What is the position in relation to extra territorial activities of a bank registered within the State? What record will be kept in relation to branches overseas?
Central Bank Bill, 1969: Committee Stage (Resumed).
Section 13, as amended, agreed to.
Sections 14 to 16, inclusive, agreed to.
SECTION 17.
Question proposed: "That section 17 stand part of the Bill."
Strictly speaking, of course, we cannot control by Statute here what happens outside the jurisdiction but in particular where the head office of a banking company is located within the jurisdiction we can probably go a long way to meeting this in the manner in which the Central Bank prescribes the information to be furnished. It may be that in the event of a refusal to do so, which I think is a very unlikely situation, some other action would have to be taken but, in general, I would not anticipate that that would arise.
The Minister can see the importance of such records being kept especially with changes of liquid assets?
Particularly in relation to banks whose head offices are here I think it would be important and we do not anticipate any difficulty in this regard.
What about the North American banks?
The situation could be a little more difficult there where the bank operating here is really only, perhaps, a branch office and a small branch office of the main bank but, again, in so far as records of transactions which have a bearing on our banking and monetary system are concerned we should be able to get the information under this Bill. We have no reason to anticipate difficulty on it anyway.
Question put and agreed to.
Section 18 agreed to.
SECTION 19.
Question proposed: "That section 19 stand part of the Bill."
How often is it recommended that these publish statements? Will it be once yearly, twice yearly, four times yearly?
It will vary, of course, for different licence holders because different information will be required. I cannot say when precisely it would operate but I should imagine that in the case certainly of the larger banks it would be likely to be an annual statement. It might be more frequent. As the Deputy will see, it is not specified here because the requirements of different banks would be different. I think it can be taken that in the case of the larger banks it would not be at greater intervals than annually.
I think it is important that there should be published statements at least twice yearly from the commercial banks especially when one considers the advice which the Minister will be giving to the Central Bank in relation to the volume, quantity and quality of credit.
In the case of the larger banks it is very likely that the publication will be the balance sheet and in so far as that appears twice yearly then this information would be furnished twice yearly.
Am I right in saying that this is the first year in which the full profits of the commercial banks are to be included in their accounts?
That is correct. It would have happened last year but for the bank dispute.
What is the position in relation to merchant banks and other types of investment banks?
They will also be required to furnish information but it may not necessarily in their case be their balance sheet. It depends on the nature of the business.
Will they have to disclose their true profits?
I do not think they are exempt from that requirement at the moment.
It is important that all financial institutions should show their true profits especially investment banks which are becoming increasingly important in the economy.
I will check on that point.
I assume it will include investment companies who have been attached to building firms and who have been financing the building of houses out of their funds and charging interest on money which is loaned, or interest on money which has been be-spoken but which has not been loaned. Will this be rather difficult because of the fact that there will be an interplay of interest between the building construction and the loaning of the money?
I am afraid I lost the Deputy somewhere along the way.
I am quite sure that the Minister will include in this companies that have been set up by some of the bigger building firms to finance the purchase of houses erected by them. Naturally, there will be two separate companies but both of them will be depending on the building of the houses. Will they be included for the purposes of this section?
In so far as they set up a company which is, say, taking deposits from the public—and I presume this is the type of thing the Deputy envisages—for the purpose of financing their own building operations, they will come within the definition of carrying on a banking business. The company, that is the banking company, will be subject to all the provisions of this Bill, including the production of the information required in this section. That would not necessarily extend to the other company which would be a construction company.
The Minister will take care that they do not show a loss on the other sections of their interests in order to avail of a loophole and so avoid having to pay under this Bill.
Having to disclose the information or having to pay?
Both.
So far as having to pay tax is concerned, it will not help them to switch from one to the other. So far as the information is concerned, all I can say on that is that the Central Bank would have to be satisfied that the information being furnished under this section was accurate. If they were not so satisfied they would change the direction and conditions.
Question put and agreed to.
SECTION 20.
Question proposed: "That section 20 stand part of the Bill."
This is the first section in the Bill which gives recognition to the associated banks. They have become a rather monopolistic association. Is it the Minister's intention to allow to the associated banks any special privileges over the other non-associated banks?
No. I am not sure that I can deal with this adequately on this section. It comes up on some later sections to which amendments are proposed about fair competition, and so on. It applies, of course, across the whole field of the operations of the banks. It is inevitable that the associated banks which exist here, and which have a wide network of banks throughout the country, because of the very nature of the business they are carrying on, and the facilities which they already have, and have provided for themselves, will have certain advantages over other banks. This does not necessarily mean that they are being favoured. They will have earned them. For instance, a bank which comes in from abroad and has one branch is not incurring anything like the same overheads and thereby does not earn for itself certain facilities which the associated banks earn. It will be the function of the Central Bank to take account of these different factors and, at the same time, to ensure that there is fair competition.
I understand that the non-associated banks are not allowed to establish new branches around the country. Is this so?
There is nothing to prevent them legally at the moment.
They have undertaken not to do it.
Moral persuasion comes into it.
This is something I referred to earlier. This would not necessarily be in our interest. An unnecessary duplication of facilities in theory might be providing competition, but, in fact, might simply be adding to the cost of banking. This is one of the things the Central Bank must weigh up in relation to the kind of conditions it applies to licences.
What would be the position under the EEC constitution in relation to the right of establishment?
As the Deputy knows, right of establishment is a theory which does not operate in the EEC at the moment in regard to certain sectors and, in my view, will not operate for a very long time. Banking is one of them and insurance is another. It is certainly not operating there at the moment and, as I say, is not likely to operate for quite some time.
Question put and agreed to.
SECTION 21.
Question proposed: "That Section 21 stand part of the Bill."
I will be advised by the Minister on this. This section deals with a possible situation in which trouble or difficulty is arising in relation to the holder of a licence. It provides:
Where the Bank is of opinion that the holder of a licence has become, or is likely to become, unable to meet his obligations to his creditors, the bank may give a direction in writing...
I query that "may". Surely in those circumstances the bank shall give a direction in writing to the holder. It would seem to me to be highly inimical to the credibility of the banking system if, after it became likely or apparent that the holder of a licence was unable to meet his obligations, he could in any circumstances continue to operate. If "may" is to be interpreted in this section as meaning "shall" I am quite satisfied but I wonder is it? It is not a case in which there should be discretion.
First of all, the likelihood of this section operating is extremely remote when one has regard to the provisions we are making for the making available of information to the Central Bank at regular intervals and the general supervisory powers we are giving to the Central Bank. It is more than likely that the signs of difficulty appearing would be such as to alert the Central Bank and, in turn, the Central Bank would take action to prevent the situation deteriorating without invoking this section. I would visualise that the occasions on which this section would be operated would be very few and far between. On the particular point as to whether "may" in this section means "shall" I am afraid all I can say at the moment is that I believe it does mean "shall" but I will have to check that and I will inform the House at the next Stage.
I am sure the Minister will remember a certain insurance company that submitted their returns and very successfully showed that they were solvent when, in fact, they were not. I should imagine that no matter how tight the control exercised by the Central Bank something similar could happen. I agree that "may" is almost certainly intended to be interpreted as "shall", but is there any type of guarantee which the Central Bank could give to investors that if something like this happens they will not be at a loss?
Surely it would be sensible for the Minister to try to write into the Bill something which would ensure that people who invest money in a banking organisation on a non-commercial basis would not lose money, because a bank which was licensed by the Central Bank, and, therefore, by the Government, collapsed. I know this is very unlikely in this day and age, but one never knows what is likely to happen. Is there any way of dealing with this, particularly when a deposit is being paid?
The point being made now by Deputy Tully illustrates the necessity for a certain subsection that we dealt with earlier. We agreed it was most unlikely that this would happen but we were making assurances doubly sure. There is a subsection in an earlier section which says that no claim can arise against the Central Bank by reason of loss and so on. The fact that Deputy Tully is making this case now confirms the view I expressed which was that it was no harm to have that subsection.
I was out of the House on business when the subsection was reached but I am taking this opportunity of letting the Minister know that I disagree with it.
To give the kind of guarantee that Deputy Tully is talking about would be giving an opportunity for gilt-edged investment. If we were to go that far, the whole banking system ought to be entirely under the control of the State.
What would be wrong with that?
There are certain snags to that. On the other hand, we have been dealing also with the sections which provide for deposits by banks on getting a licence. That money will be available to depositors and there are provisions later in the Bill where-by, in the event of a winding up of a banking company, those moneys will go to meeting depositors' claims and will not simply go into the general fund and be available to all creditors. To that extent this Bill is making special provision for depositors but an absolute guarantee that they would not lose their money would be going further than what is contemplated.
Why should it be necessary for the bank to have to apply to the High Court for confirmation of an order? Surely the giving of statutory powers to the bank means that they need not have recourse to the High Court for a confirmation. Also what other order would the High Court be likely to make?
Is the Deputy referring to the bank applying to the High Court and not to the person to whom the order is directed?
That is correct.
The bank's directive can only last for two months. It might well be that the circumstances would require that the freezing operation would continue for longer than two months and in that case the bank would have to apply to the High Court who could so direct.
Question put and agreed to.
SECTION 22.
I move amendment No. 13:
In page 11, after line 39, to insert the following subsection:
"() The Bank shall not give a direction under this section unless it is satisfied that it is desirable to do so in the interest of the orderly and proper regulation of banking."
The wording of this amendment arises from the Supreme Court's decision in the Mart's Act case. The effect of it will be to restrict the Central Bank's power to give a direction to a bank as to the material that may be included in advertisements or a direction to cease advertising for deposits and to restrict that specifically in cases in which the direction is deemed to be necessary in the interest of the orderly and proper regulation of banking.
In other words, the amendment will ensure that this power to give directions is not used too widely while, at the same time, leaving sufficient power to the Central Bank to take necessary action against misleading and undesirable advertising.
Would the Minister say what exactly the section is intended to preclude? What is meant by giving the Central Bank authority to prevent certain activities?
For instance, the prevention of the publication of false or misleading information as to the finances of the business or the benefits to be derived from investing in it.
Surely that would be covered anyway. Would not the publication of misleading information bring into question the right of a bank to hold a licence?
This could be so. As I mentioned in an earlier section, the revocation of a licence is a very serious penalty.
The publication of false information is also very serious.
It may depend on how false it is in determining whether it would merit the revocation of a licence. This is merely in conformity with the general role and we envisage for the Central Bank the role of supervising the whole operation of the banking system. Of course, when talking on this section we are not talking in the main of banks as we commonly understand them but of other deposit-taking institutions.
I agree and I appreciate that the Minister has a point but it does appear to me a type of censorship.
I suppose one could call it that.
Most of us would like to see certain aspects of censorship being removed and we certainly would not like to see censorship introduced into a 1971 Bill unless there is a very good reason why it is suspected that somethink like this might happen. I would have thought that the existing legislation should be sufficient to deal with this sort of practice.
I cannot say that there exists such abuse as to necessitate this section but I can say that from experience of other countries this abuse could very easily creep in here. Therefore, we would be remiss if we did not include the section so as to enable us to deal with the problem if it should occur.
I remember some years ago that somebody advertised hair restorer under the heading cum grano salis.
I am afraid that people doing that would not get away under this section.
Amendment agreed to.
Section 22, as amended, agreed to.
SECTION 23.
Question proposed: "That section 23 stand part of the Bill."
This is the section which, in effect, enables the Central Bank to embark on a credit policy in whatever direction it desires. In order to do that, the bank requires the holder of the licence to provide a specified ratio between his assets and liabilities. I am concerned to know what exactly is meant by assets there. Does it mean assets within the State or the total assets of the holder both within and outside the State? Secondly, is it envisaged that there might be or could be different ratios established, defined or designated as between different banks?
The two banking ratios are a flat ratio and a liquidity ratio. This is not made clear in the section but we seem to need clarification especially concerning the position in relation to the external assets and liabilities of any licence holder.
This section was put into the Bill subsequent to its first preparation. It was not in the original 1968 draft of the Bill. With respect to all concerned, this Bill is the greatest load of rubbish that I have ever read. The section says that the banks may from time to time require a holder to maintain a ratio between his assets and his liabilities. The assets and the liabilities of everybody are always equal. Therefore, this section is completely wrongly drafted. In every balance sheet that is made out the assets side is equal to the liabilities side. The whole of this long new section is just a lot of nonsense.
Apart from that serious objection to it, there is another objection to it and that is the words "a specified ratio"; "a ratio which does not exceed a specified ratio"; "a ratio which is not less than a specified ratio"; "the specified ratio may be expressed as a percentage of the assets or liabilities concerned"—this kind of thing. When this was put into the Bill it was obviously put together without proper consideration at all. Subsection (2) says:
(2) A requisition under this section may be expressed to apply—
(a) in relation to all holders of licences or to holders of a specified category or specified categories,
(b) in relation to the total assets or total liabilities of the holders of licences concerned or to specified assets or assets of a specified kind or specified liabilities or liabilities of a specified kind of those holders,
This is the kind of drafting.
That is the answer to the point the Deputy was making.
Not at all. It is most amusing really. The thing is just ludicrous. I know, of course, what is being attempted here or what the purpose of this is but it is really an outrageous attempt at totalitarian legislation. It is a total effort to give a kind of overall power to the Central Bank and I do not believe that it has done what the Central Bank thought they wanted done.
Deputy O'Donovan is, of course, correct in saying that in any balance sheet the total assets will equal the total liabilities but the phrases to which he objected, I think on aesthetic grounds rather than anything else, are, in fact, the answer to that objection. Where the section refers to specified assets or assets of a specified kind or specified liabilities or liabilities of a specified kind, this means that the Central Bank can specify the particular kind of assets or particular kind of liabilities which are to be taken into account and by that means can exercise effective control and the objection which was made by Deputy O'Donovan and which would otherwise be valid is not valid because of that particular wording.
On the general principal of this kind of control, I am not too clear whether Deputy O'Donovan is objecting to it but certainly I think that it is not alone desirable but necessary. The power conferred by this section should enable the Central Bank to ensure two things: first that licensed bankers conform with what might be described as good banking practice and, secondly, by utilising the power in this section to enforce credit policy. In particular, because of the wording I have referred to, it is open to the Central Bank by specifying the kind of assets or the kind of liabilities to be taken into account in determining the ratio, to exercise effective control in this regard.
In answer to one of the queries raised by Deputy O'Higgins as to whether different ratios would be applied to different licence holders, the answer is yes, they could. Primarily what is intended is that the kind of ratios that would apply to, say, normal commercial banks would differ from those applied to investment banks or merchant banks. I think Deputy O'Higgins raised some other query.
I asked what does "assets" mean? Is it assets inside the State?
Yes. It means assets of all kinds whether inside or outside the State but it may not be generally known that developments in recent years have resulted in virtually all the assets of the commercial banks being domestic assets and that the external assets are held, in fact, by the Central Bank on deposits from the commercial banks. Despite that, the section does not preclude the taking into account, for the purpose of determining ratios, of external assets which might be held by licensed bankers.
Could I ask the Minister a simple question? What happened between the first edition of this Bill which was printed in 1968 and the second edition which was printed in 1969 to cause this section to be put into the Bill?
I confess to the Deputy that until he said it, I was not aware that this had not been in the original draft.
I am sorry; I have lost my notes. I had a beautifully annotated edition of the former Bill and this Bill.
The Deputy is correct in saying that this was not in the original draft——
It was decided to get away from moral suasion.
I cannot say why it was not in the original draft but I can certainly say, and I think I have told the Deputy, why it is in this one.
I am aware. It is quite plain what is being attempted here. It is a kind if omnibus control— no limit at all—an absolute control.
One should realise that at the moment there is not any legal control at all. When I say that I think I should in all fairness add that the moral suasion—I think Deputy O'Higgins used that phrase—which operates, operates quite effectively with regard to the associated banks.
It is working all right.
Working all right in relation to banking practice and reasonably well in relation to credit policy.
The truth is the Central Bank and the Department of Finance read the Just Society and decided to put in this.
I am afraid I was not aware of that particular aspect either.
The Minister is not alone in that.
It seemed to me that this particular requirement is one that is obvious, that its introduction at a stage when we did not have any effective moral suasion even would be disrupting but that what it is doing now is, it is legalising a system that exists but it is also giving teeth to make sure that it operates in future and, in particular, it enables it to be applied to sectors other than the ordinary commercial banks which are assuming an increasing importance in our overall banking system. I would think that if we did not have this power in this Bill the Bill would not be worth very much.
The fact is that this is like the Forcible Entry Bill. The great bulk of the Forcible Entry Bill is really emphasising what is the law already. This is not the law already but, in fact, it is in operation. The Minister could reply to me: "Well, of course, they knew it was in the Bill and if they told the Central Bank to go and take a jump in the Liffey the day would come when the Central Bank could clamp down on them under this section." I do not like this kind of omnibus legislation. This kind of legislation gives absolute power to an institution to push people around. Deputy O'Higgins has told me that this was in the Just Society document —which I did not know—but I decided that the proper thing to do was to find out why the section was put into the Bill subsequent to 1968. The Minister has not really explained why it was put in.
I agree with the Deputy.
I realise, of course, that he was not Minister for Finance at the time. I know something about the kind of files that are built up in the preparation of a Bill of this kind. A person would need a wet towel around his head to help him read through them all. For the record, I should like the Chair to put this section to the House.
Question put and agreed to.
SECTION 24.
I move amendment No. 14:
In page 12, subsection (1), line 17, after "regulations" to insert "or if the bank deems it necessary for the purpose of pursuing a policy of credit control".
I imagine this section follows section 23. The purpose of the amendment is to make it clear that the Central Bank in operating the ratio provisions should specifically require a holder to increase his proportion of whatever it may be also in the interest of pursuing a policy of credit. This may be inherent in the section as it is; if it is not, I suggest the amendment is necessary.
Deputy O'Higgins is correct in saying that this section should be read in conjunction with section 23. Section 23 will give a new tool for the control of credit creation. It is expected that this section will normally be used when it is desired to control or regulate credit creation formally as part of monetary or credit policy. The power provided for in section 24 is intended to be supplementary to that contained in section 23. As the section stands it can be used for credit policy purposes as a back-up to section 23. In particular, it is intended to deal with banks which might move rapidly a large volume of funds out of the country, with consequent serious reaction on the domestic credit pattern. Sections 23 and 24 taken together cover adequately what Deputy O'Higgins has in mind and I do not think the amendment is necessary.
This section is penal in so far as deposits made will not bear interest.
That is correct.
It may be too penal and, perhaps, some rate of interest should be inserted. The section states:
... after a date specified in the regulations the assets of the holder within the State fall below such proportions in relation to his liabilities within the State as is specified in the regulations.
There is ambiguity in the definition of different type of assets and liabilities which should be specified.
The power in this section is the power contained in section 50 of the 1942 Central Bank Act. One part of the 1942 Act is being repealed under this Bill and is being replaced by section 24. Deputy Collins has said that it does not provide for payment of interest on deposits and that this marks it as a provision of a penal nature and the Deputy is quite correct. In the circumstances I have described I think the action which might be taken by a bank, and which this is designed to remedy, could only be regarded as reprehensible and liable to treatment in a penal manner. On the other hand, the normal deposits, whether by way of those payable on taking out a licence or those on foot of directions connected with credit and monetary policy will bear normal interest rates.
The non-payment of interest in this case marks out the seriousness of what is contemplated. Incidentally, I do not think that this power has ever been used and I hope it will not be used in the future. When it was enacted in the 1942 Act it was intended primarily to provide a means of inducing the associated banks to repatriate some of their external assets for investment at home. However, as I have indicated already, almost all of the assets of the associated banks are domestic assets and almost all of our external assets are held by the Central Bank.
Does the Minister intend to legislate to make such a practice formal in relation to the external assets of the commercial banks, to enable all the external assets to go throught the Central Bank, formally and legally?
This has happened by virtue of existing legislation and the practice which has been operated by the Central Bank. The provisions of this Bill and the power given to the Central Bank about obliging licensed bankers to deposit assets and to specify the kind of assets can be operated to ensure that this position is maintained.
Would the Minister not agree that it would be better to formalise the position by an Act of Parliament?
It is formalised in the section we were dealing with a short time ago which provides that the Central Bank may direct that certain ratios be maintained in deposits and, in doing so, may specify the kinds of assets that must be deposited. It would be open for the Central Bank to specify in a particular case, if this is necessary, that the ratio should be maintained by the deposit of so much in proportion to the total assets of the bank but that the deposit should consist of external assets. This power exists in the Bill.
Is there any ratio in existence between our total credit creation and our external reserves?
Does the Deputy mean is a fixed ratio laid down?
Yes.
No, except in so far as the credit guidelines issued by the Central Bank create that ratio.
That is just advice to the non-associated banks regarding the amount of credit they may issue during the coming year but what I am asking is a slightly different question.
The Deputy is asking about the ratio between credit creation and external assets.
Our total money in circulation and external assets.
The truth is "the old gray mare ain't what she used to be ... many long years ago". This is the same kind of section as that in the Act governing the Bank of England and there the section has been operated more than once, if my recollection is correct. Certainly I remember it being operated. I do not see the same objection to this section that I did to the section about which I was talking earlier.
I am amazed because this is more penal really.
It is not that. It may be more penal but it was to the totality of the other section and the nature of the drafting that I objected giving an extreme totalitarian power to the Central Bank. This is intended to be a penal section in certain circumstances. For example, if the Central Bank in the belief that there is too much money around compels the other banks to put some of that money with them without any interest at all, that is in accordance with what the Minister would probably call "modern banking practice", the kind of phrase that does not appeal to me one bit.
I think I said "good banking practice" which I thought the Deputy would find even more objectionable.
I made a note of it: the Minister did say "good banking practice".
I thought the Deputy would object to that. What I had in mind was certain practices operating in other countries, the giving of free gifts and so on, to achieve greater banking business. That is the kind of thing we should try to ensure does not happen here.
It happened here recently with a certain health board.
Certainly that allegation was made.
Amendment, by leave, withdrawn.
Section 24 agreed to.
SECTION 25.
I move amendment No. 15:
In page 12, lines 21 and 22, to delete "If at any time it should appear to the Bank that it is expedient so to do" and to substitute for the word "may" in line 22 the word "shall".
The object of this amendment is to strengthen the section. The section, as drafted, reads: "If at any time it should appear to the Bank that it is expedient so to do, the Bank may, with the consent of the Minister, make regulations ..." I believe the section should be changed to read: "If at any time it should appear to the Bank that it is expedient so to do, the Bank shall, with the consent of the Minister, make regulations requiring every holder of a licence to settle all or such particular class or particular classes of its clearances as may be specified in the regulations by cheques drawn,"et cetera. The object is to strengthen the section. I should like to hear the Minister's comments on this.
The first thing I should like to make clear is that the section relates to balances to be held by the banks in the Central Bank for use in settling inter-bank debts arising from the processing of cheques, et cetera, in the clearing system. It is not concerned with the clearing system as it affects the banks' customers which is, in fact, operated through the associated banks clearing house. That being so, the amendment would make it obligatory for the Central Bank, with the consent of the Minister for Finance, to require all banks to settle all or, at least, some classes of clearances through the Central Bank. While it is true that, under the existing practice, all banks are required to settle through the Central Bank their clearances arising in the Dublin bankers' clearing system, circumstances might arise in which this might not be convenient or even possible—for instance, if there was an interruption in payments through the Central Bank. It is necessary, therefore, to have the section more flexible than it would be if this amendment were adopted and to allow the Central Bank to determine, as circumstances dictate, to what extent this section should be applied. The adoption of the amendment would only make the position too rigid. It would leave the Central Bank no flexibility in dealing with these particular balances.
Amendment, by leave, withdrawn.
I move amendment No. 16:
In page 12, after line 29, to insert the following subsection:
"() If at any time it should appear to the Bank that it is expedient so to do, the Bank may, with the consent of the Minister, make regulations requiring every holder of a licence to lodge with the Bank for clearance all such instruments payable outside the State and lodged for clearance at an office in the State of the holder as may be specified in the regulations."
This amendment is intended to give power to the Central Bank, with the consent of the Minister, to make regulations requiring banks to lodge with the Central Bank instruments, cheques, drafts, et cetera, drawn outside the State and presented for clearance within the State. Similar power was available in section 51 (2) of Part VI of the Central Bank Act, 1942; this section is being repealed in toto and here we are really only re-enacting a power which was there before. This power was never, in fact, used but it is considered advisable that the power should be retained in case there should be need to use it in the future. The power would enable the Central Bank as and when necessary to exercise control over the collection of external negotiable instruments coming into the State and the control would be exercised mainly through the banks; in the event of a bank dispute, for example, it would be operated mainly through the banks which would remain in operation. By exercising this power it would be possible to ensure that incoming payments would be brought to credit, the proceeds being added to our external assets, as appropriate.
Amendment agreed to.
I move amendment No. 17:
To add to the section a new subsection as follows:—
"(3) Such regulations shall be designed to ensure free and fair competition amongst all licensed banks."
This amendment refers to this section and the following section, section 26. There was an amendment in somewhat similar terms tabled by Deputy O'Donovan and Deputy Donegan. The purpose of the amendment is to ensure that whatever regulations are made shall have regard to what is in my view and, I am sure, in the view of most Deputies, the desirable situation, namely, that banking, as far as possible, should be open, free and competitive. At the moment the manner in which clearance facilities are granted to the non-associated banks is, in fact, inimical of competition. It is an uneven situation and if it were frozen into the new licensed banking system we are setting up under this Bill it would, I think, be quite wrong. The Central Bank will have power to make regulations dealing with the clearance and collection of cheques, and all the rest of it, and I think the Central Bank should have the obligation of ensuring that such regulations are designed to ensure free and fair competition between all licensed banks. We should not have two categories of licensed banks.
This amendment is really much more appropriate on section 26.
We can content ourselves then with Deputy O'Donovan's amendment.
Amendment, by leave, withdrawn.
Section 25, as amended, agreed to.
SECTION 26.
Amendment No. 20 is cognate to amendment No. 18 and amendment No. 23 is related and these amendments may, therefore, be discussed together.
May I suggest that amendment No. 19 might also be taken?
Agreed.
I move amendment No. 18: —
In page 12, subsection (2), line 40, after "another holder" to insert "or a trustee savings bank certified under the Trustee Savings Bank Acts, 1863 to 1965,".
All these amendments are of a technical nature. They are designed to add cheques issued by a trustee savings bank to the list of instruments that must be accepted for correction by the banks. The cheque service of the trustee savings banks was not in being at the time the Bill was circulated. This amendment would put trustee savings bank cheques in the same position as cheques issued by other banks for the purpose of collection.
Amendment agreed to.
I move amendment No. 19:
In page 12, subsection (2), line 41, after "instrument" to insert "to which this section applies".
Amendment agreed to.
I move amendment No. 20:
In page 12, subsection (3), line 45, after "another holder of a licence" to insert "or a trustee savings bank certified under the Trustee Savings Banks Acts, 1863 to 1965,".
Amendment agreed to.
Amendment No. 21 in the names of Deputies Tully and O'Donovan.
I think the Minister has met this to a considerable extent in his amendment No. 22.
That is correct.
In that case I do not see why I should press the matter.
Amendment No. 21 not moved.
I move amendment No. 22:
In page 12, after subsection (3), to insert the following subsection:
"( ) In considering whether to grant or withhold an approval under subsection (2) or (3) of this section, the Bank shall have regard to the desirability of ensuring fair competition between holders of licences.".
Amendment agreed to.
I move amendment No. 23:
In page 13, after paragraph (d), to insert the following paragraph:
"(e) any document issued by a person who maintains an account with a trustee savings bank certified under the Trustee Savings Banks Acts, 1863 to 1965, which is intended to enable a person to obtain payment from the bank of the sum mentioned in the document."
Amendment agreed to.
Question proposed: "That section 26, as amended, stand part of the Bill."
Does acceptance of amendment No. 22 mean that the newer banks which have arrived here may enter into the business of taking deposits in the ordinary way?
This deals with the clearing system.
Can they not take ordinary deposits?
Acceptance of this section and amendments means that all banks will be entitled to have their cheques collected and cleared and the terms and conditions applicable to non-associated banks, non-members of the clearing system will be proposed by the clearing house but must be approved by the Central Bank. They will be subject to approval by the Central Bank. To go back to something I mentioned earlier, it is argued on the one hand that all banks will be charged exactly the same for the same facilities. On the other hand, it is argued that banks which have branches all over the country should, because of this and forming part of a system which enables the clearing system to operate, be able to get these services at a lower rate than those who do not incur these overheads. The Central Bank must determine in relation to the charges proposed for non-clearing house banks whether these charges are unreasonable or fair and take account of the opposing viewpoints.
Question put and agreed to.
SECTION 27.
I move amendment No. 24.
In page 13, lines 12 to 17, to delete subsection (1) and substitute the following subsections:
"(1) Subject to subsection (2) of this section, a person shall not advertise for or otherwise solicit deposits on his own behalf or on behalf of any other person.
(2) Subsection (1) of this section does not apply to advertising for or otherwise soliciting deposits—
(a) by the holder of a licence or the Bank or a person to whom, by virtue of section 7 (4) of this Act, section 7 (1) of this Act does not apply, or
(b) by any person on behalf of a person specified in paragraph (a) of this subsection."
Deputies may recall that on Second Reading attention was drawn to the difficulty of interpreting this section. I concurred. I had difficulty myself in interpreting it and I said I would look at it again. The amendment is designed to clarify the section. I hope it does so. It does not change the meaning of the section.
Can it be said that the non-associated banks will have more freedom in advertising and getting deposits under £25,000? Heretofore, there was some restriction on such small deposits.
I think in practice they have not been taking deposits. They do not have clearing facilities.
This was a restriction because of their inability to use the clearing system. That disability will disappear now.
Will they be allowed to take small deposits?
Yes. They were not precluded from doing so by law.
It was moral suasion as well——
I shall not surmise as to how it was achieved.
Amendment agreed to.
Question proposed: "That section 27, as amended, stand part of the Bill."
What is the position of the ACC regarding deposits?
They are exempt under section 7, I think.
They will not come under this Act at all?
No. The only way they will come under this Act is that the Central Bank will be empowered to collect certain information from them in the form it requires.
Question put and agreed to.
Section 28 to 32, inclusive, agreed to.
SECTION 33.
Question proposed: "That section 33 stand part of the Bill."
In relation to the facilitating of transfers of banks this Bill gives legal sanction to the increased monopolisation of the banking system. I am not in favour of that. I am in favour of more competition in the commercial banking sphere, more competition in regard to deposits, interest rates and overdraft rates. In the past few years we have seen the amalgamation of the banks into two large groups, the AIB and the Bank of Ireland group. I doubt very much if this amalgamation has been to the betterment of the economy. The newly established banks, especially the North American banks, have brought a new approach to banking in Ireland and rather than encourage the amalgamation of banks I feel we should be trying to encourage more competition within the banking sphere.
The fact that this section can facilitate mergers does not mean that it should move in competition. In fact, what it is doing is facilitating desirable mergers.
Who is going to decide what is desirable?
Time will tell whether the amalgamations which have taken place are in the interests of the economy or not; it is my own belief they are. First, there are two groups and, secondly, competition from other sources is growing. It is necessary, especially when one looks at the size of our banking groups as compared with many banking groups as compared they are going to survive to ensure that they get the benefits of greater strength through mergers and amalgamations. It is not by any means generally accepted that competition, say, in relation to interest rates is necessarily for the benefit of the community as a whole. First of all, competition in regard to interest on deposits will almost certainly shove up interest on overdrafts. It may be that this could benefit a small section of the community but more likely a big section will lose out on it. One can over-value considerably what is to be gained by competition in interest rates. Competition in other areas, does, in fact, exist, as we all know, and it will tend to grow in the future. Certainly this section and this part of the Bill does not by any means compel or oblige mergers of banks or banking groups but it does facilitate them, if it should be thought by the Minister for Finance, after consultation with the Central Bank, that a particular merger scheme is desirable.
The Minister got himself off the hook very neatly towards the end.
I was not aware I was on.
I am afraid the Minister was for reasons I hope I shall be able to state sufficiently clearly so that we will both understand. In the early 'Fifties I am informed that nobody with an overdraft could transfer his account from one bank to another because the Irish Banks Standing Committee brought out certain regulations to keep banks in order. This was a most retrogressive step on their part because it meant if a man was dissatisfied, and he might very well have good reasons to be dissatisfied, he could not transfer his account from one bank to another. I am not saying that everybody behaved well. They did, however, think up the answer which was not to make any more deposits. It was a very effective answer to this kind of totalitarianism.
The rate of interest on an ordinary overdraft is 9½ per cent at present. I do not see how anybody could imagine a higher rate than that lasting through time. When the Bank of England was monarch of all it surveyed, apart from the occasional crisis in 1891 and 1907, a 7 per cent bank rate would last about two or three weeks and then the whole situation would be cleaned up. In the 'Fifties a 5 per cent bank rate was first imposed in the belief in very low rates of interest, which, if it were not for inflation might have continued. There is no question about it high rates of interest are very objectionable. In 1955 the Bank of England rate was made 5 per cent and I remember considerable discussion about it at the time and it was suggested it would not last very long. I felt it would last a long time but even I was astonished at what happened because two years later it was made 7 per cent, which was completely contrary to what had happened in history.
The Minister says that competition is growing but there is only one form of competition in ordinary matters—of course, the Minister can say that banking is different but it is not—and that is price competition. In recent times, presumably with the approval of the Government, we have to the best of my knowledge had the highest rate in Western Europe and despite the fact that interest rates have been going down for a considerable time all over the world ours have not altered at all. I do not know what purpose is supposed to be served by their being kept in this way but certainly the existence of only two banking groups must undoubtedly have helped. There is a well known word, "duopoly", and the perfect system of duopoly is where there are two giants; there is no difficulty in shaking hands across the lunch table or anything like that.
If I thought the section would normally not be operated at all and has been put in merely in case something happened, it is desirable that this kind of provision should be in the Bill. I hope we have seen the last of these amalgamations. I agree with my colleagues on this side of the House that were it not for the foreign banks coming in conditions would be very difficult for people. There is no question about it they are already difficult at the moment. There has been a serious credit squeeze in operation for the past two or three months since the banks got information about their positions.
Nothing enables that to happen so easily as a situation which might come about under this section. I take it that if this duopoly were to attempt to amalgamate the Government would intrude for the first time. I think no take-over bid would be allowed. Our Government here have been slow. They believe in freedom of enterprise in a way that it has not been believed in since Carnegie and John P. Morgan used to look after the steel industry in the United States. One would like to see some curb put on this kind of massive operation. The community does not necessarily benefit from this kind of situation. Obviously, the people who benefit are the people who by saving on overheads and so on get greatly increased profits.
Subject to these considerations I think the section has of necessity to be included in the Bill.
In relation to competition within the bank I should like to point out something which the Central Bank has failed to do. In relating the rediscount rate of the Central Bank to the actual overdraft interest rates charged in the last few years the overdraft rate has not kept in line with the rediscount rate of the Central Bank of Ireland. This is wrong and it is wrong that the Central Bank should have allowed that position to develop and that the Minister should have allowed it. If we are to have competition there must be some control from the Central Bank in relation to the rediscount rate and there must be some direct relationship between the overdraft interest rates charged by the commercial banks and the rediscount rates. This has not been done in the past few years and unless the Central Bank is going to force its will on the commercial banks we will not have competition of any type.
Why does the Deputy say that these two have to be related?
The rediscount rate of the Bank of England is directly related to the overdraft interest rates charged by the banks in England. This is quite an established method in the money market in England. We are trying to develop a money market in Ireland, not very successfully.
There are at least four intervening things between the rediscount rate and the ordinary overdraft rate here. You could say there is some relationship but it makes the relationship almost meaningless because there are different steps in between.
It has been made meaningless because the overdraft rate has become too far removed from the rediscount rate.
They are determined by different factors. That is my point.
From the point of view of a properly developed banking system they should not be determined from different points. They should be determined from one point and that is the Central Bank.
In isolation from the rest of the world it could work that way.
I am aware that this is the Minister's view from his replies to questions here over the past 12 months but let us look at it from the angle of the ratio of the rates of interest allowed by commercial banks on deposits to what they charge for overdraft accommodation. In relation to these kinds of operations they are the only people in the community who make over 100 per cent profit. Even to take it in the simplest fashion, the way the late Senator Sir John Keane used to do, the margins are just fabulous. I asked the late Joseph Kelly when he was Secretary of the Agricultural Credit Corporation what margin they would need to carry on their business. He said: "If we got enough business we could do it on a ½ per cent." As far as I know there is still only about 1 per cent difference between the rate at which they are lending to the farmers and the rate they allow on deposits. I think they allow 6 per cent on deposits and charge 7 per cent to the farmers.
The fact is that all Governments, until the present Government, have been extremely tentative in the way they have approached the problem of the commercial banks. The present Government have been extremely tentative except that they have pushed them around to get plenty of accommodation from them. The Minister's explanation of why the external assets of the commercial banks disappeared did not tell the whole story.
I did not say they disappeared.
I say they have disappeared, damn nearly.
They were translated into holding by the Central Bank.
I am talking about the legal position. In fact, the commercial banks no longer have any external assets.
That is substantially correct, yes.
I am not saying the Minister was suppressing anything but he did not quite fill in the picture for us. I think they allow 4½ per cent on large deposits at present and they charge 9½ per cent on overdrafts. On small deposits I think they allow 3½ per cent. Now there is a marked difference between 3½ and 9½ per cent. I would not mind being in the business. I wish I had my hands on some business of that sort. Even a careless fellow like myself would do quite well.
Deputy O'Donovan may be overlooking one point and that is that fairly recently the overdraft rate was reduced by 1 per cent in relation to a substantial sector of overdrafts, that is, those provided for manufacturing industry and productive investment generally. The categories are more precisely defined, I am just speaking off the cuff. There was an adjustment also in deposits. I do not dispute, despite that, that the margin between interest on deposits and interest on overdrafts is very large. However, the deduction from those facts which is made by Deputy O'Donovan to the effect that the banks are making money hand over fist is one that I think will not stand up. This is probably the last year in which it will be possible for people to say that because the full facts and figures will be issued at the end of this year for the first time. It may be that when these figures come out people will take a somewhat different view of the situation.
The poor fellows will have to get home assistance.
No, I would not think that. They may well ask: "Why are the profits not bigger when the margin is bigger?" That is a different question.
It is sure.
This is the last year in which it will be possible for people to speculate in that way. I think when the facts and figures are disclosed it will be found that whatever else may be said it will not be found that the banks are making profits which are way out of line with other industry and business.
Some years ago I became interested in this subject. Deputy FitzGerald was consulted about certain figures at the time the National Bank was taken over by the Bank of Ireland. Some years before that I became interested in the Bank of Ireland group who declared gross profits, prior to tax, of £2 million. It was not all that difficult for a person like myself with a great deal of experience over a long period of time in making estimates to make out what were, in fact, their gross profits. All I had to do was to get the number of branches they had in the country and the amount of money they were getting from the State for keeping the national books and so on. I estimated at that time that their gross profits were £6 million a year. By a lucky accident they had about £150 million on deposit and this made the calculation very easy. They had £100 million out by way of overdraft, investments and so on. I did the calculation with some care. It was not all that difficult. I came to the conclusion that they were declaring to the public only one-third of the actual profits they were making. This was done in accordance with the law. There was nothing illegal about it, but it was an extraordinary law.
Earlier on in this debate the Minister used the phrase "because of a run on the banks". That law was passed to enable the banks to protect themselves against the possibility of a run but, of course, that day is long gone. If there were any chance of a run nowadays it would be all hands to the pumps; full approval for the printing press; it is only paper anyway. The Minister may be right when he says that next year they will not show such large profits—even when they declare them fully. It may be partly their own fault. They must have got a bad knock last year. They must have lost a lot of business.
(Dublin Central): I was wondering if the Minister could give us any indication of how closely related the commercial banks are to their investment banks. I know it has been the policy of bank managers, when a person looks for the ordinary overdraft, to transfer him to one of their investment banks. I sometimes get the feeling that maybe some of the assets in the commercial banks are being transferred to their investment banks?
Did the Deputy say "maybe"?
(Dublin Central): We know that the interest charged by the investment banks is about 4 per cent more than that charged by the commercial banks. This is a factor which has probably contributed to the cost of manufacturing and the cost of business also, because business people have to go to the investment banks to get an overdraft. The normal practise of the commercial banks is to say: “We have not got this money but we would advise you to go to one of our investment banks.” I was wondering are the same assets tied up or are they completely distinct?
The assets in question are distinct as between the investment banks on the one hand and the commercial or associated banks on the other. I am glancing quickly at a list of the various investment banks and, at a quick glance, it seems to me that in all cases where the associated banks have a share in the investment banks there are also other people involved. In one or two cases two of the associated banks are involved but in most cases there are some merchant banks, some home and some foreign, and some insurance companies involved, but in general that is the ownership of the investment banks.
Deputies will be aware that it is intended later this year to introduce the term loan system which will have some bearing on the matter mentioned by Deputy Fitzpatrick. Under this system the length of the loan, that is, the term for repayment, the interest rate and the amount of the loan will vary, depending on the project and the standing of the borrower. This should mean better terms for people who earn better terms, and a higher rate of interest for those who are a much bigger risk. What effect this will have on the business of the investment banks I am not too clear on, but it should mean that loans given by the banks after that will be given on a more rational basis and there should be a more efficient use of the resources available.
I cannot say with certainly whether there is any truth in what Deputy Fitzpatrick says as a general proposition. I have certainly heard that bank managers do recommend their clients to go to their own bank's investment bank and I know that some customers have a great deal of suspicion about this. Whether that suspicion is justified I am afraid I cannot say.
Question put and agreed to.
Sections 34 to 37, inclusive, agreed to.
SECTION 38.
I move amendment No. 25:
In page 20, subsection (3), line 51, to delete "by the transferee on that date" and substitute "on that date by the transferee or under a corresponding pension or superannuation scheme of the transferee".
This is a minor technical amendment. It relates to pension or other benefit payable by a bank to the estate of a former employee at the time the bank was taken over by another bank. As the Bill stands, the benefit payable becomes a direct charge on the bank taking over the other business. The amendment will give the bank taking over the option of paying the benefit itself or of allowing the payment to be made from an appropriate pension or superannuation scheme where such exists. This should make for more flexibility in such transfers.
Amendment agreed to.
Question proposed: "That section 38, as amended, stand part of the Bill".
Is there any need for this section at all?
The section or the amendment?
The section. It relates to staff and surely that should be a matter for negotiation between the two banks rather than for us.
In the main, the provisions in this part of the Bill are following what was enacted previously in relation to the National Bank in the National Bank Transfer Act, 1966. This section follows a similar section in that Act. It was found necessary on that occasion and, for the same reason, it was thought that it could well be necessary in any other similar legislation.
Was it ever used?
It was, I understand.
That is not my information but I was just wondering was it used.
I am not saying that every provision in it was operated but in general the Act was used.
Was this section?
I am sorry. I thought the Deputy was referring to the Act.
No, the section.
This section is somewhat wider than one in the National Bank Transfer Act but it is based on a similar provision in that Act.
We have a habit of repeating in Bills what was contained in previous ones. Very often this is unnecessary and, where possible, it should be omitted.
If anybody can demonstrate to me that it is not necessary. I shall be willing to drop the section.
Would the Minister like to demonstrate why he considers it should be necessary?
Because it was found necessary to have such provision on the actual operation of a provision. We are dealing here with possible transfers or mergers. We have experience of one merger and we must have legislation to deal with that sort of situation. Arising out of that experience, it is reasonable to assume that these kinds of provisions are necessary.
I take it there is evidence that, in order to do this on a previous occasion, it was necessary to introduce appropriate legislation?
Yes.
Would the Minister have a look at the Bill again before it goes to the Seanad? If at all possible these lengthy sections, where they are not essential, should be omitted. However, I do not wish the Minister to commit himself to doing anything that it is not possible for him to do.
I cannot say that we would be in a position to need them. On the other hand, I cannot say positively that they will be needed because there may never be any merger but, in the event of their being one, it is almost certain that a section of this kind would be needed.
I am not opposing it.
In the event of some little fellow growing up, there might be the desire to take him over.
Question put and agreed to.
NEW SECTION.
I move amendment No. 26:
In page 21, before section 39, to insert the following section:
Where—
(a) the business agreed to be transferred consists of or includes the business of acting as trustee, executor, guardian or in any other fiduciary capacity, and
(b) the transferor was or is granted probate or administration or appointed trustee, executor, guardian or in any other fiduciary capacity by an instrument consisting of—
(i) an order of a court,
(ii) a trust deed, settlement, covenant or agreement, or
(iii) a will, codicil or other testamentary instrument, or
by any testamentary act other than those aforesaid (whether the instrument or act was made, executed, or done before or after the transfer date),
the instrument or act shall as from the transfer date be read and construed and have effect as if for any reference therein to the transferor there were substituted a reference to the transferee.
This amendment is a redraft of the existing section 39, and it is intended to substitute for that section. The purpose of the amendment is to clarify the arrangements for the transfer of various instruments and appointments as executor, administrator and so on to a bank taking over the business of another bank and to ensure that the instruments and appointments continue to be valid. There is doubt about the existing section as to whether it would be fully effective. That is the reason for this amendment.
Would I be correct in saying that this is the first time that the words in a will or a codicil can be changed or can be read as being changed?
I doubt that in the sense that, for instance, a will or a codicil that was written in £sd, is now, under decimal currency, deemed to be operated in decimal currency.
There is a slight difference.
That example was off-hand. I am sure there are others.
Amendment agreed to.
Section 39 deleted.
Section 40 and 41, inclusive, agreed to.
SECTION 42.
Question proposed: "That section 42 stand part of the Bill."
Why should the banks be granted the privilege of exemption from stamp duty on a transfer of property in relation to an amalgamation? This seems to me to be extraordinary.
I agree with the Deputy and I was just about to ask the same question myself.
It was probably written into some old Act and has been copied.
I do not agree with it particularly when a father who gives land to his son on the occasion of the son's marriage is taxed.
These poor chaps have to be featherbedded.
I suggest that the Minister withdraw the section.
Not at all. We have similar provisions in some of the Land Acts in relation to these kinds of operations between non-banking companies where there is not an actual transfer of property in the ordinary sense.
That is not what the section says.
It is true that Government stocks and bonds do not attract stamp duty but that is a very different matter.
I am not talking about Government stocks.
I appreciate that but, if we take that as a great example of freedom from stamp duty, it is an entirely different issue from what we are concerned with here.
The Minister might look at the Dublin federated hospitals.
Why should the Central Fund be deprived of genuine revenue such as this?
I suspect that the banks slipped this one in.
It is not a genuine transfer. Of course, in so far as it is a genuine transfer, it will be liable. The effect will be to limit the charge to duty payable, first, on the increase in the capital of the transferee and, secondly, on the transfer of the premises of the transferor. This is, in effect, charging duty on what might be described as the genuine transfer of property but there are similar provisions in relation to other such operations where, in certain aspects, a merger is not a genuine transfer of property. So far as it is not such, we do not charge duty on it but, in so far as it is, it is intended to charge duty.
In fairness to the Minister I should say that in the legislation providing for the federated Dublin hospitals there is the same sort of provision.
There is a difference between a hospital and a bank.
I would condone fully such provision in relation to a hospital or to a charitable or religious institution.
Let us not be prejudiced. The legal principle is the same.
This is the first time I have heard it suggested that banks are charitable institutions.
Is it suggested that duty should be levied on one transaction because we do not like the parties concerned and not levied on another similar transaction because we happen to like the parties concerned? We cannot approach it on that basis.
Last week we discussed legislation that could be the cause of putting some people in dire straits— I refer to the tax on marriage grants— but the Minister is now trying to defend the non-taxing of a rich organisation and most of the banks are rich organisations. It is ridiculous to be trying to compare them with hospitals.
We propose to charge duty on the elements in any such transaction as is contemplated here which could be described as being a genuine transfer of property.
What is not a genuine transfer of property?
Where two companies merge but the actual ownership of the property remains the same in which case there would not be any genuine transfer of property.
Does the ownership not change completely in many cases where shareholders are bought out by one company in taking over another company? Would that not constitute a genuine transfer although, on the face of it, it would appear to be simply a merger?
The actual transfer of the premises will now be liable to duty.
The millions will not.
Any increase in the capital of the transferee bank will be liable.
What is exempt, then?
I cannot specify this precisely but substantially it is what I have said. Where there is no genuine transfer of property there is no duty payable but where there is a genuine transfer there is duty payable.
What is section 12 of the Finance Act of 1895?
I will have to produce that on another Stage. I think I know what it is but I do not think that is any help to the House if I am wrong.
The section says that it shall not apply to the vesting in the transferee of any property ... and so on. Then the next one is stamp duty on business. Section 12, I suspect, should be the appropriate duty that would be applicable to the transfer of property.
Yes, I think that is what it is too. It is that which refers to goodwill and similar incorporeal property but I will have to verify that.
No matter what the Minister says, if A takes over B, the shareholders of A because there is no stamp duty payable on certain assets are going to benefit but the Minister in this section favours shareholders of banks, to which I am opposed.
Could we look at it specially on the Report Stage?
The items which are being relieved from duty are the transfer of assets such as cash whether on the credit or debit side of the account, book debts, securities by way of mortgage, et cetera, and goodwill.
The premises—the property.
The premises would be liable to duty.
It is the transfer of the liquid assets which is not liable to duty.
If Deputies would consider what would be involved in this if this were not provided—you would have a really artificial assessment on the basis of the transfer of debit and credit accounts from the transferor to the transferee company and you would have a totally inflated and unreal figure assessed.
Supposing company A takes over company B and the assets and debts consist of £10 million and the property is worth only £50,000 —is the Minister telling us that that is an artificial value and that the £50,000 is taxed but the balance of £10 million cannot be taxed because that is an artificial value even though every last penny will be eventually accounted for to company B?
No, they cannot be set off. In the case of a bank you cannot set off debits against credits, as you could in the case of an ordinary business, and take the net figure. That would be a very simple way to do it.
In section 34 you are including the right of set off— transfer of accounts.
For the purpose of stamp duty?
No.
But this is what we are discussing here.
If you can set it off for one thing, surely you can set it off for another?
No, you cannot.
(Dublin Central): The Revenue Commissioners will find it difficult to decide on goodwill. They do not accept goodwill in business.
If there is a value put on it, surely it is possible.
(Dublin Central): The Revenue Commissioners do not accept goodwill on property. Was that not in the last Finance Act?
They do not accept it as being eligible for the lower rate of duty.
It gets lumped in in the whole thing.
Is it agreed that the section stand part?
I think the Minister should look into this and talk to us on Report Stage.
Perhaps he will have a look at it?
Yes. I will not be able to help but I will have a look at it.
A hard look.
Agonising reappraisal.
Question put and agreed to.
SECTION 43.
Question proposed: "That section 43 stand part of the Bill."
Subsection (2) of this section says that the Government may by order, after consultation with the bank, change the par value specified in subsection (1). Am I not right in saying that where the revaluation upwards or downwards is greater than 10 per cent we must also have recourse to advising the IMF of the proposed change?
Does the Deputy want to raise an argument on this?
It should be stated. If we are a member of the IMF it should be written into the Bill that it is incumbent on us to advise them of any change.
No. Our international obligations, whatever they are, are complied with but there are examples of members of the International Monetary Fund who have not in fact complied with their obligations, at least at the time they were supposed to do it. They may have done so afterwards. There is not anything in the obligations of the IMF binding in law on us to such an extent that we should insert it in this section.
I notice that under subsection (5) every order made by the Government shall be laid before each House of the Oireachtas as soon as may be after it is made. This is one of the subsections, I may tell you, that I object to, because it means nothing. I take it the intention is that it is laid before each House of the Oireachtas for approval or disapproval but it does not say that and in fact that section from the point of view of the validity of the order or its countermanding or repeal has no effect at all. I would just like to ask the Minister is this the wording that is intended because it seems to me if that is the purpose of it it merely ends up in a non-event because the Dáil can do nothing about it, but if it is to be laid before the Dáil for approval or, in the usual way, for countermanding or repeal by Dáil Éireann within a specified number of days, then there is some sense in it.
No. An order under this section, Deputies will notice, must be made by the Government, unlike the other orders under the Bill which are made by the Minister and, secondly, Deputies will notice that there is no mention in the subsection of its being laid before both houses and being subject to annulment as applies in the case of other orders. The wording of the subsection is quite deliberate because in any such case, if it were to arise, in practice it would be quite impossible to revise or amend at short notice an order changing the parity of the Irish £. In practice it would not be possible to do this. Also, if you had the normal provisions applying to this, in certain circumstances, such as something happening during the summer recess, you could have a period of maybe four months during which it would not be known whether or not the order might or might not be anulled. In the meantime one could only expect chaos to ensue. It is because of the nature of the particular order provided for in this subsection that it is proposed to do it in this way.
I do not like to talk about cases but I am familiar with litigation which is before the High Court at the moment in which there was a similar section to this. The Minister concerned made a regulation but somebody forgot to put it before the Houses of the Oireachtas. The matter at issue is whether the direction to place it before each House of the Oireachtas was a mandatory direction affecting the validity of the order or otherwise. Here the Government make an order. Section 43 states:
Every order under this section shall be laid before each House of the Oireachtas as soon as may be after it is made.
In a period during which the House is not sitting, does this mean that on the first day of the next session if the order is not laid before the Houses of the Oireachtas the order is invalidated? When we are dealing with the question of the standard of value for the Irish £ we should be very careful in relation to mandatory sections of this kind. In fact, I should prefer to see it deleted. I do not see what purpose it serves if the Dáil can neither rescind nor approve it. It seems an unnecessary, mechanical operation on behalf of some section of the Department of Finance or the Central Bank to make sure that on the opening day of the coming session this order should arrive at the Library for placing before the Houses of the Oireachtas.
It can be said that it is on the back of the Order Paper and that we can find it out in that way. In fact, most of us do not even look at this part of the Order Paper. Incidentally, when I looked at the back of the Order Paper to find out if I was correct, I discovered a matter about which I had been concerned for some time—the Local Government (Change of Name of Non-Municipal Town) Order, 1971. At least this section has done some good in that it has brought this matter to my attention. However, most people do not even look at the back of the Order Paper; the items are listed merely for the purpose of saying that they did so appear.
It is an old idea of Parliament. It is the Government notifying the Dáil. The reality is that we know all about it months beforehand.
On re-examination if I find this is not necessary I shall be happy to drop it.
May I ask the Minister if the sacred cow, namely the link with sterling, has gone in this section? I think it has.
The link is held, in so far as our currency is redeemable still in London. It is set out in section 45.
In section 45 (2A) it is stated:
... or, subject to and in accordance with the Exchange Control Acts, 1954 to 1966, for other foreign currencies.
However, it does not say exchangeable at par. I recall the history of the link with sterling and the fuss that was made by Fianna Fáil in 1948 at the expense of Clann na Poblachta, and the speeches of former Deputy MacEntee and Deputy Vivian de Valera about whether the Irish £ should be less than, equal to, or greater than the British £ and here it is being nicely faded out.
Times have changed and so has our economic situation.
Question put and agreed to.
SECTION 44.
I move amendment No. 27:
In page 22, line 20, to delete "on demand".
It is wrong to have notes on tap to the commercial banks or to anyone in the community because it militates against a proper economic policy. It is relevant to note from the Central Bank Report for 1969-70 that in 1952 the amount of currency outstanding was £58.6 million and in 1969 it had jumped to £141.5 million. This is a reflection of the inflation which is taking place. As a backing for my argument I can quote the Radcliffe Report which was published in England in 1959. That report dealt with the working of the monetary system. It was a well-founded argument that it was wrong to have currency on tap and I suggest that the determination of the proper amount of currency within the community should be left to the Central Bank.
Deputy Collins has a good point but I do not think it would work because the banks must have money in their tills to pay depositors who are entitled to get their money on demand. This is the real snag and if the Minister could think of a method of implementing this he would have dealt with the problem in which he professes to have such interest —the problem of inflation. I do not think the suggestion of Deputy Collins is feasible.
Perhaps I could put it this way. The Central Bank should become a proper lender of last resort. That would solve the problem the Deputy has mentioned in relation to the necessity to have cash to pay depositors. As matters stand, there would be currency on tap which is a bad monetary principle.
The words "on demand" have been included in the section because it is desirable to have a formal request from the person who wishes to obtain legal tender notes. It is similar to the existing arrangement under the 1927 Currency Act, whereby a person wishing to get legal tender notes was required to apply for them. In the absence of a demand, a request or application, there can be doubt about the situation. The inclusion of the words "on demand" is a protection to the person or the bank wishing to acquire legal tender notes as the Central Bank is required to meet the demand immediately. If these words were omitted there could be delay on the part of the Central Bank which would be to the disadvantage of the customer. It appears to me that we are dealing here with what is a technical situation, rather than one met every day of the week. In fact, the average man never comes up against this problem. That being so, it is necessary to have it clearly defined legally and the inclusion of the words "on demand" help to clarify the situation. I think, therefore, that I should not accept the amendment.
I will not push the amendment, but I think there should be some discretionary powers allowed to the Central Bank in relation to the supply of cash to the community or, in other words, to the banks. That is not the position at present, and this militates against fighting inflation. It has done that in the past few years, as can be seen from the tables in the reports of the Central Bank. Perhaps an amendment which would control the printing of notes and the supply of these notes to the commercial banks and others would be acceptable. There should be more control than there is at present. The system is far too loose.
I should not like the Deputy, or anybody else, to have a picture of notes being printed and pumped out from the Central Bank. That is not what happens at all, as the Deputy knows.
It is not generally what happens.
There is a very close watch kept on this by the Central Bank.
Could cash be issued against a note of hand of the Minister for Finance?
Not, I think, under this.
Under section 3 of the Currency Act.
This is simply not done and I should not like the idea to go forth that this is what is happening. Meeting the case Deputy Collins is making could well result in a situation in which it would appear one could not get on demand in response to an Irish £ its equivalent value and any suggestion of this would be very damaging to the currency.
I am not suggesting that.
If the Deputy can devise some method to solve the problem he has in mind and to avoid the other problem I will certainly be willing to consider it.
They are paid for by securities.
They are.
It is unfortunate that there is not some method of meeting the point Deputy Collins has in mind because it would put a quick end to inflation.
If one wanted to. I will try submitting an amendment on the Report Stage.
I will remind the Deputy that earlier we dealt with the powers of the Central Bank to acquire deposits for monetary and credit purposes. These are quite a powerful instrument, or they will be, in relation to the supply of money as well as to the inflationary problem.
I accept what the Minister says. The point I am making is that cash, notes and coins, is the basis of credit and if a bank can get their hands on £1 million they can create credit to the value of £10 million more or less.
(Dublin Central): They must have assets.
That is the principle of credit creation. If you can control the amount of cash within the system you are ipso facto controlling credit. It is a method of controlling credit and therefore it is a method of controlling inflation. It is a method we cannot have because of the previous Acts and it is not contained in this Act either.
Does the Deputy realise that currency is a relatively small part of the total money supply?
It is the basis of credit creation.
But it is a small part of it.
Mr. Collins
There is £150 million of it around the place.
Amendment, by leave, withdrawn.
Section 44 agreed to.
SECTION 45.
I move amendment No. 28:
In page 23, line 3, to delete "1966" and substitute "1970".
Since the Bill was circulated a Continuation Exchange Control Bill has become law and the correct reference at the end of section 45 (2A) should be "Exchange Control Acts, 1954 to 1970".
Amendment agreed to.
Question proposed: "That section 45, as amended, stand part of the Bill".
May I ask what is this peculiar "(2A)" at the foot of page 22? It is unusual. Perhaps the Minister does not know.
It must have gone into the Act of 1927 from another source.
I see. I have never seen this kind of thing before.
No. But we had an Article 2A before.
It must be some form of drafting difficulty. I will look into it. On the face of it I do not know why it was not called "(3)". It is so obvious there must be a reason for it.
Subsection (2) retains the certain link with sterling: "Every legal tender note shall be exchangeable on presentation at the London Agency for money in any form which is for the time being legal tender in Great Britain for unlimited amounts".
But it is not on parity. "At par" is left out.
They can give you what they like for it.
That is true except that under our obligations in the IMF it would have to be 1 per cent of par.
Is the London Agency the Bank of England?
Yes.
Question put and agreed to.
Section 46 agreed to.
SECTION 47.
Question proposed: "That section 47 stand part of the Bill."
I do not agree with this section. It is wrong to grant to the Central Bank powers and functions of a kind which, in accordance with normal banking practice, may be exercised and carried out by banks and bankers. This is a very dangerous provision to write into this Bill. If the Central Bank embark on commercial activities similar to those of the commercial banks and if there is a dispute in the commercial banks it is quite possible that dispute would spread to the Central Bank. That would not be desirable and it should be avoided at all costs. One could find a picket on the Central Bank. That should also be avoided.
One could find a picket on the Central Bank at any time.
But not without reason, I should think.
Actually this section is not new in case anyone thinks it is. A similar power was possessed by the former Currency Commission. This section is designed to add to the specific powers available to the Central Bank under existing legislation.
But this power was not held by the Central Bank up to this.
No, but it was held by the Currency Commission. The object is to enable the bank, as and when they think fit, to engage in banking activity for the purpose of carrying out their functions as a Central Bank. There is no intention that the bank should engage in normal commercial banking activity. Central Banks generally do not do so.
It would be a bankers' bank.
I will explain some of the things that are in mind. It will need power to enable it to operate the Exchequer account which is being transferred to it under section 49. The section will also enable the bank to take up direct Exchequer Bills and other Government securities where they consider it necessary to do so in the course of their money marketing operations. No such transactions would be undertaken without full regard to the objectives of monetary policy. That is the purpose of this. There is no intention that the bank should engage in normal commercial banking activity.
I thought for a moment it was the start of a move to nationalise the banks.
I want to mention at this stage that I intend to move an amendment later. I understand I should give notice to the House now although I shall not move it until Report Stage. The object would be this: some doubts were raised on the Decimal Currency Bill in the Seanad as to the validity after the changeover period we are now going through of certain contracts made informally in terms of £ s d rather than decimal currency. I undertook to look into the point. This has to be done before the expiration of the transition stage. I do not think it is worth introducing a special Bill and, therefore, I propose to move an amendment on Report Stage of this Bill and I want to give notice of that to the House.
Question put and agreed to.
SECTION 48.
I move amendment No. 29:
In page 23, before section 48, to insert a new section as follows:
(1) There shall be appointed an advisory committee consisting of eight members.
(2) The members shall be appointed by the Minister upon the advice of the Governor.
(3) The committee shall be representative of the following interests:
(a) the merchant banks,
(b) the non-associated commercial banks,
(c) the savings and trustee savings banks,
(d) the building societies,
(e) the finance companies,
(f) credit unions.
(4) The committee shall have the following rights and duties:
(a) to be informed of any matters relating to business of the bodies mentioned in the previous subsection, appearing on the agenda for discussion by the Board, and to make representations to the Board thereon.
(b) to make representations to the Board on any matter which they think fit.
(5) The Minister, the Governor and the Board shall be entitled to refer any matter which they think fit to the committee for their consideration and advice thereon.
(6) Nothing herein before contained shall be construed as imposing any obligation on the Board to accept the representations or advice of the committee.
The Minister has been very good about accepting suggestions from this side of the House. The Minister may or may not make a certain point on this: if he is accepting the amendment he will not make it but if he is not accepting it, he will make it. The Minister is aware of the purpose of the amendment. It is an attempt to give "a say"—a phrase much used on the Government benches at present in relation to the Common Market—to non-associated banks, merchant banks, trustee saving banks, building societies, finance companies and credit unions in matters relating to themselves. The suggestion was made that this committee should be sent the whole agenda for every meeting of the Central Bank. I did not think there was any chance of that being accepted. Therefore, when Deputy Tully and myself were drafting this we decided to word it
... to be informed of any matters relating to business of the bodies mentioned in the previous subsection, appearing on the agenda for discussion by the Board, and to make representations to the Board thereon.
That is, if they want to do so. I think it is reasonable that this big group of people—the Minister knows that credit unions are growing apace—when something affecting their interests is up for decision by the board of directors of the Central Bank should have an advisory committee representative of them. It is so long since this amendment was put down that I cannot recollect exactly why we put in eight members. On the face of it, it would seem it should be six but, perhaps, it is because non-associated commercial banks might require two since there are separate groups, or something of that sort. I should like to know the Minister's view of this.
I am afraid it is not very favourable. I do not think an advisory committee of this kind would be very practicable or, indeed, necessary. The savings and trustee savings bank do not come within the scope of this Bill. They are subject to separate legislation as I indicated earlier, coming under the supervision of the Departments of Posts and Telegraphs and Finance. The position is similar in regard to building societies which are subject to supervision by the Department of Industry and Commerce and the Department of Local Government. As regards credit unions, they are subject to supervision by the Department of Industry and Commerce. Under section 18 of this Bill building societies and credit unions will be required to furnish information regarding their business to the Central Bank so that the bank may have appropriate statistical information but I do not think this minor requirement is sufficient to justify setting up special consultation machinery.
Apart from this, various confidential questions relating to banking and associated matters must be discussed by the board of the Central Bank from time to time and I think it would be inappropriate that matters should be disclosed widely if at all. In banking there are many matters that must remain confidential and there might be very weighty objections to disclosing certain matters in relation to, say, merchant banks to representatives of building societies, credit unions or finance companies. This kind of consultation with this type of committee could also unduly hold up matters in which immediate action might be required. This would not be true of all items but could well be true in some cases. In anticipation of a point that might be made I should, perhaps, mention that the representatives of the associated banks who are on the board of the Central Bank are required to take a formal oath of secrecy.
Another point is that the Central Bank does, in fact, have frequent consultations with banking interests so far as this is necessary or desirable and representations which are made to it by any of the type of interests mentioned in the amendment are always very carefully considered. It is the practice of the Central Bank to proceed by way of discussion and agreement as far as possible and to avoid the formal use of its powers in any arbitrary way. It is the intention that this type of proceeding will continue as far as the bank is concerned in exercising these new powers given under this Bill. I think Deputies will agree that this is the way the Central Bank has operated. It can be taken that any matters affecting the interests of various bodies mentioned in the amendment would be dealt with similarly by consultation and persuasion unless, having gone through that machinery, a head-on collision should happen in which case the Central Bank, of course, would have to carry out its functions. That situation has not arisen so far and there is no reason to expect it to occur with any frequency in the future. In all these circumstances I cannot accept the amendment.
It might meet the situation if the Minister were to state now that when something affecting each of these groups was being considered by the board of the Central Bank they would consult formally or otherwise and seek the views of the group concerned. It has been the custom if the Minister gives a specific promise to do something, to accept it and this would meet the main point of the amendment. In spite of the reference to the oath of secrecy, this belief which came out during the bank rate inquiry in England that a man can split his mind, that he can leave home as a trade unionist wearing a cloth cap and arrive as a bank director with a hard hat, is not borne out in practice. Would the Minister be inclined to go that far? If there was a guarantee, that would meet it. The people who are naturally most closely concerned are the non-associated commercial banks. They are being left out in the cold. There is a section in the Bill providing for fair competition and that kind of thing and this would help that idea.
I would be prepared to give an undertaking as suggested by Deputy O'Donovan that the Central Bank seek the views of the bodies mentioned in this amendment in relation to matters in which such bodies would be concerned. I think I must add the qualification that if in any particular case the Board of the Central Bank were of the view that for reasons of urgency or secrecy they were unable to do so then they would be exempt from this undertaking but subject to that they would consult.
It seems reasonable enough.
It is true that the non-associated banks appear to have been left out in the cold. I should prefer not to see any of the commercial banks on the board at all but I do not think it is the right idea to put one group on and not the other.
I did deal with this matter on Second Stage. I just want to repeat that I do not visualise this as the end of the road in regard to the development of banking in Ireland and in regard to the constitution of the Board of the Central Bank. This is an evolving situation. I do not want to anticipate which way it will evolve but I do not think it will stay static.
It evolved all right between the first and second edition of the Bill. There were three representatives of the commercial banks on the board under the first edition and it has now been reduced to two. Since Deputy O'Higgins felt it had something to do with the Just Society I am glad to see it was a bow to the Labour Party policy in the last election.
Amendment, by leave, withdrawn.
Question proposed: "That section 48 stand part of the Bill".
In relation to the issue of the Central Bank reserve fund what authorisation has the Minister to issue these bonds to persons other than holders of licences? I see no objection to a wider circulation of these reserve bonds. We have already discussed this on subsection 7. No stamp duty is to be charged on the issue, assignment, negotiation or redemption of bonds. The more important issue which I should like the Minister to comment on is that in relation to the restriction of the issuing of the reserve fund to holders with licences. This could possibly militate against the development of the money market which is so desirable.
These bonds are intended to facilitate the operation to which we referred earlier of the transfer of the external assets of the commercial banks to the Central Bank. This being so, it does not seem appropriate that they should be saleable to others. I doubt if anybody else would be interested in them even if they were available.
They are short term bonds are they not?
They are, yes.
If we are to develop the money market in line with the report of the Committee on the Functions, Operations and Development of the Money Market in Ireland then the approach should be one of trying to involve as many institutions as possible in such a reserve bond scheme, even large industrial concerns, various types of financial institutions, insurance companies and hire purchase companies. It would help this development. I understand the position in relation to the centralisation of external reserves but surely the reserve bonds could also be used to aid development of a proper money market?
They will, of course, aid the development of a proper money market in so far as they will be traded in as between the banks and the Central Bank.
That is a very small circle.
It is the main circle in which this kind of operation is carried out anyway.
At present.
But in an evolving situation it is bound to restrict.
It does not give a chance of development.
I shall have a look at that and see if it is possible to open it up.
Purely to widen the scope and it might, perhaps, help in the development of a money market. I am not saying it will, but it is rather restrictive in a developing situation.
Question put and agreed to.
SECTION 49.
Question proposed: "That section 49 stand part of the Bill."
Am I wrong or has this already happened? I had the impression that following the kindness of the Minister I received a cheque recently from the Revenue Commissioners—not without some little difficulty—and I think it was drawn on the Central Bank of Ireland. I am not certain about this; it may have been drawn on the Bank of Ireland.
The Exchequer account has not yet been transferred.
It is still with the Bank of Ireland?
Yes.
What effect will the transfer have on the Bank of Ireland? Will it reduce the value of their shares or will it reduce their profitability?
It loses a good customer.
Is any compensation being paid?
A section is being put in on their behalf.
This is being done by arrangement with the Bank of Ireland. They have a separate staff dealing with this. I do not know how profitable it was. I would think the loss of this business would have a minimal effect on the overall operations of the Bank of Ireland. Because of the complications of staff, premises and so on this change-over will not be effected immediately. It will take some time but it is being done on an agreed and amicable basis.
Has the Central Bank got planning permission to build here?
That is another question.
Question put and agreed to.
SECTION 50.
I move amendment No. 30:
In page 24, before section 50, to insert the following section:
"(1) Notwithstanding anything in the Land Purchase Acts or in any order under those Acts the registers of land bonds kept by the Bank of Ireland shall be transferred to the Bank.
(2) This section shall come into operation on such day as the Minister appoints by order under this section."
The purpose of this amendment is to insert a new section in the Bill to enable the land bond registers to be transferred from the Bank of Ireland to the Central Bank. Legislation is necessary as section 3 of the Land Bond Act, 1969, provides that the register be kept at the Bank of Ireland. This transfer is part of the general transfer of Government business to the Central Bank which will include the registers for national loans and prize bonds also held in the Bank of Ireland. I do not know if I need say any more about it. I assume the House would favour in general this policy.
Will the change of residence of the land bonds do anything to stabilise the purchase price? I am sure the Minister is aware that the most detested type of payment for land which the farmers can get is land bonds because unless a farmer can get some gullible person to take them from him almost immediately upon issue he finds he has lost at least 20 per cent of their value within a week. If he keeps them any time at all he is likely to find that a farm which he may think he is very lucky to have got £60,000 for has dropped to £30,000 or less. Most of the people selling farms to the Land Commission are older farmers and very few of them can afford to wait to allow the bonds to mature. Perhaps it may not be relevant to this section but could the Minister try to do something to stabilise the price of land bonds because they are a very bad investment at present?
I could not give any warranty that this amendment would improve that situation.
I was afraid it would not.
Perhaps, the Minister could ask the Central Bank to review the situation concerning the redemption of land bonds when it comes under the auspices of the Central Bank? Perhaps they would devise a system where they could redeem more of them or else convert them into a higher earning security. I know this would be very problematical but the first holder of a land bond should not be at a loss. Perhaps, some system could be devised which would allow a fair redeemable value to the first holder of a land bond and this could be done through the Central Bank.
I shall pass on the Deputy's comments to the Central Bank. I cannot undertake to do anything about it in connection with this Bill.
Could they be transferred even for later issues of land bonds? Acquire a higher yield? There are 3½ and 4 per cent land bonds still around. People have them and they do not know what to do with them. They dare not cash them. They cannot afford to.
It was really deplorable because it happened so rapidly. The 1934 Land Bond Act said that they were to be at or near par for a reasonable period after issue. They were issued at 100 and they were down to 90 within a couple of months.
Days.
This was contrary to the whole purpose of the legislation. There is a sizeable staff in the National City Bank who used to keep these registers. Is that staff going with it?
Where could they go?
Into the Central Bank from the National City Bank. Is there any question of a transfer of the staff who handle these registers because between the national loans and the land bonds there must be sizeable redundancy even if the staff are not discharged.
It would be a pity to lose the expertise too.
I cannot say that they will be transferred. They will certainly not be transferred as a body to the Central Bank. Some of them, I think, will be transferred but I have indicated that this transfer will not be effected in the short term. It might be over a period of years. The arrangements that are envisaged for this take account of the redundancies that are likely to arise.
Age groupings and so on?
Yes, wastage and that kind of thing.
Nobody being dismissed but no replacements, et cetera.
Well, there would certainly have to be considerable additional staff employed in the Central Bank.
A computer?
Oh no, leave that out of it if it is to be like the one they have for PAYE.
Amendment agreed to.
Section 50, as amended, agreed to.
SECTION 51.
I move amendment No. 31:
In page 25, subsection (1), line 14, after "licence" to insert "or a trustee savings bank certified under the Trustee Savings Bank Acts, 1863 to 1965".
This amendment is intended to ensure that the Money Lenders Acts will not apply to the trustee savings banks. This will put them in the same position as the commercial banks which the existing section 51 deals with similarly. The amendment arises from the fact that the trustee savings banks provide limited loan facilities for some of their customers. They might be regarded as moneylenders were it not for this amendment.
Amendment agreed to.
Section 51, as amended, agreed to.
SECTION 52.
I move amendment No. 32:
In page 25, before subsection (2), to insert a new subsection as follows:
"( ) At least one of the six appointed under subsection (1) (b) shall be representative of the non-associated banks."
The present position in relation to the directors of the Central Bank is that there are eight directors appointed by the Minister for Finance from a panel on which there are three bank directors and five general directors. Three are selected from a panel put forward by the associated banks. Now the proposal is to reduce the three bank directors to two and to increase the five general directors to six and the panel, in effect, is abolished. Leaving aside the question of reducing the number of banks directors, the purpose of this amendment is to suggest that at least one of the five should be representative of the non-associated banking interests, that is, if bank directors are going to go on at all.
On Second Reading we expressed the view, and we still hold it, that the representatives of the commercial banks will be looking after their own interests in this but if the Minister is determined to put on two, and I assume the reason is to have one from each group, then, of course, the non-associated banks should be represented also because it puts them in an awkward position particularly as it would appear from some statements made recently by Government Ministers that there is going to be a lot more dependence on the non-associated banks. As a matter of fact, they have nearly become respectable now as far as the Government are concerned. If the Minister is determined to put on those two why should he not also give representation to the non-associated banks?
With reference to the other people, I suppose they will be decent people who will know their job but always when something like this happens the strange person finds himself on, the person who has no real claim to be put on except that he was useful to the Government at some time.
Gerry Jones.
Poor Gerry did his job and he got chopped. I would not like to bring him into this at all but somebody who would not have as much right to be appointed as he. I do not know what the Minister has in mind but I have an idea that almost certainly it is somebody who is, perhaps, retired from business and who would agree himself that he is not in a position to carry on business any longer who will find his way on to the Central Bank to advise the Government and the country how they should do their business. I am not anti-old, I am getting old myself like everybody else, but in an important thing like this I think every effort should be made by the Minister to ensure that the right people are appointed and the right people are those who can do the job properly.
I have had no complaint about anybody I have appointed so far to the Board of the Central Bank. My recollection is that I have appointed only one. I may be wrong but I can only remember one. He is not an old man.
Good.
That is good. There have been a few old men on it, you know.
I am aware of that. I mentioned earlier in another connection that I do not regard this as a static situation. I think that banking in this country is still in a state of flux and, until it is stabilised to a greater degree, I do not think that this question of the widening of bank representation on the Central Bank board should be considered.
In any case, most of the main non-associated banks, that is the merchant banks, already have indirect representation on the board as they are subsidiaries of or are closely associated with the associated banks. They form the main bulk of the non-associated banks. So far as the purely external banks are concerned the majority of them have been in business here for a short time only. I do not think there is a good case, yet at any rate, for giving them representation on the board of the Central Bank. There is another factor which we have to consider and that is that when banks are entirely foreign-owned they may be subject to external influences and considerations that could, in some circumstances, run counter to the desirable pattern of Irish banking.
Another difficulty is that the non-associated banks are a very diverse group and it would be quite difficult if not impossible to get agreement on one representative for the whole group. There is no one association which is representative of the entire group.
Does the Minister think it would not be possible to get them together?
I think there would be no difficulty.
I would be very surprised if it were possible. They have quite differing interests.
They are not as chummy as our Irish bank directors are.
I said earlier that I thought the situation was evolving— or if I did not say it I am saying it now—and that it seems to me to be conceivable that it could well evolve in the direction where there would be no commercial banking directors on the board of the Central Bank.
Hear, hear.
Quite right.
I say that could be so. Bearing that in mind, I feel that the move to reduce commercial banking representation from three to two is an acknowledgment of what has been happening. To step it up again from two might well be to go in a retrograde direction. In general I am afraid I cannot find myself in agreement with this amendment.
If that is the Minister's idea we will not quarrel with him.
I am glad to hear the Minister say that because, as far as I know, nowhere else in the western world are directors of the commercial banks on Central Banks. Whereas there are large numbers of people who represent the merchant banks there is no representative at all—or there certainly was not the last time I looked at it—of the big five in London on the board of the Bank of England.
Amendment, by leave, withdrawn.
Section 52 agreed to.
Sections 53 to 57, inclusive, agreed to.
SECTION 58.
I move amendment No. 33:
In page 27, line 5, before "neglect" to insert "wilful".
The purpose of this amendment is to provide that a person who facilitated an offence by his neglect will not be guilty unless the neglect is shown to have been wilful. A similar limitation is found in other legislation, for example, in section 48 of the Central Bank Act, 1942, and also in the Unit Trust Bill, 1970. This is in relief of a person who might have facilitated an offence but did not do so wilfully.
They are covered by the same penalty clauses as those in section 56 because the section is not one of the sections referred to?
I am sorry. I do not follow the Deputy.
Section 56 refers to the sections of the Bill which will carry a penalty but it does not include section 58. Does that make any difference?
Section 58 reads that into the other section.
The others are specifically mentioned by number.
That is only laying down the particular penalties which relate to particular offences.
What penalty is laid down in section 58?
Section 58 is only in relation to persons or bodies who are associated in some way with the commission of an offence under the sections set out in section 56.
So it can be related to any of the sections?
Yes.
Amendment agreed to.
Section 58, as amended, agreed to.
Schedule agreed to.
Title agreed to.
Bill reported with amendments.
When is it proposed to take Report Stage?
We will have the Committee Stage of the Finance Bill next week?
I think so. Might I suggest that we order this for next Tuesday and let the Whips reach agreement?
Yes, in case there is a possibility of business being finished on time, for once.
Report Stage ordered for Tuesday, 29th June, 1971.