Brian Lenihan Jnr (Dublin West, Fianna Fail)

We can deal with that matter when that section comes up this evening — we are on Committee Stage. The maturity dates for the loans were becoming tighter and tighter for all of the Irish financial institutions and that was the particular crisis about which they were concerned last Monday evening.

Regarding the question of Ulster Bank, which was raised by several speakers, it is important that we are exact in our characterisation of banks other than the six banks referred to in this legislation. The six banks referred to in this legislation are domestic Irish banks. They are our responsibility. They would be orphans of the storm in international terms because they are not related to any other sovereign State.

All the other financial institutions in the State are ultimately owned by companies from another sovereign State which bear responsibility for them. I appreciate the points made by several speakers, including Deputy Kenny, on this subject. I understand one of the institutions, namely, Ulster Bank, has made an application to the Government and it will give careful and sympathetic consideration to that application. However, I cannot prejudge this evening any decision the Government might make on this matter. However, I wish to explain the position concerning the financial institutions other than the six named institutions in this legislation. They fall into two broad categories. Some have a corporate existence and are regulated here in Ireland. In other words, they are subject to Irish regulation. Some of these institutions, in addition to being regulated in Ireland and having a corporate base here, have extensive retail branch networks. On the other hand, some banks operating in Ireland are not regulated in Ireland as Deputy Deenihan pointed out some moments ago. They are regulated from their parent company because they have no separate corporate existence in Ireland and are not licensed by the Central Bank to provide banking services. It would be a very far-reaching step for the Government to guarantee a bank which was not regulated by the Financial Regulator. I make these points for the assistance of Deputies because I know they will receive representations from a variety of financial institutions about their position in the light of this legislation.

On the particular proposal tabled by Deputy Burton, I realise the Deputy understands the proposed amendment would be an unusual provision in legislative terms in that it has the potential to impact on the objective of the Government. There is a consensus in the House, which I was glad to see, about maintaining a stable banking system. It is essential we protect the interests of everyone in the economy and not just one sector. This Bill provides a legislative framework to underpin the guarantee arrangement. This is essential to protect the economy from a systemic issue involving our domestic institutions. Deputy Tommy Broughan was very critical of this Bill and suggested we should follow some solution that was adopted in Sweden more than a decade ago. I assure Deputy Broughan that the Swedish experience was very carefully studied by the Central Bank and by my Department and has influenced some of the approach in this legislation. I notice international commentary has compared the response and this legislation to the Swedish response in the early 1990s.

The banks will need to pay a significant price to reflect the value they are drawing from being underpinned by a sovereign guarantee. It cannot be a penal or a punitive rate. It is a principle that is accepted by everyone here that capital must be remunerated fairly for the risk that it carries but I will have no tolerance for any financial institution which seeks to exploit competitive advantage from this guarantee. I spoke to the chairman of the regulatory authority this afternoon about this very matter and it touches directly on a matter raised by Deputy Kenny in his contribution on the need to maintain regulatory vigilance and corporate presence in all of the institutions. We must be under no illusions. As a result of this legislation we are going very deep into the banking system and we must ensure that the taxpayer is protected in regard to that intervention.

Regarding the guarantee, it is my intention to calibrate the payment such that a balance is achieved in the market between those who benefit from it and those who do not. I have also said it is essential to ensure that the implementation of this measure conforms to our European Union responsibilities in regard to State aids and competition law. This was mentioned by a number of Deputies and I welcome the fact that the responsible Commissioner has already initiated correspondence with my Department and is anxious to have full information on the matter, and we will work closely with her. In her comments on this matter, she emphasised the fact that the Commission works with member states, not against them. I look forward to working with her in that regard.

A question was raised by Deputy Shatter in the course of the afternoon about the constitutionality of this measure. The Attorney General has considered this Bill in great detail and specifically the constitutional issue raised by Deputy Shatter upon which I have received written advice. The advice of the Attorney General is that the provisions in respect of the assignment of responsibilities to the Minister in this legislation are in accordance with the Constitution because there is no question of the Minister being vested with powers to draw up delegated legislation. Rather, the Minister is empowered to set terms and conditions in regard to financial arrangements with certain undertakings. Provisions of that type are commonplace in financial legislation.

The action taken reflected a national problem affecting our domestic financial stability and the risk of contagion between the domestic financial institutions as individual institutions were subject to particular stress and speculation. The decision was based on the advice and assessment of the Governor of the Central Bank and the chief executive officer of the Financial Regulator.

As I said in my reply to Second Stage last night, these institutions are our responsibility. They do not benefit from the protective embrace of an externally based company or institution. If they do experience difficulties, there is no onus on any parent to rescue them. The Government wishes to show its determination to deal with these issues that threaten the financial stability of the Irish economy.

Returning to Deputy Burton's amendment, at its core it reflects a deeply held concern that notwithstanding the highly significant events of recent days, as reflected in this legislation, in the fullness of time nothing will change. That fear was articulated by Deputies on the opposite side of the House this morning and this afternoon.

To try to address the concerns raised by Deputy Burton, Deputy Bruton and other Deputies, I want to update the House on the progress achieved in designing the scheme and my plans for it. My officials are working closely with the officials at the Central Bank, the Financial Services Authority of Ireland and the National Treasury Management Agency to design the scheme. Good progress has been reported to me and I would expect that following enactment of this Bill a scheme would be laid before the House early next week at the latest. The scheme will set out the basis upon which charges will be levied on the credit institutions benefiting from the State guarantee, the revenue it is expected to raise for the Exchequer and the conditions on which the guarantee will be granted under the legislation.

There are a number of areas in respect of which I have been informed by the debate in this Bill, and these are matters which will necessarily arise in the implementation of this legislation. The first is the need for individuals of the public interest perspective to be present on the board of our credit institutions. The legislation, as drafted, is wide enough to cover this contingency. Obviously, there are issues to be worked through with particular institutions in regard to the implementation of such a provision. Directors of boards, as Members are well aware, have fiduciary obligations to their companies first and foremost and not to any other body, including the State. The precise characterisation of such a directorate has to be worked upon and worked through but I am concerned that we should have individuals with a public interest on the boards of such credits institutions.

A second issue that arises is the need for codes of practice for the work of risk committees in financial institutions and close supervision of the activities of risk assessment. Again, this is being worked through by the regulator.

An area about which I am particularly concerned is the need for lending practices to favour enterprise that assists the sale and export of our goods and the export of our services.

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