Insurance (Miscellaneous Provisions) Bill, 1985: Second Stage (Resumed)

Question again proposed: "That the Bill be now read a Second Time."

Before the break we were making our attitude clear to this legislation dealing with the ICI business. We said that this legislative process now being recommended by the Government is unnecessary on one front if the liability as indicated by the Minister was to be taken at face value, that if the liability is of that level an internal arrangement could have saved the day rather than inflicting the trauma and difficulty that the country, the banking institutions and national credibility has had to suffer since that time. If that is not the case and if the liabilities are as they are intimated to us from sources both at home and abroad, the existing legislation is tantamount to providing the Government with an open cheque to deal with the matter. It will mean that the State will take over by and large the funding of the compensation fund set up under the 1964 Act, which now has very wide limits. The limits laid down at that time were removed by the 1983 emergency legislation. Consequently, we are satisfied that the Government intend using this legislative vehicle to saddle the taxpayers with contributing the funding necessary to pay the liabilities as they fall due.

On both counts we have to oppose the legislation. We offered alternatives that might have been considered had the Government not acted so hastily in dealing with the matter on 15 March. The leader of my party gave the instance of the commercial bank in Canada, where interested parties both in government and banking circles are being brought together to provide the rescue package, as an example of what might well be contemplated under the aegis of the Central Bank Act. We were dismissive of the Minister's attempt to rule out the Central Bank involvement in this matter because some of us believe sincerely that the Central Bank had a crucial part to play both in allowing AIB to take on this non-banking activity and in subsequently forcing their hand to get out and to bring the matter into Leinster House.

I talked about the necessity that arises under the supervisory authority's responsibilities in dealing with the supervision of insurance in general. It is obvious to everyone now that we have a very serious criticism of the supervisory authority in the way that it dealt with insurance over a period. We are critical of the Minister of State, Deputy Collins, in the way he has responded to repeated calls to deal with these matters. The Minister of State has disregarded all the pleas and we see now the consequences. We are being forced into dealing with a crisis that could have been foreseen and promptly dealt with to avoid this serious crisis.

I dealt with the question of the necessary technical reserves to deal with liability cover and the question of solvency requirements which must dictate the minimum level of capital and retained reserves. The EC solvency margin stands at about 17 per cent of annual premium income. This solvency margin is a prudent regulation had the Minister seen fit to apply it and seen to it that the margin was being maintained by ICI and others acting in this business. It is necessary because the insurance company accepts unlimited risk and also the liability for claims are usually conservatively provided. The assets may realise less than their face valuation and there are often exceptional claims to be paid.

In Irish insurance circumstances a underwriting break-even is the minimum target, but unfortunately in practice underwriting always results in utilising investment income. The more acceptable norm should be 5 per cent underwriting profit. Normally, insurers lay off portion of the risk with others by way of re-insurance paying a premium for the protection. This protection is necessary against the danger of exceptionally large claims and it is arranged by laying of the risk in tranches. The net premium returns to the Department, included in the blue book figures consist of the gross premiums less the amounts laid off by re-insurance. The solvency of a direct insurer depends on the effectiveness of the transfer of some of the liability of the undertaking to re-insurers and maintaining adequate assets to meet the liability which has been retained. These necessary safeguards and regulations were not complied with in the instance of ICI and there is considerable anxiety being expressed that these regulations are not complied with by a number of other insurers also.

From the blue book, which was provided last evening, I am in a position to prove to the Minister that these solvency margins and the technical reserves are not being maintained by other insurers. While we do not want to make statements which would put a run on anything, we are bringing it to the Minister's notice that he as the supervisory authority has not acted prudently in dealing with the technical reserves and solvency measures necessary to maintain the cover needed to cover the liabilities. This should have been painfully obvious to the Minister after the PMPA business of 1983.

The total cost of claims is the product of the number of claims and the size of the claims. The greatest complaint adding to the cost of the claims and resulting in higher premiums for everyone is that the High Court damages as assessed by juries is completely out of line with the estimate of damages in other countries. There is an inconsistency of awards and a lack of predictability in these awards. There is no doubt but that claimants will fight right up to the High Court in the expectation of getting a more substantial award than if they made an earlier settlement. The level of jury awards that have been granted in this country has actively discouraged attempts at out of court settlements. Our awards system is in advance of awards in the United Kingdom and many of the jury awards have been halved on appeal to the Supreme Court. It would appear that many juries regard insurance companies as impersonal bodies capable of withstanding any claim. We are now virtually on our own in so far as the settlement of awards by juries are concerned and, in fact, the United Kingdom abandoned the system of juries in these type of cases almost 51 years ago. However, it must be stated that the jury system has always been seen as a basic feature of the independent administration of justice and should not be challenged in relation to the determination of guilt. The aim should be to secure a level of award which is fair and just, taking the comparability of cases into account.

A greater degree of consistency is necessary in awards. There is no particular difficulty in assessing special damages, such as medical and hospital fees and loss of earnings as these are matters of proof and mathematics. However, in the area of general damages the least that should be entertained in advance of a Government White Paper on the whole question of the appropriateness of the jury system in damages claims is the authority to the judge to inform the jury of the going rate of general damages for particular types of claims. The Government review, with a specified time scale to report, should also consider the whole area of pre-trial procedures, legal fees, system delays, the level of legal representation needed and jurisdiction of various courts in considering cases.

If curbing the claims side is to be an integral part of official strategy in maintaining solvency of insurers and controlling premium costs and generally easing the burden on policy holders, then swift Government action is needed whether entrenched vested interests are dented or not.

In the ICI case while the Government may not have a clue as to the eventual liability it will have to meet, some interesting facts regarding the London office of ICI operation give us some indication as to why AIB cut its losses and ran for Government cover. The underwriting policy of trading in the non-marine market dealing with general insurance seems to have been the undoing of ICI. It was regarded as one of the softest markets in London, certainly it was not selective in the kind of business it took on board and was loosely referred to as the "rubbish bin" of the insurance world.

It is generally accepted that prior to AIB taking over ICI completely the London market would not accept policy documents until they were guaranteed by AIB. When one considers the type of high risk ventures ICI was insuring is it any wonder they were figured as a ‘soft touch'? They were, in fact, thrown out of the Fire Officers Committee because they did not accept basic rates.

Take the example of the suicidal rate quoted by ICI for the Association of British Travel Agents account. A scheme had been handled by Accident and General Insurance Brokers, using Norwich Union for years, but was switched dramatically to ICI when the latter undercut the premium of £12 million reducing it to £7 million. An unsolicited approach by another broker had offered to arrange the cover with ICI, a subsidiary of AIB. That was the selling point in getting the premium accepted. The whole industry regarded the deal as unrealistic. It is understood that losses were being experienced from the first week from taking on the account. ICI was also involved in huge claims following the Australian bush fires in 1983, the malfunction of satellites and the collapse of Air Florida. It is understood that the London office had a very aggressive role in the re-insurance markets, with particular reference to bloodstock business, which represented 25 per cent of its general accident portfolio. As a reinsurer they were accepting business that others would not keep on their own accounts. Trying to generate huge volumes of business at low cost in high risk areas proved disastrous for them. The word is—and this can be verified — that ICI were doing a lot of their own re-insurance through their own office in Guernsey. It is said that was being done through their re-insurance operation there known as Re-insurance Corporation of Guernsey. They were also re-insuring in South America and South American re-insurance is described by Lloyds as the bucket operation of re-insurance, the last resort of any re-insurer.

To get the volumes they had to utilise binding authority mechanisms and delegated underwriting devices which committed ICI to accept risk over which they had no control. The holders of these binding authorities get paid by commission, but they are not the risk carriers. When claims arose the insurer had to make the pay out. ICI had a large number of binding authorities. It is to be hoped that even at this late stage the holders of these binding authorities have been terminated.

A fundamental question that must be asked is who authorised this kind of risk taking and surely nobody can suggest that it was going on without the knowledge and support of its base organisation.

The activity of ICI did not comply with the scheme of operations dimension by which each licensed holder granted a licence by the Minister must satisfy the supervisory authority. It seems nobody applied the rules to ICI, on the public liability and employers liability side. ICI, had underestimated their claims liability by a huge 55.2 per cent in the period 1978 to 1982. As AIB were both shareholders and on the board of ICI, this information of under provision must have been known to them. The only question that has to be asked here is why AIB at the date of take-over did not make their offer for ICI shares conditional on an independent assessment of the ICI provisions to cover their liabilities. The figures were never challenged by the bank or the supervisory authority and so in the apportionment of blame for the crisis ICI must have the biggest burden of responsibility followed by the supervisory authority and the bank itself.

With the emergence of the figures it must have been obvious to the bank that the bank itself was looking into a bottomless pit which, if the worst came to the worst, would condemn our major banking institution to an untenable position which would not just spell disaster for its own continuation in business, but could result in a serious aggravation of our banking solvency with all the attendant national and international dangers which that implies.

The delay since 15 March in producing the legislation before us, which is necessary to deal with the matter, has had a debilitating effect on both the financial market and on Government credibility. Government inaction today has exacerbated an already uncertain situation. If it was decided that legislation was necessary and if, as we are told, that negotiations were taking place for weeks before the announcement, then arrangements should have been concluded and announcements made only when the legislative process was clear and prepared. What we got eventually is what looks like an innocuous piece of legislation but it could be an albatross around the neck of the country for years.

The Government's timing of their own response leaves something to be desired and shows a further example of mismanagement of the country's affairs. Another example of the Department's inefficiency is its tardiness in the publication of the blue book for 1983, which deals with the summary of the statements of insurance business. It is just another indicator of the inefficiency at Government level in dealing with the insurance industry. Making an excuse for the delay in publication as the non-availability of the PMPA figures until December 1984 is unacceptable. This was known to the Minister of State at the Department, Deputy Collins, on 30 January 1985, when he indicated that the blue book would be published in February of this year at the latest. An inquiry made to the Department on 18 March resulted in information that the matter was before the Government and publication could be expected in the immediate future. On Thursday, 21 March the Taoiseach seemed totally unaware of what the position was but promised to let me have the information on that day.

The following morning, Friday 22 March the Department informed me that matters regarding the publication of the blue book were not yet at an advance stage and that publication must be further delayed. The details dealing with profit and loss account for non-life insurance business, balance sheets for non-life insurance business, together with particulars of non-life insurance written outside Ireland during the year 1983 would be of considerable help in determining the true picture of the insurance debacle we are now discussing.

One has to be just a little suspicious of the Government motive in not meeting their blue book publication deadline. The blue book has now been published and shows a continuing crisis in general insurance. While I have not had much time to consider the implications in the blue book, to prove the point which the leader of Fianna Fáil made this morning and which I now confirm, there is a continuing crisis in non-life insurance here, and the Minister, even at this late stage, is not prepared to do anything about it. The 1983 blue book shows very clearly the problems facing the general insurance industry with underwriting losses of almost £99 million in the areas of motor liability and fire insurance. By far the greatest loss area is motor vehicle insurance with 24 of the 25 companies reporting underwriting losses amounting to £52.495 million and also showing provisions for outstanding claims of £465.405 million, of which provision for the PMPA is £215.938 million and for the ICI £13.954 million.

The other heavy loss area was liability insurance with underwriting losses totalling almost £36 million. In this area, 26 of the 28 companies underwriting this business made heavy losses and the two exceptions only underwrote a total of £19,000 in liability premiums. The ICI suffered the largest losses here, with an underwriting loss of over £7 million, over £3 million higher than the next loss maker. One must remember the report printed in a Sunday newspaper recently which suggested that the outstanding claim estimates in the ICI were reduced by 42.5 per cent which would imply that the liability losses of the ICI were far greater than the figures stated. The total premium income for business written in Ireland amounted to £419,932,000, of which £243 million was written by Irish controlled companies and which accumulated underwriting losses of £58 million, which shows that seven of the 30 companies underwriting in the Republic of Ireland accumulated over 58 per cent of the losses which must give cause for concern, especially since two of these companies are in the hands of administrators. The unsatisfactory situation which has arisen must cause the Minister concern as he is responsible for the overseeing of the industry. It is interesting to note that the ratio between claims paid and those outstanding for motor insurance for ICI is 1.45 to one where the normal satisfactory ratio is 2.4 to one which suggests that the company were not satisfactorily estimating their motor liabilities. This should have been enough to warn the Minister and the supervisory authority that appropriate action should have been taken.

It was also suggested today that there was one motor insurer that did not lose money but the Hibernian Insurance Company — the company referred to — are under-reserving their motor insurance account and the ratio of claims outstanding in relation to claims paid is 1.76 to one. The Minister knows that prudent underwriters would be talking about a ratio of up to 3.7 to one. This is a clear indication that there are insurance companies who give cause for concern in so far as their technical reserves and solvency margins are concerned.

At last the need for new legislation to amend the Insurance Acts 1909 to 1982 with a view to facilitating a more effective control of insurance companies must now be self-evident even to a reluctant Minister and supervisory authority. New arrangements are necessary to deal with the revocation of authorisations in cases of doubtful solvency, minimum share capital requirements, including reserving and solvency requirements to cater for the modern circumstances dealing with reinsurance and matters related to EC Directives, including the qualifications for directors and managers of insurance companies. There must be new regulations concerning the issue of solvency certificates, laying out the precise terms of procedures and conditions under which these certificates can be granted.

There is also need for review of the calculation of technical reserves and the valuation of assets with particular reference to the underwriting of liabilities. The parameters necessary as regards information on the reinsurance arrangements should be unambiguosly stated in any new legislation. The Minister must also have absolute general power to require information in any circumstances concerning the insurance business. There must be new and adequate safeguards which will allow the Minister to satisfy himself that the obligations under the Acts are being satisfied completely.

New procedures must also be provided for the submission of returns and accounts to the supervisory authority. These accounts and returns should and must be certified by an auditor or an actuary nominated by the Minister and operating independently of the accountants attached to the insurer.

All these new measurers must apply to the insurance company and include companies connected or dependent on the major insurance company. Once and for all the penalty for non-compliance with the regulations should be that if the requisitions are not met then there should be immediate suspension of the authorisation to write insurance until such time as the supervisory authority is satisfied.

When the Minister has reason to believe that there is doubtful solvency in the operation of any insurer or has not made adequate arrangements for re-insurance then the Minister must be able to authorise that the offending company refrain from taking new business of a specified type of classes; refrain from making certain investments and realise certain investments to bring back their margins of solvency. It should be an underlying requirement that all insurers granted licences must maintain assets in the State to deal with all total domestic liabilities.

In any new arrangements concerning the control of insurance business, from the experience gleaned during this unfortunate situation, it is paramount that the Minister will have some control over the Directors of insurance companies. The Minister should have full information regarding the qualification and experience of those seeking authorisations, be they directors and managers and if he is not satisfied the Minister should be empowered to curtail or cancel any authorisation granted by his supervisory authority. All changes in directors and chief executive officers should be notified to the Minister and he should retain the right to veto any appointment. Actuarial experience is vital to insurance undertaking and the Minister should lay down certain minimum requirements of persons who may be appointed as actuaries.

Because of the inherent dangers in the reinsurance business it is essential that in the future no reinsurance assurance business be allowed unless specifically authorised in the licence to operate. The accounts of any such reinsurance should be submitted to the Registrar of Companies under the Companies Act, 1963.

There is also need to increase the paid-up share capital of undertakings seeking authorisation to write insurance business. So far as any new procedures are concerned, the Minister should be entitled to attach any conditions he thinks fit to an authorisation to carry on an undertaking with power to revoke these authorisations if conditions are not fully complied with.

Had these or a similar type of regulations been in operation for the past number of years then there is no doubt that the present crisis could have been averted and the AIB instead of buying into what they confidentially expected was a prosperous and solvent insurance company, would have been spared a major embarrassment and a major upset of their growth pattern.

The British Board of Trade, its supervision and monitoring régime, are also suspect and cannot escape the charge of negligence so far as ICI are concerned. Could it be that their concern for the solvency of a company with an Irish banking guarantee was less than that which applied to other insurers under their supervision? The lines of co-operation between London and Dublin departments of supervision need some attention and perhaps a new bilateral arrangement is overdue. As both supervisory authorities operate under EC directives and regulations, the British supervisory authority should be asked to give a full and clear account of their position in this crisis and what steps they had undertaken to see that ICI was monitored properly in their London office.

There is a difference of opinion as to the responsibility of the British Board of Trade in this collapse. The Department of Industry, Trade, Commerce and Tourism would hold that the British authorities are responsible for the activities of the ICI branch located in London and that the Dublin office are responsible for the overall solvency of the company. There are those who hold the alternative view and claim that the British Board of Trade have no responsibility in effect for the ICI branch office in London. The matter needs to be clarified at this time as conflicting evidence is being put forward by pseudo-experts on all sides. The Minister should clear up this matter once and for all.

There is widespread comment that the bank have got off lightly in this matter, but it has to be admitted that the cost has been high to the bank also. There is no doubt that this has been an unhappy episode for AIB and that it has been a major embarrassment for them, both on the domestic front and in their continuing relationships with international bankers. In a business where confidence and competence is the hallmark of success, then this collapse has been a major loss for the bank. The £86 million write-off together with the £6 million that the £50 million soft loan will cost over a three-year period are substantial sums and will result in very restricted profit and dividend growth for a number of years.

The stock market has responded very unfavourably in so far as the price of the bank's shares is concerned and it has to be understood that the capital base of the bank has been severely weakened and it cannot withstand further weakening without rendering it very vulnerable to pressures which would undermine its solvency. There is talk of extra contributions which the bank have considered making available other than the £50 million cheap interest loan which has already been allowed. This kind of rescue by instalment is not the best way to restore public confidence in financial institutions and it would be well for the Minister to outline in the clearest and most unambiguous terms precisely what has been agreed with the bank and when and how much will be paid to relieve the State's burden in this situation.

We are led to believe that further arrangements were negotiated even in the very recent past with the bank as an institution. The least this House can expect when considering the position is to know the full details of the contracts, deals, arrangements and so on. Great efforts have been made by Government spokesmen to indicate that the full liabilities are not yet known and will not be available for some time, but it has to be stated straight up that if the system operated properly, if the proper checks and balances existed at banking and supervisory authority levels, then an absolute estimate of all liabilities should have been possible within two or three days.

The most advanced accounting and computerisation systems in the world are installed in these major institutions and surely it is not too much to expect that read-outs could be made available quicker than the estimated time of two months. This whole uncertainty places Deputies at a very severe disadvantage. While some might suggest that AIB bought a pig in a poke originally, they always had the major trump card of disengagement at any time by liquidation, which was available to them, or the preferred option now utilised of using the Government as a safety net.

But now the Government are in the same position. They are rescuing the pig in the poke and are completely blindfolded as to the cost. It is unsatisfactory for the State to take on unlimited liability in an area of high risk on a perpetual basis. Nationalising a major percentage of the insurance business of the country has many inherent dangers for the State, and it would be undesirable if the State has to carry all the high risks, the bad risks and be the last insurer in the decline cases area.

Somebody should have explained the reasoning behind the dividend pay out by the bank. There was justified anger amongst the public that the bank were looking after their own, while they were being asked to carry the can. Shareholders accepted the risk when the new business was taken on. They should be expected to carry some of the liability of the loss. Somebody should also have come clean on what the national problems would have been had the AIB ended up in serious difficulty. Stock market confidence in the shares of AIB was, and still is, an absolute essential. Institutional funds, and in particular pension funds, had to be guaranteed investment income to meet the commitment which would affect thousands of ordinary people. To weaken the capital base further than that which already has taken place, would be to render the bank vulnerable. The consequences of such a situation can only be speculated on and the wave of resentment against the bank in guaranteeing the dividend was more acute than any other single thing that happened subsequently. If paying the dividend was necessary to maintain the bank, clear reasons as to why it was necessary should have been given.

It must be remembered, in fairness to the bank, that the bank did not create the problem in ICI — that problem was there before AIB came along — but if a proper public relations exercise had been undertaken by somebody to indicate to the general public the reason why the dividend had to be paid and the consequences of not paying it, the people might have adopted a more balanced attitude. It has been stated that the paying of the dividend was necessary to maintain confidence of national and international depositors and that it was taken to maintain the bank's need to continue to attract fresh capital on the international market for use in the development of the bank's business both at home and abroad.

It must be remembered that in excess of 60 per cent of the shareholding in AIB is held by institutional investors and most of it by pension funds of Irish workers, and there is nobody in this House prepared to say that they would like to see done down to the rights or incomes of the thousands of pensioners who are dependent on the investment income which accrues from investment made by institutions catering for their funds. The remainder is held by 27,000 individual shareholders and 88 per cent of them live in Ireland. The individual shareholding on average is about 2,000 shares. The dividend it will attract, even on last year's good figures, will be no more than £200 less tax in the current year. Those 2,000 shares held by the vast majority are only capitalised at about £2,500. If it was so important to pay out the dividend somebody should have told the public the reason why.

There is speculation that the claims provision on the employers liability and public liability account for 1983 was deliberately cut by 42.5 per cent on the orders of management. This is a crucial point and must be answered if the charge of culpable negligence is to be avoided by management of ICI.

The competence of decision makers in the highest echelons of commercial life should be capable of being taken for granted. Banking and related business is built on trust and confidence and this has been severely dented. Whatever rescue package has to be devised it should be just and fair, bearing in mind the circumstances of the case, and it should be undertaken with as much speed as prudent so that we can return to normal business relationships with the minimum of disruption. This legislation does not do that — it creates continuing uncertainty as to the extent of taxpayers' liability and makes budgetary adjustments inevitable for many years to come.

Central Bank control over diversifications in the financial services sector will have to be much more rigid and unless financial institutions can prove a competence and expertise in dealing with non-related areas to their own types of business, then no licence should be granted for ventures into new types of business.

There is a crisis in the general insurance industry. The blue book statistics on the revenue accounts for 1982 and 1983 reveal that the majority of companies recorded losses. Many of them are substantial and some are in excess of £2 million each. The interim company results for 1983 indicate even worse results for that year and nobody disclaims the view that the position has worsened since that time. Some companies have attempted to weather the storm with redundancies, cutbacks, permanent or temporary close of new business in the loss making classes and increased premiums with additional cover restrictions. The latest premium increases announced at an average of 40 per cent or more means simply that fewer people will be able to provide themselves with cover, there will be more unemployment created in industries unable to pay premiums and more companies and individuals will be risking it without any general cover whatsoever. A further increase in the number of uninsured motorists is inevitable.

The big five loss makers in insurance are public liability, employees liability, motor insurance, household and fire damage. It is generally accepted now by all the insurers that the main causes for the losses in these areas are the size of claims, the damage awards granted at High Court level, a slow legislative procedure, the rise in the crime rate, the rising number of uninsured motorists, poor safety precautions in industry and the excessive competition in the market place. All of these areas are directly responsible to the Government but little action has taken place and what has happened so far has been ineffective. There is, in effect, no price control mechanism operating in general insurance. Insurance costs are out of control and, as well as putting insurance companies at risk, they are creating unbelievable burdens for industry and consumers generally.

The compensation fund and the Motor Insurance Bureau demands, in addition to the increased premium being charged, are crippling the consumer and any further penalising of the consumer will leave general insurance outside the reach of the majority of the community. Costs is an area where the Minister has a direct input. He is responsible for the operation of the Prices Acts including insurance charges. Keeping solvency maintenance in mind, he has to keep prices at a competitive rate. The premiums being asked by some companies, when available at all, can increase by up to 100 per cent every premium renewal day. On the other hand, the State company already operating is offering discounted rates in an insurance class where every insurer is losing money and this company, the PMPA, has no worth while investment income to support its liability claims. Its figures in the ‘blue book' make interesting reading, even for 1983. If any worthwhile impact is to be made on the price and cost of insurance the Government will have to give first priority to the elimination of the causes I outlined. This is the only effective way that the consumer can be given a fair chance of getting insurance at a reasonable price.

The Opposition will not do down the bank because to do so would be to commit economic hara-kiri. What we want to do is to strengthen our financial institutions and protect our national integrity. This party do not seek political advantage at the State's expense. There has been an irresponsible outburst of craw-thumping and Government hand-wringing in the past few days, with selected inspired leaks to the media which have added further trauma to the State's dilemma. In a crisis of this dimension it is shameful for the Government, the backbenchers in particular, to seek cheap political advantage from a mess partially created by their own incompetence and ineptitude.

Labour and Fine Gael backbenchers trying to ingratiate themselves with the taxpayer and play the double game by making demands which this legislation does not purport to satisfy is shoddy and irresponsible. They should take a lead from the responsible position taken up by Fianna Fáil which will not only safeguard the bank and the financial institutions, but also protect the taxpayer from an intolerable burden.

There may be many who wish to cry over spilt milk, but they are wasted tears. What has to be done is to restore confidence, provide a rescue package that is fair and just and take whatever measures are necessary to guarantee that we will never again have to use the October 1983 emergency legislation. We cannot accept that this legislation deals properly with the situation. Consequently we oppose the legislation.

It is apparent from the speeches which have been made that all of us taking part in the debate do so with a sense of great responsibility and some apprehension. I do not think any Member of the House thought we would be discussing a financial crisis on the scale of the operation we are now discussing which has such grave implications for our economy, the entire banking system, industry, taxpayers and for our reputation for financial integrity worldwide. For that reason it is clear that the House is treating this debate with great gravity and responsibility, fully aware of the consequences of wild and irresponsible talk from within the House over the next few days.

At the outset it is important to say it would be a great pity if this debate were to turn into an orgy of bank bashing. Most of us feel, perhaps from painful personal experience or from our observations of the operations of the banks over the past number of years, that there could be much justification for such an approach. There is very much about AIB that is positive and has been positive. AIB, an Irish bank run by ordinary, decent, responsible, patriotic Irish people, have contributed a great deal to our economic development over the past number of decades and will, I believe, keep on doing so in the years to come.

This whole episode raises a number of very important questions many of which have been covered by previous speakers. There are five questions which I believe are crucial to our understanding of the entire episode and to the action which has to be taken. The first question is what really happened at ICI to produce such a financial catastrophe. Secondly, there is the question as to whether or not AIB could have known and should have foreseen what was to happen. Thirdly, there is the question of the regulatory controls. This is especially important in view of the results published yesterday about the state of the insurance industry generally. The fourth question which arises from all of this is whether or not AIB are meeting their fair share of a problem which is, whether directly or indirectly, their responsibility. The fifth and crucial question is how the interest of the taxpayer can best be safeguarded.

On the question of what happened at ICI to produce this disaster, how did this apparently once profitable and lucrative company end up as it did? It is clear that there was an element of bad luck in all of this. What is even more clear is the fact that there was appalling judgment, reckless gambling, and irresponsibility on the part of those at the top of the ICI operation in London which was close to criminal. It is also clear that the board of directors of ICI were not operating properly. They were not properly vigilant. They were not aware of the decisions being taken in their names. All of this is now very clear. It is clear also that for some considerable time there was unease. Not just among those in the know in high financial circles, but even on the fringes of those involved in the financial world there was unease about the problems of ICI.

One employee of ICI told me recently that last October during the strike at ICI the conversation on the picket lines among the most junior staff very frequently centred on such things as the flamboyant life style of the London chief executives, the inordinate amount of entertaining at that level, the apparent disregard for cost or value at the top levels of ICI. Obviously none of this caused the problems, but it was symptomatic of something that was seriously wrong in a major and what should be a very sober organisation. It was clear at that stage to even the most junior employee of ICI in Dublin that there was great unease about the nature of the business being carried out and its potential. There was unease about the too close association of some of the top people in London with underwriters whose reputations were less than reputable on the London scene.

Other allegations were made which may very well surface in the course of time. Deputy Flynn has done a great service today by highlighting many of the areas of concern and unease felt about the London operation of ICI. He has done so in a way which is fully documented. These are issues which certainly deserve to be investigated in the fullest possible way. I urge a very full investigation of ICI and its London operation, its business, its accounts, the role of its auditors and the style of its managers. Anybody who examines the situation there must consider that at best — and that is giving it the benefit of the doubt — there was incompetence on a massive scale. I fear it was far more than that. I fear there may have been fraud, that there may have been malpractice. For that reason an investigation is of the utmost urgency.

I do not do this out of any sense of vindictiveness although I do say that when heads roll in ICI, as heads must roll, we should have no repetition of what happened in the case of Irish Shipping when those who were responsible for the key policy decisions got the large golden handsakes and were paid off, while the workers who were not responsible for policy decisions got very little. There can be no repetition of that in this case. There can be no buying off, or paying off, or softening the blow for people who are well paid to take hard decisions and right decisions. If they fail they must be seen to pay the full price. I do not believe the public would tolerate the paying out of golden handshakes in a case like this, and the public would be right.

The main lesson we must learn from an investigation which must take place into ICI is what happened and, based on that, we must ensure that nothing of this sort ever happens again or is allowed to happen again. If that means new legislation and new regulations, so be it.

This brings me to the second main point I raised, that is, should AIB have known the real situation in ICI when they made their purchase? Obviously, they did not. That is clear. Should they have known? I must admit to being very puzzled about all of this and I am not as clear in my own mind as some other speakers have been on this question. There was plenty of evidence to show that ICI was potentially a good investment. It is ironic that some of the financial journalists who are now most critical of AIB for having done this were saying at the time that AIB had made a very good investment and that the takeover fitted in with the expansion and development plans of AIB in their attempt to establish what is called one stop banking. Doubts, and indeed they are more than doubts, arise about the manner in which AIB went about making this purchase. Was the evidence upon which they based their decisions good enough? If AIB were financing the takeover of ICI by some other firm, would they be satisfied with the sort of investigations which were carried out? I do not think they would. In fact I am very sure they would not.

I believe that in all of this AIB broke some of the rules of good banking which they tell other people about so frequently. It is essential at this stage for us to know the evidence upon which AIB made their decision. It is vital that the role of the ICI auditors in all of this is brought out fully into the open. It has not been explained yet. There must be in all of our minds a feeling that something is hidden. Was it just incompetence or was it something worse? That is especially true about the role of the auditors. This is probably sub judice at the moment so I cannot go any further on it. The fullest disclosures must be made as soon as possible.

In fairness to the AIB, once the scale of the difficulties was apparent they acted fairly quickly. It has to be said, for example, that the bank acquired full equity in ICI in September 1983. At that time they had access to audited accounts showing a profit of £8 million for the year to December 1982. The budget for the year to December 1983 forecast profits in line with those achieved in 1982. It was only in March 1984 that it was apparent that the certified outturn for the year to December 1983 would be a profit of £2 million, a very significant downturn on the original forecast.

From that point on the bank acted fairly speedily and fairly decisively. There was the appointment of the international consultants to review structures and systems in the ICI, the appointment of a reserving committee to examine the adequacies against future claims, the appointment of a senior bank executive to work closely with ICI management in determining future business policy and the appointment of the bank's own auditors to do an in-depth study of ICI, both in Dublin and London. One could say that by the end of 1984 AIB had taken all the steps that were conventionally possible and acceptable for corrective action but, unfortunately, by that stage the problem was of such proportion that these steps were of little use.

The third question raised here was dealt with in great detail by Deputy Flynn. As somebody who rarely finds too much to agree with from that Deputy, I find very little to disagree with in what he said about the need for tighter controls and the type of controls which he outlined. I accept that the Department of Industry, Trade, Commerce and Tourism acted as soon as the warning lights began to flash. I am not so sure that the same is true of the Board of Trade in Britain; I am not sure at all that there was proper liaison between that board and our Department. I am not sure that the Board of Trade acted with the vigour and vigilance that one would expect. I should like to know, before the debate ends, the extent to which there was liaison between our Department and that board in this matter.

More than that, the whole episode raised very vividly the need to have an immediate review of the regulatory procedures for banking and for insurance. Nobody wants a system under which the operation of the banks and insurance companies are throttled by over-regulation or by too much bureaucratic control but the scale of the problem is such, the possibility of malpractice so great, the cost to the community so enormous, that it is essential that out of this debate and this episode there comes a strong determination to see the widest possible review of the regulations, the reporting back procedure, the liaison between our Government and the governments of other countries, where relevant. All of this must be tackled and tackled so that something which we are now debating can never happen again.

The fourth point has raised most controversy, that is, the contribution of AIB to the overall cost. I believe that AIB's approach initially was the right one. They were correct to put the emphasis, on the weekend on which the story broke, on the maintaining of confidence in our banking systems and our financial institutions. In doing that, it is clear to everybody in this House that the consequences of a major run on the AIB, of lost deposits, even of a hint of instability for our entire economy, for the country and for the livelihood of hundreds of thousands of people could have been catastrophic. In ensuring that the public knew that the shareholders' dividends were sacrosanct, in AIB's assurance that they were getting out of this comparatively lightly, they displayed an arrogance and insensitivity which has now become part of the overall problem. That insensitivity, to put it at its mildest, has created a backlash of resentment and anger against the bank. These are not coming just from those who perhaps spend all their time chipping away at the banks, whom they see as bastions of capitalism which must be attacked at all costs, but from all sections of the community, the most sober, three-piece, pinstripe suited businessmen in the banking and insurance world, in the board rooms, all around the city and country. It comes from those who see themselves hard pressed by the banks and who have been lectured by them over the past number of years. This resentment is real and tangible and it has now become part of the problem. It raises comparisons with, say, the bailing out of Irish Shipping.

Comparisons are being made with the way in which the banks themselves deal with those who find themselves in financial trouble. The comparisons being made are fair and ones which the banks, in trying to put their case across, must bear very much in mind. The banks have gone part of the way towards answering some of these questions. I found during the past week that officials in the bank went to a great deal of trouble to try to put information at my disposal and that of other Deputies who were looking for information on which to base their judgment in the debate here today. There is a great deal more for the banks to do to get across a case which to me at this stage is not a particularly strong one.

There is, among the general public, universal agreement that AIB should pay a greater share of the cost and that there must be some return to the Irish taxpayer. Straightaway — and I do not see why this has not happened already, — there should be a coming together of the major financial institutions to see if they can work out some sort of package and if they, collectively, have ideas which could help to resolve this crisis and alleviate the burden on the taxpayer. Many would agree with me — and I see very little argument against it — that the State should be offered some substantial shareholding in AIB. There may be problems associated with this, but if there are, they do not seem to be of a substantial nature and pose no ideological problems for me, nor, I believe, for anybody on this side of the House — much as that may surprise the leader of the Workers' Party who is in the hamber at the moment. This question of a major shareholding in AIB for the State should be explored as a matter of urgency by the banks and the Government. In this way, the public will be seen to be getting some tangible return for their very substantial investment in AIB at present.

There is one aspect which puzzles me. I am surprised that so far in the debate there has been no mention at all of AIB's American bank, the First American Bank, which is a major asset of theirs. I want to draw an analogy with a farmer who is expanding, goes to the bank and borrows money. He buys some extra land and then finds that he has overstretched himself and the advice given by his local bank manager, or perhaps the regional office, would be to sell off the most recent investment, the outlying land, in order to safeguard the home farm. That advice has been given and followed all over the country, especially when many farmers overstretched themselves in the splurge of buying in the seventies.

In this case, AIB have on their balance sheet the outlying farm, a major asset, their first bank in the United States, which they acquired at about the same time as they acquired ICI as part of their dramatic expansion programme. This is recognised to be a prime asset. I have taken advice from experts in the United States who say that this bank would be readily saleable. AIB paid $107 million for their 45 per cent shareholding in this bank. Based on similar type deals, I am told that a strategic holding like this could be sold at present for between $138 million and $165 million. Perhaps I am naive and do not understand. Any perusal of my bank account would show that I am not an expert in banking matters, but this question seems to be one of central importance.

If the bank was following the advice it gives other people who overstretched themselves, then I believe it would be seriously looking at this option. I am surprised that no serious consideration seems to have been given to the option of selling this investment which would realise a major profit for AIB and could contribute in a major way towards the funding of the ICI losses. Such a disposal would not only make substantial cash available to the bank and reduce its need to rely on Exchequer funding to support ICI but would also improve the strength of AIB's balance sheet. As this bank in Maryland is an entirely overseas asset its disposal would have minimal impact on our economy and on AIB's traditional profit and asset base here. I wonder why that option has not been looked at or, if it has been looked at, why the possibilities involved have not been spelled out.

In conclusion — I know there is a large number of speakers wishing to contribute — I believe the Government acted decisively, that any other action would have had catastrophic consequences. The legislation we are now debating forms an essential part of the rescue operation. Failure to pass this Bill on Friday could have enormous implications which are perhaps too frightening to contemplate. But in passing this legislation we should not preclude the putting together of a new package with a far greater contribution from AIB, a package which would ensure that the burden of this catastrophe — which was not of the State's or the taxpayer's making — will fall as little as possible on the taxpayer and, in return, the taxpayer will be given some chance of benefiting from the very substantial investment all of us are now being asked to make in AIB.

I have been waiting quite a long time all day. I came in before Deputy Connolly.

This is a Second Stage debate.

I am aware of that.

With your co-operation, I will call on Deputy Connolly who is next, then Deputy Prendergast and then on you, Deputy Mac Giolla.

I welcome the opportunity to debate this important Bill and the consequences of the financial problem into which the Insurance Corporation of Ireland have got themselves. I want to put on record that we on this side of the House have been very responsible in regard to this whole matter over the last ten days. While as an Opposition party it could be tempting for us to move in another direction, we took a very responsible line on this, not like members of other political parties who leaped in and did not know when to leap out.

The Deputy's party leaped in too late; they slipped up.

Allied Irish Banks have served the people, the agricultural community and industry here well. We must also assure the public that the deposits and accounts of people held by Allied Irish Banks are in good hands at this point and are in a very sound position.

I want now to come to the Insurance Corporation of Ireland and the manner in which they have conducted their affairs for some time. It is clear to me that for some years past they had been writing up very bad business. Here I speak as perhaps the only Deputy in this House who worked in the insurance industry in the fifties and early sixties. Therefore I have good knowledge of the industry. That was a time when we insured cars for £8. Those were the days. The situation has changed much since my time. Because of my knowledge of the business I can go into some rather technical detail.

It would seem to me that this situation arose over four or five years and that their handling of the underwriting was disastrous. It would appear to me that in London they were taking on risk, in re-insurance, of the worst possible type, business that nobody would touch. When in the insurance business one must decide what is good and what is bad risk. I believe that the management of ICI in their headquarters here and in London must be subjected to serious examination and scrutiny. Indeed it is too late to examine them now. Experience in underwriting in business means that one must know how to lay off one's risk and one should not be holding on to dead ducks. It appears to me that they were engaging in re-insurance of the worst possible type.

In May last I posed a question in the course of a speech as to what was the position with regard to insurance companies operating here, how they were operating. I was assured that all was in order since the crisis in the PMPA. Just over a month ago my colleague, Deputy Flynn, on questions we put down in regard to employers and public liability, asked the Minister what was the position of insurers here, and we were told that everything was satisfactory. It would appear it was not. Grave questions fall to be answered by the Department of Industry, Trade, Commerce and Tourism. Without casting any slight on any official in any Department — something I would not dream of doing — it would appear they did not have the competence to deal with a situation such as that. To understand the operations one needs to have been working in the business over a long number of years. Theory is not always healthy. There are theoretical financial people also who must be subject to questioning. I prefer to rely on the practical people, those who have been involved, those who have been writing the business, with first-hand knowledge and experience. I have come to the conclusion that the officials in the Department here and those across the water must be subjected to scrutiny. Questions must be asked of their control. For example, did they know what was going on, did they realise the danger or see the signals? It would appear to me that our Department started to move only with some haste in November last when a certain business magazine and others around this city and elsewhere contended that the ICI was a can of worms. By heavens, did it not turn out to be some can of worms?

It seems that after that there were some investigations conducted and that the board of AIB decided to engage new auditors. Apparently, it was only when these new auditors had carried out investigations both here and in London that the pot began to stir.

Now there is a backlog of claims. There are two or three ways in which claims can be settled. There is the delaying tactic, which is costly, or the tactic of prolonging a case from one court hearing to another in order to put off the evil day and with the intention of maintaining cash flow. That could be a very costly procedure because, for instance, in the case of a not very serious car crash in respect of which a claim was of the order of £1,000 or £2,000, an insurance company, realising their client was at fault, would not see any point in prolonging the issue but would pay out quickly. This is because the involvement of legal people could result in their costs being much greater than the cost of the claim. There could have been a pile up in that respect also in regard to the ICI.

We should like to know how they were dealing with their claims. I suspect that their claims department is open to much questioning, both in respect of processing claims here and in London. If what was happening was that claims were being allowed drag on for two or three years, thereby resulting in higher claims ultimately and greater interest being paid, it could have been the cause of a serious situation for the company. This is where judgment enters into such matters. It is where one knows what to do, where one makes up his mind quickly in order to avoid a nasty situation.

The company are now being brought within the ambit of a State organisation but we do not know what the extent of the claims is. Both the Bill and the Minister's statement are vague because we are not told the kind of claims that must be dealt with in this case. What claims are in the pipeline, for instance? People with experience in the insurance business, and there have been such people working in the company for the past three months, must know now what the claim situation is. What will be the total cost to the Exchequer?

If, say, the claims amount to a maximum of £120 million, the financial institutions would be well able to cope and there would be no need for the Government to intervene as they have intervened. The AIB, with the back up of the Central Bank and the other financial institutions, would have been able to cope with the matter. We are told that the claims amount to £65 million but that the maximum involved will be £120 million, though there is no guarantee of that. It would be interesting to hear how the initial costs in respect of the claims are being tabulated. Is this procedure on the basis of the lowest level of claims or on the basis that some claims may not be proceeded with? One would need to know, too, whether there are claims that have been in the pipeline by way of a stalling operation for the past four or five years — sleepers, in other words — or fellows in holes waiting to show their heads. Their heads will appear now when they know the State is involved. When the announcement was made in 1983 that AIB were to bid for the takeover of ICI, the financial commentators said that the banks were on to something good. However, the ICI went on a merry-go-round, especially in London, in regard to underwriting. They took the worst kind of risks because their attitude must have been that, since they had been taken over by AIB, everything would be all right, that they now had a situation similar to a well that would never run dry.

The AIB cannot merely pass this whole episode to the taxpayers. The AIB, on acquiring the ICI, had a responsibility to carry out an immediate investigation of the company's affairs, but instead they took a lot for granted. Perhaps they took the diplomatic way out, but then the mud appeared on the wheel.

I have no wish to engage in the realm of rumour, but there are rumours. It seems that in the past 18 months in the re-insurance market in London, ICI were taking very great risks. For the past few months it has been known that nobody would touch ICI, that their name was mud, but nothing was done to deal with the problems. Neither can the British Board of Trade wash their hands of this matter, though I suppose their attitude was that since the company were based in Ireland the problems would be dealt with here. I am sure that when they knew one of our biggest financial institutions was involved their attitude was that that financial institution would meet all the costs. This is where we return to the question of experience, and in this context I am issuing a warning to the Minister and to everyone involved in monitoring the insurance business that this is a very complex and difficult area. Anyone engaged in this business would need to know the market extremely well.

I do not know how the Department monitored the returns. I think it is on a yearly basis, but I am open to correction on that. They should be monitored on a quarterly basis. I cast no reflection on any of the officials in the Department, but the people who examine claims must be experienced in that field and know what is going on. In the accounts of the ICI there was grave under-provision and there was juggling of figures.

I cannot understand why this Bill was brought in. The legislation we passed last year should have been good enough to cover this case. I have views about banks getting involved in insurance companies and in building societies. Banking operations are for banks and insurance is for people who have a good knowledge of that business. I do not think other institutions should get involved in such transactions.

Perhaps the Minister of State will explain to us why he told us in the House a month ago that everything was all right. We were glad to hear that because people outside were saying that things were not good. The Minister told us of the amounts that may be owed. We know that in respect of claims the sum involved may be £65 million to a maximum of £120 million. I have some reservations in regard to the figures, but on this side of the House we are not going to dispute what the Minister said and we accept in good faith what he told us. We were very responsible in regard to the legislation involving the PMPA. That measure got through the House in a few hours. We did not like it, as we did not like some other Bills brought in recently, but so be it.

I have some reservations in regard to the amount put down in respect of claims. The Minister must have some preliminary figures on the claims ratio and how they are calculated. I should like very much to know how the claims have been calculated. Even accepting that the amount is at the upper end, namely, £120 million, I consider the Government rushed into this matter with great haste. The total assets of the AIB are £8 billion and we are glad to know that. They have already written off approximately £84 million. They have the very profitable life insurance Grobond scheme and if that were disposed of on the public market it should realise between £40 million and £50 million. If the claims will be only £65 million I do not understand why it was necessary to have created this present unstable situation. The life insurance business of the ICI could have been disposed of for £40 million and I am going on the lower calculation. This would mean there would be a gap of only £25 million and I have no doubt our banking institutions could have coped with that with no need for this emergency legislation.

The delay in bringing in this simple Bill contributed to the unstable market situation. This Bill is just setting up a company and I want to know why it took ten days to introduce it. I was a junior Minister in our Government and I have some knowledge of the drafting of Bills. In my opinion this Bill could have been drafted in half a day but I will be kind to the parliamentary draftsman and give him one day or even two days to do it. I cannot understand the delay that occurred in bringing the Bill before this House.

People have been talking about politicians and Governments and the way they have run the affairs of the country. The taxpayers have nailed all politicians to the cross. The public are watching this matter very closely and they are saying they will not carry the burden for others. There has been very bad management involved in this case and this did not happen overnight. It was there before the AIB took control of the company in September 1983. It was suspect in London then and it proved ultimately that it could not run an insurance business in the proper way. The people here have been burdened with this problem. However, I want to make it quite clear that Fianna Fáil are not prepared to allow the taxpayers to carry the burden for others who made grave mistakes.

We should examine the knowledge of directors of insurance companies. Some directors know nothing of the insurance business. They get glossy reports and everything in the garden is rosy. It is only when something happens that they realise they are not covered and they blame accountants and everyone except themselves. The directors are responsible and should know their business. If I were on an insurance board I would ask questions and would want to know about the re-insurers and the type of liability involved and so on. The insurance business presents a very hazardous risk and an insurance company should underwrite business in a number of ways so as not to carry the whole risk in order to avoid grave financial losses.

In relation to the guarantees it seems that in underwriting business in London the Insurance Corporation of Ireland would not underwrite business unless it was guaranteed to the tune of £20 million by Allied Irish Banks. Allied Irish Banks must have smelled a rat and if they did not they were asleep. They should have known something was wrong when the company were looking for such guarantees from the bank. I would be all for getting insurance experts into the Department of Industry and Trade to monitor transactions and to ensure that there is enough reserve capital to meet an emergency. The ICI reserves were too low to meet an unforeseen liability. At the end of last week Allied Irish Banks had to put in another £27 million. That liability did not occur overnight. They must have known that for some time in advance. This crisis was built up. Was it due to the slow processing of claims or was it a stalling operation putting off the evil day?

This Bill sets up a company. Allied Irish Banks gave £50 million towards this initially and are to give another £20 million on preferential terms. However, the economic outlook is so bleak that business people are slow to invest and expand. Demand on money for expansion is slow so Allied Irish Banks had the money to lend, as they had substantial reserve assets. Even if it is called a soft loan, they will get interest on it. In relation to the dividends that the bank will pay its shareholders, if the bank did not pay that dividend the bank would have the right to dispose of its shares. It would be in the bank's interest to make sure that it was in a sound position. If the liabilities are as the Minister said the AIB were well able to deal with them and they could also call on the Central Bank to help out in this respect, so there was no need for this crisis.

We would have handled this crisis in a different way. We would have called in the Central Bank to deal with the situation. The Minister could not give us the overall costings and he could not say who will carry the financial losses. The insurance compensation fund is not capable of dealing with this crisis. If the officials and auditors of the banks informed the Minister about the total liabilities there should not have been need for panic on the eve of St. Patrick's Day and to release this information when everybody was away on the holiday weekend. That was an undesirable action. If the maximum deficit on claims outstanding amounts to £120 million — the minimum is £65 million — the public will be asking questions. When PMPA accounts were produced at the end of the year the liquidator told us that the total claims outstanding was between £230 million and £235 million although we had been told that the figure would be about £80 million or £100 million gross. The actual amount was 100 per cent more than the estimated figure. We are all aware that it will take up to ten years to get that company on a sound financial footing. There will have to be prudent management and everything will have to be scrutinised.

People outside have been asking me why it is with Allied Irish Banks making a gross profit of £81 million they were not in a position to deal with the problem of ICI whose maximum liability was £120 million. People are afraid that the figure will be greatly in excess of the estimate but I hope not. I have grave reservations about what the total liability will be. My view is that it is not possible to ascertain what the true position is. When the accounts are published early in May we will have some idea of the total liability but the true position will not emerge until about 18 months time. All the claims that are in the pipeline or are about to be lodged will show their ugly heads in the meantime. In 18 months time we will have a better idea of the legal costs and damages sustained.

As far as I am aware the ICI London office was engaged in some of the most precarious types of insurance business. They were in the satellite and marine business and were engaged in other hazardous operations such as bloodstock. They were also involved in Australia. As far as I can see in the last two years they were on the merry-go-round. That was dangerous and it is now obvious that it was very costly.

In the last ten days the Leader of our Party, and our spokesman, Deputy Flynn, acted very responsibly in their comments on this matter. I am glad that our party kept the line on this and did not do anything that would damage the reputation of our financial institutions. We must bear in mind that the financial institutions carry investments from the general public. We could have taken short-term political advantage of the position but in the long run it would not have been the correct thing to do in the nation's interest. It is not the first time we have demonstrated that we have the interests of the nation at heart. We had those interests at heart when the Bill dealing with the PMPA collapse was introduced.

It is difficult to forecast what the outcome will be. If the claims are in excess of the estimated figure the Government should arrange a package with the banks and other financial institutions to deal with the problem. The taxpayers should not be called upon to pay. They are not prepared to pay for something that resulted from bad management. Politicians were criticised at the weekend and some people claimed they were responsible for this collapse. Many uncharitable things were said about Members and about how we run our affairs. It is easy to say that the ICI debt should be passed on to the State but I do not agree.

I hope the figure for claims will not be in excess of £65 million. If it transpires that it amounts to £120 million the Minister should adopt my suggestion. Above all he should ensure that the hard pressed motorists are not asked to bear the burden. We are all aware that employers pay in the region of £800 per employee in insurance cover. A shake-up is very badly needed in the supervisory system regarding the insurance business which must be monitored very closely. At present, yearly returns only are monitored and I ask the Minister to ensure that there is monitoring on a quarterly basis so that it is known what is happening from day to day. There are people available who have good practical experience in underwriting and the Minister could avail of their talents. I worked with many of them and they ran their company affairs very well. If we had had an accurate monitoring system, this problem would not have raised its ugly head.

I have been speaking in very technical detail on this matter because I understand the problems involved. However, I emphasise that the supervisory system needs radical overhaul and the best people must be brought in. There should be a quarterly report on every insurance company which would make their position clear. When heavy risks are involved such as in building and engineering, they can be underwritten with a number of companies to relieve the burden. There is a question mark over how companies were unloading bad risks and if they are not good at that they will go under. This is what happened to ICI because of their business operations outside the country. The attitude was that the well would never go dry as far as money was concerned.

Many of my constituents have been in touch with me regarding the possibility of taxation to pay for this. The Government should initiate a rescue package instead of loading it on to the taxpayer. Many people are paying £900 per annum to insure their cars to enable them to get to work. They will resent further taxation and should not be asked to pay more. If the amount owed is between £65 million and £125 million the financial institutions should be able to work out a suitable package, with the guidance of the Government, to get out of this difficulty brought about by bad management in the ICI over a number of years.

I never fail to be intrigued by some of the sentiments I hear occasionally from the opposite side of the House. Deputy Connolly rightly referred to the resistance of the taxpayer to picking up any tabs for this major, disastrous mistake on somebody's part.

When I heard him speaking about workers and their justified suspicion, mistrust and contempt for politicians, I remembered an adage which says "by their deeds shall you know them". I respectfully invite Deputy Connolly to examine the record of his party in the EC Parliament when my party sought and supported the introduction of legislation under the Vredeling EC Fourth Directive which would have made the type of information governing the situation in which we find ourselves known to the workers in the company. It was opposed by the European representatives of Deputy Connolly's party. He cannot have it both ways. Ní thig leis an ngobadán an dá thrá a fhreastal. The Labour Party in Europe were the only party which supported the introduction of that legislation. There is a massive stalling attempt by the employers' organisations here to stave off the introduction of that legislation. I am asking the Minister to let us know when it will become law because, if it were, we might not be in our present position.

There are some basic facts which have to be restated. We must have stable financial institutions which enjoy the respect and confidence of business and commerce. I do not say that because of undue affection for the financial institutions; my main concern is for the protection of the workers in the factories downstream. If anything happened to AIB or a similar financial institution in the morning, the shock waves throughout factories, small industries and small investors would have the proportions of a political and economic earthquake. As a trade union official, I make the point very consciously that the financial institutions must have full stability to protect the employment of our workers.

I understand that most of the insurance cover for local authority employees and health boards is carried by ICI. I am very concerned about what is happening at present because as a trade union official, it has always been my experience that nobody ever speaks about a workers' coop until a company is in bits. Then the workers are expected to pool their money and rescue the co-operative where the management failed. May I suggest that we are in a similar position here. ICI apparently went mad. When we look at some of the cover they provided we ask ourselves how they could have got into this situation. For example, they provided insurance cover for bloodstock and shuttle satellites. What has the ordinary punter got to do with shuttle satellites? ICI got involved in areas which only a lunatic would get involved in. As chairman of the Joint Oireachtas Committee on State-Sponsored Bodies it is becoming more apparent to me, in view of the Irish Shipping debacle and now ICI, that we are not very good when it comes to away matches. We can manage our affairs at home but obviously we get into very deep waters abroad. It is obvious that no competent person in the insurance business would have become involved in some of the areas ICI got involved in.

That company was incorporated on 25 February 1935. Its net profits from the nine years from 1975 to 1983 were £24.5 million and it is now estimated that the losses in 1984 alone were £65 million. AIB acquired the company in September 1983 and in January 1984 ICI paid Irish Shipping Limited £9.5 million for their ICI shares, equivalent to 3.66p per share. It is interesting to reflect on who were the directors in Irish Shipping Limited and in ICI. That warrants investigation.

This House and the Government find themselves in a very difficult situation. We are trying to help solve a problem but basically we do not know what the problem is or the extent of that problem. We are told by competent people, some of them international commentators, that the amount of liability may be as high as £500 million. I do not know if that is true, but if the Irish taxpayers is expected to pay for that, everyone in this House knows that the Irish workers — I am talking about the PAYE and PRSI workers — will carry this extra and unfair load. There would be grave repercussions for the financial institutions if anything happened but, to use a homespun analogy, it is like a small farmer whose tractor has only one gear and that is in reverse, and the tractor is stuck against the gable end of the house. His options are to knock down the house or to abandon the tractor. We would not wish our financial institutions to be weakened but it has been rightly said that if you are not part of the solution you are part of the problem. We are in a Gilbertian situation. AIB acted quickly once the facts emerged but that is like saying we were trying to get the horse fit when the race has ended.

When I studied economics we were told that all a bank needed to run its day-to-day affairs was, in old money, 1/11d out of every pound and they could invest the remaining amount, almost 18 shillings or 90p in the pound. Some people think the Government are a nebulous, amorphous body who pay the money but they have to reach into the pockets of every Irish worker for this money. I ask the Government to consider what will be the likely performance of this new company, Sealúchais Árachais Teoranta, over the next five years and what the costs to the Exchequer are likely to be?

In his 1984 budget speech the Minister for Finance outlined the approach to all public investment and laid down the criteria to be applied. He said that under this approach all public investment must be justified by economic and/or financial appraisals. In general such appraisals should contain the following elements: a clearly defined set of objectives for the project; a statement of alternatives that would meet the objectives; a statement of the constraints, viz. technological, physical, financial and statutory, that impinge on the project together with a listing of those alternatives which do not fall within the constraints. In respect of each chosen alternative there should be a list of the benefits and costs expected over the economic life of the projects and underlying assumptions; a quantification of the benefits and costs in cash flows or economic flows as appropriate; a statement of projected cash flows or a cost benefit balance sheet, as appropriate; a calculation of the decision criteria, new present value, cost benefit ratio, internal rate of return, maximum effectiveness at least cost; a test for sensitivity to changes in key variables, identification and, whenever possible, quantification of the distributional effects of the costs and the benefits; an assessment of the payback period where appropriate, and a recommendation as to the preferred alternative. These criteria were set out in the Minister's budget speech.

AIB may have been attracted by ICI's profit record but, as I said in my contribution on the Irish Shipping debacle, profits in themselves can be meaningless unless the quality of those profits is adequately analysed. It is no good saying you have empty buildings or you are getting money for assets when you should be generating a profit out of day-to-day revenue. That shows that a company is healthy. I admire Allied Irish Banks for their professionalism and expertise but anybody can make a mistake. It is difficult to understand why they did not have adequate time to carry out a detailed investigation of ICI. They purchased ICI without this detailed investigation presumably because there was a threat of a potential counterbid. Surely it was a basic requirement before purchasing an insurance company of this magnitude to have a report by an actuary on the risk element of the policies of this company.

It is difficult to expect the taxpayers and the small family businesses to carry these losses, or a proportion of them, by way of an increased tax or premium. This is not on when, at the same time, AIB propose to pay £40 million in dividends to their shareholders. I agree that the small investor, the widow or widower who has invested their savings with the AIB, should not be punished, nor should pension fund investors. I propose that there be a ceiling, with the exception of pension funds, on the payout of dividends and that the balance of the dividend payment fund be allocated towards the losses as a temporary measure. This would not unduly affect confidence in the bank, because basically it would be an allocation of their profits and would be perceived as a short term measure. It would not unduly affect substantial investment by shareholders in the long term.

The acquisition cost of ICI by Allied Irish Banks was £86 million. Once the problems were disclosed in ICI one would have expected that the options open were, first, to close the company. Due consideration would have to be given to 25 per cent employers liability and the international repercussions in financial circles. Secondly, AIB could retain the company and through rationalisation and so on return it to profitability with Government support. Thirdly, the Government could take over all or part of the ICI operation. There is a sedulously fostered campaign by vested interests who wish to see jury settlements eliminated for occupational injuries and car accidents. I am totally opposed to such a proposal. There is a great deal of exaggeration about the impact of jury settlements in these cases. My information, from the professionals involved in these settlements, is that only about 1 per cent of all settlements are arrived at by juries. We must not forget that the Supreme Court is the ultimate arbiter of settlements for compensation for occupational injuries or whatever. They are a responsible body.

Other countries, notably New Zealand, tried a system of direct payment for occupational injuries. If someone suffered a serious accident during the course of their work the company would pay their wages and any attendant compensation for loss of work, payment of lawyers, medical expenses and so on. Companies in New Zealand had to abandon that because it was too costly.

What is happening at present raises a big question mark over other institutions. How many more ICIs, Irish Shipping Companies and PMPAs are there that we do not as yet know about? It can be said in favour of AIB that if they had not bought ICI — I understand it cost them £90 million — and ICI then collapsed, the State would have been expected to pick up the tab plus the £90 million paid out by AIB. However, without being too cynical, it is very difficult to accept that line of argument. I would not mind being in a poker game if I knew the AIB were behind me. Dr. Johnson, the English writer and philosopher, said it was remarkable how a man's attention could be concentrated by the realisation that he was facing execution at 8 a.m. That might have been the way if ICI had been expected to behave in a more circumspect fashion.

My party is saying, and have repeatedly said, that there is a grave and urgent need for revised legislation which will protect the taxpayer from the black-guardism — I use that word advisedly — that is going on in some of the bigger commercial institutions. We have seen that happen with regard to Ostlanna Iompair Éireann and Irish Shipping. They became involved in ventures, unknown to the Minister of the day, which cost the State millions of pounds. There was a haemorrhage of money without so much as by your leave. They apparently have a carte blanche. Nobody seems to have any sense of accountability. There is no regard for the law or the institutions of the law. To go back to Mahaffy's definition of this country, it must be the biggest lunatic asylum in the world. People would not be allowed in any other country to get away with what they are doing here.

Look at some of the people involved and their actions. By any reasonable, fair, objective standards they should be expected to pay for the cost of their misdeeds. I accept that people will make mistakes. Everyone does that. That is what the rubbers are on the ends of pencils for. What do we do? I am aware of the constraints of the Unfair Dismissals Act, 1977, and the fact that the maximum compensation outlined in that Act is two years' salary for a person who has been unfairly dismissed. Here, however, the more damage one can do the more compensation one is likely to get. While the worker is expected to pick up the tab, the AIB will pay out £40 million in dividends. I say to some of the Deputies in this House who were reared far away from the squelch of water in their broken wellington boots that we have people coming into our offices who are expected to live on £32 unemployment assistance per week or we have unmarried mothers. Yet workers are expected to carry the can for this kind of nonsense. No other country in the world would put up with that.

Companies and their directors are able to flout the law at will because they can get away with it. They are driving around in big cars and living in big houses, having robbed public funds — not in this case but in other cases. When they were reported to the police nothing could be done. They are living like mafia kings and nothing is done. Yet the Irish worker is expected to pick up the tab. That is why my party — no latter day converts to the concept, because we have been promoting this for longer than anyone else and represent the people who are expected to pick up the tab — proposed at our latest annual conference that immediate action should be taken by the Government to introduce national third party insurance for motorists with a view to relieving the astronomical cost for those on low incomes, especially those who need cars to commute to work. Cars are no longer a luxury. The cost of petrol and of a car filters into every aspect of our lives. The high cost could be reduced by nationalising the major insurance companies to make possible the establishment of a State-owned insurance company. To relieve the heavy burden of compensation on the insurer, the present procedures should be replaced by an index-linked instalment system of compensating payments with a guarantee of medical care.

The similarities between the economic negligence of Irish Shipping and ICI are all too obvious. The PMPA collapsed under similar mismanagement and presumably they could have been lurching on today. They protested that there was nothing wrong until the Government had to step in and save them. ICI were prepared to take risks which were recognised as madness in the extreme by responsible people. We are all expected to pick up the tab. The Government must not be asked to bail ICI out of their financial difficulties.

I spoke to members of the Association of Certified and Chartered Accountants in Limerick last Saturday night and they made the same point. I am not an expert in this field. I am a very uneducated layman but it seeks to me to be Gilbertian to say that a company who got into difficulties — we have every sympathy with the company; that has to be said; there is nothing wrong in saying that — now propose to loan the State £50 million to bail them out of trouble. That is crazy. I am aware of the strictures of Telesis which would frown on a hand holding operation. My own committee on semi-State bodies are against these letters of comfort being sent to companies unless they are very strictly monitored in the interests of the taxpayer.

The Government should say to the AIB: "Have no fear. There is no question about your stability. We are behind you. We will cover you fully, but you will pay your own way out of this difficulty." If the Allied Irish Banks or ICI made £100 million or £1,000 million, apart from the minimum statutory return to the central Exchequer, it would not work its way down to the punter or the ordinary factory worker I am talking about. The person who pays the piper is entitled to call the tune. We should tell the company that we are prepared to help them out by way of support but the taxpayer will not be expected to pick up the tab.

AIB should be prepared to give share capital or the equivalent value in shares to the State if they are putting in money, so that we will know what is going on. This would be part of the road to nationalisation. It would mean they would be creating approximately 20 per cent more shares. It would lessen the income per shareholder, but the State would collect about £4 million per annum on its shareholding. When I mention the State I am talking about the taxpayer. As part shareholder in AIB, the State would be in a stronger position to know the financial risks involved and the group would have greater accountability.

In 1983, AIB took a stronger holding in ICI because they were interested in its most valuable asset, the whole question of life assurance. Now that end of the business has been hived off, which seems to indicate that ICI may be in more serious financial difficulties than any of us knows about on 27 March 1985. Some members of the Stock Exchange have made a responsible guess that the final bill will amount to £200 million. If newspaper reports are accurate the figure could rise to £500 million.

Already 200 of the 800 workers in ICI are to lose their jobs. I come back to my starting point. If the workers in the company had known what the position was and been given the information to which they are entitled this would not have happened. We see it every day in the Burlingtons and the Ataris. People invest their working lives in these companies, and investors who do not even know where Ireland is can make a decision and throw hundreds if not thousands of Irish workers out of work. My shirt almost becomes wet with crocodile tears when I hear some speakers on the other side of the house bleeding for Irish workers. When they had an opportunity in Europe to support legislation which would make companies give the workers real information about the state of the companies, they voted against it. They objected to it. They cannot have it both ways. We have some of the best multinationals in the world operating here. The suggestion is that if there was more information there would be a breach of confidentiality. Why are Irish workers more suspect in that context than all the other workers throughout Europe? Confidentiality has been maintained in all cases where there are worker directors.

There is no point in trying to deal with the surface of the problem. We must correct the root cause of the problem. I go into a firm and serve a claim on behalf of a group of workers and the management tell us we are irresponsible, or illogical, or mad and that the company cannot afford to meet the cost. We ask to see the balance sheet and say if the balance sheet shows the company cannot afford our claim we will accept that. They draw back and say they cannot show us their balance sheet. That will go on and on unless something is done about it. It is only in this House that we can take the necessary steps to prevent a repetition of this and to protect the workers of the company, not the multi-millionaires. We have Irish multi-millionaires as well as multi-nationals who can get off scot free.

Deputy Prendergast said some very fine things with which I wholeheartedly agree and he made some very good points and good criticisms of the system which exists and what needs to be done about it. Obviously Deputy Prendergast is supporting the wrong party. He will not get any of these things from the Fine Gael Party or the Government he is supporting at the moment.

He talked about the need to get further information from companies. As yet we have not got the Company Law Reform Bill. Will there be anything in that Bill, when it does come before the House, about companies being required to give information of that nature? As he said, it is here these things can be changed. I hope Deputy Prendergast will live up to the points he made and try to extract these things from the Government which he is supporting. That is what it is all about. There is no point in complaining about what some people did in Europe, although I quite agree with the point he made. He will be judged on what he does here. We must all do our best to live up to what we say and try to get it done here.

We are debating the Second Stage of this extraordinary Bill which is before us now. The Bill was promised last Thursday. Coming near Thursday, we were informed that it would not be ready until the following Tuesday. I objected to the further week's delay and was told that it was quite a technical and complex Bill. We assumed that there were going to be some major issues in this Bill that would change something in relation to the financial institutions, banks, insurance companies or other bodies. Yesterday morning there was still no Bill circulated in this House and when we inquired we were told we would have it in the afternoon. At 3.30 p.m. we were told by the Taoiseach that we would have it in the late afternoon. The late afternoon means certainly not later than 6 o'clock. At the time the Taoiseach was saying that in this House the word from the office of the Minister for Industry, Trade, Commerce and Tourism was that it would not be available until after tea. As it transpired, it was not available until after 8.30 p.m. and the Taoiseach misled us in the House. Half-eight or a quarter to nine is not the late afternoon.

What was wrong? Something strange was going on. The Bill before us now is certainly not what was being talked about on Thursday of last week. This Bill could be put together in a couple of hours. Most of the sections are already available in hundreds of Bills. Memorandum and articles of association, obligation to furnish balance sheets, directors of companies, obligations of shareholders, payment of dividends, restrictions on issue of shares, they would be in any Bill in regard to the establishment of a company. There are only one or two sections that would have caused any discussion or problem, but there was some problem. If you look carefully at the Minister's speech, of which there were only a few copies available when he spoke here, what was being done was the chopping out of pieces — as you will see from the different typing in some pages. Hunks were cut out of what he had already prepared and separate little bits put in here and there — one on page 3, another in the middle and then a separate ending. Some changes were made at a Cabinet meeting on Monday, most likely. We do not know as yet whether this was as a result of inability to make major decisions, Cabinet differences and so on. Definitely, some extraordinary changes were going on over the past couple of days.

When this crisis first broke just 11 days ago my immediate reaction was the same as it is now. I was amazed at the suggestion that the Government would use the taxpayers' money to bail out Allied Irish Banks, the flagship of Irish business and finance, our largest company in market capitalisation and certainly our largest bank. They had run on the rocks and the Minister was preparing to bail them out with the taxpayers' money. I also made the point that this exploded the myth of the efficient private sector and the inefficient public sector, about which we heard much, at the time of Irish Shipping's collapse, when not one penny of taxpayers' money was put in although the Minister was directly responsible for Irish Shipping. He is not responsible to either ICI or Allied Irish Banks, but is prepared to put in an unknown sum — to write a blank cheque for anything from £50 million to, as the man in London estimated, as high as £500 million sterling. We do not know the amount, but the Minister is prepared to bail the company out.

Everybody was being very responsible in the beginning, for a week. I find when people are being responsible it means that they are standing by the big boys in some place or other. They are standing by the banks, the bosses, the landlords. It is irresponsible to stand by people who are being oppressed by these, to stand by workers or anybody who is being used or abused by the operations of these people. I was very glad to see during the course of the week that public reaction was the very same as mine. Nobody felt that their money should be used to bail out Allied Irish Banks and their operations in ICI. The key issue as far as the majority of people were concerned is that if the Allied Irish Banks' whole operation was a huge success, if the gamble worked with ICI and large profits were made, the taxpayer would never see a penny of it or benefit in any way whatsoever. When the gamble fails are they supposed to take the loss and bail them out of the financial mess into which they have got themselves? That was the immediate gut feeling of everybody who heard and saw what was going on. It is the feeling of the majority of the people in this House, on the Government side and on the Opposition side, that they do not want to get involved in this bailing out process.

The negligence of AIB has been dealt with fairly clearly by everybody who has spoken so far, on both sides of the House. Nobody could justify what they did. Various quotations have been given indicating the problems which existed. At the time when AIB took over ICI, in their own circular to their shareholders, their balance sheet showed the problem sticking out. There was a profit all right, but that was as a result of £15 million on investments, whereas there was an actual loss. At the time when they were taking ICI over, there was an actual loss of £8 million on their insurance business. If they could not see that they were in trouble with such a loss on the insurance end of their business and a profit on their investment end, one must think that they had some other reason for moving into ICI and bailing out or helping out somebody. There must be something much more behind this than is evident on the surface. It is nonsense for AIB on television and radio, as in the past week, to say that this was only discovered on 4 March 1985. Nobody could believe that. Anyone in insurance circles in the London area, or even here, could have told them 18 months or two years ago of the problems and in their own figures circulated to their shareholders it was quite plain that they were in trouble at that time in the insurance end of their business and were not making a profit there.

Deputy Prendergast is right that the whole business comes down to a need for change in company law and for company law reform. The 1963 Act was based on the UK Act of 1948. At the time of the 1963 Act that UK Act was hopelessly out of date. There have been widespread calls for company law reform for a number of years but particularly in the past two years with all the closures, bankruptcies, liquidations, receiverships, the appointment of administrators all of which has become a booming business.

It is a separate area somebody should investigate. There are all sorts of rumours circulating about the administrator of the PMPA and his costs. The figures vary nearly as much as the losses about which we are talking in regard to ICI, figures varying from £1 million to £5 million and £6 million as the amount of money the administrator of the PMPA is getting. There are also stories to the effect that he made the situation look worse when he went in, is improving it, having it look better when he pulls out, so that he will have been seen to have done a good job.

I asked the Minister for Finance on radio on Saturday last what power he had over the administrator of ICI and could he prevent the administrator from selling off the life section of ICI. He said he could not, that the administrator had been appointed by the High Court. Therefore the administrator could do practically what he liked. The administrator had already sold off Credit Finance Bank, a profitable company, and sold it back to AIB. What a joke. Now it appears the administrator could have sold off the life section, also a profitable area. What control has one over an administrator? Can they do what they like? Must they act under the Minister's direction or sanction? Apparently, no, according to the Minister for Finance; that was not so; he could not have stopped him. Therefore that is a whole area warranting examination also.

The AIB said that ICI was not properly supervised. In this regard the Minister has also been blamed for not having the supervisory division of his Department examine the situation both in AIB and ICI. In turn, the Minister blames the Department of Trade and Industry in Britain. The British Department of Trade have no responsibility in this regard. As I understand it, EC legislation of 1978 makes it clear that the overall responsibility for the operation of a company lies with the member state where the insurer has its head office — in this case, the Republic of Ireland. There is no point in the Minister saying that he checked with the Department of Trade in Britain and that they said everything was all right. They have no responsibility for examining the operations of the branch of the company in London, the head office in Ireland, that is the responsibility of the Government here and there is no point in trying to shift that responsibility. Then AIB endeavour to shift the responsibility on to their auditors, Messrs Ernst and Whinney, and are saying they are taking a court action against them though they have not done so yet. How often have auditors been sued successfully? Has it ever occurred that an auditor has been sued successfully? Certainly it does not happen very often because, generally speaking, the auditors play the tune for which the piper calls.

Deputy Manning referred briefly to the question of the auditing and accounting end, though he did not go into it in detail. It is becoming clearer to people day by day that auditing and accounting is not a science but a black art. It is an area warranting public inquiry and investigation in regard to a whole series of companies, including the AIB, ICI, Irish Shipping Limited, PMPA, the whole lot. They can all produce their audited accounts, their balance sheets and so on to order. But a serious investigation must be carried out into the whole area of auditing and accountancy in relation to company law reform. We are told it is a new law which is highly complex. It is 18 months since Deputy Cluskey said he had a Bill just ready. Now apparently it has been added to. It will be changed again as a result of this occurrence. It is not ready yet; it will be ready soon; it will not be ready this year — and probably not next year before this Government goes out of office. But it is an absolute essential.

The role of the Central Bank warrants examination also. The Central Bank is supposed to be a regulatory authority for the commercial banks. The failure of the Central Bank to detect any difficulties that AIB were getting into with ICI, whether they should have been allowed to get into ICI at all or not, is evident. In doing so they failed to act as a watchdog for the public. I suppose that is not surprising considering that on the board of the Central Bank there are directors from the commercial banks. The Central Bank is supposed to be the watchdog of the commercial banks. But on the board of the Central Bank there are directors from Allied Irish Banks, the Bank of Ireland and any other bank one cares to mention. Therefore it was not very surprising that the Central Bank agreed with the sale of Credit Finance Bank to AIB — after all, we are all friends; we are all in the same business, with the same directors on everything.

Deputy Prendergast was beginning to touch on this generally — he did not go into names — but the same directors are serving on everything. The same people crop up all the time, a small group of people. In this case it is no harm to name them when we are talking about the directors of ICI. There is Percy Howard Greer, who was chairman of Irish Shipping Limited for many years and then became chairman of ICI. Then there was William O'Neill, also chairman of Irish Shipping Limited, after Greer, at the time they collapsed. He was also a director of ICI. Greer was also a director of Credit Finance Bank. Then there was Liam S. Furlong who was a director. He had been general manager of Irish Shipping Limited and was also a director of Irish Hospitals Trust. Then there was Jack Hynes as a director of ICI. He was the man who was involved in NET at the time they got into a lot of trouble with their finances, when the costs of construction of the Marino Point plant escalated to something like £137 million. Then there was Mr. John Healy Donovan, a director of ICI, also a director of Irish Industrial Gases, of the Royal Trust Bank, of Ryan Hotels, of Banque Nationale de Paris (Ireland) and a director of many other companies. It is amazing how these people can act as directors of so many companies, that they can handle 12 or 14 different directorships. Of course, there are then the two AIB directors, Michael J. O'Keeffe, also a director of O'Flaherty Holdings, the Rohan Group and BP (Ireland) Limited, and Paddy O'Keeffe. These two gentlemen had been on the board of ICI since 1981 and could not see any problem. These were no chickens. They are not any back room boys. Paddy O'Keeffe was the group chief executive of AIB at the time he was appointed a director of ICI in 1981. Yet he could not see any problem there.

These are the people about whom we are speaking. One must remember that when one talks about banks and insurance companies one is not talking merely about institutions; one is taking about people, all of whom know each other. If you like, they are all inter-related through their directorships. They cross over between finance companies and industrial companies. They all know each other. They do a turn for each other and take decisions on that basis. We must ask did AIB's directors take a decision because they were asked — and this is what they said publicly — by Irish Shipping Limited: "Look, would you come in and take a 25 per cent share of ICI?" That means an individual in Irish Shipping Limited asked an individual in AIB and they said: "Yes, we will go in. We will put in 25 per cent for you." Eventually they found themselves putting more in and taking over ICI, because they knew each other.

The chairman of AIB, Mr. Niall Crowley, must be mentioned. He is supposed to be one who knows the financial world, who knows his insurance companies. He was Chairman of Irish Life for many years. He is supposed to have a fine accounting brain. He is supposed to know everything but he walked AIB into this mess. We must place the responsibility on these various individuals. I trust that what has happened now will put an end to any talk of privatising Irish Life. We have been hearing such comment for a number of years. The Minister for Finance holds 90 per cent of the shareholding in Irish Life but he receives only 2 per cent of the profits or surplus. Why are Irish Life talking now about the need to privatise the company? Privatising Irish Life would merely be putting it fully into the hands of the executive who would hold the major share holding and consequently rake off some of the profits. The company are operating successfully so I trust we will hear no more about privatising them.

What is happening in the case of ICI is similar to what happened in the PMPA case. When an insurance company collapse, the Minister concerned has the ultimate responsibility and must move to protect the policy holders and especially the employers' liability policy holders. That being the case, what is the Minister to do about that responsibility now? The inference from what was said by an insurance expert last evening on television was that another company are in trouble. This person would not name the company and he was not prepared to discuss the matter after the programme had ended. If the Minister has ultimate responsibility in respect of insurance companies, has he not the right at least to put someone on the board of these companies and thereby have some input into what is happening in them? In addition this would provide him with a continual feedback on the activities of the companies. I am anxious to have the Minister's reaction to this suggestion.

I had expected the Bill to deal with this new factor whereby an insurance company may act as they wish in the knowledge that in the last resort the Minister will take responsibility for the policy holders. That has been proved in the case of two companies. What type of legislation will the Minister bring in to cover this factor? I had expected a Bill that would provide for major changes in our financial structures and institutions but the Minister has failed totally in this respect.

I can think of at least three options that were open to the Minister. One was to do as he has done — to assume responsibility for the huge debts and let AIB off the hook. Another was to allow the market forces take their course, as is the wish of the private sector. In other words, allow the company to go to the wall. That is what happened in the case of Irish Shipping. In that case there was no regard for the workers or their jobs or for the strategic importance to the State of the company. But the third option was for the Government to bail out the Irish end of the ICI business so long as they could guarantee the employers liability. It was being said that if the Government did not move fast in this case the State would grind to a halt, that Aer Lingus, for example, would not be able to fly their planes. A lot of that talk was nonsense. It was an attempt to scare people into doing something they had no wish to do. However, the Government could guarantee the employers liability in the Irish end of the business but they had no responsibility, either legal or moral, for the London business. Neither have AIB any legal responsibility for the ICI business though they have a moral responsibility in that regard. But they were prepared to allow the company go to the wall.

I do not understand why the Minister must bail out the London operations of the company which have nothing to do with helping this economy or Irish workers. The Minister could have confined himself to bailing out the Irish section of the business. Perhaps he has done so but if he has, there is no evidence of it in the Bill. In the event of his confining himself to bailing out the Irish section, he should take a stake in the AIB group. To my surprise, this aspect has been referred to by Deputy Manning. It would be correct for the Minister to take a stake in AIB in return for bailing them out in respect of something which must be looked after. The Minister should ensure that AIB pay their share by way of giving the Minister a stake in the group.

Regarding the loans, the Minister referred to AIB making interest free loans available to the Government but unless there is some change I understand that AIB were talking about a low interest loan. My information is that that low interest loan would be at 9 per cent. That may be low but it would not be a loss making loan. On the contrary, with inflation at less than 7 per cent, it is obvious that AIB would make a profit on their loans to the Government, loans in which the Government must engage by reason of bailing out AIB. In other words, for the mess caused by the group, they will make a profit. I should like the Minister to clarify the position about the interest charge. We are not talking about an interest free loan.

Two separate loans are involved.

Last week AIB guaranteed that the original £50 million loan would be at a low interest rate.

Yes, and the £20 million loan is the one that is interest free.

The Deputy is right about the 9 per cent.

The £50 million will be at a 9 per cent interest rate. There are 750 jobs involved in this company. Last Saturday the Minister for Finance assured me that the Government intend preserving ICI as a commercial activity and continuing the company in business. I would like that to come from the Government or from the Minister for Industry, Trade, Commerce and Tourism. If the life section and the Guernsey operation are sold off it will look extremely unlikely that it is the intention of the Government to keep ICI in business. I should like the Minister to guarantee to the House that the Irish section of the business will be maintained and that none of the profitable sections will be sold off. I understand there are only about 60 or 65 jobs involved in the London operation and perhaps there are others in different parts of the world. However, the majority are in Ireland and we must have some guarantee from the Minister that these jobs will be protected.

In regard to the life section, Mr. Aidan Daly specifically said recently that he and the management group are trying to buy out the ICI life section. He said, "I am pleased to say that the administrator has responded favourably to this proposal and negotiations with a large Irish financial institution are in progress." I hope it is not AIB. I wonder if that is still the case and if the administrator is still negotiating for the sale of the life section.

Deputy Prendergast referred to the need for worker participation on the hoard. It is essential that the Bill should provide for worker participation on the hoard as the best protection against any greedy management executives who may be on the board and who are trying to engage in shady operations. There is no greater protection in such a case than worker participation on the board. On a final point, will the Minister say what is the company referred to in the Bill as Gebhard Limited.

It is a shelf company in the Department. They just took it down off the shelf and used it.

I wish to thank Deputy Mac Giolla for giving me some time to make my contribution. The threatened collapse of the ICI on 15 March presented the Government with a choice between some very unpalatable options. One of the options involved very high risks and conceivably it would have put in motion a chain of events which, if they had gathered momentum, could not be contained. The other real choice involved the Government in a direct and immediate intervention to defuse a potentially dangerous situation. Both of those options carried risks as well as a price tag. Therefore, a judgment had to be made as to which was the lesser of two evils, because that is what we are talking about, and which was likely to cause the minimum damage to the overall national interest.

I should like briefly to examine the first option. Conceivably the Government could have told AIB to go away and sort out the mess that its subsidiary, ICI, had got into without recourse to any State support. However, the risks inherent in this otherwise tempting option were simply unacceptable, in my view. We must bear in mind that AIB had already lost approximately £90 million on the ICI and that that had eroded the equity base of the bank by up to 20 per cent. The prospect of a further erosion of the same order or more might have undermined not only the stability of the bank but also the financial stability of the State itself. I do not think that is an exaggeration because

AIB have practically one-quarter of the total financial market in the Republic, an enormous proportion for any one individual institution. If AIB failed or faltered the financial stability of the State would be at risk as would the value of our currency and international confidence in our ability to repay our debts. There would be a definite threat to overseas investment and industrial investment, at a time when we desperately need both.

These are but a few of the possible consequences but the greatest risk would be the unpredictable course of events that could neither be anticipated nor easily controlled once they developed their own momentum. At best such a course would probably lead to a substantial reduction in living standards and services, even higher unemployment and the risk of social disorder. No responsible Government could contemplate such an outcome and that is why the tempting but high risk option of leaving the bank to its own devices had to be rejected. It is heartening that that has been broadly accepted throughout the country and certainly in this House.

That left the only other option which was an immediate and decisive intervention by the Government to secure the stability of the largest financial institution in the land, thus maintaining the financial stability and integrity of the country. History will record that unquestionably that was the correct decision,

This debate must focus first and foremost on what is best for the country. People outside this House and Deputies on all sides are angry, shaken, frustrated and dismayed at the events which led the Government taking over the ICI. Many see it as simply letting the bank off the hook at the expense of the taxpayers. Others find it indefensible that the major financial institution in the country, with all the expertise available to it, should not only have bought a pig in a poke but that it should take so long to discover the fact and that even now the full extent and consequences of that error are not known. Constructive and in-depth criticism of this disastrous episode is not only desirable but is essential if for no other reason than to ensure that never again do we get into this kind of situation.

That however is very different from entering upon an orgy of indiscriminate bank bashing. We have had a good deal of that in recent days. If this debate is to focus on the national interest we must guard against an erosion of national and international confidence in our financial reputation and against the erosion of confidence in the financial stability of financial institutions, particularly Allied Irish Banks, at this time. For that reason it is important to set the record straight about the AIB in particular in the face of some very ill-informed comments.

First, this bank is 99 per cent owned by Irish people. There are about 26,000 shareholders and most of them are small shareholders with a value on their shareholding in the region of £2,000 or £2,500. They are not big people and they are spread throughout society. In addition, and equally importantly, 60 per cent of the shares are owned by pension funds made up from the pensions of a large number of people throughout the length and breadth of Ireland. That is the institution about which we are talking, and we should be careful about indiscriminate bashing. The bank also employs 7,000 to 8,000 people.

There has been a good deal of criticism of the unwillingness of banks to provide adequate money for new businesses and of their reluctance to take risks. Looking at the bad debt charges of a bank like the AIB, it is startling to note that in 1980 the bad debt provision was £7 million. It increased to £17 million in 1982 and to £31million in 1984. That suggests that it is a bank not unwilling to take risks. It may certainly have been involved in some bad business, but it is not fair to say that the banks will not take risks or support small industry. They cannot support everything; but there is a willingness there to take risks, and the bad debt provision is an indication of that.

A lot of nonsense is talked about bank profits and dividends. It is absolutely essential that bank profits be adequate. The Central Bank has said to successive Governments, in their reports over a number of years, that bank profits here are barely adequate to sustain confidence in the banking system. There is also a lot of misunderstanding about dividends. I read various reports in the last few days that the bank is proposing to pay out £84 million in dividends. The bank is anticipating profits of £84 million; but £30 million of that will go in tax, £38 million will be reinvested in the business and the £16 million left will go for dividends, and even that is subject to taxation .These kinds of statements, which in many cases are based on ignorance and in other cases based on mischievousness, do not serve the national interest or help to maintain calm and confidence in this unfortunate disastrous affair.

The question in the mind of most people is the question of the taxpayers exposure in this whole affair. That question can only be fully answered when the estimated losses have been quantified. The challenge to the Government is to arrive at a solution which places as much of the burden as possible on those responsible, namely, the AIB, without endangering the stability of the bank. The Central Bank have advised the Government that the negotiated package represents the maximum that can be prudently borne by the AIB without endangering its stability. The proportion therefore that can be placed on the general banking and insurance industry will be important, and that still remains to be determined when we know the full cost involved. It will have to be carefully balanced so as to minimise the burden on the general taxpayer without seriously damaging the banking and insurance sectors.

The Government's initial reaction on Friday, March 15, has greatly reduced and hopefully eliminated any threat to the stability of the banking system. That was an important and considerable achievement. However, the second and longer phase of this operation requires the Government not only to accomplish the best possible outcome for the taxpayer but to be perceived to have done that without undermining the stability of the banking and insurance sector. That is a fairly formidable challenge, but it can be met if the Government, the AIB and the banking and insurance industry generally realise that they have some common objectives, the most obvious one being to serve the public interest.

It can be said that a bank is primarily concerned with serving its shareholders interests but that would be a very limited interpretation of its wider purposes. If the outcome for AIB were to result in an angry backlash from the taxpayer the bank would be sustaining self-inflicted damage. While the concern of AIB initially was to prevent an erosion of confidence they would be shortsighted if by their subsequent actions they were to alienate the public by seeking to avoid any of the bearable consequences of their own mistakes by transferring the cost to the taxpayer. There is little point in speculating about how best to achieve the optimum overall result in advance of the establishment of the likely possible cost. By the same token it is dishonest and misleading to attempt to give a categorical assurance that the taxpayer will in no circumstances have to pay. If we were able to say that — and I wish we were — there would have been no crisis in the first place. That is what we certainly wish to see and must work towards, but at this juncture it must remain an objective rather than a reality.

In relation to the question of possible future losses which may be sustained on business written by the new semi-State company after the takeover date, these losses obviously will fall to be picked up by the Exchequer and the taxpayer. That brings us face to face with the appalling condition of the general insurance business. My understanding is that last year alone the general insurance industry lost £150 million. The consensus within that industry and among a large section of the population is that the major contributor to this disastrous situation is the claims award procedure, including the huge legal costs and delays in bringing cases to court. We are out of step here in that throughout Europe no other country operates this kind of jury system with employers' liability and similar types of insurance. If this debate brings that problem to the forefront, as it should, we might have achieved something important. We could have the prospect of the worst of all worlds, a semi-State insurance company funded by the taxpayer losing a fortune and charging the taxpayer huge premiums to fund an expensive and inefficient jury awards system. We must eliminate that.

The Government's initial decision was correct. It achieved its immediate and crucial objective of protecting the stability of the banking system and the employers' liability insurance cover for a large proportion of the workforce. The establishment of a semi-State insurance company presents other kinds of challenges: the challenge to protect the taxpayer to the maximum degree possible consistent with maintaining the stability of our financial institutions, the challenge to transform the current chaotic state of our general insurance and the challenge of ensuring that the new semi-State company is efficiently and properly managed and that it does not once again fall to the taxpayer to pick up the tabs for mismanagement.

This whole debacle has been a serious blow to the business community, to the taxpayer and to every man, woman and child. The risks were high. The Government have acted responsibly in their initial actions and they propose to act responsibly in the follow-up. A great deal of soul searching, criticism and investigation needs to be done, but I support this Bill.

Debate adjourned.