Arthur Morgan (Louth, Sinn Fein)

I support much of what is included in the Bill which increases the allowance to a rate which more reflects modern times, removes co-insurance in order that total deposits will be protected, brings credit unions into the scheme and reduces the minimum time period in which depositors will receive their guaranteed deposits. However, I express concern about the sum at which deposit insurance is being set. While the EC directive increases the deposit interest provision to €100,000 from 1 January 2011, we have decided to go with the provision from September 2010, up to which point €50,000 will be the accepted figure in Europe. The reason I make this point is that for a deposit insurance scheme to work it must be credible. For it to be credible, the State has to meet its liabilities if a situation arises where banks begin to default. In this country we are in a constrained fiscal position which is likely to continue into late 2010. While I accept there is a capital asset requirement for lending and to meet this requirement we must have investors in Irish banks, we also have to be realistic as regards what the State can cover in terms of worst case scenarios where we must meet defaulting bank deposits, as well as in best case scenarios where our international borrowing capacity is affected by the State's liability. Increasing deposit insurance to the highest figure months before it is necessary is another example of the Government overshooting with regard to the banks and putting its risky policies ahead of the State's interests.

Financial institutions have to place 0.2% of their deposits in a deposit protection account, or a minimum of €25,400, which is excessive for credit unions, as 0.2% of their deposits would be less than this. Credit unions will end up paying over the odds for this insurance and this minimum figure, if possible within the constraints of EU law, may need to be addressed. However, 0.2% is not a sufficiently high insurance premium and the Government should be arguing for it to be increased in the case of banks. The argument that, in the event of a bank run, a bank's assets would be liquidated and paid to depositors first does not necessarily cut ice as we have seen in recent history. In keeping the insurance premium down, for this reason, one assumes banks will not dispose of their assets in advance of a bank run, or will not engage in any corrupt activity that would reduce their capital base and allow them to default without sufficient assets to liquidate.

This is, after all, an insurance premium from the State. It is protecting banks currently not in public ownership. They are private institutions, with a taxpayer deposit insurance scheme. Banks should pay more for the scheme. We will not get into the figures, but it should be borne in mind that at the end of 2007 there was only €526 million in deposit protection accounts, enough at the time to cover only 26,000 account holders for €20,000 each. Clearly, the figure 0.2% will have to be increased when the banks are functioning again.

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