Wednesday, 18 April 2012
Dáil Éireann Debate
214. Deputy Joan Collins asked the Minister for Finance with regard to the general question of bank licences necessary to operate in Ireland, the location at which copies of the licences and licence conditions under which each of our banks function are readily available; are the licence conditions governing foreign banks operating in Ireland different in any way to those of the so-called Irish banks; if it is possible in any circumstances to trade as a bank in Ireland without a licence; the person responsible for monitoring banks’ compliance with the conditions of their banking licences; if compliance by the banks with their licence conditions is transparent, and if so, the way this is demonstrated; the legal consequences for the banks and their customers if banks have breached one or more of the conditions of their banking licences; if a bank has been operating in breach of one or more of conditions of their licence, if the agreements they have entered into while so doing are legally binding; if a bank is offering and selling loans and mortgages while insolvent, if it is in breach of the conditions of its licence to operate; and the date of the last Governmental review of licence conditions governing financial institutions. [19119/12]
Minister for Finance (Deputy Michael Noonan): The Central Bank is responsible for imposing and subsequently regulating the compliance of credit institutions with conditions imposed on their respective licences. As such it is not the role of Government to review licence conditions imposed by the Central Bank in its regulatory capacity. I have been informed by the Central Bank that it does not comment on the individual licence conditions imposed on specific credit institutions and that once a licence is issued it becomes the property of the relevant credit institution and thus the Central Bank retains no right to publish copies. However, pursuant to Section 12(1) of the Central Bank Act 1971, the Central Bank publishes a register of licensed institutions on its website.
The Central Bank does not impose any general restrictions on foreign credit institutions operating in Ireland, however, the Central Bank has the power to impose specific licence conditions on any domestic or foreign credit institution licensed to operate in Ireland.
Section 7 of the Central Bank Act 1971 (as amended) provides that ‘Subject to the provisions of this Act, a person, other than a Bank, shall not, in or outside the State, carry on banking business or hold himself out or represent himself as a banker or as carrying on banking business or on behalf of any other person accept deposits or other repayable funds from the public, unless he is the holder of a licence’. Under section 58 of the Central Bank Act 1971, contravention of section 7 is an offence.
In the event of a customer being affected by a credit institution operating in breach of regulatory requirements, that customer has in the first instance the option of seeking redress from the institution in question. Failing that or if the customer is not satisfied with the outcome, there is the option of bringing the dispute to the Financial Services Ombudsman or the Courts. Whether or not the customer is successful in securing redress for any loss suffered would depend on the circumstances of the case.
I would like to inform the Deputy that I propose to shortly bring forward amendments at Committee Stage of the Central Bank (Supervision and Enforcement) Bill which will introduce greater clarity for customers seeking compensation for losses arising from the failure of a credit institution to comply with its obligations.
Failure to comply with the conditions of a banking licence could result in administrative sanction by the Central Bank. The Central Bank (Supervision and Enforcement) Bill 2011 provides that such a sanction may include suspension or revocation of a banking licence.
Section 11 of the Central Bank Act 1971 sets out the grounds for revocation of a bank licence including if the holder becomes unable to meet his obligations to his creditors or suspends payments lawfully due.
215. Deputy Joan Collins asked the Minister for Finance with regard to the concept of fractional reserve banking, or fractional reserve lending, the criteria in relation to fractional reserve banking, if any, that apply to the banks in the context of their lending policies; if banks are obliged to retain at least certain minima of retained deposits relative to their lending volumes, and if so, the ratios; the minima of liquid cash reserves, or liquidity ratios that financial institutions are obliged to retain in their reserves at all times; the person who decides what the ratios relating to solvency and liquidity should be; the person who monitors compliance with any such strictures, and how; if such ratios are arbitrary or are they governed by statute or otherwise; if there have been changes in these regulations over the years; and by what mechanism an insolvent bank can give out loans or offer mortgages if it is broke and has no money. [19120/12]
Minister for Finance (Deputy Michael Noonan): The requirements for standards of deposits and lending are set out and supervised by the Central Bank of Ireland, under the appropriate EU, International, and Irish legislative requirements. There are a number of liquidity ratios in place affecting banks that have to be complied with and reported to the Central Bank of Ireland. They would include Loan to Deposit Ratios (under PCAR, they are targeted to be 122.5% at the end of 2013) and Liquidity Coverage Ratios. A new regulatory regime, under Basle III, will also seek to ensure that there is a Net Stable Funding Ratio that is satisfied. Irish banks will continue to have to satisfy these international standards for liquidity on their balance sheets.
216. Deputy Joan Collins asked the Minister for Finance with regard to mortgages and other loans advanced by banks, the mechanism by which banks extend loans and facilities to clients; the process by which banks raise the moneys they loan out and where that money comes from; if it is true to say that, typically, a bank seeks firstly to secure the written undertaking of a would-be borrower to repay a loan over a number of years and then uses that pledge or promissory note to raise the necessary loan from other institutions or individuals by pledging or selling-on the document that the would-be borrower has signed; if it is standard or common practice for banks to sell or trade onwards the agreements they have put in place with their borrowers; and if it is the case that the signature of the proposed borrower is most often in effect sold on by the institution in order to raise a line of credit that will in part benefit the borrower. [19121/12]
Minister for Finance (Deputy Michael Noonan): This is a very wide ranging question. Banks would typically have raised unsecured and secured funding. Deposits would be an example of the former and securitisation or covered bonds an example of the latter. If there was to be secured transactions, there would have been full due diligence from a legal and accounting perspective including any issues relating to compliance with loan agreements and any required notice to or consent from borrowers.
217. Deputy Joan Collins asked the Minister for Finance in the context of disagreements between a borrower and a lending bank, and with regard to reasonable requests by borrowers to see the original documentation governing the alleged agreement between the borrower and the bank in such circumstances, if it is reasonable that a borrower should be entitled as of right to see the original signed contract that allegedly exists between their financial institution and themselves; if there is a requirement in law or financial regulation in Ireland that original documentation be retained by lenders, or if it is more typical that a bank retains electronic files only, while offsetting or getting rid of the original documents; in the event that a bank is asked to validate a debt that it asserts that it is owed, the documents it is obliged to produce in order to prove that debt; in the event that the original documentation is not available to the borrower, is if that borrower is entitled to an invoice detailing the precise services allegedly rendered to them in respect of which the institution is charging; and if reasonable and appropriate for a borrower to insist that the bank validates or substantiates its assertion that money is owed by the borrower, and to that end that the bank produces the necessary original documents of agreement to confirm that the alleged loan has been made and the relevant specific conditions attaching thereto. [19122/12]
Minister for Finance (Deputy Michael Noonan): Typically, a regulated financial entity would have two records of loan agreements — one for their own records and one for the borrower. I have been advised by the Central Bank that Chapter 11 of the Consumer Protection Code sets out in detail what records (and compliance with same) a regulated financial entity must keep on behalf of a borrower.
Under section 11.6 of that Chapter, a regulated entity must retain details of individual transactions for six years after the date on which the particular transaction is discontinued or completed. A regulated entity must retain all other records for six years from the date on which the regulated entity ceased to provide any product or service to the borrower.
If a borrower is in dispute with regard to the paying off of a loan and the lack of records to verify this, that matter should be referred to senior management in the regulated entity for examination and resolution. If satisfaction is not received, then the matter should be referred on to the Financial Services Ombudsman, who can investigate in an impartial and independent manner the complaint from the borrower.
218. Deputy Joan Collins asked the Minister for Finance in relation to the taking out of default insurance by banks, if it is normal practice for a bank to take out default insurance on loans; if there is a legal regulation or any other rule of enforcement stating that a bank must insure its loans against default; if so, with whom this insurance is policy placed; if there is any legal regulation for financial institutions and banks obliging them to retain a provision fund or deposit account to clear defaulted loans; if so, it is the specific regulation; if not, if it is none-the-less common practice for banks to set up such accounts in order to offset defaulted loans; and the time limit within which a bank must clear defaulted loan accounts. [19123/12]
Minister for Finance (Deputy Michael Noonan): Some banks would seek to minimise risk by ‘buying’ credit insurance on some assets such as mortgages or bonds. There are no requirements on the banks in relation to ‘default insurance’ and it is left to each bank management to determine their own, appropriate strategy. The Central Bank of Ireland sets reserving requirements for financial institutions and have issued guidelines in relation to provisioning.
219. Deputy Joan Collins asked the Minister for Finance in the context of borrower bank transactions, his view in relation to assertions by the borrower that, they should be entitled to a percentage of any profits arising from the bank making profitable dealings on the back of the sale of agreements to which they are a party; as taxpayers now own large percentages of various banks by virtue of very large publicly subscribed recapitalisation, if some element of the individual taxpayer’s contribution to the bail-out of a bank should be offset against any moneys allegedly owed by that individual to such a bank; and if there is clear absence of advance full disclosure by banks because of the manner in which banks do business in using borrowers’ pledges to repay for the purposes of raising finance internationally. [19124/12]
Minister for Finance (Deputy Michael Noonan): On 30 March 2012, the Department of Finance published the Relationship Frameworks for each of the banks in which the State acquired an interest in the context of the financial crisis. The Frameworks were prepared in the context of EU and Irish competition law considerations and commitments made in connection with the EU/IMF Programme for Financial Support for Ireland.
The Frameworks provide, inter alia, that each bank will continue to operate at arm’s length from the State; each bank will remain a separate economic unit with independent powers of decision; the board of each bank will determine the bank’s strategy and commercial policy, including the adoption of its business plan and budget; and the State will not intervene in the day-to-day operations of the banks or their management decisions including with respect to pricing and lending decisions.
I expect the Board and management team of each of the banks to conduct their commercial operations in a prudent and sustainable manner which seeks to create commercially oriented credit institutions. This will ensure the maximisation of value of the banks as an asset to the State and the taxpayer.
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