prices, if not something stronger. In those circumstances - what has never happened before in Ireland - there would be the possibility of people defaulting on mortgages and negative equity would be a problem. In the circumstances a little caution might be appropriate here.
In terms of credit enhancement, in my previous life as a solicitor I was never enamoured with having to insure mortgage lending companies against the possibility of not realising the full value of the mortgage if they repossessed, and I know purchasers generally tend not to be enamoured by that. I always took the view that this should be a matter for the mortgage companies rather than a requirement on the borrower. Nonetheless, I understand the number of times this indemnity bond is called into play is few and far between. In the circumstances, as long as the bond is called into play only exceptionally, one could agree to it. However, in circumstances where there is an increased possibility of a reduction in property prices, I am not so sure.
If I may just clarify that important point which Deputy McDowell has raised. It is 75% as set by the Central Bank, which would be much more prudent than what might be the market value. Therefore, it could be a much lower market value, which covers the valid point the Deputy raised. It is obviously set taking account of what the Deputy said and the current position of the market. Therefore, it is a much more prudent 75% than simply just taking what somebody says, that it is worth £140,000 - it might be worth only £130,000 tomorrow. Those factors are taken into account when the Central Bank sets the 75% and it should provide more than adequate cover, which addresses the important point the Deputy raised.
When the Minister of State refers to the prudent valuation, how does one arrive at that figure? In the context of current valuations, if I wish to sell my house and have it valued, I do so on the basis of comparable properties in the same area. In a case where a local authority tenant wishes to purchase his or her house, an auctioneer will establish the value based on current values in the area. Does the Minister of State think there a difference between a conservative and a market value for a property? Surely the market value is the only value. The replacement value might be totally different.
I do not fundamentally disagree, but the Central Bank will set this figure and come up with a formula for doing so. It has expertise in this area. I may have taken it down to individual properties, but, looking at the pool, it may decide on a figure of 75% of the total, rather than breaking it up into small individual components.
To a degree this is subjective. I accept that the market value is the market value. However, taking account of Deputy McDowell's comments, the bank will wish to be prudent in its conservative approach. This does not necessarily mean there will be an enormous difference between its 75% and the actual figure. A formula will be agree with the industry with which people would be happy and which takes account of——
Is the Minister of State saying that he would expect the Central Bank to value the assets in the pool and to discount, perhaps, 10%, 15% or 20% to be on the prudent side?
It may do it in that way, but I am not saying that is how it will do it.
Will the 75% figure then kick in as 75% of the prudent value?
Yes. It comes back to the Deputy's original point. We are taking a conservative approach to this issue to see how it rolls out. It would be foolish to take everything at its best value from day one and hope that we move on from there. There has to be some kind of in-built way of taking account of markets, the Irish economy and what is happening in the world. A formula will be agreed, as is the case in many other instances. That should be satisfactory. We are including a safety valve in the system to take account of the points made by the Deputy.
When it is drawing up the formula, will the Central Bank negotiate with building societies, banks and so on before the formula is decided? Unless this takes place, a building society could have its property portfolio undervalued dramatically by the Central Bank's decision.
In theory that could happen, but obviously it will not occur. We do not wish to get into a discussion on the Central Bank's approach. I have set the general picture as to what will happen and what is intended by the legislation. The measures set out in the Bill are fair and prudent. The correct word is probably "conservative", but it protects everyone in the best manner possible.
There will obviously be discussions within the industry as to the formula. There is no point in the Central Bank coming up with a formula which is completely unworkable and which will not be accepted by anyone. However, it has much expertise and will have increased expertise in this area to deal with this issue.
There has been no sign of concern in this regard. People fully understand and accept the position and there have been no criticisms or serious questions raised as to the Central Bank doing something extraordinary which could undermine the value of assets held, for example, by a building society.
There were concerns when the industry put forward proposals to change the legislation in the amendments which the Minister of State accepted.
We agreed to increase the percentage. Valid arguments were made which were carefully listened to. It was felt that increasing the figure to 75% was satisfactory and did not pose any greater risk but, perhaps, offered more scope for flexibility. The other amendment involves a different matter which requires further discussion and careful consideration. We will see what we will do. I am not saying that I will come back with an amendment, but I am open to hearing the arguments and we will see what we come up with on Report Stage.
In my discussions with the industry I have accepted that this came very late. It was not prioritised by the main body which let is slide. We will look at this issue.
I withdraw the amendment based on the Minister of State's commitment to examine this again on Report Stage.
Section 38 allows the authority, by regulatory notice, to set out the requirements regarding the valuation base and methodology. Has the bank produced a draft of a regulatory notice or anything like that? This is basically what we are talking about.
This answers the points made by the two Deputies. The bank is actively engaged with the industry in discussing this formula, so it is not being done in a secret room. The bank is discussing this issue, but we have not seen anything in particular.
Amendment No. 1 to amendment No. 43, by leave, withdrawn.
Amendment No. 2 to amendment No. 43 not moved.
Amendment No. 43 agreed to.
Section 31, as amended, agreed to.
SECTION 32.
Amendments Nos. 44 and 45 are related and may be discussed together.
I move amendment No. 44:
In page 33, subsection (1), line 13, after "designated" to insert "mortgage credit".
These are drafting amendments.
Amendment agreed to.
Question proposed: "That section 32, as amended, stand part of the Bill."
In terms of the 15% limit which is included in this section, can the Minister of State position that with the other percentages? Can he make them add up? I am looking at the memorandum.
Section 32 provides that the amount of assets in a cover assets pool from Canada, Japan, Switzerland or the US cannot exceed 15% of the total pool. To allow flexibility to ensure that the Irish asset covered security market can respond to developments in the sector internationally, this percentage may be varied by the Central Bank regulation.
Does the 10% figure in section 30 also concern public credit? Is that the distinction?
That 10% is not allowed into the pool. That is on the balance sheet.
Therefore, one refers to the overall balance sheet of the institution and the other to the cover asset pool.
Correct.
Question put and agreed to.
Section 33 agreed to.
SECTION 34.
I move amendment No. 45:
In page 35, subsection (5)(e), line 4, after “designated” to insert “mortgage”.
Amendment agreed to.
I move amendment No. 46:
In page 35, between lines 6 and 7, to insert the following subsection:
"(6) For the purposes of subsection (5)(d), ’relevant direction’ means a direction issued under-
(a) section 11 or 21 of the Central Bank Act, 1971,
(b) section 26 of the Trustee Savings Banks Act, 1989, or
(c) section 40(2) of the Building Societies Act, 1989.”.
Amendment agreed to.
Amendments Nos. 47 and 63 are related and may be discussed together.
I move amendment No. 47:
In page 35, lines 24 to 28, to delete subsection (9) and substitute the following:
"(9) The Authority may, by notice in writing given to a designated mortgage credit institution, suspend the application of subsection (7) to the institution for a specified period if it is satisfied that to do so would facilitate the discharge of secured claims against the institution. The notice may specify conditions subject to which the suspension is to have effect.
(10) The Authority may revoke a notice given under subsection (9) on the ground that the designated mortgage credit institution concerned has not complied with a condition specified in the notice.
(11) For the purpose of subsection (9), ’secured claim’ means a claim in respect of which the rights of a preferred creditor (other than a super-preferred creditor) are secured under Part 7.”.
This amendment refers to substitution assets. Designated credit institutions are allowed to hold up to 20% of cover asset pools in the form of substitution assets. These are high quality liquid assets which enable designated credit institutions to diversify their cover asset pools to have sufficient liquidity to meet payments and to replace mortgage credit assets in cover asset pools easily in circumstances where new mortgage credit assets may not be readily available.
At certain times, for example, when a bond issue is nearing maturity, designated credit institutions may need increased liquidity in the pools. The purpose of the amendments is to enable them to achieve this by holding an increased proportion of substitution assets. However, they can only do so with the approval of the Central Bank and for as long as the bank permits. Amendment No. 63 is an analogous amendment for designated public credit institutions.
We are trying to provide for situations in which, if for a short period of time before a bond reaches maturity or whatever, an institution needs liquidity for a month. This will overcome difficulties in a short period in terms of maintaining liquidity in the pool. That is my understanding of the amendment.
I will go back to my example of First Active which operates as a bank and a building society. Are we talking about them simply transferring the deposits of deposit holders into the covered asset pool? Is it as simple as that?
No. These would be the type of highly secured cash funds which would be designated as acceptable to the asset pool. The flexibility is being created on the basis that there are times when a particular asset in a pool may reach maturity. They will need the liquidity in the pool for a short period - it might be a month or certainly no more than three months - to overcome that. It is the type of designated fund that can be put into the asset pool. I cited three examples for the Deputy earlier.
One of them was deposit funds and I am trying to determine whether the funds of building society members, for example, are included.
I instanced Central Bank deposits.
So the deposits of building society members do not qualify as sufficient security?
No, they do not.
The Minister cited commercial paper?
Yes, and the first example was bonds.
In that case, the most likely one is bonds, is it not?
Short-term commercial paper as well. It is simply to create flexibility rather than anything else. If one did not have that, it could seriously affect the liquidity basis of the pool, so it is important to be able to maintain that liquidity at times.
Amendment agreed to.
Section 34, as amended, agreed to.
NEW SECTIONS.
Amendments Nos. 48, 64, 79 and 82 are related and may be discussed together by agreement.
I move amendment No. 48:
In page 35, before section 35, to insert the following new section:
"35.-(1) A designated mortgage credit institution may, with the prior consent of the cover-assets monitor concerned, use the proceeds of a cover asset that has been realised-
(a) to create or acquire permitted mortgage credit assets or substitution assets for inclusion in the relevant cover assets pool, or
(b) to discharge secured claims.
(2) Subsection (1) applies even if-
(a) the institution is subject to an insolvency process, or
(b) the institution has been given a notice of the kind referred to in section 34(5)(e).
(3) Money received by a designated mortgage credit institution as the proceeds of realising a cover asset forms part of the relevant cover assets pool, and is to be treated as part of the related mortgage credit asset or related substitution asset, until it-
(a) is used in accordance with subsection (1),
(b) is released from that pool as an underlying asset and is replaced with other mortgage credit assets or substitution assets that are included in the cover assets pool in accordance with section 34 or this section, or
(c) is released from that pool under subsection (4).
(4) A designated mortgage credit institution may, with the prior consent of the cover-assets monitor concerned, release underlying assets (including money received by the institution as the proceeds of a cover asset) from the cover assets pool if the assets are not required by this Chapter to be included in the cover assets pool to secure secured claims.
(5) In this section-
'permitted', in relation to mortgage credit assets or substitution assets, means mortgage credit assets or substitution assets that are permitted to be included in a cover assets pool in accordance with this Chapter;
'secured claim' means a claim that is secured under Part 7 in respect of a preferred creditor.”.
This is a technical amendment dealing with redemption of assets and the circumstances in which they may be removed from cover asset pools. Subsection (1) deals with the early redemption of mortgages and other assets which may be included in cover asset pools. It provides that receipts from these redemptions may be used to acquire new mortgage credit or substitution assets, or left in the pools to discharge the claims of preferred creditors.
Subsection (2) disapplies the requirement that an insolvent or potentially insolvent designated mortgage credit institution or one whose designation the Central Bank is thinking of revoking, may not replace assets in the cover asset pool, but only in circumstances where the asset being replaced has been redeemed. This is to enable these institutions to use the moneys received from redemption of assets to purchase new assets in order to keep the pools alive and in a condition where they are able to meet the claims of security holders.
Subsection (3) clarifies that moneys received in respect of redeemed assets comprise part of the cover assets pool until such time as they are used to purchase new assets, discharge claims of preferred creditors or removed from the pool because it is over-collateralised. Subsection (4) enables a designated credit institution to remove assets from the cover assets pool where the pool is over-collateralised.
Amendment No. 64 is an analogous amendment for designated public credit institutions. Amendment No. 79 is consequential to amendment No. 48. Section 56 sets out the cover asset monitor's responsibilities under the Bill. The amendment adds to this list reflecting the new responsibilities given to the cover asset monitor by the amendment inserting a new section 35. These are permitting designated mortgage credit institutions to use the proceeds of redeemed mortgages to acquire new assets or to discharge claims and to remove assets from over-collateralised pools.
Amendment No. 82 does the same thing with regard to designated credit institutions.
The essential point is that this can only be done with the consent of the monitor, is that right?
The monitor's role is crucial.
Is it anticipated that, when things get to a stage where insolvency is in prospect, the monitor will be directing and shaping it? As I understand it, this is intended for circumstances where insolvency is in prospect. Is that right?
It is, in fact, if people cash in their mortgages early, which happens in Ireland more so than in other countries. There is a tradition in Ireland of people cashing in their mortgages early, so it is to cover that. The monitor has a role in the rules and regulations.
Perhaps I am getting this wrong. Subsection (2) specifies that it applies even if the institution is subject to an insolvency process.
It disapplies the requirement.
The Select Committee went into private session at 2.26 p.m. and resumed in public session at2.29 p.m.
Amendment agreed to.
Amendments Nos. 49 and 65 are related and may be discussed together by agreement.
I move amendment No. 49:
In page 35, before section 35, to insert the following new section:
"36.-For the purposes of sections 34 and 35, an asset is, except as provided by section 35(3), included in, or removed from, a cover assets pool when the appropriate particulars are recorded in the register of mortgage covered securities business. This section does not apply to money received from redeemed assets that remain in the pool until such time as they are used to buy other assets for inclusion in the pool or are used to discharge liabilities to preferred creditors.”.
The amendment provides that an asset or property is included in or removed from a cover assets pool when the appropriate particulars are recorded in the register of mortgage covered securities business. This register contains details of securities issued, the assets in the cover assets pool and cover asset hedge contracts entered into.
Amendment No. 65 is an analogous amendment for designated public credit institutions.
I would not be asking this question if I had not heard the news this morning. I hear that the Revenue Commissioners are concerned that, for the purposes of mortgage interest relief, they cannot match the records they have got from financial institutions with the records they got from individual taxpayers. Do we have any idea why that is the case? It certainly suggests that financial institutions' records of the mortgages they have loaned is not as comprehensive as those of the taxpayers. Their recollection is not as good.
I do not know the answer to that question.
It is astonishing. They are talking about 130,000 mortgages that could not be matched.
I can only speculate that it might be due to people having remortgaged or having taken out a second mortgage. They might have a couple of properties and have one mortgage to cover the two. Part of the mortgage might relate to a second property but would not be eligible for mortgage interest relief because it is not the primary family home. I suspect that is part of the reason.
The reason I bring it up at this point is that the simple assertion in the section that a register of mortgages will be kept does not appear to be quite so simple in that context.
In the context of this Bill it will have to be maintained and it will have to be accurate, particularly for the cover assets pool. Otherwise the absolute certainty about the security of the pool and its value in terms of its bond would be undermined.
It must be a register in which people can have confidence.
Yes.
Amendment agreed to.
Section 35 agreed to.
Section 36 agreed to.
SECTION 37.
I move amendment No. 50:
In page 37, subsection (2)(d), lines 29 to 31, to delete all words from and including “when” in line 29 down to and including “existence” in line 31 and substitute “in excess of €1,000 (£787.56) at any time during that year, and if any such persons had defaulted, the number of those assets that were held in the cover assets pool”.
The purpose of the amendment is to ensure that trivial defaults in respect of mortgage payments, where there is no issue concerning the mortgagee's overall timeliness in meeting his or her obligations, do not have to be included in financial statements.
Amendment agreed to.
Section 37, as amended, agreed to.
SECTION 38.
I move amendment No. 51:
In page 38, subsection (1), line 5, after "purposes" to insert "of".
Amendment agreed to.
Section 38, as amended, agreed to.
SECTION 39.
I move amendment No. 52:
In page 39, subsection (3), to delete lines 7 to 15 and substitute the following:
" 'credit transaction', in relation to a designated public credit institution, means-
(a) placing a deposit with an eligible financial institution designated or of a class designated under subsection (4),
(b) dealing with or holding a financial asset, or
(c) any other kind of transaction designated by an order made under subsection (4)(a);”.
Amendment agreed to.
I move amendment No. 53:
In page 39, between lines 29 and 30, to insert the following subsection:
"(4) The Authority shall, by order notified in Iris Oifigiúil, designate one or more financial institutions, or financial institutions of one or more specified classes, to be eligible financial institutions for the purposes of paragraph (a) of the definition of ’credit transaction’ in subsection (3).”.
Amendment agreed to.
Section 39, as amended, agreed to.
NEW SECTION.
I move amendment No. 54:
In page 39, before section 40, to insert the following new section:
40.-A designated public credit institution may not carry on a business activity other than a permitted business activity. However, this section does not prevent such an institution that is also a designated mortgage credit institution from carrying on business activities that can be lawfully carried on by a designated mortgage credit institution.
Amendment agreed to.
Section 40 deleted.
Section 41 agreed to.
SECTION 42.
I move amendment No. 55:
In page 40, after line 44, to insert the following subsections:
"(8) A designated public credit institution shall remove from its register of public credit covered securities business a contract of the kind referred to in subsection (3), but only if-
(a) the contract has been discharged, or
(b) the person with whom the contract was entered into has agreed.
(9) Subsection (5) ceases to apply to a contract of the kind referred to in subsection (3) when the entry relating to the contract is removed from a register of public credit covered securities business in accordance with subsection (8).”.
Amendment agreed to.
Section 42, as amended, agreed to.
SECTION 43.
I move amendment No. 56:
In page 41, subsection (1), line 5, to delete "total".
Amendment agreed to.
I move amendment No. 57:
In page 41, subsection (1), line 6, after "by" to insert "the".
Amendment agreed to.
I move amendment No. 58:
In page 41, subsection (2), line 12, to delete "the" where it secondly occurs.
Amendment agreed to.
I move amendment No. 58a:
In page 42, subsection 5(d), line 23, to delete “referred to in section 47(9)”.
Amendment agreed to.
Section 43, as amended, agreed to.
SECTION 44.
I move amendment No. 59:
In page 42, subsection (5)(e), line 30, after “institution,” to insert “or”.
Amendment agreed to.
I move amendment No. 60:
In page 42, between lines 34 and 35, to insert the following subsection:
"(6) For the purposes of subsection (5)(d), ’relevant direction’ means a direction issued under-
(a) section 11 or 21 of the Central Bank Act, 1971,
(b) section 26 of the Trustee Savings Banks Act, 1989, or
(c) section 40(2) of the Building Societies Act, 1989.”.
Amendment agreed to.
Question proposed: "That section 44, as amended, stand part of the Bill."
I wish to discuss the concept of a public credit institution. Is there anything remotely analogous to a public credit institution, as defined in the Bill, operating in Ireland at present?
Yes. The IFSC banks that will go into this pool are already doing it, as it were. They are the best example I can give the Deputy.
It is not Irish public credit.
The big players in this market in terms of those who will go into it are Irish in that they are licensed by the Central Bank. They would be seen as Irish institutions in terms of their operation under this Bill while in another sense they operate in the international markets through their own banking systems, for example, in Germany through DePfa.
If this State were borrowing money, from whom would it borrow? Who holds Irish Government bonds? I am aware most of the debt is in euros now and that the exchange rate risk has been eliminated.
It is about half.
I think it is higher. I remember when a question about this arose a couple of years ago it was stated that about 70% of it was borrowed domestically.
It all changed. With the advent of the euro the rules changed so the debt changed substantially over the past couple of years. It was at about 70% but it is now down to about 50%, maybe less.
What would be the total value of Irish Government bonds currently held?
It is £18 billion to £20 billion.
A fair bit of borrowing is done by issuing bonds, therefore, as opposed to simply borrowing from retail banks.
It is the main way of doing it.
Question put and agreed to.
Sections 45 and 46 agreed to.
SECTION 47.
I move amendment No. 61:
In page 45, subsection (5)(e), line 10, after “designated” to insert “public”.
Amendment agreed to.
I move amendment No. 62:
In page 45, between lines 13 and 14, to insert the following subsection:
"(6) For the purposes of subsection (5)(d), ’relevant direction’ means a direction issued under-
(a) section 11 or 21 of the Central Bank Act, 1971,
(b) section 26 of the Trustee Savings Banks Act, 1989, or
(c) section 40(2) of the Building Societies Act, 1989.”.
Amendment agreed to.
I move amendment No. 63:
In page 45, lines 31 to 35, to delete subsection (9) and substitute the following:
"(9) The Authority may, by notice in writing given to a designated public credit institution, suspend the application of subsection (7) to the institution for a specified period if it is satisfied that to do so would facilitate the discharge of secured claims against the institution. The notice may specify conditions subject to which the suspension is to have effect.
(10) The Authority may revoke a notice given under subsection (9) on the ground that the designated public credit institution concerned has not complied with a condition specified in the notice.
(11) For the purpose of subsection (9), ’secured claim’ means a claim in respect of which the rights of a preferred creditor (other than a super-preferred creditor) are secured under Part 7.”.
Amendment agreed to.
Section 47, as amended, agreed to.
NEW SECTIONS.
I move amendment No. 64:
In page 45, before section 48, to insert the following new section:
48.-(1) A designated public credit institution may, with the prior consent of the cover-assets monitor concerned, use the proceeds of a cover asset that has been realised-
(a) to create or acquire permitted public credit assets or substitution assets for inclusion in the relevant cover assets pool, or
(b) to discharge secured claims.
(2) Subsection (1) applies even if-
(a) the institution is subject to an insolvency process, or
(b) the institution has been given a notice of the kind referred to in section 47(5)(e).
(3) Money received by a designated public credit institution as the proceeds of realising a cover asset forms part of the relevant cover assets pool, and is to be treated as part of the related public credit asset or related substitution asset, until it-
(a) is used in accordance with subsection (1),
(b) is released from that pool as an underlying asset and is replaced by other public credit assets or substitution assets that are included in the cover assets pool in accordance with section 47 or this section, or
(c) is released from that pool under subsection (4).
(4) A designated public credit institution may, with the prior consent of the cover-assets monitor concerned, release underlying assets (including money received by the institution as the proceeds of a cover asset) from the cover assets pool if the assets are not required by this Chapter to be included in the cover assets pool to secure secured claims.
(5) In this section-
'permitted', in relation to public credit assets or substitution assets, means public credit assets or substitution assets that are permitted to be included in a cover assets pool in accordance with this Chapter;
'secured claim' means a claim that is secured under Part 7 in respect of a preferred creditor.”.
Amendment agreed to.
I move amendment No. 65:
In page 45, before section 48, to insert the following new section:
49.-For the purposes of sections 47 and 48, an asset is, except as provided by section 48(3), included in, or removed from, a cover assets pool when the appropriate particulars are recorded in the register of public credit covered securities business. This section does not apply to money received from redeemed assets that remain in the pool until such time as they are used to buy other assets for inclusion in the pool or are used to discharge liabilities to preferred creditors.".
Amendment agreed to.
SECTION 48.
Amendment No. 67 is related to amendment No. 66 and both amendments may be discussed together. Is that agreed? Agreed.
I move amendment No. 66:
In page 46, subsection (7), line 19, to delete "public" and substitute "mortgage".
Amendment agreed to.
I move amendment No. 67:
In page 46, subsection (7), line 21, to delete "public" and substitute "mortgage".
Amendment agreed to.
Section 48, as amended, agreed to.
Sections 49 and 50 agreed to.
SECTION 51.
Question proposed: "That section 51 stand part of the Bill."
Does the Minister of State expect that the prudent market value of public credit will be the nominal value or does he expect a type of discounted system to be in place?
I do not. I expect it will be close to the——
To the principle?
It is.
It is not compounded with interest.
Question put and agreed to.
SECTION 52.
I move amendment No. 68:
In page 47, subsection (2), line 48, to delete paragraph (a) and substitute the following:
"(a) the Authority and its members,
(b) any delegate of the Authority and, if the delegate is a body corporate, any member of the delegate,”.
This section deals with disclosure of information to authorised recipients. The Central Bank is an authorised recipient. The purpose of this amendment is to ensure that whatever legal structure the new single regulatory authority takes, persons will be able to report information to it.
I thought there was a firm commitment about the legislation.
It is being drafted. The Minister is committed to it and he wants to get it in place. I am sure he will introduce it in the House as soon as it is ready.
Amendment agreed to.
I move amendment No. 69:
In page 48, subsection (2), lines 6 and 7, to delete paragraph (e) and substitute the following:
"(e) the officers, employees and agents of, and any persons authorised by, a person referred to in paragraphs (a) to (d).”.
Amendment agreed to.
Section 52, as amended, agreed to.
SECTION 53.
Amendment No. 70. Amendments Nos. 71, 76 and 77 are related to amendment No. 70. Amendments Nos. 70, 71, 76 and 77 may be discussed together by agreement.
I move amendment No. 70:
In page 48, subsection (4), line 25, after "assets" to insert "and must specify the date or dates on which the transfer is to take place or how that date or those dates are to be ascertained".
These amendments propose changes to the mechanism for transferring assets. It would be useful if I first briefly described how the section is designed to operate. This section enables the transfer of assets between designated credit institutions and other unrelated credit institutions, both designated and non-designated credit institutions. Such transfers must be effected in compliance with a scheme approved by the Minister. This transfer mechanism mirrors the approach to transfer of assets between banks generally set out in Part III of the Central Bank Act, 1971.
The section also provides for the transfer of assets between credit institutions and the subsidiary companies which are designated credit institutions. This form of transfer is likely to be common when designated credit institutions are being established, which are the type of institutions we spoke about earlier. For example, existing banks and building societies involved in mortgage business are likely to have too wide a range of business activity to qualify for designated mortgage credit institution status. Such institutions have a choice, if they wish, to issue mortgage covered securities. They can either scale back their activities to qualify as a designated credit institution or they can set up a subsidiary which carries out the restricted range of activities allowed. This section enables credit institutions which establish subsidiaries to transfer their mortgage credit assets and other assets to their subsidiaries.
As in the case of transfers under the Central Bank Act, 1971, the approval of the Minister is required for the transfer of assets between unrelated institutions. However, for the transfer of assets between credit institutions and subsidiary designated credit institutions the approval of the Central Bank is sufficient. This is because it is a technical arrangement to facilitate credit institutions which may not be eligible for designated credit institution status to form subsidiaries which may obtain this status. It does not involve the transfer of assets between unrelated institutions.
Amendments Nos. 70, 71, 76 and 77 deal with a drafting problem in the Bill. Subsection (5) enables the Minister or the Central Bank to impose conditions on a scheme for the transfer of assets. The imposition of these conditions is optional. However, subsection (6) states that these conditions must state the dates on which transfers are to take place and how the assets are to be transferred. It does not make sense to have mandatory requirements in optional conditions. Amendment No. 71 deletes subsection (6), while amendment No. 70 moves the information requirement regarding the dates and method of transfer from the conditions to the original scheme. Amendments Nos. 76 and 77 are, therefore, consequential on this.
I am not sure how the requirement for ministerial approval is more onerous than the requirement for approval from the Central Bank, which seems to be the underlying implication.
I did not necessarily mean it that way. It is different methodologies of dealing with it.
Transfers between institutions require ministerial approval and transfers between subsidiaries of the same institution or an institution and its subsidiary require Central Bank authority.
Yes.
Why are there different scales of permission or consent?
That is the way it operates under the Central Bank Act. This is new legislation. It is not the same way because that is over-regulation and it is probably not necessary in the context of this Bill. There is enough regulation without requiring the Minister to be directly involved in both cases.
Why should the Minister be involved at all?
I agree with the Deputy. That is a question I would also raise. The Deputy's point is valid. Because of the urgency to get this legislation in place, we did not go back and unravel the primary legislation relating to the Central Bank. We left it as it was, took account of it and transposed it. We tried, where we could, to make the new legislation less onerous in terms of regulation.
The Central Bank has access to the information it needs to make decisions, whereas I assume the Department does not have expertise. I would not expect it to have any.
It would have some, but it would not have the same level.
In terms of the assets certain banks might hold and other detailed information, it would not have that type of information or expertise.
Yes
Is the consent of either the bank or the Minister needed for securitisation
Does the Deputy mean in current practice without the use of this Bill?
If a building society wants to securitise mortgage assets.
I do not know. I think the answer is yes, if I remember correctly. However, I will find out for the Deputy. I am almost certain it is required, but my officials are not sure.
I asked the Department officials when I met them a few weeks ago about the volume of securitisation in Ireland. The response they came back with was interesting in so far as it suggested there was a lot more happening now than there was three years ago and that the volume was now considerable compared to a couple of years ago when it might have been negligible. I am interested to know if that has been regulated. People who take out a mortgage with a mortgage company might be surprised to hear the flow of income goes to another mortgage company a few years later. That seems to be coming more commonplace.
I will find out for the Deputy.
If the Minister of State could find out if there is any control and the regulations in that regard.
Amendment agreed to.
I move amendment No. 71:
In page 48, lines 36 to 39, to delete subsection (6).
Amendment agreed to.
I move amendment No. 72:
In page 48, subsection (7), line 43, after "have" to insert "been".
Amendment agreed to.
Amendment No. 73. Amendment No. 75 is related. Amendments Nos. 73 and 75 may be discussed together by agreement.
I move amendment No. 73:
In page 49, subsection (7)(b), line 1, to delete “in respect of the order” and substitute “giving particulars of the transfer”.
These amendments modify the information requirement in respect of a transfer of assets. Instead of publishing copies of orders, it is proposed that the Minister and the Central Bank publish notices giving details of the transfer as this would be more user friendly.
Amendment agreed to.
I move amendment No. 74:
In page 49, subsection (8), lines 4 and 5, to delete "authority" and substitute "person".
This is a drafting amendment.
Amendment agreed to.
I move amendment No. 75:
In page 49, subsection (8), line 5, to delete "copy of the order" and substitute "notice giving particulars of the variation".
Amendment agreed to.
I move amendment No. 76:
In page 49, subsection (9)(a), line 9, to delete “the conditions of approval” and substitute “any conditions imposed on the approval of the transfer”.
Amendment agreed to.
I move amendment No. 77:
In page 49, subsection (9)(b), line 10, to delete “specified in those conditions” and substitute “(if any) specified in the scheme”.
Amendment agreed to.
I move amendment No. 78:
In page 49, subsection (13)(a), line 36, to delete “issue” and substitute “issued”.
This is a typographical amendment.
Amendment agreed to.
Section 53, as amended, agreed to.
Section 54 agreed to.
SECTION 55.
Question proposed: "That section 55 stand part of the Bill."
I want to tease out this matter a little. In the first instance, the bank, to use shorthand for a second, is required to appoint a cover assets monitor, is that correct? It is an obligation. It is not optional.
Yes. The institution is required to do it.
Yes, I am just using "bank" as shorthand for the sake of argument. Where then does section 55 kick in, that is, when the Central Bank decides that it will appoint one? What I am getting at is this. If the institution does not appoint a monitor, then it is in default of its obligations under the Bill. Surely there must be some mechanism for dealing with that other than the bank appointing somebody in his place.
This is important. Until I spoke to the Minister's officials I did not quite understand whether the monitor is a good cop or a bad cop or possibly both. Obviously you wants to be in a position where you are sure you can have faith in the monitor and the role he or she is performing. It appears to me that would require some sort of independent appointment system. It might actually be desirable, even in appointing a monitor in the normal course, that the consent of the Central Bank might be required to do that. However, it does seems to be right that there should be some sort of independent supervision of monitors to prevent credit institutions having stooges who sign-off every week or whatever. The role of the monitor is pretty important. The role of the monitor is essential to the work.
The Central Bank will set down the qualifications and the criteria a person would need to become a monitor in the first place. I agree with the Deputy's point - that you do not want monitors who have been appointed for the sake of being appointed but who do not understand the business. The Central Bank will set down the qualification requirements or standard which a monitor must meet to be able to do the job.
Therefore they cannot, for example, appoint their in-house accounts to do it, can they?
It depends on the qualifications standard set down by the Central Bank. It can be any person who meets the qualifying standard the Central Bank sets down.
In the first instance, is there not a requirement that at least the assent of the Central Bank should be required when a monitor is being appointed?
I suppose the point is that once the Central Bank sets down the criteria and the qualification standard, obviously the institution in the appointment of a cover assets monitor must meet that standard. If, in effect, the bank appoints somebody who does not meet the standard and something goes wrong, the institution would be clearly in breach of its obligations regarding the appointment. The Deputy is suggesting a belt and braces approach.
I am not sure that we are talking about the same issue. Perhaps I am wrong. Does the Minister of State see the monitor as a sort of independent invigilator or somebody who would be a manager who is basically part of the institution?
I would see the monitor as being the former.
That was my understanding also.
It is my understanding.
That being so, is there not then an argument for having some way of ensuring that the person is independent rather than just competent, which is what the Minister of State seemed to be suggesting earlier? I threw out the Central Bank as being one means by which it could be done.
I understand the Deputy's point. I suppose the approach was once the Central Bank sets down the criteria and the qualifications, that should be sufficient in itself. What the Deputy seems to be suggesting is that perhaps an added benefit to the procedure would be the inclusion of a stipulation that the Central Bank should be notified of the particular monitor appointed.
Yes. In addition, the Central Bank should be in a position to veto the appointment.
On the basis that the Central Bank would disagree that the person meets the qualifying standard.
Is it envisaged, for example, that this person should be a full-time paid member of management of the credit institution? Would it just be another managerial position within the bank or credit institution?
No. The person will not be a member of staff of the credit institution.
Is the monitor specifically prohibited from being an employee?
No. However, that is certainly not what is intended by the legislation. It is clear that the monitor should be independent.
At the heart of what we are discussing is the fact that he who pays the piper will call the tune, is it not? If the institution is paying the person to act as a monitor, will the institution, in effect, control to a great extent what he or she says? If he or she is an employee of the institution, then he or she will be even more tightly bound to the institution than if he is employed on an independent basis. Perhaps Deputy McDowell is stating that these monitors should be answerable to the Central Bank rather than be employed by their institutions and attached to the Central Bank.
I do not think so. In a way the person would be similar to a person operating as a trustee to a pension fund where the pension fund pays the person but it does not mean that he or she is not doing the job. It strikes me, as we discuss it, that the point made by Deputy McDowell has certain merit. Given all of the issues involved and given the fact that we want the role to be independent, particularly from the cover asset monitor's point of view, I took the view - there would be good examples of it - that where the criteria were clear, well established, set down, unequivocal and unambiguous and the person appointed would meet such a standard, that, in effect, would meet the requirement set down by the Central Bank. I might consider whether, as a matter of courtesy, if nothing else, or as a matter of form, the Central Bank should be notified of the identity of the monitor.
Perhaps the Central Bank should be in a position to say that the person is not acceptable.
I do not think there is anything essentially wrong in what the Deputy is saying. I ask him to let me consider it. I accept the point the Deputy is trying to make and I know from where he is coming. I will look at it before Report Stage. I do not see anything inherently wrong in what he is saying.
Question put and agreed to.
SECTION 56.
I move amendment No. 79:
In page 51, subsection (1), line 4, after "34(2) and (7)”, to insert “, 35(1) and (4)”.
Amendment agreed to.
I move amendment No. 80:
In page 51, subsection (2)(b), lines 17 and 18, to delete “cover mortgage business register” and substitute “register of mortgage covered securities business”.
This is a drafting amendment.
Amendment agreed to.
I move amendment No. 81:
In page 51, subsection (5), line 26, after "designated" to insert "mortgage".
Amendment agreed to.
Question proposed: "That section 56, as amended, stand part of the Bill."
There is a lack of clarity here. Clearly the institutions are primarily bound by the Act and in the first instance they must observe, for example, the percentages and the criteria set out of the covered assets pool. Therefore, it is their responsibility in the first instance and not that of the monitor. Is that correct?
Yes, it is. Effectively they are bound by the rules set down and they should operate within them. Therefore, it is their responsibility in the first instance but certainly the monitor, whose role involves follow-up and is independent, would clearly be aware of what was being done by the institution and would be expected to act quickly if the institution did not act according to the rules and criteria set out. Therefore the monitor's role will be closely allied to that. While it might be the responsibility of the institutions in the first instance, I do not see a big gap in awareness between the institution and the monitor. In fact, I see the monitor being very aware of what the institution is doing.
Does the legal liability for compliance with the Act lie primarily on the institution or on the monitor or where is the division between the two? If it goes wrong, for example, would it be the monitor's fault for not having noticed it or the institution's fault for not having done it?
I would have thought that the legal responsibility in the first instance is clearly on the institution, but the monitor also has legal obligations which would obviously need to be fulfilled. In other instances, wherever ones applies a legal framework it falls first on the body itself - in this case on the institution - to operate within the legal framework with which it is presented. We are providing extra security in terms of putting in place the covered assets monitor who will have to fulfil legal obligations. The Central Bank will also have a role in terms of licensing within the market. At different levels each institution or body has legal obligations placed on it. The starting point is the institution from which flow other obligations.
I am concerned that there seems to be an overlap where it is not entirely clear where the primary responsibility lies. For example, a company auditor will sign off on certain things. The auditor is responsible for the accuracy of statements he or she gives, even though he or she is not responsible for any wrongdoing or misaccounting which might have occurred previously. The auditor is only responsible for that on which he or she signs off.
However, in the context of this Bill, the requirements, for example, that certain percentages be within the non-EEA G7 or whatever, both appear to have some responsibility for this. The institution forms the pool in the first instance, but it also seems to be the monitor's responsibility to ensure there is no breach.
That provision is included to ensure there is a monitoring system as to what the institution is doing. Section 56(5) covers the point which the Deputy rightly makes. It states, "The appointment of a person as a cover-assets monitor in respect of a designated credit institution does not absolve the institution from its duty to comply with this Act." This brings us back to my point that the institution in its primary function and role has obligations under the Act. There is a soccer analogy. Players know the rules of the game and the referee is there to ensure the rules are observed. A player knows the consequences if he breaks a rule. I hope I am not stretching the point too far.
The Minister of State is highlighting the point I made earlier regarding the independence of the monitor. The referee is independent and his role is simply to enforce the rules. This monitor could be a member of staff of a bank or credit institution. It is not unheard of for auditors to develop too comfortable a relationship with clients and, perhaps, to fail to ask questions that should be asked. I am suggesting circumstances where the relationship could be even cosier than that of the auditor-client. This will take away some of the monitor's independence.
I would not wish that to be the case and that is not the legislation's intention. If I need to deal with this issue I will do so to take account of what has been said.
Let us look at this issue again.
I know from where the Deputy and I are coming and I do not disagree. The Deputy wishes to ensure the monitor is independent at all times and that someone from the bank or institution cannot be the appointee.
The Bill seems to suggest that, in normal circumstances, the monitor would be an appointee of the bank and would behave in a fashion in which such an appointee might behave. However, if something was wrong, the Central Bank would come in with a heavy handed, more independent line. The Minister of State has rightly summarised me as stating that the monitor should be independent in all circumstances.
Question put and agreed to.
SECTION 57.
I move amendment No. 82:
In page 51, subsection (1), line 30, after "47(2) and (7)” to insert “, 48(1) and (4)”.
Amendment agreed to.
I move amendment No. 83:
In page 51, subsection (2)(a), line 39, to delete "sections 44(1) or 45” and substitute “section 45 or 47(7)”.
Amendment agreed to.
Section 57, as amended, agreed to.
SECTION 58.
I move amendment No. 84:
In page 52, subsection (3), line 14, after "the" where it secondly occurs to insert "designated".
Amendment agreed to.
Section 58, as amended, agreed to.
SECTION 59.
Question proposed: "That section 59 stand part of the Bill."
Does the monitor have to give a reason for resigning and does he or she continue to have responsibility for anything which might have happened during his or her tenure? What if a cover assets monitor suspects something is going wrong and is not getting anywhere with the credit institution and opts out? In such circumstances does the monitor have to publicly state a reason or explain it to the Central Bank or whatever?
Yes. There are two points involved. The answer is yes. Going back to what I said earlier, if a monitor sees something seriously going wrong he or she has legal obligations under the legislation. A monitor cannot just walk away and opt out and say nothing. Under his or her obligations as a designated monitor in the first instance, he or she would have to report the matter. There is no question of the monitor walking out and leaving behind a bad situation for someone else to pick up without reporting the problem. Section 62 requires the monitor to report anything suspicious.
Question put and agreed to.
Section 60 agreed to.
SECTION 61.
I move amendment No. 85:
In page 53, subsection (2), lines 24 and 25, to delete paragraph (a), and substitute the following:
"(a) such particulars of payments received by the institution in respect of cover assets included in the relevant cover assets pool, and at such times or intervals, as the monitor requires,”.
At present, section 61(2)(a) requires an institution to keep the cover assets monitor informed of every payment received in respect of the cover assets pool. This is far too detailed a requirement. The amendment allows the cover assets monitor to set out the way in which this information is to be given to him or her. That is more reasonable.
Amendment agreed to.
I move amendment No. 86:
In page 53, lines 32 to 34, to delete subsection (3) and substitute the following:
"(3) For the purposes of subsection (2)(b), ’prescribed period’ means-
(a) in the case of a mortgage credit asset of a kind referred to in section 4(1) - 60 days,
(b) in the case of any other kind of mortgage credit asset, or of a public credit asset or substitution asset - 10 days, or
(c) if in any of those cases some other period is specified by a regulatory notice made under subsection (4) - that other period.”.
As it stands, section 61(3) provides that if a person is ten days late making a mortgage payment the institution will have to report it to the cover assets monitor. This is too strict a requirement and is extended to 60 days in the amendment to ensure the cover assets monitor has to be informed only in cases where there is serious delay in payments. This is a reasonable proposal.
Amendment agreed to.
Section 61, as amended, agreed to.
SECTION 62.
I move amendment No. 87:
In page 53, subsection (1), line 46, to delete "a" and substitute "has".
This is a typographical amendment.
Amendment agreed to.
Section 62, as amended, agreed to.
SECTION 63.
I move amendment No. 88:
In page 54, subsection (1), lines 17 and 18, to delete paragraph (b).
This is a typographical amendment. Paragraph (b) is repeated in paragraph (c).
Amendment agreed to.
Section 63, as amended, agreed to.
Section 64 agreed to.
SECTION 65.
Question proposed: "That section 65 stand part of the Bill."
This section concerns reporting provisions. Does the monitor have to make a regular report to the authority or is that just part of the regulatory process which would be expected? I think that is section 64. Does the Minister of State expect, for the sake of argument, an annual report from the monitor to the Central Bank.
I would, but this is up to the Central Bank. I did not wish to——
Is it up to the bank or the monitor?
The bank.
Is there not an argument for stipulating that the monitor should report on an annual or biennial basis to the bank? Will it be along the lines of an auditor's report where one signs off that everything is fine?
The Central Bank can ask the monitor to make a report on any issue at any stage. That is the more likely scenario, rather than reports at the end of each 12 month period. The kind of activity which will go on in the market on a day-to-day and week-to-week basis will require the Central Bank to intervene at times and ask the monitor specific questions. That is a more flexible and direct way for the Central Bank to deal with this issue. That is the expectation and intent rather than, as in other situations, just presenting an annual report. The relationship will not be completed distant. This is particularly so if we take the route the Deputy mentioned earlier, which is the intention in the Bill, to have an independent monitor in place. In that regard, where somebody is not a member of the staff of the institution, there would be an ongoing business reporting relationship between the bank and the monitor. It would not be necessary, therefore, to prescribe an annual reporting system. It would not achieve very much. If one waited until the end of a year to make the report, it could be too late to deal with a problem that occurred earlier. If one deals with problems on a daily or weekly basis, however, the Central Bank could seek a report from the monitor at any time.
This can be dealt with in a couple of ways. It may be unfair to say that the approach taken in the Bill is minimalist, but it basically requires the monitor to report if something goes wrong. That is one way.
No. It does not require the monitor to report if something goes wrong. The Central Bank can ask the monitor to report at any stage on an issue, but it does not necessarily mean that something is going wrong. I would hope the Central Bank would deal with the monitor on the basis of being updated on what was actually happening in the context of the monitor's responsibilities regarding the activities of the institution. My understanding is that there will be a regular reporting procedure between the monitor and the Central Bank, particularly as the monitor would be independent and could not be seen to have a vested interest.
Am I right that under the provisions of the Bill as currently drafted, there is no requirement for the credit institution to notify the Central Bank as to the amount of assets that might be held in any asset pool unless the Central Bank asks for it? The situation would be analogous to what I understand applies to commercial banks at present where they are required to notify the Central Bank of the amount of credit they have provided in a given period.
As it appears in the register, it would be known precisely what is in the pool. It is already covered by the fact that the register is in existence and, therefore, what is in the register is what is in the pool. If there were changes, they would know from the changes in the register.
I would be happier if there was some obligation on the monitor or the institution to notify the Central Bank on a regular basis, annually or whatever, of any major shifts or substitutions in the assets of the contingent pool.
Should this be included in the Bill or would it be the authority's job to make such regulations?
It is part of the authority's role to insert such regulations. That is the aspect of flexibility. The Deputy is right and I agree with what he said about the authority's purpose. To be clear about the point made by Deputy McDowell, however, the fact that changes have to be made in the register would be known to the Central Bank at all times. The more detailed points that Deputy McDowell made revert to the point made by Deputy McGrath, although I know one can argue it either way.
I accept the point that the information is available to the bank at all times. My point is that I can see merit in the institutions being required to return that to the bank. I accept, however, that the bank has access to it and in most circumstances that should cover the point.
It is included in the regulations.
Question put and agreed to.
SECTION 66.
Amendments Nos. 89, 92, 94 and 106 to 109, inclusive, are related and may be discussed together by agreement.
I move amendment No. 89:
In page 55, line 24, after "covered" to insert "securities".
This is a drafting amendment. Section 66 lists the type of activities for which a manager may be made responsible and under amendment No. 89 calls them asset cover securities business. The other amendments are consequential.
Amendment agreed to.
I move amendment No. 90:
In page 55, paragraph (a), line 29, to delete “(f) below” and substitute “(d)”.
Amendment agreed to.
Section 66, as amended, agreed to.
SECTION 67.
I move amendment No. 91:
In page 55, subsection (1), line 38, to delete "shall" and substitute "may".
Section 67 enables the Central Bank to find someone who will administer the business of a designated credit institution in certain circumstances to ensure the continuation of payments to preferred creditors. These circumstances include insolvency, concern as to the safety of the interests of referred creditors and revocation of designation status. As drafted, the Central Bank must appoint a manager in these circumstances. The amendment gives the Central Bank discretionary power to appoint a manager. In some circumstances the authority may be happy with the existing management, may feel that a liquidator appointed to a designated credit institution is capable of ensuring that the institution meets its obligations or may wish to give additional powers such as a cover asset monitor. There are many different options so I am giving it more scope.
What is likely to happen in the event of an institution which maintained a cover asset pool that became insolvent? Would the pool be sold to another institution and continue on or does the Minister expect it would be liquidated? Has there been international experience of this? It is available to preferred creditors but has it ever happened or is it likely to happen?
It has never happened. We are in new territory.
The aim is to ensure that it does not happen.
It has not happened. When the Department and the Central Bank examined the track record, they found it was excellent. That is why we were confident in moving forward with this provision. As I outlined on Second Stage, there is much experience of this type of activity in some countries and it has been excellent. It has not yet happened internationally and hopefully we will not go down that road. That is the best answer I can give.
The Minister does not envisage Dr. Somers setting up a whole new section of the NTMA to run insolvency?
No.
Amendment agreed to.
I move amendment No. 92:
In page 55, subsection (1), to delete line 40 and substitute "asset covered securities business activities, or specified asset covered securities business".
Amendment agreed to.
Amendments Nos. 93, 95, 99, 102 and 131 are related and amendments Nos. 102, 103, 105 and 110 are cognate. Therefore, amendments Nos. 93, 95, 99, 102, 103, 105, 110 and 131 may be discussed together by agreement.
I move amendment No. 93:
In page 56, subsection (1)(b), line 3, to delete “under this Part”.
These are drafting amendments. A manager can be appointed to a designated credit institution under Part 6 or Schedule 1. The amendments ensure that any references to the appointment of a manger in the Bill take account of both possibilities.
Amendment agreed to.
I move amendment No. 94:
In page 56, subsection (2), line 14, after "specified" to insert "asset covered securities".
Amendment agreed to.
I move amendment No. 95:
In page 56, subsection (6), line 31, to delete "(6) On appointing a person as manager under this section" and substitute "(5) On appointing a manager in respect of a designated or formerly designated credit institution".
Amendment agreed to.
Section 67, as amended, agreed to.
SECTION 68
Amendments Nos. 96 and 97 are related and may be discussed together by agreement.
I move amendment No. 96:
In page 56, lines 40 and 41, to delete all words from and including "institution" in line 40, down to and including "institution" in line 41 and substitute "designated or formerly designated institution concerned in place of the existing parent entity (if any) of that institution".
Amendment agreed to.
Section 68, as amended, agreed to.
SECTION 69.
I move amendment No. 97:
In page 56, line 45, after "designated" to insert "or formerly designated".
Amendment agreed to.
Section 69, as amended, agreed to.
NEW SECTION.
I move amendment No. 98:
In page 56, before section 70 to insert the following new section:
70.-When section 67 (1) or 68 applies, the Authority may, by notice published in Iris Oifigiúil, appoint the NTMA as a temporary manager of the asset covered securities business of a designated or formerly designated credit institution, or of such of these activities as are specified in the notice, until either-
(a) a manager is appointed in respect of the institution, or
(b) an appropriate body corporate becomes the parent entity of the institution.”.
The amendment gives the authority the opportunity to appoint the NTMA acting manager of an institution until such time as a manager is appointed under section 67 or the institution is sold under section 68. The provision may be of use where a significant period elapses before a manager is appointed or a buyer for the institution is found. It is straightforward.
Amendment agreed to,
SECTION 70.
I move amendment No. 99:
In page 57, subsection (4)(b), line 14, to delete “section 69” and substitute “this Act”.
Amendment agreed to.
I move amendment No. 100:
In page 57, subsection (4), line 19, to delete "Act, 1990” and substitute “Agency Acts, 1990 and 2000”.
Amendment agreed to.
I move amendment No. 101:
In page 57, subsection (5), line 21, after "Offices” to insert “Fees”.
Amendment agreed to.
Section 70, as amended, agreed to.
SECTION 71.
I move amendment No. 102:
In page 57, to delete line 24 and substitute "in respect of a designated or formerly designated credit institution.".
Amendment agreed to.
Section 71 agreed to.
SECTION 72.
I move amendment No. 103:
In page 57, line 25, to delete "under this Part" and substitute "in respect of a designated or formerly designated credit institution".
Amendment agreed to.
I move amendment No. 104:
In page 57, paragraph (a), line 28, to delete “credit institution concerned” and substitute “institution”.
Amendment agreed to.
Question proposed: "That section 72, as amended, stand part of the Bill."
This is a power to manage. Presumably that entitles or allows the manager to deal with the assets, substitute assets and so forth. Is that specified later in the Bill?
It is set out in Part 6. Section 66(a) to (f) cover the Deputy’s query.
Question put and agreed to.
SECTION 73.
I move amendment No. 105:
In page 57, line 33, to delete "under this Part" and substitute "in respect of a designated or formerly designated credit institution".
Amendment agreed to.
I move amendment No. 106:
In page 57, paragraph (a), line 36, after “covered” to insert “securities”.
Amendment agreed to.
I move amendment No. 107:
In page 57, paragraph (a), line 37, after “the” to insert “asset covered securities”.
Amendment agreed to.
I move amendment No. 108:
In page 57, paragraph (b), line 40, after “covered” to insert “securities”.
Amendment agreed to.
I move amendment No. 109:
In page 57, paragraph (b), line 42, after “the” where it firstly occurs, to insert “asset covered securities”.
Amendment agreed to.
Section 73, as amended, agreed to.
SECTION 74.
I move amendment No. 110:
In page 58, line 3, to delete "under this Part".
Amendment agreed to.
Question proposed: "That section 74, as amended, stand part of the Bill."
The wording is a little strange. It refers to requesting the NTMA to "locate" suitably qualified persons to replace the person. It is a strange word to use. Does it mean to appoint?
The appointment is made by the Central Bank. The NTMA finds the person, which is why the word "locate" is used, and the Central Bank appoints the person.
Question put and agreed to.
NEW SECTION.
I move amendment No. 111:
In page 58, before section 75, but in Part 7, to insert the following new section:
75.-(1) Except as provided by section 81, the following enactments do not affect the application and operation of this Part in respect of designated and formerly designated credit institutions:
(a) the Companies Acts;
(b) the Bankruptcy Acts, 1988 and 2001;
(c) the Taxes Acts;
(d) the supervisory enactments;
(e) any other enactment or any rule of law relating to an insolvency process.
(2) For the purposes of subsection (1), ’Taxes Acts’ has the same meaning as is given to expression ’the Acts’ in section 811(1)(a) of the Taxes Consolidation Act, 1997.
(3) This Part does not apply to a cover assets hedge contract that has been removed from the relevant register of mortgage covered securities business, or register of public credit covered securities business, in accordance with this Act.".
Amendments Nos. 7 and 8 moved the definitions in section 75(1) to section 3. This amendment deletes those provisions and changes the side title of the section accordingly. It also updates the citations of the Companies Acts and the Bankruptcy Acts.
Amendment agreed to.
Section 75 deleted.
SECTION 76.
I move amendment No. 112:
In page 59, paragraph (b), line 7, to delete "section 75(1)” and substitute “section 3”.
Amendment agreed to.
Question proposed: "That section 76, as amended, stand part of the Bill."
Perhaps the Minister will read his speaking note on this section.
This section provides that where a designated or formerly designated credit institution, its parent entity or any related company, as defined in section 75, becomes insolvent or potentially insolvent, this is not to affect the rights and entitlements of certain persons nor to affect certain appointments.
The claims and rights which are not affected are those of holders of asset covered securities issued by the institution, persons who have any entitlement in respect of a security by virtue of their legal relationship with the security holder or persons with rights under covered asset hedge contracts entered into by the institution. The appointment of the cover assets monitor and, where applicable, the appointment of a manager are also unaffected. The claims and rights of the monitor and the manager in relation to their appointments or arising under this legislation, where they also have the status of preferred creditors, are also unaffected. The functions of NTMA under Part 6, locating a manager or parent institution or in acting as manager, are also unaffected and its rights and entitlements relating to those functions remain in force.
It is another way of saying that the normal ranking of priorities remains the same.
Yes. It is a belt and braces approach. It is clear through the Bill but, to be certain, it is better to spell it out in this section.
Is it explicit, for example, that the taxation liabilities of any institution which has a cover assets pool ranks in lower priority to the preferred creditors? I am aware that it is the intention. The Revenue Commissioners ranks as an inferior creditor——
It does.
Is that spelt out?
Yes. I have no doubt about it. This particular pool of assets supersedes everything else.
I do not remember seeing it.
The Revenue Commissioners have to be notified when there is a requirement to do so. The Deputy is right that the Revenue Commissioners are a secondary creditor. The pool ranks first and there is a higher ranking for the people who are the creditors of that pool than for the Revenue Commissioners and anybody else.
If that core value is removed from the Bill, there would be nothing left.
The Deputy is right to an extent. The pool of assets is the priority to those who hold the assets in the pool. They are ring fenced in such a way that even if the institution is in difficulty for other reasons, this group of assets belongs to the creditors associated with them. They supersede anything else. Otherwise the system could not function. That security is probably why there has never been a default in this procedure internationally and why it is so secure. The quality of the assets held in it are triple A. It would be unthinkable that anything could go wrong with the pool because of the rating of the assets and way the Central Bank is involved in it.
Looked at from a different angle, it means that the best assets of a financial institution are not available to the Revenue Commissioners in cases of default.
Yes, as specified as to what covered assets are in the context of the assets eligible for the pool. The Deputy is right but that is how one gets better rates of interest and that is why customers in the Irish market, ordinary mortgage holders, should be able to get lower rates of interest and the type of mortgage that is available in Europe, which is a fixed rate 20 year mortgage if the customer so desires. That is one of the most important things in the Bill. For years I could not understand why people on the Continent could get easy access to such mortgages. When I spoke to them they could not understand the variable mortgage rates we had and why payments went up and down. When they take out a mortgage the payment is the same from the first day until it finishes. The rate is fixed. This activity being introduced in the Irish market for domestic institutions——
We had those mortgages but they were through local authorities and they proved to be expensive.
The Deputy is aware of the point I am making.
Yes.
It is an important point.
Question put and agreed to.
SECTION 77.
I move amendment No. 113:
In page 59, subsection (2), line 34, after "designated" to insert "or formerly designated".
Amendment agreed to.
I move amendment No. 114:
In page 59, subsection (3), lines 37 and 38, to delete all words from and including "preferred" in line 37 down to and including "75(1)” in line 38 and substitute “super-preferred creditors”.
Amendment agreed to.
Section 77, as amended, agreed to.
SECTION 78.
Amendments Nos. 116 and 118 are cognate to amendment No. 115. Is it agreed that amendments Nos. 115, 116 and 118 be discussed together? Agreed.
I move amendment No. 115:
In page 60, line 22, after "institution" to insert ", or where the institution has a parent entity or a company is related to the institution, the parent entity or related company,".
These are drafting amendments. They ensure that when a company related to a designated credit institution becomes insolvent, the creditors of the related institution do not have a claim on the cover assets pool and the rights of preferred creditors are preserved. This is the point we just discussed.
Amendment agreed to.
Section 78, as amended, agreed to.
SECTION 79.
I move amendment No. 116:
In page 60, subsection (1), line 33, after "institution" to insert ", or where the institution has a parent entity or a company is related to the institution, the parent entity or related company,".
Amendment agreed to.
I move amendment No. 117:
In page 60, subsection (1)(c), line 42, after “by”, to insert “or in respect of”.
Amendment agreed to.
I move amendment No. 118:
In page 61, subsection (2), lines 5 and 6, to delete all words from and including "a designated" in line 5 down to and including "assets" in line 6 and substitute "the assets of a designated or formerly designated credit institution or, where the institution has a parent entity or a company is related to the institution, of the parent entity or related company,".
Amendment agreed to.
I move amendment No. 119:
In page 61, subsection (3), line 9, after "seizure" to insert ", or to set-off by any persons,".
Amendment agreed to.
Section 79, as amended, agreed to.
Section 80 agreed to.
SECTION 81.
I move amendment No. 120:
In page 61, subsection (2)(b), line 34, to delete “or”.
Amendment agreed to.
Question proposed: "That section 81, as amended, stand part of the Bill."
This section provides that preferred creditor status does not apply in the case of fraud or misrepresentation.
I do not understand.
Section 81(1) specifies that nothing in this legislation shall in relation to any securities issued or any contracts made relating to the asset covered securities business supersede the operation of laws which would normally prevent the securities being issued or invalidate the contracts on the grounds of fraud or because of the provision of other legislation specified in subsection (2). In other words, if the assets were obtained or gained in a fraudulent manner, they would then fall to be dealt with under existing and other types of legislation. They would not be protected on the basis that they were part of a cover assets pool. I presume we all agree with that. Anything fraudulently or illegally obtained could not be protected.
Whether it is fraud or misrepresentation by the creditor.
Yes.
It relates to somebody who obtains a loan from a credit institution which is backed by the pool. Is that right?
Yes. My other understanding of it is that if I had hot money, to use an old expression, or if I had money on which tax had to be paid, bought assets with it and put them into a pool, but in a tax investigation it was discovered that those assets were obtained using funds which were not legally available to me——
We are into two slightly different territories. The Minister of State is talking about someone who obtains a mortgage improperly or by misrepresenting something. I am talking about someone who gives a loan which is then backed up by the mortgage. I am trying to envisage a circumstance where it could happen.
The effect of the sections in the legislation cited is to prevent bankruptcy favouring a creditor or class of creditors by means of property transfer or below cost selling. The continued application of these sections has the effect of ensuring that a designated credit institution, which is insolvent or potentially insolvent, cannot transfer assets in order to prevent collateral being available for the institution's debts. That is the question the Deputy asked rather than the one I answered. It also prevents the institution from cherry picking assets to the advantage of any creditor or class of creditors. I misunderstood what the Deputy was saying.
Question put and agreed to.
SECTION 82.
I move amendment No. 121:
In page 62, subsection (2)(a), line 4, after “State” to insert “, or are financial obligations of an entity referred to in section 5(1)(e)”.
Subsection 82(2) allows charges to be created over assets in other jurisdictions in cover asset pools to enhance the claims of preferred creditors. The amendment enables such charges to be created over EU and EIB assets. These assets are not currently covered by the subsection as they are not located in any specific member state. It is an important amendment.
Amendment agreed to.
Section 82, as amended, agreed to.
Sections 83 and 84 agreed to.
SECTION 85.
I move amendment No. 122:
In page 63, subsection (2)(a), line 38, to delete “conditions” and substitute “requirements”.
This is a drafting amendment.
Amendment agreed to.
I move amendment No. 123:
In page 64, subsection (2), lines 22 to 24, to delete paragraph (i).
Amendment agreed to.
I move amendment No. 124:
In page 64, subsection (3), line 41, to delete "€1,500" and substitute "€1,900".
Amendment agreed to.
Section 85, as amended, agreed to.
Section 86 agreed to.
SECTION 87
I move amendment No. 125:
In page 65, line 8, after "Minister" to insert "or the Authority".
Both the regulations made by the Central Bank and orders made by the Minister must be put before the House. Is that right?
Yes.
I am trying to work it out. Are the changes in the nature of the assets which can be held within the pool made by order or by regulation? They must all come before the House.
Yes.
Amendment agreed to.
I move amendment No. 126:
In page 65, between lines 10 and 11, to insert the following subsection:
"(2) This section does not apply to an order made under section 53.”.
Under section 53 the Minister and the Central Bank must make orders so that designated credit institutions can transfer assets to and from other credit institutions. The Minister makes the order if the institutions are not related. The Central Bank makes the order if they are related. It is proposed in this amendment, unlike other orders made under the Bill, to exempt these orders from the requirement that they be laid before the Houses of the Oireachtas. This is because of their Executive rather than legislative nature.
Amendment agreed to.
Section 87, as amended, agreed to.
SECTION 88.
I move amendment No. 127:
In page 65, subsection (2), line 17, after "regulation" to insert "or order".
This is a typographical amendment.
Amendment agreed to.
Section 88, as amended, agreed to.
Sections 89 and 90 agreed to.
SECTION 91.
Question proposed: "That section 91 stand part of the Bill."
The time referred to in this section seems quite short.
We want to keep it that way.
Irregularities in the conduct of bank business become clearer much later than after two years.
I do not have a view on it. The section states that this Act "may be brought at any time within 2 years after the date alleged to be the date on which the offence was committed". I have an open mind on it.
It is possible that an offence will not come to light within two years of it being committed.
That is a point. I will come back to the Deputy on Report Stage.
Question put and agreed to.
SECTION 92.
Amendments Nos. 129 and 130 are related to amendment No. 128. Amendments Nos. 128 to 130, inclusive, may be discussed together by agreement.
I move amendment No. 128:
In page 66, subsection (2)(a), line 29, to delete “member or employee of the Authority” and substitute “person”.
These amendments make some drafting changes to the definition of authorised persons for the purposes of section 92. Amendments Nos. 128 and 129 amend the reference to the authority to ensure it is broad enough to encompass whatever legal structure the new single regulatory authority will have. Amendment No. 130 is required because the NTMA does not have members. It is straightforward.
Amendment agreed to.
I move amendment No. 129:
In page 66, subsection (2), between lines 31 and 32, to insert the following:
"(b) any delegate of the Authority or any member or employee of any such delegate, or”.
Amendment agreed to.
I move amendment No. 130:
In page 66, subsection (2)(c), line 33, to delete “member or employee of the NTMA” and substitute “person”.
Amendment agreed to.
I move amendment No. 131:
In page 66, subsection (2)(d), line 37, to delete “under Part 6 or Schedule 1”.
Amendment agreed to.
Question proposed: "That section 92, as amended, stand part of the Bill."
Is provision made for indictable offences or will all offences merely be categorised as "summary offences"? If the latter is the case, a maximum fine of €1,900 appears low.
Provision is made for indictable offences, I believe under section 26.
What does this relate to in that case? Section 92(a) refers to a person “who prevents an authorised person from performing a function imposed by the Act, or obstructs an authorised person who is performing such a function”, or “with reasonable excuse, fails to provide an authorised person with information that is lawfully required by or under this Act”. They seem to be offences which, in certain circumstances, could attract a fine of much more than €1,900.
They could also receive a prison term of six months or both.
We are placing onerous responsibilities on particular individuals and creating an offence. In my opinion, we are making provision for extremely low fines in the event of conviction.
We will reconsider the position vis-à-vis the fines.
As it stands, the maximum fine is €1,900.
That is on summary conviction.
That is why I inquired about indictable offences.
I cannot recall the relevant section but on Second Stage I indicated that much more severe penalties will apply in certain circumstances. I am informed that section 12 provides for fines of up to €250,000. Section 12(3) states:
A person who contravenes subsection (1) or (2) commits an offence and is liable-
(a) on conviction on indictment, to a fine not exceeding €250,000 (£196,891), or
(b) on summary conviction, to a fine not exceeding €1,900 (£1,496.37).
Perhaps we could reconsider the level of fine for summary convictions.
They are very specific offences but I agree that on indictment——
I will reconsider the position.
It would be good if the Minister of State could reconsider the offences because a maximum fine for non-compliance of €1,900 is not realistic.
Question put and agreed to.
SECTION 93.
Amendment No. 133 is consequential on amendment No. 132 so the two can be taken together by agreement.
I move amendment No. 132:
In page 66, subsection (1), line 41, after "that" to insert "the officer".
Amendment agreed to.
I move amendment No. 133:
In page 66, subsection (1)(a), line 42, to delete “the officer”.
This is a drafting amendment.
Amendment agreed to.
Amendments Nos. 135 to 140, inclusive, and amendment No. 145 are cognate to amendment No. 134 and all may be discussed together by agreement.
I move amendment No. 134:
In page 66, subsection (1)(a), lines 43 and 44, to delete “corporation” and substitute “body”.
These are drafting amendments.
Amendment agreed to.
I move amendment No. 135:
In page 67, subsection (1)(b), line 1, to delete “corporation” and substitute “body corporate”.
Amendment agreed to.
I move amendment No. 136:
In page 67, subsection (2), lines 5 and 6, to delete all words from and including "corporation" in line 5, down to and including "corporate" in line 6 and substitute "body corporate is liable for the offence".
Amendment agreed to.
I move amendment No. 137:
In page 67, subsection (3), line 8, to delete "corporation" and substitute "body corporate".
Amendment agreed to.
I move amendment No. 138:
In page 67, subsection (3), line 9, to delete "corporation" and substitute "body corporate".
Amendment agreed to.
I move amendment No. 139:
In page 67, subsection (4), line 10, to delete "corporation" and substitute "body corporate".
Amendment agreed to.
I move amendment No. 140:
In page 67, subsection (4), line 12, to delete "corporation" and substitute "body".
Amendment agreed to.
Section 93, as amended, agreed to.
SECTION 94.
I move amendment No. 141:
In page 67, subsection (1)(c), line 21, to delete “Agency” and substitute “NTMA”.
This is a drafting amendment. The NTMA is not defined as "the Agency" in this Bill.
Amendment agreed to.
Section 94, as amended, agreed to.
Section 95 agreed to.
SECTION 96.
I move amendment No. 142:
In page 68, subsection (1)(a), line 7, after “State),” to insert “or”.
Again, this is a drafting amendment.
Amendment agreed to.
I move amendment No. 143:
In page 68, subsection (1)(b), line 8, after “country,” to insert “or”.
Amendment agreed to.
Section 96, as amended, agreed to.
SECTION 97.
I move amendment No. 144:
In page 69, subsection (1)(b)(ii), line 11, after “years,” to insert “or”.
Amendment agreed to.
I move amendment No. 145:
In page 69, subsection (2)(c), lines 23 and 24, to delete “corporation” and substitute “body corporate”.
Amendment agreed to.
Section 97, as amended, agreed to.
Sections 98 to 100, inclusive, agreed to.
SCHEDULE 1.
I move amendment No. 146:
In page 70, paragraph 2(2), line 13, to delete "subclause (1)" and substitute "subparagraph (1)”.
Amendment agreed to.
Amendment No. 151 is cognate on amendment No. 147 so the two can be taken together by agreement.
I move amendment No. 147:
In page 70, paragraph 3(1)(c), lines 22 and 23, to delete “paragraph (2)” and substitute “subparagraph (3)”.
These are drafting amendments correcting references in the Bill.
Amendment agreed to.
Amendments Nos. 149, 150 and 152 to 154, inclusive, are cognate to amendmentNo. 148 and all may be taken together by agreement.
I move amendment No. 148:
In page 70, paragraph 3(1)(g), line 30, to delete “Ireland” and substitute “the State”.
These are drafting amendments.
They are part of Fianna Fáil policy, not to mention being drafting amendments.
Amendment agreed to.
I move amendment No. 149:
In page 70, paragraph 3(1)(g), line 31, to delete “Ireland” and substitute “the State”.
Amendment agreed to.
I move amendment No. 150:
In page 70, paragraph 3(1)(g), line 32, to delete “Ireland” and substitute “the State”.
Amendment agreed to.
I move amendment No. 151:
In page 70, paragraph 3(2)(c), lines 37 and 38, to delete “paragraph (2)” and substitute “subparagraph (3)”.
Amendment agreed to.
I move amendment No. 152:
In page 70, paragraph 3(2)(e), line 41, to delete “Ireland” and substitute “the State”.
Amendment agreed to.
I move amendment No. 153:
In page 70, paragraph 3(2)(e), line 42, to delete “Ireland” and substitute “the State”.
Amendment agreed to.
I move amendment No. 154:
In page 70, paragraph 3(2)(e), line 43, to delete “Ireland” and substitute “the State”.
Amendment agreed to.
I move amendment No. 155:
In page 71, paragraph 4(2), line 15, to delete "paragraph" and substitute "subparagraph".
Amendment agreed to.
Schedule 1, as amended, agreed to.
SCHEDULE 2.
Amendment No. 158 is consequential on amendment No. 156 so the two may be taken together by agreement.
I move amendment No. 156:
In page 75, lines 6 and 7, to delete "within the meaning of the Asset Covered Securities Act, 2001".
Amendment agreed to.
I move amendment No. 157:
In page 75, line 12, to delete "Community" and substitute "Communities".
Amendment agreed to.
I move amendment No. 158:
In page 75, line 14, after "1992", to insert "In this subsection, 'asset covered securities' has the meaning given by section 3 of the Asset Covered Securities Act, 2001.”.
Amendment agreed to.
Amendments Nos. 159 and 160 are related and may be taken together by agreement.
I move amendment No. 159:
In page 75, to delete lines 31 to 33 and substitute the following:
"(b) to perform the functions delegated to it under Part 2 of the National Treasury Management Agency (Amendment) Act, 2000, and
(c) to perform such other functions as are imposed on it by or under any other enactment.’.”.
This Schedule is a technical provision designed to ensure that references in the National Treasury Management Agency Act, 1990, to the NTMA's functions include its functions under the Asset Covered Securities Bill. Essentially this means that the general provisions regarding accountability, expenses, reporting to the Minster, etc, as set out in the National Treasury Management Agency Act, 1990, apply to these new functions. Some of the NTMA's functions are, for constitutional reasons, performed on the authority of the Government and under the close control of the Minister for Finance. These are its debt management and State Claims Agency functions. As the Bill is currently drafted, the State Claims Agency function would not be carried out in this way. The purpose of the amendment is to correct the error.
Amendment agreed to.
I move amendment No. 160:
In page 75, line 37, after "(1)(a)” to insert “or (b)”.
Amendment agreed to.
Question proposed: "That Schedule 2, as amended, be Schedule 2 to the Bill."
I understand that this Schedule amends the Building Societies Acts. Will the Minister outline the position regarding the phrase in the Schedule "(2A)Subsection (2) continues to apply to a person referred to in that subsection even if the society's rights in respect of the loan are sold, transferred, or otherwise disposed of". What rights are being preserved there?
To what part of the Schedule is the Deputy referring?
It appears to be an amendment to section 16 of the Building Societies Act and it seems to be intent on preserving certain rights of building society members in respect of loans.
Item No. 3, which amends section 16 of the Building Societies Act, 1989, provides that a member of a building society whose housing loan is transferred to a designated credit institution continues, subject to the rules of the building society, to be a member of that building society. This is to ensure that the rights, privileges and obligations of the building society member are unaffected by such a transfer. We discussed this matter earlier.
So the reference to subsection (2) does not limit it to specific rights. It does not relate, for example, merely to a person's voting rights.
No, it is designed to protect existing rights. In other words, if a person's asset is suddenly placed in a covered assets pool, they will still retain their rights within the building society they joined in the first instance.
Question put and agreed to.
Title agreed to.