Brian Lenihan Jnr (Dublin West, Fianna Fail)

I thank Deputies for their contributions to the debate. By and large, they supported the principle of the measure before the House. Plainly, deposit protection is an essential tool to have in place in order to reassure depositors that their savings are safe. The Government decision last September to increase the guarantee limit from €20,000 to €100,000 was a very important step in ensuring financial stability. There is no doubt that significant uncertainty had been introduced by the performance of the international financial markets at the time. I mentioned earlier that this had played on fears regarding the security of savings in financial institutions.

The deposit guarantee scheme embodied in the legislation before us applies to all credit institutions authorised in the State, including not only the seven covered institutions, but also other main street institutions such as Ulster Bank, Halifax, KBC Bank Ireland, First Active and ACC Bank. It now also includes credit unions which did not previously benefit from statutory deposit protection. Given the scale of the increase in the size of the basic deposit protection envisaged in last September's decision, it was essential to provide a level playing field for the credit unions and the other financial institutions and not put them at a disadvantage. Banks that passport into the State on a branch basis such as Danske Bank trading as National Irish Bank, Northern Rock, Nationwide Building Society Ireland - not to be confused with Irish Nationwide Building Society - and RaboDirect are covered by their home scheme. For example, National Irish Bank is covered under the Danish deposit guarantee scheme.

As I mentioned earlier, the European Commission has embarked on a consultation on possible further amendments to the Community's deposit protection arrangements, with a view to bringing forward further proposals before the end of the year. It is clear, therefore, that, notwithstanding the changes we are considering, this is an evolving story and that we will be revisiting this topic before too long. The purpose of the review is to try to ensure over the longer term the greater effectiveness of the deposit guarantee schemes directive and respond adequately to any deficiencies or risks that may have arisen as evidenced by the current financial crisis. The Commission is required to submit a report and, if appropriate, legislative proposals by the end of 2009. There may well be further changes in our deposit protection legislation in 2010.

I understand the Europeand Union is reviewing the following issues: the possible harmonisation across the Union of deposit funding mechanisms; the appropriateness and modalities of providing coverage for temporally increased deposits, for example, where a person temporarily deposits proceeds from the sale of a house, pushing his or her deposits above the limit; possible models for introducing risk-based contributions; the benefits and costs of introducing a Community-wide deposit guarantee scheme; the effect of offsetting loans against deposits in the event of a bank failure; the harmonisation of the scope of products covered; and the link between deposit guarantee schemes and alternative means of reimbursing depositors such as emergency payout mechanisms.

Academics will undoubtedly say the soundness of the financial system rests upon effective regulation and supervision by independent supervisors, together with adequately high levels of institutional development covering corporate governance, transparency, accountability and deterrence. Developments in the past few years have also highlighted the risks to financial stability if deposit holders are not assured of timely access to their funds in the event of their bank failing. This is the over-riding concern of depositors in regard to a deposit guarantee scheme. Deposit guarantee schemes originated in the United States in the wake of the great crash of the 1920s.

In terms of the EU-sourced reforms in the current package of reforms, the most significant factor is the reduction in the minimum payout period from three months to 20 working days. The achievement of this will require further investment by the banking sector and the credit unions in order that they can supply depositor data to the Central Bank in good time for it in turn to meet the deadline. All in all, there will be a big challenge for the credit union sector in becoming absorbed into the new regime, but my Department and the Financial Regulator will approach this in a positive and constructive way with the movement's representatives.

Several Deputies spoke about the credit union movement. I have engaged in detailed discussions with the credit unions on how we can implement the deposit protection scheme in their regard. The provisions of the Bill are of sufficient flexibility to allow a number of approaches to be taken. I am sure Members of the House are aware that the question of deposit protection has divided the credit union movement. Some of the larger credit unions disaffiliated from the league on the basis that they were unhappy with the system of internal protection provided by the league and wished to be in a position to deposit with the Central Bank in a direct manner. Clearly, I have the difficult task of reconciling the different views expressed by credit unions and ensuring that in all cases the public interest is protected. However, in my discussions with representatives of the credit unions involved I have endeavoured to devise a solution which will meet the concerns of all concerned and, above all, provide adequate safeguards for depositors. I would welcome further views from Deputies in that regard. Like Members, we frequently receive representations from credit unions and, as Minister, I am in constant discussions with them on the matter. It is important, however, that any system devised is workable, durable and commands the confidence of depositors. The decision to extend deposit protection to credit unions was the correct one because it puts them on an equal footing with banks in regard to the basic level of deposit protection provided. Having regard to the general responsibilities of credit unions, the limit of €100,000 is sufficient to put them on the same footing as other financial institutions for all purposes.

As regards the contributions made to the debate, Deputy Bruton raised the question of funding being shifted to the Central Fund. That is a necessary requirement of the directive which this measure implements. The thinking in the directive is that the State must insist on the industry being levied for any cost occasioned by the guarantee. Therefore, the directive imposes an initial cost on the Exchequer which will be reimbursed through a levy mechanism. That is what is envisaged in the legislation and the directive.

Deputy Bruton then turned to the wider question of the restructuring of the Central Bank and the Financial Services Authority of Ireland, likening it to moving the deckchairs on Titanic.

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