Pat Rabbitte (Dublin South West, Labour)

The motion before us in the name of Deputy Richard Bruton is a fairly broad and comprehensive resolution. It could be said this motion relates to the restoration of confidence in the management of our economy. The first element of the motion is the need to take control of the direction of the public finances, a debate which to some extent we have already had. The second aspect is the banking crisis and the chicanery at senior level in some of the banks up to now, the crisis of confidence this has caused among the public and the disbelief it has caused among the international investment community.

One gets an idea of how serious is the situation when one reads an article in last Monday's The Financial Times wherein the author refers to what happened during the exchange rate mechanism when Britain eventually fell out of the system. Although he makes the point that clearly one cannot bet on exchange rates in a monetary union, he points out what can and is happening. The article states:

Thanks to credit default swaps you can place convenient bets on the break up of the eurozone. Last week speculators bet on an Irish default and these bets made it more expensive for Ireland to refinance its debt thus threatening to turn into a self-fulfilling prophecy.

The gravity of this does not need to be underlined. The immediate impact of this is, of course, an increase to this State in the cost of borrowing. If the investment community were to target this country in that fashion, the situation would be so serious we would require the protection of other eurozone States. For this reason, we need to get our banking system right. So far, we have failed to do this.

I heard on the news this evening that the Bank of Ireland has appointed a new chief executive, an internal appointee, Mr. Richie Boucher, whom I wish well. However, having regard to everything that happened, I would have thought we might have gone outside, at least the bank if not the country, to fill this position. Also, the bank has stated it will not disclose his pay rate. One wonders if any lessons have been learned.

The former chief executive of Bank of Ireland complained on television that his income this year would fall below €2 million. Notwithstanding the notoriety those remarks attracted, the bank now says it will not disclose the remuneration of the new chief executive. The manifest unfairness of this is driving people crazy in terms of the recently adjourned debate in respect of the pension levy. Tens of thousands of public servants have stated they do not mind playing their part if others play their part too. Now, the wealthy elite tell us the remuneration of the new chief executive is none of our business.

I would like now to focus on the regulatory system. It is often said bankers who become greedy will do what some greedy bankers do. However, one would expect the regulatory system to police the banking system. Quite frankly, this has manifestly not been happening. Following the DIRT inquiry, then senior council Michael McDowell was brought in to draft a report on regulation. A tug-of-war ensued between the two parties in Government following which we had the hybrid creation of the Irish Financial Services and Regulatory Authority, IFSRA, which was neither stand-alone nor within the aegis of the Central Bank, although in many senses, and in more senses than the obvious, was under the roof of the Central Bank aggravating the cosy club mentality that exists between senior bankers and regulators in this country.

While there are advantages to the smallness of Irish society, there are also disadvantages. I believe this to be a cosy club. The more one examines what happened the more likely one is to come to that conclusion. I do not say this by way of denigrating the decent people employed by the Regulator or in the Central Bank. How in the name of God could what has happened have happened with all of the adverse serious implications for our international reputation? How could the regulatory authority, with 388 people costing €58 million per annum, not for one, but for eight years, have missed the directors' loans issue?

It is clear from the statements from Irish Life & Permanent that people are massively aggrieved at the manner in which they are being treated in public, which will certainly raise a number of eyebrows. Why should they be aggrieved? They are aggrieved because they are under the impression that these practices between the financial institutions were, if not approved, condoned and tolerated. There is a good deal of evidence to suggest that the word went out that a blind eye would be turned if the green jersey was donned and these transactions between the financial institutions were carried out. One can say the transaction that caused everything to eventually blow up was that of Irish Life & Permanent misrepresenting two significant lodgements as a normal depositor's transaction some few hours after the bank guarantee was introduced and on the same day as the financial year end. One could suggest that was a step too far but the view in some circles is that this was condoned, that inter-transfers to support the banking system were given the green light by the regulatory authority and acquiesced to. All of the evidence to date — we may change our view when we have all of the evidence — suggests that was the case. This is a serious situation for us.

Why the regulatory authority is now involved in investigating what went on defeats me. Currently, three investigations are taking place. How can one expect the regulatory authority to investigate its own role? This was a case of regulatory capture. The regulator was captured by the banking system, got too close to it, sailed too close to the sun in good times, came acroper in these times, and as a result we need to, as the motion provides, remove the board of the regulatory authority. Also, we need a new stand-alone regulatory mechanism, preferably with an international dimension. The same people are in place, as the appointment in Bank of Ireland this evening bears out. The bank did not search outside; it appointed one of its own. He may be an excellent manager; I hope he is and wish him well, but that is the way things operate in this country. We need a new stand-alone regulatory authority and the current board should be moved aside. I do not wish to cast any reflections on the people who work there, but the culture that has obtained up until now has put us into very deep difficulty and seriously and adversely impacted on the reputation of the country abroad. That change is critically important in terms of the future solvency of the country.

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