Richard Bruton (Dublin North Central, Fine Gael)

Fine Gael has supported the mechanism of a guarantee on deposits. However, as we stated from the outset, we also seek maximum protection of the taxpayer in the implementation of this scheme. In the development of the scheme, the Minister has met many of Fine Gael's concerns in respect of bringing in restrictions on dividends, remuneration and having public directors on boards. I welcome much that is contained in this scheme. However, the Minister must recognise that he is asking the House to make an act of faith in his capacity as Minister, as well as that of the regulators, to implement these schemes effectively. In the course of today's discussions and question and answer session, Members will seek further details in respect of how the Minister intends to use the power he is being given to set standards, as well as on the standards he expects to see delivered. While it is all very well to have the enabling powers, the House will want assurances as to how he will use them. Although Members are providing the Minister with a big arsenal, they wish to see the rules of engagement. These matters are important in protecting the taxpayer.

Ireland was an early mover in bringing forward this guarantee scheme and undoubtedly set a standard of approach to dealing with the liquidity problem. However, Members also must be aware that matters have moved on considerably since that was done. Other countries are setting higher reserve standards. They have increased the capital reserve ratios that are expected of banks to 9% or 10%, which are much higher ratios than the Irish banks have at present. Members also must be aware that other countries have moved to examine the mechanisms through which banks in such countries will meet these higher capital requirements and how they will approach the issue of recapitalising their banks. The danger for Ireland is whether we still are up to the pace as the game moves on.

I recognise the assurances that have been given by the Minister and the regulator that our banks are adequately capitalised. Those assurances have been repeated time and again. Many in the House will want to ask questions about the basis on which those assurances have been given, the manner in which the value of certain elements of the loan books have been assessed and the auditing done by the regulator and the Minister on behalf of the taxpayer as to the quality of the loan book. Members will wish to ask questions in this respect today and I seek assurances regarding the adequacy of the capitalisation of Irish banks, particularly given the new regime that is becoming a reality across Europe, whereby higher capital requirements are needed.

I note the regulator has stated the banks are adequately capitalised in respect of the current requirements. However, the Minister has not dealt with the issue as to whether the current requirements have changed or whether Irish institutions are up with that pace. Undoubtedly, when one examines the markets, there still appears to be a view among investors that Irish banks have difficulties. The Minister must be alert to the fact that while this Act and this scheme may deal adequately with the first phase of this crisis, many people are sceptical about the assurances coming from the regulator and consider that the game is moving forward and that Ireland may not be moving with it.

Members wish to hear the Minister's views on the development, in the coming weeks and months, of his approach to using the great powers they have given to him. While he has dealt solely with the scheme today, all Members are sufficiently realistic to be aware the environment is changing rapidly and seek the Minister's views on how we will continue to cope in such an environment. We have not heard such a view from the Minister and there is an expectation that at some stage we will. The House will be forgiven for some scepticism about assurances delivered by central banks and regulators who have been caught breathless and late in respect of keeping up with the credit environment. Few hold the view expressed by the Financial Regulator that poor lending in the property sector is not a problem for our banking system and this view created a doubt. There needs to be some hard, blunt discussion about our capability to manage these powers and how we will utilise them effectively. These are powerful tools and we must ensure that they are properly directed. The House wishes to hear more from the Minister for Finance on how he intends to ensure we have the capacity and capability to use these powers effectively in an entirely transformed regime.

I recognise that the markets create an expectation and that where events occur in other countries the market can take a view that there is something slightly amiss in even very strong banks which are adequately capitalised. I recognise these are difficult waters the Minister for Finance is treading. However, we must hear more from him today on how he intends to build the capability to deal with these new powers and also how he plans to deal with the developing situation that we see in other countries.

There are many positive elements in the scheme. I welcome the decision to have an observer on the risk assessment committees and other important committees within the banks. I welcome the powers on dividends, as suppressing dividends is one very practical measure open to the banks to rebuild their capital base, which is important. I also welcome the provision for controls on bonuses, remuneration packages and some of the toxic approach to risk-taking that was endemic in the banking system. I welcome the provision for a public interest director and the associated new powers in that respect. However, the whole issue is how the Minister for Finance uses these powers and what the guiding principles will be for dividend policy, remuneration packages, applying these powers and what he expects from the observers on the risk assessment committees and other boards and how they report back to the Minister for Finance or the Financial Regulator. We have not heard from the Minister on these matters. We need to hear more about how the observers will play a part in these committees and protect the taxpayers' interest.

I presume the Minister for Finance is taking powers to ban certain practices relating to trading in derivatives and so on. We need to hear if the Minister has explicit plans. Are there guidelines for activities that will simply not be permitted? We have not heard from the Minister on these issues. The Minister needs to furnish the room as well as providing the raw architecture for the building and what it will look like.

I raise specifically the role of the public interest director. We hope this position will have an important role in protecting the taxpayer. However I am sceptical, because if there is no mandate for this position, and I see no such mandate in the scheme, and if we are told the post will still have primary responsibility to the shareholder, how then can we have confidence that this person will represent the taxpayers' interest and not just the interest of the shareholder? There is clearly a conflict here that the Minister has not reconciled in law. Will company law need to be changed so that the concept and the independent role of a public interest director is recognised in law? The Minister's approach does not provide for this and it undermines the confidence we can have in the role of the public interest director. We need to know how the public interest director will be accountable to the public. Will he or she appear before the Financial Regulator, the Minister for Finance or the Oireachtas to report on his or her role in protecting the public interest?

While the scheme, rightly, has much emphasis on getting a correct prudential control of lending, provision to ensure the flow of credit to ordinary business and families is missing. Other countries have set about issuing guidelines to the banks on how to guarantee that the credit flow necessary to businesses and families will continue. Clearly, many business are not getting the credit flow they need. The Minister for Finance needs to be more forthcoming about how he will use the powers in the scheme, if he intends to use them at all, to ensure that ordinary families and businesses get access to credit. This is the reason for the scheme. It is to ensure ordinary families and business are not adversely affected by the banking crisis. We must ensure that in responding to the crisis the Minister for Finance has some categorical assurances that ordinary families and business will be catered for. We must see such assurances. What is to prevent a bank deciding to invest in property in Poland when we require something else? We must know what principles the Minister for Finance will apply. Will there be explicit bans on certain types of lending and so on?

The Minister and the Taoiseach have repeatedly said the banks will pay for the guarantee with charges. We were told at the outset that the banks would be subject to a commercial charge for the credit guarantee which is a form of insurance policy provided by the State. I do not believe the method of calculation used by the Minister for Finance fulfils the expectation. The Minister says he will charge the banks the extra cost to the taxpayer of public debt as a result of the guarantee. This is not what an arms length provider of insurance would charge to a bank for such a service. This is simply a cost-based calculation. There is scepticism about how the cost was calculated.

I understand the Minister has taken a premium of 15 to 30 basis points, applied this to the public debt, calculated an amount over ten years, and stated that it must be recovered in two years. If this is the mechanism, it seems there will be considerable room for argument afterwards, perhaps even legal argument in the courts. For example, does all Government debt turn over in a ten-year period? Is the cost on top of public debt, which is the method of calculation according to the Minister, correct at €500 million? The sum of €500 million has no standing in the Bill. Most people expected that the method of calculation would take account of the liabilities guaranteed, the cost of protecting them, the cost of insurance to those liabilities, and calculate the charge on that basis. This would be robust basis for calculation and would not be open to legal challenge. However, the route down which the Minister is going may be open to challenge and legal argument about whether €500 million is the actual cost in applying these principles. I am surprised about the basis on which the charge has been calculated——

See this speech in context