Dáil Éireann díospóireacht -
Wednesday, 29 Sep 2010

Vol. 716 No. 1

Credit Institution (Eligible Liabilities Guarantee) (Amendment) Scheme 2010: Motion

Minister for Finance (Deputy Brian Lenihan)

I move:

That Dáil Éireann approves the terms of the draft scheme entitled Credit Institutions (Eligible Liabilities Guarantee) (Amendment) Scheme 2010, a copy of which draft scheme was laid before Dáil Éireann on 23 September 2010.

The draft statutory instrument entitled the Credit Institutions (Eligible Liabilities Guarantee) (Amendment) Scheme 2010 amends the bank guarantee scheme, known as the Eligible Liabilities Guarantee Scheme or ELG scheme, which was introduced in December 2009. Consequently, the scheme before Members is not a new one. It is, however, different from the original guarantee, that is, the Credit Institutions (Financial Support) Scheme introduced this time two years ago. That scheme was supported by the vast majority of this House and provided for a blanket guarantee of the deposits and liabilities of Irish institutions by the Government in the face of clear and present danger to the financial stability of the State at that time.

It is a source of bewilderment that the brave decision to introduce the original guarantee, supported by the vast majority in this House, is now being characterised by some as the root of all our problems. Let me be clear: had that guarantee not been introduced, we would not now have an economy, never mind a banking system. On that night two years ago, our banking system was perched on a on precipice. Funding had all but dried up and the banks faced closure within days. Anyone who doubts that has not read the report of the Governor of the Central Bank. In the first chapter referring to the discussions that took place on the night of 29 September, Professor Honohan states:

[I]t is hard to argue with the view that an extensive guarantee needed to be put in place, since all participants (rightly) felt that they faced the likely collapse of the Irish banking system within days in the absence of decisive immediate action. Given the hysterical state of global financial markets in those weeks, failure to avoid this outcome would have resulted in immediate and lasting damage to the economy and society. There would have been additional lost income and employment surely amounting, if it could be quantified, to tens of billions of euros.

Professor Honohan went on to criticise the inclusion of dated subordinated debt in the guarantee, and the scheme before Members this evening excludes this category. However, on the night of 29 September, there simply was too much at stake to discriminate between different types of bondholders and in the end, those whom the Governor felt should not have been included accounted for just 3% of the covered liabilities. Furthermore, a number of covered institutions have engaged in liability management exercises in respect of their subordinated debt. In other words, in plain language, subordinated bondholders have been forced to take losses in these institutions.

Members also should be clear that the Labour Party did not simply quibble, as its Members would like to portray it, with the blanket nature of the guarantee. They opposed it tooth and nail and in its entire substance. As it moves to the centre ground of Irish politics in its bid to be all things to all voters, it is as well for everyone to stop and think where this economy would now be had that party been in the driving seat this time two years ago. There is no doubt but that we are in stormy waters. We weathered a tsunami of international financial collapse two years ago and we will come through this storm also.

The scheme before us this evening is a more focused and targeted scheme than the original guarantee scheme and it is in line with the European model of bank guarantees that was developed in its wake. This scheme no longer covers subordinated debt and it imposes significantly higher fees on participating institutions for the benefit of a State guarantee of their liabilities. According to the latest data available to my Department, at the end of June 2010 bank liabilities covered under the ELG scheme stood at €153 billion.

The serious challenges that continue to face the Irish banking system demand that the State underpin through guarantee mechanisms the funding position of our domestic institutions. The original guarantee provided a necessary and vital support to our banking system as other measures to repair and renew the system have been introduced. The Government's guiding principle in all its interventions since September 2008 has been to provide a financial system that will serve our industry, businesses and households. In doing this, we are safeguarding the lifeblood of our economy, the engine that keeps people in jobs and that will create jobs for our young people coming into the workforce. No vested interest has influenced the Government's actions. Our sole motivation is the common good.

The actions we have taken since September 2008, in particular the establishment of NAMA and the recapitalisations, allow us to plan gradually to phase out the extent to which guarantee arrangements are available. That process begun with the introduction of the ELG scheme last December and the expiry of the original guarantee scheme from midnight tonight. However, the inherent weaknesses in our banking system have meant that the phasing out process must be measured, incremental and responsible.

The ELG scheme which has been running in tandem with the original guarantee since last December has enabled the banks to issue longer-term debt so as to improve their funding profile. For this facility, the banks have been charged a higher fee. It has been suggested by some commentators that the covered institutions have benefited from a low-cost guarantee from the State. In fact, since September 2008 the banks have contributed over €1 billion in fees. This extension of the guarantee will impose a further increase in fees on the institutions involved. Our objective is to incentivise the banks to lengthen the term of their funding and to lessen their reliance on State guarantees.

Ireland has not been alone in providing this form of support for institutions. We were the first to introduce a guarantee but we were quickly followed by other member states in the European Union. About a dozen other EU countries — for example, Austria, Denmark, Germany, Poland, Spain and Sweden — have extended their guarantees until the 31 December. The European Commission recently estimated that crisis measures put forward by EU member states have been approved under State aid rules to an overall maximum volume of €4.1 trillion and guarantees accounted for over 75% of that volume.

The argument has frequently been made that Anglo Irish Bank should have been excluded from the guarantee. Let us return to the Governor's report. He stated, "Anglo was clearly systemically important in the prevailing conditions at the end of September 2008". He also stated, "There can be little doubt that a disorderly failure of Anglo would, in the absence of any other protective action, have had a devastating effect on the remainder of the Irish banks". The Governor went on to explore the option of excluding Anglo Irish Bank from the guarantee. He concluded that it would have been what he describes as a "second Lehmans", which would have had "a destabilising spill-over effect" on the entire European banking system.

What we have been through is an unprecedented global financial crisis. Markets worldwide have been in uncharted territory for the past two years. This has forced the hands of Governments all over the world, and that of Ireland is no exception. No country is fully out of the woods yet. The cost has yet to be reckoned in many countries. However, we have faced up to our problems. Tomorrow, the Regulator will announce the final cost of Anglo, our most troubled institution. That is much further than many other countries have travelled. As The Economist stated recently, “Ireland is paying for its decision to set up a toxic-loan repository that forces banks to clean up their balance-sheets vigorously, rather than put off dealing with problems (as Germany has done) or insure dodgy loans and just hope they improve (as Britain has).” These are the words of The Economist, not mine, and I am not expressly confirming them as my opinion.

We have also taken action to reform our system of regulation. The Government's appointment of Professor Honohan as Governor of the Central Bank and Mr. Matthew Elderfield as Financial Regulator has been welcomed by all and will renew the credibility of our regulatory regime at home and abroad. I have decided to appoint five members to the Central Bank Commission, which is the unitary board that holds responsibility for the management and control of the Central Bank's activities and functions. The members I am appointing are Mr. Max Watson, Professor John FitzGerald, Mr. Des Geraghty, Mr. Michael Soden and Professor Blanaid Clarke.

The new commission members bring a wealth and diversity of knowledge to their work at the Central Bank, from the areas of economics, financial services, social policy, corporate governance and law. The new members will serve alongside the Central Bank Commission's ex officio members, who include Governor Patrick Honohan, Mr. Matthew Elderfield, head of financial regulation, Mr. Tony Grimes, head of central banking, and Mr. Kevin Cardiff, Secretary General of the Department of Finance.

The Central Bank Reform Act 2010 will be commenced this Friday, 1 October. Commencement of the Act will bring into being the reconstituted Central Bank and will give effect to the dissolution of the Irish Financial Services Regulatory Authority. I wish the Central Bank Commission every success in tackling the vitally important tasks ahead and I thank its outgoing members for their services.

Turning specifically to the draft statutory instrument before the House, this statutory instrument proposes to amend the ELG scheme and under the Credit Institutions Financial Support Act 2008 requires the approval of both Houses in order to do so. The ELG scheme was commenced in December 2009 following Oireachtas approval and allows the banks and building societies that joined it thereafter to accept all deposits and issue short-term and long-term debt on either a guaranteed or unguaranteed basis. Institutions can issue debt and take deposits under the ELG scheme with a maturity of up to five years, but these liabilities must be incurred within a limited issuance window or period that currently runs to midnight tonight, 29 September.

This draft amending statutory instrument proposes to extend the issuance period under the ELG scheme so that it will now run from tomorrow, 30 September, to 31 December 2010. Many other European countries have sought and obtained extensions in respect of their guarantee schemes.

In this draft amending statutory instrument, the opportunity has also been taken in consultation with the Office of the Chief Parliamentary Counsel to rationalise and update the drafting of some provisions of the scheme. However, the only substantive amendment made by the statutory instrument is the extension of the issuance window to 31 December 2010.

Market conditions have been quite challenging in recent months for banks internationally and those for Irish banks have been no exception. The extension of the ELG scheme has been recommended to me by the Governor of the Central Bank and the Financial Regulator. EU state aid approval has recently been granted for the extension of the issuance period under the ELG scheme to 31 December 2010 for all eligible liabilities under the scheme. This full extension to the ELG scheme will help underpin financial stability and enable the institutions to continue to access funding and in turn support lending to the economy. The ECB has also endorsed the extension of the scheme. The statutory instrument which I am now presenting to the House gives legal effect to this time extension to the guarantee.

I want to deal briefly with the key terms of the ELG scheme and provide some more detail on the terms of the amending statutory instrument. The scheme was commenced on 9 December 2009 and the six participating institutions and their subsidiaries joined it on various dates in January and February 2010. Any new debt or deposits incurred or rolled over after the date the institution joined the scheme are guaranteed under the ELG scheme.

The institutions that joined the scheme and are thus "participating institutions" are Allied Irish Banks, Anglo Irish Bank, Bank of Ireland, EBS Building Society, Irish Life & Permanent and Irish Nationwide Building Society. Their relevant subsidiaries also joined and are listed fully on the Department's website.

Liabilities that may be guaranteed under the ELG scheme, or "eligible liabilities", as they are known, are deposits, senior unsecured certificates of deposit, senior unsecured commercial paper, other senior unsecured bonds and notes, and other forms of senior unsecured debt specified by the Minister and approved by the EU Commission. There is no change in the draft amending statutory instrument to the range of eligible liabilities.

In regard to deposits in particular, all deposits are guaranteed under the ELG scheme. Retail, corporate and interbank deposits of any duration up to five years are now guaranteed for the full term of the deposit if placed before 31 December with a participating institution. On-demand deposits with the participating institutions are guaranteed under the terms of the amending statutory instrument to 31 December 2010.

If a deposit of up to €100,000 is covered under the EC deposit guarantee scheme, it is not also covered under the ELG scheme. The ELG scheme covers the excess over €100,000 or any deposit that does not qualify for protection under the 1995 deposit guarantee scheme which continues to apply, is not subject to any end date and continues indefinitely. A quarterly fee is payable to the Exchequer by the banks for the benefit of having liabilities guaranteed under the ELG scheme. The original fees associated with the scheme when it was introduced in December 2009 were based on the pricing recommendations published by the European Central Bank in respect of guarantees of this nature and were consistent with the fees applicable for similar guarantees provided by other European Union states in respect of their credit institutions. They represented a significant increase in the fee applicable under the CIF scheme.

The European Central Bank pricing recommendations provide that the fee for debt and deposits with a maturity of one year or less will be 50 basis points per annum. The corresponding fee for maturities exceeding one year will be based on the median value of the bank's five year CDS spreads for a sample period, plus 50 basis points. Under European Commission requirements, the fees that institutions are required to pay under the ELG scheme increased for guaranteed liabilities incurred from 1 July. The additional pricing ranges between 20 and 40 basis points depending on the rating of the institution concerned.

Furthermore, additional pricing will apply under the new scheme from 30 September for very short-term debt and short-term corporate and inter-bank deposits, that is, debt and deposits of 90 day or less, excluding retail deposits. The fees on these liabilities will be increased by 70 basis points by year end. The real effect of these changes to the pricing regime is that the average fee now paid by institutions under the ELG scheme has increased some 11 times on the average fee paid by institutions under the original bank guarantee scheme when it was introduced in September 2008. The pricing is set out in the rules to the scheme.

As at the end of August €730 million was collected from the institutions in respect of fees for the original scheme and €296 million was collected in respect of fees from the ELG scheme. Therefore, the State has already reached its €1 billion target for guarantee fees in less than two years. It is worth noting that no fee is payable in respect of collateral provided by the European Central Bank. This accounts for the somewhat smaller amount received than was projected under the original guarantee.

The ELG scheme provides for the same reporting and information requirements and restrictions on commercial conduct which are set out under the CIF scheme. The scheme provides the Minister with the power to issue such directions to an institution as are necessary to ensure that the objectives of the Act and the scheme are being met. The operation of the scheme is delegated to the NTMA. Given its market expertise, that body is best placed to perform the operational role of scheme operator. The extension of the issuance period of the eligible liabilities guarantee scheme to 31 December 2010 will continue to allow institutions to access funding, both short-term and longer-term debt. The scheme, as amended, will help maintain the overall stability of the banking sector and complement the broad Government strategy to restore the banking system fully and maximise its contribution to overall economic recovery.

I have heard Deputy Noonan raise doubts about the Government's state of knowledge in regard to the solvency of banks on the night the original guarantee was introduced. I want to be helpful to the Deputy but must point out that any objective reading of the report prepared by the Governor of the Central Bank, Professor Honohan, of the events leading up to our decision to provide the original guarantee at the end of September 2008 confirms beyond a shadow of a doubt that the Government's advice was that the Irish banking system, and Anglo Irish Bank in particular, was faced with a liquidity crisis. There was no advice or information provided to Government throughout all of that period that Anglo Irish Bank was facing the huge losses on its loan book that have subsequently come to light thanks to the work of NAMA. The bank guarantee was provided on the basis that the Irish banking system required State support to underpin its funding position in international markets. There was no evidence presented to Government that Anglo Irish Bank faced the serious challenges to its solvency which have subsequently required the Government to provide exceptional levels of capital support.

Deputy Joan Burton

That is a fantasy. The situation was reported in all the newspapers for weeks and months beforehand. The Minister must not read the newspapers.

A Deputy

There is a lot of stuff in the newspapers that cannot be believed.

Deputy Brian Lenihan

The relevant State authorities will continue to monitor the funding situation of Irish banks and the requirement for the guarantee in the future. Markets are currently dislocated. The EU state aid rules provide that the guarantee can be extended for a maximum of six months on each occasion. We will revisit the requirement for an ELG scheme in consultation with the European Commission and the European Central Bank in advance of the current deadline of 31 December 2010 and will judge the need for an extension on the basis of market conditions at that time and the specific funding position of the Irish institutions having full regard to financial stability matters generally.

None of the decisions taken during this crisis has been easy, but we have acted swiftly. It is imperative that the House is fully aware of the consequences of not approving this scheme. The Irish banking system continues to experience significant pressures in regard to its funding requirements. These pressures have intensified in recent weeks as market sentiment toward Ireland has become more negative, reflecting concerns about the scale of the losses in our banking system and significant imbalances in our fiscal position. The State guarantee for bank liabilities provided under the ELG scheme, which the Government has put forward for approval by the Oireachtas this evening, continues to provide very significant support for the funding of the banking system. If the scheme is not extended to the end of the year then make no mistake, we will be faced tomorrow with difficulties in funding which will jeopardise the financial stability of the State. That is the advice of the Governor of the Central Bank and the regulator who both strongly endorse the need to extend this scheme to safeguard the stability of the system and the overall economy.

Deputy Michael Noonan

I propose to share time with Deputy Mitchell.

Acting Chairman (Deputy Kathleen Lynch)

That is agreed.

Deputy Michael Noonan

I wish to move an amendment to the motion by appending the following:

"on condition that the Government introduces legislation before 1 November 2010 providing for a Bank Resolution system that gives the Central Bank powers to wind down or break up failing banks and to equitably share the costs of the wind down or the break up with all professional providers of capital and long-term funding; and calls on the Government to require Anglo Irish Bank to immediately commence negotiations with their holders of subordinated bonds to alleviate the costs of the wind-down to the taxpayer."

An extension of the ELG scheme is necessary to ensure that the refinancing——

Acting Chairman (Deputy Kathleen Lynch)

I apologise for interrupting the Deputy. Will he clarify whether he received the letter from the Ceann Comhairle indicating that his amendment to the motion is out of order?

Deputy Michael Noonan

Will the Acting Chairman indicate the ruling of the Ceann Comhairle? We have been voting in the House, so I have not seen the letter.

Acting Chairman (Deputy Kathleen Lynch)

The Deputy has not seen the letter?

Deputy Michael Noonan

No. I was in the Chamber for the series of votes that took place. A letter to my office while I am in the Chamber is no good.

Acting Chairman (Deputy Kathleen Lynch)

The letter states:

I regret that I must disallow the amendment tabled by you to the above mentioned motion on the grounds that it is only within the competence of the Dáil to approve or reject a motion in accordance with long-standing precedent.

Deputy Olivia Mitchell

What precedent?

Deputy Michael Noonan

It was my understanding that amendments could not be proposed to the text of the statutory instrument but that the motion governing the statutory instrument is subject to amendment. Is that not the case?

Acting Chairman (Deputy Kathleen Lynch)

I am just conveying to the Deputy what I have been told to do. If he wishes to take it up with the Ceann Comhairle, I am sure the latter would be happy to go into greater detail.

Deputy Michael Noonan

The words "stable", "horse" and "bolted" spring to mind.

Acting Chairman (Deputy Kathleen Lynch)

I could not agree more but those are my instructions.

Deputy Michael Noonan

I do not want to be disobliging to the other Members who wish to speak. Perhaps the Minister will facilitate me by replying to the terms of my amendment in the course of the debate. I will set out my concerns and the Minister can respond to them. We can do it that way rather than formalising it.

Deputy Brian Lenihan

Yes, we will do our best to help the Deputy.

Deputy Michael Noonan

I believe an extension of the ELG scheme is necessary to ensure the refinancing of Bank of Ireland and Allied Irish Banks may proceed in an orderly fashion, that deposits are underpinned elsewhere in the market and that other institutions that wish to avail of the guarantee are free to do so. I am reluctant to support the motion, however, for two reasons, as dealt with in my amendment. When the CIF guarantee was introduced two years ago, Fine Gael supported the proposal of the Minister for Finance. It was our view that a guarantee was necessary in the interests of a functioning banking system, the general economy and in the national interest. However, we are of the view that we were misled by the Minister, and before we support the motion tonight, we must have an assurance from the Minister that he is providing us with the full facts at his disposal and that we are not again being misled.

In the course of the debate in 2008 I asked the Minister for Finance whether he was seeking the guarantee to deal with a liquidity crisis within the banking system or if there was also a solvency crisis. I spoke at some length during that debate and outlined my concern in some detail. The Minister in his reply assured me that the guarantee was necessary to deal only with a liquidity problem in the banks. It was clear within a couple of weeks there was a major solvency problem in the banks despite the Minister's assurances in the House to the contrary and, on that basis, Fine Gael voted for the guarantee. It is possible the Minister was misled and was not aware of the full facts regarding the banks when he proposed the guarantee to the House. This has been the Minister's defence since the full facts emerged, namely, that he was not aware of the full facts; that the banks had been economical with the truth; and that he was sorry he had misled the House but it was unintentional. That may be so and what has happened over the years gives credence to the Minister's explanation.

It was the current Minister for Finance who stated in this House when Anglo Irish Bank was being nationalised that the total exposure of the taxpayer would be €4.5 billion. I do not know what the current figure is but yesterday, it was €24 billion and rising with a further instalment to be added. I do not believe the Minister made up the figure he gave us and as such he must have received bad figures from the bank, the Financial Regulator and the Governor.

Deputy Michael Ring

That is correct.

Deputy Michael Noonan

The Minister's defence may be correct. It was the same Minister who told us, the night he introduced the guarantee, that this would be the cheapest bank rescue anywhere in the world.

Deputy Brian Lenihan

I am sorry to interrupt, but I did not say that.

Deputy Michael Noonan

Was the clip of the Minister we saw on television last night out of context? A clip of the Minister saying that was shown last night on "Prime Time".

Deputy Joan Burton

I have a copy of the quotations.

Deputy Michael Noonan

Our archivist, Deputy Burton, has full details of it.

Deputy Dick Roche

It will be the only thing Deputy Burton got accurate.

Deputy Arthur Morgan

Deputy Burton is right.

Deputy Michael Noonan

Perhaps it was unintentional. However, new information has emerged through the release of information to the Committee of Public Accounts.

Deputy Joan Burton

The Minister stated: "The State is underwriting very substantial liabilities in monetary terms but is, as I have outlined, at a far remove from loss arising from these liabilities".

Deputy Brian Lenihan

I did not say it was the cheapest rescue.

Deputy Joan Burton

That was the Minister's solemn declaration. These are many more quotes like that.

Acting Chairman (Deputy Kathleen Lynch)

Please allow Deputy Noonan to continue. His time is limited.

Deputy Joan Burton

No loss at all.

Deputy Michael Noonan

I do not know at what venue the Minister was speaking in the clip shown on "Prime Time" last night. That is what he said on the clip shown on "Prime Time". I do not know in the context of what debate the Minister said it.

The Minister, on leaving the House on the night of the guarantee two years ago, went to the Seanad where Senator Liam Twomey moved an amendment to the motion seeking that a cap of €10 billion be put on the total cost of the guarantee. The Minister in reply stated that he would be amazed if the final figure was anything near that amount. In his contribution tonight, the Minister stated that €153 billion has been the outlay over the two years. I am inclined to believe the Minister was misled.

New information recently emerged through the release of information to the Committee of Public Accounts. This information is I believe relevant to the issue before us. It is important information. We are told in the documents that a couple of days before the guarantee was introduced in this House, Anglo Irish Bank asked the Bank of Ireland to take it over lock, stock and barrel because it was broke and could not cover its liabilities. In other words, it was insolvent. It is hard for us on this side of the House to believe that four days afterwards the Minister was able to come in here and say the problem was one of liquidity and not insolvency. One would think the Governor of the Central Bank, Financial Regulator or officials in the Department of Finance would have heard either directly on the grapevine that Anglo Irish Bank was selling itself around the town to any bank who might buy it.

Deputy Michael Ring

They could not care less.

Deputy Michael Noonan

The Minister never heard about it.

Deputy Brian Lenihan

If a person in the bank said that he or she would be open to criminal prosecution.

Deputy Michael Noonan

I said on television earlier that I believe the Minister is honest and honourable and I believe that. The Minister needs to clarify this matter on the record of the House. How is it that the Minister for Finance did not know four days prior to the introduction of the bank guarantee scheme that Anglo Irish Bank was selling itself, lock, stock and barrel, to Bank of Ireland. The Minister gave assurances in this House that only issues of liquidity and not insolvency had arisen, thus encouraging Fine Gael to vote for the guarantee.

Deputy Brian Lenihan

The party in Bank of Ireland who is alleged to have said has never come forward. He is unidentified and unknown. That is the basis of the Deputy's allegation in the House.

Acting Chairman (Deputy Kathleen Lynch)

The Deputy's time is limited.

Deputy Michael Noonan

I find it hard to believe that all these baddies would not have been aware of that on the night of the introduction of the guarantee. I have always said that if the Minister gives absolute assurances on the record of the House I will take his word. Against that background, I find it hard to believe.

If the Minister wants Fine Gael's support tonight he will have to explain how all this happened and how it is he did not know Anglo Irish Bank was insolvent. He will have to answer our questions in detail. We, on this side of the House, are no longer buying pigs in pokes. I require two further assurances. All over Europe, Parliaments are moving to enact bank resolution legislation that gives central banks new powers to wind down or break up failing banks in a way that fairly shares the cost with all professional providers of capital and long-term funding. When banks failed here and in other jurisdictions, central banks found that they did not have a statutory policy instrument that enabled them to intervene to wind down or break up failing banks. There was no equivalent to appointing a receiver to a commercial company. The central banks did not have that power.

As a condition of supporting this motion, Fine Gael needs a commitment that the Minister will introduce by 1 November 2010 legislation along the lines proposed, as is being done all over Europe. We also need a commitment that the Government will require Anglo Irish Bank to reach a negotiated settlement with subordinate bond holders so that the burden on the taxpayer may be eased. I do not foresee a problem in that regard. Anglo Irish Bank under the chairmanship of Mr. Alan Dukes has been doing deals with subordinate bond holders and has improved the bank's balance sheet. As I understand it, the guarantee only covered subordinated debt that was dated. Open-ended subordinate debt was not covered. The secondary market is selling off some of this debt at 17 cent in the euro. I cannot foresee any difficulty of dealing straight up with the subordinate debt.

There are many questions about the extended guarantee which need to be explored. The Minister's officials briefed the Opposition finance spokespersons on the special instrument this morning. However, the briefing did not go much beyond what one would glean from a press release. The information was helpful and the officials clarified a great deal for me and spared me a great deal of reading. It is much faster to be briefed across the table. When issues of detail were raised the Minister's officials appeared to be prohibited from answering either because of considerations of commercial sensitivity or because of a directive from him.

Deputy Brian Lenihan

They received no directive from me.

Deputy Michael Noonan

There is not much point in organising a confidential briefing if what is revealed is already in the public domain and what is confidential cannot be revealed. We need further information and all the details. We got further information later for which I thank the Minister's officials. As I stated, much of the information we required is, we were told, commercially sensitive and cannot be released. We could not get information in regard to the NTMA, which is running the scheme. If the Minister expects us to support the motion, he will need to give us the details. We cannot vote blindly tonight.

I have a number of questions for the Minister. Perhaps he will outline his view of the banking situation going forward. Will he need to extend the guarantee again to March 2011? What are the Minister's expectations in that regard? Is it intended that the schedule of increasing charges will wean the banks off the guarantee by the end of the year or does the Minister envisage the need for a further extension? Will Allied Irish Bank and Bank of Ireland be fully capitalised by Christmas? How long will the wind down of Anglo Irish Bank take? When will credit again flow in the economy? When will the EBS, in respect of which there are four bidders, be sold and will this be the first step in establishing a new high street bank, which will be a type of development bank run in the private sector? Will it be left to the incoming Government to put this in place or will the EBS be run as a building society? We need answers to these issues, which are serious policy concerns in respect of which the Government is silent.

How long will it take before the directors of banks, on whose watch the crisis developed, are replaced? When I raised this issue six months ago, the Minister in reply stated he agreed with me that these directors who were asleep on their watch, even though not personally culpable, would be replaced. As far as I am aware, none have been replaced.

Deputy Terence Flanagan

They should be replaced.

Deputy Michael Noonan

They remain on lending committees. Why is this the case given the huge stake the Irish taxpayer has taken in these banks? Such people have been shown the door everywhere else. I am not suggesting these people are personally responsible but what happened on their watch and they should be replaced. When can we expect the Director of Corporate Affairs to report on his inquiry into the banks? When will the Garda send a file arising out of its investigations to the DPP? It was announced in January 2009 that the Garda Commissioner was sending in members of the fraud squad to Anglo Irish Bank. While that is not quite two years ago, it is close enough. The only thing I have heard on the matter since was the dawn raid on Seán FitzPatrick's house in Greystones in the week before the Minister introduced the National Asset Management Agency legislation in the House. That action appeared to be more about providing Vaseline to ease the progress of the Bill through the House than making a serious attempt to investigate what was taking place.

These are the questions people are asking. On the night after the raid in Greystones, the Garda Commissioner stated on television that a file was being prepared to be sent to the Director of Public Prosecutions. Given that business is being done reasonably quickly everywhere else, it is fair to ask when the Garda file will be sent to the DPP.

While many countries are experiencing a banking crisis, most have taken action and moved on and those guilty of malpractice have been made answerable to the law. The United States is a good example because the authorities, having rolled in at the close of the markets at 4 p.m. on Friday, worked day and night on the following Saturday and Sunday and had put in place a solution before the markets reopened at 8 a.m. the following Monday. This occurred right across the investment banks of New York. They made a mistake, however, in allowing Lehman Brothers to fail.

I need answers to the questions I have put. I hope the Minister will be able to provide strong assurances, without quibble, because while the Fine Gael Party agrees the extension is necessary for the reasons I have outlined, we are disposed to vote against the motion, particularly given that I cannot press my amendment.

Deputy Olivia Mitchell

I agree that a guarantee is necessary and concur with the Minister that other countries are also extending guarantees. The difference between Ireland and other countries, however, is that the end is in sight in the latter, whereas in Ireland no progress has been made and no end is in sight. If one compares Ireland with Britain, where the authorities nationalised and recapitalised the banks, one sees that UK banks are already turning a profit for British taxpayers. Two years and billions of euro later, however, Ireland has dysfunctional banks with no sign of an improvement and no credit in the economy. As a result, unemployment has more than doubled since the employment peak whereas in Britain it has increased by a mere 1.2% from peak employment in 2007. This very different outcome for Ireland is primarily a result of the calamitous decision in respect of the blanket guarantee for Anglo Irish Bank.

The Government's decisions on Anglo Irish Bank might have been justified if, as we were informed at the time, the problem was one of liquidity. In fact, the problem was one of solvency or, rather, insolvency and we still do not know the full extent of Anglo Irish Bank's insolvency 24 months and billions of euro later. The Government's decisions are directly responsible for the downward spiral in which we find ourselves. We have learned that the Government was probably in possession of the relevant information on the night the guarantee was provided. If the Minister was not in possession of this information, the banks clearly ran rings around him on the night in question. Within weeks of the decision on the guarantee, everyone knew precisely what was the position and that Anglo Irish Bank was an insolvent, zombie institution. If the Fine Gael Party proposal for an orderly wind down had been adopted, Ireland, like many other countries in Europe, would be experiencing economic recovery.

To the extent that this financial amendment ends the guarantee for Anglo Irish Bank debt acquired prior to the guarantee date of September 2008, it is welcome in that it provides for an option to renegotiate the subordinated debt. It is a tragedy, however, that it has taken two years of pouring money into a black hole to the realise the folly of supporting a zombie bank. If the Minister were present, he would probably be able to inform the House that now that the guarantee is gone, Anglo Irish Bank will be immediately mandated to negotiate a buy-out for outstanding subordinated debt and try to make some saving for taxpayers. As I stated, it is tragedy that this has come so late.

How much of the debt acquired prior to September 2008 matured in the two years that have passed and was redeemed at full face value? Was the figure €10 billion, €12 billion or €15 billion? How much was spent recapitalising Anglo Irish Bank as if it would ever operate again as a functioning bank? The waste of money is particularly acute given the policy changes the Minister announced recently in respect of Anglo Irish Bank.

Billions of euro could have been saved and Ireland would not be a nation on the brink of economic disaster if the Government had listened to Fine Gael two years ago or at any time since it was realised that Government decisions were not working and were dragging the country down. However, to listen would have required admitting it was wrong, which this Government never does. Instead, it blames the markets, rating agencies, Opposition and media, all of which are accused, to use the Minister's phrase, of causing "unremitting gloom" and reputational damage to Ireland. What a joke. The Government need not have any fear on that score because that boat has long since sailed. The international media and markets know precisely what is taking place in Ireland and look on mesmerised at the Government's willingness to inflict limitless pain on Irish people to support a policy position on Anglo Irish Bank that the whole world knows is wrong.

Making mistakes is one thing — God knows Government policy on Anglo Irish Bank was a monumental mistake — but not learning from them is unforgivable. Continuing to dig a hole, as the Government has done for the past two years, and ignoring what the entire world and what this side of the House have stated repeatedly is unforgivable folly. Giving total protection to professional investors in a high flying bank such as Anglo Irish Bank was in the past and paying for it out of the pockets of our children and grandchildren has been the deliberate policy of this Government. After 24 months, our banks are still not functioning. We do not know what will be the final cost or whether we will ever get out of the hole the Government has dug for us.

Earlier, the Taoiseach was at pains to explain that the interest on the money borrowed for Anglo Irish Bank was very low — insignificant almost. This borrowing is bleeding the country dry when the money should be spent on capital projects to revitalise the economy and create badly needed jobs. The narrow options available to the Government to introduce any kind of jobs plan was demonstrated yesterday by a jobs plan that consisted solely of setting up another quango. I plead with the Minister to ensure the questions asked in this debate by Deputy Noonan, me and other Members are answered because, as Deputy Noonan pointed out, we are not of a mind to buy a pig in a poke again.

Deputy Joan Burton

Even the most pessimistic observer could not have foreseen just how calamitous a decision the 2008 bank guarantee has turned out to be. The date of 29 September 2008 is as steeped in infamy in Ireland's history as Pearl Harbour was for the generation of Americans led by President Franklin Roosevelt.

I propose to outline one case. Professor Morgan Kelly was attacked with vitriol by the Minister for Finance in this House in January 2009 for daring to suggest that the bailout of Anglo Irish Bank could cost the taxpayer as much as €15 billion. What innocent days we had barely 21 months ago. If only the cost of Anglo Irish Bank could have been confined to €15 billion. What was shocking then has turned out to be a trifle. Professor Kelly, who was excoriated in public and private, can hold his head high today whereas the reputations of the Taoiseach, Deputy Brian Cowen, and Minister for Finance, Deputy Brian Lenihan, have been shredded as umpteen billions are carted into the Anglo Irish incinerator, notwithstanding their vulgar promises to Irish people that their policy would be the cheapest bank bailout in history. The Taoiseach and Minister hate to be reminded of that example of pure hubris or of the promise that Ireland, the first country into recession, would be the first out of recession, one more example of the triumph of vanity politics over reason and experience.

Today, the Minister for Finance has to look back on that fateful night of two years ago and see the complete bonfire of the vanity he displayed that week. Charitably he may be given a high score for sincerity and effort but I am afraid a hopeless score for political and economic judgment. Were he a general in a war, whether at the Somme or Iwo Jima, there would be nobody left alive.

If the only price to be paid was the political reputation of these two Brians, we could shrug it off but alas, the price of their flawed judgment on that day and in the months and years prior to it has turned out to be astronomical and has left a bitter legacy for all our people to endure. The shocking scale of the current banking crisis in Ireland has brought unwelcome attention to Ireland at a bad time but we should remember that banking crises have been a regular enough occurrence and usually follow similar paths. Ireland's story is not that unusual and reflects the astonishing lack of good authority displayed by the Taoiseach during his tenure in the Department of Finance. All the signs were there of troubled skies and storms ahead but he refused to pay any attention to the weather forecast and recklessly carried on as before with the very same policies that encouraged disastrous lending practices to developers and home buyers.

Northern Rock in the UK was a bank with a business model similar to Anglo Irish Bank. It collapsed at an early stage long before Lehman Brothers. The Northern Rock incident was the point when the Irish authorities, political as well as regulatory, should have got a wake-up call and taken action to stave off the Anglo Irish Bank disaster that was coming down the track. Instead of heeding the wake up call, the then Minister for Fiance, Deputy Brian Cowen, pulled up the duvet cover and went back to sleep. Over the next months it must have become clear that Irish banks were sitting on big losses and had severe solvency problems, not just liquidity issues. Insolvency destroyed Northern Rock and that dreaded word surely had to feature in the minds of those in charge.

On Sunday, 16 September 2007, the then Minister, Deputy Cowen, following the Northern Rock debacle, vowed that the State would not bail out banks from the consequences of their own reckless lending policies. Boy, did he do a U-turn. Then came the St. Patrick's Day massacre of Anglo Irish Bank shares in March 2008, another wake-up call even louder than the earlier one he so wilfully ignored.

The events of September 2008 were particularly dramatic but the Anglo Irish Bank contagion had already taken root and was infecting the entire economy. The Irish banking disaster has followed all the steps that feature in the textbooks on bank failures. The Government has made all the classic mistakes and allowed the banks to deceive it this day two years ago in September 2008 that they were fundamentally sound and merely enduring short term liquidity problems. So Ministers spent months pretending — to the people at any rate. Perhaps they knew differently privately.

The documents already published display an incredible culture of denial in Merrion Street. The true picture was revealed in an appalling drip-feed manner right up to the shock and awe statement in the week before Easter in late March this year. The Minister's response was to say, "At every hand's turn, our worst fears have been surpassed". What were those worst fears and why did he not incorporate those fears into his actions? A wise leader hopes for the best but prepares for the worst. That is what wise leaders and generals do. We are in an economic war in this country and our people have been visited with sanctions because we have lost the war that puts us in mind of what happened to the Germans after the First World War. That is where our desperate generals on the other side of the House have led us. Deputies know the quote about the First World War: "Lions led by donkeys". Look at the Government benches and see the calibre of our miserable generals. There are many adjectives I could use to describe the leaders of this Government. "Wise" is not one of them.

Deputy Michael Noonan

There is not a Fianna Fáil Deputy in the House.

Deputy Joan Burton

No, they have scattered.

Ministers and their acolytes have persistently peddled the myth that the Honohan report wholeheartedly endorsed the September 2008 guarantee. Deputy Lenihan and Fianna Fáil were at it before they chose to flee the House so as not to hear some of the truth. They fled. They are not here. They have left a sole Green Party Member in command.

Deputy Mary Alexandra White

I am listening to the Deputy.

Deputy Joan Burton

That document did no such thing. Yes, Professor Honohan did acknowledge that some kind of guarantee was required, as did I even before 29 September 2008. A deposit guarantee would have had unanimous support here. Two weeks beforehand, on 16 September 2008, I looked for a €75,000 guarantee for ordinary depositors. I got my answer from the Minister — a very short "No". A year earlier, on 27 September 2007, I had called for a reformed compensation scheme for savers so as to stop a run on the banks following what had happened in Northern Rock.

But Professor Honohan went on to ask sceptical questions about the blanket nature of the guarantee put in place that night. One concerns the inclusion of subordinated debt, an issue also raised at the time in this House by the leader of the Labour Party, Deputy Eamon Gilmore. Professor Honohan went on to ask much more fundamental questions that Ministers have chosen to ignore and to misrepresent. These are his exact words in case Deputies have difficulty in finding them in the Fianna Fáil Ladybird edition of events:

The scope of the Irish guarantee was exceptionally broad. Not only did it cover all deposits, including corporate and even interbank deposits, as well as certain asset backed bonds (covered bonds) and senior debt it also included, as noted already, certain subordinated debt. The inclusion of existing long-term bonds and some subordinated debt was not necessary in order to protect the immediate liquidity position. These investments were in effect locked-in. Their inclusion complicated eventual loss allocation and resolution options.

We have heard so often that many other countries rushed to follow Ireland's lead. Simply not true. There have been few cases of such blanket guarantees elsewhere and since then markets been highly sceptical of Ireland's capacity to meet the obligations that decision imposed.

Each day we pay the price of that folly. It put the taxpayer on the hook for almost all losses, even the losses of Anglo Irish Bank and Irish Nationwide. We want and need big banks, like Bank of Ireland and AIB, but who except the people in Fianna Fáil and the cronies particularly, wanted to hold on forever to Anglo Irish Bank and Irish Nationwide? Only their cronies in their own political circles, and the developers of course.

The blanket guarantee was a direct consequence of the shocking error of judgment over the solvency of Anglo Irish Bank. It is this guarantee that had dumped the Irish State with the responsibility of meeting the entire cost all of Anglo Irish Bank's liabilities, a bill that has already put us the hook for €24 billion and God knows how much more when the full truth is revealed, perhaps as early as tomorrow.

To add to our woes this Government added NAMA to the mix, one extra error of judgment added to the long catalogue of previous errors. There have been eyebrows raised at the discounts imposed by NAMA. Why could anyone be surprised that a cash for trash scheme could have had any other outcome? What is the Minister on about when he says that our excessive disclosure is somehow disadvantageous compared to other countries? They thought up cash for trash. NAMA was their own invention. Why does the Minister moan now? It was his major calling card a few months ago and we were all supposed to be impressed.

The NAMA concept was flawed from the start. The process relating to it has added to the problem by virtue of the tortuously long and drawn out loss estimates it involves. The decision to put NAMA into the NTMA has brought a cuckoo into the latter's nest. The NTMA has a good reputation but Fianna Fáil foolishly chose to put NAMA in with it. In doing so, it has risked the contagion of the NTMA by Anglo Irish Bank and the undermining of our sovereign reputation as a result. When this matter first arose, everything revolved around reputational damage to banks. Following two years of Fianna Fáil dealing with the problem, however, we are now faced with serious reputational damage to the sovereign and to the Irish people. I cannot recall such a level of damage being inflicted upon the country in the past.

When the Carroll case came before the High Court 15 months ago it must have been obvious to the Minister for Finance, Deputy Brian Lenihan, that the value of commercial property in Ireland had fallen catastrophically and had left gaping holes in the capitalisation of the banks. He surely did not need to wait the full period for NAMA to do its business before recognising the true scale of losses and the consequent capital hole that they would create. Despite the guarantee and despite NAMA, the market still lacks confidence in the solvency of the major Irish banks. In that regard, unfortunately, I must include Bank of Ireland and AIB, which are afraid to lend money to ordinary businesses throughout the country. As a result, we have a credit famine. That which I describe has in turn placed a strain on the credibility of the State in the international press and on international markets.

The Government has forgotten those whose interests it was elected to serve. It has no mandate from the Irish people to raid the national coffers to rescue a recklessly mismanaged bank from the consequences of its own folly. If it does not understand that then it should hold an election in order to see what the people think.

Before the commencement of Dáil business earlier today, I went for a walk through town. I was stopped by quite a number of people who expressed serious concern to me about the man who drove the cement mixing truck into the gates of Leinster House this morning and asked if he would be the only one who would be subject to police proceedings and who would see the inside of a police cell as a result of what has happened during the banking crisis.

Deputy Mary Alexandra White

People are asking why Deputy Burton is continually moving to the right.

Deputy Pat Rabbitte

Apparently the Garda Síochána has no concrete evidence against the man in question.

Deputy Joan Burton

Today's vote is, in effect, a vote of confidence in the Government's banking strategy. That is what those opposite are seeking.

Deputy Mary Alexandra White

The Deputy should keep moving to the right.

Deputy Joan Burton

The Minister of State's colleague was locked up with his bike in the shed and all of his phones turned off so she should not give us her view.

Deputy Mary Alexandra White

Keep moving to the right.

Deputy Joan Burton

We do know that an incorporeal meeting took place and that a garda knocked on the door. What happened thereafter, I do not know.

Two years after the original guarantee, which we were promised would cost nothing, we are faced with enormous bills, credit is still scarce, and the cost of Government borrowing is soaring. The Labour Party has no confidence in the Government's banking strategy. We stood alone in opposing the original guarantee in September 2008 and we have been more that vindicated by developments since. As I stated on the night on which the guarantee was introduced, we were not disposed to Fianna Fáil being given a blank cheque. The Minister for Finance stated earlier that he wants the guarantee to be extended tonight and that he wants another blank cheque. He also stated that tomorrow he will provide us with a little information about the blank cheque he proposes we sign tonight.

On each occasion the Minister, Deputy Brian Lenihan, or the Taoiseach, Deputy Cowen, have tried to draw a line under the bank losses, they have been found some months later to have completely underestimated the scale of the problem. We were informed that the original guarantee would be the cheapest bank rescue in the world. However, it has already cost Irish taxpayers more than €30 billion and the bill keeps rising. They scoffed last year when the IMF suggested that the total bill could hit €25 billion. That figure has already been surpassed. All sorts of people were rushed out to inform us that the IMF had it wrong.

We are being asked to extend the guarantee but we are not yet being told what will be the cost of the last blank cheque. The Government is insisting on voting this through but it will not tell us the cost of the bail-outs for Anglo Irish Bank and Irish Nationwide and nor will it outline the position of the two important and major high street retail banks.

Deputy Joe Costello

Another pig in a poke.

Deputy Joan Burton

Two years on from the original bank guarantee, the Government has still made no progress with the introduction of a special resolution regime for the banks. Once the guarantee was granted, the introduction of such a resolution mechanism was the only realistic way in which the financial burden could be shared appropriately between taxpayers and the banks' investors. As of midnight, some €40 billion in bank liabilities — that is not a trifle — will fall outside the guarantee when it expires. In the absence of a bank resolution Act, it will be difficult to ensure that the relevant bondholders make a fair contribution to cost of the banking failure. The only exception in this regard relates to the sub-debt, which only represents a small proportion of the €40 billion to which I refer. As Deputy Noonan stated, this sub-debt has already been regularly subjected to sales by the institutions and to buy-backs.

In the weeks before the original blanket guarantee was put in place, the Labour Party called for enhanced protections for ordinary depositors. However, these protections should not have been extended to the professional investors who took a punt on bank loans. The Governor of the Central Bank, Professor Patrick Honohan, has since vindicated this position in his report on the banking crisis.

A system of omerta has been official Government policy on the banks from the outset. Labour was briefed on this motion at 10 a.m. and the Department was unable to answer basic questions put to it by the Labour Party. The following are the questions we asked: will Irish banks be facing a further funding cliff in December, when the guarantee extension is set to expire, how much debt has each institution guaranteed under the ELG scheme to date — the Minister stated that it is €150 billion in total — how much debt is expected to be issued under the ELG scheme between now and the end of December, will the government urgently introduce a special resolution scheme for banks and is a further extension of the guarantee beyond December envisaged? The latter part of the Minister’s contribution would appear to indicate that the answer to the final question we posed is yes.

The Government has also choreographed events in such a way as to give the Dáil the least amount of time possible to consider the motion on the renewal of the bank guarantee. The Dáil has been in recess for 12 weeks. When the Government decided that the new session would commence today, it knew that a decision on the renewal of the scheme would have to be made by midnight. Why was the Dáil not brought back earlier in order that it would have adequate time to consider the renewal proposal? We are also being asked to make this decision on the guarantee a day before the Financial Regulator is to disclose the full extent of the likely cost of bailing out Anglo Irish Bank.

Earlier today, the Taoiseach stated that he did not know the figures. I have many different views about Deputy Cowen, not all of which are complimentary. However, the suggestion that the Taoiseach in charge of the greatest disaster in our history has not received good and sound advice on the ballpark figures that will be revealed tomorrow is fatuous in the extreme.

Deputy Pat Rabbitte

Hear, hear.

Deputy Joan Burton

We have been informed that the relevant figure will not be announced until after the markets close tomorrow. At this stage, the Financial Regulator and the Government must know what is the full amount. It is simply not acceptable that the Dáil should be asked to make a decision on the guarantee while the information on Anglo Irish Bank is being withheld from Deputies.

Deputy Pat Rabbitte

Hear, hear.

Deputy Joan Burton

Is the Minister going to make a comprehensive statement tomorrow in which he will comment on Anglo Irish Bank and Irish Nationwide and will he address the funding position and situation of the two main banks, Bank of Ireland and Allied Irish Banks?

I wish to close by referring to contagion and confidence. The former is something one does not want in financial markets while the latter is highly desirable. In the two years since the original guarantee was introduced, the Government has systematically destroyed confidence in Ireland, its banks and in Ireland as a sovereign. It has allowed the contagion of Anglo Irish Bank to infect everything. Essentially, the latter has become a virus and a cancer in the body politic and the business community of Ireland. It is time the Government stopped what it is doing.

Deputy Arthur Morgan

I thank the Minister and his officials for the briefing this morning. However, I also echo Deputy Noonan's comments when he pointed out that it was a confidential briefing. I do not understand why they could not have been more forthcoming in answering some of the questions raised because as far as I am aware there has never been a breach of the confidentiality by any Opposition spokespersons who undertook such confidentiality.

We enter a new Dáil session and it will again be dominated by the banking crisis two years on. Is that a sign of incompetence? Instead of having one Anglo Irish Bank, we will now have two — or three if NAMA is included. We will have three administrations and everything in triplicate. So much for efficiencies, but then what would one expect from the Government that brought us the tripling of the costs of the Dublin Port tunnel, the doubling of the cost of the Luas and much more? There is no point in enumerating all of that this evening as we have done so often before.

The Government has told us for two years now that sorting out the banking crisis is its priority. It is not so much its priority, but the only issue on its agenda apart from slashing the incomes of low and middle-income families as we have witnessed in the past three budgets and we are certainly likely to see it again in December's budget based on the promises from the Government parties. Let us consider how the Government is getting on with the banks two years after the Minister for Finance told us that this was the cheapest bailout in the world. He did not say that at the time the guarantee scheme was initially introduced, but when the terms and conditions were announced. Like Deputy Noonan I had an early night last night and was home by 9.30 p.m. I saw the "Prime Time" programme which showed the clip of the Minister standing here in the Chamber when he said that. He also told us the worst was over at a time when although the guarantees were in place, no money had been pumped into Anglo Irish Bank. God help anybody who believed him on that occasion and God help anybody who believes a word that any member of the Government says.

I do not want to dwell on this point, but it is worth quoting the person who was in charge of the Department of Finance through much of the period when the bankers and speculators were wrecking our economy. The Taoiseach told us, "It is my intention to ensure that the Irish taxpayer will not be held liable in any way for any deficit that might occur". How can we believe a word that man says given what has happened since he said that in 2008? This is the same person who met representatives of AIB and Bank of Ireland on 29 September 2008 and knew exactly what was going on, as has clearly emerged. There are no excuses left for this man.

Let us be clear about this important point, which has been reiterated by many economists, including Professor Patrick Honohan. There was no need for a blanket guarantee in September 2008. The Government greatly over-stepped the mark and, as a result, burdened the taxpayers with many billions of euro. The amount is still unquantified — although it might be quantified by tomorrow afternoon. So much protection has been offered to the bondholders that considerable suspicion has grown as to their identity. Are some of them part of yet another golden circle? People are entitled to be suspicious given the Government's record. While I am sure many of them may be international investors, suspicion is growing as to their identity and the Government will not inform us who these investors are. Bluff and bluster has been the order of the day.

I will now address some of the technicalities of the scheme. In debating the motion before the House tonight it is necessary to revert back to the original eligible liabilities guarantee scheme of 2009, not only to gain perspective on what the Government is proposing, but also to highlight the delusion and faults inherent in the Government's banking strategy. Of special importance is the reference in the Schedule at 2.4 that the Minister makes this scheme having regard to "minimising the potential cost to the Exchequer and taxpayers". Nothing could be further from the realities of this scheme and the faulted banking strategy of Government. Its strategy of creating stability through the bailout of our banking institutions has failed.

The result of today's motion will be that certain bank liabilities will be guaranteed up to 2015. The Minister for Finance is able to extend the guarantee scheme on a piecemeal basis as far as 2015. In real terms, the extension of the guarantee simply represents taxpayer crutches for the bank sector. By virtue of provisions of the Financial Measures (Miscellaneous Provisions) Act 2009, the Minister can extend the period of financial support by ministerial order. This effectively means that the Government can draw out the terms of guarantee and extend financial supports to banks indefinitely, once the European Commission consents. The taxpayer is being asked to provide yet another lifeboat for the banks. The critical issue that must be addressed is whether the banking system with the aid of this guarantee can turn itself around, transform into a system that serves the domestic economy by providing the credit much-needed by businesses and households and whether placing this burden on the taxpayer is warranted. The answer is clearly "No".

The ELG scheme allows bonds to be issued with maturities of up to five years, with the bonds having the full backing of the Government to their maturity. When the Minister of State, Deputy Mansergh, introduced the original ELG scheme to the Dáil in December last year, he advised that these provisions would enhance the banks'"ability to discharge their central role in facilitating economic activity in the State" and he also advised that allowing institutions to issue unguaranteed debt was "key to restoring market confidence in the institutions". Nearly ten months later, neither of these objectives has materialised. In fact, there has been a complete shift in the opposite direction. Looking at the bond markets alone we see that bonds have been under pressure for some time amid concerns over the cost of the bank bailout and the sovereign debt. Yesterday Irish bond yields hit a new record high of nearly 6.8%, which is not restoring confidence. The Government is running this State into the ground and market confidence is hitting the floor as demonstrated by yesterday's bond yields. The people of this State lost confidence in the Government long ago and it is clear that the international markets have also.

The banking crisis is quickly becoming a sovereign-debt crisis because a prolonged guarantee puts us all on the hook. The inclusion of Anglo Irish Bank in the guarantee is the principal reason the taxpayer is being required to pump what seems like endless billions into the black hole of Anglo Irish Bank. Approximately €10 billion in bond debt held by Anglo Irish Bank was loaned by investors since September 2008 and it is subject to an explicit guarantee. The debt raised in this way is under a legally enforceable State guarantee.

The original eligible liability guarantee scheme of 2009 stated that the Minister made the scheme having regard to "minimising the potential cost to the Exchequer and taxpayers". Nothing could be further from the realities of this scheme and the faulted banking strategy of Government. The bill for the taxpayer is running into billions. The Government strategy of creating stability through the bailout of our banking institutions has failed. The taxpayer is being asked to provide yet another lifeboat for the banks. The critical issue that must be addressed is whether the banking system with the aid of this guarantee can turn itself around, transform into a system that serves the domestic economy by providing the credit much-needed by businesses and households and whether placing this burden on the taxpayer is warranted.

I have a few questions about what the Minister knew in September 2008 and what they claimed they did not know. We were told the problem was a liquidity issue and not an insolvency issue. Can this point be clarified before this debate concludes? It is a critical issue and it is only fair and reasonable that it be clarified.

How much does the Minister estimate will be required to recapitalise AIB and Bank of Ireland? If he does not have the figures this evening, will he inform us as to when they will be available and be published? It is important all Members have this information as soon as it is available.

This afternoon, responding to questions from my colleague Deputy Ó Caoláin, the Taoiseach claimed he did not mislead the Dáil and had no additional information as to the true state of Anglo Irish Bank and the Irish banking sector when he met with AIB and Bank of Ireland in Government Buildings before announcing the guarantee two years ago. This is now being proved wrong.

This morning we saw the anger among the public demonstrated by the action taken with a cement truck at the Kildare Street entrance to Leinster House. It is important the Minister of State, Deputy White, knows the anger out there. It is also important the Green Party takes its responsibility for what is happening to the Government's policy on the banks. The Green Party must realise it is propping up the Government and is not just a passive passenger along for the ride. This is real stuff and is manifesting itself in more anger.

The man involved in this morning's incident, of course, was hauled off to a Garda station, a matter which Deputy Burton earlier said was raised with her by people on the streets. I too have had telephone calls from constituents asking why this man is holed up in a Garda station being questioned about his actions when the bankers and speculators, aided and abetted by government policy, who wrecked the economy are not even questioned by any authority. A former Taoiseach told us that anyone decrying the massive property bubble should commit suicide while Ministers looked the other way or actively encouraged the speculators and bankers. It is time the Green Party takes its responsibility in all of this and lets us know where it stands. The issue of moral hazard is close to hand at this point.

The pouring of billions of euro into the banks is not happening without a significant cost to the people. In the past few weeks, I have been dealing with constituency cases of single middle-aged men critically ill with cancer being discharged home before their treatment has been completed. No after-treatment care was available for them because of cutbacks in public spending. People, already traumatised through ill health, are being penalised by the Government's policy to look after the banks and their bondholders.

It must be remembered the bondholders did not lend their money to this State. They lent their money to private banks. If I go broke, will the Government bail me out? Of course it will not. There needs to be a serious rethink of the consequences of this guarantee and the bailout before incidents much worse than what happened at the Leinster House gates this morning occur across this State.

Deputy Beverley Flynn

I wish to share time with Deputies Thomas Byrne, Chris Andrews, Edward O'Keeffe and Blaney.

An Ceann Comhairle

Is that agreed? Agreed.

Deputy Beverley Flynn

Despite what has been claimed in the House tonight, the Government is committed to resolving the banking crisis and bringing about financial stability at the cheapest cost to the taxpayer. Neither is it responsible for the reckless lending that took place in the country's financial institutions. However, it is committed to resolving the problems that have arisen from reckless lending by our bankers and which have had a devastating effect on the economy.

The 2008 credit institutions scheme gave a blanket guarantee for Irish banking institutions. It was an important measure without which the banks would have faced certain collapse with devastating consequences for the economy. While the measure was supported by Fine Gael at the time, the Labour Party decided not to. Had its policy seen the light of the day, the consequences for Ireland would have been drastic, affecting not just Anglo Irish Bank but the other Irish banks because of how they are all interconnected. The State would not have had access to international money markets to fund its day-to-day activities with dreadful consequences for society.

There has been much misquoting of the Governor of the Central Bank tonight. In his recent report on the banking guarantee, he stated an extensive guarantee needed to be put in place; otherwise our banks would have run out of money in days and have been forced to close their doors. He went on to state, "Closure of all, or a large part, of the banking system would have entailed a catastrophic immediate and sustained economy-wide disruption". This from the Governor praised by all sides of the House.

The eligible liabilities guarantee scheme was introduced in December 2009 to provide access to longer term funding for our financial institutions. The scheme allows them to issue both guaranteed and non-guaranteed liabilities which will help reduce their reliance on State support, a development all Members would like to see when markets improve.

I support the extension of the scheme, as proposed by the Minister for Finance, recommended by the Governor of the Central Bank and approved of by the European Commission.

Deputy Thomas Byrne

Tugaim tacaíocht do rún an Aire agus an Rialtais anocht. Táimid ag vótáil chun ráthaíocht ELG a choimeád i bhfeidhm go dtí deireadh na bliana. Tá muinín agam as an Aire, as an Taoiseach agus as an Rialtas. Is sóé do pháirtithe an Fhreasúra dul i gcoinne an rúin.

Tabharfaidh an rún cosaint do choigilteoirí na tíre seo, cosaint dóibh siúd a chuireann infheistíocht sa tír agus tabharfaidh sé cosaint do chóras bainc na tíre, córas nach bhfuil ag obair go han-mhaith faoi láthair ach a thitfeadh as a chéile mura n-éireodh leis an rún seo. Sin an smaoineamh atá i mo mheabhar agus mé ag tacú leis an rún. Ba chóir go mbeadh an smaoineamh céanna ag páirtithe an fhreasúra freisin in ionad dul i gcoinne an rúin.

Tá ráthaíocht Mheán Fomhair 2008 ag dul in éag anocht — ar dheis Dé go raibh a hanam — agus tá sé éasca bheith ag machnamh ar na cinntí a rinneadh ansin; tá sé i bhfad níos deacra obair le chéile i dtreo fheabhsúchán na tíre.

Tá mise ag vótáil ar son slándáil na tíre agus a saoránach. Tá mé féin agus an Rialtas ag rá le hinfheisteoirí idirnáisiúnta go bhfuilimid ag iarraidh infheistíochta, go mbhfuilimid réidh léi agus go bhfuilimid in ann ár bhfadhbanna féin a shárú sinn féin.

Deputy Chris Andrews

I welcome the opportunity to speak on the extension of this scheme, essential in bringing certainty to the economy, businesses, many of which are struggling to keep their heads above water, and struggling ordinary people and householders.

This scheme is different from the original one in that it imposes higher fees on participating institutions and no longer covers subordinated debt. The Governor of the Central Bank and the Financial Regulator recommended this scheme. Is the Labour Party suggesting we ignore their recommendations and advice? It is important that we have the Governor and the new regulatory system.

Deputy Pat Rabbitte

I would hand the Taoiseach and the Government over to the Governor of the Central Bank.

Deputy Chris Andrews

Now certain groups in the Opposition do not want to listen and take that advice.

Deputy Pat Rabbitte

We had a Governor once in the Phoenix Park who used to run the show. Perhaps we should go back to that.

Deputy Chris Andrews

When Deputy Rabbitte has an opportunity to contribute, perhaps he will outline if he will ignore the regulator and the regulatory structures we have put in place.

The Labour Party and Fine Gael have fallen out this week. That does not bode well for future alliances.

Deputy Pat Rabbitte

The Deputy should not lose any sleep over it.

Deputy Chris Andrews

Perhaps the Labour Party is enjoying the warm cuddle of our embrace.

Tomorrow we will receive the final costs. This Government is taking difficult steps and they are bringing certainty and stability, which I welcome.

Deputy Edward O’Keeffe

I am delighted to have the opportunity to speak on this. This has been going on for two years and I am very disappointed. I have made my views clear at party meetings and elsewhere. Some people have accused me of supporting one bank over another. The bank that is lending again is Ulster Bank, a stand alone organisation in this country that is part of the Royal Bank of Scotland. It must be productive and work properly. It lost its chief executive recently. No one can identify me with any bank over another. I like to praise the bridge as I cross it and what is good for our economy and country.

I am concerned about the way we are directing our bank system and I question NAMA. Any balance sheet with €81 billion debt is horrendous. It will destroy the balance sheets of all banks incorporated in it. Was it even necessary? I came in here honestly and squarely and supported NAMA but I am convinced it was the most foolish thing ever. I normally question things, I am seen in my party as the person who does not fall into line with everything. I regret NAMA and believe we were sold a pig in a poke. It will do serious damage to the banks. The people I talk to are not fools and they know that 20% of the €81 billion will be toxic. Over five years, if that 20% is worked off, we will do right.

We can look at what happened in Britain. Lloyds TSB was forced to take over Bank of Scotland. It is now talking about paying a dividend and it will make €40 billion for the British Government. What have we done in the past two years? We do not know we are doing. Academics and bureaucrats are running the banking system when we want the good business people we had before.

Dr. Somers, whom we put in place, who worked with Ray MacSharry, Deputy Bertie Ahern, Albert Reynolds and the Taoiseach, where is he now? He is out sniping at us and telling us we have gone the wrong way. It is about time we faced up to the challenge and it is about time the Minister for Finance put this to bed without putting the liability on Irish taxpayers.

Deputy Niall Blaney

I speak tonight in favour of the Credit Institutions (Eligible Liabilities Guarantee) Scheme 2010 as proposed by the Minister for Finance.

I find it hard to swallow that the leader of Fine Gael would tell us he does not understand the circumstances surrounding the guarantee in September 2008. I have never heard a bigger admission by the leader of a political party in the history of the State of an inability to get his head around the extent of the issues involved. The real reason behind the shift in the stance of Fine Gael is more to do with recent poll figures for the leader of the Labour Party, where he is a more popular leader of the Opposition than Deputy Kenny. The Labour Party has been flapping its wings with much excitement and Deputy Kenny has fallen into the same trap. This short-sighted behaviour has led to gains for the Labour Party but they will be short-lived.

We on the Government benches are sorting out our banks now that our recession is turning the corner. We all know how volatile our seats are but our country comes first. It is called principle, something some on the Opposition side know nothing about. I knew the Labour Party was brazen enough to oppose for the sake of opposing, no matter what the consequences for the country, but I thought Fine Gael had more bottle. Today is a new era for Fine Gael, it is following the Labour Party lead of populist policy no matter what the consequences are for people.

It is a sad night when the Opposition is calling into question the expertise of the Governor of the Central Bank and the Financial Regulator, based on fiction. I call on the media to take a balanced view on this and ask the hard questions of the Opposition that need to be asked, to inform the people of the inability of the Opposition parties to offer a credible Government. It is no wonder there are such cries from them for a general election because they will be found out and their populist policies will be short-lived.

Deputy Pat Rabbitte

I hope there will be an opportunity to reply to these speeches.

Deputy Kieran O’Donnell

Fine Gael supports the extension of the guarantee for new funding for Irish banks but only on the condition that the Government gives a commitment that it will introduce legislation before 1 November to provide for a bank resolution system and that it will require Anglo Irish Bank to immediately commence negotiations with the holders of subordinated bonds to alleviate the cost of the wind down to the taxpayer.

Deputy Blaney is leaving the House, leaving Deputy Cuffe, a solitary Green Party Member.

Deputy Arthur Morgan

He is a Green shoot.

Deputy Kieran O’Donnell

A third of Green Party Members have spoken in this debate and only a fraction of Fianna Fáil Deputies. That is symbolic of something.

The guarantee reminds me of the original guarantee scheme, which was introduced on 30 September 2008. We were not provided with the full facts then. I remember on the night that the question was asked why the Government was including dated subordinated debt lower tier 2 but there was no answer.

We still do not know the final cost of Anglo Irish Bank. Why was the cost not announced prior to the extension of the ELG scheme? The cost of borrowing on international markets is at a record high, a direct result of Government banking and fiscal policy. Once we get through the Minister for Finance's sweet talk, this is about a policy that has failed. Why was the Minister for Finance rushing in here on 30 September 2008 to introduce a guarantee scheme for a bank that was insolvent, even though he claimed the problem was one of liquidity? The share price for Anglo Irish Bank tumbled in March 2008 and the then CEO of the National Treasury Management Agency, Dr. Michael Somers, stated that he had major reservations about putting deposits into Anglo Irish Bank because of the sheer weight of property. Why did we reach a point where crisis management led to decisions being made on the hoof when they had such major ramifications for taxpayers?

In the two year period since, €24 billion has gone into Anglo Irish Bank, with €30 billion for all the banks. We still do not know the final figure for Anglo Irish Bank. Credit is still not being extended to small businesses and the financial sovereignty of the State is at risk because of Government policy.

NAMA is a disaster that has achieved the opposite of what it was set up to do. It was supposed to stabilise the property market and get credit flowing but it has done neither. The hair cuts in Anglo Irish Bank are so severe they show the inherent rot in the development loan books of all the banks. There was a two year window of opportunity under the bank guarantee and Fine Gael proposed that banks would deal with their loan books in that period and negotiate with their investors, ensuring the taxpayer would be the last person to pick up the tab. What happened? The taxpayer was the first to pick up the tab and no credit is flowing to the SME sector. That was a policy flaw. At every step along the way the Government has got it wrong. The guarantee had to be introduced, and we also had to guarantee deposits. No one disagrees with that. However, for the previous year it was clear there were major problems with Anglo Irish Bank that should have been dealt with and we should not have had a situation where, in effect, the Government guaranteed a bank that was insolvent. There are questions for the Minister for Finance to answer. What happened on the night of 29 September, when Bank of Ireland and AIB came to meet the Minister for Finance and the Taoiseach on foot of Anglo Irish Bank going to Bank of Ireland, looking for that bank to take it over because it was insolvent? The Minister needs to spell out precisely in the House what happened at that meeting.

I find it incredible that the Government was not aware that Anglo Irish Bank was insolvent. We are entitled to know. We have to get answers from the Minister for Finance. We need a bank resolution scheme put in place by 1 November and to commence immediately negotiations with the holders of subordinated bonds. We need a banking system which functions, but we also need a Government that knows what it is doing. The current Government does not know what it is doing in terms of banking and the economy.

Deputy John Perry

It was indicated under the bank guarantee that NAMA would be the solution and the Government would not admit to its mistakes. We were sold a pup. It is not fit for purpose. The guarantee was extended and substantial change was promised by the banks with the appointment of public interest directors. However, little or nothing has happened since then. All the same Government and civil service personnel are in place. Nobody wants to rock the boat. For every action there is a reaction but what we have seen in the economy is the loss of jobs, talented people leaving and the emigration of a generation of young people. This country is on the rocks.

The banking sector is paralysed. There is no confidence or credit in the economy. There are now rock-bottom values for properties. The haircut and the hit the taxpayer has taken on the deficit is immense. What banks will finance NAMA properties in the future? No Irish banks will finance such properties; European banks will come in and get property for little or nothing. We were told NAMA would be a wall of cash, which is not the situation.

Regarding due diligence, up to 40 people have bankrupted the country. After spending €34 million on advisers, the Government still has not solved the problem of the indebtedness in Anglo Irish Bank. Can one believe it? Some €34 million was spent on consultants over two years and they still cannot tell us what the final figure will be. They want us to sign a guarantee this evening and come in with the figure tomorrow. We should consider Bank of Ireland, AIB, Irish Nationwide and the EBS.

The NTMA has been damaged by the incorporation of NAMA. It had a very fine reputation for raising money, but high charges are currently being paid for bonds. In terms of the three supports for the economy, the Government has bankrolled the banks to an unparalleled extent. One would expect the banks to support businesses and the taxpayer. Taxpayers have bankrolled every bank as a result of the Government's policy and one would imagine that the banks would support businesses, which would, in turn, support job creation, but that has not happened.

Tier one of three supports has been delivered. The taxpayer has bankrolled every bank but the banks have not supported the economy. Jobs are being lost. Another of the three supports for any economy is the retention of jobs. A large amount of money has been lost and people are fed up. Some €34 billion is involved. Fine Gael's policy was to put €2 billion into a stand alone national recovery bank that would support small companies. Many years ago ICC was a very effective bank which supported small start-up companies. Nobody is giving money to businesses at the moment. Viable businesses are closing. There is no cashflow, confidence or credit.

The Government has presided over this situation and is totally incompetent. People cannot take any more. Enough is enough. They want a change of government. The business community is on the floor. There is no sense of inspiration, confidence or hope out there. We are expecting the Minister to come in and give a solemn commitment on what we are now doing and, given all that has occurred, that something will happen.

Regarding the bondholders, it is like paying an insurance policy and not claiming on it. Why should the bondholders not take some of the hit or negotiate some of the reduction in light of the fact that some bondholders will not be covered by the guarantee? It has been appalling. If this was a business, every director would be sacked instantly and their curricula vitae, referrals and recommendations would be appalling. They would deserve no record of competence, capability or job creation. This economy is on the floor, driven by this Government which expects to fool the electorate again by reassuring them. There is no confidence out there. The banks are not giving out money and no jobs are being created. Nothing the Minister will say will change that opinion.

Deputy Michael Kennedy

The only point on which we will all agree is that the reckless lending practices of banks have brought about the banking crisis. As far as I am concerned, the Government's actions over the past two years has saved this country from financial ruin. In putting forward the new ELG scheme, the Government has effectively followed the European model that 21 other countries have adopted. I do not think anyone in the House would dispute that Germany is the strongest economic entity in Europe. It has this scheme in practice and if it is good enough for Germany, it is certainly good enough for Ireland.

One should recognise that the Government has always acted in a responsible way and has not been like the Opposition, which is taking cheap political shots. The Governor of the Central Bank, our new Financial Regulator, the EU and the ECB have all backed this scheme. It is not as if it was dreamt up by some little minnow. Fine Gael and the Labour Party should recognise that. This plan has been carefully thought out at the highest level in Europe among all of its expert bankers in light of the crisis Europe has experienced.

As far as I am concerned, I am happy that what the Government brought about two years ago has worked out well. It has achieved a profit of €1 billion for the State, with no losses. Deputy Perry referred to insurance, of which I have some experience. Those who make insurance claims, generally speaking, are penalised.

Deputy Burton referred to Northern Rock. I wish to restate what I said some months ago. The UK Government poured £850 billion into its banking system and £30 billion into Northern Rock in order that the people who queued up outside its doors all across the UK and in Dublin could get their money. In the US, some $12.8 trillion has been put into the banking system in order to make sure it stays stable. Recently President Obama announced that he will spent another $500 billion to try to revitalise the economy and keep the banking system going.

For those who want to criticise the Irish Government or try to draw comparisons that exist here, the reality is that right across Europe, the USA and the UK banks have failed and have severe liquidity and insolvency problems. The UK and US Governments had the privilege of printing new money, unlike Ireland and European countries where we borrowed from the ECB and other international lenders. They printed their own money; we have to earn it or borrow it.

In terms of reputation — I come from an insurance background and I have dealt with credit insurance — if people default on loans they get a black mark against their records and they find it exceptionally difficult to get future lending or credit. That is the sad reality of life and it is wrong for anybody in this Chamber to say we should let Anglo Irish Bank go to the wall. We would have everyone in Ireland queuing outside their banks, building societies and credit unions to take out their money and put it under the mattress. That is the reality.

Deputy Michael McGrath

In the brief time available to me I want to pose the following question. What would be the consequences for the country of not renewing the eligible liabilities guarantee tonight? Where would we be as a country? Where would our banking system be?

If we take the perspective of a United States multinational with a large corporate deposit in an Irish bank tonight and which learns tomorrow morning that the guarantee which was in place was not renewed, what would it do with that deposit? The first thing it would do is move it out of the Irish banking system and into one in another country where the guarantee was extended to end December, which would completely undermine the funding base of the Irish banks. Undoubtedly, there would be a flight of deposits from this country tomorrow morning in the event of the Labour Party's view holding sway in this House tonight, which I hope will not be the case.

The second consequence is that the Irish banks, which currently rely on the guarantee, would not be able to access funding on the wholesale markets because they cannot access them without a guarantee being in place. Even if they were able to access some funding, it would come at such a price by the bond holders on the international markets that the banks would have no option but to immediately hike up interest rates for businesses in Ireland and for personal customers. Those are the two obvious consequences I foresee in the event of this House rejecting the extension of the eligible liabilities guarantee.

As Deputy Kennedy said, the scheme has been approved by the European Union. It has been recommended by the Governor of the Central Bank, Professor Honohan, and Matthew Elderfield, the Financial Regulator, both of whom the Opposition parties claim to have respect for, and this initiative before the House tonight is on their recommendation. We all agree that we want to see the Irish banks weaned off the guarantee. We want to see it withdrawn on a gradual basis but it must be done in a responsible fashion and one which allows the Irish banking system to plan its way out of the guarantee currently in place.

I heard Deputy Kenny during Leaders' Questions seek to characterise Professor Honohan's comments on the banking report and claiming that he said the Government was wrong on the guarantee. Glib comments such as those by political leaders do not help our cause, and I invite him to read again page 14 of the report where Governor Honohan clearly endorses the substance of the guarantee. One can argue around the edges of it, including the 3% sub-debt and so forth, but he clearly backed the need for an extensive guarantee to be put in place.

Deputy Timmy Dooley

I welcome the opportunity to address this motion. There has been much comment about the guarantee scheme in the past year, much of it negative and much of it ill-informed. There has been little by way of alternative solutions to the problem that existed, and still exists, in coming forward with a solution to the banking problem.

There has been considerable focus by some in the Opposition on the cost of recapitalisation of the banks in the context of the guarantee scheme. A cloak has been wrapped around the cost of the recapitalisation to somehow create an impression that the sizeable cost was somehow a factor or a fault of the existence of the guarantee. Suggestions have been made that had no guarantee been put in place the market would have resolved the position and that all would be fine by now. That is a fallacy with which we all have to deal.

I listened to Deputy Noonan's balanced contribution. Unfortunately, others within Fine Gael have not been quite so balanced in the past year. However, he concentrated a good deal on whether the Minister was aware of the solvency crisis as opposed to the liquidity issue on the night the scheme was first introduced. Deputy O'Donnell continued that theme. The fact remains that it would not have mattered a hat of crabs because the effect would have been the same. The banks were on the verge of collapse and to allow any of them to go under would have had greater repercussions than we have experienced to date. It is clear, therefore, that there was a necessity to put the guarantee in place.

Deputy Kieran O’Donnell

We all agree with——

Deputy Timmy Dooley

What was the alternative?

Deputy Kieran O’Donnell

The Deputy should not misrepresent——

Deputy Timmy Dooley

Deputy O'Donnell has not come forward with any solutions.

Some have suggested that depositors and senior bond holders should have been allowed to swing for their money. That suggestion was put forward by some people in the past year. The question they have to answer, however, is whether they would support the default of depositors, as Deputy McGrath has identified, and senior bond holders. The Deputy went through the list of the people involved. Many of them are large employers who have accounts containing pay packets of workers. Others are charitable institutions. We know that the credit unions and local authorities are considerable depositors, and there are some holders of bonds.

It must be recognised also that senior bonds are investment instruments, in many cases of large employers in this country. The suggestion has been made by some that we can somehow welsh on that. If the Deputies opposite are prepared to turn their backs on those depositors and bond holders, how do they propose to manage the economy into the future?

Deputy O'Donnell has talked about that in the past, and his party's NewERA document proposes the panacea for all our employment issues but much of that is funded through the issuance of bonds. It would be a new era. They would be breaking new ground in that regard. Their suggestion that they should welsh on the bond holders——

Deputy Kieran O’Donnell

They will move money——

Deputy Timmy Dooley

——and then tomorrow go back and ask them to fund their great strategy would not work in the real world. That might be fine in the theory of those who create policy documents but it does not work in the real world.

An Ceann Comhairle

With the agreement of the Minister for Finance, two minutes will be given to Deputy Rabbitte.

Deputy Pat Rabbitte

I am grateful, Sir.

I want to take on the central point about us all sheltering behind the Governor of the Central Bank — do not hit me now with the governor in my arms — the misquoting of his report and the misassertion that the guarantee was the same as the guarantee in every other country, and the quickest way I can do that is by referring to an article by Karl Whelan. It states:

. . . the Irish guarantee differed from the approach followed by almost every other country in also guaranteeing the full stock of existing debts for two years.

This part of the guarantee did not help deal with the crisis at hand. Honohan's report [said that the] "inclusion of existing long-term bonds and some subordinated debt ... was not necessary in order to protect the immediate liquidity position. These investments were in effect locked-in."

Honohan went on to say: "In contrast to most of the interventions by other countries, in which more or less complicated risk-sharing mechanisms of one sort or another were introduced, the blanket cover offered by the Irish guarantee pre-judged that all losses in any bank becoming insolvent during the guarantee period — beyond those absorbed by some of the providers of capital — would fall on the State."

He noted:

"the extent of the cover provided (including to outstanding long-term bonds) can — even without the benefit of hindsight — be criticised inasmuch as it complicated and narrowed the eventual resolution options for the failing institutions and increased the State's potential share of the losses".

An Ceann Comhairle

I need to call the Minister.

Deputy Pat Rabbitte

I will sit down, Sir. He further stated:

The bottom line of Honohan's report in relation to the guarantee is that it wasn't necessary to guarantee all outstanding debt and the decision to do so played a crucial role in maximising the cost of the banking crisis for the taxpayer.

It is important for the historical record that this is put on the record of the House.

An Ceann Comhairle

I call the Minister for Finance, Deputy Brian Lenihan, to conclude the debate.

Deputy Timmy Dooley

What is the scale of the gap?

Deputy Michael Kennedy

How is Germany getting it so wrong?

Deputy Joan Burton

A total of €37 billion.

An Ceann Comhairle

Could we have attention for the Minister for Finance?

Minister for Finance (Deputy Brian Lenihan)

Can I deal briefly with what Deputy Rabbitte just said? The guarantee of dated subordinated debt——

Deputy Joan Burton

I will give Deputy Dooley the figures.

Deputy Brian Lenihan

I am sorry, Deputy, can I speak?

Deputy Joan Burton

I was talking to one of the Minister's colleagues.

An Ceann Comhairle

Deputy, please.

Deputy Joan Burton

The Minister did not seem to give him the figures.

An Ceann Comhairle

Deputy Burton, the Minister for Finance is in possession.

Deputy Brian Lenihan

I would like to conclude the debate if I could and be of assistance to the House.

First, on Deputy Rabbitte's point in regard to the scope of the guarantee, and Professor Whelan's extrapolations or inferences from it——

Deputy Joan Burton

A direct quote.

Deputy Brian Lenihan

——let me be clear about one matter. Dated subordinated debt was guaranteed in relation to the two institutions that are most distressed — Irish Nationwide Building Society and Anglo Irish Bank. No dated principal sum on foot of dated subordinated debt was paid during the guarantee period, and indeed none falls due for a number of years. Hence, there is no loss to the taxpayer in respect of that guarantee because the sums involved were never paid out of those institutions, and we are free to deal with that issue tomorrow.

Deputy Joan Burton

We said that.

Deputy Brian Lenihan

Second, in relation to the unguaranteed debt which was already invested in Anglo Irish Bank at the time of the guarantee, the precise legal point is that that debt was never guaranteed. The principal of that debt did not fall due for payment during the guarantee period. Again, there was no loss to the institutions in respect of that particular guarantee because no money or principal sum was paid out on foot of it.

However, the question of the treatment of that particular debt has arisen in the context of the resolution of Anglo Irish Bank and it is the clear advice of Patrick Honohan, as Governor of the Central Bank, that those obligations should continue to be met by the respective——

Deputy Joan Burton

So is the Minister guaranteeing the €37 billion tomorrow?

Deputy Brian Lenihan

No, Deputy please. We are talking about a figure of €4 billion of debt——

Deputy Joan Burton

No, we are talking about €36 billion according to the report of the Minster's officials.

Deputy Brian Lenihan

——which arose——

An Ceann Comhairle

Deputy Burton, please.

Deputy Brian Lenihan

Really Deputy, I am trying to address the issue raised by Deputy Rabbitte and I am making the point that the Governor is very clear in his advice that those obligations should be met by those banks in due course, first because senior bond holders as a matter of law in Ireland rank equally with depositors and therefore under the relevant EU legislation and under our domestic constitutional arrangements, any haircut to them would have to apply equally to depositors, which I assume nobody in this House wishes to do but perhaps I will hear a different policy from the Labour Party on this next week.

Second, to dishonour or raise any suggestion of a dishonouring of senior debt would be very damaging for our capacity to raise funds and for the capacity of the banks to raise funds. This is my response to what was a considered intervention by Deputy Rabbitte.

I thank the Members of the House for their contributions to this debate. Although Deputy Noonan's proposed amendment was disallowed and he may feel constrained to oppose the motion, I want to thank him for the constructive tenor of what he said on the record this evening and I hope I can be of some assistance to him in this regard.

Three substantive issues were raised by Deputy Noonan, the first related to the question of resolution regimes for distressed credit institutions. Previously, I indicated in the House that I am examining options for the introduction of a legislative regime to deal in a systematic way with distressed financial institutions to ensure the State has in place a range of tools to address problem institutions, effectively in the interests of maintaining financial stability, minimising reliance on public money and ensuring continuity of key banking activities. In view of the central role performed by central banks in resolution frameworks for financial institutions, my Department is consulting with the Central Bank and the regulator to develop the necessary legislative proposals. I would expect that this process would lead to the introduction of an appropriate legislative framework for bank restructuring in line with what Deputy Noonan wishes to see and secure.

Deputy Michael Noonan

When?

Deputy Brian Lenihan

I will further deal with this matter in the announcement I propose to make tomorrow on the banking system.

The second matter raised by Deputy Noonan was the position of holders of subordinated debt in Anglo Irish Bank. I touched on this issue in my reply to Deputy Rabbitte and again I will deal with it in the statement to be made tomorrow on the banking system.

The third matter was the question of the original guarantee of 29 September and the state of knowledge of the Government on questions of solvency and capital at that stage. I do not question Deputy Noonan's good faith in any respect in this regard and I did interrupt him when he made his contribution. The fact is that the basis for the story that somehow there was wider knowledge of the capital and solvency difficulties in Anglo Irish Bank in September 2008 is traced back to an alleged conversation with an alleged official at Bank of Ireland who has never been identified or who has never given particulars of the conversation. I have made it clear that if such a conversation took place that the person involved should report the matter immediately to the Garda Síochána because were it the case that directors of Anglo Irish Bank disclosed to another official that they were aware of the insolvency of their institution as early as September 2008, they would have exposed themselves to considerable criminal hazard. I know this is a matter about which Members of the House are very anxious, and Deputy Noonan indicated that he is anxious to have the present investigation proceeded with as quickly as possible.

Deputy Pat Rabbitte

Does David Drumm's defence allegedly say that he was aware at that time?

Deputy Brian Lenihan

I will have to examine that defence; I am not in a position to assist the Deputy on that matter now.

Deputy Joan Burton

What about the affidavit by Mr. Casey that he voluntarily gave to the Garda?

Deputy Brian Lenihan

I do not examine Garda affidavits as Minister for Finance and the Garda——

Deputy Joan Burton

I think the Minister reads The Irish Times and it was published in full in The Irish Times.

Deputy Brian Lenihan

The Garda does not hand over affidavits to me and quite honestly I am not aware of that affidavit.

Deputy Joan Burton

Did anyone in the Department notice the collapse in the share price on St. Patrick's Day 2008?

An Ceann Comhairle

Will the Deputy please allow the Minister to continue?

Deputy Joan Burton

Was that hidden as well? Did the Minister not see the bank's share price collapsing on St. Patrick's Day 2008?

Deputy Brian Lenihan

The Deputy has repeated St. Patrick's Day 2008 every time the subject of this bank has been discussed in the House.

Deputy Joan Burton

Yes, the share price collapsed. Usually the collapse of a share price is an indicator of a little bit of——

An Ceann Comhairle

Deputy, please allow the Minister to continue.

Deputy Michael Kennedy

Deputy Burton should become a stockbroker. She might do a little bit better than she is doing in here.

Deputy Joan Burton

Deputy Kennedy is a stockbroker and he would know.

An Ceann Comhairle

Deputy, please.

Deputy Brian Lenihan

I put on the record of the House already——

Deputy Joan Burton

I thought Deputy Kennedy was an insurance broker.

Deputy Michael Kennedy

Deputy Burton would make a stockbroker.

An Ceann Comhairle

I ask the Deputies to desist from the exchanges and allow the Minister to conclude.

Deputy Joan Burton

The Deputy was short-selling Brian Cowen last week so be careful; his share sales are not always to be recommended.

Deputy Timmy Dooley

Deputy Burton is not doing Deputy Gilmore much good with that carry on.

An Ceann Comhairle

Deputy Burton, please allow the Minister to conclude.

Deputy Brian Lenihan

I put on the record of the House already this evening the views of Professor Honohan on the original guarantee and Deputy Rabbitte quoted from an article in an academic journal written by Professor Honohan in this regard. All I can say is that the concerns he had expressed in that article did not materialise in respect of the more extended coverage for the taxpayer. In his more recent report he concluded that a wide-ranging guarantee was essential that night, as a wide-ranging guarantee is essential this evening and it gives me no pleasure to say it. Were this guarantee not given this evening our banks would be in a perilous condition. The reality we all have to face is that the funding position of these institutions, which are dependent on international markets for their funding, has been perilous in recent years. We do not have to go back as far as St. Patrick's Day; we can go back to recent weeks and look at the bond spreads on Irish Government debt to understand the stresses our banking system must be under. It is coming to the point where the type of clap-trap that Deputy Burton regularly comes out with in this House has nothing to contribute to the resolution of our nation's problems——

Deputy Joan Burton

At least I do not cost the taxpayers the fortunes the Minister costs them.

Deputy Brian Lenihan

——and our State's problems. The Deputy is not engaging in any realistic way with the real problems——

Deputy Joan Burton

The Minister is damaging the sovereign reputation.

Deputy Brian Lenihan

——which the Government has to grapple with and with which any Government which replaces it will have to grapple. Deputy Burton will have to address these issues sooner or later if she finds herself in government, and she will have to resile from the entire line of rhetoric in which she has engaged in the past two years or not bother to occupy the position of Minister for Finance.

Deputy Joan Burton

Bring it on.

Deputy Brian Lenihan

That is the position that faces her if she has a genuine ambition to be in government and to provide leadership in the country at a time of very great difficulty. It is all too easy to take the line of rhetoric she has taken on the banks. I appreciate very well from public opinion that banks are not loved institutions but we need credit institutions to support an economy. Without them——

Deputy Joan Burton

They are not providing credit.

Deputy Timmy Dooley

Just the same as Deputy Burton is not providing policies.

Deputy Brian Lenihan

We in the House are all well aware of that but if we decide to collapse these institutions it will not be a matter of not providing some or limited credit, it will be a matter of not providing credit at all. If that is the outcome the Deputy wants, and if the Deputy wants to create an Icelandic-type crisis she should be open and admit it. The reality of this position is that the Government has had to take very serious decisions on proper advice——

Deputy Joan Burton

At least in Iceland some of the people are before the courts. The Minister cannot even do that.

Deputy Brian Lenihan

——from successive governors of the Central Bank. In Iceland, the economic contraction continues at a very sharp level——

Deputy Michael Kennedy

And 18% interest as well.

Deputy Brian Lenihan

——far greater than any contraction we have seen here, and with interest rates, as Deputy Kennedy reminds me, of 18%. Let us get real about the debate on the banking system in the country. The model we chose to deal with this was precisely the same model followed in Sweden.

Deputy Joan Burton

It was based on your love of your cronies linked to your party——

Deputy Brian Lenihan

Listen Deputy, I will not take that kind of defamatory allegation in the House about cronies.

An Ceann Comhairle

Deputy Burton desist and allow the Minister to conclude. He has only a half a minute left.

Deputy Timmy Dooley

So the unemployed are cronies.

Deputy Joan Burton

Crony banking at its worst.

Deputy Timmy Dooley

The people who are crying out for a job are cronies. The people on the dole are cronies.

Deputy Brian Lenihan

I am happy to say, and I will abide by the judgment of the people in this regard, that I have always acted in the public interest and I am entirely uninfluenced by private considerations or interests in this matter. If we do not preserve a banking system here, we will not preserve an economy. If one cannot move on from that basic lesson, then I am afraid one has a long learning curve.

Deputy Michael Noonan

Can the Minister give a date for the legislation?

Deputy Brian Lenihan

Later in the autumn.

Question put.

The Dáil divided: Tá, 83; Níl, 74.

Tá

• Ahern, Bertie.
• Ahern, Dermot.
• Ahern, Michael.
• Ahern, Noel.
• Andrews, Barry.
• Andrews, Chris.
• Aylward, Bobby.
• Behan, Joe.
• Blaney, Niall.
• Brady, Áine.
• Brady, Cyprian.
• Brady, Johnny.
• Browne, John.
• Byrne, Thomas.
• Calleary, Dara.
• Carey, Pat.
• Collins, Niall.
• Conlon, Margaret.
• Connick, Seán.
• Cowen, Brian.
• Cregan, John.
• Cuffe, Ciarán.
• Curran, John.
• Dempsey, Noel.
• Devins, Jimmy.
• Dooley, Timmy.
• Fahey, Frank.
• Finneran, Michael.
• Fitzpatrick, Michael.
• Fleming, Seán.
• Flynn, Beverley.
• Gogarty, Paul.
• Gormley, John.
• Grealish, Noel.
• Hanafin, Mary.
• Harney, Mary.
• Haughey, Seán.
• Healy-Rae, Jackie.
• Hoctor, Máire.
• Kelleher, Billy.
• Kelly, Peter.
• Kenneally, Brendan.
• Kennedy, Michael.
• Killeen, Tony.
• Kitt, Michael P.
• Kitt, Tom.
• Lenihan, Brian.
• Lenihan, Conor.
• Lowry, Michael.
• McDaid, James.
• McEllistrim, Thomas.
• McGrath, Mattie.
• McGrath, Michael.
• McGuinness, John.
• Mansergh, Martin.
• Martin, Micheál.
• Moloney, John.
• Moynihan, Michael.
• Mulcahy, Michael.
• Nolan, M.J.
• Ó Cuív, Éamon.
• Ó Fearghaíl, Seán.
• O’Brien, Darragh.
• O’Connor, Charlie.
• O’Dea, Willie.
• O’Donoghue, John.
• O’Flynn, Noel.
• O’Hanlon, Rory.
• O’Keeffe, Batt.
• O’Keeffe, Edward.
• O’Rourke, Mary.
• O’Sullivan, Christy.
• Power, Peter.
• Power, Seán.
• Roche, Dick.
• Ryan, Eamon.
• Sargent, Trevor.
• Scanlon, Eamon.
• Smith, Brendan.
• Treacy, Noel.
• Wallace, Mary.
• White, Mary Alexandra.
• Woods, Michael.

Níl

• Allen, Bernard.
• Bannon, James.
• Barrett, Seán.
• Breen, Pat.
• Broughan, Thomas P.
• Bruton, Richard.
• Burke, Ulick.
• Burton, Joan.
• Byrne, Catherine.
• Carey, Joe.
• Clune, Deirdre.
• Connaughton, Paul.
• Coonan, Noel J.
• Costello, Joe.
• Coveney, Simon.
• Crawford, Seymour.
• Creed, Michael.
• Creighton, Lucinda.
• D’Arcy, Michael.
• Deasy, John.
• Deenihan, Jimmy.
• Doyle, Andrew.
• Durkan, Bernard J.
• English, Damien.
• Enright, Olwyn.
• Feighan, Frank.
• Ferris, Martin.
• Flanagan, Charles.
• Flanagan, Terence.
• Gilmore, Eamon.
• Hayes, Brian.
• Hayes, Tom.
• Higgins, Michael D.
• Hogan, Phil.
• Howlin, Brendan.
• Kenny, Enda.
• Lynch, Ciarán.
• Lynch, Kathleen.
• McCormack, Pádraic.
• McEntee, Shane.
• McGinley, Dinny.
• McGrath, Finian.
• McHugh, Joe.
• McManus, Liz.
• Mitchell, Olivia.
• Morgan, Arthur.
• Naughten, Denis.
• Neville, Dan.
• Ó Caoláin, Caoimhghín.
• Ó Snodaigh, Aengus.
• O’Donnell, Kieran.
• O’Dowd, Fergus.
• O’Keeffe, Jim.
• O’Mahony, John.
• O’Shea, Brian.
• O’Sullivan, Jan.
• O’Sullivan, Maureen.
• Penrose, Willie.
• Perry, John.
• Rabbitte, Pat.
• Reilly, James.
• Ring, Michael.
• Shatter, Alan.
• Sheahan, Tom.
• Sheehan, P.J.
• Sherlock, Seán.
• Shortall, Róisín.
• Stagg, Emmet.
• Stanton, David.
• Timmins, Billy.
• Tuffy, Joanna.
• Upton, Mary.
• Varadkar, Leo.
• Wall, Jack.

Tellers: Tá, Deputies John Cregan and John Curran; Níl, Deputies Emmet Stagg and Joe Carey.

Question declared carried.