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Banking Sector Regulation.

Dáil Éireann Debate, Thursday - 11 December 2008

Thursday, 11 December 2008

Ceisteanna (10)

Sean Sherlock


8 Deputy Seán Sherlock asked the Minister for Finance the way he has used, continues to use and intends to use Government leverage, arising from the granting of the bank guarantee; if as lead or supporting investor in a programme of bank recapitalisation, he will ensure that covered institutions on-lend appropriately to business and personal borrowers; and if he will make a statement on the matter. [45364/08]

Amharc ar fhreagra

Freagraí ó Béal (8 píosaí cainte) (Ceist ar Minister for Finance)

The objective of the Credit Institutions (Financial Support) Scheme is to maintain financial stability in the best interests of the public and the economy of the State. To that end, the scheme provides for the regulation of the commercial conduct of covered institutions and, in particular, requires each covered institution to appropriately manage its balance sheet in a manner consistent with the overall purposes of the Credit Institutions (Financial Support) Act.

As regards lending, none of us wants to see a situation where viable businesses fail because banks will not lend them money. At my meetings with certain financial institutions over the last two weeks, I asked those institutions covered by the guarantee scheme to consider the contribution that they can make to the economy through appropriate credit initiatives for small and medium-sized businesses and otherwise. I welcome the fact that certain institutions have announced initiatives in this regard.

As I indicated earlier, I have been in regular contact with my colleague, the Tánaiste, at the Department of Enterprise Trade and Employment regarding the flow of lending to small business. I recently met Mr. Plutarchos Sakellaris, Vice President of the European Investment Bank, which recently announced that it was providing additional funding through its lending facility for SMEs in the European Union. Mr. Sakellaris confirmed that the bank has been in discussion with a number of Irish financial institutions about participating in this facility for SMEs and that the EIB hopes that agreements to provide such loan facilities can be finalised as soon as possible. I have urged Irish banks to utilise the facility to the maximum extent possible with a view to making the additional funding available to SMEs as soon as possible. It is pleasing to note that a number of banks have announced their intention to do so.

The scheme requires each covered institution to comply with the Irish Banking Federation code of practice on mortgage arrears and the Financial Regulator's consumer protection code. My Department and the Financial Regulator are monitoring the operation of the scheme.

As regards re-capitalisation, I said on 28 November that in certain circumstances it would be appropriate for the State to consider supplementing private investment with State participation, where in doing so the aim of securing the financial system can be better met.

Does the Minister acknowledge that many small and medium sized businesses around the country are in danger of shutting their doors after Christmas because there are no guarantees that the supply of credit to them will continue?

What strategy has the Minister in respect of the recapitalisation of the banks? Is the Minister's strategy to invite foreign private equity and hedge funds to take dominant or very large positions in Irish banks? Is the Minister aware that in the Mallabracca consortium, two of the entities are Carlyle, with extensive interests in the armaments worldwide, and JC Flowers? Both groups are noted for short-term positions. How does the Minister reconcile the stabilisation of banks with his apparent desire to make foreign private equity and foreign hedge funds the dominant forces in the recapitalisation of the banks? These funds normally invest for a quick buck and a quick turnover. Is the Minister still adverse to the State getting involved in the recapitalisation for the purposes of directing credit to businesses in Ireland that desperately need it?

In terms of the European Investment Bank funding, the banks have provided business plans. What measures does the Minister propose to ensure the banks access this funding? The critical issue is that funding is provided.

In line with what Deputy Burton has said on venture capitalists, has the Minister had discussions with institutional investors in Ireland regarding a consortium to invest in banks so that there is Irish input rather than venture capitalists coming in from worldwide with short-term measures?

Can the Minister give a timeframe for when cash might begin to flow from the European Investment Bank to the institutions here so that small business can access it? The Minister is not directly involved but can any indication be given?

Regarding the query of Deputies Burton and Morgan on timeframes and the urgency of loans to small and medium sized businesses, in all discussions with the institutions I have stressed that the core concern of the Government is that the banking sector should function as a motor for the economy. In particular I referred to the prospect that early next year many businesses will face grave difficulties if the financial institutions do not take a more lenient view on the extension of credit, the term of loans, the provision of overdraft facilities and the provision of stocking facilities. I have brought these concerns to the attention of all financial institutions.

Regarding the question of recapitalisation, raised by Deputies Burton and O'Donnell, I have always maintained that as the banks are private institutions there is an onus on them in the first instance to access private capital. I did not characterise any particular form of private capital as desirable in itself. I agree with Deputy O'Donnell that the recent initiative of the institutional investors is welcome.

It is open to any private investor to approach a financial institution. If such private investors approach the State for co-investment, my policy is to refer them to the NTMA for assessment. Any such assessment will take into account the essential public interest, which must be respected, that any private participation does not seek the short-term gain referred to by Deputy Burton.

Is it weeks or months?

Written Answers follow Adjournment Debate.