Richard Bruton (Dublin North Central, Fine Gael)

Section 4 contains the proposal whereby those that are covered will be required to maintain a deposit, the amount of which will be prescribed from time to time. There are criteria against which this judgment will be set out. Is it the intention that this system would be designed or seen as part of a tool for regulating behaviour? Will this be a way in which the Central Bank will flag a signal to banks that it is unhappy with some of their complexity or liquidity? Or will it solely be a formula set in stone and everyone will know their place within the formula?

To what extent will credit ratings of institutions be one of the issues considered when it comes to deciding what level of deposit applies? I am aware that credit ratings have become discredited in recent times but on the other hand they are an independent body taking a picture of an institution's risk. They give the public some way of seeing what the bank is charging in terms of the deposit required for this sort of protection. It gives one the sense that the Central Bank is applying rules that are largely similar to what an independent rating company looking at the very same sort of portfolio of behaviours, assets and liabilities would judge. I would be interested to know the philosophy behind this and what scale of deposit is envisaged. If I am not mistaken, I think it was 0.2% when it was €20,000 so does that mean it will be 1% when it is €100,000 with variations around that level of deposit, or does the Minister have a different concept in mind?

In the crazy times people ignored a lot of these requirements for maintaining deposits, and requirements for capital and liquidity ratios. In the current hard times, however, central banks and regulators are repairing their hand by being tough on capital ratios. To some degree the time to be tough with capital ratios was in the past because the same rules do not apply now. Having recognised the enormous failures of the past, there is no point in imposing a straight-jacket now at a time when the issue is whether there is any credit at all, not whether people are running away with risk. The problem is probably the opposite in that people have become so risk averse in the banking system that there may be a case for relaxing some of these ratios to make banking more pro-risk when looking at some of the business proposals. I worry that the exercise of some of these, smarting from the criticisms that they were too loose in the past in setting capital ratios, liquidity ratios or deposit requirements, may - at the very time when the country is crucified for lack of credit - swing to imposing straight-jackets that are inappropriate to the present credit situation. That is not to say that we must take a loose view with regard to the mistakes, including toxic loans, and the people who are responsible, but we may see the pendulum swing too far and create a highly risk-averse system. It may be so anyhow because banks are motivated by self-preservation to shrink their balance sheets and avoid the threat to their independence. I would be interested to hear the Minister's view both on this specific section and the wider context within which this will be drafted.

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