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Banking Sector Regulation.

Dáil Éireann Debate, Wednesday - 3 February 2010

Wednesday, 3 February 2010

Questions (51)

Michael Noonan

Question:

112 Deputy Michael Noonan asked the Minister for Finance his views on whether changes in bank legislation are warranted. [5261/10]

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Written answers

Proposals for change in bank legislation are contained in the Renewed Programme for Government. Indeed, the Government has already made significant progress in this regard. The NAMA Act 2010 contains a number of important changes that will allow NAMA to assist in stabilising the banking sector and restore the flow of credit to business and consumers while minimising risks to taxpayers.

The Government has also decided to reform the institutional structures for financial regulation. The negative impact of the international financial crisis on the banking system and disclosures regarding corporate conduct highlighted structural and institutional weaknesses in existing regulatory structures and the performance of the regulatory system generally. These developments threatened Ireland's reputation in international financial markets and financial stability.

A more appropriate — and where necessary intensive and hands-on — regulatory approach is needed for financial institutions which have the potential to pose systemic risks to the financial sector and the economy in general. As the Governor of the Central Bank indicated during his discussion with the Joint Oireachtas Committee on Economic Regulatory Affairs on 15 December 2009, "it is now a question of trusting less and verifying more".

The weaknesses identified are being addressed. Very shortly, I will bring legislative proposals to Government to commence the reform of the Central Bank and Financial Services Authority of Ireland. The new organisational structure and other reforms will allow Ireland to eliminate weaknesses identified in the existing system and maintain domestic and international confidence in financial regulation here.

The Commission of Investigation into the banking crisis will complete its work by the end of this year. At that stage the Government will consider whether the Commission's deliberations give rise to a need for further legislation.

I am also examining options for the introduction of a legislative regime to deal with distressed financial institutions. The objective is to ensure that the State has in place a range of tools to protect deposit holders and ensure financial stability and maintain international market confidence. My deliberations in this regard will be informed by the work underway at the international level on resolution regimes for the banking sector including in relation to recovery and resolution plans.

At international and EU levels, arising from the international financial crisis, a wide-ranging programme of reform of prudential regulation for the banking sector is underway. The G20 has approved a programme of reform to be implemented by the Basel Committee on Banking Supervision and the Financial Stability Board encompassing:

reform of existing prudential rules to increase the level of regulatory capital in the financial system;

expansion of the scope of regulation to include parts of the financial services industry not previously subject to direct supervision, such as derivatives, credit rating agencies and alternative investment funds;

strengthening the mandate of international bodies that have a key role to play in international coordination of financial supervision, such as the Financial Stability Board and International Monetary Fund; and

developing a new framework for resolution of large cross-border banks and agreeing specific measures for enhanced oversight of systemically important financial institutions.

Measures to enhance financial regulation adopted at the international level will require to be implemented in EU legislation. An ambitious legislative programme is under preparation by the European Commission for eventual adoption through co-decision in 2010 and 2011. This includes, inter alia, a series of amendments to existing legislation on prudential standards for financial institutions as well as the introduction of new legislation on credit rating agencies, alternative investment funds and derivatives. This legislation may need to be transposed at national level in due course.

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