The Government statement on 28 November announcing the EU-IMF programme for Ireland included as part of the bank recapitalisation and restructuring measures the commitment to prepare specific legislation to support immediate restructuring actions. This legislation has now been published as the Credit Institutions (Stabilisation) Bill and received Dáil approval last night. I can appreciate that some Senators take exception to the fact that the measure is being rushed through the House with considerable speed and expedition. It went through Dáil Éireann in the same way yesterday. However, it is important that we reflect on the nature of the crisis that emerged in the Irish financial position in recent months.
The position with regard to banking issues was made very clear to us with the gradual erosion of the deposit base of the banking system and the insistence by our European partners that we take immediate action to address this issue.
In respect of the fiscal position, the necessary actions were taken in the four year plan for national recovery and in the budget. In the case of the banking crisis, the immediate actions can be dealt with under this legislation. This is why it is urgent. The various approaches taken by the Government to date through the guarantee scheme, recapitalisation and the establishment of asset relief through NAMA were all specifically endorsed by the EU, the IMF and the ECB. However, if a criticism was made of us it was that we did not move with sufficient speed and expedition in these matters. We had many leisurely debates, sometimes too leisurely, on previous banking measures. This legislation enables us to take swift and immediate action.
The detailed recitals contained in the Bill set out the fundamental rationale for this legislation. They highlight the relentless negative effect of the banking crisis on this State's economy and the need in the public interest for strong measures to resolve the continued serious threat to the stability of the financial system generally. The preamble to the Bill strongly underlines the need for the functions and powers provided under the Bill to effect a reorganisation of the guaranteed domestic credit institutions in the context of the National Recovery Plan 2011-14 and the European Union-International Monetary Fund Programme of Financial Support for Ireland, consistent with EU state aid requirements.
As the Senators will be aware, the key elements of the programme include an immediate and significant recapitalisation of the banks; stringent stress testing and rigorous validation of asset valuations, which may result in further recapitalisation, as required; and a substantial downsizing of the banking system by way of the identification of non-core bank assets and the disposal or run down over time of these assets. The powers provided in the Bill allow the Minister for Finance to execute key aspects of the agreed support programme for bank restructuring. Direction orders may be issued to relevant institutions to take or refrain from taking any action in support of the Government's banking strategy. Transfer orders may be issued in respect of relevant institutions' assets and liabilities to facilitate the restructuring of the banking sector. Consistent with the terms of the support programme, subordinated liabilities orders can be made under particular conditions to achieve appropriate burden sharing by subordinated creditors in relevant institutions which have received State support.
I draw the attention of the House to a particular policy priority under the Bill, namely, ensuring that the reorganisation and restructuring measures are recognised in other EU member states through the mechanisms available in the European Communities (Reorganisation and Winding-up of Credit Institutions) Regulations 2004, which implement the credit institutions winding up directive, CIWUD, in Ireland. This is an important issue because many agreements entered into by Irish credit institutions are governed by the laws of other EU member states. It goes without saying that all the powers provided under the Bill must be implemented in a manner fully consistent with EU state aid requirements.
In any situation where a Minister is provided with strong powers, as is certainly the case in this Bill, there is a need for appropriate judicial oversight of the exercise of these powers. The Bill ensures significant judicial supervision of any proposed orders that the Minister prepares. In respect of each of the four orders for direction, special manager, transfer and subordinated liabilities, they are provided for and are to be utilised in a manner which is fully consistent with our legal and constitutional framework.
Any proposed order under the Bill must be confirmed by the High Court, which must be satisfied regarding the legal process undertaken, including in relation to securing the views of the affected institutions and the reasonableness of the Minister's proposed decision making within the framework of the overall Bill. Moreover, the High Court may set aside, amend or vary an order if it thinks it appropriate and an affected party can apply to the court within a five-day period to have the High Court order set aside. These orders may be subject to judicial review or appeal to the Supreme Court. There are restrictions on when judicial review and an appeal may be made. This approach is in keeping, for example, with the measures adopted in the National Asset Management Agency Act 2009 and in planning legislation. Therefore, the exercise of the Minister's powers is conditional upon High Court scrutiny and approval by way of High Court order, including through the participation in the courts of affected parties. Importantly, court orders made under the legislation will be recognised in other jurisdictions.
The powers provided under the Bill are fully in accordance with the Constitution. In addition, section 53 will ensure the effective operation of the Bill. Any orders made by the court must be aligned in an appropriate manner with legislation on the Statute Book in order to avoid any actual or perceived conflict of laws. Section 53 ensures clarity and certainty on how the strong powers provided under the Bill interact with the existing legal framework. The purpose of section 53 is to ensure the implementation of the powers in the Bill is consistent with the technical and procedural requirements in existing provisions in any other enactment, rules or other relevant legal documents which might otherwise apply to the business of credit institutions. This is important because any inconsistency will be an obstacle to the implementation of the orders which can be made under the Bill. For that reason, unless otherwise provided, the provisions in the Bill have effect notwithstanding any other provisions in any other enactments, rules of law, codes of practice, listing rules, memoranda and articles of association or any other agreement. It should be obvious that section 53 is an essential provision of the Bill. There is no question whatsoever that it usurps the role of the Houses of the Oireachtas by enabling the Minister to make orders that make or change laws. These powers are reserved to the Houses of the Oireachtas by our Constitution. The Oireachtas will be amending existing enactments, rules or other relevant legal agreements in this Bill. The orders referred to in section 53 are orders of the High Court. While the Bill provides that the Minister can make a number of proposed orders in respect of directions, special management, transferred and subordinated liabilities, only the High Court can make orders under the Bill. The orders that the High Court can make on foot of my proposed orders relate to matters which are clearly and comprehensively set out in the legislation. There can be no doubt that section 53 is a necessary and proportionate provision in the Bill overall to ensure the efficacy of these orders to intervene in the business of credit institutions.
I will address the key provisions of the Bill. Section 2 sets out the definition of a number of terms used in the Bill. A key definition in this section is that of a relevant institution. Section 3 provides the Minister with the power to prescribe any body corporate with a registered office in the State as a "relevant institution" for the purposes of the Bill. Section 4 sets out the purposes of the Bill which I have already outlined for the House.
Section 5 safeguards the independence of the Governor of the Central Bank. Section 6 provides the Minister with the discretion to agree a framework to govern the relationship between the Minister and the Governor in regard to the exercise of the Minister's powers under the Bill.
Part 2 of the Bill addresses the making of direction orders. While important powers of direction are available to the Minister for Finance under the eligible liabilities guarantee scheme, it is important to strengthen the legal basis for that power of direction under the Bill. Section 7 sets out the circumstances under which the Minister can make a proposed direction order. Sections 8 to 11, inclusive, set out the procedures for the court to make a direction order on the terms of that proposed order.
Part 3 is an important part of the Bill because it gives the Minister for Finance the power to appoint a special manager with knowledge, expertise and experience of the financial sector to take over the management of a relevant institution where the Minister believes this is necessary for the preservation or restoration of the financial position of that institution. This is an important legal innovation because it provides a mechanism that can be used as an alternative to nationalisation. The special manager is required to operate the institution in a manner consistent with the objectives of the Bill, thus helping to ensure the conduct of the special management is at all times underpinned by the public interest in the maintenance of financial stability. Sections 20 to 24, inclusive, provide for the special management arrangements.
Part 4 provides the Minister for Finance with powers to take certain actions in respect of the subordinated liabilities of relevant institutions to which financial support has been provided under the Credit Institution Financial Support Act 2008. The purpose of this Part is to achieve appropriate burden sharing with holders of subordinated debt in the relevant institutions under the particular circumstances set out in the Bill.
Part 5 gives the Minister the power to make a proposed transfer order which would transfer all or any of the assets and liabilities of a relevant institution where the Minister believes it is necessary to achieve the purposes of the Bill. Section 38 provides for the provision by the Minister for Finance of financial incentives to a transferee but the Bill is clear that any such financial assistance is a debt due and owing to the State by the transferor. Part 6 addresses potential existing administrative and legal requirements whose effect might otherwise impact adversely on the achievement of the aims of the Bill.
I especially draw Senators' attention to a key section — section 48 — which provides that the overriding duty of directors of relevant institutions will now be to the Minister for Finance, on behalf of the State, to have regard to certain purposes of this Bill. Prior to the enactment of this legislation, the primary duty of directors had been to the bank company. Part 7 contains a number of miscellaneous provisions.
Section 51 provides that nothing in any enactment or rule of law can prevent the Minister for Finance from imposing any terms and conditions relating to the provision of financial support which would be desirable in the public interest. Where the taxpayer is providing extensive support for an institution, there will be grounds for the Minister for Finance to impose conditions on that support in regard to bonuses.
Section 52 is an important section the purpose of which is to ensure orders made under the Bill are consistent with the EU credit institutions winding up directive, as I have previously outlined. Sections 55 and 56 are important and allow the Minister for Finance to exclude a particular institution as a relevant institution under some or all of the provisions of the Bill for a specified period or to declare that the Minister will not exercise all or any of the powers conferred under the Bill in respect of a specified institution for a specified period.
Section 59 provides that the fact the Minister has made or proposes to make a proposed order under the Bill must be kept confidential. Sections 63 and 64 provide for the limitation of judicial review and of certain rights of appeal to the Supreme Court. Section 67 is required to comply with the loan agreements with the European Financial Stabilisation Mechanism and the European Financial Stability Facility under the EU-IMF support programme. Section 69 provides that the provisions of the Bill, other than sections 51 and 67, will cease to have effect from 31 December 2012, or later if decided by a resolution of both Houses.
The Bill provides for the amendment of a number of other enactments. The building societies legislation is amended to facilitate the conversion of building societies into private limited companies. Section 72 amends the Central Bank Act 1942 to allow the Central Bank to share confidential information to facilitate the Central Bank, the Minister, the Governor, the head of financial regulation or a special manager. The amendment of the Central Bank Act 1971, under section 73 of the Bill, is proposed to facilitate a more expeditious transfer of a banking licence holder's business, including assets and liabilities not directly associated with its banking business.
The purpose of the changes to the Credit Institutions (Financial Support) Act 2008 under section 74 of the Bill are to ensure the Minister for Finance can provide financial support other than by means of direct guarantees and assistance and, in particular, can provide financial support through the normal capital markets structures.
The purpose of the amendments to the National Asset Management Agency Act 2009, under section 75 of the Bill, is to limit the right of appeal to the points which the High Court certifies for appeal to the Supreme Court. It also requires that any appeal be determined by the Supreme Court acting as expeditiously as possible, consistent with the administration of justice.
Section 76 of the Bill provides for a number of amendments to the National Pensions Reserve Fund Act 2000 to enable the Minister for Finance to suspend or reduce the annual contribution to the fund for the duration of the programme; to direct the National Pensions Reserve Fund to invest in Government bonds; and to direct the National Pensions Reserve Fund to make payments to the Exchequer for capital expenditure purposes for the duration of the programme.
The purpose of these amendments is to facilitate the State's own contribution to the EU-IMF programme of financial support for Ireland over the next three years. It is without question that the powers being provided for the Minister for Finance under the Bill are extensive. They are, however, targeted and proportionate to the scale of the challenge we face. They are subject to consultation with the Governor of the Central Bank and within a clear framework for appropriate judicial oversight. It is important to note the programme also requires us to prepare and publish bank resolution legislation of a more comprehensive and final character by the end of February. The Governor will have a central role in that legislation.
In regard to the current emergency, the Minister for Finance, whoever it may be, must take responsibility and be accountable to Dáil Éireann for the substantial sums of money entailed by our commitment to this programme. For that reason, the powers are conferred on the Minister for Finance in this legislation rather than on the Central Bank. Those powers will lapse at the end of 2012 and much of this legislation is, in substance, resolution legislation. Specifically the provision dealing with the assets and liabilities of banks and the power of the Minister to direct a bank to sell or dispose of assets or liabilities can facilitate very wide-ranging restructuring of the banking sector. I am sure Senators will agree it is of fundamental importance that the Minister for Finance should be equipped with the range of legal powers necessary to continue to maintain financial stability in the State. That is the aim of the legislation before the Seanad.
I commend the Bill to the House but regret I will not be in a position to hear the Second Stage contributions of Senators. I will conduct Committee and Report Stages when I hope we can have a constructive debate in elucidating some of the sections in the legislation within the limited period of time available.