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Select Sub-Committee on Finance debate -
Wednesday, 16 Apr 2014

Central Bank Bill 2014: Committee Stage

The purpose of the Bill is, first, to amend the Central Bank Act 1971 to allow the transfer of assets and liabilities from a building society to the holder of a banking licence and, second, to provide a payment out of the Central Fund to the ESM for the purpose of providing financial assistance to Greece.


Amendment No. 1 in the name of Deputy Michael McGrath has been ruled out of order as it is not relevant to the provisions of the Bill. As the Deputy is aware, and I know from being a committee member, that while the notices are issued in my name they are decided by the Bills Office and the Ceann Comhairle's office.

I will not hold it against you, Chairman.

Amendment No. 1 not moved.

Amendment No. 2 is in the name of Deputy Pearse Doherty. Deputy Brian Stanley is substituting for Deputy Doherty.

I move amendment No. 2:

In page 3, after line 31, to insert the following:

“(2) All assets transferred under this section shall continue to be burdened with the legal protections attached to them through the Code of Conduct on Mortgage Arrears and the Central Bank and Financial Services Authority of Ireland Act 2004 and shall not be transferred to any entity where these legal protections are not present.”.

The purpose of the amendment is straightforward. It is to ensure that the €1 billion in loans at ICS, which is the only building society currently in the country, that are potentially to be sold are not sold to a vulture fund, except in circumstances that are not identical to those affecting the sale of the loan book of IBRC. Nevertheless, we should copper-fasten the need for these loans to be protected. We are open to any legal clarity that can be added to the amendment but we insist that the spirit of its implementation be retained in the Bill. We are told legislation is being drafted to deal with this issue in a general way and if that is happening, we welcome it.

We recognise also that the Government had allowed Deputy McGrath's Bill on this issue to pass to Committee Stage. All of that is to be welcomed but in the here and now we are talking about €1 billion of mortgages that could be sold as soon as this Bill is passed and as of now, we do not have any guarantee that we will not have another IBRC type situation. We specifically mention the code of conduct on mortgage arrears, the legal status of which FLAC has called into question or at least the enforceability of that code. I would appreciate the Minister, Deputy Noonan, replying to me on the code's legal status and the enforceability of the code of conduct on mortgage arrears.

We know there is a need for greater competition in the banking sector, particularly in the mortgage sector, and we are aware of the difficulties people are experiencing, but it is our hope that this change will help to bring that about. Does the Minister have any indication at this stage whether interested parties are looking to move in on the ICS loans?

I thank the Deputy. I do not propose to accept the amendment proposed by Deputy Doherty for the following reasons. The amendment would prevent the sale of mortgages to an entity which was in the process of obtaining authorisation from the Central Bank. Additionally, in the event that the code of conduct on mortgage arrears were repealed or replaced by the Central Bank of Ireland, this amendment would potentially prevent the sale of these assets permanently, even if equivalent or greater protections applied in a potential purchaser. In addition, the amendment would potentially give rise to a contaminant effect on the broader pool of assets of Bank of Ireland in that it could become difficult to identify which assets were transferred from ICS into the broader pool of assets owned by Bank of Ireland. This could potentially give rise to legal complexities in respect of any further sales of loan assets by Bank of Ireland, regardless of whether those assets had been transferred under this Bill.

However, I agree with the objective of this amendment. This Government is committed to bringing forward legislation to protect mortgage holders and believes that the Sale of Loan Books to Unregulated Third Parties Bill is the most effective way to address the issue in a comprehensive manner. That legislation will ensure that the protections of the CCMA or any replacement code in the future continue to apply to mortgages which are sold to unregulated financial service providers.

That legislation is being actively progressed and will be brought forward to the Oireachtas when finalised. If enacted, the Bill being debated today will permit the transfer of assets and liabilities from building societies to banks only; it does not allow the transfer of assets to other entities other than licensed banks. As all the banks are regulated financial service providers, they are required to comply with the Central Bank's code of conduct on mortgage arrears in any case. However, this amendment proposed by Deputy Doherty would address the matter in an incomplete manner as it refers specifically to the code of conduct on mortgage arrears. It is not appropriate to refer to that specific code in primary legislation as it could require a primary legislative change were the code to be superseded or repealed or could be rendered ineffective in the absence of such an amendment to primary legislation.

I cannot commend to the House an amendment that would unsatisfactorily address the issue which the Deputy intends to address, especially when, as I have said, a dedicated piece of legislation is being prepared on the matter with the best interests of the consumer in mind. It would not be appropriate to deal with this issue as part of this Bill as the sale of loan books to unregulated third parties Bill, which is listed in the Government's legislative programme, is intended to address the concerns surrounding the applicability of CCMA, following the sale of loan books to unregulated entities in a comprehensive manner. Officials in the Department of Finance are engaging with the Central Bank and the Attorney General's office to ensure that mortgage-holders will be protected. The Government will continue to work with other interested parties to achieve the best solution for consumers. For these reasons I believe the proposed sale of loan books to unregulated third parties Bill is the appropriate way to address these issues. I do not accept the amendment.

This issue has been well thrashed out in recent weeks and months. I accept the Minister's statement that he will progress his own piece of legislation to deal with the issue. However, I take issue with him on one statement he made during Leaders' Questions last week when he said that nobody who currently finds himself or herself in this situation has raised any issue about dealing with one of the funds not currently regulated by the Central Bank and who is not legally under the CCMA. I do not believe that to be true. Only yesterday a mortgage-holder contacted me who is a customer of a foreign-owned bank which has left this jurisdiction and the mortgage is now being held by an affiliate of a US fund. That mortgage-holder is adamant that the code is not being complied with. I cannot vouch for the fact in that case but the problem is that nobody can adjudicate on it and that is the issue I have consistently raised with the Minister on previous occasions. If that mortgage-holder believes that the new mortgage institution is not complying with the code of conduct, he cannot go to anyone to vindicate his rights; nobody can adjudicate as to whether the new mortgage institution is complying with the code. This is the fundamental problem.

The bottom line is that thousands of mortgage-holders have been left vulnerable. It might never come to pass and I hope that none of them experiences problems with non-compliance with the code of conduct - God forbid - because the truth is that if they experience any non-compliance with the code there is nothing they can do about it. The Central Bank will not want to hear of it, the Department will not want to become involved. The problem is that nobody is legally mandated to become involved.

When does the Minister expect the Government Bill to be brought forward? I am aware that the Central Bank is being consulted. The Bill is listed as due for publication in 2015. This is not good enough. I ask the Minister if the Government will prioritise this legislation to protect all the mortgage-holders affected, those mortgages taken out before the IBRC case came to public prominence, the IBRC mortgage-holders and potentially some ICS mortgage-holders who could find themselves in that situation and whom the Minister must acknowledge are potentially vulnerable. Will the Bill be brought forward before next year so that we can all devote time to it and get it right? I accept it is complicated but I believe that with collective cross-party political will we should be able to legislate to deal with this issue effectively.

The issue does not arise under this legislation we are discussing today which enables transfers to be made to banks which are regulated and which will be fully compliant with the CCMA. The Deputy is returning to a previous wider debate. I cannot today give the Deputy a date for publication of the legislation which is being prepared. I said last week that the heads of the Bill have been forwarded to the Central Bank for observations and we need to have them legally proofed in the Office of the Attorney General. It is only at that stage that we can move on to drafting the Bill.

I will have a better idea in the next couple of weeks of the time line we have in mind. I want to give that legislation priority. While the voluntary commitments made by the purchasers of loan books were very important and valuable to those persons who had mortgages, they do not have the force of law underpinning them which is what I want so that all mortgage-holders would be able to avail of the same code of conduct and that the enforcing agent would be the Central Bank. I will keep the Deputy informed as to when the legislation will be ready but he can take it that it will be a lot sooner than 2015.

That is good news.

Having listened to the Minister's reply I am pleased to hear the legislation is being brought forward. If I heard him correctly we will see it next year. The mortgage-holders have been left in a vulnerable and exposed position. Many of them are caught in very difficult situations. I will press the amendment.

Amendment put and declared lost.
Question proposed: "That section 1 stand part of the Bill."

The pre-legislative stage was very helpful. The Minister of State, Deputy Perry, spoke on Second Stage on the issue. Section 1 is one of the two parts of the Bill which facilitates the transfer of assets and liabilities from ICS Building Society to Bank of Ireland in order to comply with the conditions attached to its restructuring plan which was endorsed by the European Commission. How soon will the transfer take place after the enactment of the legislation?

The transfer is expected this summer, in June or July.

Will they have to go to the market? Is it correct that it is a condition that they put them to the market at least but not necessarily conclude a sale?

In the restructuring agreed with the Commission they will have to go to market.

Will the final decision rest with the bank as to whether they conclude a sale?

The Commission has fairly strong views that it wants more competition in the Irish mortgage market. While we do not have the full details I think that is the approach it will take.

I presume that is the spirit of it.

I think it goes beyond that. Under the restructuring agreement Bank of Ireland is committed to sell it.

Question put and agreed to.

Amendment No. 3 has been ruled out of order as it is not relevant to the provisions of the Bill.

Amendment No. 3 not moved.
Section 2 agreed to.

Amendment No. 4 in the name of Deputy Pearse Doherty has been ruled out of order as it is not relevant to the provisions of the Bill.

Amendment No. 4 not moved.

I move amendment No. 5:

In page 4, between lines 7 and 8, to insert the following:

“3. The Minister shall, within 3 months of the enactment of this Act, lay before both Houses of the Oireachtas a report on the operation of the Securities Markets Programme of the European Central Bank insofar as it affects Ireland.”.

I do not have a difficulty with the provisions in this Bill concerning the payments for Greece. There was a comprehensive statement on Second Stage as to why Ireland will not benefit from a similar initiative.

In February 2013, the European Central Bank, ECB, reported its holdings under the securities markets programme, SMP, for the first time. It stated it held Irish Government bonds at a book value then of €13.6 billion and a market value of €14.4 billion, 8.8% of gross domestic product, GDP, at the time, with an average maturity of 4.6 years. The profit to the holder of the bonds comes in two forms, the annual coupon or interest and capital appreciation. I want to focus on the issue of the coupon and the question as to whether Ireland should get some relief on the interest on these bonds. Given there has been some redemption of bonds in the meantime, it is possible the ECB’s holdings are approximately €10 billion. At a rough annual coupon of 5%, we are paying €500 million in interest on these bonds held by the ECB and, ultimately, to national central banks which are in turn borrowing at 0.25% from the ECB. Ireland has a large interest bill of between €8 billion to €9 billion per annum. It is possible that almost €500 million of that is going through the ECB to national central banks.

If that money were recycled for Ireland in the same way it will be for Greece, it would represent a significant boost to the Exchequer. I do not believe the Government has made such a case to the authorities. The Minister probably does not believe it is a good idea because we are in a different position to Greece’s, as has been outlined. It would not, however, represent debt write-down but would be just an initiative in respect of the interest we pay to the ECB on these bonds acquired through the secondary markets. What is the Government’s position on this?

I do not propose to accept Deputy Michael McGrath’s amendment and, indeed, I am not in a position to agree to it.

As it reads, the amendment would require me, within three months, to lay before the Houses of the Oireachtas a report on the operation of the SMP of the ECB in so far as it affects Ireland. Under this amendment, the obligation to report is placed on the Minister for Finance rather than the Central Bank which, given that the SMP is a monetary policy instrument, would be the appropriate source of such a report.

In this context, complying with this amendment would be conditional on the Central Bank agreeing to provide the necessary information. Further, my understanding is that the Central Bank could not be obliged to provide, indeed it would probably be prohibited from providing, the information concerned to me. Sections 6A(3) and 6A(5) of the Central Bank Act 1942, as amended, limit obligations on the Governor and the Central Bank commission in regard to consulting with or informing the Minister for Finance by reference to the European treaty as defined in section 21 of the Central Bank Act 1942 as amended and the Statute of the European System of Central Banks and of the European Central Bank. I am informed the Central Bank expects information on the SMP to be covered by the obligations in the treaty and statute with regard to professional secrecy.

What is the Government's position on making the case for these interest payments? It is more a political policy rather than a Central Bank decision.

Greece has been treated for several years as a special case. The Deputy knows all about the debate of what could be done for Greece. For all the programme countries, including Greece, the programmes were designed with conditions in the recipient countries involved in mind. There was no one flat programme applied. Greece’s programme was distinctly different to Ireland’s. It is important to note that the concessions agreed, which include the SMP measure being facilitated under this legislation, are specific to Greece and are accompanied by significant additional conditionality.

They must also be seen in the context of the very significant debt restructuring that has taken place in the Greek programme. Countries and programmes seek to assist each other. We did not object to this when it came up as part of the solution for Greece. There was no payment required from Ireland while we were in the programme. The total amount that might be applicable to Ireland is reduced by €35 million. The residual amount now is €126 million which will be paid over a long period.

At the time this was going on, we were pursuing a solution for the promissory note. The Greeks, the Portuguese and other programme countries did not oppose us in that. There are 18 countries within the eurogroup with 28 Union member states. If one is looking for a concession, one has to bring everyone on side. One thinks twice before objecting to something other member states are availing of, particularly if it does not interfere with one’s key objectives or interests.

I am not objecting to Greece availing of this. My question was more about ruling out Ireland seeking a similar concession.

The SMP has been discontinued by the ECB. The amount invested in the fund has dropped from over €200 million to €178 million as the loans mature. It has been replaced by the OMT, outright monetary transactions, a clever device announced by Mr. Draghi which has never been used but has been very effective. There is no point in revisiting a scheme that is now obsolete as far as the ECB is concerned.

The amendment is a good one. No one would begrudge Greece getting some interest back. I accept its position is very different to Ireland’s but the principle is the same. We bailed out the European financial institutions but are now making substantial interest repayments each year, a serious burden on the economy. While the Minister claims the scheme may be obsolete, the interest repayments are not. If we were running a business and another business down the road got this concession from our bank, we would be looking for it too. The public finances and families are under pressure. The Government should pursue this concession with vigour. I am disappointed it is not.

It is not good negotiation to pursue objectives that one will never get.

The Minister is not even looking for them.

We know about the discussions in the background. This was designed for Greece alone. It was a marginal enough imposition on Ireland and we are glad to help the Greek situation. It would be the height of foolishness to be pursuing this on behalf of Ireland. First off, the answer will be "No" and there is no possibility of this being applied to Ireland.

Anyway I have other objectives to pursue which have a better chance of making progress.

I will withdraw the amendment and perhaps revisit the issue another time.

Amendment, by leave, withdrawn.
Section 3 agreed to.
Title agreed to.

I thank the Minister and his officials for their attendance and I also thank colleagues for their contributions.

I thank the Chairman, his staff and colleagues for the quick passage of Committee Stage.

Bill reported without amendment.