Seán Fleming (Laois-Offaly, Fianna Fail)

I welcome the opportunity to contribute to the debate on the Credit Institutions (Financial Support) Scheme 2008. The approach taken by the Government has been absolutely ingenious. They have provided a safety net for the banking and financial system without, thus far, having to write a cheque for a single euro. This is something that has not been achieved in other countries, where taxpayers have seen their hard earned money invested in banks by way of capitalisation. We have achieved a level of stability without having to do so. The guarantee provided under this scheme has been enough to ensure the continued functioning of Irish-owned financial institutions and others operating in the State.

There is a misconception that the banks have already received this guarantee. However, until this scheme is sanctioned by the House and the financial institutions apply to avail of it, all that has been provided is the Government's announcement that the safety net will be operable for those who need to avail of it in due course. That Government statement in itself has taken much of the pressure off the banks. The Government was correct to allow two weeks to work on the details.

There is a worldwide dimension to the difficulties we face. Ireland is a small, open economy in a global trading situation. The regulatory system in this State is no better or worse than those in place elsewhere. Regulators worldwide, starting with those in the United States, have failed in their roles. The debate in the United States is between those who argue that there has been insufficient regulation and those who claim there has been too much. The same argument applies in Ireland and both sides are correct. We have had excessive regulation in regard to micro items which affect individuals, such as overcharging on credit card and overdraft interest, the introduction of new charges, late payment of direct debits and so on.

However, there has been no effective regulation of the prudential and financial stability of financial institutions. In common with other jurisdictions worldwide, we have suffered as a result of a failure of regulation which missed the big picture and focused instead on the micro issues and tabloid calls for the banks to be hauled in about overcharging. Those types of issues are being dealt with. The focus has been too much on that level of activity and not on the principal job at hand.

I welcome the provision in the scheme that the regulatory authority will focus on liquidity requirements, capital adequacy, risk management, balance sheet structure and corporate governance. This will involve additional regulatory provisions, as appropriate, to reduce the risk in the balance sheet, reflecting current domestic and global conditions. That is the principal job of a regulator but it has not been done worldwide. Instead, regulators have focused on the small issues because they were afraid to look at the major issues. The best action the Governor of the Central Bank and the Financial Regulator can take is to ensure the financial stability of the institutions. There is no point in talking about overcharging on a current account if the institution in question is going down the swanny. We must return to basics.

The proposal on the charges to be levied on the institutions is well balanced. While there have been calls to penalise banks, this would merely increase existing difficulties by reducing their cash flow. The purpose of the scheme is to ensure they have adequate capital resources. Penalising banks is counterproductive and the advocates of such an approach do not understand the nature of the current difficulties. There must be a balance. The cost of State borrowing has increased marginally as a result of the announcement of the guarantee. There have been claims that the charge to the Government should include an additional risk. That risk is factored in——

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