Finance (Certain European Union and Intergovernmental Obligations) Bill 2016: Second Stage

Question proposed: "That the Bill be now read a Second Time."

Minister of State at the Department of Finance (Deputy Eoghan Murphy)

I am pleased to present the Finance (Certain European Union and Intergovernmental Obligations) Bill to the House. It should be noted that the Bill is very much of a technical nature, designed primarily to address an international obligation arising from the banking union agenda and to allow Ireland fulfil its obligations under the criminal sanctions for market abuse directive.

The basis for the Bill is the requirement to put in place bridge-financing arrangements to the Single Resolution Fund. This was triggered by the statement of 18 December 2013, adopted by Eurogroup and ECOFIN Ministers on the funding of the Single Resolution Board. It required, particularly in the early years, that member states participating in the Single Resolution Mechanism to put in place a system by which bridge-financing would be available as a last resort and in full compliance with state aid rules. It was also stated such arrangements should be in place by the time the Single Resolution Fund became operational.

The Single Resolution Fund is the financing element of the Single Resolution Mechanism, designed to provide, within a banking union context, a centralised resolution system which will be applied in a uniform fashion across all participating member states. The Single Resolution Mechanism is the second pillar of the banking union and will ensure that if a bank subject to the Single Supervisory Mechanism was to face serious difficulties, its resolution could be managed efficiently with minimal costs to taxpayers and the real economy through the application of resolution tools such as bail-in and the use of the Single Resolution Fund, financed by the banking sector.

The target level for the Single Resolution Fund is at least 1% of the amount of covered deposits of all credit institutions authorised in all the participating member states, which is to be reached at the end of eight years. This is estimated to be approximately €55 billion. During the transition period to full mutualisation, the fund will operate through national compartments into which member states will transfer the contributions collected from their banking sectors. In practice what this means is that should a bank be put into resolution and the bail-in which involves the write-down of a minimum of 8% of the bank’s equity, capital instruments and eligible liabilities, proves insufficient to cover the losses, the next step will be the provision of funding from the national compartment of the affected member state. If there are still losses to be absorbed after this step, funds are then obtained from the mutualised elements of other national compartments. There is also the option for the Single Resolution Board to borrow from the market to cover losses.

Depending on the scale and circumstances, however, this may not always be possible. As a result, the Single Resolution Board may find itself in a situation, especially in the early years, where there are still losses to be absorbed after the bail-in process has been completed and the resolution waterfall process has been exhausted. In such a situation, it will require an alternative source of financing. It has been agreed by the Council of EU Finance Ministers that this should take the form of national credit lines. Most member states have either already put national credit lines in place or are about to do so, as there was a commitment following European Finance Ministers’ agreement on the approach last December that this needed to be in place by 1 January 2016. This was an ambitious target but the European Council conclusions on a roadmap to complete the banking union, published in June 2016, noted that all remaining member states were committed to signing the loan facility agreement by the end of September 2016. Accordingly, it is crucial we progress the Bill as quickly as possible to enable Ireland to meet its banking union obligations.

The consequence of not signing the loan agreement with the board is that should an Irish bank get into financial trouble before the enactment of this legislation, the funding available to the Single Resolution Fund will come from the small amount in the Irish national compartment - €173 million - which was transferred from the national resolution fund for 2015 and 2016, with the mutualised elements of the other national compartments, also only a small amount, and any borrowing the Single Resolution Board can carry out. However, if this were to prove insufficient, there would be no fall-back source of financing from the Single Resolution Board as the national credit line would not be put in place. It is important to point out that the banks are currently in good health. I believe the likelihood of this loan facility agreement ever being called upon is minimal. However, the provision of this national backstop for the Single Resolution Board is key from a confidence perspective as it provides another indication for the market that the banking union member states are serious about ensuring stability in their banking sectors.

The loan facility agreement is an individual agreement between each participating member state and the Single Resolution Board on the credit line they commit to provide for it where the need for bridge-financing arises. The terms and conditions of each agreement are, broadly speaking, identical, aside from the amount to be requested from each member state. The loan facility agreement provides that the maximum aggregate to be provided by all member states is €55 billion. To determine the share of each participating member state, it was agreed to use the relative size of each member state's compartment in the Single Resolution Fund using the estimate of the European Commission as of 27 November 2014. This constitutes the allocation key between participating member states for determining their respective credit lines.

Senator Denis Landy

On a point of order, may we have a copy of the Minister of State’s speech?

Acting Chairman (Senator Gerard P. Craughwell)

I have just checked and the Minister of State does not necessarily have to provide a copy.

Senator Denis Landy

I know that he does not. I am asking for permission for him to give us a copy.

Senator Kieran O'Donnell

Could the officials photocopy three or four copies of the speech?

Deputy Eoghan Murphy

I apologise as a copy should have been provided.

Acting Chairman (Senator Gerard P. Craughwell)

We will have copies made.

Senator Denis Landy

I thank the Minister of State.

Deputy Eoghan Murphy

In that regard, it should be noted that Ireland's key is 3.3% of the €55 billion which equates to €1.815 billion. During the negotiation of the loan facility agreement, two issues emerged, namely, whether it should be possible to pay a credit line in tranches than all at once and whether national approval was required to pay a credit line to the Single Resolution Board. If member states were willing to forgo flexibility on these two points, the board would pay an annual fee of 0.1% of its credit line.

In the case of Ireland, this fee, otherwise known as a commitment fee, would equal €1.8 million per annum. The Minister for Finance consulted the NTMA on this point and it advised that the flexibility allowing the State to pay the loan in tranches over a 19-day period, except in exceptional circumstances, was worth the forgoing of the commitment fee. In addition, the credit line will require national approval, which will ensure there is appropriate national oversight.

The Bill also provides for amendment of the Companies Act 2014. These amendments are required owing to the need to transpose the European market abuse regulations and the market abuse directive into Irish law. On legal advice, the Minister for Finance introduced an amendment to the Companies Act 2014 on Committee Stage of the Bill to refer explicitly to the new European market abuse regime in section 1,365 of that Act. This will ensure the continuation of the existing offences and high-level penalties - on indictment, of up to €10 million in fines - or up to ten years' imprisonment, or both, for insider trading and market manipulation.

I will now give a more detailed overview of the main provisions of the Bill. The Bill is short, consisting of ten sections, and captures the key points of the loan facility agreement between the State and the Single Resolution Board. Section 2 provides that the Minister for Finance can perform any functions necessary for the purpose of the State's performing its functions under the loan facility agreement.

Section 3 provides that any decision to amend the terms of the loan facility agreement shall be laid before each House of the Oireachtas. If a resolution annulling the amendment is passed by either House within 21 days on which the House has sat, the amendment shall be annulled accordingly and without prejudice to the validity of anything previously done thereunder.

Section 4 makes clear that the sum specified in the loan facility agreement cannot be altered without the prior approval of both Houses of the Oireachtas. Section 5 sets out the circumstances where the Exchequer may make a payment of money to the Single Resolution Board. Section 6 sets out the legal basis for facilitating a payment by the Single Resolution Board to the State. Section 7 requires the Minister for Finance to provide a report for the Dáil with information on the value of loans and repayments made. If a payment of a sum under section 4 is made to the Single Resolution Board, a statement of the amount payable must be laid before the Dáil within one month of the date of the payment.

As previously outlined, section 8 amends the Companies Act 2014 to refer explicitly to the new European market abuse regime in section 1,365 of that Act. This will ensure the continuation of the existing offences and high-level penalties for insider trading and market manipulation.

Section 9 enables expenses incurred by the Minister for Finance regarding the Bill to be covered by moneys provided by the Houses of the Oireachtas.

I will now outline the main paragraphs of the terms of the loan facility agreement, which is the Schedule to the Bill. Paragraph 2 states the maximum amount of the loan is €1.815 billion and the purpose for which the loan may be used. Paragraphs 4 and 5 set out how the Single Resolution Board must apply for the loan, the details of the loan, the timeframe for the lender to respond and the making of the loan.

Paragraph 6 sets out the conditions around repayment of the loan and that, in circumstances where not enough ex post contributions have been made to repay the loan in two years, the loan may be extended by one year. Paragraph 7 sets the out the conditions on the prepayment of a loan. Paragraph 8 sets the conditions for the setting of the interest rate on the loan.

Paragraph 9 states no commitment fee shall be payable by the Single Resolution Board to the State. As I stated, the Minister for Finance chose to forgo a commitment fee of 0.1%, or €1.8 million, per annum in return for greater flexibility, after consultation with the NTMA. In return for forgoing the commitment fee, the credit line will require national approval rather than being automatic. It also has the benefit that the State can pay the loan amount in tranches over a 19-day period, bar in exceptional circumstances where the Single Resolution Board needs to avert the immediate default of an entity under resolution and would require more than 50% of the loan facility agreement.

Paragraph 11 describes the information-sharing requirements and sets out that the State should inform the Single Resolution Board if any event occurs that may prevent it from fulfilling its obligations under this agreement. It also allows the State, the Single Resolution Board, the European Commission and the European Stability Mechanism to exchange information relevant to this agreement where the State has requested or received stability support.

Paragraph 12 contains a provision that national approval must be sought by the State within three days of a pre-notification request from the Single Resolution Board and outlines a number of procedural items in regard to the operation of the agreement.

Paragraphs 14 to 18, inclusive, set out various technical provisions such as payment mechanics, confidentiality agreements, interest calculations and disclosure requirements. Paragraph 19 sets out how the State may pledge security for the European Stability Mechanism in the event that the State enters stability support.

I re-emphasise the importance of the early passage of the Bill to enable the implementation of significant parts of the EU banking union legislative agenda. It will also ensure Ireland meets its banking union obligations as agreed with other member states involved in banking union. In addition, the amendment to the Companies Act will ensure Ireland will maintain a robust regime against market abuse, with high levels of penalties, both in fines and custodial terms. I commend the Bill to the House.

Senator Kieran O'Donnell

I wish to make a point of order, which I do not do very often. Henceforth, could the Seanad Office contact Ministers appearing before us to ensure we will have copies of their scripts? What is occurring now is unfair to the Minister of State and Members. I would prefer to read a document in real time. I do not particularly want to play catch-up with a document. I wish to assimilate the information as the Minister of State is reading. One might state Ministers are not required to provide scripts, but, as a matter of good practice, the House should seek them.

Senator Denis Landy

On a point of order in support of what is being said, if there is a requirement to change a Standing Order, we should bring it forward. What is occurring is most unfair on all of us. We want to make a proper contribution in the House. What the Senator is proposing makes common sense.

Acting Chairman (Senator Gerard P. Craughwell)

The Seanad Office will take note of it. I agree with everything that has been said.

Senator Gerry Horkan

On that same point, I appreciate that circumstances change and that a Minister's speech might not be ready until very soon before he or she comes into the Chamber, but, ideally, I would like to see it. If the script was ready yesterday, I would love to have seen it then to assimilate and process it. It would have allowed us to amend our speeches accordingly and not be repetitive about what the Minister of State said. We could address the points made. Ideally, I would prefer to get a copy of a script in advance, if possible. I am not saying it is always possible, but if it is, it would be better.

Deputy Eoghan Murphy

I completely agree with the points raised. The speech was ready in advance because we completed the legislation in the Dáil prior to the recess and nothing has changed since. I apologise for the fact that it was not sent to Members in advance. It is a technical Bill and it would be helpful to put the technicalities of the argument in front of Senators when making their contributions.

Acting Chairman (Senator Gerard P. Craughwell)

We will take a note of it and the matter will be dealt with.

Senator Gerry Horkan

I apologise to the House as I seem to have half lost my voice. It is half back but not properly back. That may reduce the length of my contribution.

Senator Kieran O'Donnell

The Senator will have to cancel his appearance on "The X Factor".

Senator Gerry Horkan

If I had an appearance to cancel, I would cancel it.

Fianna Fáil supports the Single Resolution Board (Loan Facility Agreement) Bill 2016 which is very technical legislation to put in place a bridge-financing mechanism in the form of national credit lines that would be available as a last resort for the Single Resolution Fund in the event of a large bank resolution before the full size of the fund is reached. It is as much an interim measure as anything else. While the Single Resolution Mechanism, SRM, may prevent a recurrence of the events of 2008 to 2011, inclusive, when huge bank losses were effectively heaped on the taxpayer as a result of the insistence of the ECB, there is still the outstanding issue of who will ultimately bear the cost of the last banking collapse. The EU deal of June 2012 has not delivered for Ireland as of yet. The Government must take the message back to the European Union that everything is not fine in Ireland that we need a deal on our bank debt that can ultimately be felt in the pockets of ordinary Irish citizens. If the European Heads of State are true to their word, they would facilitate retrospective recapitalisation of the banks. It would be an acknowledgement that Ireland had not just a practical case for relief on the bank debt but also a moral case. As the Taoiseach himself has acknowledged, the European position was imposed on us. It is now four years since that commitment was made.

The viability of the banking system could also be helped by moving loss-making tracker mortgages into a fund with a stable source of funding from the ECB. This would not affect customers but would help the banks to return to normal banking.

With regard to the Single Resolution Fund, during the euro crisis shareholders and junior bondholders did absorb losses, but senior bondholders and uninsured depositors were generally spared at the insistence of the ECB. That has changed with the bank recovery and resolution directive coming into force. Taxpayers will no longer automatically safeguard senior bonds and big deposits made by large companies.

The Single Resolution Fund to finance the restructuring of failing credit institutions was established as an essential part of the SRM. The total target size of the fund will equate to at least 1% of the covered deposits of all banks in member states, ultimately amounting to €55 billion. The United Kingdom and Sweden have opted out. The European Union has stated efforts could be initiated to foster further cross-border consolidation within the euro area. Ultimately, the euro area economy needs banks that are large and efficient enough to operate and diversify risk on a cross-border basis within a European Single Market but small enough to be resolved with the resources of the Single Resolution Fund.

On the extent of the bank debt, the total outlay of funds by the Irish Government on the banking sector was €64 billion, or approximately 40% of current GDP. About half of these outlays were financed by promissory notes that have now been converted into long-term bonds. The other half was financed with direct expenditures of public money. There are no specified public pay issues that can be directly associated with these expenditures. The Euro Area Summit Statement, issued in June 2012, pledged to examine the circumstances of the Irish financial sector with a view to "further improving the sustainability of the well-performing adjustment programme".

As of yet the Eurogroup has made no explicit statement about undertaking an examination of Ireland's situation. In this sense, the June 2012 commitment has not been met. The truth is that while the EU agreement appeared significant on the surface at the time, it was dramatically oversold by the Government. No sooner was the ink dry on the summit communiqué when some of the more powerful eurozone countries were putting an entirely different spin on what was actually agreed.

The reference to specifically examining the Irish financial sector has not resulted in one cent of the €30 billion injected by Ireland to save AIB, Bank of Ireland and Permanent TSB being refunded by the European Union. The Government leaders here were in such a rush to go further than each other in welcoming the agreement that they did not secure anything in the agreement to deliver with certainty a tangible and measurable deal to make our debt more sustainable and help Irish citizens.

Two years on, a deal on the retroactive bank recapitalisation seems as far away as ever. It is not clear exactly what we are looking for. The Minister for Finance, Deputy Michael Noonan, has refused to say whether he wants to dispose of some of the State shareholdings in the banks and the European Stability Mechanism or at what valuation. The Minister has even refused to commit to applying for a bank debt deal when the formal application process opens in November. At this stage, there is hardly a serious commentator left who believes the Government will get the deal it was in such a rush to promise two years ago.

Putting in place the arrangements for banking union is an effective prerequisite for any retroactive deal on the banking union. The fundamental principle underpinning the banking union three-pillar approach, made up of the single supervisory mechanism, the single resolution authority and the deposit guarantee scheme, is to end the taxpayer bailout of banks. The key legislation, the bank resolution and recovery directive, known as BRRD, deals with the hierarchy of creditors. It envisages losses on shareholders, unsecured creditors, including junior and senior bondholders, and potentially deposits of over €100,000. A minimum bail-in equating to 8% of total liabilities must be invoked before resolution or national funds can be used.

It is also important to remember that the Irish banks have been recapitalised. They do not need new capital from the ESM. It is the State that really needs the money. In simple terms, the Government should clarify if the State is looking to sell its stake in the banks to the ESM and whether it will be insisting that this is done at the price at which they were taken on to the books of the State rather than the current market value. In the case of AIB and the EBS, that value was €20.7 billion, for Bank of Ireland it was €4.7 billion and for Irish Life and Permanent, the figure is €4 billion. This comes to a total of €29.4 billion.

There are arguments in favour of the ESM purchasing the banks or portions of the banks. The June 2012 summit statement mentioned both the ESM recapitalisation and examining Ireland's debt sustainability within the same paragraph. While the two were not explicitly linked, it is fair to say a reasonable interpretation of the statement was that ESM recapitalisation could be used for Ireland. The sentence "Similar cases will be treated equally" in the June 2012 statement directly follows a sentence about Ireland. A reasonable interpretation of this sentence is that Ireland should not lose out because ESM recapitalisation was unavailable when the Irish banks failed. Allowing the ESM to provide funds for banks in other countries while ignoring Ireland would be incompatible with this commitment to similar treatment.

The June 2012 statement calls on the Eurogroup to examine Ireland's situation. As of yet, the Eurogroup has taken no action on this matter. The membership of the Eurogroup is effectively the same as the membership of the ESM board. Again, this points to a reasonable expectation that what was intended in June 2012 was for the ESM to approve purchases of some of the financial institutions owned by the Irish State.

While the economy is now performing well and Irish bond yields are low, there is little doubt that during 2010 the Irish banking sector represented a threat to the euro area financial system. That type of threat would now trigger an ESM intervention, given that the capacity of the State to take on the debts of the banking system was seriously questioned. In 2010 and 2011, however, the Government agreed to use State funds alone to stabilise the banking sector. Again, fairness and the principle of equal treatment would argue for the use of ESM funds to compensate Ireland.

We support this mechanism. We support the additional measures in terms of fraud and so on. However, the Government, on behalf of the State, needs to go back to the statements made and championed at the time as being a way out of some of the difficulties. We need to have some indication from those in the Government that it is going to pursue the matters they were so keen to tell us about in 2012.

Senator Kieran O'Donnell

I welcome the Minister of State. I am glad to support the Bill. Having looked through it in the limited time we have had, I want to pose a series of questions. My understanding from the Bill is that by 2024 the resolution fund will be in place. In the interim period, each state is required in essence to provide contingency funding to fund it in the event of a fall on a particular institution. It is not only a bridging loan; it is a bridging period from now until 2024, an eight-year period. Let us put it in context. The overall value of the fund is €55 billion. In gross terms we peaked as a state having €64 billion of debt related to the Irish banks. That puts in context the magnitude of the banking crisis we had in Ireland. For the entirety of Europe we are putting in place a fund of €55 billion, while our gross debt was €64 billion. In fact, in the case of Anglo-Irish Bank, taxpayers had to swallow hard for €30 billion, albeit over a longer period with the promissory note, which was welcome.

I wish to pose several questions. There is reference to a sum of €1.85 billion that the State is required to provide. How is that regarded in the national accounts? How is it reflected? Is it a contingency? How does it affect the national debt in the period in question? Am I correct in saying the fund that goes into the Single Resolution Fund will be entirely funded by the banks when it is properly funded? How will that happen over time in respect of the Irish banks and how will they pay their contribution towards it?

My understanding of the way this will work is that the banks will be required to take a write-down of 8% of eligible liabilities available against losses. If that is not sufficient and further losses remain, it will come into what is called a compartment which is currently in the region of €173 million. What exactly is it? How has that fund arisen? How will it evolve over time? Is that fund separate from the Single Resolution Fund? How will it operate in practice?

This is what I am getting at. We speak about many of these Bills as being technical. Then they go into the world of the abstract. Ultimately, what I want to know is whether this will cost the taxpayer. Is it going to hit the ordinary man? That is what this is about and what it has always been about. Let us bring it back to brass tacks. In the period between now and 2024 could it end up costing the Irish taxpayer? Are there any circumstances in which it will cost the taxpayer if a bank fails? I know that the banks are well capitalised, but one must always prepare for the worst case scenario - that is the accountant coming out in me still. After 2024, are there circumstances in which it could still cost the taxpayer? These are the questions we have to pose.

Bridging finance has not always come with a great reputation during the years. Typically, it was available where building societies were giving mortgages and people had to get a bridging loan from a bank. It is a term about which I am not especially mad. Then, it evolved into a form of mezzanine finance and I want to bring it back.

One section of the Bill amends the Companies Act 2014. The Bill is also relevant for transposing the European market abuse regulations and market abuse directive into Irish law. In particular, it relates to abuse, fraud and market regulations. This is something on which the Minister of State might come back to me with an answer. Has anyone ever been penalised under that legislation? We have a raft of legislation. I have always held the view that it is good to take a step back and go through the existing legislation and perhaps upgrade it somewhat. A great deal of legislation is in place. We have to implement this directive, which is to be welcomed. Has anyone ever been brought to court or fined under the current provisions in the Companies Act?

I want to leave it at that. This is part of an evolution whereby we are looking for a bail-in system for the Irish banks in order that we will not have a situation like that on the night of the bank guarantee.

I remember being in the Dáil on the night of the guarantee, when I asked how much this would cost the taxpayer. I was told there were sufficient assets to cover the liabilities of the banks and everything was hunky-dory. Over a short period, it ended up costing taxpayers €64 billion gross. Consequently, Members must ask the hard questions. They must protect Irish interests, part of which entails having a functioning banking system. However, any new banking system that evolves in Europe must underpin the principle that the banks pay for their own mistakes; not the taxpayer. When I refer to the "taxpayer", I am talking about everyone, including both those who are employed and those who are unemployed, who pay taxes such as VAT and excise duty, which is often overlooked. I have always held the view that the banks always thought they would be bailed out by the Government and the taxpayer. Ultimately, we must make the banks believe this will not be the case in order that they will be more prudent in their actions. It is that balance and I commend the Bill to the House. I look forward to the Minister of State being able to shed light but underpinning it is whether there will be a cost to the taxpayer.

Senator Trevor Ó Clochartaigh

Cuirim fáilte roimh an Aire Stáit. I dtús báire, déanaim comhghairdeas leis as a cheapachán. Ní dóigh liom go raibh mé ag caint leis ó shin. Go maire sé a nuacht. I congratulate the Minister of State. I do not believe I have met him since his appointment, but I say, "Well done," to him and wish him well in his position.

Sinn Féin does not oppose the Bill, but we hope we never have to hear of it again. Thanks to an open engagement in the Dáil debate, my colleague, Deputy Pearse Doherty, managed to secure two important amendments that safeguarded the public interest and democratic accountability within the Bill. Members must be honest about the Bill. The fact it is required at all represents a failure, almost a decade after the crash, to achieve a genuine separation of banking and sovereign debt. The banking union, as it has come together, is an improvement, but it is not what was promised in the days and months after the people of Europe and this state, in particular, suffered so much because of the banking collapses. I accept this mechanism is necessary and even sensible to cover the gap period, but a more solid banking union should have been in place a long time ago. It is not hard to trace the watering-down of the separation of banking debt from the original intention to the much-diluted version with which we will end up. The Bill allows up to €1.8 billion of the people's money to be used to prop up failing banks. This is a serious Bill and despite the Minister of State's comment on the need to rush it through, it deserves the full scrutiny of the Seanad. In fairness, that happened in the Dáil and I am sure it will happen in this House too.

As I stated, Sinn Féin has already secured two important amendments to the legislation. The Bill before Members does not allow the Minister to increase unilaterally the €1.8 billion that can be called upon by the State. This is because of a Sinn Féin amendment to the effect that any such change requires the approval of the Houses of the Oireachtas. Sinn Féin also secured an amendment stipulating that each time a Minister draws down money, he or she must report on it immediately to the Houses of the Oireachtas instead of in an annual report. A weakness remains in that, ultimately, the Minister can hand over the money without the approval of the Houses of the Oireachtas and Sinn Féin believes this is not ideal. I again highlight my party's discomfort with the tacking on of what essentially is another Bill to this important legislation. I acknowledge the market abuse regulations are also important in their own right.

Members should not let the issue of banking union pass without recalling one of the biggest failures of the previous Government. In 2012 the Taoiseach and former Deputy Eamon Gilmore spoke about seismic shifts and game-changers. They were talking about using the European Stability Mechanism, ESM, to recapitalise the banks retrospectively. I wonder what happened to it. I reiterate Sinn Féin does not oppose the Bill and we thank the Minister for agreeing to the important changes suggested by the party during the Dáil debate. Sinn Féin intends to consider its position on amendments before the next Stage is taken in this House.

Senator Denis Landy

I welcome the Minister of State. As others have noted, I believe this is the first time that I have been in the Chamber with him. I wish him well in his new role. I am always delighted to see what from where I stand are younger people getting an opportunity in politics. As somebody who lulled around in it for a long time before I got any opportunity, it is great. I mean this sincerely and wish him well.

As the Minister of State stated, this is a technical Bill. Its structure really is about recapitalisation arrangements within Europe. My colleague, Deputy Joan Burton, spoke about the Bill in the Lower House and I believe the Government took on board much of what she said about the Bill being narrow in what it does. It does not really address or deal with other areas such as investment or improvement of policies. Notwithstanding that point, it is important to put in place the Bill's provisions for our own good in the future. I intend to discuss the matter with the Labour Party spokesperson and will look to having further input on the next Stage but for the present, I welcome the Bill.

Acting Chairman (Senator Gerard P. Craughwell)

As no other Senator is offering, I invite the Minister of State to make his concluding comments.

Minister of State at the Department of Finance (Deputy Eoghan Murphy)

I will get to the different questions raised towards the end of my final remarks on Second Stage of the Bill. I thank Senators for their contributions to and participation in the debate. I again apologise that my initial script was not ready on time or provided at the beginning of the debate.

As Members will appreciate and has been mentioned, the Bill is mainly of a technical nature. It is designed principally to facilitate the implementation of the European Union banking union agenda. However, it is important because it allows Ireland to fulfil its banking union obligations. It is important that while dealing with this measure quickly, Members do not rush it. This can be done and it can be made a priority without rushing what we do. I look forward to the debate on further Stages in this House and to then getting into a more detailed discussion in which we take our time with it, while making sure it is a priority because of the aforementioned banking union obligations.

At this stage, progress on the creation of the European Union banking union is advanced. The European Central Bank, ECB, took over its supervisory role in November 2014 and is working closely with the national authorities to ensure that banks comply with EU banking regulation. This was the important first step on the road to banking union, and centralised supervision should ensure a high level of independence and objectivity and will help to rebuild trust and confidence in the European banking sector as a whole.

The next step in banking union is to ensure that if a bank gets into difficulty, there will be appropriate tools and powers to manage the failure in an orderly manner. The Single Resolution Mechanism, SRM, was established for this purpose and should ensure an effective European response where a bank finds itself in serious difficulties. In order for the Single Resolution Mechanism to be credible, however, it was agreed by Ministers that a system of bridge financing through national credit lines needed to be put in place. This is to avoid a situation where the Single Resolution Board may find itself, particularly in the early years after the bail-in process has been completed, in a position where there are still losses to be absorbed.

It is important to note that this agreement will only be in place during the transitional phase to 2024, while the Single Resolution Fund is built up. The consequence of not signing the loan agreement with the Single Resolution Board is that, should an Irish bank get into financial trouble, the funding available to the Single Resolution Fund will be limited to the small amount in the Irish national compartment and the mutualised elements of the other national compartments and any borrowings the Single Resolution Board can carry out. However, if this should prove insufficient, there will be no fall-back source of financing from the Single Resolution Board as the national credit line will not be in place. It is important to point out that the banks are in general good health. Therefore, the likelihood of this loan facility agreement ever being called upon is minimal. However, the provision of this national backstop to the Single Resolution Board is key from a confidence perspective as it provides another indication for the market that the banking union member states are serious about ensuring stability in the banking sector.

The amendment to the Companies Act 2014 is required due to the need to transpose the European market abuse regulations and market abuse directive into Irish law. This will ensure the continuation of existing offences and high-level penalties that, on indictment, are up to €10 million in fines or up to ten years' imprisonment or both for insider trading and for market manipulation.

Before concluding, I will respond to the questions and thank Senators for their good wishes. As Senator Kieran O'Donnell pointed out, the full plan will be in effect in 2024 and, consequently, the Bill will fall out of relevance from that point. This pertains to a credit line. It is a last resort after a resolution waterfall that is quite complex but which goes to other sources of funding first, beginning with the bail-in process. Moreover, because it is a credit line, it will be repaid.

The €1.85 billion will be the Irish portion of the €55 billion in the Single Resolution Fund and will come from the banks. There will be no effect on the national debt. If we have to implement the credit line before then, that would be a loan given; again, therefore it would not affect the national debt. It is important to note, however, that interest will be repaid on the loan and that, therefore, money will be coming into the State in addition to the loan moneys being returned. The banks are slowly paying into that fund already. We have used the national resolution fund, into which the banks have already paid, as an initial mechanism in respect of payments to the Single Resolution Fund, but once the agreement is in place, the banks will start paying in based on a different weighting measure and in accordance with what has already been decided.

Without wishing to be too technical - we can deal with the technical issues on later Stages - each country has a national compartment that it pays into over this period. If a bank becomes distressed, we then move to the resolution waterfall. The 8% bail-in is a minimum requirement. Depending on the structure of the bank and its debt and liabilities, the bail-in will amount to 8% or more. When that money is exhausted, the resolution waterfall comes into play and what is in the mutualised element of the national compartment is considered. The relevant authorities can go back to see if there is anything left in these compartments. It is an attempt to ring-fence funding in the initial stage for the member state until we reach a full mutualisation. That is the purpose of the compartments. I reiterate that there will be no cost to the taxpayer. The whole purpose of this, learning from the past, is to break the link completely between the sovereign and the banks. The national credit line is a loan. It is the very last stage in a complex resolution waterfall that involves approximately six pre-stages. Even if it had to be called upon, a bank in distress could enter into the 8% or more bail-in and then enter into the national compartments phase, but it may never get to the point where the credit line would be called upon. However, the latter is an important backstop as a last resort. It is also a loan and repayment will not fall on individual taxpayers. That entire €1.8 billion will come from the banks on a phased basis and the €173 million already put in has come from the national resolution fund, into which the banks have paid. There is no taxpayer involvement at all.

I am not sure whether the Companies Act 2014 has ever been used, but I would be amazed if it has not. What we are doing is technical and if we did not move to do it now and if the Act was used, we would risk having a period whereby the penalties would not be as high as they have been in the past. We want to ensure the penalties for white collar crime continue to be robust and work as a deterrent.

There was an excellent engagement on Committee Stage, with everyone contributing and some very worthwhile amendments being made. I tried to take on board as many amendments as possible and recognise the concerns expressed. If we did not take the actual amendments put forward, we introduced compromise amendments that we thought would address people's concerns. In the original Bill, the Minister was not given any unilateral ability to raise the amount. However, as Sinn Féin expressed concerns about the clarity of that provision, we brought forward a further amendment as an additional safeguard to ensure it would not be possible at any stage to interpret it as giving the Minister unilateral power. Other helpful amendments were accepted on Committee Stage. Those constructive contributions were very much appreciated because when it comes to a technical Bill - where people agree the general idea of breaking the link between the taxpayers and the banks and putting in place a mutualised fund under banking union - it is good to have an objective or alternative viewpoint from the Members to ensure that when the Bill is in place, we will not have to return and amend it. The Bill will affect what will fall out of use when we come to full mutualisation in 2024. It is envisaged that the credit line will not be needed before then. It is just to be doubly prudent and ensure everything is crossed off in order that the taxpayer will not be exposed at all.

I thank Senators for their contributions and assisting in ensuring we deal with this as a priority but also that we take the necessary time and do not rush it. I commend the Bill to the House.

Question put and agreed to.

Seanad Éireann díospóireacht - Wednesday, 28 Sep 2016

Finance (Certain European Union and Intergovernmental Obligations) Bill 2016: Second Stage

Seanad Éireann díospóireacht -
Wednesday, 28 Sep 2016