Tuesday, 23 June 2009
Dáil Eireann Debate
Much of the previous debate on the Bill in the House was concerned with the open-ended nature of what the Minister was seeking to get from the Dáil, without any corresponding analysis presented as to why it was justified. In this amendment and the next one I seek to in some way delimit the powers the Minister is seeking, in one case by providing a sunset clause, if one likes, or an outer limit beyond which we would not extend, namely, 2014. That gives, in effect, a five-year period. The Minister appears to be indicating that he has in mind the issue of bonds for up to five years. That would ensure that at least the Minister would have to come back and get a fresh mandate in the event that he was going to extend them for a longer period.
The purpose of the second amendment, which I will come to later, is to limit the types of liability on which we would enter into a guarantee and to exclude certain types of risk capital, namely tier 1 and tier 2 capital. Again, that is to corral the general powers the Minister is seeking under the Act. The amendments are self-explanatory and I will not enter into a prolonged debate on them given the short period of time available.
Deputy Pat Rabbitte: I rise to support the amendments. I support amendment No. 2 in particular because I cannot take on board the fact that we are giving the Minister authority for ever and a day to do whatever he thinks is required in his perception of the public interest at the time and in respect of whatever type of liability he wants. It is unconscionable that we should be asked to go that far. As far as I can see there will not be any moral hazard in Irish banking for between 20 and 30 years, despite what we know about the conduct of some bankers and the certainty that some will revert to type. The Minister is using the opportunity to take this power to himself without constraint and without any sunset clause.
Deputy Bruton’s proposition that the legislation ought not to go beyond the calendar year of 2014 is very reasonable. I do not want to question the Taoiseach’s statement today that there are opportunities in the marketplace of which we could not avail if the guarantee were not extended. There should be a limit and the one proposed is very reasonable and generous.
Deputy Kieran O’Donnell: The key point is that the Minister is asking the Dáil to give him a carte blanche in extending the guarantee. I believed the guarantee was to ensure banks could deal with the circumstances that arose at the end of September 2008 such that we could have, within a relatively short period, a sustainable banking system. Deputy Bruton’s amendment refers to 31 December 2014, thus establishing a five-year period. This is not an inconsequential period but it is reasonable. Through the legislation, the taxpayer is effectively giving a guarantee of up to €440 billion. This is an enormous sum and therefore the banks must be aware it is not open ended and that they are receiving something extremely valuable and precious in the eyes of the taxpayer. The period to 31 December 2014 is reasonable and I would like to hear the Minister’s comment on it.
Deputy Seán Ardagh: Circumstances are such that, potentially, the sums of money in question are huge. I can understand the concern of Deputy Bruton in tabling his amendment. Having said that, I believe the reason behind the extension of the guarantee, for five-year bonds in particular, is to restore the credit system in the banking world. This will allow banks, in time, to give loans to first-time buyers for houses and to small businesses to get the blood flowing. Unless the banks have the finances to do so and are not spancelled in raising capital, there will be a significant problem.
The Minister for Finance has shown since last September that there is a step-by-step plan in place. There are no knee-jerk reactions and the problem is being worked out in a methodical way. The Minister goes to Europe and visits various investment bankers and managers in London to put the case for Ireland. In all cases he is very well received.
The Minister or Taoiseach stated no subordinated debt would be included in the extension of the period subject to the guarantee and that the debt in question would be the five-year medium-term debt that is auctioned off on a normal basis in the euro banking system. To have to come back in December for another extension certainly would cause fear among investors in that they might believe there is something wrong in the Irish system. They might believe we are now going to allow a guarantee and change our mind in six months. Therefore, it is important that confidence be inspired among those who are to invest in the banks through the medium-term five-year bonds. This can be achieved by demonstrating the guarantee will not be lifted in six months.
I can understand the Deputies’ concerns over the open-ended nature of the guarantee. However, they should bear in mind the current financial position and the NAMA legislation in September — there is nothing sure about this and we all hope it can be worked out and that the valuations will be fair, agreeable and manageable. There is nobody more competent and better able to address this issue than the present Minister for Finance. I ask Deputy Bruton to withdraw his amendment and allow the Minister time to deal with the financial circumstances that obtain. The Minister has done very well since he entered office and needs to be given the confidence and assistance that the House can give him to ensure the banking system will be restored such that the economy can be stimulated.
Deputy Arthur Morgan: I support the intent of amendments Nos. 1 and 2 in the name of Deputy Bruton. I appreciate that what he is trying to do is the opposite to what the Minister is trying to do. At least he is trying to impose some kind of timeframe on the scheme and ensure it will not extend for more than five years from now. This is useful. I would like to see a much shorter timeframe and will address this in more detail in respect of my amendments. Amendment No. 2 attempts to limit the exposure of taxpayers and this is particularly welcome.
The guarantee scheme is not working. The banks are not functioning and the taxpayer is still exposed to risk. The people who have escaped exposure to all the risks thus far are the bond market people. The taxpayer will be bailing them out in addition to the banks until September next year. This is grossly unfair. We must examine ways to try to reduce the risk to the taxpayer and allow those who took a gamble to carry the risk associated with investments from which they profited for long enough.
Deputy Joan Burton: As this is Committee Stage, perhaps it might be opportune for the Minister to answer some questions on what he has in mind regarding this scheme. He is talking about taking indefinite powers for renewal but, in practice, we are advised by the officials and others that, in effect, this guarantee is subject to European Union and European Central Bank agreement. We are advised it follows the Paris model and is, therefore, time limited, potentially for five years. This is not the case in Irish law but in terms of EU-type schemes. I would like the Minister to comment on that because the Taoiseach and others have referred to the Paris arrangements at various times. This would indicate a period up to five years. I am not sure when the arrangements commenced.
A more fundamental question concerns the fact that the measure was to allow Irish banks enter the securities market for a longer term than is possible under our two-year guarantee. The Minister did not say that when other countries adopted guarantee schemes, many did so because our arrangement, in the eyes of many, effectively forced their hands to do something similar. I am not sure the Minister would share that analysis. When the countries set up guarantee arrangements of their own, they did so after the Paris meeting, but their arrangements covered a longer period than ours. However, they did not include the kind of ultra-risky debt our guarantee included. We have not had a full analysis of the composition of that debt on a summary basis for the covered institutions nine months after the guarantee. Institutions going to the market from now on effectively have only a year because we are almost in July and the formal guarantee expires in September 2010. I do not understand what the Minister envisages happening. What will Anglo Irish Bank do with this power? Will it go, as it did before, into the UK market to look for some type of mezzanine finance? Is that the idea? Is the Minister encouraging or enabling the bank to do so? That is the kind of deal with which the bank was involved.
In the normal course banks turn over debts. Maturity dates arrive, the debt is converted and turned over. The Minister has made a point of saying at various times that this is new debt, implying that it is not rolled over debt. We are interested in new activity not in the context of the UK market, but of the Irish economy, job retention, job creation and credit flows to business. I cannot make head nor tail of why the Minister says this because he will not level with us and paint a picture of the kind of activity in which he expects this initiative to result. Is it simply a case of the banks in effect renewing various kinds of medium-term loan notes?
The Minister is putting forward an architecture. He and his officials obviously have a game plan in their heads, but he will not share it with us. He has the two year guarantee and the National Asset Management Agency, NAMA, will come on stream. Does he intend NAMA largely to be set up and to have taken over its portfolio of loans from the different institutions by the end of this year? He seems to indicate that the NAMA legislation will be here in September. Much of the work is going on, although there is no legislation for it. Does the Minister intend that by the time the guarantee expires in September 2010 that NAMA will be up and running and have taken the loans? If so, a fundamental question arises about what the Minister is doing with this Bill.
He has set up the depositor guarantee scheme for €100,000, which everybody broadly supported and which will take care of most ordinary depositors in the banks and more. He could, if he wanted to, set up a similar scheme for retail and small and medium-sized enterprises. I am sure the House would broadly agree with that too. There would be no difficulty in doing it. Why does he want to give this carte blanche of another unlimited period under EU rules, probably up to five years, without specifying exactly what is in it? Anglo Irish Bank and Irish Nationwide came to grief because their business model went bad. We know what they are still interested in doing. If they could get sufficient guarantees, they would like to go back into some kind of financing structure presumably with middle range loan notes. Is that what the Minister wants them to do? What does that do for Irish jobs and job retention? I do not understand what it means.
I have seen the notes from JP Morgan and Merrill Lynch and others about the prospects for Irish bank shares. The level of information the Minister has provided does not allow me to know if the Minister’s target is to have a short to medium-term increase in Irish bank share values. If that is the Minister’s strategy, the problem is that he can boost share values and many of the small shareholders will be delighted, but those share values are going up and down at the moment because people are taking bets on them. However, the increases will not be sustained unless the Minister has a sustainable banking model that involves domestic retail banking, what the Americans call “plain vanilla banking”, taking deposits, lending money, short, medium and long, and mortgages to suitable candidates. There is no evidence that such activity is recommencing in any serious way. That is our problem with the structure the Minister proposes and what he is not telling us.
Deputy Rabbitte suggested that I am conferring unlimited power on the Minister but the crucial point is that the Minister cannot exercise this power without the approval of both Houses. They must give a positive resolution and approval of whatever the Minister proposes. That is fundamental to the operation of this section. I am not King Henry VIII for the purposes of this section. I must submit whatever is proposed to the House and I must propose it in the form of a scheme. That will be a very detailed scheme that will outline and address precisely many of the issues Deputy Burton has raised.
To give a practical factual context, without getting into the details, which must be finalised with the authorities and the Commission, this envisages five year debt. That is one of the Paris principles. Deputies are aware of the frozen condition of world markets for banks in obtaining such debts.
Deputy Brian Lenihan: We are talking about five year debt. The European scheme envisages a six-month window within which the debt can be issued. That can be renewed if renewal is needed and there is EU approval. The approval is required not only for the initial scheme, but at the end of each six-month period for extension of the issuance. The rationale for this is that we want our banks to be in the same position as banks in the rest of Europe to obtain these funds if the markets relax to the extent to which they are readily available. That is a legitimate object of public policy. I have flagged our intentions in this regard in the budget. I indicated it at the different investment conferences that I addressed in Europe where it was well received because the Irish guarantee was seen as being somewhat unusual because it comes to a sudden and dramatic halt on 30 September 2010. It is important that it is confirmed.
In response to Deputy Burton’s concern about particular institutions abusing this facility in the future, which is legitimate in the light of our experience, not only do we require EU approval at the end of the six-month period, but it is also subject to ministerial approval in respect of particular issues. That is the intention of the scheme. It is not a case of the Minister giving a blank cheque — but let us not mix up our financial instruments — a blank authority, to a particular institution to go out and raise money. That is not the intention in this extension of the guarantee. It is not possible to set an end date in legislation if the EU makes a six-month extension available. The EU’s willingness to facilitate such an extension is contingent on world money market conditions. I am prepared, however, to examine the suggestion in Deputy Bruton’s amendment to see whether in the context of the scheme it can be translated into a more definite limitation so that whatever the Oireachtas does approve will in some way have a clear sunset attached.
Deputy Richard Bruton: The Minister says he can do nothing without a scheme. My reading of section 6(4) of the Credit Institutions (Financial Support) Act 2008, however, is that the Minister can proceed to provide financial support in a number of ways, namely, by individual agreement, by a scheme made by the Minister or otherwise. It states that where the Minister proposes a scheme he must get the approval of the Houses of the Oireachtas. However, he has the other routes of individual agreement and the unspecified “otherwise” to proceed.
While my belief is that the Minister will not extend this by individual agreement, from a strictly legal point of view he is not correct to state that it can be done only by way of a scheme with the approval of the Houses. This is why we on this side of the House feel that the Minister has not sought to delimit in any way the potential use of financial support after September 2010. He has not stated that it is confined to this very narrow range of issues. He is seeking this blanket approval and while on most occasions he would have to return to the House, this is a bad way to legislate.
As I stated in my Second Stage speech, to proceed and obtain permission now and then to enter commitments through negotiation with the EU and banks and then to return to us with a scheme would effectively be a fait accompli. The Minister would tell us that we could not pull the rug out from under him as he had had negotiations with the EU and the banks and that he had been to Basel and Frankfurt and that everyone was in on it and only the lousy Opposition in the Dáil was holding out against him. I may be facetious in portraying it in this way but essentially it is the process in which we are engaged. We would have preferred to see a delimitation of what the Minister seeks in the Bill and an understanding as to the nature of
the scheme for which the Minister would return to seek approval rather than how he is proceeding.
I do not pretend for one minute that my amendments are perfectly drafted or would pass the draftsman’s test but I am not reassured by the Minister’s request to have faith and everything will be okay. This is the last chance we will get. The Minister and I know that much water will have passed under the bridge by the time he returns with the scheme. I am not happy with this process. I do not want to delay matters because there are many amendments which people will want to discuss but my intent is clear even if the drafting is not perfect.
Deputy Brian Lenihan: I do not want to force the hand of the House on this. There are amendments in the next batch on subordinated debt and I am happy to consider them in the context of the formulation of the scheme. The original scheme on foot of the original guarantee Act was considerably influenced by comments made in the House and they were very much taken into account in the formulation of the scheme. I will consider Deputy Bruton’s point on the possible interaction of this section with the section which allows the Minister to conclude an individual agreement. It is worth examining that issue and I will undertake to do so.
On the fundamental issue of the scheme, it is very important and it will lay down the conditions under which the facility can be extended. I will certainly take into account in the formulation of the scheme the points that have been made in this debate.
Acting Chairman: Amendment No. 11 is related to amendment No. 2; amendment No. 16 is consequential on amendment No. 2; and amendments Nos. 11, 12, 13, 13a and 14 are technical alternatives to amendment No. 10. Amendments Nos. 2, 10 to 14, inclusive, and 16 may be discussed together.
This is an attempt to delimit the authority of the Minister to issue guarantees on behalf of the Irish taxpayer. Under the existing scheme there are certain types of deposit, including unsecured debt and asset covered securities, to which the taxpayer has provided a guarantee. I seek to exclude what I would regard as risk capital. Perhaps my drafting has let me down in that I think some tier 2 instruments are covered by the guarantee but many are not. The intent of this is to narrow it and not allow the Minister to stray into new areas of guarantee such as forms of predominantly risk investment to which the taxpayer has no reason to offer the comfort of a guarantee. Predominantly these were professional investors who invested in what proved to be disastrous banking practice in the Irish economy, the consequences of which have brought ordinary people to their knees, and there is no way in which we should allow under the cover of this legislation the extension of the guarantee beyond where it is already.
In amendment No. 13a I seek to confine the extension to new issues rather than simply allowing everything that was already limited to September 2010 potentially to be rolled on by the Minister. This would give the Minister a more selective and forensic tool whereby certain new issues could be provided with a guarantee — I would like to hear the conditionality about the issues that would be offered the guarantee — but that generally the €400 billion would not be pushed out to an unspecified date in the indefinite future. Confining it to new issues would meet the concerns of Deputy Ardagh as it would involve financial instruments that we feel are sensible and strengthen the banking infrastructure and it would not be global.
In this group of amendments I seek that it would require a resolution of the House for the Minister to make an order extending the date. From hearing what the Minister has said already I do not believe that he will be of a mood to support it. While I am on my feet, I would like to request clarification from the Minister on his belief that he has the powers under section 5, which are confined strictly to the September deadline. These are the powers that match the responsibilities the taxpayer is taking. When the guarantee was issued the taxpayer shouldered all of these responsibilities but the Minister stated that he wanted to have powers over the same period to do anything that would be deemed necessary. According to my reading of the legislation, those powers to do anything that would be deemed necessary will lapse in September 2010 but our guarantee will proceed into an indefinite future about which we do not know and I do not see why the responsibility to shoulder this would not be matched by the power to do whatever we feel necessary to curb abuses by banks or to do whatever the Minister and his advisers deem necessary. Will the Minister elaborate on how he feels so certain that he has the power to do anything deemed necessary without section 5?
Deputy Arthur Morgan: I wish to address amendment No. 10 in my name which is included in this group. We have been over this territory a few times and it would be simple to read the wording of the Bill from line 36 on page 15 to line 23 on page 16 but I do not see any point in doing so. Having examined it very carefully I cannot see how it does otherwise than confer upon the Minister the authority to extend the scheme by ministerial order without reference to the House but if it does do otherwise, I ask the Minister to point it out to me. When the time comes I will move my amendment.
Deputy Joan Burton: I refer to amendment No. 12. The Minister is taking extraordinary powers onto himself to provide for the extension of most of the guarantee. He has suggested he will exclude the dated subordinated debt, some of which was included in the original guarantee. This was pointed out at the time by the Labour Party as being completely inappropriate because it was high risk capital, which should not have been the subject of a guarantee.
When does the Minister propose to permit the banks to avail of the Bill’s provisions? Will this happen prior to the establishment of NAMA, following the establishment of NAMA or in tandem with its establishment? Under the NAMA exercise, the taxpayer will take on for between ten and 20 years a level of debt relating to impaired loans, which the Minister suggested will be significant, the IMF has conservatively estimated at €25 billion and others have suggested will be much higher. Once the agency is in place, the Government will have imposed on this and the next generation of taxpayers significant public debt. When the banks receive the agency’s bonds, they will be entitled to discount them on the market or go to the ECB, and I am sure that is what they intend to do.
I do not know what will be the discount applying to the bonds, as it will depend on the market’s take on the value of Irish debt at the time which, in turn, will be heavily influenced by the valuation attaching to the assets taking on by NAMA. One newspaper, in particular, seems to be close to the Minister’s Department and over the weekend it suggested the discount would be 16%, which is an unbelievable figure given the example I outlined previously of the two blocks currently for sale in the AIB bank centre and which are under negotiation. This will involve maintaining a 15-year lease with the bank to use the blocks as offices, which will be a first class tenant at the most desirable address in the city, Dublin 4, but it is estimated the discount that will apply will be at least 45%. Even at that discount, which is being offered through the media and advertising, there are no takers. A sovereign wealth fund was interested but it backed out because, apparently, the discounted price was too high.
The Minister is not giving us any information that allows us to make a financial assessment of what he is suggesting. If NAMA becomes another life raft for the banks and, in addition, this scheme is provided as a third layer, the bankers will be laughing all the way to the bank. We have no indication. At the end of the day, banking is a business and it is driven by activity. In the same way a person visits a shop or a garage or an engineering firm where a product is sold, the Minister is not able to tell us what it will do for the taxpayer who is taking on this extraordinary level of debt other than it will be a financial engineering structure. In years to come we will not have sufficient hospitals, Luas or metro lines. Like oxygen being sucked out of a house, NAMA will suck significant debt capacity out of Ireland for 15 to 20 years unless there is a miraculous turnaround in the economy and the debt is repaid much faster. This is real debt, which we will incur as a country and the Minister is saying that having cleansed the banks of the NAMA debts, he will provide this additional open ended-guarantee. When will it operate? Will it operate as soon as the Minister introduces the statutory instrument or after the banks have been cleansed of their impaired loans to NAMA?
Because of the sovereign guarantee being offered by the Minister, this also will be sovereign debt. Ireland is paying two or more percentage points above the ECB borrowing rate on all its debt because the Government gave a sovereign guarantee on approximately €440 billion last September. It is a massive overhang and everybody knows that if this goes wrong, that is the amount we owe, but if everything goes right, we will owe between €25 billion and €60 billion through NAMA. Ireland is paying a higher premium on its borrowings than Greece while the credit rating agencies have marked us down. One of the reasons our reputation has not recovered is the perception that Ireland is a murky pit where deals are done among friends and there is no transparency about what the Minister proposes. He has still produced this measure and I do not know what will be the financial consequence in terms of billions of euro. He has not even put an upper limit on the amount of debt he will guarantee when it is issued. At the end of day the debt will be guaranteed and, reputationally, we will be out there for this in the future.
The Minister is still not prepared to say when this will happen or what exact form it will take other than it will take approximately five years and he is still not prepared to say anything about the amounts involved. He is taking on an incredible power to facilitate banks. This is at the core of the reputational issue in Ireland. It is similar to bad rezoning. There is perceived to be a golden circle between political contacts, bankers and developers who move in a political orb while the taxpayer picks up the tab. Until he has broken the links in the golden chain and has outlined an objective, stand alone measure with the requisite information about Anglo Irish Bank and the other banks, we cannot believe him.
I refer again to the dated subordinated debt, other debt and the directors’ loans at Anglo Irish Banks. A number of newspapers reported that the former managing director had large amounts on deposit with the bank at the same time as large debts, which were provisioned against. I do not know whether the deposits were part of a package or the dated subordinated debt, perhaps as part of a wider package held by insiders. We do not know the answers to any of this. However, it appears his deposits are untouchable in the context of his loans because they are without recourse. This is the type of mess that taxpayers will work hard to clear for the next 20 years and the Minister is not prepared to level with us as to how this will be done.
I visited Leitrim village last weekend, which I had not been in for a while. I counted approximately seven partially completed housing estates with unsold houses and at least two sets of three-storey apartment blocks. I felt I was in NAMA land. These are the assets NAMA will pick up, but who will buy these places, even in ten or 20 years? Driving through towns and villages, one comes across areas like this with an extraordinary level of development. However, these developments are not occupied. There may be a sprinkling of places let as holiday homes or to immigrant workers, but apart from that these places are empty.
Will the Minister tell us when this scheme will be introduced, for whom it is intended and what amounts are involved? We propose the powers the Minister has should be deleted, because we believe it is wrong for him to have them. Given he already proposes to rescue the banks via NAMA, why do they need a further unlimited guarantee for an unlimited sum of money?
Deputy Michael Noonan: I feel increasingly desperate about the lack of information being provided to the House. As the national Parliament, Members are being asked to make decisions of enormous consequence for everybody in the country, but we are doing it on the basis of having blindfolds over our eyes and not having the kind of information necessary to make decisions.
Here again we have a situation where all amendments and discussion end at 10 p.m., approximately 15 minutes from now. This is a different way of doing business from what we have been used to. Finance Bills were always teased out over several days in Committee, either in Committee in the House or in a select committee. However, we are now presented with a series of proposals, without the back-up information which informs Deputies when making decisions. Is it any wonder then the Minister does not get the co-operation of the Opposition? He leaves us with no choice but to oppose him on the votes. On several occasions, I have heard the Taoiseach complain that he cannot get the co-operation of the Opposition. How can the Government get the Opposition’s co-operation when information is not provided to Parliament and we are asked night after night to vote for a pig in a poke?
I do not know when the Minister will bring the NAMA legislation before the House. I presume the Government intention to return in early September is connected to the legislation and that we will probably deal with it in the second or third week of September. This is just another example of the House being asked to make decisions of the utmost importance, which will affect this and the next generation, without adequate information.
Deputy Michael Noonan: These do not provide the information that is necessary. For example, Deputy Burton asked the Minister a simple question earlier, namely, the proposed discount for when NAMA takes over the debt. That is a simple question. We see figures in the newspapers, but we do not know whether they are correct. All I know is that bank shares are worth nothing currently if we match the liabilities of the banks against their assets. They are worth zero, yet the market has taken a view that the two main banks are worth just below €2 and just above €2 per share.
The only reason the market would take that view is that it thinks the discount NAMA will give will give that level of value to bank shares. If one tries to do a calculation on this, the discount seems to be somewhere between 15% and 20%. That is the view the market is taking, but is that an informed view? Is that view being formed on the basis of a briefing from the Department of Finance or on the basis of something the Minister has said? The informed view in the market, considering the value of shares over the past three or four weeks, suggests the discount is not less than 15% and somewhere between that and 20%. Those are the kinds of calculations being made.
The position in this House is that we will shortly be asked to make major decisions, without being given the full information. I got up to speak to ask the Minister to respect Parliament. Will he give us time to debate these major issues, which are of such consequence not only to this generation, but to the next? Will he provide us with the fullest possible information?
We all know there is a crisis. I believe we must deal with the banking crisis before coming to terms with the fiscal crisis and getting the economy going again. The banks are essential to what the Minister is doing. However, the Government is doing nothing to earn the respect or co-operation of the Opposition, because our questions have not been answered and the Government continues to take shots in the dark. To be candid, I am losing confidence in the decision making process of Government.
To give one example, the Government took the decision to nationalise Anglo Irish Bank. At the time, the impression given in the House was that the liabilities of the bank were from €1 billion to €1.5 billion. A few weeks later, taxpayers were called to put €3.5 billion into Anglo Irish Bank and were told they would probably have to pay another €1.5 billion or €2 billion. These figures bore no relationship to the information provided in the House when the decision was taken to nationalise the bank. Where does this leave Parliament? How can we make decisions when information that is put before the House is so flawed?
The procedure for dealing with this Bill tonight is an absolute charade. The Taoiseach suggested on the Order of Business that we could go on till 11 p.m. to discuss it. Deputy Gilmore made a very good suggestion that we could spend tomorrow on Committee Stage and Thursday on Report Stage and then complete the Bill. At least then we and the public would be informed as a result of the debate. To proceed by guillotine with matters of such magnitude is extremely dangerous.
Deputy Brian Lenihan: The matter of great magnitude to which Deputy Noonan refers is one section of the Bill and he has addressed his comments to that section. On the matter of Anglo Irish Bank, what we saw in the spring was a serious shortage of funds in the bank. Circumstances do not stand still in the case of any particular financial institution. It is now clear the decision to nationalise the bank, which was an essential decision to take at the time, and the various revelations associated with the bank led to a further deterioration in international confidence in it as an institution.
Deputy Brian Lenihan: The directors appointed by me, as Minister for Finance, went into the bank and conducted a review and presented a true and fair view of the half-yearly return. We have had to act on that. We are not here to discuss that, but to discuss the section. Deputy Noonan said matters of great moment are being decided but the information was not being put before the House. The information is that no decision has been taken with regard to the extension of the guarantee.
Obviously, the debt issuance remains within the senior debt issuance category. This is what was stated in the Paris declaration last year and that is what we are talking about this evening. We are talking about a section that empowers the Government to act upon that, in the context where the following European Governments have adopted guarantee schemes: Denmark, Spain, France, Italy, Latvia, Netherlands, Portugal, Slovenia, Finland, Sweden and the United Kingdom. When Deputy Burton refers to the sovereign exposure of the Irish Government, these are exposures that have been adopted by all of these other governments and sovereign states in the European Union.
The total maximum volume of crisis measures so far approved by the Commission’s schemes and ad hoc measures, taken together, entail an amount of some €3,000 billion. The idea that this is somehow unique——
Deputy Brian Lenihan: I can arrange for that information to be furnished to the Deputy, but the point I am making is that we are not unique. There is a constant suggestion that there is something unique in what is happening in Ireland regarding the banking crisis. There is not. Constant interventions by the Government and Parliament are required to protect the position.
The amendments tabled this evening are grouped. Deputy Bruton seeks to insert a new section 3, to restrict the scope of financial support that may be provided under the Credit Institutions (Financial Support) Act 2008, as amended by this Bill. It prohibits the extension of financial support that may be provided under the Act to any form of tier 1 or tier 2 risk capital.
As the Deputy is aware, regulatory capital comprises tier 1 capital, which is largely equity and reserves, and tier 2, which are longer-term instruments that have the capacity to absorb losses, such as the subordinated debt instruments referred to by Deputy Burton. Current EU state aid requirements set down strict guidelines for the material scope of guarantees or the types of liabilities covered and any scheme providing financial support under the 2008 Act must receive State aid approval. That will be worked out in the context of the scheme which will be submitted to the House and upon which it can make a decision.
I accept the reasoning behind Deputy Bruton’s amendment, which conforms to what would be required under current EU state aid rules, but I would be very wary about specifying in primary legislation restrictions of that type. As I indicated already, I am open to ensuring that the appropriate definitions are inserted in any scheme under the legislation. The Deputy’s other amendments concern Schedule 2 of the Bill and the changes in the period of financial support.
Deputies Morgan and Burton propose, in effect, to delete the proposed changes in the Bill to the 2008 Act and Schedule 2, Part 2 of the Bill amends the bank guarantee legislation to allow for the extension of the financial support scheme, subject to EU approval. The draft scheme providing financial support beyond the expiry of the current guarantee would be in line with the credit institutions financial support scheme in 2008 and would require positive approval.
I have made clear on a number of occasions, including in my budget speech which occasioned very little response, that the Government intended to put in place a guarantee for the future issuance of debt securities, with a maturity of up to five years. Given that every other country in the EU that adopted a guarantee is doing it, it is hardly remarkable that we should at least allow ourselves that facility and empower ourselves to do it, otherwise our banks are not on a level playing field, as far as our EU partners are concerned. Access to longer-term funding is in line with the recent mainstream approach in the EU and will support the funding needs of the banks.
A new section 6(3)(a) is inserted into the 2008 Act to give us that power, and Deputy Morgan proposes to delete it. He also proposes to delete from the schedule the new section 6(20). It is a technical provision granting a very limited decision making power to the Minister to resolve any ambiguities in the administrative terms of the credit scheme within the purposes of section 6. It is to remove any potential ambiguities arising in the administration of the scheme as to what debts, liabilities and borrowings fall within the determinants of the scheme. It is necessary because of the diversity of instruments in financial markets.
Deputy Bruton also proposes to delete the sentence, “The Minister’s determination is conclusive”, but the meaning of the phrase in the Bill is that the Minister’s determination is conclusive between the parties only. Clearly, any interpretive issue would have to be left to the courts.
Apart from the amendments, Deputy Burton went over a large piece of ground. The foundation of her speech was a suggestion in a newspaper article that a 16% discount was what was being sought in the NAMA operation. My Department does not brief newspapers on an unattributed basis. That is pure speculation by a particular journalist in a particular newspaper. The reality of the position regarding valuation under NAMA is that Deputy Noonan is correct. We have fundamental decisions to take. That is why, on the issue of valuation, we must proceed with extreme care and caution. I have said this consistently since the budget. The NTMA has retained HSBC as its adviser on the valuation methodology, which is yet to be finalised. One point is fundamental regarding the valuation methodology and is insisted upon by the EU authorities, that is, that each valuation must be of an individual asset. There cannot be a collective valuation of the assets.
It is true that when all the assets are valued, a collective figure can be totted up. However, the valuations have to proceed on an individual basis and that is an EU requirement. I do not propose, at this stage, to have a discussion which lies on the foundation of a newspaper report about an alleged discount which will be applied because the valuation methodology is still to be determined. There is no hidden activity taking place in my Department in that regard.
I would be more than pleased to arrange for Deputies to be briefed by the NTMA and my Department on these issues. The NTMA accompanied me recently to a parliamentary committee where there was extensive questioning on these subjects. It is working very hard to ensure this matter is brought to completion as soon as possible.
Deputy Brian Lenihan: We can go into that. The Deputy should read carefully what the person who was asked to be the chief executive of this entity on an interim basis, Mr. McDonagh, said because he has been at the operational coalface. If one reads what he said, he clarified many of the issues. Dr. Somers has made his support for NAMA very clear and does not see any other way in which we can resolve our banking crisis.
We can provide liquidity to the banks, we can guarantee them and we can capitalise them, but if the balance sheets are impaired they have to be cleaned up. That is what the IMF has been telling every sovereign government in the world for the past few months. We have come up with a plan to do that.
Deputy Brian Lenihan: I will answer the Deputy’s question. We are seeking EU approval for this. If it is forthcoming in the next few weeks we will be in a position to bring the scheme to the House immediately. If there are further technical issues to be worked out, it will have to wait until later in the year. It is not related to NAMA. It is a separate item in the guarantee picture.
Regarding the stabilisation of the banks, we are examining a policy that guarantees the banks, capitalises the institutions, ensures that the balance sheets are cleaned up and then ensures appropriate restructuring takes place in the banks. All these items are related, but as far as this item is concerned, it relates to the guarantee itself. A defect in our original guarantee means it will lapse on that date in September 2010. There is no necessary relationship between NAMA and this particular proposal. This is a proposal to put our banks in the same position as every other bank in the European Union.
Acting Chairman (Deputy Brian O’Shea): As it is now 10 p.m. I am required to put the following question in accordance with an order of the Dáil of this day: “That the amendments set down by the Minister for Finance for Committee Stage and not disposed of are hereby made to the Bill; in respect of each of the sections not disposed of that the section or, as appropriate, the section, as amended, is hereby agreed to in Committee; Schedule 1, as amended, Schedule 2 and the Title are hereby agreed to in Committee, the Bill, as amended, is accordingly reported to the House, Report Stage is hereby completed and the Bill is hereby passed.”
|Ahern, Dermot.||Ahern, Michael.|
|Ahern, Noel.||Andrews, Barry.|
|Andrews, Chris.||Ardagh, Seán.|
|Aylward, Bobby.||Behan, Joe.|
|Blaney, Niall.||Brady, Áine.|
|Brady, Cyprian.||Brady, Johnny.|
|Browne, John.||Byrne, Thomas.|
|Calleary, Dara.||Carey, Pat.|
|Collins, Niall.||Conlon, Margaret.|
|Connick, Seán.||Cregan, John.|
|Cuffe, Ciarán.||Cullen, Martin.|
|Curran, John.||Dempsey, Noel.|
|Devins, Jimmy.||Dooley, Timmy.|
|Finneran, Michael.||Fitzpatrick, Michael.|
|Fleming, Seán.||Flynn, Beverley.|
|Gogarty, Paul.||Gormley, John.|
|Grealish, Noel.||Hanafin, Mary.|
|Harney, Mary.||Haughey, Seán.|
|Hoctor, Máire.||Kelleher, Billy.|
|Kenneally, Brendan.||Kennedy, Michael.|
|Kirk, Seamus.||Kitt, Michael P.|
|Kitt, Tom.||Lenihan, Brian.|
|Lenihan, Conor.||McEllistrim, Thomas.|
|McGrath, Finian.||McGrath, Mattie.|
|McGrath, Michael.||McGuinness, John.|
|Martin, Micheál.||Moloney, John.|
|Moynihan, Michael.||Nolan, M. J.|
|Ó Cuív, Éamon.||Ó Fearghaíl, Seán.|
|O’Brien, Darragh.||O’Connor, Charlie.|
|O’Dea, Willie.||O’Flynn, Noel.|
|O’Hanlon, Rory.||O’Keeffe, Edward.|
|O’Rourke, Mary.||O’Sullivan, Christy.|
|Power, Seán.||Roche, Dick.|
|Ryan, Eamon.||Sargent, Trevor.|
|Scanlon, Eamon.||Smith, Brendan.|
|Treacy, Noel.||Wallace, Mary.|
|White, Mary Alexandra.||Woods, Michael.|
|Bannon, James.||Barrett, Seán.|
|Broughan, Thomas P.||Bruton, Richard.|
|Burton, Joan.||Byrne, Catherine.|
|Clune, Deirdre.||Coonan, Noel J.|
|Crawford, Seymour.||Creighton, Lucinda.|
|D’Arcy, Michael.||Deasy, John.|
|Deenihan, Jimmy.||Doyle, Andrew.|
|Durkan, Bernard J.||English, Damien.|
|Feighan, Frank.||Ferris, Martin.|
|Flanagan, Terence.||Gilmore, Eamon.|
|Hayes, Brian.||Hayes, Tom.|
|Higgins, Michael D.||Hogan, Phil.|
|Kehoe, Paul.||Kenny, Enda.|
|Lynch, Ciarán.||Lynch, Kathleen.|
|McHugh, Joe.||McManus, Liz.|
|Mitchell, Olivia.||Morgan, Arthur.|
|Neville, Dan.||Noonan, Michael.|
|Ó Caoláin, Caoimhghín.||Ó Snodaigh, Aengus.|
|O’Donnell, Kieran.||O’Dowd, Fergus.|
|O’Keeffe, Jim.||O’Mahony, John.|
|O’Shea, Brian.||O’Sullivan, Jan.|
|O’Sullivan, Maureen.||Penrose, Willie.|
|Perry, John.||Quinn, Ruairí.|
|Rabbitte, Pat.||Reilly, James.|
|Ring, Michael.||Shatter, Alan.|
|Sheahan, Tom.||Sheehan, P. J.|
|Sherlock, Seán.||Shortall, Róisín.|
|Stagg, Emmet.||Timmins, Billy.|
|Tuffy, Joanna.||Upton, Mary.|
|Varadkar, Leo.||Wall, Jack.|
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