Central Bank and Credit Institutions (Resolution) (No. 2) Bill 2011: Second Stage

Minister for Finance (Deputy Michael Noonan)

I move: "That the Bill be now read a Second Time."

There has been much discussion at international level on how best to deal with financial institutions in distress. Clearly, Ireland has much to offer in this debate given recent experience. As we move to implement the restructuring of the domestic banking system I announced in my statement on 31 March last, it is also important we provide the essential tools to manage and resolve quickly and effectively any of our banks that in the future may be faced with difficulties.

The Central Bank and Credit Institutions (Resolution) (No. 2) Bill offers a necessary framework to enable the national authorities to use a variety of tools to address and resolve financial institutions that find themselves in distress. As we reform and rebuild our supervisory structure, it is important the Central Bank, as the resolution authority, can avail of such resolution powers which will be regarded internationally as a prerequisite in the post-financial crisis supervisory infrastructure.

The programme for Government recognises that a comprehensive and effective bank resolution framework is essential for building a more sustainable economic system but that it is also important the taxpayer should not be left with the bill for resolving failing or failed banks. The Government programme commits, therefore, to a modern resolution regime for dealing with bank insolvencies and that the banking sector shall contribute the funds to meet this.

This new Bill differs from the Credit Institutions (Stabilisation) Act, enacted by the Oireachtas last year, which was very much focused on providing for the reorganisation and restructuring of the domestic banking system in line with the EU-IMF programme of support for Ireland. It conferred powers on the Minister for Finance, after consulting the Governor of the Central Bank, to seek court orders to issue directions to banks, to restructure banks and to reorganise their assets and-or liabilities.

However, the Act will have a temporary effect only. As it is intended its provisions will lapse in 2012, it is necessary, therefore, to have a more permanent framework in place to address credit institution resolution requirements that may arise in the future. The intention of this legislation is to put such a permanent resolution framework in place so that, if it proves necessary in the future, it will be possible to facilitate the resolution of financial instability in credit institutions at least cost to the State.

Ireland is not alone in having to introduce new legislation to deal adequately with failing banks. Many countries have had to take steps to enhance the national and international frameworks for resolving financial institutions in difficulty. Both the EU and the G20 are now paying considerable attention to this issue. The European Commission is expected to publish a proposal for an EU-wide crisis management framework in September. Our nearest neighbour, the UK, one of the first countries to experience the difficulties of distressed banks in the current crisis and also to experience the lack of an effective toolkit to deal with the problem, introduced a new special resolution regime in its 2009 banking Act. Other countries, including Denmark and Germany, have also taken steps to establish or enhance their bank resolution regimes.

It is important Ireland has a permanent resolution framework to deal with future problems that may arise and that it will never again allow the financial burden for resolving banks to be unduly placed on the taxpayer. This Bill provides such a permanent special resolution regime in this State and will allow the Central Bank to deal in an effective manner with credit institutions that are failing or likely to fail in the future. It also provides that this will be done in a way that provides maximum protection for the Exchequer and provides maximum confidence in the financial system as a whole. The tools, to be provided in this Bill, to achieve these objectives are bridge-banks, the ability to transfer assets and liabilities from failing banks, special management orders, modified liquidation process specific to credit institutions, the formulation of recovery and resolution plans and the establishment of a new credit institutions resolution fund.

Part 1 deals with certain preliminary items. For example, section 2 sets out the definition of several terms used while section 3 makes clear the Bill will succeed the Credit Institutions (Stabilisation) Act and that no institution will simultaneously fall within the ambit of both Acts. Section 4 sets out the legislation's purposes, which I have already outlined for the House.

Part 2 addresses general matters regarding the exercise of the resolution powers provided for in the Bill. Section 5 provides that the Governor of the Central Bank is responsible for the exercise of the functions of the Central Bank under the Bill, though he may delegate those functions to officers or employees of the bank subject to ensuring the performance of that delegated function is operationally separate from the regulatory and supervisory responsibilities of the bank. Section 6 is a standard provision that safeguards the independence of the Governor and the Central Bank. Section 7 will require national authorities to have regard to EU law and relevant guidance in exercising a power under this Bill.

Section 8 sets out the conditions that must be fulfilled before the Central Bank can make an intervention in respect of a credit institution. It will be noted that it is the Central Bank that will, in the first instance, be required to form the opinion that intervention is required in a particular case. This is an important change of focus to the existing Credit Institutions (Stabilisation) Act. Under the latter, the power of initiation largely rests with the Minister. This is justifiable in dealing with the current emergency crisis and in the context of the large amount of financial support from the State to the Irish banking system. In the permanent resolution regime as provided for in the Bill, it is important to place the power of initiation to address a failing credit institution with the appropriate banking authority. However, the Bill provides that the Governor of the Central Bank will be obliged to consult the Minister in appropriate circumstances.

Part 3 of the Bill deals with the credit institutions resolution fund. It is important that taxpayer input into the resolution of future banking problems be minimised and that the banking sector itself should accumulate and have funds available for such a purpose. The establishment of a fund is essential to achieve this objective. Section 9 provides for the establishment and purpose of the resolution fund. Section 10 provides that the Central Bank shall manage and administer the fund. Sections 11 and 12 provide that the Minister may, and that authorised credit institutions shall, contribute to the fund. The Minister shall be entitled, however, to be reimbursed from the fund for any contributions made from the Exchequer. Section 14 provides that the Minister shall make regulations proscribing the level of contribution required from credit institutions, as well as matters governing the administration and operation of the fund.

As indicated previously, the Bill provides for a wide range of resolution tools to be available to the Central Bank to deal with distressed or failing banks. The first of these is set out in Part 4, which provides for the establishment of bridge banks. These banks will be able to hold, on a temporary basis, the assets and liabilities of a failing or failed bank before they are moved to a sustainable bank. Section 16 provides that the Central Bank may establish a company, capitalised from the resolution fund, to hold, on a temporary basis, transferred assets and liabilities pending its onward transfer to another institution as soon as practicable. Section 17 provides that such a bridge bank may carry on a banking business while it is in possession of these banking assets and liabilities.

Part 5 deals with the transfer of assets and liabilities that will provide the Central Bank with the power, subject to meeting the prescribed circumstances, to transfer the assets and liabilities of a relevant institution to a third party. This is similar to the power currently available to me under the Credit Institutions (Stabilisation) Act. What is envisaged may include, if necessary, transferring the assets and liabilities to a bridge bank provided for in this Bill.

Section 20 sets out the preconditions to be met before a proposed transfer order can be made by the Central Bank. Section 21 outlines the arrangements, timing and procedures to be followed prior to making a proposed transfer order, with section 22 covering the contents of the proposed order. Section 23 provides, however, that transfer orders shall be made by the High Court setting out some of the considerations it may make when hearing the application from the Central Bank. Sections 24 to 27, inclusive, set out the publication procedures and arrangements for varying or setting aside the court order. Section 28 details the content of transfer orders. Section 29 provides that the Minister may, at the request of the Central Bank, provide a financial incentive to facilitate a transfer. However, the Minister may recover any such amount provided for this purpose from the resolution fund. Sections 32 and 33 set out the effects of the transfer orders, while section 34 makes specific provision for the transfer of foreign assets and liabilities under a transfer order.

Part 6 of the Bill deals with special management orders. This will be another resolution tool available to the Central Bank and will enable it, in certain prescribed circumstances and subject to a High Court order, to appoint a special manager to an authorised credit institution. The purpose of the special manager will be to manage the business of the institution having regard to any recovery and resolution plans or to wind down the institution with a view to liquidation. Section 38 sets out the preconditions for making proposed special management orders.

Section 41 provides that the High Court, on application by the Central Bank, shall make a special management order. Section 45 outlines the information to be included in special management orders. Sections 46 and 47 deal with the terms of appointment and remuneration of a special manager. Section 50 is a key provision as its sets out the functions of special managers and provides that the special manager shall take over the management of the business. Section 52 sets out the effect of the appointment of a special manager, while section 53 will enable the special manager to, if necessary, remove officers or employees of the business. Section 57 provides for the circumstances in which the special management of an authorised credit institution terminates.

Part 7 provides for a modified liquidation process for financial institutions where the liquidator will be mandated with two objectives. The first is to work with the Central Bank to ensure that deposits covered by the deposit protection scheme receive payment or else to have the deposits transferred to a sound institution and, second, to achieve the best results for the institution's creditors as a whole. Section 60 provides that the Central Bank may petition the High Court to wind up an authorised credit institution. Section 61 provides that no other person may seek to appoint a liquidator to an authorised credit institution without first informing the bank of such a proposed course of action and obtaining confirmation from the bank that it has no objection to such a step. Section 62 further provides that only a liquidator approved by the bank may be appointed to a credit institution. This will ensure that the Central Bank will have overall control of any proposal to seek to appoint a liquidator to a credit institution.

Section 63 provides for the objectives of a liquidator to an authorised credit institution. Section 64 provides that finance may be made available from the deposit protection fund or the credit institutions resolution fund in order to facilitate the transfer of deposits from a failing bank. Section 65 provides that any such payment will constitute a debt due by the credit institution. Sections 66 to 69, inclusive, deal with a liquidation committee to which the liquidator will be required to report. Section 70 provides assurance to depositors whose deposits have been transferred by a liquidator.

Part 8 deals with recovery plans and resolution plans. This part is intended to enable the Central Bank and each institution to make appropriate preparation to deal with potential financial difficulty. Specifically, it will empower the Central Bank to require an authorised credit institution to prepare and implement a recovery plan and the Central Bank to prepare and implement a resolution plan. Sections 73 and 74 provide that the bank may direct an institution to prepare and implement a recovery plan and section 75 provides that the Central Bank may prepare a resolution plan.

Part 9 contains a number of miscellaneous provisions necessary to ensure that the powers provided under the Bill are effective. Section 77 is a key provision as it is necessary to ensure that the reorganisation and restructuring measures provided for in the Bill can be recognised in other EU member states through the mechanisms available in the credit institutions winding up directive, CIWUD, on the reorganisation and winding up of credit institutions. This directive provides that the authorities in the home member state alone shall be empowered to decide on the implementation of reorganisation or winding-up proceedings of an authorised credit institutions in accordance with its own laws and that such decisions shall be effective in all the other member states. This is particularly important given that many agreements, including debt agreements, entered into by Irish credit institutions are governed by the laws of other member states. The existing Credit Institutions (Stabilisation) Act has similar provisions and this critical provision will, therefore, be retained in the permanent resolution Act for authorised credit institutions.

Sections 79 and 80 provide for confidentiality provisions in the operation of the Bill, if these are considered necessary in particular instances for stability reasons. Section 81 deals with agreements to which an authorised credit institution, any of its subsidiaries, its holding company and any sister company, are party or in which they have an interest. Agreements may provide for their termination or other consequences in certain circumstances. This section provides that none of the specified consequences will arise by virtue of certain actions, including among others, the enactment of the Bill, the publication of the Bill, the making of any statement by the Minister, the Central Bank or an authorised credit institution with regard to the Bill, or the Bill itself and the use of any powers under the Bill. Sections 83 and 84 provide for the limitation of judicial review and of certain rights of appeal to the Supreme Court. Sections 88 and 89 provide that the Central Bank may issue guidelines on the exercise of its functions under the Bill and also that the Minister may specify a relationship framework to govern his relationship with the Central Bank. The Bill also provides for some technical amendments to a number of other enactments and statutory instruments, including the Credit Institutions (Stabilisation) Act 2010.

This Bill is a most important one for consideration by Members of the Oireachtas. It is essential, not only for sound financial stability reasons but also for our future general economic well-being that the national banking authorities will have the most comprehensive and effective tool kit available to them to preserve and protect individual financial institutions and the financial system as a whole. The Bill will provide these important tools. The future protection of our financial system, depositors and taxpayers requires nothing less. I, therefore, commend the Bill to the House.

Deputy Michael McGrath

I welcome the opportunity to contribute on Second Stage of the Central Bank and Credit Institutions (Resolution) (No. 2) Bill. Fianna Fáil will support this Bill. The Bill was introduced in the Seanad prior to the new Government coming into office but events at the time did not allow for its progression. The Minister has reintroduced it in the House today and Fianna Fáil welcomes and supports it.

Second Stage provides us an opportunity to discuss some of the wider issues to the fore currently. It is appropriate that discussion of the Bill comes at a time of unprecedented crisis in the eurozone and at a time when the Greek Parliament is discussing an austerity package of €28 billion and when a privatisation plan of €50 billion must be decided upon. The current crisis underlines the gross inadequacy of the European Union's ability to deal with a crisis of this nature. Its response to date has been reactionary, ad hoc and has failed to deal in a comprehensive way with the scale of the crisis facing the eurozone at this time and it is breathtaking to think that a parliamentary vote in just one national parliament in Europe has the potential to derail the whole eurozone and the single currency project. It behoves us in this House and every other national parliament to do what we can to ensure that once this crisis passes, the lessons are learned and proper legislation is put in put in place to deal with any future crisis.

The Bill introduced here today is part of an overall package of measures required to improve the regulatory framework. It makes available to the Central Bank and the Minister a wider set of powers in the event of a bank threatening the stability of our financial system in the future and in the event of a bank having to be wound down. Looking at the markets currently, the contagion effect of the Greek crisis is having an impact on Ireland, with a cost of borrowing of in excess of 12% on ten-year Government bonds. It is clear that the markets view Ireland as being in a similar boat to Greece and Portugal. We need to do everything possible to put clear water between our position as a state and the position of Greece. We will only be able to assess the market perception of Ireland when the current crisis passes. Now, we can say that it is the Greek situation that is contaminating the perception towards Ireland, but once this is dealt with — hopefully it will be dealt with quickly and comprehensively — we will need to see an improvement in market sentiment towards Ireland.

In the past couple of weeks, the Minister welcomed the decision by EU finance Ministers, to which he was party, to quash plans to attach preferred creditor status to funds advanced to existing bailout countries under the European stability mechanism, due to come into effect in mid-2013. This is a helpful development. It would be unwise to overstate its significance, but I accept the comment made by the Minister that it is an issue he raised in his recent visit to the United States. It was a concern for investors and it is helpful that the issue has been addressed.

The wider market sentiment towards Ireland will be shaped by a number of issues, including the market perception of debt sustainability in Ireland, the extent to which we can achieve economic growth this year and next, the public finances and the extent to which the Government adheres to the fiscal measures required to bring the country's deficit back to within 3% of GDP by 2015.

There is a huge task facing the Government and the country to ensure that in 12 to 18 months time, Ireland will be in a position to return to the international sovereign debt markets. Given the current environment, the scale of volatility that exists and the questions that hang over the eurozone, this cannot be countenanced currently, but over the next 12 to 18 months we need to get to that position. For that reason, it is essential we seek to achieve economic growth. Last week's CSO figures gave a mixed picture. Unsurprisingly, domestic demand is still very weak, but exports continue to perform strongly. Hopefully, the jobs initiative which will come into effect this week will have a positive impact. We will watch the live register figures, the Exchequer returns and other economic indicators over the next number of months to gauge whether the measures taken are having a positive impact.

The comment made by Mario Draghi when questioned by Mr. Gay Mitchell, MEP, with regard to the ECB providing medium term funding to Ireland was a setback, because the markets attach some importance to the issue of having a secure stream of funding for the Irish banking system. The ECB and the eurozone have committed to providing ongoing liquidity support but market commentators have pointed to the issue of a medium term funding commitment as something that could have been helpful. It is disappointing that opportunity was not taken.

During the Minister's recent visit to the United States, he announced on behalf of the Government the intention to impose losses on unsecured, unguaranteed senior bondholders in Anglo Irish Bank and Irish Nationwide. It has since been clarified that this intention is based on having the support of the European Central Bank to do so. The critical question is the position of the ECB with regard to imposing losses on unsecured, unguaranteed bondholders in institutions that are, effectively, being wound down. We support the Minister's intention to impose such losses.

Every tool available to the Government should be used to convince the European Central Bank to allow such burden-sharing with these bondholders. It is important to point out, however, that an unsecured, unguaranteed bond associated with Anglo Irish Bank worth €200 million was repaid last month. Even since the Minister's announcement in the United States on 15 June, a far more modest bond, worth €14 million, was repaid in the case of Anglo Irish Bank. Another bond, worth €12 million, falls due for repayment tomorrow. I presume the latter will be repaid. While these bonds may appear quite small, if we were in a position to achieve a discount thereon in the shorter term, it would go a long way towards alleviating the damage done by some of the cuts being imposed on, for example, school transport schemes and to the number of special needs assistants in schools.

An unsecured, unguaranteed bond of €12 million is being repaid tomorrow in Anglo Irish Bank. The Minister stated he intends to raise this issue in the autumn with the troika. I heard his comment on Sunday that he will raise the matter in July but that he believes meaningful negotiations will be deferred until the autumn. He needs to raise the matter immediately because much smaller bonds are being repaid as we speak. Clearly, if we are in a position to secure discounts on those bonds, the sooner, the better. The money could be put to much better use in the shorter term. I urge the Minister to take the opportunity to raise this with the troika immediately to try to obtain its permission to impose the losses. The Minister has indicated that the Government will not be proceeding without the support of the European Central Bank when imposing such losses.

There was suspicion that the European Central Bank had threatened to cut off the liquidity supply to Irish banks in the event of Ireland unilaterally imposing losses on senior bondholders. The Minister has indicated this is not the position and that the European Central Bank is not in the business of making such threats. Given that the paying off of unsecured, unguaranteed bondholders forms no part of the EU-IMF agreement, it is an issue that the Government should address urgently. It should seek to achieve the savings on behalf of the Irish taxpayer in the short term.

I do not want to be cynical but the Minister's comments in the United States came on day 99 of the Government's first 100 days in office. It was a very useful element of the following day's marketing and PR campaign for the Government to be able to say it would be imposing losses on senior bondholders. The truth, however, is that there was nothing new in the statement, given that the initiative would be dependent on the support of the European Central Bank. If a 50% discount were achieved on the €3.5 billion, approximately, in unsecured, unguaranteed debt left in Anglo Irish Bank and Irish Nationwide, it would save us €1.75 billion, which would be greater than the cumulative benefit of the interest-rate reduction we are negotiating. This is an important issue. We want to see both a reduction in the interest rate and also the imposition of burden sharing on the senior bondholders in Anglo Irish Bank and Irish Nationwide.

We very much welcome the Bill. It was introduced by former Senator Donie Cassidy in Seanad Éireann on 28 February on behalf of the late Brian Lenihan. It lapsed on the dissolution of the 23rd Seanad on 26 April of this year but has now been resurrected in the Dáil by the Minister for Finance, Deputy Noonan.

The Bill builds on the emergency legislation enacted in December of last year to reorganise and restructure the Irish retail banking system, the Credit Institutions (Stabilisation) Act 2010, which will still apply to certain relevant institutions until it expires at the end of 2012. Therefore, the intention is that the Bill will put in place a permanent resolution regime and replace the temporary measures included in the stabilisation legislation last December. Clearly, existing company law provisions are inadequate to deal the unwinding and shutting down of a financial institution in the State. This begs the question as to what might have been the case had we had the legislation in 2008 when the banking system was on the brink of collapse. The Nyberg report refers to this issue when it stated, "the existence of a resolution regime in itself would not necessarily have been a panacea to avoid high fiscal costs to the State in the absence of burden sharing with creditors".

Professor Patrick Honohan refers to the discussion paper that had been prepared in 2008 by the Central Bank and Financial Services Authority of Ireland on the issue. That paper was discussed by the domestic standing group but the associated legislation did not proceed in time to address the banking crisis of September 2008. One can have all the resolution regimes in the world but, ultimately, if the position of one's paymaster, the European Central Bank, is that no bank can be allowed to fail in a disorderly manner and losses cannot be imposed on senior bondholders, it does not matter what resolution regime there is in place in terms of reducing the cost to the taxpayer. The position of the European Central Bank appears not to have changed. I wish the Minister well in his efforts to convince the ECB that Ireland is in a position to impose the losses because Anglo Irish Bank and Irish Nationwide are effectively being wound down. The sooner this happens, the better.

The Bill is in response to an EU-IMF commitment in addition to being in the programme of Government of the new Government parties. It provides a comprehensive special resolution regime for dealing with bank insolvencies and provides the framework for the introduction of a bank levy. The press release issued by the Minister at the time of the republication of the Bill implies Committee Stage amendments are being prepared that are "designed to enhance the resolution toolset in line with the evolving EU principles on crisis resolution and in the light of discussions with the external partners".

This is an issue in respect of which there is evolving policy at European level. If we have learned anything from the crisis over the past three years, it is that there is a need for a co-ordinated, pan-European response to a financial crisis. While we are obliged to equip the Minister and the Governor of the Central Bank of Ireland with the tools necessary to protect the taxpayer and the stability of our system in the event of financial institutions getting into trouble, this obligation needs to be replicated at EU level, where the impact can be much greater given the interconnectedness and interdependence of the banking and financial systems.

The tools available to the Central Bank under this legislation have been summarised by the Minister. They include the transfer order, the special management order, the establishment of a "bridge bank", a modified liquidation process, and the development of recovery and resolution plans. It is essential that all these tools be available and put in place as quickly as possible so they will be available to the authorities in Ireland in the event of future difficulties.

Section 4 of the Bill sets out the purposes of the legislation. Section 8 details the intervention conditions required for the powers in the legislation to be invoked, including whether the authorised credit institution concerned is of systemic importance to the economy of the State; whether the failure of that credit institution would be likely to contribute to instability of the banking system; the importance of ensuring the depositors of that credit institution will continue to have prompt access to their deposits; the importance of maintaining public confidence in the financial system; the importance of maintaining continuity of banking services to that credit institution's customers; the terms of any resolution plan; and any other matters that the bank considers relevant.

The legislation gives wide-ranging powers to the Governor of the Central Bank to act in the event of a threat to the stability of our financial system, the taxpayers and customers of individual financial institutions. The proposed establishment, under section 12, of the credit institutions resolution fund is welcome and will help to obviate the costs associated with future banking and financial crises. Under section 14, the Minister must make regulations in regard to the establishment of the fund and how exactly it will operate. It would be helpful if later in the debate the Minister indicates his thinking on how the fund will operate and how quickly he envisages it will be established, the level and structure of fees to be paid into the fund by the institutions concerned and the circumstances under which the fund can be invoked to reduce the bill to the State in the event of any future banking difficulties.

We support the Bill. I look forward to detailed engagement with the Minister on Committee Stage when I hope we will be able to discuss in detail the individual sections. It is legislation which properly equips the authorities in the State to deal with any future difficulties in the Irish banking system. It is against the backdrop of a crisis not only in Ireland but in the eurozone. I hope the Minister continues to represent Ireland's interests with strength and conviction. I urge him to raise at the earliest opportunity with the troika the issue of Anglo Irish Bank and Irish Nationwide and those senior bondholders being repaid as we speak. While the amount of money might be quite modest in comparison with the $1 billion bond that will mature on 2 November, any savings achieved could be put to very good use. We fully support the Minister in his efforts to reduce this burden.

Acting Chairman (Deputy Joe O’Reilly)

I call on Deputy Doherty who has 20 minutes.

Deputy Pearse Doherty

Go raibh maith agat.

Acting Chairman (Deputy Joe O’Reilly)

The Deputy has 30 minutes.

Deputy Pearse Doherty

Go raibh maith agat, a Chathaoirligh. Tá tú iontach flaithiúil. Sílim nach mbeidh mé ag glacadh an ama uilig ar an Chéim seo den Bhille. Sin ráite, tá sé iontach tábhachtach go mbeadh deis againn an Bille a scanáil agus a phlé amach go maith nuair atáimid ar Chéim an Choiste. Mar a tharla le cuid des na Billí a tháinig os ár gcomhair go dtí seo, go háirithe an Bille Airgeadais (Uimh. 3), nuair atá an Dáil ag tabhairt tacaíochta do Bhille, ní cheart go mbeimid ag labhairt agus ag labhairt. Is ar Chéim an Choiste a mbíonn am de dhíth orainn le plé a dhéanamh ar Bhille.

I welcome the opportunity to discuss the Central Bank and Credit Institutions Bill 2011 because it is extremely important and will require the careful consideration of the House. If it is to become a useful tool in dealing with future banking crises it is important that all sides of the House have the time and opportunity to deal in a meaningful way with the Bill and to try to shape it, particularly on Committee Stage. I want to emphasise this point. The lesson learned from legislation that has gone through the House so far is that where there is broad agreement there is no need for open-ended debate and Deputies on this side of the House will not abuse the system. However, where time is needed to deal with the detail of legislation, particularly on Committee Stage when we get into the nuts and bolts of what is contained in a Bill, it is important that time is set aside. I am sure the Government will assist us in this.

Last December, Fianna Fáil rushed through in a heavy-handed way the Credit Institutions (Stabilisation) Bill. One of the reasons Fine Gael and the Labour Party joined Sinn Féin in opposing that Bill was because the Government refused to allow adequate time for discussing and amending the Bill. I hope the Government affords us the opportunity to deal with the amendments that will be tabled. I am aware the Government also proposes to table amendments. It is important that we shape the Bill and have the time required to do so as the Government parties demanded when they were in opposition.

Sinn Féin supports the introduction of special resolution regime legislation. We called for it in the previous Dáil and we welcome that the basis for it has been proposed in the Bill. The financial and banking crisis of recent years has exposed the inadequacies of commercial law in providing the necessary tools for dealing with insolvent banks. There is a clear need for strong powers to be invested in the Minister for Finance and the Governor of the Central Bank with adequate oversight by the Oireachtas to enable the State to wind down failing financial institutions in a way that protects ordinary depositors and taxpayers.

While it is probably too early to say there is a model of best practice in the design and implementation of such special resolution regimes, there is growing international consensus on the basic requirements. However, having the right tools is only half the job as we all know. Governments must have the political will to step in and use these tools not only to ensure the stability and effective functioning of the financial system but also to protect the broader public interest. This is important because unless this Bill is used in the proper way and unless the political will exists to do so it will be meaningless.

Prior to considering the ability of the Bill to meet the challenge of future banking crises, it is important to deal with the more urgent issues of how to free the State and taxpayers from the enormous liabilities imposed by the previous Government's disastrous banking policy, a policy which is now being followed religiously by the new Government. Recently, I took the opportunity to re-read some of the transcripts of last December's Dáil debate on the Credit Institutions (Stabilisation) Bill. I wanted to refresh my memory about what was stated at the time about that legislation, which was rushed through the Dáil, particularly by members of the Labour Party and Fine Gael. Some of the comments are very interesting.

Deputy Leo Varadkar was particularly critical of the failure of the Bill to include "any provision for the restructuring of the debts of senior bondholders, particularly those who are not under the guarantee". He rightly described the failure as the big lacuna in the Bill. Deputy Joan Burton made a similar point in her remarks, when she described the Bill as too little too late because "it does nothing to address the treatment of liabilities other than subordinated bondholders. It fails to address the issue of senior bondholders now out of the guarantee". The criticisms of Deputies Varadkar and Burton were on the money. The Credit Institutions (Stabilisation) Bill should have provided the Government with the legal tools necessary to impose significant burden sharing on senior guaranteed and unguaranteed bonds.

Having made such trenchant criticisms of the Bill last December, many of us expected that as both Deputies now sit at the Cabinet table, Fine Gael and the Labour Party would have ensured the revised Central Bank and Credit Institutions Bill now before the House would fully and adequately address this major issue and that burden sharing would be on the agenda. However, when we examine the content of the Bill — and I acknowledge it is Fianna Fáil legislation — we see it fails to deal in any way with the issue of senior bondholders in covered and uncovered institutions.

Worse than this, it takes a backward step from its emergency predecessor of last December by submerging even the now uncontentious junior bondholders into the general category of creditors. Worse still, the Bill leaves the matter of how best to deal with bondholders at the discretion of the liquidators appointed by the Governor of the Central Bank. This is despite the fact that best practice suggests that a special resolution regime should clearly outline how best to deal with creditors. As it stands, the Bill leaves this crucial area of decision-making to the liquidator.

The previous speaker spoke about the announcements made by the Government. With regard to unguaranteed debt in Anglo Irish Bank, on which the Government and Fianna Fáil solely focus, since the start of the year €1 billion of unguaranteed debt has been paid out by the taxpayer. Under the watchful eye of Fianna Fáil and the Green Party €800 million was paid out, and under the watchful eye of Fine Gael and the Labour Party almost €250 million has been paid out, in unguaranteed unsecured debt in Anglo Irish Bank. This is appalling when on a daily basis we hear and speak about the cuts affecting real people who have real needs, such as parents who must pay an extra €50 to get their children to school in the morning; the discontinuation of ambulance services for cancer or dialysis patients; or the closure of accident and emergency units in hospitals along the west coast of Ireland and other places. Consider these cuts along with the magnitude of cuts in social welfare. Public representatives deal with the fallout of this on a daily basis. However, it is those who have had cuts imposed on them who must bear the heavy burden. Social welfare cuts totalling €800 million were imposed in last year's budget. In such circumstances, it does not make sense that the Government and previous Administration paid out €1 billion in unguaranteed debt in Anglo Irish Bank.

Three weeks ago, I stated in the House that the first step the Minister must take is to act on the issue of unsecured and unguaranteed senior bonds. His announcement in recent days that he intends to seek burden sharing by unsecured and unguaranteed bondholders in Anglo Irish Bank and Irish Nationwide Building Society was a small but welcome step. It is rare that I welcome a Government decision when speaking to the cameras on the plinth. I did so, however, on the day of the Minister's statement because it was a welcome step. Since then, however, we have since the unwinding of his statement, which seems to have been related to the Government's first 100 days in power. The Minister appears to have listened to the International Monetary Fund on his visit to the United States given that the IMF was highly critical of the previous Government for buckling on the issue of imposing burden sharing on bondholders in Anglo Irish Bank. The fund seems to have got into the Minister's ear because he had the guts to announce that he planned to impose losses on holders of unsecured and unguaranteed bonds. Within days, however, both he and the Taoiseach unpicked his statement and the Government reverted to the position set out in the Fine Gael Party general election manifesto that burden sharing would only take place with the consent of the European Central Bank. That position is simply not good enough. The Government must take the necessary first step by telling our European partners that it will move with or without their approval. While it is important to seek their approval for burden sharing, we must also protect the interests of those who, as a result of the huge burden the State is carrying, will not receive health and education services, are having social welfare payments cut or are on low incomes which are covered by the joint labour committees.

A further €13 billion of unguaranteed and unsecured bonds is held by the other four covered institutions. The holders of these bonds must be included in burden sharing. I listened to the Minister's statement in the United States in which he referred to the justification for burning bondholders in Anglo Irish Bank. The same justification applies to bondholders in the other four institutions whose bonds were not covered by the State guarantee and are not backed by securities. Despite this, the Irish taxpayer will pay money into the banks next month to cover them. That position is not sustainable. It is socially provocative to act in this manner and the move should not proceed on the watch of any Government. The full €16 billion of unguaranteed, unsecured bonds should be subject to rigorous burden sharing with a view to reducing the liabilities of the State. This is not a case of getting at investors but of standing up for Irish interests and trying to reduce the debt liability of the State. The investors in question invested in banks in the hope of making a quick buck. Unfortunately for them, their investment did not work out. There is no social, economic or ethical argument to support taxpayers footing the bill for speculative debts. In addition to €16 billion of unguaranteed, unsecured debt, the covered institutions hold €20 billion of unguaranteed, secured bonds. These, too, should be subject to burden sharing and the Bill should provide a legal framework for doing so.

We have heard much about the State guarantee, particularly from the Labour Party both in opposition and government. The simple facts are that the State guarantee covers less than one third of the bonds in the covered institutions. In other words, the State did not give its word, whether correctly or incorrectly, that it would repay more than two thirds of the bonds in the covered institutions. The Labour Party wants to go further than the guarantee because not only does it propose to repay the €20 billion in guaranteed bonds but it also wants to throw into the pot the additional €40 billion in unguaranteed bonds consisting of secured and unsecured bonds. That approach must be abandoned. The guarantee is not crippling the State because it is still possible to impose burden sharing on holders of unguaranteed senior bonds. The memorandum of understanding does not include a condition specifying that the bonds be paid in full, nor do any legal obstacles stand in the way of burden sharing. Two Government Ministers, Deputies Burton and Varadkar, were among the most outspoken proponents of burden sharing while in opposition. Now that they are in government, they should call for the introduction of burden sharing.

The single most valuable function of an effective special resolution regime would be to provide the Government with the necessary tools to extract itself and the taxpayer from the liabilities in question in a manner that protects ordinary citizens, taxpayers and depositors. Unfortunately, it appears from both the text of the Bill and comments made by the Minister and Taoiseach in recent days that the Government intends to honour almost all of the debts of senior bondholders, irrespective of whether they are covered by the guarantee. I understand the Government intends to introduce substantial amendments on Committee Stage and it is possible that its amendments will address the issue of senior bondholders. Assuming, however, that it is not the Government's intention to address this important issue, I signal my intention to table the necessary amendments to ensure that, notwithstanding the Government's intentions, future Administrations will at least have available to them the tools necessary to abandon the disastrous policy of wasting tens of billions of taxpayers' euro in honouring private senior debts and bonds, including those not covered by the blanket guarantee. I say this in the knowledge that if the Government lasts its full course, it will have paid out all the bonds.

As is evident from recent events in Greece, there is an urgency about this issue which we cannot underestimate. Our debt to GDP ratio has surpassed 100% and our contingent liabilities have reached €193 billion, a staggering 125% of GDP. Increasingly, independent economists share Sinn Féin's view that the State will not be in a position to return to the markets in 2013 when the EU-IMF bailout funds run out. This scenario is all the more likely to materialise if unemployment continues to increase, as it has done in recent weeks, and growth projections are not realised. In such circumstances, Ireland will, in only a few years, be in exactly the same position Greece finds itself in today as it seeks a second bailout. While none of us, regardless of our political affiliations, wants such a scenario to materialise, it is likely, even if the Minister for Finance is unable to agree because he must be careful of market sentiment.

The recovery plan agreed between the Government and its external partners, as they are known, namely, the European Union and International Monetary Fund, is based on GNP growth of 0.3% this year and 2% in 2012. The Central Statistics Office recently published statistics for the first quarter of 2011 which show a decline in GNP of 4.3%. While questions of accuracy arise with regard to quarterly GNP figures, we must be alarmed by the magnitude of the difference between the Government's annual projection of 0.6% GNP growth and a quarterly decline of 4.3% recorded in the first three months of the year. In raising this issue I am not engaging in scaremongering, an accusation previously levelled at me by the Minister, but stating my belief that we must get our heads together and consider other scenarios because we are blindly walking towards an unstructured default. While other options and positions are available, unfortunately the Government is not availing of them. The only way to avoid the disastrous scenario of default is to reduce the level of debt and scale of liabilities bearing down on the State and taxpayers.

Imposing losses on senior bondholders and exiting the blanket guarantee are prerequisites for economic recovery. Unfortunately, if the Central Bank and Credit Institutions (Resolution) (No. 2) Bill is anything to go by, the Government is not seriously considering either option.

Despite all the pre-election rhetoric about burning senior bondholders and seeking an exit strategy from the blanket guarantee, it appears to be wedded to implementing the same failed banking policies of its predecessors.

I am also concerned about the provisions in the Bill relating to State funding for the credit institutions resolution fund. The creation of such a fund is clearly necessary, and I support the Bill's intention to make it a legal requirement for the banks to contribute to that fund. However, there is no reason that the taxpayer, having already put €46 billion into the banks with the commitment of a further €24 billion, not to mention the money sewn up in the National Asset Management Agency, NAMA, should even contemplate contributions to a resolution fund, the purpose of which is to pay creditors in the event of a bank collapse. No blank cheques should be issued by this Government or Parliament to such a fund in the future. The Minister acknowledged that we may recoup the money. It is not the word "may" that should be in the legislation, but "shall". There is no way that parliamentarians should sign up for further blank cheques to this fund.

The Bill effectively gives the Minister for Finance a blank cheque for the use of taxpayers' money for a fund whose costs are as yet unknown. We know only too well what happens when blank cheques are issued and left in the hands of Ministers whose banking policy is not dictated by the interests of the citizens or taxpayers of the State but by the interests of the ECB. Sinn Féin will not be a party to the issuing of blank cheques by this Government. All such costs in the future must be borne by the banks and their creditors in a manner consistent with protecting the public interest.

In light of the scale of the economic crisis facing not just this State but the EU in general, I will conclude by outlining the three key steps which Sinn Féin believes are necessary if a resolution to our collective debt crisis is to be achieved. These steps are not exhaustive but I believe they must be pursued by the Minister. First, we must secure a reduction in the level of debt and exposure to liabilities by the State and its taxpayers. The Central Bank and Credit Institutions (Resolution) (No. 2) Bill, if appropriately amended, could provide the Government with a valuable tool in achieving this objective. However, it will also require the political will to impose burden sharing on senior bondholders across all categories.

Second, we must change the terms of the debate on the interest rate reduction being sought on the EU portion of the austerity programme. It is simply not acceptable for the European Union to benefit financially from the loan extended to a partner member state which is in economic difficulty. That is the basis on which we should be involved in this discussion. Based on the current interest rate, our so-called partners in Europe are set to profit by approximately €10 billion as a result of the 3% mark-up on the interest rate. They are some partners. They will make a profit of €10 billion from the European portion of the loan to a country that is in deep financial trouble and is bailing out European banks across Europe. The Minister must stop politely begging for a 0.6% reduction in the interest rate on future borrowings but deal with the real issue, which is why our partners in Europe are profiting from a misfortune which they played a part in creating.

Third, it is time for the Government to acknowledge the ECB's contribution to Ireland's and Europe's debt crisis through its failure to adequately regulate European inter-bank lending at the height of the crisis. That is not an attempt to absolve Irish bankers or politicians for domestic failures, but it is an important part of the overall picture. The ECB must also shoulder its share of the burden and the Government must put negotiated loss sharing on the table with the ECB. Our debt level has already reached an unsustainable level and we are heading towards an unstructured default. If this is to be avoided, the Government must act to reduce the debt burden on the taxpayer, end the punitive interest rate on the loan and seek loss sharing with the ECB. Only then will our economy and society be freed of the debt burden imposed by the Fianna Fáil Government and be in a position to start the process of investing in social and economic recovery.

I look forward to teasing out the details of this Bill on Committee Stage. I hope we will have the time required to do so.

Deputy John Halligan

I wish to share time with Deputies Mattie McGrath and Thomas Pringle.

Acting Chairman (Deputy Joe O’Reilly)

Is that agreed? Agreed.

Deputy John Halligan

There is little doubt that the public is outraged and angered by what has been allowed to happen to the banking system in Ireland. The public is also fed up with wealthy bankers who receive large salaries and bonuses from banks that would have failed if the Government had not intervened. It is not before time for this legislation to be before the House. My only regret, and many other people share it, is that legislation was not in place before the disastrous demise of Ireland's banking system.

While I accept that the Government is anxious to put the problems of the Irish banks to rest, and I welcome in principle many elements of this Bill, it is imperative that it confronts the reality of preventing the financial system from collapsing again, which is not the same as repairing it. The previous speaker referred to bondholders. This has become a tricky subject for both Fine Gael and the Labour Party, who made many sterling promises before the election as to how they would deal with senior bondholders. This issue is fudged again in the Bill. Irish people are saying that if we are in control of the banks, we can surely force the senior bondholders to bear the losses. An overwhelming number of people in this country want that to happen. As they see it, senior bondholders gambled recklessly with our money and brought the country to its knees, but are once again escaping the pain.

Everybody in this country, ranging from small business people to the person working in a bank, has realised what has happened economically in Ireland over the last number of years and all of them have educated themselves to the fact that we were robbed by the senior bondholders, who gambled our money away. They ask why these people are not being dealt with. That is my single reservation about this Bill. Since the start of the financial crisis, Denmark is the only European country that has imposed any losses on senior bondholders. To date, no eurozone has imposed mandatory burden sharing on senior bondholders by way of legislation. That is fundamentally wrong, particularly when one sees what ordinary people in this country have had to pay as a result of the actions of the bondholders.

The Bill provides for the establishment of a resolution fund to minimise taxpayers' exposure to future financial sector difficulties. The fund will be funded by contributions from credit institutions. The Bill appears to provide that should an institution not contribute to the fund, it will be unable to carry on its business and will be guilty of an offence. That is fine, but bearing in mind how financially crippled most of the institutions in the State are, I have reservations as to whether meaningful contributions to this fund are a realistic prospect at present or whether taxpayers in future years might again have to pick up the tab. It is not very clear in the Bill.

The inclusion of the credit unions in the provisions of the Bill is timely given that their trade body, the Irish League of Credit Unions or ILCU, which maintains a small stabilisation fund, is reported to have made losses of €43.5 million last year, stemming from €48 million in guarantees and commitments provided by its savings protection scheme to 13 credit unions and €5.5 million in investment losses. It appears that further losses are inevitable, based on this information and the fact that at least one in five credit unions was unable to pay a dividend last year. This must be further examined.

There are some slight signs of recovery in small businesses, and I have met business people whose books have begun to fill. The only problem is that, once again, they cannot get money or loans from the banks. All Deputies are hearing this. I do not know whether the banks have lost the skill to lend money or are deliberately not lending it, but they are not doing so. If the State can take such a sweeping approach as to take over banks, surely we can further compel them to lend. They are taking in money to build up their reserves but not lending money so that people can generate growth within the economy.

It is all very well for the State to look after the banks. Where does the Bill provide for the State to look after the ordinary people who need funding from the banks? I do not see it. Regardless of all the statistics we hear, the word among small business owners is that the two so-called pillar banks, AIB and Bank of Ireland, are not meeting the borrowing needs of small and medium enterprises. Struggling business cannot keep going if they cannot get money from the banks.

The Irish Small and Medium Enterprises Association, ISME, claims that access to loans has not improved since the Government extracted lending commitments from the Bank of Ireland and AIB as a condition of rescuing those institutions with billions of euro of State capital. We need to look at this comprehensively. It is all very well for the banks to tell us they are giving out money. Every Deputy has spoken to people who are trying to set up a small business, keep one going, recover or expand and who cannot get money from banks. The economy will go nowhere if that does not happen.

I agree with much of the Bill. However, it does nothing to deal with the people who have put us into this crisis. We have not compelled the banks to help get us out of the crisis by lending money, which was hard-earned by taxpayers and which established the banks in the first place, to keep businesses going. The focus of this legislation should not be on the needs of the banks but on the need of the economy for credit.

Deputy Mattie McGrath

I am delighted to be able to speak on the Bill. It is timely, indeed overdue. The purpose of the Bill is to make provision for an effective and expeditious resolution regime for certain credit institutions at the least cost to the State, and goodness knows we have had enough costs, to amend certain enactments and for related matters. This is a wonderful aspiration and I welcome the fact that the Bill is being brought forward and that we are discussing it here. However, it has many shortcomings.

Like previous speakers, I am concerned for Seán Citizen. Ordinary people, workers and families are finding things so difficult. They are aghast at the stories they see reported in the media and elsewhere about the huge mess the banks are in. The banks gave commitments to the late Minister, Brian Lenihan, that were total untruths. Commitments were given but statements had to be dragged out of representatives of the banks and we still do not know if we have heard the complete details of the depth of the crisis, although I feel we may have done so. I do not blame the ordinary staff of the banks. They do a good job and work hard and have suffered much vitriol in recent times from people whose savings were wiped out. We have heard case after case of this. It is important that we have regulations to deal with this crisis because it will, more than likely, happen again. This is not the first time.

People are aghast that no one has been brought to account. We see bonuses being paid out. The late Minister, Brian Lenihan, tried to cap a senior banker's salary at €500,000. He was told he could not do so. The bank had to pay the increased salary under the table or find some other way to pay it. That is disgraceful. I compliment the Taoiseach and his Ministers on introducing a cap on public service salaries. Now that we have almost 100% control of banks we should also introduce a cap on bank salaries. Deputy Ross referred earlier to a person who is CEO of one company and on the board of others and is recommending cutting the wages of ordinary people. He is robbing Peter to pay Paul, although he himself is Paul. This is unfortunate and wrong.

We voted twice on the Lisbon treaty and twice for the Maastricht treaty. Those treaties imposed strict guidelines on inter-bank lending. European banks were at least 50% responsible for what happened in Ireland. There were two sides to the story. When Irish bankers ran out of credit, customers went to European banks and got crazy limits. Now that we are in trouble our so-called friends in Europe will not help us. With friends like those, who needs enemies? They have left us high and dry.

I was not happy with the deal the previous Government made with the IMF. I made that clear at the time. The current Government has adopted the same policy. However, the IMF, at least, gave us a reasonable interest rate. Our European friends are making a healthy profit from us. The figure of €10 billion has been quoted as the amount European banks will make over the course of our repayments, if we ever repay. This debt must be postponed or extended. We do not know what will happen in Greece today. If we do not postpone the repayments we could face an unstructured default, which would be worse. The European banks should be made take their share of the pain. Burden sharing must be imposed.

The Taoiseach and the Tánaiste made elaborate and flamboyant promises. The people did not really believe them, but they created expectations. Deputy Gilmore said it must be Labour's way not Frankfurt's way. What happened to those idle promises? People have been badly let down. There is a seething anger in people who see what is going on. They see us trying to pay this debt when we do not have the money to run our hospitals, maintain our school transport service, keep small rural schools open and functioning or do so many things. Our borrowing is now at 125% of gross national product.

One can find commentators to give any kind of prediction. I welcome Deputy Mathews, who has come into the House, and compliment him on his honesty in all debates. He has a knowledge of banking and much experience.

Promises were made but we have seen total U-turns. I am disappointed in the Taoiseach, who said ever penny would be paid back and senior bondholders would not be touched. He then went to America and met the IMF where he had a rush of blood to the head and said he would consider renegotiation. Of course, our friends in the troika said that was not possible. They said the Taoiseach would have to do what they asked. The west wind in Mayo could not blow pipe-dreams ashore. The Taoiseach was put back in his box very quickly. We must stand up for the ordinary workers and families. They cannot take any more of this.

The bankers' bonus culture prevails. Not one person has been brought before the courts. Last year, the Garda Commissioner said he expected charges to be brought last November. He then retired and went off into the sunset with his pension and there has been no sign of charges. How could the prosecution process take such a long time?

We hear various predictions, and they are all worrying. We must impose burden sharing on speculators, although we need speculators and investors. They themselves are amazed at how they have got away things. Members of the Government, when in opposition, made all kinds of threats but they have simply moved seats in the Chamber and adopted the same policies. The senior bondholders are gamblers who hoped to make a killing and they made killings for a number of years. They have had a bad harvest this year but, unlike them, ordinary people are reaping the ruin. They are speculators and gamblers; that is the nature of their business. They must be held accountable and made to pay because ordinary men, women and children cannot be forced to do so.

I am delighted credit unions are covered by the Bill because worrying stories have emerged about a number of them. We all know that, but for them, many people would not be able to do anything. The Minister for Finance has been encouraging people to spend, including in a radio interview on Sunday. While I welcome the initiatives to attract tourists, including the reduction in VAT from next Friday, people still cannot access funds. The banks do not have a cent and so-called pillar banks are telling us untruths. I compliment Bank of Ireland on the week-long business banking promotion it has run in recent years. Its officials bring in small business owners to try to help them. However, many of the business people have worked hard to earn overdrafts, which have been cancelled overnight. They are called in to renegotiate their overdraft and by the time they leave the branch, their overdraft has been terminated and they have been forced to take a term loan. The banks are then writing up these loans, which have been forced on business people, as new lending as if they had taken an application over the counter for them, which is a total distortion of the facts. This could not be further from the truth. Banks are not lending money.

I heard a woman talking the other day about being unable to purchase a house because of NAMA. Many people are selling houses. I spoke to an auctioneer recently who said that even though many potential house purchasers have secure jobs, they cannot secure loans. Until that happens, ordinary people will be unable to spend like they have been asked to do by the Minister for Finance. One cannot spend what one does not have. That is what happened us. We spent what we did not have wildly, crazily and flamboyantly and now ordinary people, not speculators and investors, are paying the price.

Amendments to the legislation are badly needed because there are gaping holes in it. The greatest gaping hole is people cannot understand that senior bondholders are not even being singed, never mind burned.

Deputy Thomas Pringle

I welcome the opportunity to contribute. A resolution procedure for financial institutions should always have been an important part of the armoury of the Central Bank and the Government for dealing with financial institutions, even if was never needed. It is amazing that such a procedure was never put in place, particularly given that a number of institutions crashed in the 1980s. It has taken the banking crisis of the past three years and the intervention of the IMF and the ECB to ensure a resolution procedure will be put in place.

I welcome the provisions in the Bill to ensure the State will have mechanisms available to take over the operation of failing institutions. In 2009 the IMF stated that "...keeping afloat failed banks and making good their losses is unjustifiable, because it ultimately transfers commercial losses to the taxpayer, validates poor bank management...". Given this comment, it is amazing that the IMF proceeded in 2010 to force a bailout agreement on the Irish people, which puts all the bank losses on the taxpayer and places us under a huge burden to repay the losses of the banking system that have come to light over the past few years. These losses are not the responsibility of the people or the Government and they should not be taken on by the people or the Government acting on their behalf.

Opposition Deputies have constantly stated there is a need for burden sharing and for bondholders to carry their losses. They were speculators who invested in these businesses, which failed, and they should take their losses. That is the correct and mature way to deal with financial institutions. We have constantly said that we need to default on these loans, burden share and burn the bondholders. I am glad the Government has taken this on board to some extent in regard to unsecured bondholders in AIB by moving to force burden sharing on them. That demonstrates the arguments we made were appropriate and sensible and the Government has acted on them. The ratings agencies have registered this as a default incident and, therefore, the State has started to default on the bondholders. The Government should work harder in this regard and move up the value chain to force burden sharing on bondholders to comply with the IMF statement not to ultimately transfer commercial losses to the taxpayer.

The taxpayer is carrying the losses of all the banks and bonds are being paid. Senior bondholders will be repaid in the coming days, weeks and months by the Government with taxpayers' money borrowed at exorbitant interest rates from the very people who said we should not put these losses on the taxpayer. However, that is what the Government will continue to do.

Other Members have referred to cutbacks throughout the economy and, in particular, in the education sector in recent days. School children will not have transport next September and some who are badly in need of them will not have SNAs. I received a call from a Montessori school in County Donegal earlier. An autistic child will be sent to the school next September but the school has been refused an SNA. That is an example of the impact of this crazy policy the Government is pursuing in ensuring all senior bondholders get paid. Everybody who gambled and put money into the banks will get paid while school children will lose out on SNAs and transport, social welfare rates will be slashed in the budget and the low paid will be forced to carry the burden. The Government needs to continue with the burden sharing it has engaged in with AIB's unsubordinated debt holders and move up the value chain because that will resolve our problems within the State.

I commend the Oireachtas Library and Research Service on its comprehensive digest, which provides a great deal of information on the legislation. There were discussions in 2008 within the Department of Finance and Central Bank about introducing a resolution Bill but it was shelved because officials were afraid it would spook the markets. However, they were spooked at that stage and money was flowing out of Anglo Irish Bank in particular. This led to the crisis and the crazy guarantee in September 2008.

The Bill provides for four conditions that need to be satisfied before the Central Bank can intervene to force a resolution on an institution. Two of the conditions are subjective and the regulator and the Central Bank can decide whether they have been met. They should be tightened up and the subjectivity removed. The reports into the banking crisis have highlighted that the regulator, the Central Bank and the Department of Finance failed to see what was coming down the tracks and they did not act. If too much subjectivity attaches to the conditions provided for in the Bill, the groundwork will be laid for further failures down the road. We must ensure that the conditions in the Bill are clear and if they are not met, a reaction is triggered quickly without subjectivity. Otherwise, the banks could bring undue pressure to bear. If we get to the situation again where we have a weak regulator or Central Bank, or a Department of Finance that is not capable of dealing with the situation, then the financial institutions can place undue pressure on them and delay their reactions to the conditions that are developing in those institutions. This could have catastrophic effects if they do not react quickly enough and implement the measures needed to ensure the wind up of these institutions, or at least have them taken under control, so that losses can be mitigated.

I look forward to seeing ministerial amendments on Committee Stage, and to teasing out this Bill in greater detail.

Deputy Bernard J. Durkan

I am delighted to have an opportunity to speak on this important Bill, the need for which has become patently and painfully obvious over the past few years. It was brought about after the tragic events we have seen in banking over the past few years, which include the colossal losses to the country, to individuals and the fall in the perception of Ireland as a modern economy throughout the European Union and further afield. It is appalling that we should find ourselves at this juncture due to the failure of certain institutions charged with responsibility for doing a job which they obviously did not take too seriously. This happened in spite of the fact that it was clearly laid down for them that in order to pursue good banking practice, it was necessary to have certain regulations in place.

When the DIRT inquiry concluded in 1999 or 2000, certain regulations were put in place in respect of the responsibilities of financial institutions. These included how to go about their business, how to be accountable, how to regulate their business, how to ensure good fiduciary practice, and how they were supposed to have regular audits by independent auditors who were not supposed to have carried out audits in the previous seven years. They were charged with the responsibility to ensure that good governance was seen to be put into operation and to be working. None of that happened. Unfortunately, what happened and what slowly unfolded on an unwitting public was the total collapse of the system that was put in place. Every single precept put in place was ignored.

Who is to blame? Everybody looks for somebody to blame nowadays. I do not know who is to blame, but I do know that responsibilities were thrust upon three different sectors. I will not go into detail on them right now, but if they all did the job they were charged with at that time, there would be no necessity to bring this Bill before the House all these years later. The situation in which this country finds itself, something that unfolded over the past three or four years, was easily visible to the ordinary man and woman in the street. They were all talking about it. They were seeing that things could not last. Where were we going? When would the bubble burst? When would the steam escape from the system? Unfortunately, a number of people charged with responsibility in various institutions did not live up to expectations. They did not live up to their responsibilities. I do not know what distracted them, but they were distracted and the result has been a catastrophe for the country, the economy and the people.

The people of this country now have to carry the responsibility of repaying the debt that arises from the madness that was pursued over a number of years. Legislation was put in place to ensure that this madness did not happen. We put a regulatory authority and a Governor of the Central Bank in place. These things are not rocket science; they are simple. Any traditional banker could explain to any of us what should have been done at particular times over the past few years, and asked the question why it was not done and what should happen afterwards.

I am concerned with the latter part of that. What should happen afterwards? What disciplinary action should take place? Should we just pass it off as if nothing happened, or should those who did not do their job be forced to take responsibility for their actions? They did not do their job. Why did the people charged with responsibility not raise the red flag? Why did they not arrest the downhill speed of the economy at the time? Their function was not to call each other up and say "How are you going there?" That is not the job of a regulator or a Governor of the Central Bank. That is not the job of a member of any institution charged with the responsibilities of banking and its wider implications for the economy.

What is likely to happen now? Will we just walk away? This is a small country and there are those who say that no law was broken. Laws were broken and that is a fact. Company law was broken. We went through the companies Bill for 18 months with a fine tooth comb to ensure that everything was in place, that people could be held accountable for their actions, and that they did their job in accordance with the legislation as laid down. I do not know what happened along the way. I do not know why we suddenly came to a situation where irresponsibility was to take over.

The only conclusion we can make is that the pickings were so good and the aspirations so high, it was deemed that it could go on forever. There would be no change and nothing would ever stop that mad rush to the top of the mountain, or the bottom of the pit, as the case may be. Nobody seemed to know where they were going. These people were charged with specific responsibilities that they did not honour. There is no use in avoiding that fact. Everybody knew their responsibilities and what they were supposed to do at different times over the past eight to ten years, when the indications were there to the effect that the economy was not going in the right direction, that the financial institutions were not lending wisely, that people were not borrowing wisely and that the sums of money were far out of reach in this economy and likely to lead us into a very serious situation. Why did those particular safeguards not kick in? I do not know, but I would like to know. As we do not know and as we move on and legislate for this kind of eventuality, I believe that we could arrive at a similar situation in the future. That would be a woeful catastrophe.

I welcome this Bill. I am so sad that I was in this House during the period that the necessity for this Bill became patently obvious, but it would never make any difference if the people charged with that responsibility did not live up to their task. The same applies again. If the people given the responsibility for doing specific jobs do not do so after this, then nothing will have been achieved and we will be back to square one. The laissez-faire attitude that prevailed in recent years will continue. What will happens if those charged with those responsibilities in the relevant institutions do not fulfil their duties in future? Will they run off to another jurisdiction? Will they speak to us from abroad or write in the newspapers, telling us they did nothing wrong and broke no law? Will we, as legislators, be left with the responsibility of conveying that message to the Irish people? That would be a sad situation.

This is not a criticism of the legislation before us or the previous legislation, wherein provision was made to ensure that the things that happened would not happen and if they were visible, they would be visible to those with responsibility long before becoming a serious threat to the economy. We have learned a harsh lesson and I hope those now charged with the new responsibilities will observe to the letter and the spirit the legislation as set down and will do their jobs without fear or favour or hindrance. If they do not, we will back where we started.

What were the European lending institutions, which had responsibility in respect of borrowing and lending and good practice, doing? Who reported to them? If they were given information, what action did they take and did they take it in time? I am not sure. I remember in this House as far back as 2002 people asking questions about where we were heading. Anyone who asked such stupid questions was told to sit down and shut up because he did not know what he was talking about. Some European institutions, such as the Commission, raised questions but we had in place banking institutions throughout Europe with particular regulations for the eurozone. There were departures from the guidelines that were laid down, however, with many countries to a greater or lesser extent sidestepping the Growth and Stability Pact guidelines because it suited them and they benefited from that. That it happened should have warned the institutions that something was happening that was not provided for and, as a result, it could lead to serious difficulties later on.

That was exactly what happened and everyone all of a sudden knew the fat was in the fire, the whole thing was imploding and we should have seen it beforehand.

There is a lesson to be learned for the European institutions, that regulations are fine when they are drawn up provided they are observed. When too much freedom is given, and too much of a carnival attitude is allowed to prevail, it may work for a while, but it must be remembered that when it began to collapse, the system fragmented overnight.

I would not allow this occasion to pass without directing criticism at those European institutions which should have known what was going to happen and should have kept a stricter eye on what was happening in this and other European countries. There will always be those who say we are all the same, that everyone is doing it. I do not believe in that maxim; I believe smaller, open economies find themselves much more vulnerable than the bigger countries with bigger economies and consumer bases.

Have those European institutions decided how the European financial structures will operate in future? Recently we have seen people speaking out on the issue but I am not sure the European treaties we passed, particularly the Lisbon treaty, gave carte blanche to everyone in the European Union to speak out. It was specifically laid down that only certain people in the Commission and the Council of Ministers would have the influence to speak on behalf of the EU and its institutions. It grieved me greatly to see on a number of occasions people being choreographed at European level to give an opinion that any assistance sought by this country would not be considered because it was in violation of certain other regulations. If those regulations had been applied properly in the first place, we would not be where we are now.

There is a lesson to be learned from this. Responsibility falls to everyone, particularly in banking. Those of us who have been around for a while have been through a number of recessions. Sometimes I feel my whole life has been one long recession because there was never any abundance of funds at any time. In the 1920s and 1930s there was an international crash, and the same happened in the 1840s. Those experiences gave rise to regulations that led to good banking practice. Simple guidelines were laid down for lending and borrowing and these were tried and tested over the years. They were proven by the test of time but they were not quick enough for the modern expert, who with the advance of IT saw a need to make profit more quickly. Sadly, we now find ourselves at a juncture that is a lesson for all such people in future.

I wish this legislation well and I hope it works. I hope the people on whom responsibility will fall as a result of the passage of this legislation will do their job in a forthright fashion without fear or favour, and if they do not do their job they will have to pay a price because we cannot have a repeat performance of what we have currently.

Deputy Sean Fleming

I welcome the opportunity of speaking on the Central Bank and Credit Institutions (Resolution) (No. 2) Bill 2011. The publication of this Bill is a commitment under the EU-IMF deal. The Bill provides the Central Bank with additional powers to achieve an effective resolution regime for credit institutions that are failing or are likely to fail, with the objective of protecting the Exchequer and the stability of the financial system of the economy.

It is important that we have such an item of legislation because for too long people were not facing up to the issue of financial institutions failing. It has taken us a number of years to come around to the realisation that because an institution is a financial institution it is not a sacred cow and no commercial organisation should be too big to fail in any country or here in Ireland. People have been afraid to deal with the concept of a big failure and rather than deal with the consequences of a big failure we put the issue on the long finger and put guarantees and protection around them through the arm of the State in the hope that in due course they would not ultimately fail but as we know some of them were failed institutions at the time they got various guarantees. Most people accept that the Government did not know they were failed institutions at that time and it is a moot point as to whether the people who were running those organisations, the directors, knew they were dealing with insolvency rather than liquidity issues. That is something we will have to get to the bottom of ultimately because if they were insolvent, and the directors and senior executives had a fiduciary duty to know the state of the organisation of which they were directors, they would be guilty of fraudulent trading as they were continuing to run a business that was insolvent, take on commitments and take people's money when they knew they were insolvent. If they did not know, they should have known. That is an issue about which people feel very cross. People ask about the law they broke and say they might have made a misjudgment but in most organisations that principle would come into it. At best they are guilty of reckless trading and most people would say at this stage that in view of the scale of the difficulties that have emerged, what happened was far worse than reckless trading. In my opinion it was fraudulent trading.

The legislation before the House is an update on previous legislation passed here before Christmas last year. The Minister, Deputy Noonan, said that the Bill seeks to ensure that the Central Bank is empowered to promptly and effectively resolve distressed institutions when, for example, they pose a risk to financial stability. The Bill proposes a permanent special resolution regime for the credit institutions whose key tools are listed as a transfer order, a special management order allowing for the establishment of a bridge-bank, a modified liquidation process, and the development of recovery and resolution plans. That will lead on to what I consider to be possibly one of the fundamental structural weaknesses in this legislation which I will deal with off and on as I make my contribution. Notwithstanding that particular criticism, we support the Bill because it is necessary that we have a system in place, and other countries are developing resolution mechanisms to deal with banks and financial institutions in danger of failing.

The principal problem I have with this measure is that we are giving too much authority to the Central Bank. Previously, the Central Bank and the Financial Regulator had a great deal of authority but they are only two individual institutions. In the past those individual institutions, and we are all on record in this regard, were not doing their job. They were asleep at the wheel, so to speak. We will not revisit that now but what I am most concerned about is that in a few years from now, and we have been in the eye of the storm for the past two years, when hopefully the economy picks up and the emphasis moves off this area, how competent will the people who have yet to be employed in those key posts be in their jobs? They will have enormous powers and will be one arm removed from the Government but the Government will not have sufficient control over them. Can we be guaranteed that these people will be able to do their job into the future? That is not a criticism of the current incumbents but there is no guarantee that future incumbents in those posts will always act as scrupulously and as diligently as the current incumbents are doing.

That leads me to my basic criticism of this legislation and all similar legislation we have passed in this House. I have said here previously that we must look at the big picture. This is a European wide and international problem. People are saying we are helping to bail out Europe. This is a European issue and the time has come to consider whether each of the 27 countries in the EU should have their own domestic central bank. We have a European Central Bank. We will be in a situation here where all the key banking and financial institutions will be completely controlled by the State. Bank of Ireland will probably be the only bank not substantially controlled by the State and the question arises of Ireland having a Central Bank to manage what are non-commercial semi-State bodies, as I would call the banks that are operating in the country with the benefit of the Irish taxpayer. They could not be called commercial institutions; they are non-commercial because of the financial support they must get.

Part of the problem is that the banks, and I refer to Anglo Irish Bank and AIB in their heyday, were too big to be managed and regulated by the Irish Central Bank. They were based in one office. I am certain that part of the problem was that they were almost in awe of the success of the big banks. Their profits were going up year in, year out. Their business and lending was increasing. They were sending in the reports but the reports were being put on shelves and they did not dare question them. I believe they were intimidated by them. That can happen in other European countries. Having 27 small central banks across the EU is not a good recipe for the future.

That goes back to a point I made here previously. There are 17 countries in the eurozone but when we set up the euro that was what I would call the front of house part of the overall regime where people had the currency in their pockets for dealing with day to day basis but we print notes and mint the coins in the 27 countries. We have one common currency but we do not have one central bank with sufficient control at European level. We need a bank with the financial power, size and scale of the European Central Bank to be able to regulate banks operating in the various countries throughout the EU. Ultimately, the European Central Bank calls most of the shots in these areas but it is only a bank of that scale that has the authority and the power and that will not be intimidated, side-tracked or put off course the way a local central bank would be, as happened in the past, which is one of the reasons we are here today.

It might be an unusual call to give more powers at European level but I and most Irish people have lost confidence in the Irish Central Bank and the Irish financial regulatory system. We have some new people in place but there is more to dealing with the problem than that. We are building up an armoury of legislation.

What we are doing in this Bill is essential but it is only a sticking plaster in that we are only dealing with the small problem before us. How will this measure operate if the Central Bank wanted to move on one of the State controlled banks?

Debate adjourned.

Dáil Éireann díospóireacht - Tuesday, 28 Jun 2011

Central Bank and Credit Institutions (Resolution) (No. 2) Bill 2011: Second Stage

Dáil Éireann díospóireacht -
Tuesday, 28 Jun 2011