Michael Ahern (Cork East, Fianna Fail)

It is hard to believe the banks of the world, which have hundreds of years of experience and which are subjected to so much regulation, are collectively on the brink of failure. There are so many guidelines, rules, regulations, laws and oversight procedures that it is almost impossible to fully convey their pervasiveness and extent in modern banking.

What has happened in recent weeks is a result of many problems coming to a head at the same time, the most important of which is the need for liquidity. The Government's guarantee scheme, aimed at solving the liquidity problem, does not come free. Aside from the €1 billion charge to the industry, specific controls on banking activity have been sought and are outlined in the Act. They range from guidelines on executive pay and bonuses, to the monitoring and reporting of over-exposure to one customer or sector, to new risk-management measures. The Government is correct to ensure a strong presence in return for such a significant guarantee from the taxpayer.

That these kinds of controls are necessary at all reflects the failure of the existing system of checks and balances. If the banks' chief executives have made mistakes, there is a wider failure on the part of the banks' boards of directors in allowing them to happen. The task proposed by the Government of keeping an eye on the banks should have been done by their boards, particularly the non-executive chairmen and directors, and their regulators.

It would be interesting, from a corporate governance viewpoint, to know about the performance of the non-executive directors of the banks during the years of frantic lending to parties in the property sector. What questions did they ask? What answers and assurances did they receive to allay their concerns? What have they been saying and doing within the confines of the boardrooms in recent weeks and what changes will they introduce following their examination of the lessons learned? Have they sufficient reason and voice to demand that certain persons be held accountable and that systems procedures and practices need to be changed? The measures now sought by the Government should have been covered by the corporate governance and regulatory framework that already existed.

Banks do not operate in isolation from the other sectors of society, nor do countries or economic blocks operate independently of each other. Banks are so big and important that every Western economy seems to have decided it is cheaper to support them rather than allow them to fail, and then try to rebuild them and their economies from the wreckage. The decision taken by the Government will ensure that Irish banks will operate as competitive, profitable private-sector entities, thereby ensuring the continued growth and development of our economy.

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