Wednesday, 1 October 2008
Credit Institutions (Financial Support) Bill 2008: Committee Stage.
Kieran O'Donnell (Limerick East, Fine Gael)
In the context of the amendment put forward by the Labour Party, while we need the scheme to come into operation, it is critical that the terms and conditions would be brought before the House as a matter of urgency. Section 6(5) of the Bill gives no indication as to when these will be laid before the House and, furthermore, does not allow the House to debate them. Fine Gael has put down an amendment that would allow them to be debated and they should be brought before the House within three days of being ready. When will the Minister have the terms and conditions ready, given this is extremely important?
Liquidity and solvency are interlinked. In layman's terms, liquidity is cashflow and solvency is profitability. The current problem is that the capital requirements ratio within the banking sector in Ireland is lower than that of our international competitors. In Spain, for example, the central bank applied higher requirements for banks in that country and they are not experiencing the same problems as banks here.
What must happen here first, as a matter of urgency, is that we need to know the terms and conditions, and I ask the Minister to outline when he will bring them before the House. He should deal with the amendment put down by Deputy Bruton and allow the matter to be debated and voted on in the House.
Second, due diligence is now required for the banking system in Ireland. Where solvency comes in is with regard to the elephant in the room, which is bad debt. We read reports in the newspapers, including a report in The Sunday Tribune, to the effect that developers are at present considering writing down the value of their assets so they can obtain a refund of corporation tax based on what they paid in advance. Will the banks do the same? What is required first is liquidity, and I accept it is important the Bill has been brought before the House, but it is critical we also ensure there is solvency in the banking sector.
Section 6(4) states that, as far as possible, the banks will themselves pay for the cost of the supports. In the House yesterday, the Taoiseach stated that any shortfall within the banking sector would be made up by a levy on that sector. The key point is that we need to return the banking sector to liquidity and solvency but, equally, we need to protect taxpayers' money. While this is critical, the Bill does not deal with it satisfactorily. We need to make absolutely certain that we have proper financial regulation. The financial regulation system in place under the Central Bank and the Financial Regulator has failed. The Government is introducing an historic Bill to effectively give a personal, sovereign guarantee — our guarantee — on behalf of taxpayers, to the tune of €400 billion. That sum is twice our gross national product. This is monumental.
The key requirement is for us to see the terms and conditions as a matter of urgency, while allowing the scheme to go ahead because the banks are already borrowing on the inter-bank market with that guarantee in place. Last night, the Minister indicated he is in discussions on the terms of the guarantee with the National Treasury Management Agency. The banks are now able to borrow money at a lower rate of interest on the inter-bank market than they were two days ago. That benefit must be passed on to the consumer. In addition, the Minister is aware that his borrowings on the international market for the Government have increased in terms of Government bonds. That means taxpayers are paying for it. They cannot pay for it.