Dáil debates

Friday, 17 October 2008

Approval of Credit Institutions (Financial Support) Scheme 2008: Motion

 

12:00 pm

Photo of Billy TimminsBilly Timmins (Wicklow, Fine Gael)

The bank guarantee stabilises liquidity. The scheme outlines in part what the guarantee is and places certain requirements on the financial institutions that participate in it. Fine Gael supported the guarantee and by extension will probably support this scheme because the country needs a banking system. Without the guarantee, we may not have had one today. However, we are taking a leap of faith. We do not have documentary evidence of what exactly the situation is in the banks, but the Government should have. We know that currently the markets do not have great confidence in our banks. Today, share prices in the financial institutions remain almost as low as ever. People must have access to credit, which is necessary for the economy to operate and survive. The steps taken to date, including today's scheme, will not address the problem, which is that our financial institutions are not in a position to lend to people who wish to operate in our economy. They will need capitalisation and, however unpalatable that may be politically, it must and will happen. The Minister should address this matter in his response. The Government is avoiding the issue. This is just the second step we have taken but more steps are necessary. The Minister should outline to the House his views on capitalisation. The kernel of this issue and the reason Fine Gael has supported it is that the country requires a sound banking system in order for the economy to operate. A banking system is good only if it releases credit to innovative entrepreneurs but to date that has not been possible. This scheme will not make it possible and the Minister must be honest about that.

How can institutions that operated at a loan ratio of almost 25:1 for over 20 years now revert to an 8:1 or 9:1 policy without receiving funding to assist them in doing so? This scheme is very vague and we have many criticisms of it. However, at a minimum it must end reckless lending. The day of the developer is over, but where a money bubble exists some product will always fill the vacuum, like the tulip in Holland and land in Ireland. When one has an over-supply of money, production will increase where there is a finite availability or where it is not subject to international pressure.

The Government is responsible for the economy and now stands indicted because it allowed a mind-boggling increase in money supply. It can point a finger at the Central Bank and the regulator, but the Government is ultimately responsible. For the past ten years, I have heard it said that the Government was responsible for the fantastic economy we had, but it allowed a money bubble to develop and did nothing about it. We are here today because the Government spent money blindly. The international financial situation is a separate issue and while the Government does not blame itself for the global crisis, it stood over the creation of a money bubble, allowing it to develop. The onus of responsibility for the public interest did not lie with the regulator, the Central Bank or the financial institutions; it lay with the Government, which did nothing about it. The bubble has now burst due to the contraction in bank credit. The failure to control money supply is the Government's fault. We must create a public interest requirement for financial institutions and services, similar to the Hippocratic oath for the medical profession. At present there is no public interest remit, just an emphasis on the institutions producing a profit for shareholders.

This scheme has many shortcomings. There is no definitive risk policy and it is in the hands of those who have failed to date. In addition, there is no requirement on the institutions to give credit and they will not do so under this scheme. I am concerned about non-Irish banks funnelling funds into their Irish operations. Both the explanatory memorandum and the Minister's speech refer to the fact that covered institutions can be required to improve, among other things, their solvency and liquidity. How can they do so under this scheme, however, even if such a requirement is placed on them? I also want to know why the reference to EU policy has been changed from "will" to "may".

This scheme represents one small step, but it is not the solution and we should not pretend otherwise. The Minister should tell us what he is going to do about the banks. Will he say that the financial institutions will give credit once this scheme is passed? He will not do so, but let us hear why. The ultimate responsibility for this crisis, stemming from the over-supply of money, rests with the Government side of the House. While not having access to all the information, we are properly supporting this measure on the basis of good faith and in the national interest. We realise that the economy cannot survive without access to credit.

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