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

I thank Deputy Donnelly for the good wishes and congratulations he extended to me and my officials, who are well worthy of the congratulations they received both here and in Brussels.

The bank resolution mechanism is complex because it is a new concept and new terms are being used. I will ask my officials to provide the Deputy with a user-friendly paper which breaks down the various ideas. I will try to simplify the process and perhaps it should be considered in the following manner. The Deputy will remember the concept of an institution being "too big to fail". The reason this concept was in the public consciousness, especially in the United States, was that a bank was considered to be too big to fail when its failure would bring down the sovereign. The opening position is that banks may no longer be too big to fail, which means not every bank that goes bust must be resolved. Instead of calling on taxpayers to bail out banks, the assets of the impaired bank will be used as a bail-in mechanism to liquify the assets to repair the hole in the bank in question. That is the general principle.

In proceeding with a bail-in mechanism, the assets covered by the bail-in are placed in a hierarchy, starting with the equity, followed by junior bondholders and, thereafter, senior bondholders. A guarantee will apply to deposits of up to €100,000, which will be sacrosanct and, therefore, exempt from the bail-in, and preference will be given to other depositors.

To distinguish between exemption and preference, up to €100,000 is guaranteed and exempt and preference would apply to individuals with deposits over €100,000 which would have preference, for example, over corporate deposits. The idea is that preference would be given to what, in law, is called "natural persons" with deposits over €100,000, that preference would also be given to SMEs with money on deposit and that the first line of deposits would be the corporate deposits of large corporations with large holdings. That is the way it runs on the deposit side.