I move:
That Seanad Éireann approves the terms of the draft scheme entitled Credit Institutions (Eligible Liabilities Guarantee) Scheme 2009, a copy of which draft scheme was laid before Seanad Éireann on 30 November 2009.
Credit Institutions (Eligible Liabilities Guarantee) Scheme 2009: Motion.
This motion deals with a resolution to approve the draft statutory instrument entitled the credit institutions (eligible liabilities guarantee) scheme 2009. The statutory instrument sets out the new bank guarantee scheme entitled the eligible liabilities guarantee, ELG, scheme. Members will recall that the enabling primary legislation was passed by the Oireachtas in June this year and that the Oireachtas would be asked to approve the terms of the guarantee in due course. I am pleased that the necessary EU state aid approval for the draft guarantee scheme was obtained on 20 November. The current guarantee, the CIFS scheme, is due to expire in September 2010. This draft scheme allows the banks to issue longer term debt in line with the EU model, which will continue to underpin financial stability.
An outline of the main elements of the revised guarantee scheme was announced by the Minister for Finance on 16 September and published on the Department's website. This is not a blanket extension of the current two-year CIFS guarantee. This new scheme will be more targeted than the CIFS scheme and will allow institutions to access unguaranteed funding. Institutions will be able to issue liabilities and take deposits with a maturity of up to five years but these liabilities must be issued, and deposits taken, within a limited time period that ends on 29 September 2010, the same end date as for the current scheme. This new guarantee will maintain the continued stability of the banking system in Ireland and enable the institutions to support lending to the economy. In recent weeks, some Irish institutions have successfully issued partially guaranteed term debt. To support this positive development, a key feature of this scheme is that it allows the institutions to access unguaranteed funding, which will help reduce their reliance on the guarantee over time, in line with improving market conditions. The revised guarantee scheme is the first step in the exit strategy from the blanket guarantee offered in September 2008.
Furthermore, institutions will be required to pay a higher fee to the State in respect of liabilities guaranteed under the ELG scheme, in line with European Central Bank pricing recommendations and EU state aid requirements. However, the stability provided by the guarantee remains important and, therefore, the guarantee will remain extensive, and the blanket guarantee for deposits will be retained up to 29 September 2010, subject to six-monthly review and approval by the European Commission. Access to longer-term funding is in line with the mainstream approach in the EU. The longer maturity limit for guaranteed debt issuance is consistent with the position under guarantee schemes that have been introduced by a number of other EU member states such as Germany, Denmark and the UK.
This ELG scheme is more targeted in approach and provides that newly issued dated subordinated debt and asset covered securities will not be guaranteed going forward. The new scheme confirms that existing liabilities, including dated subordinated debt and asset covered securities guaranteed under the CIFS scheme, will remain guaranteed under that scheme until the maturity of the debt or 29 September 2010, whichever is the earliest. This continued guarantee of existing liabilities is in accordance with the general nature of guarantees.
I would like to outline the key terms of the ELG scheme. It provides for a guarantee for institutions over certain liabilities with maturities of up to five years, which are incurred up to 29 September 2010. The guarantee is being provided at a charge to the participating institutions on specific terms and conditions in order that the Exchequer's interest is safeguarded. Eligible liabilities under the ELG scheme shall be any of the following: 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; term deposits with a term of up to five years will be covered by the ELG scheme, provided they are incurred between the period from the commencement date of the scheme up to and including 29 September 2010, subject to the approval of the European Commission at six-monthly intervals; demand deposits will remain guaranteed until 29 September 2010, subject to the approval of the European Commission at six-monthly intervals; and the first such approved six-monthly interval runs from 1 December 2009 to 1 June 2010. The €100,000 limit under the existing deposit protection scheme still applies to all deposits, including demand deposits. This scheme is not subject to review and will continue beyond 29 September 2010. Once an institution joins the ELG scheme, it will no longer have the facility to avail of the guarantee under the CIFS scheme for the new liabilities.
Systemically important and solvent credit institutions, including Irish subsidiaries of credit institutions authorised in another member state, that have been specified by the Minister as requiring financial support are eligible to join the ELG scheme. All current covered institutions under the CIFS scheme will be eligible to join the new scheme. Covered institutions under the CIFS scheme have a 60-day window from the commencement date to apply to join the scheme, while all others can apply up to 29 September 2010. To be accepted, the institution must accept the terms of the scheme by way of an eligible liabilities guarantee scheme agreement and be certified in accordance with the rules as being a participating institution.
A quarterly fee is payable to the Exchequer in respect of the guaranteed liabilities under the ELG scheme. The fees are based on the pricing recommendations published by the ECB in respect of guarantees of this nature and are consistent with the fees applicable for similar guarantees provided by other EU states in respect of their credit institutions. The ECB 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 banks' five-year CDS spreads for a sample period, plus 50 basis points.
The draft ELG scheme provides for the same reporting and information requirements and restrictions on commercial conduct which are set out under the CIFS scheme. Paragraph 22 of the ELG scheme provides the Minister with the power to issue such directions to an institution that are necessary to ensure that the objectives of the Act and the scheme are being met. Directions may provide for restrictions on conduct, transparency and reporting requirements applicable under paragraphs 24 to 52 of the CIFS scheme. These restrictions are important in preventing any abuse of the scheme. Institutions under the ELG scheme are required to submit any reports or information which the Minister, the regulatory authority or the scheme operator believe are necessary to monitor compliance of the institutions with the scheme. In addition to the power to issue directions, the scheme contains enforcement provisions. One such provision is that the Minister can increase the fee payable by an institution in material breach of its obligations under the scheme. The Minister plans to delegate the operation of the scheme to the NTMA. The NTMA is, in the view of the Minister, best placed to perform the operational role of scheme operator, given its market expertise.
The scheme will allow institutions to access longer term debt and, thus, underpin the continued financial stability of the banking system. It will also support banks in Ireland in meeting the credit needs of the economy, consumers and business and it will help underpin economic recovery. The scheme has been designed to move Ireland's guarantee into line with the mainstream approach in the EU, including the application of ECB recommended pricing. The guarantee allows for the issue of unguaranteed funding, thus allowing a move towards an exit strategy from the guarantee.
The consequences of not introducing the eligible liabilities guarantee scheme are important. The guarantee will allow banks accessing longer term funding, beyond September 2010. This is essential to establishing a balanced funding profile for the institutions. Not introducing the eligible liabilities guarantee scheme would postpone the restoration of normal commercial unguaranteed funding lines for the banks. It would have an impact on the steps taken to put in place a credible exit strategy for State guarantees provided to the banks. Inevitably, international markets would read uncertainty into the situation and this would undermine confidence in the sector. Having succeeded in stabilising the banking sector, deciding not to provide for longer term issuance, which is available in a host of other EU member states, would not be consistent with the maintenance of financial stability and progress towards normalisation of financial market conditions in Ireland. These are the consequences of successful opposition to this motion. I commend the scheme to the House.
Things have changed dramatically in the 12 months since the current scheme was first proposed. With NAMA, we are told that matters are improving. Is the Minister of State premature in bringing forward this scheme when it is due to kick in at the end of September 2010? Perhaps he should leave it be until March, April or May to see how things pan out next year. The taxpayer has just forked out €54 billion to the banks. The banks are telling us things are improving for them and that core tier capital is increasing. There are no limits on what the Minister of State is proposing to provide under this guarantee scheme. Is this not a little premature? It is time we allowed the banks to grow up and look after themselves rather than expecting to become a proxy institution of the taxpayer. This is not necessary; it is premature and the Minister of State is misreading the market completely. There would be a greater sense that the Government knows what it is doing if it let the banks work out their problems and allowed them to make the case for themselves on the international markets with their bond holders and long-term debt holders. That should be done rather than allowing the banks to come running crying to the Minister for Finance for another taxpayer guarantee. At this rate we will soon be guaranteeing everything the banks own. This is the wrong approach.
During the debate on NAMA, we were told that it was all about getting credit flowing. Mr. Eugene Sheehy of AIB made it quite clear to the Oireachtas Joint Committee on Finance and the Public Service that this was not a priority for the banks. It is not about getting credit flowing so there is no justification for the massive bailout mantra the Government put forward. The Minister for Finance is wrong in providing a blanket guarantee so that banks can borrow from where they want. This will encourage them to act like banks in Dubai, with the Government becoming Abu Dhabi to the Irish banks. The banks must cop on, grow up and mind their business.
What is the Minister of State doing to put the boot into some of the bad behaviour by the banks? Mr. Fingleton left Irish Nationwide in such a mess that €8 billion out of €10 billion in loans will be transferred to NAMA. There was much big man talk on how the Government would get back his €1 million pension payout on behalf of the taxpayers. The Government has done nothing of the sort. Mr. Fingleton walked away with €1 million and the State has walked into an €8 billion mess that we must bail out. At the outset I could believe that the Government was naïve about the world of banking and could be hoodwinked by the leading bankers and forced to give the guarantee one year ago. There is a sense that the Government is still naïvely believing everything the banks say, which is why €54 billion of taxpayers' money is being provided.
Surely the Government has learned something since and does not need to introduce a blanket guarantee. This will have no effect on uncertainty, stabilising the market or not frightening international bond holders. This measure shows the Government to be the softest touch in the northern hemisphere when it comes to getting money for the private sector. I suggest the guarantee be parked for a few months until we examine how the banks are operating and see what happens when NAMA comes into effect. Not one loan has been taken from the banks and transferred to NAMA yet here is another scheme to throw billions in the direction of the banks. The Minister of State needs to take it easy.
I propose to share time with Senator Boyle.
Is that agreed? Agreed.
I welcome the Minister of State. This is not the time or the place to get into a Second Stage debate on banking, NAMA or the budget. We have had opportunities to do this doing the week. I welcome this motion, which sets out the basic terms and conditions of a guarantee. The primary legislation was passed in the summer and this is an extension to it. It is good and appropriate as part of the rehabilitation of the banking sector to clean up the banks' balance sheets and get credit flowing. I look forward to a fuller debate on banking, the problems many of us have with it and the proposals we have to improve it. I do not propose to react to Senator Twomey's contribution with regard to the Government being the softest touch. This motion is specific to the eligible liabilities guarantee. I welcome the terms and conditions of it. It has been a long week for everyone and I do not intend to delay the House any further.
The introduction of the guarantee scheme in 2008 was immediately followed by criticisms that we would incur €400 billion of debt. We have not and we are unlikely to do so. However, the imposition of the guarantee scheme was the right thing to do and it was necessary. The continuation of the guarantee scheme is a key component of policy, mainly because other countries have adopted the same approach. The existence of guarantees in other jurisdictions, following the Irish lead, means we have an obligation to continue this guarantee. The points raised by previous speakers should be acknowledged and other legislation will be brought before the House, particularly in respect of a central banking commission, to allow a more detailed debate on the continuing sense of hubris in the financial institutions. This must be tackled and was most recently seen in the contributions by the banks to the meeting of the Joint Committee on Finance and the Public Service in this House. That the scheme has been approved as EU state aid, is becoming more focused and is not open-ended meets many of the concerns about it. Far from it being a potential cost to the State, we must remember that the guarantee scheme operates on the basis that the banks pay the State for its use. That, combined with the recapitalisation of the banks, NAMA and the commitment, through taxation, if NAMA does not meet its guidelines, means the Government, through existing policy, is committed to having all debts, which the banks and other financial institutions have incurred through their incompetence, returned and restored to the State and, arguably, additional money accruing from fees and interest charges the Government has imposed through the various items of legislation.
The technical nature of extending the guarantee is something this House should follow. We should use the opportunity of the more focused changes that have been brought about on its acceptance through EU state approval and the fact that it is more in accord with schemes now in place in other European countries to say this is a measure that I hope will inspire confidence and work towards the redemption — that is a key word — of Irish banks and other financial institutions.
I thank Senators for contributing to this debate and dealing with it fairly expeditiously. It is important to emphasise that the ELG scheme will be somewhat more targeted an approach than the CIFS scheme and that it is not a blanket extension of the guarantee. It will allow for greater and longer-term debt issuance under the guarantee, moving it towards the European model and consistent with EU state aid rules.
Senator Twomey asked if we are premature in doing this. I do not believe we are. In regard to Government policy and intentions, it is important to give adequate notice of that in order to allow longer-term planning. A key feature of this is that it allows the participating institutions to access unguaranteed funding and to issue unguaranteed deposits, which will help reduce their reliance on State support over time in line with improving market conditions and, as said in recent weeks, certain institutions have successfully issued partially guaranteed longer-term debt and this positive trend is welcome. It represents the necessary first step in the exit strategy for the State, which I am sure we would all support, from the blanket guarantee offered in September 2008, consistent with the maintenance of financial stability and ensuring the funding needs of the banking system in Ireland are met. As Senator Boyle pointed out, this is not being done free of charge. The institutions are required to pay a fee to the Minister in respect of all liabilities guaranteed.
Statements made by the outgoing chief executive of AIB before the Joint Committee on Finance and the Public Service committee, at which I was not present, should not be misinterpreted. The banks have to try to maintain — perhaps the right word in the current circumstances is "restore" — their reputations. As we know, the crisis was partly brought about by a great deal of imprudent lending and they have to engage in prudent lending from here on in.
There is some limit to the extent to which the State can push the banks into socially desirable but financially imprudent lending. We are unfortunately in a situation where the number of buoyant and financially sound businesses are much fewer than appeared to be the case.
That is not what the Minister of State was saying a few months ago. A different story was being told to get the people to buy into it.
Please allow the Minister of State to continue, without interruption.
When we have the banks on a firm footing they will be in a better position to lend, but they will also be in a better position to lend when underlying conditions in the economy improve. It is no function of this Government or any Government of which the Senator would be a part to put the boot into the banks——
That is not what the Minister of State was saying when he was trying to get members of the Green Party to come onside.
That is a totally irresponsible approach.
When the Government was trying to get the members of the Green Party to come onside, it said there would be all sorts of social dividends. I kept hearing the phrase "social dividends".
Please allow the Minister to continue, without interruption.
The Senator is putting the boot into financial institutions. I am very surprised to hear a finance spokesperson of any party using a phrase like——
I am also very surprised by the Minister of State.
No interruptions, please.
He is misleading the House, given what he said three months ago and what he is saying now.
I ask the Senator to cease interrupting.
They should stop using the cover of this credit institutions scheme to support lending to the economy when it is clearly not true.
No interruptions, please.
I did not interrupt a word the Senator said.
I know. I am sorry but very limited time has been given to discuss this motion.
In regard to any link between the establishment of NAMA and the bank guarantee, these are among the suite of measures which have been introduced to stabilise the financial system and, in their totality, they will result in a reformed, reinvigorated and stable banking system, which can meet the needs of the economy.
It cannot be repeated often enough that it is not a blanket guarantee but a guarantee for specific debt issuances and deposits, including longer-term debt. This guarantee is designed to allow banks that can to issue unguaranteed debt or accept unguaranteed deposits and, thus, move towards an exit strategy.
I thank Senators for their contributions and commend the motion to the House.
Question put.
The Seanad divided: Tá, 25; Níl, 10.
Tá
- Boyle, Dan.
- Brady, Martin.
- Butler, Larry.
- Callely, Ivor.
- Carroll, James.
- Cassidy, Donie.
- Corrigan, Maria.
- Daly, Mark.
- de Búrca, Déirdre.
- Ellis, John.
- Feeney, Geraldine.
- Glynn, Camillus.
- Hanafin, John.
- Keaveney, Cecilia.
- Leyden, Terry.
- MacSharry, Marc.
- Ó Domhnaill, Brian.
- Ó Murchú, Labhrás.
- O’Brien, Francis.
- O’Donovan, Denis.
- O’Malley, Fiona.
- O’Sullivan, Ned.
- Ormonde, Ann.
- White, Mary M.
- Wilson, Diarmuid.
Níl
- Buttimer, Jerry.
- Cannon, Ciaran.
- Coffey, Paudie.
- Coghlan, Paul.
- Cummins, Maurice.
- Donohoe, Paschal.
- Fitzgerald, Frances.
- Norris, David.
- Ross, Shane.
- Twomey, Liam.
Tellers: Tá, Senators Camillus Glynn and Diarmuid Wilson; Níl, Senators Maurice Cummins and Liam Twomey.
Question declared carried.
When is it proposed to sit again?
Ag 10.30 maidin amárach.
I object to the adjournment of the House tonight. We adjourned at 7 p.m last night and we are adjourning at 6.10 p.m. this evening. That is not good enough. The House is due to sit tomorrow. However, we could take the business ordered for tomorrow this evening. Why is the House being adjourned now?
It is being adjourned because we have done our day's work.
Is the House being adjourned to facilitate the dinner being hosted by Cairde Fáil?
Is the House being adjourned to facilitate the Cairde Fáil dinner?
(Interruptions).
The House stands adjourned until 10.30 a.m. tomorrow. We must move to matters on the Adjournment.
I am objecting to the adjournment of the House.
No, we must take matters on the Adjournment.
I want to call a vote on this matter.
(Interruptions).
In such circumstances, I must put the question.
Question put: "That the House stand adjourned until 10.30 a.m. tomorrow."
The Seanad divided: Tá, 25; Níl, 10.
Tá
- Boyle, Dan.
- Brady, Martin.
- Butler, Larry.
- Callely, Ivor.
- Carroll, James.
- Cassidy, Donie.
- Corrigan, Maria.
- Daly, Mark.
- de Búrca, Déirdre.
- Ellis, John.
- Feeney, Geraldine.
- Glynn, Camillus.
- Hanafin, John.
- Keaveney, Cecilia.
- Leyden, Terry.
- MacSharry, Marc.
- Ó Domhnaill, Brian.
- Ó Murchú, Labhrás.
- O’Brien, Francis.
- O’Donovan, Denis.
- O’Malley, Fiona.
- O’Sullivan, Ned.
- Ormonde, Ann.
- White, Mary M.
- Wilson, Diarmuid.
Níl
- Buttimer, Jerry.
- Cannon, Ciaran.
- Coffey, Paudie.
- Coghlan, Paul.
- Cummins, Maurice.
- Donohoe, Paschal.
- Fitzgerald, Frances.
- Norris, David.
- Ross, Shane.
- Twomey, Liam.
Tellers: Tá, Senators Camillus Glynn and Diarmuid Wilson; Níl, Senators Jerry Buttimer and Maurice Cummins.
Question declared carried.