Brian Lenihan Jnr (Dublin West, Fianna Fail)

There is power not to apply it to smaller credit unions in the event that it imposes a disproportionate burden on them. I understand the statute covers that point.

On the philosophy of the section, the first point to notice is that it empowers the Minister to prescribe by regulation the amount of the deposit which a credit institution shall lodge to the deposit protection account. The power is in fact conferred upon the Minister, although clearly the Minister must act on the advice of the Central Bank. There is an element of political accountability when the power is conferred upon the Minister, which is valuable in this context.

The current rate is 0.2% of overall deposits under the existing regulations, and the Minister is given power to vary by order the amount payable by a credit institution or credit institutions, or a class or classes of credit institution. In response to Deputy Burton's query as to whether a particular bank could be charged a higher rate due to the greater perceived risk of that institution, the answer is "yes". That is possible under this Bill, although the Minister would have to act on the basis of a report submitted to him by the Central Bank. After appropriate consultation with the Central Bank, the Minister could decide to increase or decrease the amount which a particular credit institution or class of institution must deposit with the bank for the purposes of this scheme. That is an important power because it provides the Minister with the means to introduce a more risk based deposit guarantee scheme, if he deems it appropriate.

The assessment of risk is always a difficult question in banking matters. It is worth analysing the types of risk to which the Irish banks exposed themselves in recent years, and Deputy Burton referred to a number of institutions. The reality is that the risks taken by institutions were of two varieties. The first was the risk of excessive dependence on short-term and international borrowing, and that was on the borrowing side of the account. To a greater or lesser extent, different Irish institutions engaged in this. The second variety of risk was an excessive amount of lending to persons with too optimistic an assessment being made of their prospects. That again took place to a greater or lesser extent in all the institutions, from the level of the consumer seeking finance for a house transaction, right through to the developer seeking to acquire land.

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