Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

A political discussion will take place on Tuesday to give political guidance to our working group. This group will then take the process further. There are differences of opinion among member states on this matter and for this reason nothing has been fixed yet. We took possession of a Commission paper on the issue and produced a Presidency paper. The resolution framework is designed to deal with all types of bank problems, including insolvency. The directive simply sets out the order of creditor preference. It represents an improvement on the current position in this country for depositors where they currently rank on a par with senior bondholders. If we had another case of a bank going bust, as occurred with Anglo Irish Bank, the first people at risk would be the shareholders whose money would be burned. Subordinated or junior debt would be next in line to be burned in accordance with the requirement on banks to either pay their creditors or return to solvency. The next in line would be senior debt, of which there are several categories and, as such, a hierarchy.

As the Deputy will recall from his party's time in government, all the advice to my predecessor, the late Brian Lenihan, was that senior debt and deposits rank pari passu under the law. That remains the advice to me. This means that senior debt and deposits are on the same line if one is organising the hierarchy of credit in the bank. The Irish Presidency's proposal, which may or may not be agreed as there are different views on it, is to give deposits preference and thereby place senior debt above depositors in the hierarchy. If accepted, the proposal will improve the position of depositors in the banking system.

The Deputy will recall that there is a bank guarantee in place across the European Union which guarantees deposits of up to €100,000. Given that no such guarantee applies to deposits above this figure, this means in theory that deposits of more than €100,000 are at risk in every European country. To return to the old debate, one of the reasons the European Central Bank would not allow the Irish authorities to move against senior bondholders was that, according to the advice available at that time, to do so would have required them, by law, to move against depositors outside the guarantee because senior bondholders and depositors were on the same line. It was a policy matter with the European Central Bank not to touch senior bondholders on the understanding that such a course of action protected all depositors. If there were to be a bail-in, we will seek to provide additional protection to deposits, even those in excess of €100,000. This means depositors would be ranked below senior bondholders in the hierarchy. The Deputy should note, however, that we are discussing an extreme scenario, one where we have a repeat of the Anglo Irish Bank case. Separating the sovereign from the banks removes the risk to the taxpayer but means some risk would accrue to depositors, albeit at the end of a long line.