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

I thank the Select Sub-Committee on Finance for inviting me before it to discuss the Dáil motion on the proposed ratification by Ireland of the intergovernmental agreement on the transfer and mutualisation of contributions to the Single Resolution Fund, which will enable the subsequent ratification of the intergovernmental agreement, IGA, to the Single Resolution Mechanism, SRM. This Dáil motion is a component part of the overall ratification process, with the other major element being the enabling legislation in Part 2 of the Finance (Miscellaneous Provisions) Bill 2015. This legislation, which we will discuss later, is short because the Attorney General indicated that the core points of function of the Minister and the power to spend are all that need to be dealt with in primary law. The remaining commitments in the agreement are binding on the State at state level only and do not, therefore, require domestic legislation to give effect to them.

The requirement for the motion arises from the same Attorney General advice which indicated that as the intergovernmental agreement constitutes an international agreement under Article 29.5.2 of the Constitution and, as it deals with funding and involves a charge on public funds - albeit that the contributions will be raised at national level in accordance with the bank recovery and resolution directive and the SRM regulation - Dáil approval is required. It is necessary, therefore, for the Minister for Finance to propose to move a Dáil motion accordingly.

As members are aware, there is a requirement for the member states to ratify the IGA before 30 November in order for the Single Resolution Mechanism to come into force by 1 January 2016. Some 90% of the aggregate of the weighted votes of all participating member states is required for this to happen. As members will appreciate, the SRM is a very important part of the banking union agenda and failure to meet this deadline would be a major embarrassment for the banking union project and could undermine its credibility. Consequently, I am seeking members' support for this Dáil motion.

The IGA was negotiated in order to enable the Single Resolution Fund, a key element of the Single Resolution Mechanism, to be operationalised. The Single Resolution Mechanism is the second pillar of the banking union and will ensure that if a bank subject to the Single Supervisory Mechanism, SSM, faces serious difficulties, its resolution will be managed efficiently with minimal costs to taxpayers and the real economy through a single resolution board and a Single Resolution Fund, financed by levies imposed on the banking sector. What this means in practice is that should any of our three major banks get into financial trouble, the decision about putting it into resolution will be made by the single resolution board rather than our domestic resolution authority. In addition, where bail-in of shareholders, capital instruments and eligible liabilities is insufficient to cover losses of the bank in question, then there will be access to funds from the Single Resolution Fund. This has the aim of breaking the link between banks and the sovereign and thus avoiding a repeat of the issues faced by countries during the recent financial crisis.

It should be noted that the target level for the Single Resolution Fund is at least 1% of the amount of covered deposits of all credit institutions authorised in all of the participating member states, which is to be reached at the end of eight years. This is estimated to be in the region of €55 billion. We estimate that the contribution of Irish banks to the Single Resolution Fund will be €1.8 billion over the eight years, which amounts to approximately €225 million a year. The banks' annual contributions will be calculated on the basis of their liabilities, excluding own funds and covered deposits, and adjusted for risk. The contributions paid will be a normal operating expense for banks, including State-owned banks. A transition period of eight years to full mutualisation or pooling of the Single Resolution Fund was negotiated. This requires that contributions from the banking sectors of the participating member states be paid into national compartments or accounts within the Single Resolution Fund during the period. This was facilitated by the IGA. This structure enables the progressive mutualisation or pooling of the fund by requiring that in the event of a call upon it, the national compartment of the affected member state pays first before, if necessary, the other compartments make a contribution. As the transition proceeds, a smaller percentage is taken from the affected national compartment and a greater percentage is taken from the other compartments, until after eight years when full mutualisation or pooling occurs. From that point, any funds required for the resolution of a bank or banks will come from the Single Resolution Fund as a whole.

In summary, therefore, the main purpose of the IGA is as follows: first, to transfer the contributions raised at national level in accordance with the bank resolution and recovery directive and the SRM regulation to the Single Resolution Fund; second, to allocate, during the eight-year transitional period, the contributions that are raised at national level to different compartments in the Single Resolution Fund corresponding to each participating member state; third, to facilitate the progressive mutualisation of these compartments in such a manner that they will cease to exist at the end of the transitional period; and, fourth, to prescribe how the Single Resolution Fund can be applied during the transition period.

It should be noted that the reason these changes could not be accommodated within the SRM regulation is that a number of member states argued that Article 114 of the Treaty on the Functioning of the European Union did not provide an appropriate legal basis to do so. Consequently, it was agreed that this issue should be dealt with through an intergovernmental agreement which could be formally ratified through national legislation.

As noted at the outset, the passing of this Dáil motion is an essential part of the ratification process for the IGA and I would appreciate the members' support for the Dáil motion that I have submitted for their consideration. I am happy to take any questions or provide any clarifications to assist the committee in regard to this matter, including any questions on the related legislative provision in Part 2 of the Finance (Miscellaneous Provisions) Bill 2015, if members think it appropriate.