Brian Lenihan Jnr (Dublin West, Fianna Fail)

I regret to say President Obama has backed off that proposal already.

I move amendment No. 1:

To delete all words after "That" and substitute the following:

Dáil Éireann:

notes that the Government has taken determined and decisive action to restore, through the bank guarantee scheme, recapitalisation and otherwise, the health and reputation of the financial system;

notes that the Government has engaged with the European Commission and the ECB on the development of a common framework on recapitalisation and has contributed to the development of a common approach to bad debt resolution;

notes that the Current Board of IFSRA is engaged in an extensive and personnel intensive investigation of issues which have arisen in Anglo Irish Bank in co-operation with the Office of the Director of Corporate Enforcement and the Garda authorities;

notes that the ongoing investigation has a criminal dimension and urges all Deputies to exercise the restraint essential to any successful prosecution as appropriate and otherwise;

affirms that the Irish economy needs a functioning banking system that enjoys the trust of depositors, international markets and the community at large in order to withstand the current economic and financial position; and

supports the Government's structured and measured approach to the issues facing the financial sector and represents the best way to secure the position of the financial services sector generally while keeping in mind the requirements of the EU and the interests of the State.

This approach includes:

the guarantee on deposits up to September 2010 to stabilise the funding position of the banks and add a further level of protection for depositors;

the recapitalisation programme of Allied Irish Banks and Bank of Ireland and the commitment to look at the needs of other institutions;

the nationalisation of Anglo Irish Bank, necessitated by particular circumstances at the time, to provide protection and support;

consideration of further interventions, including possible extension of the guarantee for limited purposes and the reduction of risk associated with assets;

review and reform of the structures, role and functioning of the Financial Regulator and the relationship with the Central Bank in light of the current situation.

The stated intention of the Minister for Finance is:

to bring proposals in this regard to Government as a matter of urgency;

the ongoing commitment to work with the EU to frame a common approach to the issues faced by the financial services sector; and

to progress work already commenced in relation to remuneration of senior executives and board members in Allied Irish Banks and Bank of Ireland in light of the report of the Committee (CIROC), headed by Mr Eddie Sullivan, which is due to report on this matter by 5 March 2009, and which will include a cap on the salaries of senior executives.

Dáil Éireann:

expresses its confidence in the Government's measures to stabilise and revitalise the banking system.

In proposing the amendment to the motion, I am pleased to present to the House the Government's measured and structured approach to issues facing the financial sector. This strategy is the best way to secure the position of the financial services sector while keeping in mind the requirements of the European Union and the interests of the State and the taxpayer.

While commentators here are naturally very focused on our internal problems and we are all focused on them by the difficulties in accessing credit, it is important to put the banking crisis in a global context. Governments across the world are grappling with the collapsing confidence in the global financial system and are intervening in various ways to try to achieve the best possible outcomes for their countries. It is important therefore to understand what I see as the Irish strategy.

I am keen to ensure there is an independent banking sector in Ireland. That requires us to protect systemically important banks and avoid nationalisation of these institutions if at all possible. My aim is to ensure there continues to be competition in the Irish market for consumers. To that end, we are seeking to ensure that Bank of Ireland and Allied Irish Banks continue as a strong and competitive banking presence in the marketplace. Given the uncertain position of the UK and foreign owned banks, we would ideally like to see a third significant Irish player in the banking sector.

The prerequisites for the success of this strategy are sufficient liquidity in the system and adequate capitalisation of our banks. The Government guarantee scheme introduced in 2008 was designed to ensure that the banks would have sufficient liquidity to operate on a day-to-day basis. This move has since been followed by many other countries.

Market expectations with regard to the capital that banks hold have altered significantly. As a result banks have had to compete vigorously for deposits and other forms of funding in a weakening economic environment. Banks have been also forced to seek capital in an unwilling and unfriendly market, resulting in an array of State recapitalisation programmes across the developed world. It is in this context that we have announced our plans to capitalise the two main banks. In due course, we will examine the remaining institutions.

In this challenging period for the banking sector, when investors dealing with banks are even more risk conscious, the good standing of a bank, its reputation and a strong ethos of corporate governance through its board and senior management becomes even more important. There have been important issues for the Government to address in taking on this role, at a time when we have also to ensure fiscal prudence, taking difficult decisions to ensure our competitiveness internationally.

The Government is providing €3.5 billion in core Tier 1 capital for each of the two main banks. The capital to be provided to each was determined following detailed engagement with the banks themselves, and with the benefit of survey information of the bank's loan books, which was conducted for the Financial Regulator by PricewaterhouseCoopers. A careful assessment was made of the potential losses that the banks face on their loan books in the coming years, taking into account the impact of likely trends in property values and various stress scenarios for the economy. I was criticised in some quarters for being slow to proceed with a recapitalisation of our major financial institutions, but I strongly believe that the time spent on assessing as accurately as possible the capital requirements of each bank, was worthwhile in terms of the assurance that can now be offered to the markets on the levels of capital in the two largest banks.

The level of capital being provided by the State will boost the core Tier 1 capital ratio of AIB to 8.5% and that of Bank of Ireland to 9%. It is important to note that these are high capital ratios by international standards. The banks will therefore be in a strong position to raise the funding they require on international markets and withstand loan losses arising.

The continued flow of credit is vital for our economy. To establish the exact position regarding the availability of credit, the recapitalised banks have agreed to fund, and co-operate with, an independent review of credit availability which will be managed jointly by the banks, Government and business representatives. The recapitalised banks have also agreed to work closely with the IDA, Enterprise Ireland and with State agencies to ensure the supply of appropriate finance to contractors engaged on major projects sponsored by them. They have also agreed to engage in a clearing group to identify specific patterns of events or cases where the flow of credit to viable projects appears to be blocked and to seek to identify credit supply solutions. The two banks have also agreed to provide €15 million each to a new seed capital fund.

The international credit crunch is severely limiting the availability of credit to sound businesses and thereby doing severe damage to our economy. The bank customer package announced as part of the recapitalisation programme addresses this problem in several ways. First, the banks have agreed to make additional funds available for lending. Second, a statutory code of conduct for small and medium sized enterprise, SME, lending has been devised to help create a better balance for such lending and to give potential borrowers greater confidence. This covers all banks, not just those recapitalised. Third, the independent review of credit availability will give a definite picture of the current supply, demand and conditions for business lending.

In addition, on 13 February 2009 the Financial Regulator published statutory codes of practice on business lending and mortgage arrears and these apply to all banks. The business lending code includes a requirement for banks to offer their business customers annual review meetings, to inform them of the basis for decisions in relation to their accounts and to have written procedures for the proper handling of complaints. Decisions to grant, refuse or alter credit must be taken on a case by case basis. Where a customer gets into difficulty the banks will allow reasonable time to seek to agree an approach to resolve problems and to provide appropriate advice. I stress that this is a statutory code and banks will be required to demonstrate compliance.

The code of practice on mortgage arrears applies to all mortgage lending on a customer's principal private residence. A lender may not seek repossession until every reasonable effort has been made to agree an alternative repayment schedule with the borrower. The code will ensure that mortgage lenders can commence legal action for repossession only six months from the time arrears first arise.

I want to address issues relating to Anglo Irish Bank. In January, against a background of concerns about governance issues and market confidence in Anglo Irish Bank, the Government, following consultation with the Central Bank, the National Treasury Management Agency and the Financial Regulator, decided to take Anglo into public ownership. This decisive step was taken to safeguard the interest of the depositors of Anglo, and the stability of the economy.

The Government, along with the entire country, has been shocked by the revelations of practices in Anglo Irish Bank and, as I have said time and again, we are fully committed to getting to the bottom of the position and ensuring that the full rigours of the law are applied to anyone who is found to have abused the system. We will fully investigate the loans to Seán FitzPatrick, the Seán Quinn share transaction and the Irish Life & Permanent deposit arrangement. Any further issues that may emerge will also be dealt with by appropriate action but we remain fully cognisant of, and committed to, upholding the principle of natural justice.

It is now vitally important that the country regains confidence in its banking system. There are many thousands of loyal and hard-working banking staff who are shocked at recent revelations. It is important that they, and the public, can be reassured about the long-term future of the financial sector in Ireland. Collectively, we need to give the international markets confidence in the long-term future of Ireland's financial sector. Continued revelations of alleged malfeasance damage us individually and collectively. Above all else, they cast a severe slur on the reputation of the country overseas. It is incumbent on all of us, including the media, to ensure a balance is struck between the exposition of past wrongdoing and the solidity and proper functioning of a significant and important part of the country's infrastructure.

There is no doubt that we inherited problems in the banking sector. There has been much comment about how they might be resolved. Deputy Bruton referred to it as a legacy issue. As I said in my recapitalisation statement, the Government is prepared to examine proposals, such as the establishment of an insurance scheme or the creation of a bad bank. Other innovative Irish solutions may be needed to deal with the problem. As Deputies may know, I have appointed Dr. Peter Bacon to work in conjunction with the National Treasury Management Agency to compile a report and to advise me on suitable options in this area. Members should not be under any illusions — the option that has been canvassed in this House and elsewhere is an expensive one. Giving the guarantee may result in a payment being made back to the State and the decision to recapitalise may result in the State obtaining a return on its investment, but the decision to provide some form of protection in regard to risk assets in the banks will inform a substantial up front commitment, or deferred commitment, on the part of the State.

There was considerable debate and discussion on this topic at a recent meeting of the Economic and Financial Affairs Council of the EU. Member states expressed a desire for an EU-wide response. Deputies will be aware that the British Government has examined many possible options in this area. It may announce a scheme in the coming weeks. I firmly believe there is no huge benefit to being first out of the traps with a solution on this issue. The best approach is to learn from other experiences and to move as quickly as possible when a scheme has been devised that uniquely suits the Irish circumstances.

It is universally accepted that bank regulation on a global scale has been too lax. Ireland is no exception in this regard. It is clear that a new structure is required. I am committed to its implementation. I have already indicated in the House that this may involve the merger of the Financial Regulator and the Central Bank. I am close to securing international expertise to advise me further on this matter. While such expertise might guide me, it will not take the form of a consultancy. Decisions must be made by the Government. I will bring proposals to the Government in that regard. As the House will appreciate, the oversight of the banks has been greatly intensified since the introduction of the credit institutions financial support scheme. The new regime provides for heightened direct engagement with each of the covered institutions. It also provides for new reporting arrangements, including the provision of scheme compliance certificates by the covered institutions and their external auditors.

The requirements and conditions of the bank guarantee scheme represent the first step in a new system of financial regulation and supervision. The joint boards of the Central Bank and the Irish Financial Services Regulatory Authority are considering further reform measures. I have received a report in that regard. I will examine it closely. Other regulatory considerations, domestically and at international level, are under way. The Financial Regulator is reviewing its overall strategic regulatory approach to ensure it meets its statutory mandate and responds to EU developments in financial regulation. The regulator's business process review, which is designed to improve the effectiveness and value for money of the regulator, is close to conclusion. The Financial Regulator is processing its strategic plan for 2009. At EU level, new regulatory proposals, including improvements to the Capital Requirements Directive, are due for adoption in early 2009. More generally, the Economic and Financial Affairs Council will incorporate the work being carried out at a wider international level.

The roles and mandates of national regulators are the subject of deep consideration. Proposals will be made on matters such as prudential soundness, the orderly functioning of markets and stronger European co-operation on financial stability oversight. There is no doubt that there needs to be accountability in the financial sector for what has happened. That is not an issue in this House. A number of senior personnel have stood down for various reasons. I have made it clear that more will follow when appropriate. The EU has been consulted at all stages regarding any involvement in the banking sector. In the next few days, an EU high level group will unveil its blueprint for reforming the financial system. This is one of several topics I will discuss with the president of the European Central Bank, Jean-Claude Trichet, when he visits Ireland on Thursday. It is essential that we work with our EU counterparts, the European Central Bank and the European Commission to ensure that a consistent and decisive approach is adopted to allow us to emerge from this difficult time with a strong and well-regulated banking system.

I have made it clear that there will be a new pay regime in the Irish banking sector. It is imperative that this regime is organised in a way that ensures that rewards in the sector are structured to meet the long-term objectives of the banking institutions and the overall health of the Irish financial system. The banks have accepted this in principle. Firm commitments to abolish bonuses and to reduce substantially the salaries of senior executives and directors have been made by Allied Irish Banks and the Bank of Ireland in the context of the recapitalisation scheme. The Government awaits the findings of the committee on remuneration, which was set up under the guarantee scheme at the prompting of many Members of the Oireachtas from all parties. The committee's findings will help us to flesh out and implement these principles. I am advised that the committee, which is led by Mr. Eddie Sullivan, will publish its report on 5 March 2009. I understand the report may recommend that the salaries of senior executives be capped. It is clear that remuneration in the Irish banking sector should not incentivise the kind of conduct we saw in the past, such as excessive lending. I am satisfied that bonuses have been eliminated during the guarantee period. Such abuses can be eliminated if there is a careful review of any incentivisation. It is clear that the salaries of many executives are way out of line with the salaries of comparable executives in Irish companies of a similar size and scale. In that context, it is essential that Mr. Sullivan's report will be brought to the Government for consideration at the earliest opportunity.

The Government recognises that the future prosperity of the country will be determined by the actions we take now. We have a strategy to deal with the complex problems in the banking sector. We have acted firmly and fairly in the national interest. The Government's approach to the banking system has been structured and measured. A priority for the Government has been to ensure that all interventions in the banking sector have as their ultimate goal the benefit to the taxpayer of ensuring stability and securing the position of the customers of the banks — account holders, mortgage holders, businesses and enterprises. I ask the House to support the amended motion and to provide the leadership needed to see us through this crisis. I ask Dáil Éireann to affirm its support for the Government's amendment.

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