Marc MacSharry (Fianna Fail)

I join with other Members in welcoming the Minister of State. I also welcome the opportunity to make some points on the subject of banking. I welcome the analogies made by the Minister of State in respect of French history. Throughout these debates on the scale of the banking issue, I have made the point that unlike Louis XIV, one cannot set up the guillotine on St. Stephen's Green and begin to line up those who one considers to be most culpable in making a contribution to the mess in which the country finds itself, much as many people would like to so do. Nevertheless, this does not detract from the essential need to provide closure by way of retribution and appropriate punishments doled out to those concerned, whether in banking or political circles or otherwise, when all the facts are known in the fullness of time. Many facts already are in the public domain and as Members are aware, investigations are ongoing into the banks. The reports prepared by Messrs Regling and Watson and Professor Honohan, the Governor of the Central Bank, have been published and investigations by the Joint Committee on Finance and the Public Service are ongoing. The scheduling of this debate has been unfortunate because the aforementioned joint committee is meeting as Members speak to consider an interim report and that is where I should be. Moreover, a commission of inquiry also is under way. While one regrets the pedestrian nature with which these investigations continue, we have due process in this country. Despite everyone's yearning for a pound of flesh, to quote Shakespeare, I believe due process will provide this, however much one must put up with the frustrations at present.

I was interested to hear Senator Donohoe's contribution and I acknowledge his contributions always are highly constructive. Were all the Opposition parties to adopt a similar approach to the Senator in the leaders' meeting this afternoon at 4 p.m., I am sure the required consensus and international message of agreement on matters such as the bottom line and on the national intention to deal with our problems could be achieved. I was interested when he drew an analogy with a book he had read by the economist Tom Garvin, who had discussed the 1950s in Ireland, when people here had a basic acceptance of their limitations. They were resigned to accept their relative poverty or at best their mediocrity and consequently were not as optimistic about the future or as open-minded in looking to what they could achieve as they could have been. It reminds me of a recent contribution made by President McAleese at a function I attended. She stated that the resignation of the past held Ireland back for many decades. Senator Donohoe mentioned how many people contributed to us clawing our way out of that mindset. Equally however, the President noted that the indignation of today could paralyse us and I felt that no truer word was spoken. This is not to absolve anyone from the sins of the past or any perceived guilt by bankers or politicians or in respect of macroeconomic policies or otherwise. However, it is important that while the ongoing investigations continue, slow as they may be in coming to conclusions, Members must focus on solutions and taking the appropriate actions. Painful as are the realities that have become clearer in recent years - from the banking guarantee to the scale and depth of the banking hole, as announced by the Minister for Finance on 30 September - I am confident the appropriate actions are being taken.

Senator Donohoe asked if the breadth of the debt covered by the bank guarantee was appropriate. He mentioned that Professor Honohan had raised this as a particular question in his report. That is looking at a problem with 20:20 vision and the benefit of hindsight. It was a critical moment for Ireland, our banking system and how we would be viewed internationally. It is easy for academic economists and others to say we should or could have done this or that. We did what we did and it was received very well internationally. It was seen as a decisive and determined step to take control of the situation and assure the international community that, whatever the situation in Ireland, team Ireland was prepared to take the appropriate actions to deal with it. I prefer not to focus on that action but to look to the future in considering how we will deal with these problems, but I take Professor Honohan's point. He is doing a splendid job and I was delighted to see that, for a change, we had appointed someone other than an in-house person to the governorship of the Central Bank. However, in the context of the international perception of how Ireland was coping with her problems at the time, the banking guarantee sent a signal of confidence to the international community. Now we face the challenge of assuring the bond markets and others if we are to maintain a supply of credit from the wholesale markets to this country.

It is important that we have consistent messages. In recent weeks we have talked about the possibility of achieving political consensus. That is not to say we must agree on every aspect, but we should agree on the length and breadth of the problem. We must agree on the 3% deficit figure and the actions to be taken to reach this figure by 2014. While we can reserve the right to disagree on aspects of the tangibles, it is important that we agree on the fundamentals.

The scale of the announcement of 30 September was incredible. One could set out to do so, but it is simply impossible to justify. A disgraceful situation was allowed to emerge and it arose for a number of reasons. The very good "Freefall" programmes on television dealt in detail with de-regulation throughout the world, with vast amounts of money crossing borders. An international regulatory regime failed the global market. We were citizens of the world. Our own regulatory system failed our expectations and needs. Many steps have been taken to improve it and the guarantee is ongoing.

I have a few specific questions on regulation. Mr. Matthew Elderfield has done a fantastic job heretofore. It is prudent for a bank to have increased capital. We distinguish between tier 1, core capital; tier 2, secondary bank capital, and other levels. More capital must be in equity than previously, which is all very prudent. However, as we try to heal the banking system and get credit flowing again to an extent where it can support business and the real economy, have we set capital levels that will recapitalise the banks very well and allow for a rainy day that will never arrive because we are no longer engaging in that kind of borrowing? We should have had such capital reserves ten, 15 or 20 years ago. We may very well have recapitalised the banks, but because of the proportion of capital in tier 1, are we hoovering up too much equity in order that small businesses cannot borrow it? I am not an expert on banking, but it occurs to me that some of the improvements the Financial Regulator is making to the capital requirements of banks may be strangling their ability to have capital to lend. That is the question.

Are Mr. Elderfield's improvements being dictated by Brussels or are they home grown? There is talk of Basel III. I wonder what that might hold. I would like to think it would focus on a broader set of regulations that could be agreed not just on a pan-European but on a world basis and would prevent the incentivisation of the creation of derivatives that might get us into this kind of mess again in the future. At summits of world leaders one sometimes hears an acceptance that something like the current crisis will occur again and that we must make sure we will have a fund big enough to buy us out of it. Would it not better to focus on preventing it ever happening again?

Many tranches have been transferred to NAMA, but I understand none of the NAMA bonds has issued. Could this, potentially, strangle the ability of banks to make available what little money they have to the small businesses and families which require credit?

The depth and scale of the banking disaster cannot be justified. Where we are today would once have been unimaginable. It is vitally important that we send a message loud and clear that team Ireland will get out of this mess and take the appropriate actions. These actions may vary from one political party to another, but the broad direction must be agreed. There must be national agreement. If this does not happen, our ability to get money at appropriate levels of interest will be impeded next spring when we wil be back in the bond markets. I hope today's meetings in Government Buildings can reflect this.