Thursday, 3 December 2009
Dáil Eireann Debate
As Deputies will be aware, the Minister for Finance signalled in the supplementary budget in April last the Government’s intention to revisit and make technical adjustments to the bank guarantee in ways which would continue to underpin financial stability and support banks in Ireland in accessing longer-term finance.
Deputy Joan Burton: On a point of order, this is the recommencement of the bank guarantee of hundreds of billions in the name of Irish taxpayers. I want to know where is the Minister for Finance, Deputy Brian Lenihan. This is as important and significant a decision in this short order as the original bank guarantee. Essentially, this provides for the roll-over of the bank guarantee. While I do not wish to disrespect the Minister of State, he is not the Minister for Finance. Where is the Minister for Finance on this really important order?
It is not good enough that the Minister for Finance sends a Minister of State in here with a document extending the bank guarantee for a further five years with significant financial implications for every taxpayer in Ireland at a time when the country is reeling under economic difficulties. He is probably upstairs addressing the members of Fianna Fáil.
Deputy Joan Burton: He should be in here on the floor of the Dáil. I call for the Minister for Finance to make himself available to the Dáil for this short debate. It is only 50 minutes. He should be here. It is a disgrace the debate is so short because it is such an important financial decision.
I wish no disrespect to the Minister of State who is excellent on his own field. He is not the Minister for Finance. This is a massively important financial decision being discussed without the Minister for Finance. Would the Acting Chairman please send for him?
Deputy Kieran O’Donnell: I support my colleague, Deputy Burton. What the Minister of State is bringing in here could extend the guarantee scheme up to 2015. This has enormous implications. The Minister for Finance should be here today. I mean no disrespect to the Minister of State, Deputy Mansergh.
The implications are astounding. Where the people face the most severe budget in the history of this small State, the Minister for Finance has a debate of 50 minutes on a motion in which his powers appear to be wide-ranging. He appears to be able to extend the guarantee scheme for specified liabilities, effectively, as far as 2015. Furthermore, we have no idea when the commencement order on this scheme will be made.
This is just not good enough. I put it to the Chair that the Minister of State should contact the Minister for Finance so that he can come before this House. This involves €440 billion of deposits that the taxpayer is guaranteeing on behalf of the banks.
Deputy Kieran O’Donnell: The Minister of State does not have the power under this legislation. The Minister for Finance does. The implication is that this legislation is being rammed through by the Government, yet the Minister for Finance is not here. Deputy Mansergh is a Minister of State at the Department of Finance, but the Minister for Finance has wide-ranging powers under this scheme. He should be in the House. I agree with my colleague, Deputy Burton, that we should ask the House to be suspended pending an appearance by the Minister for Finance. This matter is too significant to do otherwise. AIB’s representatives appeared before the Committee on Finance and the Public Service last week stating that they may not use the NAMA bonds to get credit flowing. This is not good enough.
Deputy Richard Bruton: On a point of order, I honestly believe it is a serious discourtesy to the House, which is about to debate the extension of a €4 billion guarantee to the banking sector, that a Minister of State is sent to deal with it.
Deputy Richard Bruton: That is no reflection on the Minister of State, but he does not have discretion on behalf of the Government to offer changes in any of the details of this scheme. We are having a meaningless debate because whatever the Opposition says, the Minister of State does not have the discretion to alter anything. There is no point in having those sort of debates. From the outset, the banking crisis has been handled by the Minister for Finance. It has been core to his brief. The Minister for Finance ought to be here to deal with a matter of such seriousness. I appreciate that he is preparing the budget. Everyone is trying to prepare for the budget as best they can, but this is a time-restricted debate. Only 50 minutes have been set aside for it, but we expected the Minister for Finance to be here. It is discourteous to the House, and to those who put an effort into coming up with suggestions for amendments, to find that the Minister does not feel it warrants his attendance.
Deputy Arthur Morgan: On a point of order, the Minister for Finance should be here if at all possible. There is a huge risk to taxpayers involved in this extension of the guarantee. It is critical that the Minister be present to hear and respond to the concerns of the Opposition. After all, it is the taxpayer who is carrying that burden. I understand the Minister for Finance is undoubtedly exceptionally busy with budgetary matters, but if he can make time available for Fianna Fáil Parliamentary Party meetings, it is reasonable that he should make 50 minutes available to deal with this matter in the House.
Deputy Kieran O’Donnell: It is a point of order. This scheme represents an extension of €440 million of taxpayers’ money in terms of a guarantee to the banks. I accept that the Minister for Finance is a busy man in preparing the budget, but a 50-minute debate is insufficient. The Minister should make some appearance before us, even at the conclusion of the debate, so that we can deal with matters that have been raised during the debate and over which only he has discretion.
Deputy Joan Burton: On a point of order, our international reputation is very important. This is the extension of the bank guarantee scheme in five-year tranches for up to a period of at least 15 years. This will probably outlive the Government. In terms of our international reputation, first of all, the motion has been allocated 50 minutes of discussion time by the Dáil.
Deputy Joan Burton: What message does it send to the international bond markets and bond holders that a junior Minister is sent in to deal with a €400 million plus guarantee in the name of the Irish taxpayer? That is simply not good enough
Deputy Joan Burton: When the quorum was called, was there time for the Minister of State and his staff to contact the Minister for Finance to ask him to come here? He could go to the Fianna Fáil Parliamentary Party and talk to backbenchers so they could go on the radio, but he could not attend the House to discuss the bank guarantee scheme.
Deputy Martin Mansergh: As Deputies will be aware, the House decided this morning that this would be a 50-minute debate. No amendments are contemplated. This was well signalled in advance and primary legislation was debated in June.
Deputy Martin Mansergh: As Deputies will be aware, the Minister for Finance signalled in the supplementary budget last April the Government’s intention to revisit and make technical adjustments to the bank guarantee in ways which would continue to underpin financial stability and also support banks in Ireland in accessing longer-term finance.
In June this year, the House approved the Financial Measures (Miscellaneous Provisions) Act 2009, which contained an enabling provision to allow for the extension of period of financial support contained in the Credit Institutions (Financial Support) Act 2008 beyond the current expiry date of 29 September 2010 by ministerial order. On foot of this, the Minister has drawn up a new guarantee scheme, the Credit Institutions (Eligible Liabilities Guarantee) Scheme 2009 or ELG scheme. This draft scheme is being presented to the House for a resolution, pursuant to section 6(5) of the Credit Institutions (Financial Support) Act 2008.
The main elements of the ELG scheme were announced by the Minister as part of his Second Stage speech on the NAMA Bill in mid-September and the details were published on the Department of Finance’s website at that time. The draft scheme was approved by the European Commission on 20 November 2009, in line with state aid rules, and I am presenting it to the Dáil today for approval.
It is important to emphasise that the ELG scheme will be somewhat more targeted in approach than the CIFS scheme and is not a blanket extension of the guarantee. It will allow for greater longer-term debt issuance under the guarantee, moving it towards the European model, and consistent with EU state aid rules. Participating institutions will be able to issue liabilities and take deposits with a maturity of up to five years, but these liabilities must be issued, and deposits taken, within the time period that ends on 29 September 2010 — the same end-date as for the CIFS scheme. However, newly issued dated subordinated debt and asset covered securities will not be guaranteed going forward.
A key feature is that it allows the participating institutions to access unguaranteed funding and to issue unguaranteed deposits, which will help reduce their reliance on State support over time in line with improving market conditions. Over recent weeks, certain Irish institutions have successfully issued partially guaranteed term debt, and this positive trend is welcome. The ELG scheme will represent the necessary first step in the exit strategy for the State from the blanket guarantee offered in September 2008 consistent with the maintenance of financial stability and ensuring that the funding needs of the banking system in Ireland are met. Consequently, the extensive guarantee for deposits will be retained up to 29 September 2010, subject to six-monthly review and approval by the European Commission.
Institutions will be required to pay a fee to the Minister in respect of all liabilities guaranteed. The fee will be in line with ECB recommendations and will be significantly higher than the current fees payable under the CIFS scheme, as required under the terms of the State aid approval for the scheme. The higher fee is intended to encourage participating institutions to explore fully the potential for issuing unguaranteed debt and reducing their reliance on the State guarantee.
The longer maturity limit for guaranteed debt issuance is consistent with the position under guarantee schemes that have been introduced by a number of other EU member states, including Finland, Germany, Hungary, Italy, Portugal, Spain, Sweden and the UK. Access to longer-term funding in line with the mainstream approach in the EU will maintain the continued stability of the banking system in Ireland and enable the institutions to support the credit needs of the economy and underpin economic recovery
It is important to be clear in view of the level of interest among investors in these issues, existing liabilities — including dated subordinated debt and asset covered securities — guaranteed under the CIFS scheme will remain guaranteed under that scheme until the maturity of the debt or 29 September 2010, whichever is the earliest. This continued guarantee of existing liabilities is in accordance with the general nature of guarantees.
I now wish to outline some important and key aspects of the ELG scheme. The scheme provides for a guarantee for participating institutions over certain liabilities with maturities of up to five years, which are incurred in the period between the commencement date and 29 September 2010. The guarantee is being provided at a charge to the participating institutions on specific terms and conditions, so that the taxpayers’ interest can be protected.
Eligibility for the ELG scheme will be open to systemically important and solvent credit institutions and their subsidiaries, including Irish subsidiaries of credit institutions authorised in another member state, that have been specified by the Minister as requiring financial support. All current-covered institutions under the CIFS scheme will be eligible to join the ELG scheme. Credit institutions seeking to participate in the ELG scheme must make an application to the scheme operator to be designated as a participating institution. Those covered institutions under the CIFS scheme have a 60-day window from the commencement date to make this application, while all others can apply up to 29 September 2010. To be accepted by the scheme operator, the institution must accept the terms of the scheme, by way of an eligible liabilities guarantee scheme agreement, and be certified in accordance with the rules as being a participating institution.
Eligible liabilities shall be any of the following: deposits, to the extent not covered by deposit protection schemes other than the CIFS scheme; senior unsecured certificates of deposit; senior unsecured commercial paper; other senior unsecured bonds and notes; and other forms of senior unsecured debt specified by the Minister that satisfy certain eligibility criteria which are set out in paragraph 12 of the scheme. Term deposits with a term of up to five years will be covered by the ELG scheme, provided that they are incurred between the period from the commencement date of the scheme up to and including 29 September 2010, subject to the approval of the EU Commission at six monthly intervals; and demand deposits will remain guaranteed until 29 September 2010, subject to the approval of the EU Commission at six-monthly intervals — the first such approved six monthly interval runs from 1 December 2009 to 1 June 2010.
Once a participating institution accepts a deposit or issues debt under the ELG scheme, it no longer has the facility to avail of the guarantee under the CIFS scheme for the new liabilities. However, the guarantee for existing liabilities guaranteed under the CIFS scheme will remain in place until 29 September 2010.
It is important to note that the guarantee of all deposits up to €100,000 under the revised deposit protection scheme remains in place, is not affected by the introduction of the ELG scheme and continues beyond the expiry of the CIFS and ELG schemes on 29 September 2010.
Each participating institution must pay a quarterly fee to the State in respect of the deposits and liabilities of the institutions which are availing of a State guarantee under the ELG scheme. The fees payable are based on standard pricing recommendations published by the European Central Bank in respect of guarantees of this nature and are consistent with the fees applicable for similar guarantees provided by other EU Governments in respect of their credit institutions. Under the ECB pricing recommendation, which has been endorsed by the European Commission, the fee in respect of debt and deposits with a maturity of one year or less will be 50 basis points per annum. The corresponding fee for maturities exceeding one year will be based on the median value of the banks’ five-year CDS spreads for a sample period, with an add-on fee of 50 basis points. It is important to emphasise that the fees applicable will be higher than those applicable under the CIFS scheme, albeit for a lower quantum of liabilities.
Pursuant to paragraph 7 of the scheme, the Minister plans to delegate its operation to the NTMA. Given its market expertise, the NTMA is, in the view of the Minister, best placed to perform the role of scheme operator on a day-to-day basis on his behalf.
I should highlight that the same reporting and information requirements and the identical restrictions on commercial conduct, as were provided for under the CIFS scheme, remain available to the Minister under the new scheme. Paragraph 22 provides the Minister with the power to issue such direction or directions to a participating institution, which he believes are necessary to ensure that the objectives of the Act and the scheme are being met. This may include directions to comply with some or all of the restrictions on conduct, transparency and reporting requirements applicable under paragraphs 24 to 52 of the CIFS scheme. These restrictions have been debated previously in the House and are important in preventing any abuse of the scheme. These powers are supplemented by enforcement provisions in the scheme. For example, the Minister can increase the charge payable for an institution that is in material breach of its obligations.
Participating institutions are required to submit any reports or information which the Minister, the regulatory authority or the scheme operator believe are necessary to monitor compliance of the institutions with the scheme.
In summary, the ELG scheme will underpin the financial stability of the Irish banking system, allow institutions to access longer term debt, move the arrangements for the guarantee into line with the mainstream approach in the EU, provide the basis for a measured exit strategy from the guarantee and allow banks in Ireland to meet the credit needs of the economy and underpin economic recovery. I commend the motion to the House.
Deputy Richard Bruton: First, the Minister is asking the taxpayer to provide yet another line of defence for the banking system. The critical issue that must be addressed is whether the banks have changed sufficiently and whether there has been a transformation in the banking system that would warrant the taxpayers dipping into their collective pocket once again to underpin them. Quite plainly, the answer to this question is “No”. Members have not seen such a transformation within the banking system that would give them the confidence to demand of taxpayers that they should underwrite further guarantees for the banks. The Minister appears to have committed himself to a strategy of keeping the banks independent at almost any cost. The real question that must be asked is whether these independent banks the Minister is propping up are willing to commit to ordinary businesses and to keep those businesses in place. Can they guarantee they will provide the requisite credit? Sadly, the short answer is “No”, they are offering no such reassurance.
Where is the evidence that either the philosophy or the leadership of the banks have changed? On the contrary, the two key banks have thumbed their noses at the Government and have insisted on appointing insiders to leading posts. Where is the evidence that the banks are devising strategies to help businesses get through this difficult time? On the contrary, the two major banks appeared before the Joint Committee on Finance and the Public Service and told members that the introduction of NAMA would not change by one whit the availability of credit through those banks. Moreover, it also would not change by a single cent the cost of credit to businesses that sought funding from those banks. If the Minister is so well briefed in this regard, why did he not advert to this point? Where are the changes in the banking laws that would give Members confidence that the banks’ attitude and approach have changed permanently? In truth, not a single banker has been arraigned before the courts for any of the gross wrongdoing that occurred and which has brought about this crisis. Moreover, there is no evidence that credit is beginning to flow again. Evidence from the Central Bank suggests that the approach of NAMA and the Government is not delivering credit to businesses that need it.
The public has a right to be deeply sceptical of any proposal by Ministers to further extend the guarantees to banks until evidence is forthcoming of a genuine change in the manner in which banks are run. The people who were at the heart of issuing credit that has brought this country to its knees remain in leadership positions within the banks. They are even thumbing their noses at the salary caps imposed. While they are honouring them in the letter by not paying the chief executive more than €500,000, in spirit it is not being honoured because other executives within those banks are being paid more. This is not acceptable to the ordinary public and the Minister has shown no evidence that he understands what has been happening on the ground. People seethe with rage when they look at the banks and those who lead them and do not discern the change in culture that is needed. Such a change in culture must be seen.
Taxpayers already have been asked to pay €7,000 million more than the market value of these impaired loans with the sole intention of protecting the banks. How are the banks using this largesse, protection and support that has been given by the Government? As the Minister of State is aware, the honest answer is they are using this money to protect banking interests, that is, to protect themselves and their shareholders. This is their priority and many would suggest that this is what one would expect them to do. However, this is not good enough. As the taxpayer has been asked to bail them out twice and now is being asked to extend the guarantee yet again, there must be evidence that matters have really changed. Although the Minister would have Members believe that this proposal simply is a logical extension of what they have done previously, this is not the case. I agree that long-term wholesome investment into our banks would be welcome. However, I refer to the banking system that is being reconstructed. The Minister is asking Members to believe that this proposal forms part of a reconstruction of the banking system. However, Members must see evidence that the banking system it is trying to reconstruct has reformed the manner in which it approaches the difficulties in which we find ourselves. They must see evidence that the banking system now is part of the battle to preserve sound businesses and to ensure that no good business goes to the wall for lack of credit.
Such evidence is not forthcoming and the Minister of State can talk to his own backbenchers in this regard. They have been more than eloquent at the Joint Committee on Finance and the Public Service, of which the Minister of State is a former member, in explaining how the reality differs greatly from what the Minister would have one believe. Members were sold NAMA on the basis that it would extend credit and would get access to cheap ECB money. I recall Deputy Fahey and many other advocates for the Government scheme stating that it would be wonderful, that cheap money would be available at a rate of 1.5% and that the credit problems would be cracked. However, the ink was barely dry on the enacted NAMA legislation before the banks came before the Joint Committee on Finance and the Public Service to state they were sorry but there would be neither more credit nor cheaper credit as a result of NAMA.
Consequently, the public considers that it has been sold a pup and the Government now is asking us to extend the guarantee even further. Members also were told by the Minister that the money being invested in the banks would yield an adequate return for the investment. In reality, the cost of State borrowing rose by €1 billion as a result of the banking crisis and the extension of cover. All that has been received in return is €473 million, meaning the banks have paid less than half. They were told there would be a yield on preference shares of 8%. However, Allied Irish Banks has now stated that money will not be forthcoming because the European Union has blocked it. Similarly, although Members have been told that NAMA would deliver a return, no one, apart from a few Ministers and their close colleagues, believe any of the assumptions that underpin this. I will conclude by noting this is a highly costly adventure on which we are embarking in an effort to reconstruct the banks. Unless there is evidence that the banks genuinely have changed and that a new regime is in place that will support business and get the economy through this difficulty, the Government cannot ask the taxpayer to prop them up with more supports.
Deputy Kieran O’Donnell: All Members desire a sound banking system. While a budget will be announced next Wednesday, I note the existence of a sound banking system is inherently as important to the recovery of the economy as are any other measures to be taken by the Government. This is the reason the Minister for Finance should be present in the Chamber. Members are being asked effectively to extend the guarantee scheme for a certain range of liabilities. The Minister must answer many questions in this regard, one of which pertains to the scheme’s commencement date. This is of great relevance to section 30 of the scheme, which notes that lower tier two assets covered on or after the commencement date shall not be guaranteed. However, I do not know when that commencement data will be. Lower tier two capital probably should not have been included in the original guarantee scheme because it is highly risky. Furthermore, as the Minister of State probably is aware, much of the restructuring of the banks over the past year has involved transferring capital into lower tier two, which is guaranteed under the scheme.
I refer to the issue of the flow of credit. The outgoing chief executive officer of Allied Irish Banks, Mr. Eugene Sheehy, appeared recently before the Oireachtas Joint Committee on Finance and the Public Service. He stated that there would be no great changes. He also stated initially that AIB would not use NAMA bonds to obtain credit from the ECB at reduced rates to enable credit to flow. When pushed at length, he then effectively stated the bank might consider it. However, this simply is not good enough.
The original Credit Institutions (Financial Support) Act was passed last September. This was followed by the original Credit Institutions (Financial Support) Scheme on 24 October. A third scheme now has been proposed for the banks. Although the banks must demonstrate change, they still refuse to guarantee the provision of some relaxation by giving credit to hard-pressed small businesses. The banks are not living up to their side of the bargain. The Minister also should state how much the banks have paid under the guarantee scheme to date. What amounts are outstanding under the guarantee scheme? As this is provided for under the original Act after the end of 2009, Members should be informed. Goodwill from the banks must be evident. We are being asked to support this scheme without the banks showing they have changed their management structures or will return to providing credit through the NAMA bonds with the European Central Bank. This morning the Joint Committee on Finance and the Public Service heard of people’s concerns of losing their homes through repossession. The banks have not lived up to their side of the bargain. It is imperative they do live up to it as the Dáil is being asked to extend the bank guarantee of €440 billion provided by the taxpayer for another five years.
Deputy Joan Burton: We all know the people in power at the top of the Government — the Taoiseach, Deputy Cowen, the Minister for Finance, Deputy Brian Lenihan, and the Tánaiste and Minister for Enterprise, Trade and Employment — are the aristocrats of Fianna Fáil with three generations of party pedigree. Truly, they are aristocrats because like the Bourbons, the Minister for Finance’s non-appearance in the Chamber proves he has neither learned nor remembered anything. It is a shame and a disgrace that the Minister for Finance should consciously decide to absent himself from this House on a matter of such national financial significance.
Over the past 14 months, the Minister for Finance has not given any valid justification for including dated subordinated debt among the guaranteed liabilities of the banks. Subordinated debt is risky, a form of quasi-equity debt, which carries a high yield to compensate for the risks involved. Guaranteeing subordinated debt is a bailout for speculators. A consistent Fianna Fáil theme is bailing out the developers, the banks and speculators. While civil servants are vilified by Fianna Fáil backbenchers in the national press, here Fianna Fáil is doing the business for the speculators.
In this guarantee extension, the Minister appears to have seen the error of his ways by excluding newly-issued subordinated debt from the extended bank guarantee under European Central Bank rules. There is, however, no justification for continuing to guarantee existing subordinated debt on which the European Commission has directed the stopping of coupon payments.
At Anglo Irish Bank it was widely known in the aftermath of the original bank guarantee that Mr. Seán FitzPatrick, then chairman of the bank’s board, was a significant holder of subordinated debt in that institution. That is the man who was so admired by the former Taoiseach, Deputy Bertie Ahern, who fondly described him as his friend, “Seánie”. From the text of the scheme itself, the dated subordinated debt lower tier 2 and asset-covered securities issued by a covered institution before the commencement date and which are covered liabilities shall continue to be guaranteed. That is a disgrace and an outrage.
Those subordinated debt holders should be negotiated with and take part of the hit. The Governments of Qatar and Dubai said the same during the recent collapse of Dubai World. Those who take the risk while they may get a high return must also take their share of the losses.
This week we learned more about the preference share arrangement and the payment of a coupon between AIB and the Government. Originally the Taoiseach and Minister for Finance promised it would yield a profit to the taxpayer. Last week the European Central Bank said the coupon rate cannot be paid and that these shares will have to be converted into equity. The €3.5 billion pumped into AIB is, therefore, to be converted into a 25% equity stake. The taxpayer will have paid €3.5 billion for 25% of a bank which today could be bought in its entirety for €5 billion. That is a loss the taxpayers — both public and private sector — will have to take on their backs as a result of the grotesque incompetence of the Taoiseach and the Minister for Finance on behalf of Fianna Fáil.
The National Pension Reserve Fund will carry a loss as soon as this arrangement is done of about €2.25 billion on that €3.5 billion investment. We are doing this for the banks in the run-up to a budget in which parents in receipt of child benefit and those in receipt of various social welfare assistance will have their payments cut. Low-paid public servants on €30,000 to €50,000 are being asked to take unspecified cuts in their wages so that we can put in an investment of €3.5 billion into AIB.
What has the Minister of State got to say to the people who are going to be cut to the bone on Wednesday’s budget about the conversion of €3.5 billion in AIB shares into a 25% equity stake when the bank is only worth €5 billion? How is that for largesse when it comes to bailing out the banks and the speculators?
Fianna Fáil is an historic disgrace to the country. For the second time in a generation Fianna Fáil has destroyed the prosperity that people have built up, whether in the public or private sectors, on the back of their hard work. It is widely held that the 2008 bank guarantee was issued at a deep discount to benchmark market rates. As a consequence, the cost of Ireland servicing the interest on its national borrowings went up over German basic rates, putting it next to Greece. We all know about the current difficulties in Greece. However, it has close to 100% national debt which Ireland has nothing like. If the Government had managed this process competently, Ireland’s interest costs would not have been marked up as they were.
Next Wednesday when the Minister announces the €4 billion cuts in welfare and elsewhere, it will be to meet the higher interest charges Ireland has to pay on an increased national debt because of the incompetent way the bank guarantee was cooked up and then handled by the two Brians.
The Minister has never come clean on the mechanism for calculating the guarantee fee. Originally we were told it was to be calculated on the basis of the long-term, ten-year increase in the cost of funding the national debt as a result of putting the guarantee in place. It was to be paid over the two-year lifetime of the original guarantee scheme at the rate of approximately €500 million per year. Will the Minister of State outline how the fee under the new scheme is to be calculated? Are we, instead, being asked by Fianna Fáil to buy another pig in a poke? Will it be a case where we will have a phoney earning rate which will not cover the cost in the annual budget of the increase in our national debt costs as a result of Fianna Fáil mismanagement? Is the guarantee fee under the new scheme to be lodged into a holding account at the Central Bank or will it go into the Central Fund?
The scheme states the basis for the calculation of the fee shall be advised by the Minister to the participating institutions from time to time. It is not to the Dáil but to the banks. Regarding the calculation of maturity rates, there will be an overall flat fee of 25 basis points. The Minister shall report to the Oireachtas Committee on Finance and the Public Service every six months on the level of fees received from each participating institution and progress in relation to the purposes of the Act and compliance with the terms and conditions of the scheme. Why can the Minister of State not give us details of the fees and tell us what we are to be paid for this additional burden? As a consequence of this order, every man, woman and child in this country is taking on, for a further five, ten or 15 years from end September 2010, liabilities of up to €400 billion. That is the extent of what is proposed. Naturally, there are no figures attached to this proposal. The Minister for Finance has shown contempt and arrogance in terms of not providing figures in this regard to the Dáil, as to do so might inform Members or taxpayers.
Deputy Joan Burton: True to his imitation of the Bourbons, we are but the national Parliament and we do not deserve any information. In France, the aristocrats may have held sway for some time but, eventually, they had to give way to the people and the people’s assembly.
Deputy Arthur Morgan: On the night the credit scheme was introduced in this House in September 2008 all parties met separately with the Department of Finance and received assurances in regard to the terms and conditions that would be enacted by way of legislation in respect of the banks.
Sinn Féin was conscious of the unique and dangerous financial climate at the time. Banks around the world were collapsing and a massive financial crisis was unfolding in Iceland. Sinn Féin listed a large number of conditions which it wanted in place if it was to support the Bill, including intense regulation of banks, criminal proceedings against corporate malpractice, a package to protect mortgage holders and an immediate suspension of all corporate bonuses. We saw the guarantee scheme as offering a real opportunity to put the banks in State hands and to provide the State with the necessary power to protect struggling businesses and mortgage holders. We were assured the conditions for the banks would be severe and effective.
The Minister misled the House on the night he introduced the Credit Institutions (Financial Support) Bill 2008. Subsequent to the publication of the Bill, Sinn Féin was forced to withdraw its support for the bank guarantee scheme because the terms and conditions fell far short of what was outlined by the Minister in advance of the guarantee. I can only assume that interaction with the banks led to a watering down of the conditions that were to be associated with the guarantee. It is evident from the behaviour of the banks in subsequent months just how seriously they took the taxpayers’ great step to protect the financial institutions of the State. In hindsight, more concerns have arisen in respect of the guarantee.
There has been no indication that due consideration was given to less costly solutions to deal with the fear of the inability of one bank to roll-over wholesale funds and the prospect of this spreading to other banks. Mr. Patrick Honohan, Governor of the Central Bank and then Professor of International Financial Economics and Development at Trinity College Dublin pointed out that specific State guarantees might have been given in respect of new borrowings or injections of preference in ordinary shares as happened in other European States in the months that followed. It also quickly became apparent that the guarantee was no substitution for recapitalisation. Along with the €440 billion guarantee hanging over the heads of Irish taxpayers, subsequent decisions were made that entailed even more financial pain such as the nationalisation of Anglo Irish Bank, the recapitalisation of Allied Irish Banks and Bank of Ireland and the setting up of the National Asset Management Agency.
In approaching the guarantee legislation that night, many concerns were raised on this side of the House and many assurances given. We all believed we were acting in the best possible faith and were within days proved misguided when the Minister for Finance announced the terms and conditions of the Bill. The situation concerning the banks in this State is complicated, messy and complex. It will take months, if not years, to get our banks back on an even footing and much will be required to get there. We have yet to see a single banker brought before the courts to answer for the malpractice that took place at that time. An issue raised continually with me in my constituency office or when meeting people on the street is that while ordinary people can be imprisoned for not repaying a small loan to, say, a credit union, not a single banker, one year on, has been brought before a court in respect of the corporate malpractice and fraud that took place. I have previously referred in this House to how a constituent of mine from Dundalk was imprisoned in Mountjoy for not having a dog licence. Yet, 12 months on not one of the bankers involved in this scandal has been brought before the courts. Perhaps the Minister of State will tell the House when the investigations taking place will be concluded or at what stage they are currently. This is an issue of concern to people. What is happening, in terms of allowing bankers to walk away, is an absolute scandal. It has brought into disrepute the political classes and justice system in this State. It is time we in this House got answers in this regard.
Perhaps the Minister will clarify the following point for me. I understand that Anglo Irish Bank has closed its lending department and is letting go people who worked in that department. I understand also they technically may be able to forward funds to clients. Can the Minister of State explain what is going on in terms of this zombie bank which the Government purchased on behalf of taxpayers at a cost of approximately €28 billion? Perhaps the Minister of State will clarify how it will cost us €28 billion when it is closing its lending department? If he cannot do so, perhaps he will arrange for the Minister to come into this House to answer these questions for us.
People have seen enough in terms of Mr. Seán FitzPatrick walking away with €83 million and Mr. Michael Fingleton and his bonus disappearing into the night, again with no recourse to any type of justice system. Ordinary people will, following next week’s budget, once again have to carry the can to try to bail out these bankers to the tune of €440 billion at a time when pensioners and welfare recipients cannot even get their Christmas bonus, which will have an enormous impact on the families concerned in the dead of winter. It is hoped the Minister of State will be in a position to provide us with answers to some of the issues raised. It is time we got answers to the following questions. When will the investigations in respect of corrupt bankers be concluded? When will there be court action where proven necessary and when will these people be brought before the courts? In the US, the Enron executives were at least dealt with openly and honestly. Why is there no system here to deal similarly with bankers who behaved pathetically? I wish to point out that when referring to bankers I am not speaking about ordinary high street bankers, those working on the frontline who are often themselves impoverished workers and victims of corrupt characters at the top. I have been told by frontline bank staff that some of them are being shockingly abused by some members of the public who, mistakenly, associate them with the corruption and blackguardism going on in the background. It is worth putting this on the record.
Deputy Joan Burton: ——-for this important debate. Some €440 billion is at stake and only one Member of Fianna Fáil — more recently joined by another Member — is present in the House, which is a disgrace. I call for a quorum.
Deputy Martin Mansergh: I am something of an expert on French history and far from the Minister having learned nothing or forgotten nothing, he has had to do things which none of his predecessors has had to do. He has had to be enormously innovative. Respect for him has grown steadily during the period since he was appointed.
Deputy Martin Mansergh: Deputies asked when the scheme will commence. It will be as soon as possible, most likely tomorrow. Given that the House will make a decision on this matter in about ten minutes, it is important to outline the consequences of not passing this order. They are that the banks would not be able to access longer term debt, which is vital to providing a balanced——
Deputy Joan Burton: On a point of order, has this Minister listened to the debate or has he got a script supplied by central casting, which he is just reading out irrespective of the questions we have asked?
Deputy Martin Mansergh: On a point of order, is it possible for a Minister to reply to a debate without being constantly interrupted? I listened to ferocious attacks on the Government and I did not breathe a word. I ask for the same respect in return. If the Deputy does not like what is being said, she can vote against it.
Deputy Joan Burton: On a point of order, do we have to listen to the Minister having a hissy fit because we asked some questions and he will not answer them? The Minister is having a hissy fit because he will not answer the questions we have asked. He should do that in his own time.
Deputy Martin Mansergh: Deputy Burton asked why we are extending the CIFS for five years. It is not correct to say that we are extending it for years. This is a new scheme with an issuance period which ends on 29 September 2010, which is also the end date of the CIFS scheme. After 29 September 2010, no further guaranteed debt can be issued and no more guaranteed deposits can be taken. However, during the issuance period participating institutions can take term deposits or issue debt with a term of up to five years. The objective is to facilitate the banks in putting in place medium-term funding to enhance their ability to discharge their central role in facilitating economic activity in the State. An important element of the new scheme is the facility to allow participating institutions to issue unguaranteed debt, which is key to restoring market confidence in the institutions.
Deputy O’Donnell asked why it is only now that we are introducing the scheme. The European Commission gave the necessary state aid approval on Friday, 20 November for the scheme, which was published thereafter. The longer-term guarantee has been signalled since April and its outline was published on 16 September.
Why is it proposed that dated subordinated debt would not be covered under any schemes that we might make? The dated subordinated debt currently in issue will continue to be covered under the CIFS scheme. However, the Commission’s banking communication of 13 October 2008 states that guarantees should not include subordinated debt.
Deputy Martin Mansergh: There were two specific reasons for the recommendation that dated subordinated liabilities be included within the scope of the CIFS guarantee. At the time the guarantee was announced and owing to the extent and depth of the international financial crisis, it was considered essential that the Government send out the clearest possible signal to international markets to the effect that the State was prepared to stand behind the banking system to maintain financial stability and pre-empt major financial and economic disruption. In the past 14 months, we have succeeded in doing do. It has been a considerable achievement, but not much credit is being given.
Deputy Martin Mansergh: The State guarantee was extensive and comprehensive to provide confidence among senior investors in the wholesale capital markets. In recent years, as a result of tightening credit spreads, traditional investors in senior unsecured debt have increased their exposure to non-deferrable dated subordinated debt lower tier two in search of additional yield. In September 2009, the overlap in the investor base for both senior bank debt and lower tier two was extremely high. Therefore, it was believed important to the success of the guarantee that dated subordinated liabilities be included.
|Ahern, Dermot.||Ahern, Michael.|
|Ahern, Noel.||Andrews, Barry.|
|Andrews, Chris.||Ardagh, Seán.|
|Aylward, Bobby.||Blaney, Niall.|
|Brady, Áine.||Brady, Cyprian.|
|Brady, Johnny.||Browne, John.|
|Byrne, Thomas.||Calleary, Dara.|
|Carey, Pat.||Collins, Niall.|
|Conlon, Margaret.||Connick, Seán.|
|Coughlan, Mary.||Cregan, John.|
|Cuffe, Ciarán.||Cullen, Martin.|
|Curran, John.||Dempsey, Noel.|
|Devins, Jimmy.||Dooley, Timmy.|
|Fahey, Frank.||Finneran, Michael.|
|Fitzpatrick, Michael.||Flynn, Beverley.|
|Gogarty, Paul.||Gormley, John.|
|Hanafin, Mary.||Harney, Mary.|
|Haughey, Seán.||Hoctor, Máire.|
|Kelleher, Billy.||Kelly, Peter.|
|Kenneally, Brendan.||Kennedy, Michael.|
|Killeen, Tony.||Kitt, Michael P.|
|Kitt, Tom.||Lenihan, Conor.|
|McEllistrim, Thomas.||McGrath, Mattie.|
|McGrath, Michael.||Mansergh, Martin.|
|Martin, Micheál.||Moloney, John.|
|Moynihan, Michael.||Mulcahy, 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, Batt.||O’Keeffe, Edward.|
|O’Rourke, Mary.||O’Sullivan, Christy.|
|Power, Seán.||Roche, Dick.|
|Ryan, Eamon.||Scanlon, Eamon.|
|Smith, Brendan.||Treacy, Noel.|
|Wallace, Mary.||White, Mary Alexandra.|
|Bannon, James.||Barrett, Seán.|
|Behan, Joe.||Breen, Pat.|
|Broughan, Thomas P.||Bruton, Richard.|
|Burke, Ulick.||Burton, Joan.|
|Byrne, Catherine.||Carey, Joe.|
|Clune, Deirdre.||Coonan, Noel J.|
|Costello, Joe.||Coveney, Simon.|
|Crawford, Seymour.||Creed, Michael.|
|Creighton, Lucinda.||D’Arcy, Michael.|
|Deenihan, Jimmy.||Doyle, Andrew.|
|Durkan, Bernard J.||English, Damien.|
|Feighan, Frank.||Ferris, Martin.|
|Flanagan, Charles.||Flanagan, Terence.|
|Gilmore, Eamon.||Hayes, Brian.|
|Hayes, Tom.||Higgins, Michael D.|
|Howlin, Brendan.||Kehoe, Paul.|
|Lee, George.||Lynch, Kathleen.|
|McCormack, Pádraic.||McEntee, Shane.|
|McGinley, Dinny.||McGrath, Finian.|
|McManus, Liz.||Morgan, Arthur.|
|Naughten, Denis.||Neville, Dan.|
|Ó Snodaigh, Aengus.||O’Donnell, Kieran.|
|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.||Stanton, David.|
|Tuffy, Joanna.||Upton, Mary.|
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