The reports of Governor Patrick Honohan, Messrs. Regling and Watson and the Nyberg Commission pointed out the problems to be addressed in our system of financial regulation. Acting on the recommendations contained in those reports, this Government has undertaken a number of significant reforms towards building a strengthened regulatory framework for the financial services sector and to respond to the shortcomings identified in those reports. The Central Bank Reform Act 2010 created a single fully-integrated Central Bank of Ireland with a unitary board – the Central Bank Commission – chaired by the Governor of the Central Bank. The unitary Central Bank structure gives the Commission members a more complete remit over prudential regulation and financial stability issues. In 2011 the new Fitness and Probity regime was rolled out by the Central Bank in accordance with the provisions of the Central Bank Reform Act 2010. The regime provides for new powers to be exercised by the Central Bank to ensure the fitness and probity of nominees to key positions within financial service providers and of key office-holders within those providers.
The Central Bank and Credit Institutions (Resolution) Act was also introduced in 2011. It provides the necessary mechanisms to enable the Central Bank to intervene where a credit institution gets into serious difficulty and is in danger of becoming destabilised or otherwise failing. The Central Bank (Supervision and Enforcement) Act 2013 was passed this year which enhances the Central Bank's regulatory powers, drawing on the lessons of the recent past. It strengthens the ability of the Central Bank to impose and supervise compliance with regulatory requirements and to undertake timely prudential interventions. The Act also provides the Central Bank with greater access to information and analysis and underpins the credible enforcement of Irish financial services legislation in line with international best practice.
The reforms introduced under the Central Bank (Supervision and Enforcement) Act 2013 are complemented by a number of strategically important reforms at EU level in financial services. Under our presidency, agreement was reached on the single supervisory mechanism, one of the main cornerstones of Banking Union which will provide for the European Central Bank to act as supervisor for systemic important banks throughout the Union. Agreement was also reached on the Capital Requirements package which will ensure that European banks hold enough good quality capital to withstand future economic and financial shocks. Member States have also agreed in principle the Markets in Financial Instruments Regulation and Directive and agreement with the European Parliament was secured on the Market Abuse Regulation.
These legislative reforms have been supplemented by a significant increase in regulatory activity by the Central Bank with a corresponding increase in staff numbers and skill levels. The Central Bank of Ireland's Enforcement Priorities for 2013 highlight the importance of enforcement within its risk-based regulatory framework (PRISM). PRISM represents a challenging and proportionate risk-based system of supervision for all financial institutions operating in Ireland. The Central Bank's Strategic Plan 2013 – 2015 also sets out a strategy of assertive risk-based supervision underpinned by a credible threat of enforcement.
This Government has also implemented a series of measures which reflect the important role that the banking sector has to play in supplying credit and in doing so to support economic growth in the economy. As shareholders in the main banks, the Government's objective is twofold; to ensure that they are managed commercially so as to create and protect value for the taxpayer but also to ensure that they supply the credit lines necessary to sustain and grow the economy. In that respect the Government has imposed SME lending targets on AIB and Bank of Ireland for the three calendar years, 2011 to 2013. Each bank was required to sanction lending of at least €3 billion in 2011, €3.5 billion in 2012 and €4 billion in 2013 for new or increased credit facilities to SMEs. Both banks have reported that they achieved their 2011 and 2012 targets and the recent Credit Review Office quarterly report commented "both banks are on track to achieve their €4bn loan sanction targets, assuming the pattern of previous years of a strong Q4 performance is repeated".
The Credit Review Office is available to assist businesses which have been refused credit. The most recent CRO report shows that the CRO upheld the credit appeal in 150 cases or 55% of cases decided. The upheld appeals have resulted in €18.5M credit being made available to SMEs and farms, protecting 1,521 jobs. In Budget 2013 I recognised the important role played by the CRO in assisting borrowers who had been refused credit by the banks by increasing the number of reviewers in order to ensure that all appeals are dealt with in a timely and efficient manner. In Budget 2014 I announced an increase in the limit for loan applications that can be reviewed by the CRO from €500,000 to €3m. This increase will assist those borrowers currently banking with non-trading banks and banks which are strategically exiting the Irish SME lending market, whose refinancing requests are larger than €500,000.
We have also put in place a comprehensive suite of measures to assist personal borrowers including mortgage holders. The personal insolvency regime has been overhauled and the insolvency service is now up and running. The Code of Conduct on Mortgage Arrears and new statutory personal insolvency frameworks protect and assist people in genuine mortgage arrears difficulty and, more generally, to resolve unsustainable debt positions. Co-operating borrowers now have more protections available to them and more effective options to deal with their over indebtedness than was the case previously. These measures will also require creditors to deal with their customers who are experiencing genuine debt difficulty in a more holistic and customer friendly manner. Taken together, these factors should make a useful contribution to the future development and application of more responsible lending decisions and practices.
