Brian Lenihan Jnr (Dublin West, Fianna Fail)

I will answer the Deputy's question in two parts. First, with regard to the immediate steps, the Financial Regulator will recruit an additional 20 senior supervisory staff with banking experience to be placed on site in key banks to monitor developments. I referred in the course of the debate to the fact that it is quite easy to recruit good people at present. The Financial Regulator also requires the banks to set out new business plans focusing on the need to reduce their risk profile and to ensure their models of banking are sustainable in the new environment. The regulator will apply enhanced reporting obligations regarding capital, asset quality and individual large loans to supplement our daily liquidity reporting requirements. Other measures will be announced in due course.

Deputies Bruton and Burton raised the issue of the absence of detail. The scheme sets out a range of additional requirements that must be met by the banks. The board of the Financial Regulator has confirmed that to police the operation of the scheme and to reflect the new developments in financial markets, it has decided to introduce a more stringent regulatory regime to apply to all banks covered by the scheme. This regime represents an intensification of measures already introduced by the regulator as well as the imposition of significant new requirements. The measures will focus in particular on the management of credit and liquidity risks and the need to ensure adequate funding to meet the borrowing requirements of the economy.

The elements of the new regime include a requirement that each covered institution will demonstrably strengthen its overall risk assessment model for credit, liquidity market and operational risk to take account of the changed economic, investor, international market conditions. There will be a requirement for each covered institution to agree a risk mitigation plan with the Financial Regulator. This plan must include not only an evaluation of strategic options but also management and governance arrangements for its business activities. In addition, covered institutions must implement the terms of the agreed plan and must report any variance from it. It will be open to the regulator to require the plan to be reviewed at any time. A key component of the plan for the institutions covered by the scheme will be to review the cash flows and funding schemes in place to manage liquidity and each bank's approach in these matters will be subject to any requirements that the Financial Regulator may impose.

I have outlined to the House the steps already being taken by the Financial Regulator. This is one half of the issue raised by Deputy Barrett. A very interesting issue raised by him was that in the era of the past two decades considerable confusion has developed in the name of capital liberalisation with regard to the traditional identities of banking institutions, so that insurance, traditional retail banking, wholesale banking and building society operations have become merged and blended in different institutions. This is a second elephant in the room which will have to be examined but I do not think it is as urgent and requires examination as urgently as the first one.

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