Banking: Statements.

In accordance with the Order of Business announced, statements on banking will be taken as a new item.

It is interesting to note that the procedure for this discussion is still being batted backwards and forwards.

I am pleased to address the Seanad on recent developments in banking. Every Member of the House is aware that the banking sector is crucial to ensuring the economy can benefit from the global economic recovery under way. The banking measures announced by the Minister for Finance prior to the Easter recess constitute the latest decisive measures to be taken to stabilise the banks and protect the interests of the taxpayer and depositors.

The decisive measures taken by the Government in the past two years, including budgetary adjustments of more than €15 billion, have put us in a position in which our fiscal position is credible and recognised as such by the markets and our colleagues in Europe. It is expected the economy will start growing again in the second half of this year. This growth will be on a more sustainable and realistic basis and the banking system must play an important role in this return to growth in order that confidence is restored, not only in our fiscal position but also in the banking sector.

On the issue of growth in the economy, I recommend to the House an excellent article by the former Taoiseach Dr. Garret FitzGerald on the importance of competitiveness and the gains being made in competitiveness. The article appeared in last Saturday's edition of The Irish Times.

There is no doubt that some of the decisive and bold steps that the Government has taken are not popular, and the honest and full disclosure by the Government and its agencies of the appalling mess within our banks has shocked the nation. The measures taken by the Government are necessary and are key to putting our financial institutions back on a sound footing in order that they can return to the business of serving the best interests of our economy.

The new Financial Regulator announced on 30 March that he will require our banks to have an 8% core tier one capital ratio, of which 7% must be equity. This is a prudent capital provision consistent with emerging international best practice. The regulator has specified that the capital to meet these new requirements must be in place in each of the institutions by year end. It is essential that banks in Ireland are prudently capitalised in order that they can absorb potential future losses that may arise on their loan books. Since the regulator's announcement, Bank of Ireland has announced its intention to raise €3.4 billion equity capital. A total of €1.7 billion of this amount will be raised from the private sector. This will ensure the bank meets the stringent capital requirements set out by the Financial Regulator. The strongly recapitalised bank will now be in a position to provide credit to Irish businesses and households. This will help the economy to return to sustainable growth. The level of private interest in investing is clear evidence of growing international and domestic confidence in both Bank of Ireland and our economy. The Bank of Ireland capital raising is consistent with the long-stated Government preference that private market solutions to capital raising are found and implemented. We remember views expressed both in the media and by some political parties that all our banks should be nationalised. Recent developments have shown that the Government has called that one correctly, even though some financial institutions have had to be nationalised.

As part of the transaction, the State has agreed to convert some €1.7 billion of its preference shares into ordinary shares at face value or par. The State has also agreed to sell its warrants back to the bank for €491 million in cash. This represents the profit generated on the investment over the past year. The coupon on the remaining preference shares is also increasing from 8% to 10.25%. This is a significant return for the State's investment in Bank of Ireland. The Bank of Ireland transaction agreement with the Minister for Finance provides a legal basis for the proposed Bank of Ireland credit package. Bank of Ireland's plan, which sets out how it proposes to meet the lending targets, will be submitted to the Department of Finance by mid-May.

AIB has announced its intention to dispose of various assets and to undertake equity capital raising prior to the end of 2010 with a view to meeting the Financial Regulator's capital requirement. It has also agreed to submit a lending plan to the Department of Finance by mid-May.

The overriding objective of the Government's banking policy is to ensure a healthy, functioning banking system that can meet all the needs of the economy. These actions are a crucial step in realising this objective.

The first tranche of loans have now been transferred from the participating institutions to NAMA with the exception of Anglo Irish Bank which is expected to be completed shortly. The estimated average discount to be paid by NAMA on the first tranche of loan assets is47%. The agency expects to complete the transfer of the remaining loans from all five institutions by the end of the year or February 2011 at the latest. In total, the agency anticipates it will purchase €81 billion in loans. The valuation process is conducted loan by loan so it is not possible to calculate the final haircut at this stage, although the 47% average haircut on the first tranche of loans is much higher than the initial estimates of 30%. As NAMA is purchasing loan assets from banks at a significant discount, it is expected to make a profit over its lifetime.

The Central Bank Reform Bill 2010 is a crucial step in the comprehensive programme to put in place a domestic regulatory framework for financial services which meets the Government's objective of maintaining the stability of the financial system, provides for the effective and efficient supervision of financial institutions and markets, and safeguards the interests of consumers and investors. This represents the first of a three-stage legislative process to create a fully integrated structure for financial regulation. It provides a statutory basis for the new structure to replace the existing Central Bank and Financial Services Authority of Ireland.

It is interesting to compare the debates on financial regulation eight years ago with those of today. There was a strong preference at that time to separate consumer interest regulation from prudential supervision. While one can say the results of what was chosen have been far from happy, the direction in which we are now moving is tightening rather than loosening the connection.

A second Bill to be brought before the Oireachtas this autumn will enhance the powers and functions of the restructured Central Bank. These powers deal with the prudential supervision of individual financial institutions, the conduct of business, including the protection of consumer interest, and the overall stability of the financial system. A third Bill will consolidate the existing statutory arrangements for the Central Bank and financial regulation in the State. This legislative programme is particularly demanding and complex but is also essential. A sound financial regulatory regime is fundamental to a sustainable and dynamic financial services industry.

Prior to the financial crisis, there was a view that the structures and systems responsible for financial regulation were effective and appropriate. As we now know, that confidence was misplaced. The previous regulatory system failed to prevent what we now know to have been grossly excessive and irresponsible lending to the property sector. As a result, our most systemically important banks have had to be recapitalised, with the State acquiring a significant stake in each institution.

The financial system overall has been severely shaken and customers and households are managing unprecedented levels of debt. Nevertheless, I believe public confidence in the system of regulation put in place by the Government is growing day by day. However, wide-ranging reform is urgently required. We need a system where the overarching objective of the stability of the financial system informs directly the supervision of individual firms while at the same time safeguarding the interests of consumers and investors. The Central Bank Reform Bill 2010 delivers on that clear and simple objective. It is important it is enacted as soon as possible.

The ethical considerations in respect of rewards for the performance of individuals in the banks has been far from satisfactory. Some of those rewards have been excessive. They have shown a complete insensitivity to people in the more exposed parts of the economy. I am glad to say there has been some recognition in the recent past that certain arrangements, while legal, were definitely not appropriate.

The banks must realign their business practices with the needs of the modern economy. The third Mazars report on lending to small and medium-sized enterprises, SMEs, between October and December 2009 was published last week. The report showed that credit applications in number and value terms rose slightly in the last quarter of 2009 over the previous quarter, which is encouraging. The level of applications for credit appears to be stabilising and Mazars also reported a small improvement in the overall credit approval rate. However, the reduction in the stock of credit, as repayments exceed new credit, and in credit quality reported by the banks remains a concern for the Government. To address this concern, the Minister has directed that AIB and Bank of Ireland are to make available a minimum of €3 billion each for new or increased credit facilities, including working capital targeted at SMEs, in the real economy in each of the next two years. To ensure the proper management of these funds the two banks will be required to submit SME lending plans, both by geography and sector, for 2010 and 2011.

Mr. John Trethowan, our new credit reviewer, will be reviewing bank lending policies as part of his remit. The Credit Review Office, which Mr. Trethowan heads, is available to review banks' decisions to refuse credit to small and medium enterprises. It will provide an independent opinion of the banks' decisions on whether the credit should have been granted. SMEs can also seek a review of a decision to reduce or withdraw credit. In addition to dealing with individual cases, the credit review system will examine the credit policies and practices of the banks in respect of SMEs. This will help the Minister to decide what further action might be necessary to secure the flow of credit. The Minister intends to publish the analysis from the review process so the performance of the banks participating in NAMA will be clear to all.

I should add a comment on the farm sector, which is an important part of our economy. Last week, the Irish Farmers’ Journal had a three-page report on the credit situation as it applies to farmers. My reading of that report was that the situation, while not completely satisfactory — and recognising that many people, and the supply industries, are in financial difficulties — was not an entirely black or bleak picture. It is not a subject on which I am receiving a lot of representations from farmer constituents.

The Government is conscious of the high value Irish people place on owning a home and of the huge efforts they make to secure and retain their home. From both an economic and social policy point of view, the Government is determined to assist home owners who are in difficulty with mortgage arrears.

There have been a number of developments relating to the Government's commitments in the renewed programme for Government dealing with protecting the family home and helping those in debt. In February, the Minister for Finance informed the Government of his proposals regarding expanding the membership of the interdepartmental mortgage arrears group, under the chairmanship of Mr. Hugh Cooney. The revamped mortgage arrears and personal debt group's terms of reference, which the Minister has approved, reflect the commitments made by the Government both in the renewed programme for Government and in subsequent Government decisions concerning the issues of mortgage arrears and personal debt.

The group has met on a number of occasions and will focus initially on bringing forward recommendations in dealing with mortgage arrears problems and will later address the personal debt issue. The group will report and make recommendations to the Minister on a rolling basis and will submit a final report to the Minister on the mortgage arrears issue by the end of June 2010.

The terms of reference of the mortgage arrears and personal debt group include a commitment to take account of the ESRI report on negative equity in the Irish housing market. All estimates of the extent of negative equity appear to be based on very general economic assumptions, but it is difficult to assess realistic price levels when property market activity remains low. Being in negative equity does not change the level of mortgage payments and the Financial Regulator has estimated that only a small proportion of borrowers with the covered institutions who are in negative equity are in arrears on their payments.

Senators will be familiar with the other supports available to protect homeowners who are in difficulty. In addition to the Financial Regulator's code on mortgage arrears, a number of additional support measures are in place. These include the mortgage interest subsidy scheme.

It cannot be denied that over the last 18 months, Ireland has faced extraordinary challenges. We are, however, facing these challenges head on. We have acknowledged the scale of our problems and we have taken the necessary actions to solve them. The banks have been forced to recognise their losses and this Government, on behalf of the taxpayer has committed the capital that will ensure we have a banking system to serve the needs of this economy as it recovers. The positive reaction of investors to Bank of Ireland's capital raising plans is a clear indication that we are on the right path, and I look forward to further positive developments in the coming months.

There are undoubtedly issues and controversies relating to the international banking system. That crisis has impacted greatly on the domestic one. For example, in the current British general election campaign, there is intense debate about some of those issues, which may have exacerbated the sub-prime mortgage situation. I recently received a visit from the Greek ambassador. In addition, we also have the whole issue of the concealment of the true state of the Greek national finances, which has had knock-on effects for all members of the euro zone. There are Members of this House who have significant knowledge and expertise not just in the area of national banking but also in international banking. Naturally enough I do not wish to hold them responsible for things of which they may only have a branch association, but it would be useful to have contributions to the debate from those quarters. A complaint was made to the European Commission regarding the ethics of some of the things we have put in place, like NAMA. In addition, the conduct of office holders in the other House has been an issue here. I hope that in the course of this and other debates, some of those issues, which I think are very important to this country, including the ethics of international banking and the response to some of the issues that have been raised in international debate, will be dealt with.

There is a debate on the degree of regulation that is appropriate in light of the experience we have had. There is also a debate around the issue of moral hazard, whereby if one has to bail out financial institutions is that not an incentive for them to behave irresponsibly in the future, with that implicit safety net. There is also the issue of what the banks and financial institutions should themselves contribute to the potential future costs of forced State rescue operations. All these issues need to be carefully considered. Clearly, the answers cannot just be national — they have to be international, otherwise one is creating competitive advantage in some countries rather than others. On many of these issues the western world has to move in convoy. Whether on this or another occasion, some of those issues are well worth debating as well as our own national domestic situation.

It is interesting that when the Minister of State came off script he mentioned the issue of moral hazard. He clearly started to play the man rather than the ball. In his comments, the Minister of State was clearly referring to Senator Regan and Goldman Sachs. That is rather unfortunate considering that in the speech he has just delivered, the Minister of State made no reference to the Government's role in causing this crisis or how Ireland has been hit hardest by it. It seems amazing that in the last 18 months, with all the moral hazard or lack of morality that has landed us in this mess, only the Minister for Finance was man enough to tell the Irish people that he was sorry about what has happened. Neither the former Taoiseach, Deputy Bertie Ahern, the current Taoiseach, Deputy Brian Cowen, the bankers who have been well rewarded and bailed out, nor any developers who have seen their loans and property companies moving into NAMA, felt any need to apologise to the Irish people. This is a contributory factor to people's anger, particularly when Mr. McDonagh from NAMA has announced to the Joint Committee on Finance and the Public Service that he will bring the wrecking ball to developers' fantasies throughout the country and when no apology has been offered to the people by any Minister for the mess into which the Government has got us. It is nice of them to offer legislation, but it is too late to correct the mess. Growth in the economy during the tenure of the last Government, up to 2007, was equivalent to the amount of money being borrowed by Irish citizens at the time, but the Minister at the time just laughed it off and found it amusing. The Government at the time was asleep with regard to what was happening in the economy and either through hubris or lack of moral courage fooled itself into believing there was no problem and did nothing about it. As a result, we now find ourselves in a situation where there are problems with the economy and the banking sector. The wider EU and global economies are also an issue and have an impact, but they are not the main issue.

Now that the banks have off-loaded billions of euro of their bad debts onto taxpayers, we are seeing how the economy is responding. The Bank of Ireland off-loaded €500 million in a rights issue at a discount of 15% to private investors, but such a 15% discount does not apply to the investment in the bank by the taxpayer. At the same time, the cost to Government of borrowing on the international money markets has widened to 182 base points, the highest level since the last budget. It is clear international money markets still have concerns about our economy, regardless of what the Minister of State had to say about the sector. I urge the Government to respond on this. By bailing out the banks, we are compromising the ability of the people to get out of the financial doldrums in which they find themselves. The customers of Bank of Ireland are the same hard-pressed taxpayers who will now be sacrificed for the benefit of the bank's shareholders. Interest rates on mortgages are increasing, but rates on deposit accounts are dropping. Every 0.25% rates rise adds a significant burden to the mortgage repayments of hard-pressed taxpayers, the same people who have seen income and pension levies and increased taxes because of the mistakes made by the current and previous Governments, no member of which has felt the need to apologise. People have noticed that the banks have now gone back to business as usual, putting up interest rates, cutting deposit rates and providing themselves with a nice pension. The response by the Taoiseach to this attitude, having bailed them out to the tune of €54 billion, is pathetic and has had a detrimental effect on how the people see the Government. It is strange to see how the bankers have moved on so quickly, leaving the taxpayers to clean up their mess. It is a sad reflection on the Government that it allowed this happen so easily.

The future of the economy is still not secure and deflation is still happening. When the Government talks about deflation, it sees it as something positive because in the short term, the cost of certain services and products reduces. However, deflation is a problem over the medium to long term because we are in the eurozone. The only way we can get out of the economic doldrums we are in is to grow the economy. We need to put significant growth into the economy by bringing about growth in jobs. Inflation in the eurozone can help this by reducing the effect of the debt we are carrying. The debt of individuals who bought a house for €300,000 four years ago who now see their incomes cut dramatically and face increased taxes has a more disproportionate effect on them than a couple of years ago. In order to get out of this situation, we must see significant growth in the economy and some inflation that will help reduce the effects of our huge debt burden. However, the contraction in our economy is still happening. It may not be as bad as the massive contraction that happened in the overall economy last year, but it is continuing. Hopefully, it will come to an end. We have turned no corners and there are no significant green shoots at this time, although it is nice to hear that job losses are decreasing and an end is coming to the contraction in our economy.

We must be honest with the people. Some Members have stood here and said they would like to hear more positive news. One thing worse than bad news is a false dawn or false hope, such as telling the people we have turned the corner or that the recession is over and them then hearing that more jobs are being lost, that the Government deficit has grown or other bad news. This only exacerbates their fears and anxiety and does nothing to encourage them to go out and spend to help us turn the corner. We need to be far more honest with people. However, I believe they are far too angry and despondent due to the actions of the Government to respond to Ministers speaking positively.

The reclassification of Anglo Irish Bank's loans as national debt has put us at the top of the league in the context of government deficits. This has an immediate and potential knock-on effect on the widening of the base points between us and Germany with regard to international money markets when it comes to borrowing more money. As the Minister of State is aware, our appetite and need for borrowing will not decrease in the next few years. We need an open debate with the people in that regard. We are in a hell of a financial mess. No more than the Minister of State, I would love to be able to talk things up and to see us come out this difficulty, but we must be honest with the people. The banking crisis is just one aspect of the current crisis and I am not as sure as the Minister of State we have come out of our difficulty so easily. There are still major concerns with regard to NAMA and we do not know if it will make a profit. Many people feel the project is still up in the air, whether people who have been negative about what it can achieve or those who are more impartial and have not been out to attack Government policy. They too are concerned.

External factors like those mentioned by the Minister of State also have an effect. For example, we have the situation in Greece and Ireland's position with regard to Government deficit. The Minister of State only referred briefly to other potential crises over the coming months. He mentioned businesses and households. Small businesses are still being squeezed and need to see a loosening on credit by the banks and the Government must be more proactive in getting credit flowing. It is only when we see job creation and some sort of stimulus to the economy that we will have any hope of getting out of this mess. This can be helped through a flow of credit from the banks into the economy. One way or another, we must get credit flowing to get things going.

Mortgages and personal debt are a problem. People borrowed heavily at the peak of the Celtic tiger and most of the money borrowed is personal debt such as household debt or on second homes. When I warned the previous Minister about the huge levels of debt being taken on by people, he said they were not just buying second homes, but third and fourth homes. We now see where that led us. Individuals have a product that is not making much, if anything, for them, but they face increased repayments on the loans they have taken out and their incomes are dropping. That means this problem could get worse in the future. When the Minister of State is addressing all of those aspects of the economy, the role of the international economy, the role of the banking sector, the role of Government in our economy and all the potential problems that exist in our economy, we need to be more honest about what is going on because we have not a hope in hell of getting out of this in the foreseeable future no matter what happens. However, if we start deluding ourselves that things are better than they are we will only prolong the agony and make it worse for the future.

I welcome the Minister of State and I welcome the opportunity to speak on the banks again. The attempts by the Opposition to hold the Government responsible are very interesting. It is something that Oppositions occasionally do. Senator O'Reilly outlined the case of how sometime in the past the then Opposition spokesperson, a Fianna Fáil Deputy, attempted to hold the then Minister for Justice, Nora Owen, personally responsible for an untaxed tractor in Schull in west County Cork. Of course it was then and is now not the responsibility of the Government. The Government is held accountable——

There is a big difference between tax on a tractor and the €54 billion mess about which we are talking.

Allow Senator Hanafin to speak without interruption.

The Senator could have used a better example than that.

I would like to hold accountable what Opposition Members are saying. They have made certain claims about the banking crisis. Even the spokesperson here today claimed that during the last term in the Dáil he outlined how we had a property bubble. That being the case, why in 2007 did he support the Fine Gael manifesto that proposed the complete abolition of stamp duty, which would have thrown petrol on the fire of a property bubble? Of course there is no answer to that.

The reality is that the world economy dictates most of what happens in Ireland. I welcome that because for years we have prepared this economy to be the third most globalised economy in the world. If one takes out the city state of Singapore, and the special administrative area of Hong Kong we are the most globalised economy in the world. That has stood to us for a long time because we have been able to export, earn and increase the quality of life and standard of living of the people in this country. Of course I am very proud of the work my party has done in ensuring we were an export-led economy. I am also very conscious that in many cases and in particular with the banking crisis, we imported a crisis.

There is no doubt we could have handled whatever difficulties we had here. We could have opted for a reduction in the construction industry. Many of the workers would have gone back home to eastern Europe where there is now a boom of sorts. We would have had to redirect spending towards capital projects, including roads, rail, a terminal at Dublin Airport and ports. That would have managed the economy at that time. That was expected and spoken about. However, the world economy and the world financial markets were in very severe danger 18 months ago. There was a real crisis in the financial markets. We were probably very lucky to have in Ben Bernanke somebody who understood the difficulties that might arise at an international level and handled the difficulties accordingly. He had knowledge of how the Great Depression was mishandled with all the wrong steps taken and how the Glass-Steagall Act stopped trade, protectionism took hold and banks were allowed fail. That is an interesting concept, allowing a bank to fail. To allow Lehman Brothers, which represented just 4% of the US GDP, to fail was considerably different from allowing Anglo Irish Bank, with €75 billion on deposit and more than half the Irish GDP, to fail. It is and was recognised by all involved, including Alan Dukes, that it was essential that we bailed out Anglo Irish Bank. It was a systemic bank to the Irish economy.

I am very conscious that European events and European banks were also among those that fell, the effects of which reached across here. For 17 years I worked for a building society that became a bank, First Active. I know the Minister of State will be pleased to hear that everything was working fine when I left in 1999. Notwithstanding that, to show how globalised the market is, First Active was purchased by Ulster Bank. Ulster Bank was purchased by the Royal Bank of Scotland. As we all know the Royal Bank of Scotland purchased ABN AMRO, which had €22 billion of non-performing debt. It was part of the sub-prime lending that nearly brought down the Royal Bank of Scotland. We are no different from the UK or America, but we have handled our banking crisis well. When we are held accountable not on the basis of knee-jerk reaction or soundbites but by what actually happened, the Government took responsibility and did its job well. The first thing we did was to underpin the banks by giving the guarantee, an action followed by the rest of Europe, which has proved to be one of the main reasons we maintained our economy.

Although we have a higher budget deficit than Greece, we are being praised for how we managed our economy and the Greeks are calling in the IMF. An opportunity is being presented to us with the world economy now expected to recover. There was a mini recovery in the markets earlier in the year which fizzled out because it was not believed to be sustainable. The current recovery is believed to be sustainable and we will benefit significantly from that. Particular banks coming out of the critical list are reaching recovery. We have now seen banks successfully complete fund raising and have paid significant moneys back to the State. I would like to see that continue into the future. In my opinion AIB, Bank of Ireland and Irish Life & Permanent are fully in recovery. There is no doubt that Anglo Irish Bank and the Irish Nationwide Building Society will need assistance for some time. We were all very disappointed at the mismanagement in the banking sector and the lack of regulation. Perhaps we should seriously look again at the level of regulation that was allowed to happen and ensure that never happens again. Light regulation was not the answer to the Irish banking situation. The strong regulation we have now with the direct involvement of the regulator in the insurance and banking industry can only be for the better in the long term. It will ensure solid businesses and solid banks. Of course we know the capital tier ratios, which the banks are now expected to hold, have been significantly increased. The requirements are for 8% tier 1 capital ratios, 7% of which must be held in equity. That being the case we will have well capitalised banks.

There is no point in us talking about why the banks are not lending to SMEs when the next day we see in the newspapers that 30% of SMEs are already not repaying the loans they have. It will take this recovery that is on the way. It is a very real recovery. The ESRI and the Central Bank of Ireland predict that the economy will begin to grow in the second half of this year. The ESRI predicts that in 2011 gross national product will grow by 2.75%, while the Central Bank of Ireland predicts it will grow by 2.8%. We can now look again with a different eye at the opportunities that are presenting. Of course China will race ahead at 9%, 10% or 11% this year. Ireland needs to look to the BRIC countries of Brazil, Russia, India and China to fully exploit the growth taking place in those countries. We note that exports have increased by 16% since December 2009. This is in the middle of a recession. If sustained, that increase could create 20,000 new jobs next year and 45,000 the following year.

More importantly, having studied finance and economics, I know of a simple equation that has not been lost on me. If somebody pays €20 million for a field outside a small provincial town on which no building will ever take place, while that person has lost that €20 million, somebody got €20 million. It did not leave the country; it is on deposit. There are vast sums on deposit in the State and once people feel comfortable again in their jobs, the economy and the future, they will start spending again. If only 10% of the money on deposit was moving in the economy, we would not have needed the budget we had in December. That is a significant figure. When the good times come round, they lift all boats. All sectors benefit and corporation and income tax, stamp duty and VAT all increase, in the same way they all decrease in a recession but expenditure stays the same.

What must we do for the future? We must continue what we are doing with the banking sector, we must speak confidently about the future of Irish banking because it does have a strong future, which has been borne out by the fact that Irish banking shares are increasing again and Bank of Ireland has recently been successful in raising funds. I have no doubt AIB will be successful in its fund raising when it sells its assets in the US and Poland to ensure the Irish market is well capitalised. The State is also ensuring the banks are starting to lend to SMEs. That lending will be significantly easier when the environment in which business works has been improved and that improvement is taking place. That is the reality.

Regulation has been a problem. We now live in a global economy. The purchase of ABN AMRO by a bank in England caused banks here to stop lending. We must have detailed security at European level and ensure our trading partners have strong regulation. Such strong regulation must specifically focus on those banks that are of systemic importance or lend in such a manner. I am thinking of derivatives, which are very dangerous. In Société Générale in France, €5 billion was lost. That was not a white collar crime that had no consequences. People lost their jobs. The banks should have an "own skin" involvement in any trade; they do not just lose someone else's money, they lose their own money. They should be heavily regulated and the amount they must have on deposit has recently been increased.

That is what makes me think we are going about this the right way. We have been correct in our attitude to the banks so far. It has not been easy but we have done the right thing and it will stand to us. We are moving out of the recession and that can only be good news for Ireland.

This morning on the Order of Business I referred to the pensions that were being claimed in Westminster. I should have referred to the allowances that were being claimed. A reference was made to people claiming pensions here who were not entitled to them. It is difficult to talk about a situation when that particular party was not in a position to speak about anyone else when he was claiming allowances he was evidently not entitled to.

I thank the Minister of State for coming to the House. It is important that we continue to have these discussions on developments in the banking sector.

We should begin by defining what a bank is, as that would help us in the future. Having banks which were too big fail in the system is what led to the huge problems in the American economy. It was not stated in quite these terms in the Irish economy, but it led to the same outcome.

In Ireland banks stopped being banks some years ago; they became financial institutions which bought building societies, stock brokering firms and insurance companies. They were on all sides of the argument. The consequence was that the local bank stopped being the local bank; it became a provincial office for a business director in Dublin. They lost expertise. I used to say there was no one in Ireland who could remember how to build a railway; therefore, it did not come as a surprise we were not building them anymore. In the same way we have lost banking skills. The local bank manager in a small town knew the businessman who came into his or her office to seek a loan. He or she made an assessment of the risk and the value of the loan to the business. He or she made other assessments, including based on previous experience. He or she also knew if the person concerned had been doing business in another bank in the town because bank managers knew each other and shared information. That stopped happening. Bank managers were under pressure to lend as much money as possible and lost the discretionary power to make decisions which were all made at the level above them. Consequently, they did not do this anymore. Effectively, they stopped being bankers. We speak regularly about the importance of money being available for small and medium enterprises. Some money is available, but the banks are afraid to lend; they can no longer make these assessments.

In the last 20 years the banks have changed. Had we been faced by this difficulty 25 years ago ACC Bank and ICC Bank had a particular focus to deal with small and medium enterprises, make funds available to them, manage the risk, manage loans and shepherd them. There is a strong argument being made by the Labour Party for a bank to deal with entrepreneurship and the development of business. The arguments in favour of having such a bank are strong, but I do not like the idea of a new, separate bank; I would like the banks currently operating to have stand-alone operations for this part of their business.

Why do I think this? I go back to the small town and the role of the credit unions. Irish credit unions have shown the value of assessing sub-prime risk. Many commentators use the phrase "sub-prime risk" as if it was the worst thing in the world. There is nothing wrong with it if the risk is managed. If the local credit union tenders a loan to someone who failed to get one from the banks in order that he or she can put up new shelving and extend his or her shop, if the members of the credit committee pass the shop as they go to their meetings and see that the work has not been done, someone will lift the telephone to find out what is happening with the money. There was hands on management of the sub-prime risk. On the sub-prime risk that brought the American company down, it involved people of straw with no assets or income being signed up to pay $5,000 a year for 20 years; that instrument was then sold on for a percentage of the value and it was then sold on to someone else. Eventually the person facing the risk had nothing to do with the original product. Banks should be required to face a degree of the risk involved in any loans they make. They are required to manage, shepherd and guide them. That is hugely important.

The other practice that should be ruled out is that of Goldman Sachs, which took both sides of a risk. In other words, that organisation encouraged people to make chancy investments which it had been advised would fail. It drew people to part with their money and as soon as the investments were set up and sorted, another part of the operation on another side of a Chinese wall put money into betting that those operations would fail, which they did. Ultimately, Goldman Sachs took money from the failure and the people who bought in so ill-advisedly will continue to pay into negative equity for the rest of their lives, or for whatever number of years can be imagined.

That is how Goldman Sachs worked. To make matters worse, it did something it does all the time, namely, using the differences between regulations in different jurisdictions. The instrument I described was European but Goldman Sachs channelled and routed it through the United Kingdom. As the Minister of State will be aware, UK and Irish law puts great stress on caveat emptor, or buyer beware. If one buys into a dicey operation in this country, as was proved in a major court case some six months ago involving one of the big developers, it is judged that one should have assessed the risk. The law here says buyer beware and the consumer pays whereas in Europe there is much stronger support for the consumer. Goldman Sachs knew that and therefore channelled this operation through the UK.

We also must look for global regulation rather than having, for example, one system in the United States under the Securities and Exchange Commission, SEC, and another in the UK, under its most recent name, the Financial Services Authority, FSA. That last came about because three years ago Britain decided its method of regulation was not working and set up the FSA as a new approach. There are also the European conventions which have made great progress.

I shall give the Minister of State an example concerning the quality assurance of auditors. There has been a significant debate in banking circles during the past week on how one firm of auditors got a big job in Irish Nationwide although it had not spotted the problems in Anglo Irish. I shall not go into that matter now because I am somewhat conflicted on it, being a member of the Irish Auditing and Accounting Supervisory Authority. However, Europe passed a statutory directive on auditing three years ago, seeking quality assurance. There are 28 countries in the EU and only one has not signed up to that directive, namely, Ireland. We were brought to the European Court of Justice and found to be guilty, at fault, or whatever the word may be. There was a report over two columns in the business pages of The Irish Times last Friday week but nobody took any notice of it. This will cost us money but apart from that it is a worry to me that Ireland is not leading on this.

I welcome the new consultation document brought out by the Financial Regulator in recent days. That is hugely important. We should remember that although the focus is currently on auditing governance is the real issue.

That is the reality, no matter what amount of auditing we put in place. When auditing was established in Victorian times, the function of the auditor was described as that of a watchdog, not a bloodhound. That is the reality. An auditor can only deal with the information he or she is given. If there is a lack of information, for example, where one bank does not reveal major transfers or another bank orders all its senior executives not to disclose certain fundamental facts about significant transactions, that is governance. No auditor will ever find that. It does not matter how strong the auditing system is if there is not good governance. Good governance means people being confident enough to say, "I do not actually understand this; explain it to me again", and, after hearing the explanation, saying, "I still do not understand that — can you spell it out for me?" Until we have people like that on the boards of banks we will never make the system work.

Senator Boyle has five minutes.

In these rolling, frequent but necessary debates we are having on our banking system, I believe we are beginning to see, if not the land of milk and honey, a few shafts of light to take us away from the dark dismal times we have known. We should highlight what is being achieved while not losing the run of ourselves by pretending this journey does not have a long way to run.

Many elements of policy that have been put in place are starting to have an effect and are seen to be working. As we analyse this, and perhaps when we look at this period in retrospect, we will see that many of the arguments we have been having have been the wrong ones. We have been focused on the wrong areas. I believe, for example, the debate on the National Asset Management Agency will be seen to be a very misplaced debate. As a mechanism NAMA is working and will be seen to work. The money that will be invested in Allied Irish Banks and Bank of Ireland will return to the taxpayer because there are long-term viable futures in both banks.

Where we need to take stock is in regard to the dead money going into the other institutions. The real fault in the banking crisis we have experienced over the past three years lay in practices such as those in Anglo Irish and Irish Nationwide, especially the latter. The sense of proportion or scale of the rottenness of its loan book, and the fact that it was not a publicly limited company but a mutual building society which brought about this type of cost to the State, is something we will find very hard to come to terms with, both financially and as we restructure our financial services system.

Others will argue that the cost was brought about by the granting of the bank guarantee scheme. I do not believe that even in retrospect will we see that as being the cause of the problem. The right choice was made. What we are dealing with is the scale of the problems that existed. I am not sure there were alternative policy approaches that might have taken us out of the situation. The fact is we had bad banks and these are being dealt with, at an appalling cost.

What we need to discuss in this Chamber is what we will do in the future. We must start to set our sights on what form a third banking force, or what is left of those banks, can take. I postulate that it must be a viable alternative to the traditional banks there have been in this country. It must not be a publicly limited company that maintains the elements of mutuality but puts into practice the type of philosophy that lay behind those financial institutions. Irish Nationwide, in particular, lost sight of this.

Perhaps, as Senator O'Toole suggested, by making use of the widespread credit union movement in Ireland we will be able to offer a mutual co-operative banking alternative to people. If we end up with a banking system made up of a number of large banks that are pale imitations of each other we will have failed to make the most of the few opportunities that exist for restructuring and making more sustainable our financial services into the future. This will involve a number of difficult changes in most of our banks and building societies in terms of the number and type of people who will be employed. These are difficulties we must deal with in the coming year.

The announcement of the appeal for funds through Bank of Ireland and the good response it has had indicates there is a belief that we can come through this. That said, the problems all of us have been concerned about since the start of this crisis remain to be tackled. If, ultimately, the widespread fraud that was practised in some institutions and by key individuals is not seen to be tackled, with the identification of those individuals, their being brought through a judicial process and the necessary prosecutions effected, much of the good work that is being done will be undermined. We must understand this essential truth if we want to bring about public confidence in the restoration of our financial services sector. This truth must be faced as much as the need to reform our political system, which we face on a daily basis. By one means or the other, we are collectively managing to do that.

On that note I would like to think that as we have these debates on a regular basis we can continue to look forward to a future where progress is being made but the necessary questions continue to be asked. This is not solely a Government responsibility and as there will be elections in future, there may be changes in government. Everybody must understand that this is a responsibility that will carry on for ten or 20 years. On that basis, if we take the right approach and make the right decisions, the progress that has been achieved can be sustained and we can return to better times.

I listened carefully to the speakers opposite, including the Minister of State, who started their speeches by telling us how they were satisfied or pleased that matters were starting to turn around and the position was changing. The phrase from the Minister for Finance, Deputy Brian Lenihan, in the budget was that we were "turning the corner". All these phrases were used. I sat back as I do not usually interrupt people, by and large, so I wanted to hear the examples of concrete achievement. I address my remarks to what Senator Boyle said a few minutes ago as well.

The indication was that action was beginning to bear fruit but no example is ever given. The only instance I have heard repeated is what the Minister for Finance said on radio yesterday morning about the people who Richie Boucher met when he went to Europe last week being very happy with us. The people Mr. Boucher had dinner with in Europe or wherever he was appear to be happy and the Minister for Finance said he was perplexed that everybody abroad seemed to be happy but nobody in Ireland is happy. That is because the people in Ireland are facing the brunt of what is occurring.

The Minister has spoken about finance ministers and other colleagues in European governments being supportive of what the Irish Government is doing. Forgive me if I am wrong but I do not think I have ever seen a minister in the European Union criticising a colleague about anything. What is this business about with people getting a pat on their back when they go abroad? They seem to think that is the approval rating needed. Of course, there is only one approval test and set of criteria by which we can meaningfully assess anything the Government is doing. That is the kind of delivery that some of the speakers opposite, when they come to their senses, would apply to the debate; it concerns when there will be real lending available to businesses and people in the Irish economy. There is no evidence that it has happened yet. I am sure if the Minister could find a morsel of evidence for it he would tell us about it all the time. There is no evidence.

I want to respond to some of the Minister of State's comments. It is almost laughable for him to come to this House speaking about the "honest and full disclosure by the Government and its agencies of the appalling mess within our banks". I cannot believe the term "honest and full disclosure by the Government". I did not know whether to laugh or cry when I heard him saying that. What disclosure has occurred, whether honest or full?

Where is the inquiry and the information for the Irish people so that we can assess what is happening? Where is the clarity from the Government and where is the information from which any of us could make some kind of intelligent contribution to the question of Anglo Irish Bank, for example? We can engage in rhetoric all we want — as the Minister might accuse us — but the fact is no direct and clear information has been made available to the Irish people even on something as vital as assessing the difference between letting Anglo Irish Bank go and continuing to bail it out.

Mr. Alan Barrett of the ESRI, an independent commentator with an independent body who I presume commands respect on all sides of the House, was asked on radio what he thought of this vexed question of Anglo Irish Bank. He said he was not in a position to answer the question. It has been often said the Government holds office on trust for the Irish people, and it has no right to conceal information. It has no right to put obstacles in the way of meaningful debate, whether in these Houses or in the public domain. That is what the Government has continued to do.

We have heard that we are turning the corner but every time an announcement is made it is the final frontier and the problem has been dealt with. In the announcement before Easter the Minister said the latest measures were decisive. I know the Minister must put something into his speeches that sounds halfway intelligible or interesting but people are reeling from those announcements. That is the level of people's response. There is no notion of people being impressed that the Government has taken what the Minister calls decisive action.

I will speak to the announcement on Bank of Ireland. There will be an attempt to characterise contributions like this as negative but if there is some evidence that what happened with Bank of Ireland last week and announced yesterday represents progress, I would have no difficulty in putting politics aside and welcoming it. I would say it is good for the country and banking system, and we will now see some change. However, the speech of the Minister of State and his senior Minister is that the strongly recapitalised bank will now be in a position to provide credit to Irish businesses and households. We should note the language.

That is not what representatives of the bank say. They characterise the measures last week as providing a strong capital foundation to support the bank's future growth and assist in its prudent disengagement from State guarantees. The priority of Bank of Ireland is to unshackle itself from State involvement, which I remind everybody went up this week rather than down. There is a celebration of what happened with Bank of Ireland but the Government has purchased over €12 billion in loans from that bank, with only approximately €5.5 billion performing, for almost €8 billion. The State has had to take action with Bank of Ireland, which as we know is the healthiest of the banks that the State is dealing with.

It is not as if something suddenly happened and the State had to intervene in the way it has. The Minister of State indicated earlier that he had listened to the Opposition and various other commentators, saying that a certain Opposition party — he was not sure which — had said all our banks should be nationalised. I invite the Minister of State to tell us which party he had in mind. If the Minister for Finance, Deputy Brian Lenihan, were here I would ask him to indicate who he had in mind when he said yesterday that there were people in the Opposition advocating that the whole system be nationalised.

The Senator's party has said that.

The Senators on the other side are obviously so clueless——

No interruptions.

There should be no interruptions.

——they cannot even pay attention to what is actually being said. That is a problem Senator Butler has from time to time. He thinks he hears statements he did not actually hear.

My hearing is quite good.

There should be no interruption.

No such statement was made.

The Senator is not like that.

In so far as Senator Butler is paying attention to this, Bank of Ireland is likely to be the only NAMA bank that will not be in majority State ownership. There is significant State involvement in all of this and the notion that we have acted correctly is a sham. It is an attempt to create spin on the part of the Minister, which is unacceptable.

On that note, I was here for the Minister of State's speech and had to step out briefly. As I stepped out I heard the Minister of State talking about ethics and paused because I thought it would be an interesting element to the speech.

The Senator has one minute left.

He was not discussing the ethics of Irish Nationwide, Anglo Irish Bank, the absent regulation or the failure and culpability of Government policy, a Government of which he is a member, during the past ten or 12 years. He was not discussing the ruination of the economy. He was making a snide and nauseating attack on a Member of this House——

——who holds shares in one of the international banks towards which the Minister of State wants to deflect our concern. I accept that what has occurred in Goldman Sachs has been despicable, but are persons who hold shares in the Irish banks that have been party to ruining our economy now to be the subjects of criticism by the Minister of State, whether they are sitting in front of him or anywhere else? Will shareholders in banks now be fair game for him? It was a nauseating, unnecessary——

He is a non-executive director.

Senator Alex White's time is up.

——and unworthy attack by the Minister of State. I am not sure what it was motivated by, but it was not motivated by any serious attempt to address the issues in this debate.

I do not want to be deflected in any way from what I was going to say, but I have sat and listened for the past ten minutes to the most cynical and unconfident contribution on an issue that is concentrating the minds of most people, namely, how to get ourselves out of this mess. I was waiting with a certain degree of expectancy and, as the speech neared its end, a growing sense of frustration. Not one positive proposal came from the contribution to which we have just listened. It was just a political rant, cynical political posturing with not one positive alternative or suggestion.

Nothing is coming from the Government side either.

The State investment bank.

No interruptions.

There was no suggestion whatsoever.

The Senator can read the record of his statement. I heard much rhetoric and many adjectives were used. I will say no more on it.

Senator Mooney should hear the Government's spin line.

Having said this, I will refute something. There is a growing perception that Fianna Fáil in government has somehow destroyed the economy. Could those who make this claim give me some specific examples of this in their contributions?

The Galway tent for a start.

Had it something to do with how we increased the workforce from 1.1 million to 2.1 million people? It is sitting at 1.8 million and the number of people unemployed is unacceptable, but the Government is taking measures to try to address the issue.

Look at the numbers unemployed. Look at the banks. Look at the unfinished estates.

Please, no interruptions.

Had it something to do with the increase in the number of teachers who came in under the Fianna Fáil Administration?

Fianna Fáil has taxed them out of existence.

Had it something to do with our capital spending, one of the highest amounts in Europe? Despite our financial difficulties, it is still one of the highest per capita.

And the Government said it would spend it. That is what got us straightened out.

Each Member has five minutes. No interruptions.

Rather than rhetoric being thrown out about the ruination of the country, I would like to hear specific examples when Members make their contributions.

It is borrowed money. The Government is borrowing for day-to-day spending.

The one thing I share——

I apologise to Senator Mooney. If there is to be interference, we will adjourn. I will ask anyone who interrupts to leave the Chamber. I expect neither side to interfere with anyone. People only have five minutes in which to make a contribution, so I want no interference.

I sat in silence, as I regularly do, while I listened to others' contributions, even though I fundamentally disagreed. I would like to take the opportunity of my contribution to rebut them. This is what I am doing. If a political charge is made by those on the Opposition side of the House, I am fully entitled to rebut the political charge on this side of the House. That is the nature of democracy and democratic debate.

I will share something with all sides of the House and use some of the words regularly used by Senator Alex White. I share the disgust at the way in which the banks have operated, but I am pleased the appointments to the Financial Regulator and the Central Bank — Professor Honohan in the latter case — and the submissions made to the various joint committees in recent weeks have revealed what was going on in the banks. If one is looking for the ruination of our economy, one need not go much further than the culture of secrecy and the lack of transparency within the banking system. Thankfully, it is being addressed by people who have been given teeth to do so. We will debate the Central Bank Reform Bill in the coming days. It will give legal effect to the two positions to which I referred.

Everyone has referred to one positive item of recent days, namely, the Bank of Ireland's share placing. It is not necessarily a vote of confidence in the bank but in the country. I appreciate Senator Alex White's comments on finance ministers not criticising one another, but he should examine what finance ministers and the ECB have been saying about the Greeks in recent weeks. For the past ten years, the Greeks have lied through their teeth about their country's financial figures. They lied so much so that it could enter the eurozone, which has us in our current state.

I wish to quote some of the comments made about what is occurring in Ireland. We have improved competitiveness, which will spur exports, our balance of payments is moving towards surplus and consumer confidence and spending are improving, as is business confidence. I have the graphs for Senator Alex White and anyone else who wants to see them.

I have all the graphs Senator Mooney needs.

The policies of this side of the House have boosted international confidence in our ability to recover. Jean-Claude Trichet stated: "In the case of Ireland very, very tough decisions have been taken by the Government and rightly so". JoséManuel González-Páramo of the ECB stated: "The Irish measures are very courageous. They are going in the right direction." The French finance Minister, Christine Lagarde, widely acknowledged as one of the finest finance ministers in the EU, stated: "Ireland has set the high standard the rest of us must follow". The German Minister for European affairs, Dr. Werner Hoyer, stated: "I think there is a deeply rooted trust and confidence in this country's ability to sort out its problems . . . There is a fundamental belief that the Irish are going to solve it." This is what we should be discussing in these Houses. We need to give the people confidence, not death cries to the effect that we are so badly off that the country has been ruined. Give the people confidence and we will get ourselves out of this.

I feel like crying having listened to Senator Mooney. The reality is that the rottenness of the loan books of the banks illustrates the poor regulation aided by poor Government policy. If there are green shoots of recovery and everything is turning around, the Minister of State gave no examples in his speech, which I read. I join other Senators in saying that it is a bit disingenuous of him to discuss ethics and morality when those of the higher level of the banking profession have been lost. We found them in the tent at the Galway races. Mr. Fingleton was a guest of Fianna Fáil's Galway tent. What was he doing in there?

Giving Deputy Bertie Ahern tips.

This is the type of cosy cartel that has us where we are today. Perhaps there are people in Fianna Fáil who are embarrassed by the link between some bankers and members of the Government during the past 13 years. They should be. The failed policy has brought us to where we are.

People discuss stopping the blame game, but that game must be out there if we are to learn how to move forward. The banks lost the run of themselves. There was no regulation. The former Minister, Mr. McCreevy, must also be held to account. A failed Fianna Fáil-Progressive Democrats ideology has driven us to this point.

I told a number of my friends who are business people that the Seanad would be debating the banks today. To a person, they told me that they could not do business. They can lodge their money at 3.50 p.m. every day and they must pay for everything, including cheques and back-dated statements. They told me the banks were impossible to deal with and would not do business.

I know of people who have overdrafts. As the Minister of State knows, the pendulum swings. People have credit one week. The next, when they are pushed to the maximum levels of their overdrafts, their bank manager rings them to ask them to come in and discuss term loans. The purpose of NAMA and the recapitalisation of the banks is, to use a great phrase, to allow liquidity to flow to small and medium-sized enterprises. Like Senator Alex White, I know this is not occurring. Bank charges and mortgage rates are all increasing. People owe money.

The banks have suddenly woken up to the light and decided that they do not want to get stung or be left holding the baby. What are they doing? They are passing everything on to the ordinary person struggling to survive. All Government comment on this issue is to the effect that we must increase our exports, expand our manufacturing base and develop the smart economy. However, the banks will not lend money and are putting the squeeze on ordinary people.

I welcome Mr. Elderfield's comments, both in general and those he made at the Joint Committee on Economic and Regulatory Affairs. He has indicated that he requires additional staff. His admission in this regard indicates that when compared to the position internationally, the system of banking regulation in this country is not being enforced to an appropriate standard.

Is the Government which is led by Fianna Fáil going to give the banks an easy ride or a free pass? Mr. Fingleton still owes €1 million. Last week Mr. Boucher was about to be given a €1.5 million top-up in respect of a pension that will realise over €300,000 per year. In what world do these people live? What society can sustain the payment of that type of retirement package to a person who, with his colleagues in the banking sector, got us into the mess in which we find ourselves? Ordinary taxpayers are upset by the fact that the Government is bailing out the banks and that it is they who will be obliged to shoulder the burden of payment. The people want the banks to lend money, jobs to be created, the lifeblood of the economy restored and those who caused this mess to be held to account in the strongest way possible.

I agree with the previous speaker on how the banks have behaved. In short, they have behaved in an appalling manner. The public will be obliged to foot the bill for bailing them out. It is important to bear in mind, however, that a new Governor of the Central Bank and a new Financial Regulator have been put in place. In addition, new legislation to support the activities of these two individuals is due to come before the House next week. The legislation to which I refer will ensure there will be no light touch regulation in the future of the banking system. From now on, that system will be properly capitalised and will, as should be the case, be run in a proper way.

The previous system of lending money to people should not come back into play. In recent years the banks became extremely irresponsible. If someone sought a mortgage, he or she obtained 90% or 100% and was also given extra in order that he or she might purchase a new car or take a holiday. That was ridiculous; it would never have been possible to sustain such a system of lending. When the situation relating to the banks has been dealt with, we will owe €32 billion or thereabouts. There is, however, light at the end of the tunnel because important sectors of the economy are showing strong signs of recovery. That is a welcome development.

I defend the action the Government has taken to get the banking system back on track. Two years ago everything was disintegrating and the Government was attempting to hit a moving target. It did two things: first, it introduced the guarantee scheme; second, it established NAMA. We would never have come to know what the banks actually owed if the latter had not been set up. The banks came clean on the basis that they were obliged to do so in order that they might transfer loans to NAMA. That is the only reason they revealed the actual position. Representatives of the banks appeared at successive committee meetings and told lies. They stated they did not want our money and that they would rather die than accept it. Suddenly, however, they were obliged to admit that they were broke. As a result, taxpayers are being obliged to bail them out.

It is important to bear in mind that the Bank of Ireland put on a good show in recent days. The fact that it is raising private investment shows that there is international confidence in the economy and the way the Government has reacted to the banking crisis. The European Union, the United Kingdom and elements of the international financial markets are convinced that the banking system in this country is now properly structured and being supported by the Government. The private sector is prepared to invest money in our new banking system.

We must ensure the banking system will be competitive. It cannot be the case that, ultimately, only two major banks will remain. There must be at least four or five banks. The position must be the same as that which obtains in respect of insurance companies. In the interests of the economy, it is vital to ensure there will be a good, competitive banking system in place and that money will be lent, not for the purchase of luxury goods but for the right reasons.

In the United Kingdom the banks that have been nationalised are prepared to accept 40p in the pound in respect of personal debt. Banks in this country could take in much more money if they accepted 40 cent in the euro. There is probably €35 billion they could obtain in this way which they might not otherwise obtain. I do not refer to those involved with NAMA in this regard, but rather to those who have personal credit issues. On personal credit, there will be a further downgrading and the banks should begin to try to take in some of the money to which I refer.

The banking sector is constantly changing. It has certainly changed a great deal since this matter was last debated in the House. While I welcome Mr. Boucher's decision not to retire at 55 years which would have necessitated the payment of €1.5 million into his pension fund, I must question why the board of Bank of Ireland rubber-stamped a deal of this nature in the first instance. Ordinary citizens are obliged to ask whether the people concerned live on the same planet. Have those to whom I refer learned anything from the largesse, extravagance and mistakes of the past? What were the public directors of the bank doing when these decisions were made? How could the Minister of State and the Minister for Finance allow such a situation to develop?

Following yesterday's announcement, the State's shareholding in Bank of Ireland will increase to 36.5% and the Government will retain the right to appoint 25% of the board of directors. Is it the Minister's intention to appoint further public interest directors to the board of Bank of Ireland? I am aware of the fiduciary duties of the bank in respect of public interest directors. However, people have an expectation that the individuals concerned will be given specific riding instructions by the Minister and his Department in order that the public interest will be represented at all times. Surely, that is why these directors were appointed in the first instance.

What is the position on AIB? The Government has capitalised the Bank of Ireland to the tune of 36%. When will we be informed about the plans relating to AIB? Surely, it will be necessary to increase the State's shareholding in this institution to a level above 50%.

The boards of these institutions have still not been cleared out. There are still people on them and in top management positions who sit comfortably in their jobs, despite the fact they presided over, to put it mildly, reckless practices. All these people must be rooted out and replaced sooner rather than later.

I wish to turn to the European Union and its recent rulings in respect of NAMA. Does the Minister of State envisage amending the NAMA legislation in view of the European Union's concerns? For instance, what is the position with regard to vesting orders and what effect will the rulings in this area have on the NAMA legislation? Moreover, how will the ruling on what the Revenue Commissioners can and cannot disclose affect the NAMA legislation? These areas require clarification and there is a need for complete transparency on such issues. The Minister of State should address these questions at the conclusion of the debate this evening.

The Financial Regulator also has made proposals regarding the fitness and competence of directors and management of banks and financial institutions, as well as in respect of corporate governance, and I await the Minister of State's comments in this regard. In addition, what is the position with regard to the third force in Irish banking, as previously advocated by the Minister? What is now envisaged in this regard, as not much has been heard about it from the Minister recently? The Anglo Irish Bank debacle and whether it should be wound up must be debated in this House. It is crucial that all the facts and figures are laid before Members to enable them to make an informed decision on this issue, which will have far-reaching consequences for generations to come. The Government and the board of Anglo Irish Bank have not chosen to share with Members the basis on which they concluded that keeping the bank going is the least expensive option for the State. I believe the European Commission's ruling changes the goalposts in this regard. As a piece in today's edition of The Irish Times stated, the European Commission’s ruling “has some bearing on the cost benefit analysis and in the interests of transparency some sort of clarification would be welcome” on this issue. I hope such clarification will be forthcoming this evening.

In particular, in addition to those accountants and solicitors who represented developers and banks, the role of auditors also must be scrutinised and I do not subscribe to the proposition that their own professional bodies should investigate any malpractice in this area. That is akin to saying one is going to court with the devil and the jury is from hell. It is taking a long time to bring people to court for their apparent fraudulent practices but all the so-called professionals who bent and broke the law must eventually be called upon to account for their actions. While the law must take its course, there is no doubt but that public patience is wearing thin in this regard. I hope the Minister of State will answer the pertinent questions I have raised this evening in a comprehensive manner. I refer in particular to those pertaining to the European Union rulings, on which he made little comment in his speech.

I welcome the Minister of State and welcome the opportunity to continue this debate on this important issue. At the outset, I wish to acknowledge the sheer white fury that exists on the part of ordinary members of the public with regard to the banking situation, banks and bankers. I am conscious of the thousands of front-line employees in banks who do the best they can and who perhaps have felt the brunt of this discontent and anger but it is not to them that I make reference. Rather, I make reference to the horrendous economic situation in which we have found ourselves over the past 18 months. Undoubtedly, given the international factors, we would have been exposed to very difficult times but it is clear the reckless and irresponsible actions that have been undertaken by some banks, driven by greed, have exacerbated our problems and have exposed us to incredible damage. They have exposed ordinary families and individuals to incredible anguish, worry and anxiety, whereby they face the threat of losing their family home, of not being able to maintain their payments or even becoming concerned by the thought of a son or daughter returning home from school with a request for funding to go on a day trip.

Undoubtedly, however, the actions that have been taken by the Government to restore banking also are essential. Functional banks are essential to a functional economy and we have no choice. However, I suggest an incredible lack of sensitivity has been shown by those who operate banks for the sensitivities of the members of the public who are feeling the brunt in this regard. I refer, for example, to the contemptuous pay rise awarded before Christmas by one bank to its employees. Although this bank had come to the State seeking financial assistance, when everyone else was being asked to take cuts, not only did it not do so, it actually intended to award pay increases. Moreover, I refer to one of the two main Irish banks and not to Anglo Irish Bank. Consequently, I call on the banks to demonstrate some sensitivity, appreciation and gratitude to the taxpayer for the support they are receiving.

Small and medium-sized enterprises also are essential to our recovery but the banks now have swung to the other extreme in that whereas previously they had any amount of money to hand out, they now have none. Not only are they withholding credit but they are withdrawing credit facilities with the result that small and medium-sized businesses are experiencing real difficulties in surviving. I do not ask any bank to give good money after bad but all Members can provide examples of viable businesses that simply need to be able to maintain their overdrafts or that may need to access a small loan. For this reason, I welcomed the measures that were recently announced and I welcome the additional funding in the form of the €12 billion that will be provided by AIB and Bank of Ireland. I ask the Minister of State to indicate whether the aforementioned banks yet have submitted plans as to how they intend to support the small and medium-sized businesses as they are required to do. I understand the requirement was that they would submit such plans to the Department of Finance within six weeks. Moreover, I welcome the credit review that will give an opportunity to anyone who has been refused credit.

On that issue, the credit review obviously is restricted to small and medium-sized businesses but I wish to speak briefly about families that face mortgage difficulties. I welcome the code of practice that has been put forward by the banks and the prohibition for 12 months on any action to repossess homes. However, the third point of the banks' code of conduct states that where reasonable agreement can be reached between the mortgage holder and the bank, the latter will agree to it. I request that a form of recourse should be put in place for those mortgage holders whose reasonable offers are declined by their banks. While the credit review is in place for business people, no similar measure exists for a mortgage holder who runs into difficulty and puts forward a proposal to the bank only to receive a response indicating the bank will not accept the proposal. At that point, there is nowhere else to go for the mortgage holder. There is no recourse, no independent appeal process and no independent review for the mortgage holder. Consequently, I ask the Minister of State to consider putting in place such a mechanism.

I welcome the Minister of State, Deputy Mansergh. I welcome the opportunity to say a few words on banking. When one considers the banks over the past ten or 15 years, they have behaved abominably towards the people who invested in them and towards those who carried out their ordinary banking business through them. A number of years ago, an issue arose in respect of foreign address accounts, whereby people were caressed into investing in such accounts by the banks. Yet the banks have walked away scot free. Shareholders and taxpayers have taken the hit. Previously the ordinary person who invested in foreign address accounts, at the behest of the bank, were taken to the cleaners and the Government has let the banks off scot free. All the banks are still in place — none of them has gone bust. Anglo Irish Bank has been rescued by the taxpayer and probably the Irish Nationwide Building Society will also be rescued. AIB and the Bank of Ireland and their personnel are walking away scot free.

I previously asked where it all went wrong. I have put forward my views, but the Government has not said where it believes matters went wrong. It has blamed the crisis on a global issue. Surely we have to examine our position. We have to examine how taxes were raised, the amount of tax that was being collected from housing and property transactions and capital gains. Surely the Department of Finance must have seen that matters were going out of kilter during the past four or five years. They must have seen that, otherwise we need a drastic change in the Department of Finance. We should own up to this. We should put on record what was the thinking in the Department in this respect because matters went massively out of kilter. Our economy was skewed and taxes were derived from construction, development and building. We should have some statement from the Minister on this.

Anglo Irish Bank was the greatest disaster to hit this country because it helped fuel the economy. It drove AIB, Bank of Ireland, Irish Nationwide Building Society and others into competition. They had to seek new business. They had to find new ways of finding money, selling money and putting money into the economy. I said in this Chamber about 12 years ago that there were too many financial institutions in this country and I was laughed at. People said we needed competition, but it is unregulated competition that has put us where we are today. In Castlebar, from where I come, there are 14 places where one can get, borrow or invest money. Surely it was and is unsustainable for a town the size of Castlebar, with a population of 12,000 to 14,000, of which there are many similar sized towns throughout the country, to have that number of financial institutions trading in money. There is no question about it. One cannot have 14 or 15 of the most valuable pieces of property in small towns such as Castlebar competing against each other. That must be examined.

I feel very sorry for ordinary people, whether they work in the public or private sector, who had wage increases during the past number of years and then had their wages drastically cut during the past year and half. They had budgeted for extra mortgages, perhaps for a second home, a new car or the security of their family in making provision for third level education. Those people are now under enormous pressure and something will have to be done for them. The mortgages these people have in most cases are enormous. If a general election was called, we would hear some concrete proposals from the Government side but as of now it does not have any proposals. The Minister must examine the provision of long-term mortgages, whether they be 50 or 90 year mortgages. I urge the Minister to examine if 50 or 90 year mortgages could be introduced. Such mortgages have been introduced in some countries. Spain has recently examined the introduction of them. I do not see any reason that cannot be done here for the hard-pressed people who are under enormous pressure trying to provide for their families, for education provision and so forth.

I remind Members that I must call the Minister of State at 8.09 p.m. and he will have ten minutes to reply, as ordered and agreed on the Order of Business. I call Senator Walsh who has five minutes; there will not be time for the other Members offering to contribute.

I will only take two minutes and will share the remainder of my time with Senator Mary White.

Is it possible to extend the time allocated by ten minutes to allow the two speakers offering to contribute?

The time allocated for statements has been ordered.

The time allocated on the Order of Business could be altered.

The Minister of State will have ten minutes to reply, as ordered.

We will share the time remaining.

Perhaps we could have another five minutes.

If there is a sharing of time, we might provide an extra five minutes to allow the Members offering to contribute.

Yes, an extra five minutes. That is agreed.

Senator Burke asked where it all went wrong. That reminds me of a good story about George Best, but I do not have time to go into it.

To some extent, this is a good news story with regard to the recapitalisation of Bank of Ireland. It means Bank of Ireland made fewer mistakes and was perhaps prudent — although that is probably not the right word to associate with banking given the fiasco that occurred during the past decade — or a bit more responsible than some of its competitors. They fact that it will raise this funding from the market and that this measure is oversubscribed is good. There are a few issues that arise. The amount being raised is €3.4 billion, €2.8 million net, which leaves a gap of €600,000 and I wonder what that gap will cover. I know there are certain costs attached to these, but I hope it is not only fees and costs that make up that figure.

In terms of the overall structure, the National Pension Reserve Fund is right to follow its investment by not allowing it to be diluted. That is good and it is in the interests of the return to taxpayers. It also underlines the good decision made by a former Minister, Charlie McCreevy, when Minister for Finance, in setting up the National Pension Reserve Fund. Were it not for those moneys we would be in rag order in trying to deal with the current banking crisis.

I very much favoured the structure that the Minister, Deputy Brian Lenihan, put on this initially. It was akin to what Warren Buffett did through Berkshire Hathaway when they invested in Goldman Sachs. He put in his investment in shares but he also took a very significant stake in warrants and they would yield a good deal of money. I am questioning the wisdom at this time of cashing in the warrants. Perhaps it was necessary as part of the restructuring but it might have been possible for the warrants to be exercised at a later date. Bank shares in Bank of Ireland will probably continue to rise quite significantly in the medium term and we could have got multiples of our investment because I am sure there was a price at which we could have exercised them. That is a point on which I want to hone in.

There is a need to examine the margins expanding within the banks because in respect of many people there will be collateral damage, which in turn will reflect on the banks and on their funding in the future. People who got mortgages will find it extremely difficult to meet their repayments at present and that will magnify when the margins increase. We should be getting the benefit of the ECB rate, which we are not getting, and I question that.

I thank Senator Walsh for sharing his time. I am conscious of the challenges facing small and medium sized enterprises. For all businesses access to funding is highly restricted. A recent survey by ISME indicated a refusal rate of 55% among companies which had made loan or overdraft requests in the three months to February.

The new funding arrangements announced by the Minster for Finance are an attempt to regenerate enterprise in the country. I would like to focus on the first two of them, the first being the new lending requirements for AIB and Bank of Ireland. The Minister for Finance, Deputy Brian Lenihan, said in his speech in the Dáil on 30 March 2010, that his overriding concern throughout this financial crisis has been to make credit available to viable small and medium businesses, sole traders and farm enterprises. As of 30 March the Minister has imposed new lending targets on AIB and Bank of Ireland of €3 billion each for 2010 and 2011. This will mean €6 billion this year and €6 billion next year. This new lending target must include funds for working capital for businesses. Bank of Ireland and AIB are to submit, within six weeks of the 30 March announcement, small and medium-sized enterprise lending plans for 2010 and 2011. These lending plans must consider geographical and business sector spread.

The second initiative taken by the Minister is the new credit review process. This new credit review office was established by the Minister on 30 March and the Government has appointed Mr. John Trethowen as head of the office. As credit reviewer, he will examine the bank's lending policies and practices. Applications for credit reviews are invited from borrowers who have already undertaken an unsuccessful appeal to the bank through the bank's own internal appeals process and who believe the bank's decision is unjustified. The banks currently participating in the credit review process are AIB, Bank of Ireland, EBS, Anglo Irish Bank and Irish Nationwide Building Society. Those not included are Ulster Bank, Bank of Scotland Ireland and National Irish Bank.

The bottom line of these changes is that if a company has been refused lending by a bank and if the credit review processor accepts it is not a high risk, the company — the sole trader, the farmer or whatever — can go to another bank and say the credit review processor said it is not a serious risk. I hope this will deliver the goods. Many people are sceptical but I believe this could be the beginning of green shoots appearing in the economy.

I appreciate I am in injury time so I will be brief. I thank the Leas-Chathaoirleach for giving me the opportunity to speak. I welcome the Minister of State and genuinely wish him and his Government colleagues well in trying to put structures in place which will make our banks work again, because we need to ensure there is a strong credit line and that the banking system is repaired. We cannot have an economy and economic activity without a properly functioning banking system. We have had many debates on the banking and financial crises, and we will need to continue to have more substantial debates.

I refer to what Senator Mary White said. I hope this credit review mechanism works because small business people, farmers and industrialists throughout the country are literally being shut down for the want of credit. The expectation was that once NAMA and the new structures were in place, credit would be made available. The Minister of State would have to concede that strong political signals were given during the NAMA debate that it was a first step towards ensuring credit would flow again. The NAMA piece of the equation has been put in place but credit has not yet been seen. We desperately need to see a return of credit facilities to enterprises and businesses.

As I said recently, all our policies must be about job creation. All legislation and regulations must have as their benchmark whether they will create jobs. The NAMA and banking solution measures which the Minister of State and his colleagues are putting in place must be stress tested against that benchmark as to whether they will create jobs. Unfortunately, jobs have not been created to date. They are being lost because credit is still not available.

I refer to householders, or mortgage holders, with unprecedented debt levels. With the reduced level of economic activity, major job losses and major losses in disposable income, mortgage holders face a crucial point in their ability to repay their mortgages. There is genuine fear among people — I know that is an often used phrase — that their houses will be repossessed. It is much too simplistic to talk about NAMA for householders. If life were that simple, we would have no problems. The Minister of State and his Government colleagues must urgently try to put in place a workable scheme whereby people will be content their houses will not be repossessed and that there is a possibility of light at the end of the tunnel.

The Leas-Chathaoirleach suggested longer-term mortgages, which happens in a number of countries. I am sure there is not a one-size-fits-all solution to the mortgage crisis. Shortly, tens of thousands of people will have mortgages worth hundreds of thousands of euro on houses worth perhaps only €100,000. We desperately need to start to talk about those people and their problems.

There is an old phrase that a little knowledge is a dangerous thing. Every second person seems to be an expert on banking. However, we need to have a robust and sensible debate. We all must start from the point that we need a workable banking system. I wish the Minister of State and his colleagues well. I have grave doubts about what is happening but we need to continue the debate. Will the Minister of State keep at the top of the agenda mortgage holders who are desperately worried about their future and that of their families? We need to keep people in their homes. There is no other way out of this crisis but we must at least ensure people's homes are not repossessed.

The financial and economic challenges have brought us all to a new level of deep concern and crisis. The current banking crisis is different in nature from anything we have ever experienced before in this country. It has enormous consequences and it is far-reaching and total. It is felt everywhere and it fuses through every sector of our community.

The public is anxious. It knows it is not directly responsible and yet it is being asked to support difficult measures. Certain actions by the Minister for Finance, Deputy Brian Lenihan, and the Minister of State, Deputy Mansergh, have hurt almost all of us in some form or fashion. However, the Minister and the Minister of State have amassed great admiration at home and abroad for the difficult decisions they have taken.

The global credit meltdown and the changing economic landscape have resulted in testing financial times for almost everyone. The past few years have, at the very least, been trying if not downright scary. Dramatic falls in house prices, pay cuts and increased unemployment have created difficult financial pressures on a sizeable proportion of the population. I concur with much of what speakers said about home mortgages. Many people have witnessed their personal wealth diminish, not only mortgage holders but people who invested in property, pension funds and so on. Their burden of indebtedness has escalated. While insecurity of income and employment are not one's own fault, when a number of calamities happen outside one's control, it is easy to see oneself as a victim.

There are many variables and matters of opinion currently. Fundamentally, the issue is how we got ourselves into this position and how we find a solution out of it. There are many reasons to be optimistic, regardless of one's current circumstances. A path to recovery is being laid by this Government. Its decisions to date have proved to be the correct decisive decisions and that has been said at home and internationally by many eminent people.

We all want the ability to cope without becoming negative and surrendering. We need to be resilient to deal with adversity and we need the confidence and skills to address the difficulty, whatever it may be, and the ability to recover and take on the new challenges. I wish the Minister of State, Deputy Mansergh, the Minister, Deputy Brian Lenihan, and the Government continued success in what now looks to be the turning point and in giving us the leadership necessary at this time.

I thank Senators who contributed to this debate. I will try to be reasonably brief in reply. Not for the first time I was a bit taken aback by the extreme pessimism expressed by the Fine Gael finance spokesman. He said there was not a hope in hell of getting out of this in the foreseeable future, regardless of what happens. I do not accept that bleak perspective and also very much doubt if the Senator's party accepts it. I presume Fine Gael believes that if it was in government, it would have some hope of getting out of the situation. Developments in Bank of Ireland show an ability to bounce back. My personal belief is that the bounce-back, when it occurs, will be quicker and stronger than anyone credits. Without going into detail at this stage, the Government believes the State secured a good deal in its arrangements with Bank of Ireland.

Senator O'Toole always makes a most interesting contribution. He and several other Senators referred to the problem of banks not lending. The Minister for Finance, in his statement on 30 March, directed Allied Irish Banks and Bank of Ireland to make available a minimum of €3 billion in each of the next two years for new or increased credit facilities, including working capital targeted at small and medium-sized enterprises in the real economy.

I was asked where I was when much of the irresponsible lending took place. As many are aware, I was in this House.

I was also asked a question about Allied Irish Banks. As I noted, the bank must submit a lending plan by mid-May. A few years ago all of us had experience of banks pushing loans, credit cards, etc. at us and suggesting we borrow this or that. An issue not often raised in public debate, one on which there is no disagreement across the House, is that the media, in their various supplements, also engaged in a tremendous hype of the property boom and bubble. They show no sign of acknowledging co-responsibility.

The former Taoiseach, Deputy Bertie Ahern, also engaged in a great deal of hype.

On the subject of light regulation which is portrayed as a Fianna Fáil-Fine Gael disposition, this approach was the conventional wisdom across much of the western world. It is interesting that in the general election campaign across the water the Prime Minister, Mr. Gordon Brown of the British Labour Party, has fully acknowledged that he was persuaded of the case for light regulation and accepted that he was wrong.

Senator Cummins asked about amending the legislation on the National Asset Management Agency. There are no plans to amend the legislation.

What about the EU rulings?

There are four stages in NAMA's operations. Following the transfer of loans, borrowers' business plans are evaluated and either agreed or not accepted by NAMA. This is followed by stage 4, enforcement of security, which could involve several alternative courses of action.

Senator Bradford and others raised the question of——

What about the EU rulings on vesting orders and the Revenue Commissioners? The Minister of State is refusing to answer questions on the European Union.

I will address them.

Senator Bradford and others raised the issue of repossessions. In 2009 the number of home repossessions totalled 28 for the institutions covered under the bank guarantee scheme.

The EU reclassification of the assistance provided for Anglo Irish Bank does not make any difference to the underlying position. It is also clear the markets accept this is the case.

What about the vesting orders on which the European Union commented?

That is not an issue.

What about the ruling on what the Revenue Commissioners can and cannot do? The Minister of State is not addressing these questions.

I will answer the questions I am able to answer.

The Minister of State is not answering the questions he was asked.

The Minister of State must be allowed to continue without interruption.

I answered Senator Cummins's question on whether amending legislation would be introduced on NAMA. I have also answered several other questions.

The Minister of State is refusing to answer questions.

This is not Question Time.

What about Anglo Irish Bank?

On a point of order——

A point of order cannot be made when a Minister is speaking.

The Minister of State should be allowed to speak without interruption.

He should answer the specific questions he was asked. He has not done so.

If the interruptions do not stop, I will have no choice but to suspend the sitting.

The Minister of State should answer the questions asked.

I will address my remarks to the Leas-Chathaoirleach. As Senators will be aware, there is no Question Time in this House.

On a point of order, the Minister of State has indicated there is no Question Time in this House. The Leader informed us there would be time for questions.

The Senator may not make a point of order when the Minister of State is speaking. Please allow him to continue without interruption.

I have answered most of the questions asked in the debate. It is never possible to respond to every single point made in a debate. I am sure opportunities will arise almost weekly to raise these matters further.

When is it proposed to sit again?

Ag 10.30 maidin amárach.