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SELECT COMMITTEE ON FINANCE, PUBLIC EXPENDITURE AND REFORM (Select Sub-Committee on Finance) díospóireacht -
Thursday, 29 Sep 2011

Central Bank and Credit Institutions (Resolution) (No. 2) Bill 2011: Committee Stage

I welcome the Minister for Finance, Deputy Michael Noonan, and his officials. The purpose of the meeting is to consider the Central Bank and Credit Institutions (Resolution) (No. 2) Bill 2011 which was referred to the select committee by Dáil Éireann on 21 July. Is it agreed that we will conclude our consideration of the Bill today? Agreed. Is it agreed that at 5 p.m. we will suspend the sitting for one hour and reconvene at 6 p.m?

Can the timing of the sos be amended?

I propose we suspend the sitting for one hour at or around 5 p.m. for the purposes of taking a breath of air. Given the volume of amendments tabled, it could be a long session. I am not saying we suspend the sitting at 5 p.m. precisely. We have flexibility.

I am sure we can revisit the proposal at that time.

If it needs to be revisited, we can do so. Is that agreed? Agreed.

SECTION 1

Question proposed: "That section 1 stand part of the Bill."

Is this the definitions section?

Section 1 deals with the Short Title, collective citation and commencement of the Bill.

Does it include the part that reads, "The purposes of this Act are..."?

No. If the Deputy turns to page 7, he will see the wording of the section.

Question put and agreed to.
SECTION 2

Amendments Nos. 1, 27, 46 to 55, inclusive, and 97 are related and may be discussed together. Is that agreed? Agreed.

I move amendment No. 1:

In page 8, subsection (1), between lines 7 and 8, to insert the following:

" "Assessor" has the meaning given by section 29;.

Amendment No. 1 adds the definition of "Assessor" to the list of defined terms. The amendment is consequential on amendment No. 46 which adds a number of new sections to provide for a limited compensation regime for the creditors of a transferor, in line with emerging international best practice, and the appointment of an assessor to determine the fair and reasonable amount of compensation, if any, payable to each creditor who applies for compensation having been given leave to do so by the High Court. There are other amendments that are being discussed with amendment No. 1.

Amendments Nos. 27, 46 to 55, inclusive, and 97 are related. The discussion on any of these amendments should take place now.

Amendment No. 27 changes the conditions that must be met before the bank may make a proposed transfer order, to require the bank to have regard to whether the transfer order may be adverse to the interests generally of creditors of the transferor in coming to its decision as to whether the transfer order is necessary. It also provides that the Central Bank shall not be required to consider such possible adverse consequences on the interests of a particular creditor or class of creditor or to consider any submissions from creditors. The bank must still be of the opinion that the intervention conditions are fulfilled. This amendment would provide, therefore, that the bank must also be of the opinion that a transfer order is necessary in all the circumstances to address one of the reasons that the intervention conditions are fulfilled, even though there may be adverse consequences in relation to the interests generally of creditors of the authorised credit institution.

This is an important addition. Work under way internationally recognises that resolution actions taken for an institution can have an adverse effect on its creditors – leaving them in a worse position than they would have been had the institution just been wound up. However, while winding up will be the obvious option for many institutions, there will be exceptions where it may not be in the public interest. Therefore, it is appropriate that the legislation recognises the fact that the transfer order may be adverse to the interests generally of creditors of the transferor. However, the new subsection (2) provides that while such potential adverse effect should be acknowledged, the bank is not required to consider such possible adverse consequences on the interests of a particular creditor or class of creditor or to consider any submissions from creditors as this would impose too great an imposition on a regulator acting with expedition in the public interest.

This amendment should be considered together with amendment No. 46 which inserts a new procedure for creditors to seek compensation through the courts in certain limited circumstances.

Amendment No.46 inserts a new section 28, which provides for a limited compensation regime for creditors of a transferor, in line with emerging international best practice. Section 28 would allow the court, on application by a creditor, to permit the creditor to apply for compensation where the court has been satisfied, among other things: that the amount received by the creditor on the winding up was less than it was likely to have been had the transfer order not been made, and that the transferor may not have received financial support from the State in the four years immediately before it was wound up; and that the creditor's burden in receiving less was, relative to the benefit to the financial stability of the transferor, the financial system or the economy, disproportionate having regard to the creditor's circumstances.

A prerequisite to a creditor bringing an application to the court is that the transferor must have been wound up within the previous six months. This provision will mean that transfer orders will be made in circumstances where no compensation arises because either the creditors would not have received any more had the institution been wound up instead of being the subject of a transfer order, where the transferor had received State support within the previous four years or where the effect on the creditor was not disproportionate to the benefit of the transfer order to the financial stability of the transferor, the financial system or the economy. Every creditor who applies to court will have their circumstances considered on a case-by-case business, and must demonstrate not only that they were adversely affected by the transfer order but that the transfer order was disproportionately adverse to them. To even be considered for compensation by an assessor, a creditor must first satisfy the High Court that they meet these criteria. If they do not, they will not even be considered for compensation and they will not be permitted to apply to the assessor.

Amendment No.47 inserts a new section 29, which provides for the appointment of an assessor, who must be a person with significant knowledge or experience of the financial services sector, who will determine the fair and reasonable amount of compensation, if any, payable to those creditors who have been given permission by the court to apply for compensation. The section also provides for an assessor's eligibility for appointment, and for related matters including liability for the officers of an authorised credit institution that commits an offence under this provision.

Amendment No.48 inserts a new section 29, which provides that the Central Bank shall, from the fund, pay or reimburse such remuneration or expenses of the assessor as the Central Bank determines. It also provides that the assessor may, with the consent of the Central Bank, engage staff to assist in the performance of the assessor's duties.

Amendment No.49 inserts a new section 31 which provides that a person may not apply to the assessor for compensation unless the court has so ordered, and an application must be made in accordance with the procedures determined by the assessor under section 32(3).

Amendment No.50 inserts a new section 32 which provides that submissions may be made to the assessor by specified people in respect of compensation in relation to a transferor. Such submissions will be made in accordance with procedures which, subject to any regulations made by the Minister, are determined by the assessor.

Amendment No51 inserts a new section 33 which provides that the assessor's function will be to determine the fair and reasonable amount of compensation, if any, payable to each creditor who has been given leave to apply for compensation. The amount of compensation will be determined by the assessor having regard to a number of relevant matters as follows: the financial obligation of the transferor to the creditor; the dividend that the creditor received on the winding-up of the transferor; the dividend that it is likely that the creditor would have received had a winding-up order been made instead of the transfer order; whether a financial incentive was provided to the transferee under the transfer order; whether financial support, within the meaning of Act of 2008, or any other financial assistance, investment or guarantee was provided to the transferor by the State at any time; whether it was reasonable in all the circumstances for the creditor to have undertaken the financial obligation with the transferor, having regard to the financial position of the transferor at that time; whether the financial obligation of the creditor was undertaken before or after the passing of the Act; whether the creditor took steps to secure the satisfaction of the financial obligation before the transfer order was made; any relevant evidence that the assessor obtains in the performance of his or her functions; any submissions made to the assessor; and, any other relevant matter. If financial assistance was given within the preceding four years, leave will not be given to apply for compensation at all so the reference here makes it a relevant consideration that financial assistance may have been given at any time in the past.

Amendment No.52 inserts a new section 34 which provides that before making a report to the bank, the assessor will send a draft of his or her report to any person who has made a submission or any person specified by the bank, inviting written submissions on the draft report. Instead of sending out the entire draft report, the assessor may send a part of the report or omit certain evidence or material from the report. The assessor shall revise the draft report as appropriate on receipt of these submissions. The section provides for other related matters including the potential liability of the officers of an authorised credit institution where an offence has been committed under this provision.

Amendment No.53 inserts a new section 35 which provides that when the assessor has determined the fair and reasonable amount of compensation, if any, payable to each creditor who has applied, the assessor shall report to the bank the amount, if any, payable to each such creditor. The bank shall make such arrangements as are necessary for sufficient funds to be made available out of the fund to enable payments of compensation to be made in accordance with the assessor's report. The bank shall cause the assessor's report to be published as soon as is practicable. The bank shall also notify each creditor whether or not compensation has been determined to be payable and, where payable, pay that to each such creditor.

Amendment No.54 inserts a new section 36 which provides that the assessor's determination of compensation, or rejection of a claim for compensation, can be appealed to the Irish Financial Services Appeals Tribunal. For the appeal to succeed the appellant must establish as a matter of probability that the determination of the assessor was vitiated by a serious and significant error.

Amendment No.55 inserts a new section 37 which provides that leave will not be granted for judicial review of the assessor's determination under section 33 or any other decision in relation to compensation unless the application for review raises a substantial issue, and the application is made to the High Court within one month, or longer if there is a substantial reason the application was not made in that period, of the assessor's report to the bank.

Amendment No. 97 is related to amendment No. 46 which sets out the procedures for the possible payment of compensation to creditors following the winding up of an insolvent institution after a transfer order has been made involving its assets and liabilities.

The new Schedule provides the assessor with the necessary powers to require persons to give evidence or produce documents in order to complete his or her determination of the fair and reasonable amount, if any, payable to a creditor as compensation where the amount received by the creditor on the winding up was less than it was likely to have received had the transfer order not been made and the court is satisfied that the other conditions pertain.

The assessor will have power to serve a notice on a person requiring him or her to attend before the assessor to give evidence and produce documents. Proceedings before the assessor will normally be held in private, unless a person attending before the assessor requests that the proceedings take place in public or the assessor directs that because of the confidential nature of any evidence or matter the whole or part of the proceedings should be held in private. Provision is made for offences for failing to appear before the assessor; failing to produce a document requested by the assessor; breaching a direction of the assessor as regards the confidentiality of proceedings; refusing or failing to swear an oath in the proceedings; and refusing or failing to give evidence or answer a question in the proceedings before the assessor. The assessor may certify a refusal or failure to produce a document, attend before the assessor or answer a question to the court which may make an order or give any direction it deems fit on the matter.

The Schedule also provides that persons attending before the assessor will have the same protection as a witness in proceedings in the High Court and is entitled to the same allowances in respect of travelling and other expenses. The Schedule is modelled on a similar provision in the Anglo Irish Bank Corporation Act 2009.

As the Chair ruled and because I am sure this legislation will be scrutinised by many, including the legal people, we need to provide material, apart from informing members of the committee, on the reasons for the amendments.

Are there any contributions on this group of amendments?

I have two questions. On the provisions made for the payment of compensation, I assume it will come from the resolution fund proposed under the legislation. From a policy point of view, has the Minister given consideration to how quickly he will look to enact these provisions? I am aware that under section 14 he will have to sign into law regulations prescribing the rate and the mechanism for making contributions to the fund, but given the state of the financial services sector in Ireland, what are his thoughts on the issue and when will he look to initiate these provisions?

There is a certain urgency attached to enacting the Bill and it will be signed by the President. The regulations will govern the procedures about which the Deputy is inquiring and we will have to consult the Central Bank before we draw them up, but allowing for an appropriate space for consultation, we intend to proceed without a gap in the procedure to enact the full legislation and the consequential regulations that will flow from it.

It is the Minister's intention, therefore, that banks will start to pay into the resolution fund in the short term.

Yes, as soon as the regulations are in place. There will be a procedure in place setting out when they will have to pay into the fund.

Will the overall amount of compensation to be paid be limited to the extent of what is in the fund? Is this provided for in the Bill where it is mentioned that the assessor will recommend a level of compensation for creditors?

To get things moving, as in all these situations, the Exchequer will have to prime the fund in the first instance and be repaid from the contributions made as the institutions pay them. The intention is that the compensation fund arrangements will be self-sufficient, but if the Deputy was listening when I read the notes, he will know that it is a limited compensation provision. It was not included in the original draft of the Bill; it is being introduced by these amendments. The aim is to bring the legislation into line with international best practice.

Coincidentally, today is the third anniversary of the bank guarantee. Since bank guarantee resolution legislation has been enacted throughout Europe and as it develops, it casts a light on what we are doing. It would be challengeable in law if there was not a compensation provision in place for those who lost out heavily and would have recovered more if a financial institution had been wound up. There may be a national interest in keeping an institution going, even though it would be adverse to the creditors. It is in these circumstances that creditors would have a case in law which they might win if we were not to enact these provisions. That is the reason for the amendments. The Deputy will see from them how the fund is ring-fenced, hedged and very tight on the procedures that will have to be followed. There will be certain proofs required. One will not be able to even get to the compensation assessor without going through the High Court to prove in the first instance that one has established the grounds for the payment of compensation.

The Minister has already touched on this, but is it his intention that all sections of the Bill will have effect in law? Does he intend to make specific commencement orders in respect of specific sections?

We will have to plan in that regard. The intention is that we will do it when we can, but we will not have the Bill enacted and then have a two year pause before the provisions are given effect. We will give the provisions effect after the necessary consultation with counter-parties has taken place, in particular the Central Bank. The Deputy will recall the emergency legislation brought forward by my predecessor last December. This Bill replaces and expands on that legislation to a large extent.

That was the Finance (No. 1) Bill.

That Bill will lapse on-----

At the end of 2012.

Yes. The stabilisation Act will expire on that date.

Specifically in respect of credit unions and the resolution mechanism, the Credit Union Commission is considering the issue with the credit unions. In terms of a resolution mechanism for credit unions, is it the Minister's intention to allow the Credit Union Commission to produce its report before specific sections of this Bill will apply?

The position on credit unions is that the commission is examining the matter. It is to advise me on it, but under its terms of reference, it is obliged to produce an interim report which is due in the coming weeks. Its advice will be on the way to proceed. The Central Bank is working in tandem and has examined the credit unions. It is an open secret that there is a level of difficulty in many credit unions and that steps will have to be taken to resolve it. The Central Bank is anxious that it have the power to deal with all financial institutions in difficulty, including credit unions, under the provisions of this Bill, but we will have to come back with separate legislation on the credit unions having received the views of the Central Bank and the commission. The interim report is due in the next few weeks, while the final report will be published some time after Easter. There is, therefore, a block of policy that must be enacted on the credit unions.

Is it correct that the resolution mechanism provided for in the Bill will apply to credit unions also?

The resolution mechanism will apply to all financial institutions.

I want to speak to an issue, but I will wait until it comes up under the section.

The only exception is that the institutions covered by the stabilisation Act will not be covered by this Bill.

For the purposes of clarification and the benefit of the committee, does amendment No. 97 dealing with the requirement to swear an oath include the option a person has to affirm? Is it not thought necessary to have an option for someone who does not wish to swear an oath, for whatever reason, but who could make an affirmation as per normal practice?

We will check that.

I thank the Minister for his very comprehensive explanation. With regard to amendment No. 50, concerning submissions to the assessor, is there any provision for employees in an institution to make a submission in respect of compensation to various parties under the headings the Minister outlined?

It is a provision for creditors, not employees. If an employee were a creditor, it might be different.

Employees would clearly have an interest in the resolution process.

The following persons and no others may make submissions to the assessor in respect of compensation in regard to a transferor: the bank, the creditor concerned, the liquidator of the transfer, the Minister and the NTMA. This confines submissions quite narrowly and would exclude employees on that basis.

It does not include them.

It does not include them.

Is a depositor with a balance of over €100,000 deemed to be a creditor? The first €100,000 is guaranteed under law. What is the position on a sum greater than €100,000 in this context?

In the normal course of events, the depositor would be a creditor because he would be owed money by the institution. The guarantees would take precedence over the Act. The guarantee would represent to the depositor the first way to get his money back.

The first €100,000 only.

No. The other guarantee covers deposits over €100,000.

The ELG still covers-----

Yes, deposits of any size.

Until December, but this is a permanent resolution.

We have it in our hands to extend it.

This would eventually wash itself out, I hope.

I am just trying to clarify the legal standing of a depositor with a corporate deposit that could amount to millions of euro, for example, when the ELG expires.

If one is not guaranteed, one is at risk if there are not enough assets to cover one.

I seek clarification on amendment No. 50. The new section 32(1), to be inserted, states:

The following persons and no others may make submissions to the Assessor in respect of compensation in relation to a transferor:

(a) the Bank;

(b) the creditor concerned;

Should we add "and the creditor's representative" in paragraph (b) because a creditor could be unwell or mentally unable to look after his or her affairs.

In normal procedure, if a creditor is being represented by a solicitor, the solicitor's submission would be considered a submission by the creditor. We will examine the circumstances concerning the mentally incapacitated.

I thank the Minister.

Amendment agreed to.

Amendments Nos. 2, 28 to 31, inclusive, 88, 90, 93 and 99 are related and may be discussed together.

I move amendment No. 2:

In page 11, between lines 5 and 6, to insert the following subsection:

"(6) A reference in this Act to the preservation of the financial position of an authorised credit institution shall be taken to include the need for that credit institution to comply with such one or more of the following as apply to it—

(a) an order made in relation to it under this Act,

(b) a requirement imposed on it under section 21,

(c) the European Communities (Capital Adequacy of Credit Institutions) Regulations 2006 (S.I. No. 661 of 2006).”.

Amendment No. 2 amends the interpretation section to provide that the preservation of the financial position of a relevant institution is to be taken to include the need for it to comply with an order made or requirement imposed under this Bill or the capital adequacy regulations.

Amendment No. 28 inserts a new section 21 into the Bill. It provides the Central Bank with new powers to impose requirements on authorised credit institutions in order to facilitate the making of more effective and efficient transfer orders. These requirements allow the Central Bank to ensure that the appropriate preparations for a transfer of assets and liabilities can take place, including the provision of information to potential transferees. The reason such a power is necessary is because, although a transfer order will effect a transfer of assets and liabilities by the authority of the bank and the High Court, without the consent or concurrence of the transferor, some input to the transfer process may be required by the transferor in order for the transfer to be effective or efficient. Since a transferor's co-operation cannot be assumed, the bank needs a coercive power to oblige the transferor to assist the transfer process.

The new section 21 provides that the bank can impose requirements on authorised credit institutions, and subsidiaries and holding companies of authorised credit institutions where it feels it is necessary for the effective or efficient making of a proposed transfer order. These requirements can include a requirement to provide information concerning assets and liabilities to the Central Bank, a requirement to disclose information concerning assets and liabilities to potential transferees identified by the Central Bank and a requirement to make applications to specified authorities, for example, a stock exchange or regulatory authority. All these matters will be vital to a potential transferee in deciding whether it is prepared to engage with the bank in taking on some or all of the assets and liabilities of the failing transferor. If the intention of a requirement imposed by the Central Bank under this section is the preservation or restoration of the financial position of a credit institution, that fact should be stated in the requirement, in accordance with the CIWUD directive.

The section provides that the institution that is the subject of the requirement must comply with the requirement, as must the officers and employees of the institution. The institution must disclose in good faith all matters and circumstances that might materially affect the decisions of the bank. The bank may direct the institution to certify that the information provided is accurate and complete. The obligation to comply with a requirement takes priority over any other duty and obligation. The bank can ask the court to make an order compelling compliance with a requirement, and the court may make any other order it thinks is necessary to ensure compliance. A person may not publish the fact that the bank has imposed a requirement unless the bank has consented, or he or she is required to do so by an enactment, or for the purpose of obtaining professional advice.

It is an offence for the institution or its officers and employees not to comply with a requirement, and for a person to publish the fact that the bank has imposed a requirement unless the bank has consented, or he or she is required to do so by an enactment. Where an authorised credit institution commits an offence and responsibility for the offence can be proved to lie with an officer of the authorised credit institution or a member of the board or other controlling authority of the authorised credit institution, then that person has also committed an offence. The section set outs the penalties for these offences.

Amendment No. 29 inserts a new section 22 into the Bill. The new section 22 permits the bank to disclose to a potential transferee information acquired on foot of a requirement, in addition to information provided voluntarily by the authorised credit institution. This is a necessary provision to assist the transfer process. A transferee who agrees with the Central Bank to take over the assets and liabilities of a failing transferor under a transfer order cannot be expected to buy a pig in a poke. While the transferee will no doubt be motivated by commercial concerns in agreeing to take a transferor's assets and liabilities, they will also be acting in the public interest because their agreement to take over some or all of the failing transferor's business will assist the Central Bank to resolve the crisis.

I am considering bringing forward an amendment on Report Stage to clarify the position on the disclosure by the Central Bank to a potential transferee of information in regard to a potential transferor.

Amendment No. 30 inserts a new section 23 into the Bill. The new section 23 provides that the directors of authorised credit institutions on whom a requirement has been imposed have a duty to comply with such requirement. It also provides that the Central Bank can publish guidelines on the duties imposed on directors on which they may rely in discharging their proposed duty under this section. The Department's experience in dealing with some banks during the financial crisis has been that when requested to take a particular course of action, directors have refused to do so, citing their fiduciary duty to the company to act solely in its interest. The line of reply was they would love to do that but cannot, because they have a duty at law to put the bank's interest first.

This provision will override any duties owed to the bank by its directors. Their duty will be to comply with the requirements made and if there is a conflict, their duty to comply will override all other duties. Moreover, if there is any confusion as to what they are required to do, the bank can provide guidelines to assist them in doing what is necessary to discharge their duty.

Amendment No. 31 inserts a new section 24 into the Bill. This new section prevents the bank from being treated as a de facto director, shadow director or person discharging managerial responsibilities of an authorised credit institution, subsidiary or holding company on which a requirement is imposed. A de facto director is a person who has not been formally appointed as a director of a company but who nonetheless is, for certain purposes, also treated as if he or she were a director.

Amendment No. 88 would include requirements imposed under the new section 21 of this Bill, which relates to the Central Bank's powers to impose requirements necessary or desirable for the effective or efficient making of a proposed transfer order or of a transfer order, as having effect in accordance with the credit institutions winding up directive, CIWUD, where they are declared to have been made with the intention of preserving or restoring the financial position of a credit institution. Amendment No. 90 is consequent to amendment No. 28, which proposes to insert a new section 21 regarding a bank's powers to impose requirements. Section 81 is amended so that the section now sets out the effect of the imposition of requirements and certain other obligations, as well as the effect of orders. Amendment No. 93 is consequent to amendment No. 28, which proposes to insert a new section 21 regarding a bank's powers to impose requirements. The amendment proposes to extend the scope of section 86 to include requirements imposed by the Central Bank under the new section 21.

The purpose of amendment No. 99 is to add sections 21 and 87 of the Bill to the list of designated enactments set out in Schedule 2 of the Central Bank Act 1942. This means that a regulated financial services provider, which breaches sections 21 or 87 is liable to the administrative sanctions regime set out in the 1942 Act. The new section 21 of the Bill, to be added on Committee Stage, will allow the bank to impose certain requirements. Section 87 will enable the bank to issue codes of conduct. If this amendment is accepted, contraventions of such requirements or codes will be liable to administrative sanction. These are all the amendments that are pooled in this particular group.

In the course of going through these amendments comprehensively, I believe the Minister also may have touched on amendment No. 98. Amendment No. 98 has not been grouped with these amendments but with amendment No. 37.

I have amendments Nos. 93 and 99 on my list.

Yes, but not amendment No. 98.

I understood the Minister to have touched on amendment No. 98 there.

Amendment No. 98 pertains to section 22.

Yes, but I understood the Minister to have touched on amendment No. 98 in his contribution. Perhaps he did not.

Perhaps I made a mistake with the amendment numbers.

We will deal with amendment No. 98 when we get to that section.

I do not know whether people want to hear the note on section 2.

Not at this point, thank you. On the section itself, are there any contributions regarding the amendments the Minister has outlined?

Amendment No. 28 will extend section 21 significantly. What is the Minister's thinking in this regard? Is it for the purpose of imposing penalties and so on?

It arises from practical experience of what happened in the banking crisis over the last couple of years, when the co-operation one would have expected was not always forthcoming. Legal reasons were produced, with directors claiming that although they would love to be of assistance and would love to comply with the requests made of them, they had fiduciary duties as directors of the company, their first responsibility was to the institution and consequently they could not comply with such requests or provide whatever information was sought. I wish to make sure that resolution legislation will enable the Central Bank to resolve. Let me put it this way: had this legislation been in place three years ago, we probably would not be where we are today.

Why was this not included in the original draft of the Bill?

One could say this is highly complex legislation. As I noted earlier, the whole code of resolution legislation is being developed across the European Union and we are learning from the experience of others. On foot of an examination of the Bill, it was deemed appropriate to include amendments on Committee Stage.

Amendment agreed to.
Section 2, as amended, agreed to.
Section 3 agreed to.
SECTION 4

Amendments Nos. 3 and 20 are related and may be discussed together.

I move amendment No. 3:

In page 11, between lines 17 and 18, to insert the following:

"(a) to protect the State and the taxpayer from the social and economic impact of an authorised credit institution failing,”.

This is a general amendment that seeks to insert a new clause in section 4 of the Bill, which deals with its purpose, to protect the State. While the Minister and any future Minister would have such a consideration in any event, the Governor of the Central Bank, in exercising any powers contained in the Bill, will be obliged to include as part of his or her consideration the protection of the State from the impact of a credit institution failing or of his or her intervention into a failing credit institution. It is a simple amendment and while I do not oppose the other subsections dealing with the purpose of the Bill, it is appropriate, particularly given the position in which we find ourselves at present, that as part of the resolution process one of the stated purposes of the Bill would be "to protect the State and the taxpayer from the social and economic impact of an authorised credit institution failing". Such a text would not tie the hands of any Governor or Minister in the future but it is appropriate that in exercising these extensive and thorough powers, many of which are to be welcomed, they should be required by law to have due consideration to protecting the State and the interests of the taxpayer from the social and economic impact of an authorised credit institution failing.

Before coming to colleagues, I ask the Minister to deal with amendment No. 20, as well as to respond to Deputy Pearse Doherty as he sees fit.

I thank Deputy Pearse Doherty for tabling this amendment. The advice I have received is the amendment is unnecessary as the purposes of the Bill are set out with sufficient clarity in the existing section 4. The Long Title itself makes clear the Bill pertains to providing an effective and expeditious resolution regime at the least cost to the State. The purposes of the Bill as set out in section 4 include that the resolution regime is to be effective in protecting the Exchequer, the stability of the financial system and the economy. By giving the Central Bank a range of powers to facilitate the reorganisation or the orderly winding up of the stressed institutions, the Bill will be able to protect the interests of the taxpayer and deposit holders, secure the continuity of banking services and maintain public confidence in the financial system of the State.

Amendment No. 20 to section 16(1) seeks to ensure a bridge bank is only established in appropriate circumstances where it is in the public interest to do so. Where an institution is insolvent and a willing transferee cannot be found to take a transfer of its assets and liabilities, the default position will be that the institution should be wound up, losses lying where they fall, save in the case of eligible depositors who will be protected by the deposit guarantee scheme. Setting up a bridge bank will be a last resort and only when in the public interest.

This amendment refers back to the matters set out in section 8(6) and requires the Central Bank to consider such matters when deciding whether the establishment of a bridge bank is in the public interest. The matters set out in section 8(6) include the systemic importance of the authorised credit institution, the likely impact of the failure of the institution on the stability of the banking system and financial system, the importance of ensuring depositors continue to have prompt access to their deposits and the importance of maintaining public confidence in the financial system of the State.

I appreciate the Minister referring to section 4 which deals with protecting the Exchequer and the economy. My amendment is different in its effect because it refers to the social and economic impact on the taxpayer, effects which must be considered as well. It is a must to have the Bill contain a provision to protect the Exchequer and the economy. It is a different matter to have the Bill contain a provision which would protect the taxpayer from the social and economic impact of a banking institution failing. While I do not believe any Minister would act in breach of that requirement, it is important to have it in the legislation. We know from past resolutions of bank failings that they have not protected the taxpayer from the social impact of a bank failing.

The ability to protect the taxpayer is vested in the powers given to the bridge bank. In practical terms, say a financial institution gets into trouble, the Central Bank will move in with various options to hand. First, it can wind the bank up. Doing so, however, might be injurious to various depositors, creditors, the national interest or other financial institutions through a contagion effect. If the Central Bank decides not to wind it up, its next option would be to transfer the assets and liabilities, along with the employees, to a solvent financial institution which would carry on the first institution's financial or banking business. If there were no willing recipient bank, the next option would be to put a bridge bank in place. This would be empowered to receive the assets and liabilities of the impaired bank and proceed to run it as a bank. That set of powers is necessary to protect the taxpayer and others involved. The primary purpose of the legislation is to protect the taxpayer. We saw how the taxpayer was hit very hard when provisions such as this were not available in law for the Central Bank to intervene in the case of Anglo Irish Bank. While I agree with the spirit of the amendment, I do not believe it is necessary to insert such a provision into the section.

I, too, am sympathetic to the spirit of this amendment. During the debate on the Insurance (Amendment) Bill 2011, many Deputies agreed we should never again be faced with insurance and banking disasters. We need fire-proof formulas in this legislation to ensure another banking disaster does not occur.

Will the Minister consider protections for the employment terms and conditions of the front-line workers in a failed institution? With the evolution of EBS into AIB, many workers in both banks feel vulnerable to changes in their employment conditions. The Irish Bank Officials Association, IBOA, and other representative bodies believe honest and decent bank workers who did their best over the years when there was incredible misbehaviour by senior bank managers and directors need to be included in the key purposes of this legislation. Will the Minister examine including such a provision on Report Stage?

I am advised the workforce will have such protection. In the case of an impaired financial institution being transferred to a solvent financial institution, under the transfer order of assets and liabilities there is already provision under regulation that the employees are protected. They would be transferred with the same terms and conditions they had in their parent bank before it became impaired. I am advised the protection already exists in law.

I agree with the spirit of Deputy Doherty's amendment and Deputy Broughan's points. It must be spelled out explicitly in this section that the public interest is the key and central priority and purpose of the legislation. I would go further, however, and be more specific because the public interest can be interpreted in all sorts of ways.

On Report Stage, I will propose the section should be quite specific in stating it will protect the interests of the public, the State, the national economy and, to the greatest degree possible, uphold the twin social and economic priorities of maintaining full employment in the State and the right to a home for all citizens. This would be in line with the priorities of the US Federal Reserve. It has social and macro-economic priorities and objectives that are specified as key objectives of the state and the central bank or, in their case, the Federal Reserve, is mandated to uphold those priorities. Those should be spelt out here.

I would agree with Deputy Broughan that there is no harm either in stating explicitly, somewhere in section 4, the need to protect workers' rights. While the Minister, Deputy Noonan, might say that is already implicit, I see no difficulty whatsoever in making it explicit.

It is explicit in one of them already. It is not implicit, but it is explicit.

We need not duplicate it when it is there already in other legislation.

To square the circle with Deputy Broughan's question, I assume it would go as a going concern to the bridge bank and it would be a transfer of undertaking. Would the employees of the original institution go with the bridge bank?

It will not be a permanent standing bridge bank waiting for failed institutions. The normal practice is somebody is appointed to run the bridge bank and then assets and liabilities, and staff, are transferred across. That is the way it will work in practice.

To get back to the protection of the interests, if one looks at the way section 4 is drafted, there are conditions, (a), (b), (c), (d), (e), (f), (g) and (h), on the purposes. It is extremely specific. If one goes down through them, it deals with protecting the Exchequer, the stability of the financial system, and the economy. It also goes on to mention the protection of the interests of depositors. It states: “to provide a mechanism to prevent the financial instability, or threat to the financial stability, of an authorised credit institution contributing to financial instability of any other authorised credit institution, the financial system or the economy, and to avoid creating a risk of such financial instability”. Every one of those conditions or purposes are there to protect the taxpayer, the citizen, the public. What Deputy Doherty is looking for is there already in a different format.

I will not labour the point because there are many amendments to go through. However, there is no reference in terms of the social impact on the purpose of the Bill.

Everything is about interpretation. If we look from (a) down to (h), and reverse the clock and ask ourselves if the previous Government would have been able to do what it did to Anglo Irish Bank based on this legislation, it is the same stuff that the previous Government was telling us, namely, that it was to protect depositors, the economy, the financial institutions and the Exchequer. The reality is it did not protect ordinary taxpayers and it did not protect citizens from the social impact of that.

The Minister's response to me this week costed the Anglo Irish Bank promissory note at €74.63 billion. This is no protection of Irish taxpayers or of citizens from the social impact, and Deputy Noonan, as Minister for Finance, must introduce a budget to help pay for some of that.

At the end of the day, if one put in the social and economic impact, if my amendment was carried in this legislation, there is no guarantee that a future Minister or Governor of the Central Bank would say that he or she had to do this because it guarantees the social and economic impact and if he or she did not do so, it would be worse. I understand that, but it would be a little more comforting to have the amendment included in the Bill. If the Minister is not disposed to having it included, that is fair enough. I have made my point and we should move on.

Two of the biggest, and arguably the most important, consequences of the banking collapse have been the onset of mass unemployment and the threat to mortgage holders of losing their homes while all the concerns articulated here are somewhat open to interpretation as references to the public interest - depositors, financial stability, etc. We should include in this section, and make explicit, social and macro-economic goals such as maintaining full employment and ensuring that people retain possession of their home, which is something that has been directly threatened as a result of the financial crash.

Does the Minister have any further comment?

No. I made my point on the amendment. I am in accord with the spirit of it. My position is that it is not necessary because the section is drafted to provide those protections already.

With the Chairman's permission, I want to revert to a question raised by Deputy Mathews or by the Chairman. It is on whether an affirmation would substitute for an oath.

I was seeking clarification.

According to my note, it is not necessary for Bills to distinguish between oaths and affirmations because the Interpretation Act 2005, in the Schedule, Part 1, provides that ""oath", in the case of a person for the time being allowed by law to affirm or declare instead of swearing, includes affirmation or declaration;".

It is just as I suspected. I thank the Minister. That clarifies the matter.

On a point of clarification, Deputy Doherty mentioned, as regards the promissory notes, that the total cost inclusive of interest is €74 billion. Is it not €47 billion?

No. The cost of the capital is €31 billion and the interest is approximately €17 billion and the cost of borrowing the money is an additional cost. It comes to €74.63 billion.

We will not debate that point now.

Amendment, by leave, withdrawn.
Section 4 agreed to.
SECTION 5

I move amendment No. 4:

In page 12, subsection (3), line 12, to delete "endeavour to".

Section 5(3) states: "The Governor, in delegating any function referred to in subsection (1), shall endeavour to ensure that the performance of that function is operationally separate from the regulatory and supervisory responsibilities of the Bank.” This amendment is quite a simple one to delete the words, “endeavour to”. We should not ask the Governor of the Central Bank to endeavour to. The legislation should state that the Governor of the Central Bank shall ensure that the performance is operationally separate from the regulatory and supervisory responsibilities of the bank. It is merely to make it more specific.

Section 5 provides that while the Governor, who is ultimately responsible, may delegate the functions of the Central Bank under the Bill to an officer or employee of the Central Bank, he should try to ensure that the performance of the delegated function is operationally separate from the regulatory and supervisory functions of the bank. This separation of duties is in accordance with good governance practice and should avoid any danger of regulatory forbearance arising, that is, granting by regulator of relief from compliance with regulatory requirements. I would be in accord with Deputy Doherty as far as that.

I am advised that it would be impossible in practice for the Governor to completely ensure that delegated functions under this Bill are operationally separate from supervisory and regulatory responsibilities of the bank. The Governor can use his or her best endeavours but imposing an absolute duty to ensure such separation would create operational difficulties.

Section 23 of the Central Bank Act 1942 defines heads of function as a reference to the head of central banking and head of financial regulation. It would be expected that if the Governor was to delegate functions under the Bill, it would be to the head of central banking or an officer or employee not engaged in the regulatory or supervisory arm of the Central Bank. I am also mindful of the need not to interfere with the independence of the Governor and the bank in the performance of their functions.

As the Minister has noted, separating them is in accordance with good governance. I appreciate his response on the difficulties in ensuring a complete separation. I am sure, however, these obstacles are not insurmountable. When drafting legislation to significantly extend the authority and powers of the Governor of the Central Bank, we should at a minimum impose the best possible criteria for good governance. For this reason, the words "endeavour to" should be deleted. The criteria should be the best we can devise.

I am not accepting the amendment.

Amendment put and declared lost.
Section 5 agreed to.
NEW SECTION

Amendments Nos. 5, 13 and 14 are related and may be discussed together.

I move amendment No. 5:

In page 12, before section 6, to insert the following new section:

6.—In performing a function or exercising a power under this Act, the Governor shall give precedence to his responsibilities to the State and his obligations under laws of the State.".

This amendment deals with the exercise of the powers of the Governor under the Bill. I have tabled it because there is a clear conflict of interest between the responsibilities of the Governor of the Central Bank to the citizens of the State, on the one hand, and to EU law and the European Central Bank, on the other. An example of this conflict of interest became apparent when the previous Minister for Finance was negotiating with the troika and the Governor of the Central Bank, who is also a board member of the European Central Bank, made an intervention in the discussions that was of a serious nature. I am led to believe it was made while the Governor was wearing the hat of the European Central Bank. That much was intimated to the committee several weeks ago. The European Central Bank would like to push the State in a certain direction. The Minister will know this better than any of us from his efforts to introduce burden sharing for unguaranteed bondholders in Anglo Irish Bank. As we invest these powers in the Governor, the legislation should make it clear that we expect his or her primary focus to be on the duties of the Governor of the Central Bank rather than his or her position as a board member of the European Central Bank.

I have a difficulty in accepting the amendment, the effect of which would be to undermine section 6, the provisions of the treaty on the functions of the European Union and the Central Bank Act 1942 which requires the Governor to have regard to his or her obligations under EU law. The proposed amendment implies the undermining of the independence of the bank and the Governor. I imagine similar concerns would be expressed by the ECB and the European Commission.

I do not propose to accept amendment No. 13. Was it moved?

This is not the time to move it, but we have grouped it with amendment No. 5 for discussion purposes. I will allow the Minister to continue before returning to Deputy Doherty.

Does Deputy Doherty wish to speak to the amendment before I respond?

Amendment No. 13 seeks to insert a new section which reads: "In performing a function or exercising a power under this Act, the Minister and the Bank shall have regard to the financial viability, stability and survival of the State and shall not act in any way that would undermine or weaken the financial viability, stability or survival of the State". The Minister may refer to the purpose of the Bill, but this amendment specifically relates to the conditions that have to be met before an intervention can be made. The explicit language used in the amendment arises from past experience and previous interventions which have put the viability of the State in jeopardy and given up our economic sovereignty.

Is the Deputy prepared to speak to amendment No. 14?

Amendment No. 14 is a new section which reads: "In order to effectively perform the functions or exercise the powers under this Act the Minister can, by way of a Ministerial Order, suspend the application of the Credit Institutions (Financial Support Scheme) 2008 and the Credit Institutions (Eligible Liabilities Guarantee Scheme) 2009 to a specified covered institution". The purpose of the amendment is to give the Minister powers to suspend the application of the legislation underpinning the blanket bank guarantee to a specific credit institution for the duration of the application of the powers under the Central Bank and credit institutions legislation. If the Minister and the Governor wanted to wind down a failing bank or transfer its assets, they could be impeded by the blanket guarantee if it applied to the institution in question. The amendment would allow the Minister to suspend the application of the guarantee to specific institutions for specific periods.

On amendment No. 13, the purposes of the Bill are adequately described in section 4, while the conditions on which the bank can intervene in a credit institution are set out in detail in section 8(6). As its Long Title and purposes indicate, the Bill aims to protect the interests of the nation and its citizens by protecting the Exchequer from the costs we have seen arise in recent times.

Amendment No. 14 seeks to provide for the suspension of the application of the bank guarantee scheme to particular institutions as part of this resolution framework. The credit institutions (financial support) scheme 2008 offered a two year blanket guarantee that terminated on 29 September 2010 and is no longer applicable.

The credit institutions (eligible liabilities guarantee) scheme 2009 provides for an unconditional and irrevocable State guarantee for certain eligible liabilities of up to five years in maturity incurred by participating institutions from the date they joined the scheme during a prescribed issuance period. It currently covers eligible liabilities issued up to 31 December 2011. As members will be aware, this is known as the issuance window. As drafted, even if it was decided not to continue the guarantee for the liabilities of a particular institution, the scheme will normally continue to automatically apply to deposits not covered by the deposit guarantee scheme. In all cases, the irrevocable nature of the guarantee provided pursuant to the scheme means that it will continue to apply for liabilities already issued and guaranteed during the previous issuance windows. It should be noted, however, that pursuant to the scheme, it is possible to discontinue guaranteeing liabilities other than deposits from a particular date. Furthermore, on the application of a particular covered institution, it is also possible to limit the guarantee to certain categories of deposits from a particular date. In each case, this would be done without prejudice to the unconditional and irrevocable nature of the guarantee given by guaranteeing existing liabilities. If a provision of the nature proposed were included in the Bill, it would appear to provide for a circumstance where the irrevocable and unconditional nature of the eligible liabilities guarantee could be withdrawn in relation to a particular institution, including liabilities already guaranteed. These are the aspects of the guarantee that give creditors confidence that their investments in Irish banks are protected. Therefore, I am not in a position to accept the amendment.

The issuance period of the ELG scheme will run out at the end of this year. What the Minister just said is the intention of my amendment. If guarantees are extended to the bondholders of a failed bank, I would like the Governor to have the power to suspend in law that guarantee. The fund should not pick up the tab into which the Exchequer will pay. If, God forbid, a bank were to fail tomorrow morning, is there power in law now to suspend guarantees that have been issued in the past? Would an amendment such as this allow us to suspend guarantees that were issued last year or last month in the case of a failed bank?

The answer to the Deputy's first question is "No". A guarantee is not a guarantee at all if it can be suspended. If someone bought a lawnmower with a guarantee, what good would that guarantee be if the vendor could suspend it in six months' time? It is a contradiction in terms to talk about a guarantee that can be suspended.

I understand the consequences of being able to suspend a guarantee and the effect it would have on those investing with the cover of the guarantee. If my amendment were accepted in the context of a failing bank would it allow us to suspend the guarantee?

No. If one does not like the guarantee scheme, it should not be renewed. The issuance window is up to 31 December. If the Deputy wants to bring about a situation in the future where a financial institution is impaired, the Central Bank goes in to wind it up, and the bondholders are creditors and there is no guarantee, then it achieves the Deputy's purpose if there is no guarantee. However, once a guarantee is issued neither the nation nor the bank would have any credibility if the guarantee were withdrawn half way through the process. The issuance window ends on 31 December and over the next few weeks I will consider whether it is wise and prudent to extend the guarantee.

I understand. However, if it is not extended, it will only affect new issuance of guarantees from that period onwards. However, if a bank were to fail, guarantees that were issued this month, last month or last year could be called upon. I would like to be able to suspend that guarantee in law. While I understand the consequences of that, I believe the guarantee is wrong. It is wrong that we are paying out on unguaranteed bonds, but in the context of another bank failing at some time in the future, the Governor should have the option to suspend the guarantee.

The guarantee was given in 2008 and extended in 2010. Most people believe it should not have been given in the first instance. Some people took out bonds for those banks with a ten-year maturity. Even though the bank may not fail for another eight years, they are able to call on that guarantee. I would like a legal position that would allow a Minister to suspend the guarantee. The text of my amendment is carefully worded and refers to suspending the ELG scheme to a specific covered institution, which could be for a period of time. That option should be there. I accept it could damage the investor confidence of those who might want to buy the bonds of our banks if they were to get back into the bond market. I asked the Tánaiste about this earlier today - I hope we will not extend the guarantee after December. As there is only a short two-month window left, confidence should not be rattled in that way. Some bank bondholders who have invested in the future might be a little bit uneasy that if a bank fails, the Minister or the Governor may in the future suspend the guarantee given at the time. Many people are also uneasy wondering what will happen in next year's or subsequent budgets.

At this juncture it is important to reflect on how the guarantee issued in the first instance. By any judgment it was a situation of duress and a complete misrepresentation of the assets supporting the balance sheets of the banks. It brings into question the very fundamental foundation of the issuance of that guarantee. It is not quite the same as withdrawing the guarantee for a lawnmower bought with a guarantee. The production of that lawnmower was done in an all things being equal situation. If, for instance, the main components used in producing that lawnmower were faulty, it would lessen the obligations on foot of a guarantee given by the producers of the lawnmower.

This is a proposal to suspend the application of the cover.

I understand Deputy Doherty's intention. However, if the ELG scheme guarantee can be revoked at the stroke of a pen, could it have liquidity implications for the banks at present? As they are trying to get back into the market in a meaningful way to raise liquidity, could it impair their ability to do that and get back to a position of standing on their own two feet? While I understand the Deputy's intention, I would be concerned that it would have short-term implications for the banks.

In the case of countries, like people, when it comes down to it all they have is their word. The expression in terms of countries is to respect the sovereign signature. In all these guarantees, "irrevocable" is the key word. If it is irrevocable, then it cannot be suspended. If it were possible to suspend the ELG guarantee for sums of more than €100,000, who would believe the guarantee for up to €100,000 would not be suspended by an aberrant Government three months later. If we got into that, nobody would believe us anymore and the guarantees would be worthless at that stage. So it is not possible to do it. The policy position can be achieved if the guarantee is not to be renewed. The current guarantee covers a five-year period, so ten-year stuff is not covered and what has been covered is running out.

The banks pay the Exchequer for the guarantee so there is a built-in incentive for the banks to move out of the guarantee when it becomes feasible to do so from a liquidity point of view. They are not moving out at the moment, which tells its own story. There is an incentive that as the banking system is corrected, there is no longer an incentive for the banks to be in the guarantee and I presume we will revert to a situation where we will guarantee deposits up to a certain level. I see no reason to move from the existing €100,000. I am not saying I will not renew the guarantee. I need to examine matters very carefully. There were liquidity issues in the banking system coming into the summer. The deposit flow increased during August and is quite sound now. We are in a very good position. Deputies will notice that on indications that we would not break guarantees or that we would pay our way in a bad world, the Irish bond yields reduced by 1% - I believe they were at 7.8% or 7.7% this morning. The big jump is as a result of, first, the realisation internationally that the liquidity position of Irish banks had improved and, second, the fact that we would not run away from any obligations.

It is difficult and I am listening to what the Deputy is saying. We are dealing with people who get their information about Ireland from one line at the bottom of the Bloomberg screen. That is the only attention they pay to Ireland in a week. They see the line and make up their minds on that basis. We do not have time to go into a big narrative and explain what has gone on or nuance it in any way. This is primary colours and if we get the wrong colours, we get punished. All I can promise is to keep members fully informed of the policy positions, any changes in policy and the reasons for them. I do not accept the amendment.

I do not take any enjoyment from highlighting these points. I appreciate the Minister has the toughest job of all the Cabinet at the moment, but after all, the banks were bust. They are now in a position to pay for the guarantee that keeps them in business, but they were bust. It is no big deal for them to say they are delighted to pay for the cover of the guarantee and they want to try to reduce the payment. They survived on foot of the guarantee. The bad thing about it was that it was issued under duress. The Government issued it because it thought the assets on the banks' balance sheets were enough to cover it, but that was not the case. That argument should not be lost in pressing our case to our creditors and arguing we need to revisit the situation.

We are coming at this from two different angles. The Minister said this cannot be done but I do not believe that. We are legislators. There is an amendment before us that can give the Minister the power to suspend the guarantee if the Government extends it after 31 December. I did not come in with all guns blazing and throw in an amendment I thought he would be unable to accept. This is about conferring a power on the Minister and giving him the option of suspending the guarantee. The guarantee would not be suspended overnight and it would not be suspended if he extends it after 31 December. The amendment gives the Minister the option by way of a ministerial order to suspend the application. The reason for the amendment is that we do not know what is coming down the road. There are positive signals such as that bond yields have dropped below 8%. They are back up over 8% this morning, but they have come down from 14%. They are still far too high and we had to go for a bailout when they were over 7%, but there are positive signals. Nevertheless, things can change quickly. We do not have a clue what is happening. The world economy is looking gloomy. If we consider what happened over the past 18 months, the figure was sitting at about 5%, then it went up to 7%, up to 14% and down to 8%. Things happen quickly and they can happen in a good way or a bad way. If I am re-elected in four years' time and the Government is still in office and the Minister is sitting across the table and things have gone bad because another bank has failed but we have no option but to pay out on guarantees, I would like to know that we had at least conferred on him the option to suspend the guarantee. That is what the amendment does.

I go back to my original position. A guarantee that can be revoked on a Minister's signature is not a guarantee that convinces the markets because they will say it is not a real guarantee but a political guarantee and politics by its nature is volatile so the guarantee is not worth the paper it is written on. That is the difficulty. One could take a moral view of the matter that would be different, but I am describing the situation as it is. Members will recall that during the election campaign the fifth biggest bank in Denmark was resolved and a 40% haircut was taken from everyone, including depositors over €100,000. Subsequently the banking system in Denmark has got into dreadful trouble. The country has a large number of banks. Its small banks cannot fund in the markets any more and the cost of funding its three biggest banks has gone up. At the time, I and many others thought that was the way to go and we quoted Denmark as the example of how to deal with these issues, but the fall-out has been damaging to the Danish economy and community. We have to be prudent and make the best possible judgment. Enough gambles were taken in the past and I am not prepared to gamble with the future of the banking system.

We have ventilated the issue.

On a point of order, Chairman, we have skipped on to amendment No. 13. I want to be clear that we have not run past sections 5 to 7, inclusive, and agreed them without-----

We have agreed section 5 and we are on section 6. As Deputy Doherty's amendment to section 6 has the same subject matter as amendments Nos. 13 and 14, we have discussed them with his amendment. Is that okay?

Yes. I see. I want to comment on section 6. Will I have an opportunity to do that?

In a moment.

Amendment put and declared lost.
SECTION 6
Question proposed: "That section 6 stand part of the Bill."

In line with some comments that were made earlier and in response to something the Minister said, I signal my intention to introduce an amendment on Report Stage because I fundamentally reject the idea that the Central Bank should be independent. The freeing of the European Central Bank or central bank authorities generally from political and therefore public control and accountability is a significant part of the problem we are in.

You are flagging up that issue for the purposes of-----

Section 6 deals with the independence of the Central Bank, the Governor and so on and section 7 deals with the Minister and the bank, covering issues to do with its independence and having regard to European Union law. I reject the proposals. The priority that should be included is accountability to the public, the Houses of the Oireachtas and the social and economic priorities set out by public representatives. They should trump-----

You are entitled to flag up that issue for the purposes of signalling his intention to introduce an amendment on Report Stage, but we do not have the basis to debate it now because we do not have such an amendment before us. I have allowed you to flag it up and make the point-----

I just want to ensure-----

You are in order. You have flagged up the issue and it is now up to you to introduce an amendment on Report Stage, but we do not have such an amendment in front of us now.

Nothing in section 6 gives additional powers to the Central Bank or its Governor. The section simply confirms that nothing in the Bill reduces the independence of the Governor or the Central Bank.

It reaffirms it, though.

I am simply saying there is nothing in the Bill that removes or interferes with the independence.

On the Danish banking system, the chief executive officer and chairman of Danske Bank, which is the parent of National Irish Bank, Peter Straarup, is under pressure to resign because of the size of the losses in the Irish economy added to the losses the bank made in Sampo Bank, a Scandinavian bank in which it invested. It just shows that, when giving guarantees, the problem was-----

Deputy-----

This is important.

You always say it is important. I do not doubt for a moment that it is important, but I have to try to make progress. We are not going to reopen the debate on guarantees.

The guarantee was given-----

Excuse me, I am speaking.

Sorry, Chairman.

I am chairing the meeting and you are supposed to listen when the Chairman speaks.

I will not permit a broad-ranging Second Stage-type debate on the propriety or otherwise of the guarantee. The matter has been ventilated to some extent in the context of the amendments tabled. We must proceed as we have many amendments to discuss.

I appreciate that; I am cautioning that the guarantee was entered into at speed-----

The Deputy has made that point.

-----and under duress and that we do not want to make the same mistakes again.

The Deputy has now made that point three times.

Question put and agreed to.
SECTION 7
Question proposed: "That section 7 stand part of the Bill."

I flag my intention to table an amendment to this section. I suggested previously that the provision referring to the laws of the European Union and its rules on state aid should be preceded by a one indicating that we should have regard to and be accountable to public interest and the Houses of the Oireachtas-----

Very well.

-----and should only have regard to European Union rules.

Perhaps the Deputy might return to this issue on Report Stage.

I am flagging my intention to do so.

It is noted.

I tabled an amendment that would definitely have helped to clean up the section, but the Minister did not accept it. I understand the reasoning behind the first part-----

We are on section 7.

No amendments have been tabled to this section.

I am speaking to the section, the first part of which provides that regard should be had to the laws of the European Union, which is standard practice. However, the second part reads, "and any relevant guidance issued by the Commission of the European Union". From where does this come? The Commission is an unelected body. The section mentions guidance, not laws or directives. Why should the Minister and the bank show the same regard to the laws of the European Union as they do to the guidance of the Commission? We have passed treaties which, for better or worse, require us to have regard to the laws of the European Union. However, we are now giving the Commission a very strong hand with regard to the issuing of guidance. I understand the provision on state aid, legislation on which has been passed into law by national Parliaments, but the language used makes guidance from the Commission as strong as the laws of the European Union.

Guidance has been given regularly by the European Commission on a range of matters such as what is regarded as state aid. I understand guidelines were issued after the guarantee was provided here unilaterally. The section does not oblige the Minister or the bank to follow the guidelines issued by the Commission. The language used is, "shall have regard to...". It is prudent to have regard to the European Union position prior to acting.

Is the Minister not obliged to follow the laws of the European Union?

We are obliged to follow the laws of the European Union. What we are speaking about is guidance issued by the Commission.

The reason I am asking is the section refers to having regard to the laws of the European Union and relevant guidance. I am concerned about the language used. Legally, we must abide by the laws of the European Union, but according to the Bill, we will have to have regard to-----

But not the guidelines.

It is prudent when making decisions in areas in which guidelines have been issued by the Commission to have regard to them. That is all the section states.

Question put and agreed to.
NEW SECTION

I move amendment No. 6:

In page 12, before section 8, to insert the following new section:

8.—Before performing a function in relation to an authorised credit institution that carries on business in a jurisdiction other than that of the State, whether it carries on that business itself or through one or more subsidiaries, the Bank shall, to the extent that it can do so, having regard to the purposes of this Act, inform the authority duly authorised to perform functions similar to any one or more of the statutory functions of the Bank of its intention to exercise the power.".

This amendment recognises the possibility that some authorised credit institutions such as banks will have operations in other jurisdictions and the importance of ensuring the relevant authorities in other jurisdictions are kept informed of the Central Bank's approach to dealing with an institution which is experiencing difficulties. The amendment provides that where the Central Bank proposes to perform a function in relation to an authorised credit institution which carries on business directly or indirectly outside the State, it shall, to the extent that it can, inform the supervisory and regulatory body in that other jurisdiction of its intention to do so.

It should be noted that the European Union is working to develop a more comprehensive co-operative framework for authorities to deal with a cross-border institution experiencing difficulties. I will take steps to include such a framework in our domestic special resolution regime once and if it is agreed.

The provision will require the Central Bank merely to notify or inform the relevant competent authority in another jurisdiction, but there is no suggestion any action needs to be delayed or informed by the response.

If we were to wind back the clock, this provision would have placed a legal obligation on the Governor of the Central Bank to inform the UK regulator and the governor of the Bank of England in respect of any of our banks trading in Northern Ireland or Britain.

Amendment agreed to.
SECTION 8

Amendments Nos. 7 to 12, inclusive, are related and will be discussed together.

I move amendment No. 7:

In page 12, subsection (1)(c), line 30, after “Minister” to insert the following:

"and a special public sitting of the Joint Oireachtas Committee on Finance, Expenditure and Public Reform to which representatives of the authorised credit institutions are invited".

This amendment deals with the issue of Oireachtas oversight. Section 8 deals with intervention conditions and lays down three criteria, the third of which is that the Central Bank consult the Minister. The purpose of the amendment is to go further than this. The Governor of the Central Bank should also consult the Oireachtas Joint Committee on Finance, Expenditure and Public Reform at a meeting to which representatives of the authorised credit institution would be invited. The Bill provides significant powers for the Minister and the Governor of the Central Bank, but it allows for very little parliamentary scrutiny. It is important that there be such scrutiny. We have had investigations into what happened at the time the bank guarantee was given and we may yet have more such investigations on the various decisions taken. Best practice is to scrutinise matters in a sensible way and this can be done in camera or otherwise. It is important that a committee have such powers of scrutiny.

Other countries are also considering the issue of oversight powers. There have been discussions in Germany on how it should enhance oversight of issues such as the EFSF and how its finance committee should be involved. If we are to have real political reform and give teeth to committees, it is appropriate that there at least be consultation. The amendment does not state it would have to be approved by the committee or that committee members would have a veto in the resolution process, rather it states the Governor of the Central Bank would have to consult the Minister and the committee.

Does the Deputy wish to speak to amendment No. 8?

Amendment No. 8 deals with credit unions and seeks to insert the words, "in relation to a credit union if the Bank has consulted with the Credit Union Advisory Committee and any other body appearing to the Minister to have expertise or knowledge of credit unions". Credit unions are concerned that there will be inadequate consultation with them if and when the terms of the Bill are applied to an individual credit union. There is concern that the only institutions to which the terms of the Bill will be applied will be credit unions because of the difficulties with such legislation in member states and the fact that banks can move assets at the press of a button.

This amendment would place a requirement on such a condition in advance of any application of the Bill that would impact on credit unions. There would be consultation with the credit union advisory committee and any other body appearing to have expertise or knowledge of the credit unions. Credit unions are a unique movement and as Deputy O'Donnell noted, this affects over 400 credit unions with many customers. They are completely different from banks and a different application is required for credit unions. There should be consultation between the Governor and the credit union advisory committee prior to any move.

With regard to amendment No. 7, the hearing of an Oireachtas committee as proposed would negate the power in later sections, such as section 23, to apply for orders on an ex parte basis. In addition, the holding of such a hearing would severely restrict the ability of the Central Bank to act swiftly. Where time is of the essence it would not be feasible to organise such a hearing, such as where resolution was required over the course of a weekend. Finally, the holding of such a hearing in public could have significant financial stability repercussions. We can think of the famous night three years ago when the guarantee was issued. If this Bill had been in place, there is a possibility that the Central Bank would have moved to put Anglo Irish Bank through a resolution process.

We could have saved a fortune.

If we had been waiting for an Oireachtas finance committee to meet, the horse would have well and truly bolted by the time the meeting would be organised. There is an urgency in the issue. This will always be used in an urgent scenario as if there was any lead-in, there would be queues outside the door of the institution and deposits would be moving out. It will always go to a point where suddenly the Central Bank cannot be allowed to continue. There would not be time for this kind of procedure, although it might be possible to have some reporting mechanism in the Bill. There could at least be a post factum element and if the Deputy can devise it, we might have a look at that on Report Stage.

I appreciate that. We will come up with a provision for the bodies to report to the committee.

There can be some mechanism where there is a democratic involvement. It would have to be after the event as the issue would be too urgent for it to happen as outlined in the amendment. We will have a look at that ourselves.

Amendment No. 8 seeks to insert a new requirement into the intervention conditions to the effect that the Central Bank would be required to consult the credit union advisory committee, CUAC, or another relevant credit union body before taking action. I would have the same problems in this respect as while we wait for a consultation process, the horse would bolt. If this is to be something done over a weekend or overnight, there would be a difficulty.

The CUAC is very good organisation, a statutory committee established under section 180(2) of the Credit Union Act 1997. Its role is to advise the Minister and such other persons as the Minister thinks fit with regard to the improvement of the management of credit unions; the protection of the interests of members and creditors of credit unions; and other matters relating to credit unions upon which the Minister, the Central Bank or such other persons as may be specified by the Minister may from time to time seek the advice of the committee. The CUAC provides a very important role in providing policy advice and analysis on a range of credit union issues. Under the provisions of the 1997 Act it would be open to the Minister or the Central Bank to seek the advice of the CUAC on credit union matters.

It is important that the Central Bank is able to act independently in taking resolution actions, subject to the very carefully drafted intervention conditions in the Act. The requirement to consult in this way could delay Central Bank action and undermine its independence. For that reason I do not propose to accept the amendment.

Amendments Nos. 9 to 12, inclusive, are in my name and they make some minor adjustments for clarification purposes and correct a grammatical error in section 8.

Is the Deputy withdrawing amendment No. 7?

I appreciate what the Minister has said.

Amendment, by leave, withdrawn.

I move amendment No. 8:

In page 12, subsection (1), between lines 30 and 31, to insert the following:

"(d) in relation to a credit union if the Bank has consulted with the Credit Union Advisory Committee and any other body appearing to the Minister to have expertise or knowledge of credit unions.”.

I take a different view on this amendment as there is a difference in application between a bank and credit union. I understand that many of these credit unions are quite large but we are not looking at the same type of impact as would come from one of the larger banks.

Is the amendment being pressed?

I am speaking to the amendment.

I understand.

I accepted the Minister's rationale for amendment No. 7 because of the immediate action that may be required when a bank fails. With a credit union we are not suggesting that a finance committee be convened but rather the credit union advisory committee. The amendment can be amended so that a representative of the advisory committee can be involved. This intervention would happen sharply and after a number of conditions have been fulfilled. It is not as if the Governor of the Central Bank would have to have been in contact with the institution. The institution would be well aware that it is failing to meet a condition or number of conditions. The same scenario would not apply to the banks as the credit union. It is quite reasonable to expect in an intervention that there would be consultation with the advisory committee of the credit union, or a representative of the committee if the Minister so wishes. There should be some form of consultation. I appreciate the Minister's comments with regard to the banks but the credit unions afford a different scenario.

Under law, the CUAC exists to advise the Minister. In circumstances where a Minister is being consulted about a resolution event, the Minister has the power to consult CUAC anyway. The Central Bank is also empowered to do so. They may do so but do not have to.

I would like to see the Minister and the Central Bank having to make that consultation. It would only be a conference call, and this amendment could be amended so that a representative of the advisory committee would suffice. The Minister and the Central Bank has the power to consult but there is no requirement for any consultation with the CUAC or any representative before intervening in this regard.

There is a concern within the credit union movement as to how the resolution process will work. We are all aware that something must happen with a number of credit unions but the issue is how that happens. The credit unions are a different animal to the banks and we all appreciate the unique character of the movement, including its democratic nature and ownership by the people and community. We can consider the wording of the amendment again if the Minister is disposed to it. We use words such as "endeavour" to help include a provision recognising that there is a difference between the credit unions and banks, and consultation, where possible, should be extended to the advisory committee or a representative thereof prior to an intervention. There would not be a mandate to have the consultation but where possible it should take place.

The Deputy makes a reasonable argument and I will consider the matter before Report Stage. I will not give a commitment at this stage.

Amendment, by leave, withdrawn.

I move amendment No. 9:

In page 12, subsection (2)(a), line 34, to delete “has directed” and substitute “directs”.

Amendment agreed to.

I move amendment No. 10:

In page 12, subsection (2)(a)(i), line 38, after “direction” to insert “under this paragraph”.

Amendment agreed to.

I move amendment No. 11:

In page 12, subsection (2)(a)(ii), line 41, to delete “the direction” and substitute “that direction”.

Amendment agreed to.

I move amendment No. 12:

In page 13, subsection (6)(c), line 23, to delete “ensuring the depositors” and substitute “ensuring that the depositors”.

Amendment agreed to.
Question proposed: "That section 8, as amended, stand part of the Bill."

Perhaps the Minister will clarify if my understanding of the intervention conditions is correct. With regard to condition A and B in section 8(1)(a)(b)(c), am I right in my interpretation that the Central Bank can effectively intervene without recourse to the Minister if conditions A or B apply and that if both conditions C and D apply, it must also consult the Minister? Will the Minister clarify the position relating to the intervention? Alternatively, is it required to consult the Minister at all stages?

The Deputy will see the word "and" is used at the end of the line in (b).

If it is to intervene in conditions A, B, C and D, does the "and" only apply to C and D or does it apply to A and B as well?

It is A or B and then it is C and D and the bank has consulted the Minister.

In all situations for intervention, therefore, will the Central Bank have to consult with the Minister?

Yes. I have a speaking note on the section. This is an important section which sets out the conditions that must be met before an intervention under the Bill can be made in respect of an authorised credit institution. The intervention conditions are the cornerstone of the approach to resolution set out in this Bill and take into account work under way in the EU and the resolution regimes that have been put in place in other member states. In particular, it is generally recognised that there is a balance to be struck between hard triggers, which require action to be taken, and soft triggers, which allow for some flexibility.

The intervention conditions in this section seek to achieve a balance between ensuring that an intervention is only made when required while allowing action to be taken by the Central Bank at a sufficiently early stage. A number of conditions are set out which the bank may take into account in finding that the use of the resolution powers rather than the winding up of an institution is in the public interest.

The Central Bank must be satisfied that one of the following applies: the Central Bank has serious concerns relating to the financial stability of the institution and these concerns cannot be resolved under the direction powers of the Central Bank, either because the Central Bank has already issued a direction and the credit institution has either failed to comply or is incapable of complying within the specified period or because the Central Bank is satisfied that its concerns cannot be adequately addressed by a direction; the Central Bank is satisfied that there is a present and imminent serious threat to the financial stability of the institution concerned or the wider financial system; the Central Bank must also be satisfied that the institution in question has failed or is likely to fail to meet a regulatory requirement imposed by law or a requirement of its licence and authorisation; and the immediate winding up of the institution is not in the public interest, having considered the matters set out in subsection (6) in this section and any guidelines the Central Bank may have issued under section 88 of this Bill. The Central Bank must also consult the Minister.

It is very important because it is the pivot on which the Bank moves and must make decisions. The conditions, therefore, are quite rigorously drawn and consultation with the Minister is required in all circumstances.

Obviously this is a pivotal section. A question arises more particularly relating to the credit unions. Clearly there is a need for reorganisation and amalgamations within the credit union movement. Are the criteria under which the Central Bank will make a judgment call on the viability of a credit union or the financial stability of a credit union set down in the Bill? There is clearly a need for resolution mechanisms and I was one of the first to call for them. However, this will come into play for the credit union movement. To give comfort that there is procedure for how it is determined that a particular institution falls under conditions A, B, C or D, are there criteria laid down in the Bill on how the Central Bank would judge this? What I am probably seeking here is a definition of viability.

Before calling the Minister I call Deputy Boyd Barrett on section 8, as amended.

I am seeking guidance on this. I would like to insert something before we move to section 9.

It is not possible to put anything into the Bill unless you have notified the committee of an amendment.

That is what I am trying to clarify. If we are discussing the Bill now and raise issues on Committee Stage, can we table amendments on Report Stage?

Yes, on Report Stage.

The issue I wish to raise would fit in logically between sections 8 and 9. How do I raise that?

An amendment to section 8.

The Deputy could table an amendment to insert a new section.

That is why I am asking. I do not wish to proceed to section 9 before that.

A new section takes the number of the section.

To use the phrase the Minister has used a number of times relating to closing stable doors after horses have bolted and so forth, the point I wish to make is that it appears that the thrust or substance of this Bill is about closing doors after horses have bolted. It is assuming-----

The provisions of the Bill and the credit institutions resolution fund, which is dealt with in the next section, are about dealing with the crisis after it happens, preparing for the possibility of another crisis and being able to deal with that situation. I believe that before it does that the Bill should give powers to the Central Bank to pre-emptively act to prevent a crisis, not just to have a mechanism for dealing with it afterwards. It should have powers and be generally disposed, as it were, to act before the crisis. Some of the provisions in Part 2, section 8 and so forth imply that, but then they skip to the resolution fund. My point is that there should be something in between. That something should be provisions to allow for the pre-emptive nationalisation of financial institutions that appear to be in trouble and threatening the financial stability of the State or where a particular credit institution appears to be in danger of collapsing. On Report Stage I would like to be able to insert a new section which gives effect to that argument.

The Deputy is free to do that, particularly since he has raised it on Committee Stage. If the Deputy tables such an amendment on Report Stage it will be considered then.

I will respond to Deputy Boyd Barrett's intervention first. The Central Bank is the regulator of the financial institutions and it has power under law to take pre-emptive action at the first signs. When the first signs of trouble come to its notice, as the regulator it has many powers to act. It has particular powers under the Credit Institutions (Stabilisation) Act. What it would do is examine the situation and if it considered it to be high risk, it would issue a directive to the institution. If the institution does not comply with the directive, it can opt to use the extra powers it has. This is the culmination of that.

Before we arrive at the resolution position, with the banks deciding to move in and effectively close the institution or transfer it to a bridge bank or other institution, it would have expended all the normal powers the bank has as a regulator to control the institution. The Central Bank, when it reaches this point of decision, must be satisfied the institution in question has failed or is likely to fail to meet a regulatory requirement imposed by law or a requirement of its licence and authorisation. If a financial institution is licensed, it has other obligations under the law. If the Central Bank goes through its regulatory process but has still not solved the problem but goes to move on and invoke the powers of this Act, at that point the Central Bank, through its Governor, must be satisfied there is a failure in law, in regulation or in breach of licence. After consulting the Minister it can move on. The legislation is quite tight.

Of course, this is preparation for the next crisis, although we hope it never happens. As a citizen I hope these powers are never used to resolve a financial institution because the day they are used, there will be a lot of pain and suffering. Those are the inevitable consequences. We do not want banks to go bust again. We have been through that phase and I do not want to see anything similar again. We are putting in place legislation to make provision for a possible crisis in the future that we hope will not happen.

I understand that but I would like to flag that I want to table an amendment on Report Stage, although I will not delay the committee.

There is no definition of viability for a financial institution but the Central Bank, carrying out its functions as regulator, at some point in the process will issue a directive and one of the trigger moments will be if the institution is in breach of the directive, and then it moves on. The Central Bank, as regulator, will decide if an institution is moving towards the brink and must be dealt with under these powers.

Are there any circumstances in which the Central Bank can move on intervention without consulting with the Minister?

Under the normal regulatory regime of the Central Bank, it does not need to consult the Minister when acting as regulator. The powers in the Act, when passed, may not be invoked by the Central Bank without consulting the Minister in all circumstances.

If the Central Bank presents a situation to the Minister, can the Minister overrule it?

No, the Central Bank is independent. In normal times, if evidence is produced that it is in the national interests and in the interest of the economy that the Central Bank resolves an institution, the Minister would want to be very sure of his grounds before refusing. There could, however, be different views of the national interest. If the Central Bank saw an institution as dead and that it needed to be wound up, and the Minister disagreed, saying it was in the national interest that the institution is kept going through the resolution process, that is where there could be difference of opinion.

Question put and agreed to.
NEW SECTIONS

I move amendment No. 13:

In page 13, before section 9, but in Part 2, to insert the following new section:

"9.—In performing a function or exercising a power under this Act, the Minister and the Bank shall have regard to the financial viability, stability and survival of the State and shall not act in any way that would undermine or weaken the financial viability, stability or survival of the State.".

Amendment put and declared lost.

I move amendment No. 14 :

In page 13, before section 9, but in Part 3, to insert the following new section:

"9.—In order to effectively perform the functions or exercise the powers under this Act the Minister can, by way of a Ministerial Order, suspend the application of the Credit Institutions (Financial Support Scheme) 2008 and the Credit Institutions (Eligible Liabilities Guarantee Scheme) 2009 to a specified covered institution.".

Amendment put:
The Committee divided: Tá, 2; Níl, 8.

  • Boyd Barrett, Richard.
  • Doherty, Pearse.

Níl

  • Noonan, Michael.
  • Broughan, Thomas P.
  • Daly, Jim.
  • McGrath, Michael.
  • Mathews, Peter.
  • O’Donnell, Kieran.
  • Timmins, Billy.
  • White, Alex.
Amendment declared lost.
Amendment No. 15 not moved.

The Deputy did that well.

Amendment No. 16 is in the name of the Minister. Amendment No. 58 is related, amendments Nos. 16 and 58 will be discussed together.

I move amendment No. 16:

In page 14, subsection (2)(b), line 2, to delete “section 31, 64 or 70(5)” and substitute “section 30(1), 31, 35(5) or 80”.

This provides that the resolution fund may be used to pay any compensation arising from the new procedures set out in amendments Nos. 46-55, new sections 28-37. Deputy Pearse Doherty has tabled amendment No. 58

This is the appropriate time to discuss amendment No. 58, tabled by Deputy Doherty .

Amendment No. 58 is a technical amendment and it follows on from my opposition to section 11, which permits the Minister to contribute to the resolution fund. I do not believe we should pay into this fund. We have bailed out enough banks. I have no problem with a resolution fund. I agree with most of the aspects of the Bill on the resolution process and resolution legislation, but I would like to tweak around the edges. My fundamental issue is that I do not believe the State should have to carry the can at the end of the process. I understand there are avenues to recoup that money, as provided for in section 29 which states, "The Minister may recover from the Fund any amounts". It is not explicit that the State will be recouped in full from the fund. I do not believe that the taxpayer should be the final stopgap at this point.

I do not have a problem with a resolution fund per se, but I believe the banks should pay into it. I hope we will never need to use this legislation although more than likely it will be used in small number of instances for credit unions, but I do not think that draw down will be of a sizeable proportion.

I am completely and utterly in opposition to the reference "to allow the Minister to pay into". If that phrase were removed, I would be in a position to support the fund.

I am not in a position to accept amendment No. 58. The effectiveness of the proposed powers to provide for transfer orders would be compromised if the Minister could not provide financial incentives.

Amendment agreed to.

We now come to amendment No. 17 in the name of the Minister. The reference to section 16(6) in amendment No. 17 is a reference to the subsection proposed to be inserted by amendment No. 21. Amendment No. 18 is an alternative to amendment No. 17 and amendment No. 21 is related. Amendments Nos. 17, 18 and 21 will be discussed together.

I move amendment No. 17:

In page 14, subsection (3), lines 10 to 12, to delete paragraphs (b) and (c) and substitute the following:

"(b) any sums paid into it by the Minister pursuant to section 11,

(c) any assets of a bridge-bank transferred to it pursuant to section 16(6), and

(d) interest on those sums, contributions and assets.”.

Amendment No. 17 amends section 9(3) which sets out the constituent parts of the fund. The amendment arises from the changes to section 16 proposed by amendment No. 21 which provides that where a bridge bank is wound up, any surplus is returned to the fund. The proposed amendment ensures any assets transferred to the fund from a bridge bank are a constituent part of the fund. As the fund provides the initial capital for the bridge bank it is appropriate that any surplus upon wind-up is returned to the fund.

I do not propose to accept amendment No. 18 as it is in opposition to amendment No. 17. The resolution fund will have to be built up over a number of years and during this initial period funds will have to come from somewhere. Lack of funds will make resolution in the coming years, particularly difficult without some form of Exchequer funding. In the absence of sufficient funding, the Central Bank's powers to resolve institutions efficiently and effectively will be severely jeopardised. In addition, the Deputy's amendment would also remove interest on the sums in the fund. It is difficult to see what is the objection to the fund retaining interest on its moneys.

Amendment No. 21 inserts a new subsection 16(6) which ensures that where a bridge bank is being wound up any surplus assets are transferred to the fund. As the fund is used to initially capitalise the bridge bank, it is appropriate that where a bridge bank is being liquidated, any remaining assets are returned to the fund.

I propose to move amendment No. 18.

We will deal first with amendment No. 17. To clarify the position, if amendment No. 17 is agreed, amendment No. 18 cannot be moved because the amendments are contradictory. In any event, this is not the moment to move amendment No. 18 as we must first dispose of amendment No. 17.

This issue boils down to whether the State should pay into the bridge fund. We have written sufficient blank cheques for the banking sector and to pay into the fund would be to write another one. In the event that a bank were to fail and insufficient moneys were available in the fund to cover the resolution process, will the legislation, once enacted, place an obligation on the State to make up the difference or shortfall?

The phrase used, "the Minister may", empowers the Minister to put money in the fund if he sees fit but does not oblige him to do so.

It is, however, implicit that the Minister will put money into the fund to cover any such costs.

If there were sufficient money in the fund, the Minister would not put money in it. If, however, circumstances arose where the resolution legislation needed to be invoked, insufficient money was available in the fund to cover the resolution process and it was in the national interest to resolve the financial institution in question, the Minister would put money in the fund but would recover such moneys subsequently from levies on the industry.

If one of the pillar banks were to fail in future, billions would be required to cover the costs of the resolution process. Moreover, the guarantee will not have been lifted. The State should not have to pick up the tab for a bank failing, even if the cost would be recouped at some later stage, possibly through a drip-feed of money into the State's coffers over a period of ten, 15 or 20 years. Such a scenario would place the financial stability of the State in jeopardy. That is my objection to amendment No. 17 and section 11 in its entirety.

This is one of those scenarios in which if it is the case that one wills the ends, one must also will the means. The resolution legislation is useless if the funds are not available to implement it. Without funds, it becomes an idle law on the Statute Book which cannot be invoked. It is not the intention that there will be a charge on the Exchequer. Let us suppose the Bill is not used for a generation. I hope the fund will have been built up over that period. We need provision in order that the Minister can supply the funds necessary to make the transfers if the decision is taken to keep an institution going.

Is this not a little like captive insurance for the resolution of banks by banks?

I beg the Deputy's pardon.

It is a little like captive insurance for resolution in the banking industry. Is that not the case? It is like public bodies' mutual insurance, except it is for the resolution of banks.

It depends on what happens in the resolution process.

I understand the Minister's point on the resolution process and accept that resolution legislation is necessary. For this reason, if section 11 were deleted from the Bill, I would support the legislation. I would like small aspects of the legislation, important as they are, amended but even if my amendments were not accepted, I would support the legislation provided the section was deleted. The problem is that we are passing legislation that could result in the State being asked to pick up the tab for the failure of a private bank, albeit with the potential to recoup the cost.

That is not the position. The purpose of the legislation is to protect the public interest. If a bank or financial institution is put into resolution, the position would be that after the guarantees to the depositors were fulfilled, the losses would fall where they will. The bondholders would have haircuts applied and the assets would have to match the liabilities in the resolution process. The Revenue would have first call after the guarantee to the depositors. After that, the losses would follow where they will.

I do not envisage circumstances arising in which a substantial transfer of State money will be made into the fund. The purpose of the fund is to finance the mechanics of the process, not to fill black holes in financial institutions. If a resolution takes place, it will not be like what happened in Anglo Irish Bank. If resolution legislation were in place and the Central Bank decided that Anglo Irish Bank should be subject to a resolution process, it would either wind up the bank in the first instance or invoke the resolution process. At that stage, the bondholders would get whatever they were worth, as is the case in a bankruptcy, which could be 10 cent in the euro or whatever.

The Minister's comments are made in the context of the absence of a guarantee. The Minister voted against a proposal to give him powers to suspend the guarantee or any other guarantee he may extend after the end of 2011. In effect, it is not the case that the depositors will be covered by the guarantee. It applies also to the bondholders and may continue to apply in future. A cost could, therefore, arise and in any case there is a resolution cost because we would incentivise the transferee to acquire the assets and liabilities of the bank. Furthermore, there would be a cost associated with the bridge bank. The point is that the State may be asked to cover these costs and liabilities, which at this point is a quantum that is utterly unknown to the Minister, me and everyone else present.

In the unlikely scenario that a bank will go bust in the next two years with the guarantee still in place, the State has obligations under the guarantee. However, it is not taking on any new financial obligations under this legislation other than providing the amounts of money required to cover the mechanical cost of invoking the resolution.

If there are other liabilities arising from the guarantee, they do not arise from this body of work, but from things that are done already. In the real world, if things go anyway well, the guarantee should get wound out of the system over the next couple of years. There is no new liability being underwritten by these provisions and there is nothing in this resolution legislation which would suggest that losses in the bank that is being resolved must be made up by the Exchequer. The difference is and the reason we are including this provision is to ensure the losses will fall where they should fall, in proportion to some kind of credit hierarchy, which is fairly well agreed anyway. To come back to the bondholders, under this they would get whatever the assets justify them getting, as with a bankruptcy.

Not the bondholders that are guaranteed.

Whatever liability there is to bondholders guaranteed does not derive or arrive from this legislation.

I understand that, but it could if we wanted it to. If we passed my amendment, it would.

No, I do not think so. However, it is elsewhere.

I appreciate that.

All we can deal with here is this legislation. There is no additional liability being undertaken.

That is a strange statement. There is a liability being undertaken by the State by passing this legislation. We are accepting liability in the case of a bank failing, perhaps a major bank whose bondholders would be guaranteed and whatever the reason it is failing, its assets are obviously inferior to its liabilities. Under this resolution process we are providing that the fund could be used to incentivise another bank or financial institution to take on the assets and liabilities. That is like saying that if AIB fails, we will turn to Bank of Ireland to take it on and say it is okay, the creditors and all the losses will fall, but the bondholders must be paid. Then Bank of Ireland will look at the assets and liabilities and say that if it is going to take it on this year, it must be incentivised. That is what is allowed in this resolution process and the incentivisation will come from the fund. Who carries the can for that fund? At this point in time it is the banks, the financial institutions, but in the event there is not enough money in the fund to cover the incentivisation, on top of the process of dealing with the transfer, it is the State. That is my problem with this.

There is a liability and the quantity of that liability is unknown. We do not know how badly bust a bank will go or how the assets of a bank could be depleted. If we were dealing with this legislation three, four or five years ago, who would have thought we would be looking at loan books and banks written down by 60% and in some cases more? We just do not know what the future holds. In order to incentivise a bank, this legislation allows incentivisation happen in order that another entity will take on the assets and liabilities of a failed bank. That will come at a cost which will be borne by the fund, which may be borne by the State.

I will put it this way. If the Chairman decided that we would all go home and would not enact this legislation, and if a bank whose bondholders were guaranteed - there is no such bank in the system now - went bust and had to go into some form of resolution, there would be no resolution Bill and whatever guarantees the State would have entered into, it would be liable for those guarantees. That is what happens if we do not proceed with the resolution. However, if we proceed with the resolution Bill, we incur no new obligation to beneficiaries of the guarantee. In terms of the compensation fund, what will happen with the resolution is that bondholders will get whatever the asset base is worth. If it is 5 cent or 10 cent, that is what they will get. Therefore, there are no new liabilities being incurred.

The provision which enables the Minister to provide money to the compensation fund is an enabling provision. It provides that the Minister "may" do so. Therefore, there is nothing that obliges the Minister of the day to put money into the fund, but he or she may do so if he or she thinks it is a good idea to do it. It is clear from the context that it is not money to fill a black hole, but money to allow the operation of the resolution process. That is all it is.

A clarification of section 11(2) by the Minister might be helpful. It states that the Minister is "entitled" to be reimbursed from the fund for all contributions made. Does the word "entitled" provide a commitment that any moneys advanced by the Minister from the Central Fund, will over whatever period of time it requires, be reimbursed from the compensation fund?

Yes, it is intended to give the Minister of the day the legal right to be reimbursed from the fund.

Is there an obligation on the funds?

Yes, anytime there is a right, there is an obligation on the other side. If there is a legal right, there is a legal obligation on the fund to meet that right of the Minister.

Will it be invoked?

Should it not say the Minister "shall" be reimbursed rather than the Minister "is entitled" to be reimbursed?

I know these issues are related, but we better deal with section 11 when we get to it.

"Entitled" is a stronger word than "shall". "Entitled" implies a legal obligation.

It does not mean the Minister will invoke that entitlement.

It allows the discretion to do so.

With any luck it will be raised in the Dáil. He will get beaten up if he does not invoke it.

I understand the Chairman's emphasis on sticking to the section, but this is relevant to the amendment. Is there a commitment in the section that any moneys advanced by the Minister from the central fund will be reimbursed from the resolution fund over time?

We are on amendments Nos. 17, 18 and 21.

Yes. First, I do not agree with the Minister's position that there are no additional liabilities. I accept there is no additional liability to those who are covered - the bondholders under the guarantee - but an additional liability could arise in a resolution process where the fund is not adequate to meet that process. Second, I disagree that it should be the State that should bear the potential liability. It should be the Central Bank that takes on that liability. This is a private banking matter. If a private bank fails and needs a resolution process, as legislators we should ensure the Governor of the Central Bank has the powers to do that. In terms of carrying this Bill, it is the Central Bank that should carry the liability and be reimbursed by the financial institutions across the State. Third, the Minister's intention is immaterial to our discussion because while he may be "entitled" to be reimbursed, he may not be the Minister for Finance for ever.

There is no guarantee in this legislation that any money transferred from the Exchequer to this fund shall be returned to the Exchequer. It is an entitlement the Minister may request at a particular time. Other sections in the Bill deal with what would happen if the entitlement was invoked, but there is no explicit guarantee in the legislation that the fund would be replenished or that the Exchequer would be repaid the money it had extended to the fund. On this basis, I oppose the Government amendment.

As welcome and as needed as is the resolution process, it is a blank cheque. It is not just the case that if we do not put money into the fund, we cannot have a resolution process. We will give the powers to the Governor of the Central Bank, but it is a banking matter and should be dealt with by the banks. The Central Bank is there to deal with the issue and it should put up the capital for the process if it is needed in the case of failure of a bank. That money should be replenished through contributions from the institutions in the future. It should not be the State that is liable if this is called upon. If it was a significant call, it could put our budgetary situation in a difficult position.

If you substitute "the Minister" with "the Governor" it amounts to the same thing in the final analysis, because the Central Bank transfers its profits on a yearly basis to the Minister. If one imposes charges on the bank, the profits go down, so less profit comes across to the Minister. If the Deputy looks at the national accounts he will see yearly transfers from the Central Bank of surplus profits. I hope there is a good amount there this year to make life a bit easier for the budget. That is the procedure. The word "entitle" is a lot stronger than "may" or "shall" because it says the Minister effectively has the legal right to get the money he or she advanced back from the fund. I cannot think of a stronger way of putting it.

With respect, if this legislation said that the Minister "shall" be reimbursed from the fund, I do not know how much stronger one could put it. It means the Minister will have to be reimbursed. There is no stronger position. We have dealt with this in many other Bills as discussions on the words "may" and "shall" come up frequently. I do not agree with the Minister's position. It is the case that the Central Bank would be in a better position to extend this money to the fund if an institution were failing. The way in which the money is being extended from the Exchequer to the insurance fund, which keeps it off the general deficit, is another way in which the Central Bank could do it. This would not have a major impact with regard to transfers between the Central Bank and the Exchequer. For example, if the Central Bank paid out €3 billion, it would be a lot easier than if the Exchequer had to pay it out - in which case, even though we would get it back at some time in the future, it would cause major budgetary issues and also, potentially, issues with regard to some of the Maastricht criteria.

There is an additional piece of information. I have been advised there is a European directive that prevents the use of monetary funding for something the Government should be funding. In other words, if something is being done which is an obligation on the Exchequer, the Exchequer should be paying for it and not the Central Bank. Even if we tried to go down the road the Deputy is suggesting, we would not get it over the line in Europe.

Where is the obligation on the State to pay for a resolution process?

If the Deputy is claiming that all these things are to do with national interest and the good of the economy, including his arguments about social obligations and so on, they are not functions of a central bank, they are functions of a government.

Should we not be providing liquidity to the banks if that is the case, and if it is important to keep the banks functioning because of the economy and so on? I will leave it at that. We are going to disagree and there is no point in going over it again.

It has been well ventilated.

Amendment agreed to.
Amendment No. 18 not moved.
Question proposed: "That section 9, as amended, stand part of the Bill."

Has much consideration been given to the scale of fund we are looking at? Are we talking about hundreds of millions of euro or billions of euro? I know this will be subject to detailed consideration by the Central Bank.

In light of President Barroso's comments about a financial transaction tax, what are the views of the Minister on the capacity of the financial institutions in the State to pay into such a fund? They may also be subject to such a financial transaction tax if it is introduced at a European level.

This is a discussion we will have with the Central Bank, which will advise on the amount of the levy on financial institutions and the size of the fund it estimates will be required for the future. Of course, there is no imminent risk, because all our risk is behind us. We are looking at a long-term situation. I will advise the Deputy when we receive advice from the bank on how the fund will be organised, what the quantums will be and over what period.

The idea of a financial transaction tax has been around for a while. We had some discussion on this at the committee before. Prior to the ECOFIN meeting in July, papers were prepared on it by the Commission at the same time as on the proposed reduction of interest rates on the fund. There were two options at that stage: one was a charge applied transaction by transaction, while the other was a charge on the capital base of financial institutions. Subsequently, it was supposed to be a transaction tax and it was being pushed by some countries as an alternative to private sector involvement in the Greek situation, the logic being that the financial institutions should contribute to the cost of the crisis and that if we could not impose losses for reasons of diminution in confidence - as was subsequently decided for Greece when losses of around 21% were imposed over a certain period - instead, a general penalty should be imposed on the banking and financial sector through charges. This was not proceeded with at the heads' meeting on 21 July because the alternative approach of private sector involvement in the Greek bailout was the road that was taken. It came up subsequently in mid-August at the Merkel-Sarkozy meeting, when a communique stated they were in favour of a financial transaction tax. The Commission has been in favour of it for a while and it announced around two months ago that it was introducing a position paper on it. It was a reference to that that President Barroso made in the European Parliament this week.

The only position we took was that we consider all proposals that come from the Commission. However, I did a radio interview after the Merkel-Sarkozy meeting in which I said that Ireland would insist that if there was a financial transaction tax, it would be for the 27 member states and not just the 17 eurozone countries. We could not countenance a situation in which there was a levy on transactions in Dublin but not in London, because this would result in displacement of activity and jobs, which would put us in a bad position.

The Commission, as members know, has an obligation to introduce policy proposals for the euro area. In line with its obligations, it introduces many things that do not gain acceptance by the sovereign states. Where this one will go I am not sure. There is a view elsewhere in the world that it would be feasible only if it applied on a worldwide basis, with some group such as the G8 or the G20 acting as the proposer. This would result in a level playing field.

The other thing is that the estimates of the yield are wildly incorrect, because they were all drawn up based on the fact that present practice on transactions would continue unchanged when the levy was introduced. I have a young relative in London who was designing trading software for a hedge fund company, and the last round of software that was produced according to strict instructions, back around Easter, was designed to conduct around 2,000 transactions per minute. Members can see the potential of a levy when transactions are going that fast. There is one finance house in London which has moved its electronic trading section closer to the main data server so that extra transactions can be fitted in during the nanosecond that is saved. Matters have gone somewhat crazy. The reason there are large dives and peaks in the financial markets is that when one hits a certain level, the computers take over and "sell" becomes automatic. This exaggerates what takes place, whereas when there was a person putting up his hand on the trading floor, at least the human factor could intervene, if it looked like things were getting completely out of line. All this useless information is very entertaining, but what it comes down to is that I am unsure whether they will press the issue in Europe. If they do, we will press that if it is to apply, it should apply to the 27 countries.

Question put and agreed to.
Section 10 agreed to.
SECTION 11
Question proposed: "That section 11 stand part of the Bill."

Deputy Doherty has ventilated the issues relevant to the section.

I am pressing the matter to a vote.

Amendment put:
The Committee divided: Tá, 8; Níl, 1.

  • Broughan, Thomas P.
  • Daly, Jim.
  • McGrath, Michael.
  • Mathews, Peter.
  • Noonan, Michael.
  • O’Donnell, Kieran.
  • Timmins, Billy.
  • White, Alex.

Níl

  • Doherty, Pearse.
Question declared lost.
Sections 12 to 14, inclusive, agreed to.
SECTION 15

I move amendment No. 19:

In page 16, between lines 8 and 9, to insert the following:

"(d) shall consult with the Credit Union Advisory Committee and any other body appearing to the Minister to have expertise or knowledge of credit unions.”.

We discussed this earlier. The Minister said he may come back with something. I will withdraw the amendment.

Amendment, by leave, withdrawn.
Question proposed: "That section 15 stand part of the Bill."

How quickly does the Minister hope to have the regulations that will prescribe the rate of contribution by the institutions to the fund, or the method of calculating it, in place and the fund up and running with active contributions? Is it something he envisages will happen quickly?

We will consult the bank and get the analysis. The best way of giving the Deputy the commitment he is looking for is to say we do not envisage having a break in the process. After the Bill is passed by the Seanad and signed by the President, we will start the necessary consultation, immediately followed by the drafting of the regulations. I do not want to put a timeframe on it yet.

Question put and agreed to.
SECTION 16

I move amendment No. 20:

In page 16, subsection (1), line 14, to delete "shares" and substitute the following:

"shares if, in the opinion of the Bank, having regard to such of the matters set out in section 8(6) as appear to the Bank to be relevant in the circumstances, to do so would be in the public interest”.

Amendment agreed to.

I move amendment No. 21:

In page 16, between lines 24 and 25, to insert the following subsection:

"(6) Any surplus assets, after all liabilities have been discharged, arising on the winding-up of a bridge-bank shall be transferred to the Fund.".

Amendment agreed to.
Question proposed: "That section 16, as amended, stand part of the Bill."

The Minister referred to bridge banks and the transfer of assets. In his response to the question asked by Deputy Broughan he said the assets, liabilities and staff would be transferred. There is no reference in the Bill to staff, unless they are considered to be assets or liabilities, depending on what one's interpretation is. What happens to the staff?

I am informed the reference is not needed because specific legislation covers it. The transfer of staff under the same pay and conditions is already protected in law. A bridge bank will not be not a permanent institution. The resolution legislation is invoked by the Central Bank. It tries to get a transferee, that is, another bank to take on staff. If that process fails it has to put a bridge bank in place. It gets someone to head up the process. The normal process is to transfer assets, liabilities and staff or bring in someone else.

Are the staff protected during the process of moving from a failed bank to a bridge bank?

Yes, of course. Obviously, as things begin to wind down-----

As they have moved on further-----

It affects staff as it goes on further.

Staff will go in the initial transfer.

In practical terms, whoever is appointed by the Central Bank to be the director of a bridge bank goes into the institution and takes over.

There is a new name.

In practical terms that is what happens. There is no transfer out. It is just a legal transfer.

Under the Bill, for how long is it envisaged a bridge bank would operate? Is it similar to the process of receivership, which is open-ended?

It would be a resolution process.

It will be able to continue to trade as an institution.

For a while. If the assets can meet the liabilities, there is a resolution process where settlements have to be made.

A bridge bank is established as an interim measure if an institution is not interested in a transfer or one is not available.

Therefore, if a transfer came on the horizon, it would go down that route, but if one did not, it may go down the formal resolution route.

The first transfers could be into an existing bank that is sound. That is probably the preferred option.

That would happen if it was available and willing to do so.

It has to have some kind of incentive. The Deputy will recall that when the deposit base was transferred out of Anglo Irish Bank into the pillar banks, a small incentive was included. I understand they received a margin on the interest rate for accepting and managing the deposit book. The Central Bank has many powers. It is one of a number of options and is how the system would work.

Question put and agreed to.
Section 17 agreed to.
SECTION 18

Amendments Nos. 22 to 25, inclusive, are related and may be discussed together.

I move amendment No. 22:

In page 16, subsection (1), lines 30 and 31, to delete all words from and including "in" in line 30 down to and including "Bank," in line 31.

Amendments No. 22 to 25, inclusive, amend section 18 of the Bill so that only the Central Bank may make regulations providing for the formation, administration and operation of a bridge bank. This simplifies the section, which, as published, provided that the Minister or the Central Bank may make regulations. This is unnecessary, particularly given the requirement for the Central Bank to consult the Minister on any such regulations. The Minister must be given a draft of the regulation before it is made.

Amendment agreed to.

I move amendment No. 23:

In page 16, between lines 34 and 35, to insert the following subsection:

"(2) Before making a regulation under subsection (1), the Bank shall consult the Minister and for that purpose shall provide the Minister with a draft of the proposed regulation.”.

Amendment agreed to.

I move amendment No. 24:

In page 16, subsection (2), line 35, to delete "the Minister or the Bank" and substitute "the Bank".

Amendment agreed to.

I move amendment No. 25:

In page 16, subsection (2), line 37, to delete "the Minister or the Bank" and substitute "the Bank".

Amendment agreed to.
Section 18, as amended, agreed to.
SECTION 19

Amendments Nos. 26, 34, 36 and 59 are related and will be discussed together.

I move amendment No. 26:

In page 17, subsection (1), to delete lines 5 and 6 and substitute the following:

" "market value", in relation to assets and liabilities, shall be construed in accordance with section 22.”.

The amendment is necessary on foot of the new section 22. It sets out in detail what "market value" is, in the context of the transfer order process as set out in the section.

This amendment provides that where the phrase "market value" is used in Part 5 it is to be construed in accordance with Section 22. Section 22(2) provides that market value is taken to be, in the cases of assets, the amounts that the transferee is willing to pay and, in the case of liabilities, the amount that the transferee is willing to accept, in return for assuming these liabilities or their book value, whichever is the lower.

Amendment No. 34 inserts a new section into the Bill. Discussions with the troika highlighted the value of an expanded reference to transfers being at market value, of providing for the meaning of market value and of engaging in a competitive process where practicable while recognising that acting out of urgent regulatory necessity may mean it is not always practicable to have a competitive process. Accordingly, this amendment proposes to add a new section 22 to this Part, setting out the process for determination of market value of assets and liabilities to be transferred under a transfer order. Section 22(1) provides that the consideration for the assets and liabilities transferred under a transfer order shall be the aggregate of the market value of all assets less the aggregate of the market value of all those liabilities as at the time of the transfer order. Section 22(2) provides that market value is to be taken to be, in the case of assets, the amount the transferee is willing to pay and, in the case of liabilities, the amount the transferee is willing to accept in return for assuming those liabilities or their book value, whichever is the lower. Under section 22(3) and 22(4) the bank is required, so far as practicable, to carry out a competitive process to determine the market value unless the transfer is to a bridge bank, because a transfer to a bridge bank is a halfway-house and not the ultimate destination of the assets and liabilities. Therefore, where a bridge bank takes a transfer, before applying to substitute a private transferee for the bridge bank, the bank must then, so far as practicable, carry out a competitive process. The consideration in the transfer order is based on market value representing the agreement between the Central Bank and the transferee. Where a competitive process is not possible, it would be difficult to ascertain the market value of the asset and liabilities as usually understood. The section specifies how market value is to be interpreted. In a distressed sale, the only relevant basis is what the specific transferee is prepared to pay for assets or accept where the transferee assumes liabilities.

Amendment No. 36 deletes section 22(4). This has been made redundant by amendment No. 34 which inserts a new section providing that transfers are to be at market value. It is accepted that where assets and liabilities are transferred, the transferor should receive their market value. Amendment No. 59 proposes a revised procedure for where a transferor disputes the consideration received other than in a transfer to a bridge bank. The basis for disputing the amount of consideration is threefold: that it was not determined following a competitive process, that it would have been practicable in all the circumstances for a competitive process to have been carried out, and that the market value would have been materially greater had a competitive process been carried out. Provision is made for the bank to appoint an independent valuer to determine the matters disputed. Where the independent valuer determines that a competitive process was not carried out when it would have been practicable to have done so, he or she is required to determine what the market value would have been had it been carried out on a specified basis. Where the independent valuer finds for the transferor, the bank will draw on the fund to pay any difference in consideration to the transferor. Where the independent valuer finds against the transferor and determines that it was manifestly unreasonable for the transferor to have disputed the amount of the consideration, the transferor shall be liable to reimburse the bank for the independent valuer's costs. The section provides also for related matters, including the judicial review of the independent valuer's determination.

If there is a dispute between the transferee and transferor about the market value, who determines the market value? Is there a mechanism in place for that? Will it be determined by the Central Bank or by an independent arbitrator? I know the Minister touched on this point but I would like clarification.

A valuer can be appointed if certain conditions are complied with.

By the Central Bank?

Yes, and the valuer will make the adjudication.

Amendment agreed to.
Section 19, as amended, agreed to.
SECTION 20

I move amendment No. 27:

In page 17, line 17, to delete paragraph (b) and substitute the following:

"(b) having regard to any adverse consequences that may arise as a result of the transfer order, in relation to the interests generally of the creditors of the transferor or, where the transferor is a subsidiary or holding company, in relation to the interests generally of the creditors of the transferor or the authorised credit institution concerned, a transfer order is necessary in all the circumstances to address one or more of the reasons for those intervention conditions being fulfilled.

(2) Nothing in subsection (1)(b) requires the Bank to consider the possible adverse consequences of the transfer order concerned on the interests of a particular creditor or class of creditors of the transferor or authorised credit institution, as the case may be, or to consider any submission made by a creditor on behalf of that creditor, a class of creditors or creditors generally.”.

Amendment agreed to.
Section 20, as amended, agreed to.
NEW SECTIONS

I move amendment No. 28:

In page 17, before section 21, to insert the following new section:

21.—(1) The Bank may, at any time, by written notice impose a requirement on an authorised credit institution, any of its subsidiaries or its holding company, if the Bank is of the opinion that it is necessary or desirable to do so for the effective or efficient making of a proposed transfer order or of a transfer order.

(2) The requirements that may be imposed under this section include the following:

(a) to provide such information concerning the assets and liabilities of the authorised credit institution, or any of its subsidiaries or its holding company, as the Bank requires to permit the effective and efficient making of a proposed transfer order;

(b) to disclose such information about the assets and liabilities of the authorised credit institution, or any of its subsidiaries or its holding company, as the Bank requires to one or more persons that the Bank identifies as being potential transferees under a transfer order;

(c) to make a specified application to a specified authority, or give a specified notice to a specified person, on terms that the Bank specifies.

(3) If the Bank imposes a requirement on an authorised credit institution, subsidiary or holding company and the intention of it or part of it is the preservation or restoration of the financial position of a credit institution, the Bank shall declare in the requirement that the requirement or part is made with that intention, in accordance with the CIWUD Directive.

(4) The authorised credit institution, subsidiary or holding company the subject of the requirement under this section shall comply with the requirement in accordance with its terms (including any specification as to the time by which, or period within which, the requirement shall be complied with).

(5) In complying with a requirement under this section, the authorised credit institution, subsidiary or holding company shall disclose in utmost good faith all matters and circumstances in relation to that institution, the authorised credit institution or a subsidiary that might materially affect, or might reasonably be expected to materially affect, any decision of the Bank in the performance of its functions under this Act.

(6) The Bank may direct an authorised credit institution that any information provided by that institution or its holding company or subsidiary pursuant to a requirement under this section is to be certified as accurate and complete jointly by the chief executive officer and chief financial officer of that authorised institution, holding company or subsidiary, as the case may be, or by any 2 officers identified for that purpose by the Bank.

(7) The officers and employees of the authorised credit institution, holding company or subsidiary shall comply with a requirement under this section and shall cause any subsidiary of that authorised institution, holding company or subsidiary to comply with the requirement (including any specification as to the time by which, or period within which, the requirement shall be complied with) to the extent that the requirement applies to the subsidiary.

(8) The obligation to comply with a requirement under this section—

(a) does not, notwithstanding any provision of any enactment or agreement or any rule of law, require the consent, approval or concurrence of any other person, and

(b) takes priority over any other duty or obligation to any person.

(9) If an authorised credit institution, an officer or employee of an authorised credit institution, a subsidiary, holding company, or subsidiary of a holding company, of an authorised credit institution or an officer or employee of such a subsidiary or holding company does not comply with a requirement, the Bank may apply to the Court by motion on notice on affidavit for an order compelling compliance with that requirement.

(10) The Court may, in addition to the order compelling the authorised credit institution, holding company or subsidiary to comply with a requirement under this section, make any other order or direction it considers necessary in order to ensure that the authorised credit institution, holding company or subsidiary complies with the requirement.

(11) Nothing in this section authorises the Bank to place an authorised credit institution under special management.

(12) Except with the prior written consent of the Bank, a person shall not publish the fact that the Bank has imposed a requirement pursuant to subsection (1) unless required to do so by an enactment.

(13) A person (including an authorised credit institution) who contravenes subsection (4), (7),or (12) commits an offence and is liable—

(a) on summary conviction to a Class A fine or imprisonment for a term not exceeding 12 months or both, or

(b) on conviction on indictment, to a fine not exceeding €250,000 or imprisonment for a term not exceeding 3 years, or both.

(14) If an offence under this section is committed by a body corporate, and is proved to have been committed with the consent or connivance, or to be attributable to any wilful neglect, of a person who, when the offence is committed, is—

(a) a director, manager, secretary or other officer of the body corporate or a person purporting to act in that capacity, or

(b) a member of the committee of management or other controlling authority of the body corporate or a person purporting to act in that capacity,

that person is taken to have also committed an offence and may be proceeded against and punished in accordance with subsection (15).

(15) A person referred to in subsection (14) is liable—

(a) on summary conviction, to a class A fine or to imprisonment for a term not exceeding 12 months, or both, or

(b) on conviction on indictment, to a fine not exceeding €250,000 or to imprisonment for a term not exceeding 3 years, or both.

(16) It is not a contravention of subsection (12) for an authorised credit institution, or a subsidiary or holding company of an authorised credit institution, to disclose a fact referred to in that subsection for the purposes of obtaining professional advice.”.

Amendment agreed to.

I move amendment No. 29:

In page 17, before section 21, to insert the following new section:

22.—Notwithstanding any provision of any enactment or agreement, or any rule of law, the Bank may disclose to a potential transferee information that it obtains on foot of a requirement or that is otherwise provided to it voluntarily by the transferor.".

Amendment agreed to.

I move amendment No. 30:

In page 17, before section 21, to insert the following new section:

23.—(1) In the performance of their functions, the directors of an authorised credit institution, holding company or subsidiary on which the Bank has imposed a requirement under section 21(1) shall have a duty to comply with the requirement and to cause the authorised credit institution, holding company or subsidiary to comply with the requirement.

(2) The duty imposed by subsection (1)

(a) is owed by the directors to the Bank, and

(b) takes priority over any other duty of the directors to the extent of any inconsistency.

(3) The Bank may make and publish guidelines in relation to the duty imposed by subsection (1). A director may rely on any such guidelines in demonstrating his or her compliance with that duty.”.

Amendment agreed to.

I move amendment No. 31:

In page 17, before section 21, to insert the following new section:

24.-The Bank shall not, by reason of the imposition of a requirement under section 21, be taken to be a shadow director (within the meaning given by section 27(1) of the Companies Act 1990) nor what is known as a de facto director nor a person discharging managerial responsibilities of the authorised credit institution, subsidiary or holding company on which the requirement was imposed.”.

Amendment agreed to.
SECTION 21

Amendments Nos. 32, 33, 64 and 65 are related and will be discussed together.

I move amendment No. 32:

In page 17, subsection (1)(a), lines 25 and 26, to delete “such a transfer order is necessary” and substitute “the intervention conditions are fulfilled”.

Amendment No. 32 is to section 21 which deals with the procedures relating to the provision of written notice to an authorised credit institution where the Central Bank plans to make a proposed transfer order. It amends subsection (1)(a) which sets out the requirement for a written notice to be delivered to the authorised credit institution. The Bill as published requires this written notice to be accompanied by a summary of why the transfer order is necessary. As the Central Bank may only make a proposed transfer order where the intervention conditions set out in section 8 are met rather than where it considers a transfer order necessary, it is more appropriate for the Central Bank to provide a summary to the authorised credit institution concerned of why it believes the intervention conditions are met. I am considering bringing forward an amendment on Report Stage designed to ensure a transferor will not be able to dissipate its assets before a transfer order becomes effective.

Amendment No. 33 clarifies that the requirement for a written notice under subsection (1), the requirement for the written notice to set out the reasons any terms of the transfer order must be exercisable immediately under subsection (2), and the requirement for the written notice to state if it is proposed to transfer assets and liabilities to a bridge bank do not apply where the authorised credit institution has consented to the making of the order or exceptional circumstances as defined in the section exist.

Amendment No. 64 is to subsection (1)(a) which sets out the requirement for a written notice to be delivered to the authorised credit institution. The Bill as published requires this written notice to be accompanied by a summary of why the special management order is necessary. As the Central Bank may only make a proposed special management order where the intervention conditions set out in section 8 are met rather than where it considers a special management order necessary, it is more appropriate for the Central Bank to provide a summary of why it believes the intervention conditions are met to the authorised credit institution concerned.

Amendment No. 65 clarifies that both the requirement for a written notice under subsection (1) and the requirement for the written notice to set out the reasons any power of special manager must be exercisable immediately under subsection (2) do not apply where the authorised credit institution has consented to the making of the order or exceptional circumstances as defined in the section exist.

In amendment No. 26 to section 19-----

We have dealt with section 19, Deputy.

There is a linkage problem here.

We have to be disciplined in how we deal with the Bill. We have disposed of section 19. The committee has passed that section.

There is no connection between the references in the Bill and in the amendments. There is a linkage mismatch.

I ask the Deputy to signal that he will raise this on Report Stage.

I thank the Minister.

Amendment agreed to.

I move amendment No. 33:

In page 17, subsection (4), line 37, to delete "Subsection (1) does” and substitute “Subsections (1) to (3) do”.

Amendment agreed to.
Question proposed: "That section 21, as amended, stand part of the Bill."

Section 21(4) provides that the 48 hour consultation or notice period with the transferor may be set aside under certain circumstances, and this is appropriate. In the case where it is not set aside and the transferor is notified of the bank's intentions, is the Minister proposing on Report Stage that some freezing mechanism would be put in place so that any effort by the institution concerned to move assets to affect the ultimate outcome of what the Minister wants to achieve can be negated? I think this will be necessary based on reading the section as it stands.

Yes, this is essentially what I have signalled for Report Stage.

I thank the Minister.

Question put and agreed to.
NEW SECTION

I move amendment No. 34:

In page 18, before section 22, to insert the following new section:

22.—(1) The consideration for the assets and liabilities transferred under a transfer order shall be the aggregate of the market value of all of those assets, less the aggregate of the market value of all of those liabilities, as at the time of the transfer order.

(2) For the purposes of subsection (1), and subject to subsections (3) and (4), the market value of assets and liabilities shall be taken to be—

(a) in the case of assets, the amount that the transferee is willing to pay for those assets, and

(b) in the case of liabilities, the amount that the transferee is willing to accept in return for assuming those liabilities, or the book value of those liabilities, whichever is the lower.

(3) The Bank shall, before making a proposed transfer order and so far as practicable in all the circumstances (including, where relevant, the urgent need to resolve the financial instability of the transferor) carry out a competitive process that allows the determination of market value, unless the proposed transferee is a bridge-bank.

(4) The Bank shall, before applying for a variation of a transfer order under section 26(1) and so far as practicable in all the circumstances (including, where relevant, the urgent need to resolve financial instability of the transferor) carry out a competitive process that allows the determination of the market value.”.

Amendment agreed to.
SECTION 22

Amendments Nos. 35 and 38 are related and may be discussed together.

I move amendment No. 35:

In page 18, subsection (1), lines 25 to 27, to delete paragraph (a) and substitute the following:

"(a) the consideration for the proposed transfer, and any other terms and conditions of the proposed transfer, including any specification of a date by which or a period within which the transferor is required to comply with any such term or condition, and, where the transfer order or any term of it is to have immediate effect, the reasons why it should have that effect,”.

Amendment No. 35 provides that the consideration to be paid for assets and liabilities to be transferred will be set out in the proposed transfer order. Section 22(3) also provides that consent must be given before a person can become a transferee. What was implied is now being made express.

Amendment No. 38 should be considered with amendment No. 35 to section 21(1)(a) which provides that where the Central Bank proposes that the transfer order or any term of it, is to have immediate effect, the proposed transfer order made by the Central Bank should set out the reasons it should have that effect. As provided in section 23(5), it is the court that makes the ultimate decision whether a transfer order or any term of it is to have immediate effect.

Subsection (6) sets out the limited circumstances in which the court may make a transfer order that is different from the proposed transfer order. It is not the intention that this provision should fetter the court's ability to decide on the necessity for the order to have immediate effect. The proposed amendment, by making the provision of subsection (6) subject to subsection (5) ensures the court's role as the final decision maker on the immediacy or not of an order remains in place.

Amendment agreed to.

I move amendment No. 36:

In page 19, lines 1 to 4, to delete subsection (4).

Amendment agreed to.

Amendments Nos. 37 and 98 are related and may be discussed together.

I move amendment No. 37:

In page 19, between lines 4 and 5, to insert the following subsection:

"(4) Notwithstanding any provision of any enactment, agreement or rule of law, the Bank may, for the purposes of obtaining the agreement of a person under subsection (3), disclose to the person concerned any information in its possession in relation to the transferor or a proposed transfer order.”.

This amendment inserts a new subsection (4) to section 22 which allows the Central Bank to share information in the knowledge of the bank in order to obtain a person's consent to become a transferee. The amendment complements amendment No. 29 which permits disclosure by the bank where information is obtained on foot of a requirement. This information can be shared, notwithstanding any provision or enactments that would prohibit such information being shared. To obtain consent to become a transferee, it is clear that a person or organisation will require detailed information on what the person or organisation would be accepting. This amendment allows the bank to share any information it has which should assist in achieving the necessary consent.

Amendment No. 98 proposes to expand the list of instances in which the Central Bank may disclose confidential information to include for any purpose connected with the functions of the bank, the Minister, the Governor or the head of financial regulation or a special manager, under this Bill.

Amendment agreed to.
Section 22, as amended, agreed to.
SECTION 23

I move amendment No. 38:

In page 19, subsection (6), line 31, to delete "The Court" and substitute

"Subject to subsection (5), the Court”.

Amendment agreed to.
Section 23, as amended, agreed to.
NEW SECTION

To clarify for colleagues, the acceptance of amendment No. 39 entails the deletion of section 24. Amendments Nos. 39 and 68 are related and may be discussed together

I move amendment No. 39:

In page 19, before section 24, to insert the following new section:

24.—(1) The Bank shall, as soon as practicable after a transfer order is made—

(a) serve a copy of the transfer order on the authorised credit institution concerned, and

(b) publish the order in 2 newspapers circulating generally in the State.

(2) In a particular case, the Bank may, if the Bank thinks it necessary to do so, publish a transfer order by an additional means or in an additional place.

(3) Without delay after the service of the copy of the transfer order, the authorised credit institution shall take all reasonable measures to ensure that its members are made aware of the order, including, without limiting the generality of the foregoing —

(a) where the shares of the authorised credit institution are traded from time to time on a financial market (whether a regulated market or not), making an announcement that relates to the existence of the transfer order and its effect, to a regulatory news service generally used by credit institutions in the State for the purposes of announcements to such markets, and

(b) providing a copy of the transfer order to the regulatory news service referred to in paragraph (a).”.

Amendment No. 39 expands the process that must be followed to publish transfer orders. In addition to the requirement in the Bill, as published, that the Central Bank serve a copy of the order on the institution concerned and publish the order in two newspapers circulating generally in the State, the section, as amended, will require the authorised credit institution to take all reasonable measures to ensure its members are made aware of the transfer order, including where its shares are listed, making an announcement to a regulatory news service generally used by credit institutions in the State for the purpose of announcements to markets on which the shares of the institution may be traded, and providing a copy of the order to such a regulatory news service.

Amendment No. 68 expands the process that must be followed to publish special management orders. Where a special management order is made, the Central Bank must serve a copy of the same on the authorised credit institution as well as publishing it in two newspapers. The section, as amended, will also require the authorised credit institution to take all reasonable measures to ensure its members are made aware of the special management order along the lines already provided for in amendment No. 39.

Why does the bank not publish it on its website?

There is nothing here that stops it from doing so. It must comply with the Act, however, and it may also publish on its website if it wishes and if that is the method of communication it uses.

Amendment agreed to.
Section 24 deleted.
Section 25 agreed to.
SECTION 26

Amendments Nos. 40 and 41 are related and may be discussed together.

I move amendment No. 40:

In page 20, subsection (1), line 10, to delete "liabilities." and substitute the following:

"liabilities, and to provide for the variation of other terms and conditions (including conditions relating to consideration) of the transfer order.".

The purpose of the bridge bank is to act as a temporary transferee where it is not possible to find an appropriate transferee to accept the assets and liabilities. For example, the timeframe may not allow for sufficient due diligence or market conditions might impede achieving an appropriate value for assets and liabilities at a particular point in time, in which case a transfer to a private sector transferee might not be possible. Where assets and liabilities have been transferred to a bridge bank and it is then proposed to transfer all or some of these assets and liabilities to a new transferee, section 26, as published, allows the transfer order to be varied to substitute the new transferee's name for the bridge bank.

Amendment No. 40 will also allow the terms and conditions of the transfer order, including the consideration, to be varied. This will provide the flexibility necessary to ensure that in circumstances where an agreement might be reached with a new transferee, the transfer order can be amended to reflect this rather than requiring the drafting of a new order.

Amendment No. 41 sets out to whom the consideration is paid where a new transferee has been substituted in a transfer order and where the consideration paid in respect of the assets has been varied. The new transferee will pay the bridge bank the amount it paid to the transferor. For any excess above this amount, the court will determine whether it is to be paid to the bridge bank, the transferor or both. This will allow the court to take account of any added value the bridge bank may have provided in respect of the market value of the assets and liabilities to be transferred, while ensuring the transferor will receive an appropriate price for the assets and liabilities transferred.

Amendment agreed to.

I move amendment No. 41:

In page 20, between lines 13 and 14, to insert the following subsection:

"(3) If the Court orders that the consideration is varied—

(a) the transferee shall repay, to the bridge-bank (or the person who paid that consideration on behalf of the bridge-bank), the consideration under the transfer order before its variation, and

(b) the transferee shall pay, as the Court may direct, any excess over the amount repaid under paragraph (a)

(i) to the transferor,

(ii) to the bridge-bank, or

(iii) to the transferor and the bridge-bank.".

Amendment agreed to.
Section 26, as amended, agreed to.
SECTION 27

Amendments Nos. 42 to 45, inclusive, and 69 to 72, inclusive, are related and will, therefore, be discussed together.

I move amendment No. 42:

In page 20, subsection (1), lines 23 to 25, to delete all words from and including "not" in line 23 down to and including "section 24(2)" in line 25 and substitute the following:

"not later than 14 days after the publication, in accordance with subsection (1)(b) of section 24”.

The effect of amendment No. 42 will be to increase the time in which an application to set aside transfer orders may be brought from five working days after the publication of a direction order to 14 days after the publication of a transfer order. This extension of the period, in which set-aside can be sought, is consequential on the decision to provide that orders can have immediate effect, in order to balance competing rights.

Amendment No. 43 provides clarity with regard to the court's power to make directions as to matters arising during the currency of an application to set aside a transfer order. Similar amendments are proposed to those sections of the Credit Institutions Stabilisation Act which provide for the making of applications to set aside proposed direction orders, proposed special management orders, proposed subordinated liabilities orders and proposed transfer orders.

Amendment No. 44 corrects a grammatical error in subsection (6), as published. Amendment No. 45 provides that in an application to set aside a transfer order, where the applicant is a member of the relevant institution, the court will be permitted to take into consideration when an applicant became a member, when it increased or decreased its shareholdings in the institution concerned and the value of any shares acquired on the dates of acquisition or disposal. The amendment is proposed in response to the Department's practical experience in applying for orders under the Credit Institutions Stabilisation Act since its commencement in December 2010. It is based on the principle that the court should be permitted to take into account the behaviour of the applicant when considering a challenge.

Amendment No. 69 will increase the time in which an application to set aside special management orders may be brought from five working days after the publication of a special management order to 14 days after the publication of such an order. This extension of the period in which set-aside can be sought has also been made in respect of special management orders. Amendment No. 70 provides clarity with regard to the court's power to make directions as to matters arising during the currency of an application to set aside a special management order.

Amendment No. 71 replaces an incorrect reference to a "subsection" with the correct "section" reference. It does not change the meaning of the section.

Amendment No. 72 provides that in an application to set aside a special management order, where the applicant is a member of the institution, the court will be permitted to take into consideration when an applicant became a member, when he or she increased or decreased his or her shareholdings in the institution concerned and the value of any shares acquired or disposed of on the dates of acquisition or disposal. The amendment also provides clarity as to the effectiveness of a special management order where an application to set aside is unsuccessful. Similar amendments are proposed to those sections of the Credit Institutions Stabilisation Act which provide for the making of applications to set aside proposed direction orders, proposed special management orders, proposed subordinated liabilities orders and proposed transfer orders.

Amendment agreed to.

I move amendment No. 43:

In page 20, lines 27 to 30, to delete subsection (2) and substitute the following:

"(2) The Court shall give such priority to an application under subsection (1) as is necessary in the circumstances, and may give such directions as it considers appropriate in the circumstances—

(a) with regard to the hearing of the application, or

(b) with regard to a matter that arises during the period beginning with the transfer order and ending with the order of the Court under this section.”

Amendment agreed to.

I move amendment No. 44:

In page 21, subsection (9), line 26, to delete "would but for this" and substitute "would, but for this".

Amendment agreed to.

I move amendment No. 45:

In page 21, between lines 28 and 29, to insert the following subsection:

"(10) The Court, in considering the order it wishes to make under this section, may, where the applicant is a member of the transferor, have regard to—

(a) the date on which the applicant became a member of the transferor, or increased or decreased the number of shares that the applicant held in the transferor, and

(b) the value of the shares acquired by or disposed of by the member as at the date or dates on which the shares were acquired or disposed of, as the case may be.”.

Amendment agreed to.
Section 27, as amended, agreed to.

I propose that at this point we take a break from proceedings for either 15 or 30 minutes. It would be more realistic to opt for a 30-minute break approximately in order that members might get a coffee or have something to eat. Is that acceptable to everyone?

Sitting suspended at 5.45 p.m. and resumed at 6.20 p.m.
NEW SECTIONS

I move amendment No. 46:

In page 21, before section 28, to insert the following new section:

28.–(1) Subject to subsection (2), a creditor of a transferor in relation to a transfer order may apply to the Court, by motion on notice grounded upon affidavit, for an order permitting the creditor to apply for compensation under this Act.

(2) An application under subsection (1) may be made only on a date that is—

(a) after the date on which the affairs of the transferor have been wound up,

and

(b) before the date that is 6 months after the date referred to in paragraph (a).

(3) On an application under subsection (1), the Court shall order that the creditor be permitted to apply for compensation, if the Court is satisfied that—

(a) a resolution for the winding-up of the transferor was passed, or an order for its winding-up was made, within 12 months after the making of the transfer order,

(b) the affairs of the transferor have been wound up,

(c) any financial obligation of the transferor to the creditor in respect of which the creditor seeks to apply for compensation was undertaken before the making of the transfer order,

(d) financial support (within the meaning of Act of 2008) was not provided to the transferor by the State, in the 4 years immediately before the date on which the resolution referred to in paragraph (a) was passed, or the order referred to in that paragraph was made, whichever is the earlier, and

(e) the dividend that the creditor received on the winding-up of the transferor was less than the dividend that it is likely that the creditor would have received had the transfer order not been made when it was made, and the creditor’s burden in receiving that lesser dividend was, relative to the benefit to the financial stability of the transferor, or the stability of the financial system or the economy, disproportionate having regard to the circumstances of the creditor.”.

Amendment agreed to.

I move amendment No. 47:

In page 21, before section 28, to insert the following new section:

29.—(1) Where the Court makes one or more orders under section 28 in relation to a creditor or creditors of a transferor, the Bank shall, not later than 6 months after the date of the last order in relation to the creditors of that transferor, appoint a person (referred to in this Act as the “Assessor”) to determine, in accordance with this Act, the fair and reasonable amount, if any, payable to each creditor concerned.

(2) The Bank may appoint the same person to be the Assessor in relation to more than one transferor.

(3) In appointing a person as the Assessor, the Bank shall ensure that the person has, in the Bank's opinion, significant knowledge or experience of the financial services sector.

(4) The Bank shall not appoint a person as the Assessor unless the Bank is satisfied that the person would, if appointed, have no conflict of a material nature between any personal or business interests and the performance of the Assessor's functions.

(5) A person is not eligible to be appointed as the Assessor if the person—

(a) is a member of either House of the Oireachtas or is, with the person’s consent, nominated as a candidate for election as such a member,

(b) is a member of the European Parliament or is, with the person’s consent, nominated as a candidate for election as such a member or to fill a vacancy in the membership of that Parliament, or

(c) is a member of a local authority (within the meaning of the Local Government Act 2001) or is, with the person’s consent, nominated as a candidate for election as such a member.

(6) For the purpose of facilitating the performance of his or her functions under this Act, the Assessor has the powers set out in Schedule 1 and may exercise, for any particular purpose, such of those powers as he or she, in his or her sole discretion, determines are appropriate for that purpose.

(7) A person who commits an offence under Schedule 1 is liable—

(a) on summary conviction, to a class A fine or to imprisonment for a term not exceeding 12 months or both, or

(b) on conviction on indictment to a fine not exceeding €100,000 or to imprisonment for a term not exceeding 3 years or both.

(8) If an offence under this section is committed by an authorised credit institution, and is proved to have been committed with the consent or connivance, or to be attributable to any wilful neglect, of a person who, when the offence is committed, is—

(a) a director, manager, secretary or other officer of the authorised credit institution or a person purporting to act in that capacity, or

(b) a member of the committee of management or other controlling authority of the authorised credit institution or a person purporting to act in that capacity,

that person is taken to have also committed an offence and may be proceeded against and punished in accordance with subsection (9).

(9) A person referred to in subsection (8) is liable—

(a) on summary conviction, to a class A fine or to imprisonment for a term not exceeding 12 months, or both, or

(b) on conviction on indictment, to a fine not exceeding €100,000 or to imprisonment for a term not exceeding 3 years, or both.

(10) In the performance of his or her functions under this Act, the Assessor—

(a) is independent,

(b) shall act as an expert only, and

(c) shall act as expeditiously as possible consistent with fairness.

(11) The Assessor shall complete the performance of his or her functions within such period as the Bank specifies from time to time.".

Amendment agreed to.

I move amendment No. 48:

In page 21, before section 28, to insert the following new section:

30.—(1) The Bank shall, from the Fund, pay or reimburse such expenses of a person appointed as Assessor (including remuneration) as the Bank determines.

(2) The Assessor may, with the consent of the Bank, engage such staff or other persons as the Assessor considers necessary to assist him or her in the performance if his or her functions, and shall take reasonable measures to satisfy himself or herself that no person so engaged is affected by a material conflict of interest.".

Amendment agreed to.

I move amendment No. 49:

In page 21, before section 28, to insert the following new section:

31.—(1) A person shall not apply to the Assessor for compensation unless the Court has ordered under section 28* that the person is permitted to do so.

(2) An application to the Assessor shall be made in accordance with procedures determined by the Assessor under section 32(3)..

Amendment agreed to.

I move amendment No. 50:

In page 21, before section 28, to insert the following new section:

32.—(1) The following persons and no others may make submissions to the Assessor in respect of compensation in relation to a transferor:

(a) the Bank;

(b) the creditor concerned;

(c) the liquidator of the transferor;

(d) the Minister;

(e) the National Treasury Management Agency.

(2) A submission to the Assessor under subsection (1) shall be made in accordance with procedures determined by the Assessor under subsection (3).

(3) Subject to any regulations made by the Minister under section 90, the Assessor shall determine, in his or her sole discretion, procedures for—

(a) the form and type of applications for compensation under section 31,

(b) the form and type of submissions to be made to the Assessor,

(c) the means by which confidential information should be protected from public disclosure, and

(d) the performance of any of the Assessor’s functions..

Amendment agreed to.

I move amendment No. 51:

In page 21, before section 28, to insert the following new section:

33.—(1) The Assessor shall determine the fair and reasonable amount of compensation, if any, payable to each creditor who applies for compensation.

(2) The Assessor shall, in determining the amount of compensation referred to in subsection (1), have regard to—

(a) the financial obligation of the transferor to the creditor,

(b) the dividend that the creditor received on the winding-up of the transferor,

(c) the dividend that it is likely that the creditor would have received had a winding-up order been made instead of the transfer order,

(d) whether a financial incentive was provided under section 29,

(e) whether financial support (within the meaning of the Act of 2008) or any other financial assistance, investment or guarantee was provided to the transferor by the State at any time,

(f) whether it was reasonable in all the circumstances for the creditor to have undertaken the financial obligation with the transferor, having regard to the financial position of the transferor at that time,

(g) whether the financial obligation of the creditor was undertaken before or after the passing of this Act,

(h) whether the creditor took steps to secure the satisfaction of the financial obligation before the transfer order was made,

(i) any relevant evidence that the Assessor obtains in the performance of his or her functions,

(j) any submissions made to the Assessor, and

(k) any other relevant matter.

(3) The Assessor shall make the determination required by subsection (1) on the basis of the information and evidence available to him or her at the time he or she makes it.

(4) A conclusion drawn or finding made by the Assessor in making the determination required by subsection (1) does not amount to a finding of fact for any purpose other than the purposes of this Act.

(5) The fair and reasonable amount of compensation, if any, payable to a creditor—

(a) shall not exceed the actual loss incurred by the creditor that has been proved, to the satisfaction of the Assessor, to have arisen directly from the making of the transfer order, and

(b) may be determined to be—

(i) less than the actual loss so incurred, or

(ii) nil.

(6) Whenever the Bank so requests, the Assessor shall report to the Bank as to his or her progress in making the determination required by this section.

(7) The liquidator of a transferor shall cooperate with the Assessor and shall deliver to the Assessor the books and records of the transferor and of the liquidator which, notwithstanding section 305(1) of the Companies Act 1963, shall not be disposed of. .

Amendment agreed to.

I move amendment No. 52:

In page 21, before section 28, to insert the following new section:

34.—(1) Before making a report to the Bank under section 35, the Assessor shall, subject to subsection (2), send a draft of the report to—

(a) each person who made a submission to the Assessor, and

(b) any other person, or each person in any class of persons, that the Bank specifies in writing, inviting the person to make written submissions concerning the draft report and specifying a reasonable period in which to do so.

(2) The Assessor may, instead of sending the entire draft of the report—

(a) in respect of each person mentioned in paragraph (a) or (b) of subsection (1), send to the person the part of the draft report that is relevant to that person, or

(b) omit from the draft report any evidence or material if including that evidence or material would, in the Assessor’s opinion, disclose commercially sensitive information or would otherwise be contrary to the public interest.

(3) Before making the report to the Bank under section 35, the Assessor shall consider any submissions made in accordance with the Assessor’s invitation under subsection (1) and shall revise the report as appropriate.

(4) A person to whom the Assessor sends a copy of a draft report, or of a part of a draft report, under subsection (1) commits an offence if he or she discloses the report or its contents or any part of the report or its contents to any person other than for the purpose of obtaining professional advice.

(5) A person to whom a draft report of the Assessor or a part of it is disclosed (whether under subsection (4) for the purposes of obtaining professional advice or otherwise) commits an offence if he or she discloses the report or its contents, or any part of the report or its contents, to any other person other than for the purpose of obtaining professional advice.

(6) A person who contravenes subsection (4) or (5) commits an offence and is liable—

(a) on summary conviction, to a class A fine or to imprisonment for a term not exceeding 12 months, or both, or

(b) on conviction on indictment to a fine not exceeding €100,000 or to imprisonment for a term not exceeding 3 years, or both.

(7) If an offence under this section is committed by a body corporate and is proved to have been committed with the consent or connivance, or to be attributable to any wilful neglect, of a person who, when the offence is committed, is—

(a) a director, manager, secretary or other officer of the body corporate or a person purporting to act in that capacity, or

(b) a member of the committee of management or other controlling authority of the body corporate or a person purporting to act in that capacity, that person is taken to have also committed an offence and may be proceeded against and punished in accordance with subsection (8).

(8) A person referred to in subsection (7) is liable—

(a) on summary conviction, to a class A fine or to imprisonment for a term not exceeding 12 months, or both, or

(b) on conviction on indictment, to a fine not exceeding €100,000 or to imprisonment for a term not exceeding 3 years, or both..

Amendment agreed to.

I move amendment No. 53:

In page 21, before section 28, to insert the following new section:

35.—(1) When the Assessor has determined, in accordance with section 33, the fair and reasonable amount of compensation, if any, payable to each creditor who has applied for it, the Assessor shall report to the Bank—

(a) the name of each such creditor,

(b) whether compensation is payable to each such creditor, and

(c) the amount of compensation, if any, payable to each such creditor.

(2) In the report under subsection (1) the Assessor shall set out—

(a) a summary of the evidence on which the Assessor relied in making his or her determination, and

(b) the Assessor’s reasons for making the determination.

(3) The Bank shall make such arrangements as are necessary for sufficient funds to be made available out of the Fund to enable payments of compensation to be made in accordance with the Assessor's report under subsection (1).

(4) The Bank shall cause the Assessor's report under subsection (1) to be published as soon as is practicable.

(5) As soon as practicable after the publication of the Assessor's report, the Bank shall—

(a) notify each creditor whether or not compensation has been determined to be payable to him or her, and

(b) pay compensation in accordance with the report to each creditor to whom compensation has been so determined to be payable.”.

Amendment agreed to.

I move amendment No. 54:

In page 21, before section 28, to insert the following new section:

36.—(1) An appeal lies to the Irish Financial Services Appeals Tribunal (in this section called "the Tribunal") against the determination of the Assessor under section 33.

(2) This section applies to the Bank in the same manner as it applies to a creditor who has or claims a right to compensation.

(3) The Assessor is to be the respondent to an appeal under subsection (1).

(4) On hearing an appeal under subsection (1), the Tribunal may substitute its own determination or confirm, annul or vary the determination appealed from and may make any other consequential order.

(5) The Tribunal shall determine an appeal under subsection (1) as expeditiously as possible consistent with fairness and on the basis of the material that was before the Assessor unless the Tribunal is of the opinion that a further submission or submissions should be sought.

(6) In deciding, for the purposes of an appeal under subsection (1), whether the Assessor’s determination should be confirmed, annulled or varied, the test to be applied by the Tribunal is whether the appellant has established, as a matter of probability, taking into account the degree of expertise and specialist knowledge possessed by the Assessor and taking the process as a whole, that the determination was vitiated by a serious and significant error or a series of such errors.

(7) Section 33 applies to the Tribunal in making its decision in an appeal under subsection (1) to the same extent as it did to the Assessor in making his or her determination under that section.

(8) The provisions (except subsections (1) and (4) of section 57L and the definition of "appealable decision" in section 57A) of Chapter 3 of Part VIIA (inserted by section 28 of the Central Bank and Financial Services Authority of Ireland Act 2003 and amended by section 13 of the Central Bank and Financial Services Authority of Ireland Act 2004) of the Central Bank Act 1942 apply to an appeal under this section, except that—

(a) references in that Chapter to the Bank are to be read as references to the Assessor, and

(b) references in that Chapter to a decision or an appealable decision of the Bank are to be read as references to a determination of the Assessor.

(9) For the purposes of determining an appeal under this section, the Tribunal may refer a question of law to the Court in accordance with section 57AJ (inserted by the Central Bank and Financial Services Authority of Ireland Act 2003) of the Central Bank Act 1942.

(10) If the Tribunal is satisfied, on examining the documents in relation to an appeal under subsection (1), that the appeal raises no issue that the Tribunal has not already determined in connection with another such appeal, it may—

(a) strike out the first-mentioned appeal, or

(b) determine it without a hearing.

(11) In addition, if the Tribunal is satisfied that a number of appeals before it raise substantially the same issues—

(a) it may select one of those appeals as representative of all, and

(b) it may treat its decision on that appeal as determining those issues, or some of them, in each of the other appeals.

(12) The Tribunal may dismiss an appeal at any stage if the Tribunal is of the opinion that it has been made in bad faith or is frivolous, vexatious or misconceived or relates to a trivial matter.

(13) The decision of the Tribunal on an appeal under this section (including a decision made under subsection (10) without a hearing, and a decision that a decision on a particular appeal is to be taken, under subsection (11), to determine an issue or issues in a number of appeals) is final..

Amendment agreed to.

I move amendment No. 55:

In page 21, before section 28, to insert the following new section:

37.—(1) Leave shall not be granted for judicial review of the Assessor's determination under section 33 or any other decision in relation to compensation unless—

(a) either—

(i) the application for leave to seek judicial review is made to the Court within 14 days after the Assessor's report to the Bank, or, in the case of an application brought by an applicant other than the Bank, 14 days after the publication of that report under section 35(4), or

(ii) the Court is satisfied that—

(I) there are substantial reasons why the application was not made within that period, and

(II) it is just in all the circumstances to grant leave, having regard to the interests of other affected persons and the public interest,

and

(b) the Court is satisfied that the application raises a substantial issue for the Court’s determination.

(2) The Court may make such order on the hearing of the judicial review as it thinks fit, including an order remitting the matter back to the Assessor with such directions as the Court thinks appropriate or necessary.

(3) This section applies to the Bank in the same manner as it applies to a creditor who has or claims a right to compensation.".

Amendment agreed to.
SECTION 28

Amendments Nos. 56 and 57 are related and may be discussed together.

I move amendment No. 56:

In page 22, subsection (4), line 13, to delete "paragraph (3)(b)” and substitute “subsection (3)(b)”.

This is a technical amendment that makes a small correction to section 28(4) replacing the reference to paragraph (3)(b) with the correct subsection.

Amendment No. 57 also replaces the references to the European Communities (Financial Collateral Arrangements) Regulations 2004 which were revoked from 30 June with a reference to the new European Communities (Financial Collateral Arrangements) Regulation 2010 which consolidated and amendment to 2004 regulations.

Amendment agreed to.

I move amendment No. 57:

In page 22, subsection (5), line 22, to delete "Regulations 2004 (S.I. No. 1 of 2004)" and substitute "Regulations 2010 (S.I. No. 626 of 2010)".

Amendment agreed to.
Section 28, as amended, agreed to.
SECTION 29
Question proposed: "That section 29 stand part of the Bill."

I oppose the section based on the same rationale as applied to section 11. Again, it has references in subsection (5) to "the Minister may recover from the fund". All of those issues have been well teased out. I am opposed to the section.

We have discussed the substance of this already. Our position is that the effectiveness of the proposed powers to provide for transfer orders would be compromised if the Minister could not provide financial incentives.

Question put and declared carried.
SECTION 30

I move amendment No. 58:

In page 23, line 11, to delete "or the Minister".

Amendment put and declared lost.
Section 30 agreed to.
NEW SECTION

I move amendment No. 59:

In page 23, before section 31, to insert the following new section:

31.—(1) A transferor in relation to a transfer order (other than a transfer order where the transferee is a bridge-bank), or, where the transferor is a subsidiary or a holding company of an authorised credit institution, that credit institution, may dispute the amount of the consideration specified in the transfer order for the assets and liabilities the subject of that order, if the transferor or credit institution, as the case may be, believes that—

(a) the consideration was not determined following a competitive process,

(b) it would have been practicable in all the circumstances for a competitive process to have been carried out, and(c) the market value would have been materially greater than the consideration specified in the transfer order had a competitive process been carried out.

(2) In order to dispute the amount of consideration, the authorised credit institution shall serve a written notice to that effect on the Bank, not later than 14 days after the transfer order takes effect.

(3) As soon as practicable after receiving a notice under subsection (2), the Bank shall appoint an independent valuer to determine, in accordance with this section—

(a) whether a competitive process was carried out, and

(b) if a competitive process was not carried out, whether it would have been practicable in all the circumstances for the Bank to have carried out a competitive process to determine the market value of the assets and liabilities to be specified in the proposed transfer order concerned, and if so, what the likely market value would have been if the competitive process had been carried out.

(4) In determining whether, for the purposes of subsection (3)(b), it would have been practicable in all the circumstances for the Bank to have carried out a competitive process, the independent valuer shall consult with the Bank as to the reason why the Bank considered that it would not have been practicable to have carried out a competitive process.

(5) If the independent valuer determines that a competitive process was not carried out and that it would have been practicable in all the circumstances for the Bank to have carried out such a process, he or she shall determine what the market value would have been had the competitive process been carried out—

(a) on the basis that the intervention conditions were fulfilled in relation to the authorised credit institution concerned,

(b) on the basis of an urgent transfer in a distressed sale,

(c) on the basis that the transferor is being wound up,

(d) on the basis that the winding-up will be on the basis of an asset break-up,

and

(e) on the basis of any other matter that the Minister prescribes by regulations.

(6) If the independent valuer determines, under subsection (5), that the market value of the assets and liabilities the subject of the transfer order would have been materially different had the competitive process been carried out, he or she shall certify that fact to the Bank, the market value determined by the independent valuer shall be taken to be the consideration specified in the transfer order, and—

(a) if that market value would have been materially less than that consideration, the transferor shall, subject to subsection (7), pay the difference to the transferee, or

(b) if that market value would have been materially greater than that consideration, the Bank shall draw on the Fund to pay the difference to the transferor and the transferee shall have no further liability in respect of those assets and liabilities.

(7) If a liability to pay the transferee arises under subsection (6)(a) in relation to a transfer order that transfers assets or liabilities of a subsidiary or holding company of an authorised credit institution, that credit institution and the subsidiary or holding company are jointly and severally liable to make the payment.

(8) The independent valuer shall—

(a) where he or she determines that a competitive process was carried out, certify to the Bank that it was carried out,

(b) where he or she determines that a competitive process was not carried out but that it would not have been practicable in all the circumstances to have carried it out, certify those determinations to the Bank, and

(c) where he or she determines that a competitive process was not carried out but that the market value of the assets and liabilities concerned would not have been materially different from the consideration for those assets specified in the transfer order, certify those determinations to the Bank.

(9) Where the independent valuer certifies to the Bank any of the matters referred to in subsection (8), the market value shall remain the market value and the transferor shall have no further recourse in respect of the consideration.

(10) The transferor shall be liable to reimburse the Bank the costs of the independent valuer if the independent valuer determines that it was manifestly unreasonable for the transferor concerned to have disputed the amount of the consideration on the basis that—

(a) a competitive process was not carried out,

(b) a competitive process was not carried out and it would have been practicable in all the circumstances for the Bank to have carried out such a process, or

(c) a competitive process was not carried out and the market value of the assets and liabilities concerned would have been materially greater than the consideration for those assets specified in the transfer order.

(11) As soon as may be after the independent valuer certifies to the Bank a matter under this section, the Bank shall send a written notice to the transferor of the determination of the independent valuer.

(12) Leave shall not be granted for judicial review of a determination of the independent valuer unless—

(a) either—

(i) the application for leave to seek judicial review is made to the Court within 14 days after the Bank sends the written notice under subsection (11), or

(ii) the Court is satisfied that—

(I) there are substantial reasons why the application was not made within that period, and

(II) it is just in all the circumstances to grant leave, having regard to the interests of other affected persons and the public interest,and

(b) the Court is satisfied that the application raises a substantial issue for the Court’s determination.

(13) The Court may make such order on the hearing of the judicial review as it thinks fit, including an order remitting the matter back to the independent valuer with such directions as the Court thinks appropriate or necessary.

(14) Only a person to whom subsection (1) applies may dispute the valuation placed on the assets and liabilities transferred under a transfer order.”.

Amendment agreed to.
Section 31 deleted.
SECTION 32

Amendments Nos. 60 to 63, inclusive, are related and may be discussed together.

I move amendment No. 60:

In page 24, lines 16 to 24, to delete subsection (1) and substitute the following:

"32.—(1) A transfer order has effect—

(a) if there is an application made under section 25, 26 or 27

(i) if the Court makes an order under section 25, 26 or 27 and makes an order as to the date of effect, at that date,

(ii) if the Court makes an order under section 25, 26 or 27 and does not make an order as to the date of effect, the date of the order made under section 25, 26 or 27, as the case may be,

(iii) if the Court does not make an order under section 25, 26 or 27, 14 days after the publication of the order under section 24, or

(b) if there is no application made under section 25, 26 or 27

(i) immediately, to the extent that the Court so orders, or

(ii) if the Court does not make an order as to the date of effect, 14 days after the publication of the order under section 24.”.

This amendment clarifies the timing of the effective date of a transfer order. Transfer orders can have immediate effect where that is ordered by the court. Where the transfer does not need to happen immediately it will take effect 14 days after the publication of the order. Provision is also made for where applications are made to vary transfer orders or to have them set aside and in each case the effect of such an application on the effectiveness of the order is set out. In each case the court will have the power to specify the date of effectiveness.

Amendment No. 61 corrects a grammatical error in subsection 4. Amendment No.62 clarifies that where the transferor is either a credit union or a building society, and the transferee is a credit union or building society, on the agreement of the transferee it is possible for membership rights associated with share accounts in credit unions and building societies to transfer from credit union to credit union, building society to building society, credit union to building society or building society to credit union.

Amendment No. 63 inserts new subsections which provide that where a share account is transferred from a credit union or a building society and becomes a deposit account in the transferee, the holder of the account retains its membership rights associated with that share account in the transferor. This has effect notwithstanding any provision in the Credit Union and Building Society Acts or the memorandum of association of the transferor.

Membership rights include voting rights and the right to participate in any surplus in the event that the body were to be subsequently wound up solvent and a sum became available to share among members after all creditors were repaid.

It has been put to me that the Minister has not consulted the Irish League of Credit Unions on the significant changes to the operation of credit unions and that he had the option of amending the main credit union legislation from 1997 given that credit unions in many ways are fundamentally different to the kind of failed major financial institutions. The 500 members of the Irish League of Credit Unions have carried on a unique function in communities for half a century or more during which they have provided credit to families and individuals who otherwise would not get credit. In the three years since the banking morass has afflicted us they are also being painted with the same kind of brush. To some extent what we are doing in amendments Nos. 62 and 63 and in amendment No. 100, if you will allow me to refer to it, Chairman, is taking a sledge-hammer to crack a nut. I accept we will come to amendment No. 100 later.

The Registrar of Credit Unions is getting extensive powers which were long overdue in the case of Anglo Irish Bank, Bank of Ireland and AIB but the Minister is now imposing onerous and harsh conditions in amendment No. 100 in the case of parish credit unions. The great credit union movement developed in Derry and spread throughout the country at the time of John Hume 40 or 50 years ago. The Minister does not seem to have consulted the Irish League of Credit Unions. Credit unions welcome the commission which is being established but they are anxious, given that they were not consulted about what they would perceive as draconian new powers for the registrar.

There is much concern among the credit union movement at the moment because there is no doubt that action will have to be taken in respect of some credit unions. Everyone who is in touch with their constituencies both in rural and urban areas knows that there are difficulties but in proportion to what happened in the banks the difficulties are not comparable but they will have to be dealt with.

This is a resolution Bill and it would not be appropriate to proceed knowing that some action must be taken in credit unions without applying the provisions of the Bill to all financial institutions, including credit unions. As Deputy Broughan rightly said, the commission on credit unions is meeting at the moment and discussing all of these matters. I expect to have an interim report from it shortly. The representatives of the Irish League of Credit Unions are on the commission, as is the Credit Union Development Association, CUDA, the organisation that represents other credit unions. The Credit Union Advisory Committee, CUAC, the credit union advisory body that advises the Minister, is also represented. It is a member of that organisation which is chairing the Credit Union Commission. They are well represented on the commission and they have a full input into it.

The credit union movement was not consulted about these amendments.

They say they only got them last night.

They were only circulated yesterday. The Deputy knows that the obligation is to circulate the Members first. We cannot circulate them to outside people without first circulating to Members. With the pressure we are under on the legislation, we did not have time to consult them. We are prepared to talk to them about this but it is vital that resolution provisions are enacted which apply to credit unions as well as other financial institutions. We have ongoing discussions with the credit union movement. I have met representatives of the Credit Union Advisory Group and took their advice. I have met both credit union bodies who represent the credit unions. I have met individual members and management of credit unions, as we all have in our own constituencies.

We are across the issues but there is an issue that must be addressed and we should not get into the position many people, including people in these Houses, got into when the banks were in difficulty when assurances were being given within weeks of the collapse of banks that the Irish banks were not like the other banks, that there was no sub-prime lending in Ireland, that they did not have the problems the American banks were experiencing, that there was no Lehman Brothers in Ireland, and so on. Does the Deputy remember all that guff, and then over a six week period the price of their shares went from $24 to cents, and suddenly there was a big hole in the banks, so to speak? I do not want to get into that kind of rigmarole about the credit unions. I do not believe the credit unions have a problem that is anything comparable to the problem the banks had but some credit unions have difficulties and they will have to be assisted.

I want to give an assurance to everyone that our priority when we were addressing the problem in some of the credit unions is, in the first instance, to protect the depositors in full to ensure no one loses a cent. That will be the approach. I am awaiting the advice of the commission because it is across this issue as well. It has examined all sides of it and it will make recommendations on how we will move forward, and we will move forward in consultation with the regulator and the Central Bank, but we should not pretend that the resolution powers are not necessary for the credit union movement. They are necessary because some of them are in difficulties and a few of them are in serious difficulties. Already, in the case of a couple of them the regulator has had to move in, recapitalise them, sort them out and so on. The Deputy would be aware of those cases that got a certain amount of publicity.

I am a strong supporter of the credit union movement. I know the tradition of the credit union movement. Since it was established in the 1960s it has been providing credit lines to individuals and families who would not get a bob from any other lending institution. It carries out not only a financial and banking function but also a great social function in society. It is also cross-Border because it was founded originally in a co-ordination between people in Dublin and people in Derry. That was the origin of it. It is not in place since time began. It was around 1960 that it began to develop as a movement. It is not in existence since the foundation of the State.

I am calling Deputy Doherty and then Deputy O'Donnell. I will call the Deputy again.

It is very unfortunate that we are in this position with these amendments that affect the credit union sector. I have had calls, as I am sure have others present, while this meeting was taking place and the credit union sector is furious, and its representatives have relayed this to us. They have asked us to relay that to the Minister in terms of the way this is being handled. There has been no consultation on the amendments before us, in particular on amendment No. 100 which fundamentally changes the previous legislation. I understand the problem in terms of deadlines and so on and I have not been a Minister but I am sure that when legislation is being drafted, the Minister speaks to the interested parties. There was no hint or intimation on Second Stage that amendments such as these would be brought forward that would affect the credit union sector.

The credit union sector and I agree that there must be a resolution process that should include the credit union sector. An issue does not arise in that regard, but when last minute amendments are brought forward without any consultation with a sector that has a huge lending capacity and can help with the local economy, with more than 3 million members across the island of Ireland, it is not good practice. I am not in a position to support these amendments given the credit union sector was only informed of this last night when one of its members became aware of it.

This should not become a confrontational issue, and I take the Minister's word in terms of his respect for the credit union movement, which I have no reason to doubt, but he has the opportunity to withdraw these amendments and put them on the agenda for Report Stage. That will not cause any problems and it allows consultation with the credit union sector. It also allows members to speak to the sector. We are aware that the Minster's intention would be to resubmit these amendments on Report Stage. It would allow us to get over this problem and not upset the credit union sector. It would also provide time for some consultation. We understand the timeframe the Minister is under in terms of enactment of this legislation but I appeal to him to withdraw these amendments and table them on Report Stage or amend them in the meantime if he so wishes following consultation with the credit union sector.

Deputy O'Donnell.

I will allow the Minister to respond.

The credit unions are aware that there is a problem in the credit union movement. They are aware that change must take place and that powers along these lines are being contemplated. Their representatives are discussing these issues in the Credit Union Commission and have been doing so since June of this year. They were not consulted about the precise amendments because the obligation on the Minister and on the Department is to circulate amendments to legislation to the Members of this House before they are shown to outsiders. I will not withdraw the amendment but if the committee agrees to give me the amendments on Committee Stage, we will revisit the issue on Report Stage after my officials have consulted the credit union movement to hear its views. I do not believe there is anything specific in these amendments that they would object to if they were fully briefed, but there is an atmosphere of nervousness in the credit union movement. I do not believe there is anything in these amendments that they need fear, but my officials will contact them. They are telephoning the Deputy about amendment No. 100.

Amendment No. 100 deals with changes-----

It is not this amendment.

This one actually protects their rights.

The Minister is well aware of the concern across all parties in terms of the credit union movement. It is welcome that the Minister is open to amendments being tabled on Report Stage. Might I suggest that any amendments that are relevant to the credit union movement would be referred by the Department to the commission set up to review the credit unions and that consultation would take place between the Department and the credit union movement as well as the Commission on Taxation on the amendments being put forward-----

Which commission?

-----the Credit Union Commission - to allow dialogue to take place in the circumstances and where the Minister is willing to examine proposed amendments on Report Stage? That might be a way forward on this particular matter.

I echo my colleague's comment. The Minister has made a proposal that is reasonable in many respects. My point relates to amendment No. 100, concerning Part 3 of the 1997 Act. It seems to give a carte blanche to the registrar. There are obviously grave concerns. There were collapses in the past. Credit unions did go down the odd time but, in general, the movement was very strong because of the local aspects and the phenomenon of a couple of parishes working together in a rural or urban setting. It comprised an important part of demand in macro-economic terms for families and individuals. The key point is that the league should be consulted.

To some extent, we are anticipating the discussion on amendment No. 100. We cannot take amendments out of sequence. This matter will arise again in a few minutes or hours when we deal with amendment No. 100.

Is it known when we will take Report Stage of this Bill?

I understand it will be within the next fortnight or so.

Okay. Given that the commission is examining these very matters, as the Minister acknowledged, it seems odd that we are proceeding with the legislation before getting any feedback whatever therefrom. Deputy O'Donnell's proposal, that we give it an opportunity to examine the proposed amendments that affect the sector, is sensible. The response could feed into our deliberations in two weeks.

All members are familiar with Roscrea credit union as it was the main one in the public domain. They are familiar also with the Grant Thornton report on credit unions and many of them will have seen it. There is a problem in the credit union movement; it is on the extent of the problem that there is no agreement. There is a misunderstanding because, no matter what one does to impair credit unions, one needs the power of resolution. Amendment No. 100 lays out the set of preliminary steps the bank must take before it moves on to resolution. It is building on existing legislation. I do not know whether the Chairman wants to discuss this now.

It is difficult. We should stick to the order.

I cannot reply adequately without referring to amendment No. 100.

I appreciate the dilemma.

It would be helpful if we could deal with the amendment now and then proceed.

No, we will not be able to deal with amendment No. 100 until we come to it.

Rather than going back over old ground later, the Minister could deal with it now. I believe the Chairman will agree to that.

Why not dispose of amendments Nos. 60 to 63, inclusive, in the first instance? Nobody is losing out on the opportunity to ventilate this issue again later.

We should stick to the sequence.

I am advised that we are required to do that.

Amendment agreed to.

I move amendment No. 61:

In page 25, subsection (4)(h), line 43, to delete “entitled and subject to if” and substitute “entitled and subject if”.

Amendment agreed to.

I move amendment No. 62:

In page 26, lines 14 to 17, to delete subsection (5) and substitute the following:

"(5) If the transferor is an authorised credit institution that is either a credit union or a building society and a share account is included in the transfer of assets and liabilities—

(a) where the transferee is a credit institution that is either a credit union or a building society—”.

Amendment agreed to.

I move amendment No. 63:

In page 26, lines 29 to 44 and in page 27, lines 1 to 4, to delete subsection (6)and substitute the following:

"(6) If—

(a) a transferor is a credit union or a building society,

(b) a share account is included in the transfer of assets and liabilities, and

(c) the share account becomes a deposit account in the transferee pursuant to subsection (5)(b),

the holder of that account continues to have the membership rights in the transferor that he or she had before the transfer, including (without limitation) voting rights and rights to participate in any surplus on a winding up.

(7) Subsection (6) has effect notwithstanding anything in—

(a) the Building Societies Act 1989 or the Credit Union Act 1997, or

(b) the memorandum of association or rules of the transferor.

(8) The transfer of assets and liabilities under a transfer order takes effect notwithstanding—

(a) any duty or obligation to any person that would otherwise prevent or restrict the transfer,

(b) any provision of any enactment, rule of law, code of practice or agreement providing for or requiring—

(i) notice to any person,

(ii) the consent, approval or concurrence of any person, or

(iii) any formality such as registration,

(c) any other rule of law or equity,

(d) any code of practice made under an enactment,

(e) the listing rules of a regulated market or the rules of any other market on which the shares of the transferor are traded,

(f) the memorandum of association or articles of association of the transferor, or

(g) any agreement to which the transferor is a party, is bound by, or has an interest in,

except to any extent to which the transfer order expressly provides otherwise.".

Owing to the confusion, can I ask a question on amendment No. 63, specifically on the proposed subsection (6)(c)? If I hold shares in a credit union that has failed and they are transferred to another larger, stronger credit union, they become a deposit. Will we have a credit union with shareholders and depositors? How will this work out for the credit union in that half its members could be shareholders and the other half depositors?

If they transfer shares, they keep their membership rights.

If I were the person in the failed credit union, would I get dividends then? Would I have a share in that credit union and get my dividends every year?

The Deputy has us totally confused.

Does the Minister not know what I am saying?

I will try to clarify it for the Deputy.

It is a question of deposit holders as distinct from members with shares.

A bank would have deposit holders.

There are two categories in the credit union, namely, shareholders and deposit holders. Shareholders are the only ones with membership. The shareholders would retain their rights on transfer. Deposit holders would not have a vote in the credit union.

I think the Deputy has it cleared up. The shareholders would be transferred to the other credit union. Their voting rights in the credit union they leave give them rights to vote on any decisions concerning the credit union that is impaired. There may be residual funds which would be shared up and the shareholders would have a say in or vote on anything that would happen subsequently. That is the right that is being preserved although the shareholders move to the new credit union as shareholders. They have rights as shareholders in the new union, just like any other shareholder.

Is that okay?

No, it is not okay as I am ignorant about this matter. The shareholder's account becomes a deposit account rather than a share account. I do not understand subsection (6)(c), which states, the share account becomes a deposit account in the transferee pursuant to subsection (5)(b).

We will clarify that and revert to the Deputy.

I appreciate that.

Amendment agreed to.
Section 32, as amended, agreed to.
Sections 33 to 38, inclusive, agreed to.
SECTION 39

I move amendment No. 64:

In page 30, subsection (1)(a), line 7, to delete “such a special management order is necessary,” and substitute “the intervention conditions are fulfilled,”.

Amendment agreed to.

I move amendment No. 65:

In page 30, subsection (3), line 17, to delete "Subsection (1) does” and substitute “Subsections (1) and (2) do”.

Amendment agreed to.
Section 39, as amended, agreed to.
SECTION 40

Amendments Nos. 66 and 67 are related and may be discussed together.

I move amendment No. 66:

In page 31, paragraph (b), line 6, to delete “and” and substitute the following:

"(c) if it is proposed that any power of the special manager is to be exercisable immediately, shall specify the reasons why the special management order should have that effect,”.

Amendments Nos. 66 and 67 make two changes to section 40, which deals with the contents of a proposed special management order. Section 40 as published provides that the proposed special management order must set out the rights of the authorised credit institution to make submissions in regard to the proposed application for a special management order, specify the period in which such submissions may be made, and where an order would relate to a subsidiary or holding company, set out the name of that subsidiary or holding company. The amendments add two additional points that the proposed special management order must address.

Amendment No. 66proposes that where the Central Bank proposes that the special manager's powers are to be exercisable immediately, the proposed special management order must specify why this is required. Amendment No. 67 proposes that the proposed special management order can contain any other provisions that the bank considers necessary. These are both useful additions. It is important the bank can include other necessary provisions in the proposed order, allowing the proposed order to address specific circumstances that cannot be anticipated. Moreover, it is reasonable that where an order is expected to have immediate effect, the bank should set out clearly the reason this is considered necessary.

Amendment agreed to.

I move amendment No. 67:

In page 31, paragraph (c), line 10, to delete “company.” and substitute the following:

"company, and

(d) shall set out such other provisions as the Bank may consider appropriate.”.

Amendment agreed to.
Section 40, as amended, agreed to.
Section 41 agreed to.
NEW SECTION

I move amendment No. 68:

In page 32, before section 42, to insert the following new section:

42.—(1) The Bank shall, as soon as practicable after a special management order is made—

(a) serve a copy of the special management order on the authorised credit institution, and, if the subject of the special management order is a subsidiary, or holding company of the authorised credit institution, on the subsidiary or holding company, and

(b) publish the order in 2 newspapers circulating generally in the State.

(2) In a particular case, the Bank may, if the Bank thinks it necessary to do so, publish a special management order by an additional means or in an additional place.

(3) Without delay after the service of the copy of the special management order, the authorised credit institution shall take all reasonable measures to ensure that its members, and, if the subject of the special management order is a subsidiary or holding company of the authorised credit institution, the members of the subsidiary or holding company, are made aware of the order, including, without limiting the generality of the foregoing—

(a) where the shares of the authorised credit institution are traded from time to time on a financial market (whether a regulated market or not), making an announcement that relates to the existence of the special management order and its effect, to a regulatory news service generally used by credit institutions in the State for the purposes of announcements to such markets, and

(b) providing a copy of the special management order to the regulatory news service referred to in paragraph (a).”.

Amendment agreed to.
Section 42 deleted.
Section 43 agreed to.
SECTION 44

I move amendment No. 69:

In page 32, subsection (1), lines 15 to 17, to delete all words from and including "not" in line 15 down to and including "section 42(2)” in lines 16 and 17 and substitute the following:

"not later than 14 days after the publication, in accordance with subsection (1)(b) of section 42”.

Amendment agreed to.

I move amendment No. 70:

In page 32, lines 19 to 22, to delete subsection (2) and substitute the following:

"(2) The Court shall give such priority to an application under subsection (1) as is necessary in the circumstances, and may give such directions as it considers appropriate in the circumstances—

(a) with regard to the hearing of the application, or

(b) with regard to a matter that arises during the period beginning with the special management order and ending with the order of the Court under this section.”.

Amendment agreed to.

I move amendment No. 71:

In page 32, subsection (4)(b), line 35, to delete “subsection 41(2)” and substitute “section 41(2)”.

Amendment agreed to.

I move amendment No. 72:

In page 33, lines 6 and 7, to delete subsection (7) and substitute the following:

"(7) Where, instead of making an order under subsection (3) setting aside a special management order, or an order under subsection (4) varying or amending a special management order, the Court, on application under subsection (1) makes an order refusing to set aside a special management order, the special management order shall be taken to have been effective as if the application under this section had not been made.

(8) The Court, in considering the order it wishes to make under this section, may, where the applicant is a member of the credit institution, subsidiary or holding company the subject of the special management order, have regard to—

(a) the date on which the applicant became a member of that credit institution, subsidiary or holding company, or increased or decreased the number of shares that the applicant held in that credit institution, subsidiary or holding company, and

(b) the value of the shares acquired by or disposed of by the member as at the date or dates on which the shares were acquired or disposed of, as the case may be.”.

Amendment agreed to.
Section 44, as amended, agreed to.
SECTION 45

Amendments Nos. 73 and 74 are related and may be discussed together.

I move amendment No. 73:

In page 33, subsection (3)(c), line 26, to delete “period during which” and substitute “period not exceeding 6 months during which”.

This amendment would limit the period of the special management to six months, although amendment No. 74 would allow the bank to apply to the court to vary this period. Such application may be done in an expedited manner by applying to the court to vary the term and not by having to make a new proposed special management order as provided for in section 56 as amended. The limitation to six months is designed to ensure that it is clear that a special manager is not expected to be in place indefinitely. Once the task that the special manager has been given in the special management order is complete, the special manager will no longer be required.

Amendment No. 74 allows the bank to apply to the court to extend the special management by varying the order, rather than requiring a new special management order. In certain circumstances, for example, where a special manager has been tasked with winding down an institution, the period of special management may need to be extended beyond the six month limit. However, the initial six month deadline is still required to send the correct signal to the market, namely, that special management is not proposed to continue indefinitely.

Amendment agreed to.
Section 45, as amended, agreed to.
Sections 46 to 55, inclusive, agreed to.
NEW SECTION

I move amendment No. 74:

In page 39, before section 56, to insert the following new section:

56.—The Court may, on application by the Bank under section 43, extend the special management of an authorised credit institution, subsidiary or holding company.”.

Amendment agreed to.
Section 56 deleted.
Section 57 agreed to.
SECTION 58

I move amendment No. 75:

In page 40, between lines 25 and 26, to insert the following subsection:

"(3) Notwithstanding section 3(2), a reference in this Part to an authorised credit institution includes a reference to a relevant institution within the meaning of the Act of 2010.”.

The interaction between the Credit Institutions (Stabilisation) Act 2010 and the Bill before the committee today has been carefully considered. It is clearly not appropriate for both the Minister and the Central Bank to have similar powers in respect of the same institution at the same time. Therefore, when an institution is a relevant institution for the purpose of the Credit Institution (Stabilisation) Act 2010, it is not an authorised credit institution for the purposes of the Central Bank and Credit Institutions (Resolution) (No. 2) Bill. However, there are no provisions concerning liquidation in the Credit Institutions (Stabilisation) Act 2010, CISA, and the Minister has no particular powers in this area. Therefore, it is appropriate to allow the special liquidation procedures to be applicable to a relevant institution if it was considered appropriate. It should be noted that the CISA powers are only available until 31 December 2012 and once the CISA has lapsed all relevant institutions will become authorised credit institutions.

Would the Minister be able to give the direction to the Central Bank?

No, it is independent in the exercise of its functions. Its independence is being maintained in this Bill.

I note we have emerged from a period in which the Central Bank did not act.

Yes, but my predecessor dealt with that position by putting in a new Governor and a new regulator. Since then, the law has been changed to ensure they are sufficiently armed with statutory authority to carry out their functions.

But the Minister is excluding himself.

No, I am included in the consultation process.

Amendment agreed to.
Section 58, as amended, agreed to.
Sections 59 to 62, inclusive, agreed to.
SECTION 63

Amendments Nos. 76 to 79, inclusive, and No. 85 are related and may be discussed together.

I move amendment No. 76:

In page 42, subsection (1)(a), lines 8 to 11, to delete subparagraph (i), and substitute the following:

"(i) to outline a plan for the repayment of depositors that includes the imposition of losses on senior and junior bondholders in order to protect the financial viability of the State, the financial system and the citizens of the State, and to do so without prejudice to the application of Regulation 4 of the Regulations of 1995, or".

I seek the Minister's guidance in this regard. The intention of the amendment is to outline an additional objective for section 63, that is, for the liquidator to outline a plan for repayment of depositors that includes the imposition of losses on senior and junior bondholders to protect the financial viability of the State, the financial system and the citizens of the State and do so without prejudice to the application of regulation 4 of the regulations of 1995. The amendment pertains to the actions of the liquidator and is about giving legal power to the Minister and the Governor to impose burden sharing on junior and senior bondholders.

Amendment No. 77, which deals with the same section, replaces the wording in 63(1)(b) on objective 2 to read “to wind up the affairs of the authorised credit institution so as to achieve the best results for the State, the taxpayer and the ordinary depositors of that credit institution before any consideration is given to creditors such as junior and senior bondholders”. While I seek the Minister’s guidance, in addition to having the power to impose burden sharing on bondholders, there is also a need to state clearly the order in which creditors would be paid. The amendment seeks to create a hierarchy of creditors starting with the State, followed by the taxpayers, the ordinary depositors and then the bondholders.

I oppose amendment No. 76 as it is misplaced since there is no statutory power to impose losses on bondholders in the Bill. Where an authorised credit institution is wound up on insolvency, the priority of repayment of creditors is ordained by the principles of insolvency law contained in the Companies Acts. No change is proposed to this law. To the extent that there are insufficient funds available to repay eligible depositors, the deposit guarantee scheme will pay them up to the statutory limit.

The issue of burden sharing with senior creditors, bail-in mechanisms as they are sometimes referred to, remains under discussion internationally but as of yet no clear consensus has emerged. Any pre-emptive action on our part by including such tools in the special resolution regime in advance of agreement at EU and international level could have significant negative consequences for, in particular, the international banks within the scope of this Bill. For example, it could lead to ratings downgrades for international banks in Ireland.

It would also be expected to generate negative sentiment among market participants towards Ireland owing to the perceived uncertainty regarding our commitment to an agreed international methodology on bail-in mechanisms.

Amendment No. 77 is rejected for similar reasons. Where an authorised credit institution is wound up on insolvency, the priority of repayment of creditors is ordained by the principles of insolvency law contained in the Companies Acts. No change is proposed to this law which, as it stands, gives priority to Revenue repayments. This ultimately benefits the taxpayer. To the extent that there are insufficient funds available to repay eligible depositors, the deposit guarantee scheme will pay them up to the statutory limit.

Amendment No. 78 amends section 63(4) to acknowledge that the liquidator has a number of duties under this section in addition to that set out in section 63(3).

Amendment No. 79 removes the reference in the Bill, as published, to the fund being available to facilitate the transfer of accounts of eligible depositors. On reflection, it is considered that eligible depositors are already sufficiently protected by the deposit guarantee scheme and so reference to the fund is being removed. The amendment also amends the language of the section to align better with the deposit guarantee regulations.

Amendment No. 85 removes a superfluous provision, section 70(5). Section 64, as amended, will provide that in a liquidation the bank may use money from the deposit protection account and make money available from the deposit protection account, or make payments and charge the payments on the deposit protection account to facilitate the transfer of deposits that are covered by the deposit protection scheme. The European Communities (Deposit Guarantee Schemes) Regulations 1995 already provides that the bank may arrange for payments to or in respect of eligible deposits. Therefore, section 70(5) is not necessary and it is proposed the subsection be deleted.

Under company law, the order of priority of repayment in the case of a bank insolvency would be the liquidators' expenses, employee payments, Revenue, secured creditors, unsecured creditors, which would be all the bondholders and depositors to the extent they are not covered by the guarantee, and subordinated creditors and shareholders at the end.

We are told all the time we cannot burn the bondholders because they have the same legal standing in law as the depositors. The Minister has just confirmed depositors are on a par with a certain type of bondholder. This will introduce in the legislation that in the event of the liquidation of a financial institution, depositors would have superior guarantee to bondholders.

There are always, however, knock-on effects. The Minister referred to potential investment loss and credit rating downgrades. No one wants to see a bank liquidation. However, while I accept we need bondholders to take risks in our financial institutions, if their investments come up wrong, they should take a loss before the depositors. My amendment is to have this distinction made in law.

I am sympathetic to Deputy Doherty's position. I understood we were required by the IMF to provide such a ranking in the legislation.

The Companies Acts already provide that ranking order.

However, banks are different from general commercial companies.

We do not have to change every law. What is enshrined in the Companies Acts regarding a hierarchy of creditors is what will apply in this legislation. We do not have to re-enact it as it is there already.

We have been hog-tied and crucified by the commitment made by the previous Government under the bank guarantee scheme which, by the way, the Minister supported at the time. As banks are so different to other companies and are central to the economy, this hierarchical order of creditors should be included in the legislation to state clearly this is the resolution regime of our country's banking system.

On the same point, I would support a new departure in thinking for new circumstances and a modern age. Banking and financial institutions are examined more closely by professional firms, including the accountants that were referred to earlier, actuaries, statisticians, pension fund managers, so they can take a view on long-term investments, short-term deposits and multi-time analysis of bank balance sheets. This is the opportunity to consider ranking the distribution of creditors expressly in the case of a bank wind-up.

In accordance with the 1995 European regulations, this section will place depositors first. Will the Minister clarify if this means depositors first under the threshold of the current guarantee scheme and then beyond that the creditors? I presume in the case of an insolvent bank in which there is no State guarantee for bondholders, they are down the pecking order and left to scrap it out.

The Credit Institutions (Stabilisation) Act 2010 made explicit provision for liability management exercises on subordinated bondholders. Why is there not a corresponding provision for senior bondholders in this legislation?

When I raised this with my predecessor, the late and great Brian Lenihan, he always argued that the depositors and senior bondholders in law were equal, had to be treated equally and one could not have the resolution provisions that apply to subordinated bondholders applying to senior bondholders unless one was prepared to exercise similar haircuts on depositors. That is what they did in Denmark, in the bank to which I referred earlier. They took 40% off depositors, I think, with deposits in excess of €100,000. They left small depositors alone.

The obvious adjustment to the hierarchy in company law which I read out to the committee has been the deposit guarantee schemes. When they were introduced originally, up to three or three and a half years ago, I think the figure was €20,000 or €25,000, and then it was brought up to €100,000. The order in company law has been changed now to give depositors with up to €100,000 a superior right to bondholders. That is the difference.

To get to Deputy Mathews's point, there is no point in consolidating measures in a Bill like this. Obviously, if we are applying the hierarchy that is already in Irish law under the Companies Acts, cross-referencing to it is sufficient. We need not restate everything again in this legislation. There is no question of doing that.

On the guarantee, Deputy Broughan is correct. I voted for the guarantee three years ago tonight. I remember the debate. I asked the Minister if he was dealing with a liquidity issue or a solvency issue, and he assured me he was dealing with a liquidity issue.

That is what the late Deputy Brian Lenihan Jr. believed it was.

I presume he had been misinformed. On that basis, Fine Gael, Sinn Féin and Fianna Fáil all voted for the guarantee. The Labour Party voted against the guarantee but it had a proposal which amounted to exactly the same thing. What the Labour Party proposed on the night was that the banks would be nationalised and if one nationalises a financial institution, one takes over its assets and its liabilities. If the State became the owner of the banks on that night, which was the Labour Party proposal, the Minister would be responsible for all of the liabilities of the banks. If one went down the nationalisation route, one would actually be putting an even bigger guarantee under them. That is what was giving us the difficulty subsequently with the unguaranteed bondholders in Anglo Irish Bank. While it is true to say that one could make a case for differentiating between unguaranteed and guaranteed bondholders under the terms of the guarantee, as soon as the bank was nationalised then the status of the unguaranteed bondholders came very close to, if not the same as, that of the guaranteed bondholders. While we might be able to distinguish the two in law, the markets were making no distinction. The markets were saying that they are treated the same, that the Government now owns this bank and if it reneges on it, the Government is reneging on, as they put it, "the sovereign signature". Those are the kind of arguments that have run. As to who is correct and who is wrong, I am only giving the committee the full picture.

The Minister is correct.

I am not saying that.

Deputy Doherty is next.

Deputy Noonan was there that night.

I was, and I have a good memory. It is important.

The night that is in it,------

Deputy Noonan should have been a novelist rather than a historian.

It is important we give the committee the proper context.

We are aware what night it is and there is a temptation to have that debate. If I was not in the Chair, I would not mind participating in it myself.

We are not going to have an opportunity-----

Sometimes the discussions-----

Excuse me, Deputy Broughan.

May I make one last point?

In a moment, if Deputy Broughan hears me out, I will let him in. I want to maintain some level of organisation on this. I hope it is possible that the committee would be a forum where those issues would be thrashed out in some considerable detail in whatever context that occurs in the future. That would be my hope. Tonight is not that occasion.

The Minister was entitled to come back in, the issue having been touched on by Deputy Broughan, but I am not going to allow a lengthy discussion.

Bring everyone to order, Chairman, you are doing a good job.

Deputy Doherty was next.

How can I not respond to that?

Deputy Doherty should do his best.

I merely want to correct the Minister. He knows only too well that the effect of that guarantee did not come in until a couple of weeks later when the terms and conditions were approved by both Houses. As we need in this legislation, there will be a commencement order. The terms and conditions were the commencement order that was required to be passed by both Houses. I will leave that to one side.

In terms of the hierarchy, about which Deputy Mathews spoke, I would agree with the Minister that there is no need to restate what is in the Companies Acts in this legislation. It would not make any sense. It might make easier reading for anybody who will read the legislation, but that is all. That is not my intention and I presume that is not the intention of Deputy Mathews.

This is about changing for the financial institutions the hierarchy of payments. It is about exactly divorcing that relationship between creditors and bondholders who are on a par at present. I will not hammer on about this here.

The Minister stated that the depositors will be guaranteed through the guarantee scheme up to a certain amount. That is fair enough. There is no guarantee that the scheme will be in place in the future. Even if the Minister wanted to use the tools, depositors are guaranteed at this point in time. The arguments are that if we were to impose a 40% or 50% loss on senior bondholders within the banks then, equally, the depositors would have to take a hit to that amount and the State would have to make that up. This is about stating that, for financial institutions, there will be a different hierarchy and we will do this in this legislation which involves powers that do not affect other companies.

These are dramatic powers that we are giving to the Minister and the Governor of the Central Bank to deal with companies, to go in there and overnight to move companies to other companies, to break-up companies and to give some assets and liabilities to other companies. All of that is quite radical. I welcome it because we could have done with it in the past.

What should be done in that context is to adjust the hierarchy of those who would have a call on payments. Fundamentally, depositors should not be on a par with bondholders. There are other situations where other companies have bonds, etc., but in terms of financial institutions, it should not be the case. This is what this amendment tries to achieve.

As a case in point, Bank of Ireland, which the State now only has 15% of, is, as it were, boasting or putting out that it is raising €1 billion by way of issue of bonds without guarantee, but the important point is that the bank is securitised on mortgages. Those mortgages will be so debt-tested by the investors that their hands will be all over them before that subscription is completed, which really goes to show that depositors deserve to be able to place their deposits at an institution and not have to do balance sheet assessment. That is why the express order of distribution in a wind down should be reflecting that sort of reality. If it means we steal a march on other banks and institutions in Europe or the world, so be it. The Americans actually have depository insurance and, effectively, they are dismissing the pari passu experience in a wind-up or resolution.

This discussion has been ongoing for a long time. As the Minister stated, any such discussions must happen in a European context. We have a situation where certain legislation or common themes happen world-wide and Europe-wide. It is a point that is raised. In the context of what we have here, which is current legislation and other legislation underpinning the way we operate in the normal course of events, we operate within a European environment. That is the context in which I would look at it.

It is a discussion point and the Minister has dealt with it. For us as a country, everything must be seen in the European dimension. The pan-European aspect must be looked at in that context. These are discussions that must take place in a wider sphere.

Does the Minister wish to respond?

No. I would be only repeating what I said earlier.

Amendment put:
The Committee divided: Tá, 2; Níl, 7.

  • Doherty, Pearse.
  • McGrath, Michael.

Níl

  • Broughan, Thomas P.
  • Daly, Jim.
  • Mathews, Peter.
  • Noonan, Michael.
  • O’Donnell, Kieran.
  • Timmins, Billy.
  • White, Alex.
Amendment declared lost.

I move amendment No. 77:

In page 42, subsection (1), lines 17 to 19, to delete paragraph (b) and substitute the following:

"(b) Objective 2, to wind up the affairs of the authorised credit institution so as to achieve the best results for the State, the taxpayer and the ordinary depositors of that credit institution before any consideration is given to creditors such as junior and senior bondholders.”.

Amendment put and declared lost.

I move amendment No. 78:

In page 42, subsection (4), line 26, to delete "duty of a liquidator pursuant to subsection (3) is” and substitute “duties of a liquidator under this Part are”.

Amendment agreed to.
Section 63, as amended, agreed to.
NEW SECTION

I move amendment No. 79:

In page 42, before section 64, to insert the following new section:

64.—(1) The Bank may, for the purpose of cooperating in the pursuit of Objective 1, and to facilitate the transfer of accounts of eligible depositors of the authorised credit institution concerned—

(a) make money available from the deposit protection account, or

(b) make payments and charge the payments on the deposit protection account.

(2) Section 8 of the Financial Services (Deposit Guarantee Scheme) Act 2009 shall apply in respect of payments charged on the deposit protection account under subsection (1) (b) as if the reference in that section 8 to a payment in accordance with the Regulations of 1995 were a reference to a payment in accordance with this section.”.

Amendment agreed to.
Section 64 deleted.
Section 65 agreed to.
SECTION 66

Amendments Nos. 80 to 84, inclusive, are related and may be discussed together.

I move amendment No. 80:

In page 43, subsection (5), lines 20 and 21, to delete "section 67(4)(e)” and substitute “section 67(4)”.

Amendment No. 80 is a consequential amendment to amendment No. 81, and simply corrects the reference in subsection 66(5) to the new section 67(4), which now provides for the cessation of the liquidation committee.

Amendment No. 81 would change the consequences of the passing of a full payment resolution from the position set out in the Bill as published. The amendment provides that where a full payment resolution is passed, the liquidation committee will cease to exist. The effect of the amendment is that the usual law applicable to windings up in the Companies Acts will once again apply, including the ability of creditors to establish a committee of inspection.

The Companies Act provides that when a winding-up order has been made by the court a committee of inspection may be appointed by the court to act with the liquidator. The members of the committee will be determined at a meeting of the creditors and contributories of the company, which may be summoned by the liquidator on an order of the court. Ordinarily only creditors can attend committees of inspection but even if the Central Bank is not a creditor of the institution, it will have rights in that regard and it will be a notice party to any legal applications brought in the course of the winding up which will enable it to monitor the progress of the liquidation.

Amendments Nos. 82 and 83 provide that if a full payment resolution is passed then the liquidation committee will cease to exist. This amendment is related to that amendment as it removes the provisions that would have applied where a liquidation committee continued to exist after a full payment resolution.

It proposes two specific changes to section 68. As it is no longer necessary to distinguish between the liquidation committee before and after a full payment resolution, amendment No. 82 replaces subsection (2) removing the reference to the liquidation committee consisting of initial members.

As nominated members are no longer replaced, subsection (6) is deleted by amendment No. 83. Amendment 84 proposes a new provision providing the bank with similar rights to those that were provided in the deleted subsection (6) where a committee of inspection has been established.

Amendment No. 83 provides that if a full payment resolution is passed then the liquidation committee will cease to exist. Amendment No. 84 relates to that amendment as it addresses the functions of the bank after a liquidation committee has ceased to exist. In that circumstance a committee of inspection may be appointed under the Companies Acts.

Subsection (1) of this amendment provides that the Central Bank shall be a notice party to legal proceedings relating to the winding-up of the credit institution. Subsection (2) of this amendment provides that where a committee of inspection is established the bank has certain rights, namely, it may attend meetings of the committee of inspection, it is entitled to receive copies of all documents relating to the business of the committee of inspection and it may make representations to the committee of inspection.

Do members have any observations on this group of amendments? No.

Amendment agreed to.
Section 66, as amended, agreed to.
SECTION 67

I move amendment No. 81:

In page 43, lines 37 to 42 and in page 44, lines 1 to 9, to delete subsection (4) and substitute the following:

"(4) If a liquidation committee passes a full payment resolution, the liquidation committee ceases to exist at the end of the meeting at which that resolution was passed.".

Amendment agreed to.
Section 67, as amended, agreed to.
SECTION 68

I move amendment No. 82:

In page 44, lines 12 to 14, to delete subsection (2) and substitute the following:

"(2) A meeting of the liquidation committee is quorate only if all the members are present.".

Amendment agreed to.

I move amendment No. 83:

In page 44, lines 26 to 34, to delete subsection (6).

Amendment agreed to.
Section 68, as amended, agreed to.
NEW SECTION

I move amendment No. 84:

In page 44, before section 69, to insert the following new section:

69.—If a liquidation committee ceases to exist by virtue of section 67(4)*

(a) the Bank shall be a notice party to legal proceedings relating to the winding-up of the authorised credit institution concerned, and

(b) if a committee of inspection is appointed, the Bank—

(i) may attend meetings of the committee of inspection,

(ii) is entitled to receive copies of all documents relating to the business of the committee of inspection, and

(iii) may make representations to the committee of inspection.".

Amendment agreed to.
Section 69 agreed to.
SECTION 70

I move amendment No. 85:

In page 45, lines 18 to 24, to delete subsection (5).

Amendment agreed to.
Section 70, as amended, agreed to.
SECTION 71

I move amendment No. 86:

In page 46, subsection (1), to delete lines 2 to 16 and substitute the following:

"

Section 243(1)

Substitute:“243.—(1) The Court may, at any time after making a winding-up order, make such order for inspection of the books and papers of the company, by creditors and contributories or the Bank, as the Court thinks just, and any books and papers in the possession of the company may be inspected by creditors or contributories or the Bank accordingly, but not further or otherwise.”.

Section 243

Before subsection (2), insert:“(1B) In considering an application under subsection (1), the Court shall have regard to the liquidator’s duty to secure the achievement of Objective 1 described in section 63(1)(a) of the Act of 2011.(1C) In considering an application under this section, the Court shall have regard to the liquidator’s duty to secure the achievement of Objective 1 described in section 63(1)(a) of the Act of 2011.”.

The effect of this proposed amendment is to correct a numbering error in the section as published, which would have resulted in two sections 243(1A)s.

Amendment agreed to.
Section 71, as amended, agreed to.
SECTION 72

I move amendment No. 87:

In page 46, lines 48 to 53 and in page 47, lines 1 to 9, to delete subsection (1) and substitute the following:

"72.—(1) In the case of the winding-up of an authorised credit institution, or a body that was formerly an authorised credit institution, that is a company incorporated outside the State, references in the Central Bank Acts 1942 to 2011 to—

(a) the winding-up of an authorised credit institution or a body that was formerly an authorised credit institution, or

(b) any provision of the Companies Acts which relates to winding-up, shall be construed as references to the corresponding provisions in the law of the foreign jurisdiction concerned if the context so admits and the circumstances so require.”.

Companies that are incorporated outside of the State can in certain circumstances be wound up under the Irish Companies Acts. This section refers to such a situation and provides that references in the Central Bank Acts to such winding up will be construed as references to the corresponding provisions in the law of the foreign jurisdiction if the context so admits and the circumstances so require.

This amendment removes the reference to section 9(1A) of the Central Bank Act 1971 and confines the operation of this provision to authorised credit institutions or former authorised credit institutions that are incorporated outside the State.

Amendment agreed to.
Section 72, as amended, agreed to.
Sections 73 to 76, inclusive, agreed to.
SECTION 77

I move amendment No. 88:

In page 48, line 36, after "Act" to insert "or requirement imposed under section 21”.

Amendment agreed to.
Section 77, as amended, agreed to.
Sections 78 and 79 agreed to.
NEW SECTION

I move amendment No. 89:

In page 49, before section 80, to insert the following new section:

80.—(1) Where the Courts Service, or another body funded, wholly or partly, out of moneys provided by the Oireachtas, or from the Central Fund or the growing produce of the Central Fund, has incurred costs in relation to the translation or publication of an order under this Act (including where the translation or publication is required by the Regulations of 2011), the costs are a debt due and owing by the authorised credit institution concerned, and may be recovered as a simple contract debt in any court of competent jurisdiction.

(2) If the authorised credit institution is unable to pay the costs referred to in subsection (1), they shall be recoverable from the Fund by the body concerned.”.

This amendment inserts a new section into Part 9. The new section 80 ensures that certain costs incurred by the Courts Service, or any other State body in the course of the making of an order, including where required by the CIWUD regulations, can be recouped from the institution to which the order relates. If the institution is not able to pay, the fund will refund the bodies concerned. An example of such a cost would be the cost of the publication of an order, particularly where this may be required in a number of jurisdictions.

Amendment agreed to.
Section 80 agreed to.
SECTION 81

I move amendment No. 90:

In page 50, lines 13 to 34, to delete subsection (3) and substitute the following:

"(3) Where an order has been made, or requirement imposed, under this Act in relation to an authorised credit institution, any of its subsidiaries, or its holding company, (whether or not the order or requirement is subsequently set aside, or varied or amended in a relevant manner) and a relevant agreement would (apart from this subsection) cause a consequence specified or referred to in subsection (4) to follow by virtue of—

(a) the making of the order, or the imposition of the requirement, or any step taken (including the making of a proposed order) in preparation for the making of the order or imposition of the requirement,

(b) an act taken or omitted to be taken by any person in compliance with the order or requirement,

(c) any consequences of any such act or omission,

(d) any consequence of the order or requirement, or

(e) any other thing done or authorised to be done under, or resulting from any

provision of this Act,

then, notwithstanding that relevant agreement and subject to section 82

(i) no interest or right of any third party arises or becomes exercisable, and

(ii) no liability or obligation arises or is incurred by any third party,

by virtue of any of the matters mentioned in any of paragraphs (a) to (e).”.

Amendment agreed to.
Section 81, as amended, agreed to.
SECTION 82

I move amendment No. 91:

In page 52, subsection (1), line 8, to delete "he or she may by order" and substitute the following:

"he or she may, after consultation with the Bank, by order".

Amendment No. 91 relates to the Minister's power to override the provisions of section 81 of the Bill. Section 82 provides that if the Minister is satisfied that the effect of section 81 would cause unfairness or undue hardship, the Minister may by order provide that those consequences set aside by section 81 would occur for particular instances specified by the order. The amendment proposed to section 82 requires the Minister to consult the Central Bank before making such an order. This ensures that the Minister will be fully informed of any concerns the Central Bank might have if the consequences were to occur, before he comes to a decision and makes an order.

Amendment agreed to.
Section 82, as amended, agreed to.
Sections 83 and 84 agreed to.
SECTION 85

I move amendment No. 92:

In page 54, subsection (1)(b), lines 29 and 30, to delete all words from and including “the” in line 29 down to and including “provision” in line 30 and substitute “the operation of any provision”.

Amendment No. 92 is a technical amendment which confines the effect of subsection 85(1)(b) to the operation of any provision of the law of a member state, removing the reference to the terms and operation of any collateral arrangements. This ensures that the approach to EU legislation is in line with the approach taken for relevant domestic legislation in subsection (a).

Section 85 provides that the effects of certain specified laws relating to agreements to which a relevant institution or any of its subsidiaries or its holding company is party, are not affected by anything in the Bill. Subsection 85(1)(b) addresses the interaction between the Bill and the EU directives relating to settlement finality in payment and securities settlement systems, and financial collateral arrangements.

Amendment agreed to.
Section 85, as amended, agreed to.
SECTION 86