Select Committee on Finance and General Affairs díospóireacht -
Thursday, 6 Feb 1997

SECTION 22.

Mrs. Doyle

I move amendment No. 7:

In page 17, subsection (6), lines 20 and 21, to delete "company formed or acquired or in which shares are held by" and substitute "subsidiary of".

This section provides that, subject to the consent of the Minister for Finance, the Central Bank may become a member of and/or acquire, hold and dispose of shares in a company. Section 20(6) provides that any company in which the bank holds shares shall only undertake the statutory functions of the bank. This provision could lead to a situation were the bank, in acquiring a minority shareholding in a company, would inadvertently impose statutory restrictions on the activities of that company. Consequently, the purpose of this amendment is to ensure that only a company in which the bank has a controlling interest should have its powers and functions limited to those of the bank itself.

Mr. McCreevy

I referred to this power on Second Stage when I wondered about the purpose of this section and how was it envisaged that the Central Bank would need such powers. The powers give rights to the Central Bank to form a new company, take minority or majority shares in other institutions, hold or dispose of shares in such companies, exercise control or partial control on the composition of the board of directors, and so on. What type of situation was envisaged when these powers were drawn up? Has there been a case in the past where the Central Bank felt it needed such powers?

Mrs. Doyle

No.

Mr. McCreevy

Then to what use will these powers be put in the future?

Mrs. Doyle

Several Deputies raised this matter on Second Stage and I stated that, unlike most other central banks, the Central Bank of Ireland does not have the right we are conferring on it. Section 22 is an enabling provision only and is restrictive in that the functions of any subsidiary company established or acquired under its terms will be restricted to those of the bank. The kind of things envisaged will be subsidiaries to undertake overseas aid contracts — assisting foreign governments establish central bank operations or the minting of coins.

Mr. McCreevy

I can envisage that in the new European Monetary Union system which, I hope, will operate from 1999, individual central banks will have the contracts to mint their own coins, so I can see why the Central Bank of Ireland would set up a separate subsidiary company to do that. I agree this section would give the Central Bank the enabling powers to do a variety of things which cannot now be envisaged and I have no objection to that. There is the caveat that the consent of the Minister must be gained at the time. Apart from the minting of coins is there any other situations that the Central Bank has in mind as regards this section?

Mrs. Doyle

We are not giving any powers to the Central Bank to get involved in subsidiaries except in relation to areas dealing with the statutory functions of the bank.

Mr. McCreevy

Unless the powers are already in the bank's constitution.

Mrs. Doyle

The bank cannot set up subsidiaries or get involved in subsidiaries in any other arena except those which relate to its existing statutory functions. There are no plans at the moment to do any of this — this is enabling legislation. The Bank of England is involved in the securities inspection board which is a subsidiary involved in a specific area which relates to the bank's functions. In the future, perhaps the Central Bank of Ireland would like to become involved or create subsidiaries which relate to its functions.

Mr. Cullen

The Minister of State's examples make sense, however, if the bank gets involved in a subsidiary company, provisions in other legislation apply to the operation of that company. While the Minister of State says she is confining the bank's role in its membership of the company to its statutory functions, if it was only one of a number of shareholders who were getting involved in other ventures it still has obligations——

Mrs. Doyle

No, the purpose of the amendment is to ensure the subsidiary can only take on the functions of the bank. It is the other way round.

Mr. Cullen

So the Central Bank would always be the majority shareholder?

Mrs. Doyle

Yes.

Mr. Cullen

It can never be involved in a subsidiary where it would be a minority interest?

Mrs. Doyle

Not without the approval of the Minister, but it could, providing the role of the subsidiary was strictly in accordance with the functions of the Central Bank.

Mr. Cullen

If it was a minority within a subsidiary and that company decided to do X, Y and Z, it could be outvoted.

Mr. McCreevy

Subsection (4) states that these matters would have to be done in consultation with the Minister for Finance and the Government.

Amendment agreed to.

Mrs. Doyle

I move amendment No. 8:

In page 17, between lines 22 and 23, to insert the following subsection:

"(7) Subsection (6) shall not apply where the Bank becomes a member of, or is a party to the establishment or operation of a payment system.".

As the Bill is currently drafted there is a conflict between section 6 which provides that the bank may become a member of a payment system and section 22(6) which provides that any company in which the bank holds shares shall only undertake the statutory functions of the bank. Consequently, if the Central Bank becomes a member of a payment system company, then the company's function will be restricted to the statutory functions of the bank in accordance with section 22(6). Such a situation would be neither practicable nor necessary and would impose unwarranted restrictions on the function of payment systems in which the bank operated. The purpose of this amendment is to provide that, in cases where the bank becomes a member of a payment system, section 22(6) will not apply.

Mr. McCreevy

This amendment was recommended by the bankers' federation so they cannot complain that the Minister or the Department of Finance are not accessible to them.

Amendment agreed to.

Section 22, as amended, agreed to.