Written Answers Nos. 61-66
61. Deputy John McGuinness asked the Minister for Finance his views on the departure of senior personnel from the regulatory side to take up roles in the financial services sector; and if he will make a statement on the matter. [23929/13]
View answer63. Deputy Caoimhghín Ó Caoláin asked the Minister for Finance if his attention has been drawn to a practice at the Central Bank of Ireland where retiring directors are re-hired on contracts for a number of days a week for a year as a means of increasing their pensions. [23959/13]
View answerI propose to take Questions Nos. 61 and 63 together.
It is to be expected that staff will move between the Central Bank and the financial sector in both directions. This can be healthy to the extent that it allows the Central Bank to gain access to high-level sectoral expertise while allowing those with regulatory experience to move into the industry and support a compliance culture. This process needs to be managed in a way that ensures the independence and integrity of the Central Bank is preserved and seen to be preserved. To address this, a Human Resources Strategy has been developed by the Central Bank, which includes as key elements talent management and succession planning. I have been informed by the Central Bank that it has appropriate policies and procedures in place to deal with departures of senior personnel to take up roles in the financial services sector. Specifically, this potential issue is taken into account when drafting new contracts for certain roles or reassigning staff to other duties if a potential for conflict arises.
The Central Bank Code of Ethics requires that in the event of an employee intending to leave the employment of the Central Bank to take up alternative employment, self-employment or business, they are obliged to provide early notification to line management when a conflict of interest exists, or might be perceived to exist, between those duties held in the Central Bank and those to be undertaken with the new employer, in self-employment or in business. In such circumstances, the Central Bank may assign alternative tasks to the individual while their notice period is being served.
The notice period may be lengthened in excess of the contractual or statutory notice period by mutual agreement where it is felt that it is in the best interests of the Central Bank and the employee.
I am informed by the Central Bank that there is no practice there of rehiring retired directors or other retired staff in order to increase their individual pension benefits. In very exceptional and limited circumstances, the Central Bank may re-engage retired staff subject to public sector norms and pension scheme rules but pension benefits do not increase as a result of this re-engagement.
62. Deputy Willie O'Dea asked the Minister for Finance the progress made to date in implementation of the mortgage arrears resolution targets; and if he will make a statement on the matter. [23935/13]
View answer122. Deputy Joe McHugh asked the Minister for Finance if he will will update Dáil Éireann on his strategy for supporting homeowners in mortgage difficulty; and if he will make a statement on the matter. [23752/13]
View answerI propose to take Questions Nos. 62 and 122 together.
As the Deputies are aware, on 13 March the Central Bank announced new measures to address mortgage arrears, including the publication of performance targets for proposing and concluding sustainable solutions for borrowers in arrears over 90 days for the main mortgage banks and proposed changes to the Code of Conduct on Mortgage Arrears.
While the Central Bank is not mandating any particular model of restructuring and while sustainable solutions will be arrived at on a case-by-case basis, there are some fundamental principles that must be respected as follows:
- The affordability assessment of the borrower needs to be based on both their current and prospective future servicing capacity for all borrowings; assumed prospective future increases in the debt servicing ability of the borrower must be credible and conservative
- Lenders need to apply a realistic valuation of the borrower’s assets, in particular their property. This also applies to any assumption of potential asset price appreciation, as well as the estimated costs related to a potential foreclosure of property; and
- Lenders need to use an appropriate interest rate when discounting future income flows, which should take account of the lender’s cost of funds.
The Central Bank will assess compliance with these principles in its supervisory audit of compliance with the targets, including through analysis of a sample of modifications.
The Central Bank has now written to each of the 6 specified institutions to set out the reporting timelines required with regard to the public and non-public targets of each institution and the target levels.
It is fair to say that progress is underway and the Deputy may wish to note that in the Central Bank’s Q4 2012 mortgage arrears statistics, the Central Bank has indicated that overall there were around 23,430 mortgage accounts that had permanent restructure types at the end December 2012. In addition, the two pillar banks have indicated that each bank will assess at a minimum 1,500 cases each month to determine whether the mortgage is sustainable and identify the most appropriate forbearance treatment.
Separately from this Central Bank action, the new personal insolvency system, in particular the new resolution frameworks provided for in the Personal Insolvency Act, will be shortly be available to borrowers who are in significant difficulty in their mortgage repayments. Utilising this process, the borrower will be in a position to consult an independent personal insolvency practitioner and where necessary to make a formal and realistic personal insolvency arrangement proposal to all eligible creditors, including a mortgage lender. In such a situation the creditors will be obliged to formally consider and vote on the arrangement as proposed by the debtor. I would also remind the Deputies that, under the mortgage advisory service developed by the Department of Social Protection, independent financial advice is available to borrowers who have been offered a long term forbearance option by the lender, and a panel of around 2,000 qualified accountants is now in place to provide this service.
Taken together, the framework is in place to enable banks to work with distressed homeowners to reach sustainable solutions for dealing with their personal indebted situations.
64. Deputy Catherine Murphy asked the Minister for Finance if he will provide details of the proposed bank resolution scheme which is being considered by ECOFIN under his chairmanship; if he will confirm the order in which it is proposed that bank creditors absorb losses under the proposed arrangement; if he is proposing a lower limit to the amount of deposits which can be affected in such a scenario; and if he will make a statement on the matter. [23660/13]
View answer75. Deputy Seamus Kirk asked the Minister for Finance if he will ensure deposits are protected in any revised Eurozone bank resolution mechanism; and if he will make a statement on the matter. [23924/13]
View answerI propose to take Questions Nos. 64 and 75 together.
The Bank Recovery and Resolution (“BRRD”) proposal aims to introduce an effective recovery and resolution framework for credit institutions and investment firms at national level to ensure minimum harmonisation at EU level. The proposed directive provides for three stages of crisis prevention and management: a preventative stage, an early intervention stage and a resolution stage. Part of the resolution stage provides for a bail-in tool which is a mechanism for allocating losses to shareholders and creditors of the institution under resolution in accordance with an established bail-in hierarchy.
The BRRD proposal, as published by the Commission, provides that under bail-in losses would in the first instance be allocated to shareholders. Once shareholders claims have been exhausted subordinated creditors would then be written down. Only when these claims have been exhausted could senior creditors be written down.
The hierarchy of claims for bail-in in the BRRD proposal that was published by the Commission last year does not differentiate between different classes of senior creditors such as depositors with deposits over €100,000 (uninsured depositors) and senior bondholders. This matter is the subject of on-going debate in the Council negotiations on the BRRD file.
At ECOFIN earlier this month I asked finance ministers to consider the scope and design of the bail-in tool in the BRRD directive. Among other things, these discussions focused on how bail-in would apply to uninsured depositors (i.e. deposits greater than €100,000). I proposed that these depositors should be given a higher ranking in the hierarchy of claims than other senior debt. In effect they would only ever bear losses after other senior creditors such as bondholders.
I am glad to report that the discussion provided the Presidency with sufficient clarity on the position of Member States to enable us to press ahead with our efforts to achieve agreement on this file. On the question of how deposits are affected I noted convergence on a number of points:
- agreement among Member States that deposits under €100,000 must be fully guaranteed;
- considerable support for depositor preference for uninsured deposits i.e. they would be the last category to be bailed-in.
The Deputies will be aware that the Government fully adheres to the EU policy of guaranteeing deposits of €100,000 per customer, per bank.
The objective of the Irish Presidency in placing this item on the May ECOFIN agenda was to try to achieve a common understanding on this issue which would help to unlock discussion on other areas of the BRRD notably the financing element.
I am proposing to bring the BRRD dossier back to the ECOFIN on 21st June with a view to reaching a Council agreement on the overall BRRD proposal.
65. Deputy Derek Keating asked the Minister for Finance the outcome of his recent negotiations at European leader level in relation to the promissory notes; and if he will make a statement on the matter. [19949/13]
View answerAs the Deputy is aware, on 6/7 February the liquidation of IBRC was agreed in the Houses of the Oireachtas and the IBRC Promissory Notes were replaced with longer-dated Irish Government Bonds. This followed extensive discussions with our European partners at all levels, particularly in the later stages of 2012 and into 2013.
The new arrangements go a long way towards addressing the systemic liquidity issue in the Irish banking system and substantially improve the debt position of the State, while materially improving our ability to regain access to the bond markets and exit the Troika programme.
The Promissory Notes were replaced with a portfolio of Irish Government bonds comprising:
- three tranches of €2 billion, each maturing after 25, 28 and 30 years;
- three tranches of €3 billion, each maturing after 32, 34 and 36 years;
- two tranches of €5 billion, each maturing after 38 and 40 years.
The principal benefits from this arrangement are:
- The Promissory Notes are gone. They were exchanged for long term Government Bonds, with an average maturity of 34 to 35 years as opposed to the 7 to 8 year average maturity on the Promissory Notes.
- The maturity of the bonds have significant benefits from a market perspective as it ensures the liability to repay is beyond most credit investors’ time horizon.
- A reduction in the State’s General Government deficit of approximately €1 billion (0.6% of GDP) per annum over the coming years, which will bring us closer to attaining our 3% deficit target by 2015.
- A significant element of the interest payments on the Government bonds, which are held by the Irish Central Bank, will ultimately be returned to the Exchequer in the form of Central Bank dividends.
- The State will be borrowing €20 billion less cash over the next 10 years due to the cashflow benefit of this arrangement. Next year the cash flow benefit will be €2.3 billion (excluding initial transaction costs).
- The arrangement will lead to a substantial improvement in the State’s debt position over time.
- The housing of all the 'wind down assets' in one entity (NAMA) will result in just one wind-down vehicle.
The substantial benefits of this arrangement flow from the exchange of the Promissory Notes for far more efficient financing from the State’s perspective.
This Government is aware that this solution does not address other challenges in the Irish banking system. However it was an important step in restoring the health of the Irish banking sector and confidence in the Irish economy. We have been seeking and will continue to seek a comprehensive solution to the remaining structural and funding issues in our banking sector, in conjunction with our European partners. We will continue to participate in the development of the ESM and the structuring of the Single Supervisory Mechanism to ensure that Ireland will benefit, on similar terms to other member states, from developments in this regard.
66. Deputy Caoimhghín Ó Caoláin asked the Minister for Finance his view on abolishing one and two cent coins. [23960/13]
View answerIn 2011, I requested that the Central Bank examine ways to improve Ireland’s payment infrastructure. The Central Bank established a Steering Committee which prepared and submitted the National Payments Plan to me. The membership of the Steering Group was to act as representatives for all sections in society, including marginalised and disadvantaged groups. Government subsequently approved the plan in April 2013.
The National Payments Plan will target improving consumer payments systems, modernising business payments, promoting electronic payment methods, reducing costly cheque usage, increasing the efficiency of the use of cash and ensuring that Ireland meets its commitments under the Single European Payments Area Regulation. The National Payments Plan outlines that if Ireland were to match best practice in Europe, savings of up to €1 billion per annum could be made to the economy. This would result in better value for the customer, lower back-office administration cost for Government, lower administration cost for business and lower operating costs for financial institutions.
On the specific query that the Deputy has raised, the National Payments Plan has made a recommendation surrounding the use of one and two cent coins in Ireland. There is evidence that one and two cent coins are not actively used by consumers. It is expensive to continually mint and re-issue new coins. The National Payments Plan does not envisage that one and two cent coins would be abandoned; they would remain legal tender.
The Steering Committee intends to trial the use of a rounding convention in a pilot project in a mid-size Irish town. The rounding convention is entirely voluntary on the part of both consumers and retailers. This rounding convention operates successfully in other jursidictions inside and outside the EU e.g. the Netherlands, Finland, Australia and New Zealand. The pilot is expected to run in August/September of 2013 and to finish by November 2013. The report on the basis of the pilot project will be submitted to and reviewed by the Steering Committee, which will subsequently report to Government through my Department. An appropriate Government decision informed by that report will follow.
A change in the legal tender status of these coins requires action at EU level. Consideration of this issue is currently ongoing at EU level. On 14 May the Commission issued a communication to the European Parliament and Council relating to the continued issuance of the one and two cent coins.
