David Stanton (Cork East, Fine Gael)

I am pleased to be able to contribute to this important debate. I have read as much about the matter as I can, including debates in the House and the media, and the more I read, the more confused I get. How did we find ourselves in this mess? I considered countries like Canada, which has what is known as a boring and conservative regulatory system. Canada has come through the infamous global financial crisis. Many commentators on the Government side are wheeling in the crisis as an excuse for this mess. Perhaps they are right to do so, but how was Ireland so exposed?

On 20 February 2001, the then Tánaiste and the Minister for Finance announced the establishment of a new structure for financial sector regulation. I remember that there was a considerable run-in to the debate and that there were many related issues because the Financial Regulator was to be set up as a separate body from the Central Bank. Indeed, the Central Bank was to be stripped of some of its powers. I will quote a press release:

The structure will include a new authority responsible for prudential regulation of both the banking and insurance sectors and for consumer protection. The new authority will be known as the Irish Financial Services Regulatory Authority (IFSRA). It will have its own Board, with an independent Chairperson. The Ministers intend to proceed immediately to establish an Interim Board for this new authority on a non-statutory basis which will appoint a Chief Executive and a Director of Customer Protection.

Let us fast forward to 20 January 2009 and a press release issued by the Joint Committee on Finance and the Public Service. Its chairman, my constituency colleague, stated:

The crisis in the Irish banking industry, which necessitated a €400 billion guarantee from the Government followed by a recapitalisation scheme and the eventual nationalisation of Anglo Irish Bank, has led to many commentators calling into question the role of the regulator and the Central Bank.

Deputy Michael Ahern further stated:

The principles-based or light touch approach to regulation employed by the supervisory authorities here had been widely criticised, with the regulator and the Central Bank panned for not stress-testing the sector hard enough and down-playing the risk of rising bad debts on substantial property loans. There is a growing consensus that both the Financial Regulator and the Central Bank should have been more proactive in curbing excessive and reckless lending, particularly in the property market.

This is a given. I note a major change was made in 2001 and at that time there were many misgivings about that change. One needs to read between the lines as to the reason for that change and to find out who benefited from that change and why a light touch regulation was introduced to enable this massive amount of credit to be available on the markets. Who benefited, why was it done and who did it? I refer to what was done in countries such as Canada which does not have the same problems. In Canada they kept to the old, boring conservative regulation and they do not have the problems we have, and Canadian banks are coming here to see if they can take over some of our banks.

I refer to the contribution by the Minister for Finance on this Bill. He stated:

Large levels of speculative property lending left the banks exposed to a property market which had passed the peak of its cycle. The property market shuddered to a halt. Sales of houses and other property stopped and repayments of interest and capital could not be met by borrowers. International providers of funding and capital recognised the risks, cut credit lines and in some cases stopped dealing with the financial institutions. In this weakened state, our banks started to hoard capital to protect themselves. Stress on their capital and funding positions understandably damaged the ability of banks to provide a vital flow of new and existing lending to the economy.

He went on to say that the banking system had let us down. I maintain that the changes made and the light touch regulation has caused this major problem for us.

I refer to a meeting of the Joint Committee on Finance and the Public Service on 21 January 2009, at which Mr. Jim Farrell, chairman of the Financial Regulator stated:

Under our principles-led supervision system, responsibility for the proper management and control of a financial services provider and the integrity of its systems rests with the board of directors and senior management. [My reading of his statement is he was saying it was the responsibility of the banks to regulate themselves.] Prudent risk management, ethical behaviour and transparency in business dealings are key values expected of boards and senior management in regulated firms.

It could be said that the banks were to blame. Mr. Farrell further stated, "It is clear that a more intensive form of regulation is now required." We know now this is the case but the horse has gone and now we are shutting the stable door, having opened it in 2001. Mr. Farrell continued, "We are also reviewing the governance structures of the institutions to ensure that there are proper systems of internal control."

The report by the High Court inspectors into the affairs of National Irish Bank published in 2004 concluded that, "The problem of DIRT evasion was an industry-wide phenomenon". The inspectors wished to record that in the first year of their investigations they believed they did not have the full co-operation of the bank. They said it appeared that ethical conduct was not a core value of the bank for a period of ten years and this value was sacrificed in favour of business growth and development, even if it meant defrauding the State or, in certain cases, imposing improper fees and charges on the bank's customers. The lesson for all businesses and for all aspects of Irish society is that our standards of conduct must be regularly reviewed and improved to match those expected of a developed society.

Where was the Department and the Minister in all this? The Government of the day changed the rules, brought in light touch regulation and let the banks do what they wished. No changes were made up to 2004. The High Court inspectors to inquire into NIB were appointed on 30 March 1998 and 15 June 1998. As far back as 1998 we knew there was a problem with the banking culture. Yet in 2001 the Government of the day changed to light touch regulation and took its eye off the ball until the Minister for Finance, the Financial Regulator and we all realise it was a big mistake.

I contend the mistake was made by the Minister of the day for much of that time, who is now the Taoiseach. He was the man in charge. The buck stops with him. The Taoiseach is to blame for a lot of the mess in which we find ourselves today and there is no avoiding that.

I refer to a point made by Deputy Connick in his contribution. He stated, "Most builders I know have gone bust." Many Deputies said, "We will chase the builders, we will chase the developers, we will go after them for every cent they have." However, most of them are gone wallop and, if not, they have had time to move their assets out of the country so they cannot be touched.

Deputy Billy Kelleher said that people who owe money to the banks will continue to owe them money, the same amount to NAMA, and will have to pay it back or be pursued by default in the normal way. Deputy Frank Fahey said that developers will continue to owe money. Many Deputies have stated this in their contributions but as the developers have gone bust, how will they repay the money?

The Minister opposite, Deputy John Gormley, was a teacher, as was I, and he will know it is recommended to make explanations simple. The financial services industry, and the pensions industry in particular, are brilliant at inventing a language of their own which the ordinary person is unable to understand. It uses flowery English that nobody can understand and which serves to obscure all kinds of points. As I understand, the banks borrowed money from bond holders or other international banks and, as the Minister admitted, they overdid it. They gave this money to developers who bought land and property and built apartments. That market has now collapsed. The banks are left with the debts, the international people are screaming for this money and if the banks do not repay it they will go under and we will lose our banking system. The Government then steps in and says, "Hang on, we will give you an IOU. We will call it government bonds but it is an IOU." The Government gives the banks an IOU which the banks exchange for cash from the ECB. The banks can then repay the bond holders with this cash and in one bound the banks are free and are out the gap even though levies have been imposed on them. The banks can now breathe a sigh of relief and go back to their boardrooms and relax. The ECB is holding the IOUs and the Government, the taxpayer, has to pick up the tab and repay those IOUs at some stage. Much of the development land that NAMA or the taxpayer owns is virtually worthless and there is currently no market for it. In my own area there are fields which were bought for millions of euro and, as one man said to me, "Sheep could not even eat the grass because it is full of weeds." The land will never realise the value of the money paid for it. How will NAMA get back that money?

It is hoped that in the future the value of this property will rise but this is only a hope as there is no proof it will happen. One commentator, Mr. David McWilliams said, "The idea of property prices rising while inflation is falling is something even Brian Lenihan, our Minister for Finance...would find hard to sell." This long-term economic value is very strange. Many commentators have spoken on NAMA. NAMA will be a very substantial State monopoly. Some people have stated that it will be the largest owner of property in the world, which is phenomenal. When one considers the numbers and the billions of euro involved, it is absolutely scary and the taxpayer is taking on this burden. Thus, it is only right that we should have a substantial debate and put forward alternatives. I am perturbed that the alternatives put forward are dismissed politically instead of being examined to establish if there are good ideas among them. Some international experts maintain the NAMA idea is not a good one and that it should be considered very carefully indeed.

Today, I encountered an interesting article by Professor Morgan Kelly in The Irish Times. He adds some comments to the debate and perhaps someone will respond to these later. We are all focused on NAMA, the debt, the properties and so forth. However, there is another elephant in the drawing room too, that is, the very substantial personal debt accrued by people and businesses throughout the State. I understand NAMA will start with loans of €5 million and work up. What happens to the loans below that figure still in the banks? Will they be left with the banks? Will the banks use the cash they get through the sale of the bonds to clear some of that debt? How big is it? Will the Minister will inform us when he is winding up of the extent of the personal debt that the banks are holding that will not be paid back?

In his article, Professor Kelly refers to "the destruction of the Irish commercial class, who we might have hoped to be an engine of export led recovery as they were in the 1990s", and that this is "likely to prove one of the most enduring and costly legacies of the properly bubble". There is another issue here. Several Deputies have referred to the fact that businesses are finding it hard to get cash from banks. We have all been critical of easy credit and I began my contribution this evening by referring to the availability of easy credit. My understanding is that the banks are lending and will lend to viable businesses. However, in our current economic climate, very few businesses are viable. Businesses are struggling and what is missing from a Government policy point of view is some form of a stimulus package to get businesses moving again and to get money flowing in the economy. Such a package does not seem to exist. The banks will get cash and sail off back to their boardrooms happy, and the developers are already out of the gap. Thus the banks and developers have been looked after. However, the taxpayer is left holding the baby to the tune of unknown tens of billions of euro into the future. Businesses cannot operate because the economy is going down all the time.

What proposals does the Government have to get the economy moving? It is not simply a matter of throwing good money after bad. Professor Kelly stated that "forcing banks to lend to SMEs will only compound our problems". This is in the case of SMEs that are not viable. He continued: "One condition of the Japanese bank recapitalisation in 1999 was that they lend to small firms, but the effect was to heap a second layer of non-performing loans onto existing property losses." There is an issue here which is a catch-22 situation. The way out of this is for the Government to start stimulating the economy such that we get a real economy working again, not simply a false economy or throwing money at the problem. We must do more than this and we must have imagination. He continued: "Even after the crushing expense of NAMA, Irish banks will still be seriously short of capital", a point I made earlier. Professor Kelly further stated: "Under the current, deliberately lax, international bank regulations, AIB and Bank of Ireland need capital of around €8.5 billion." The Green Party will aid Fianna Fáil in passing the legislation, but once NAMA is passed a very significant problem will remain. A very substantial recapitalisation remains to be carried out. It is unquantifiable but we will need a further €8.5 billion. I am concerned that the banks are being let off scot free and no pressure is being put on them.

Deputy Bruton proposed making money available upfront now through a good bank which would be totally ring-fenced, a State recovery bank with no toxic debts whatsoever. This would allow money to be available now for viable businesses. According to Professor Morgan Kelly it will be very difficult for such a proposal to work later.

Many speakers referred to the issue of what happens to the ordinary person who owes money to the banks. Yesterday, I received a call from a person whose husband was jailed because he owed some money. This is taking place along with house repossession and so forth. Some form of stimulus package from the Government to get the economy up and running is missing. There seems to be no idea or proposal forthcoming and nothing is happening. There is a good deal of lofty aspiration for the future, but nothing right now when it is most needed. This emergency has been before us for almost 18 months. It is a long time to wait for something to happen. An increasing number of people are unemployed and more people are appearing before the High Court and other courts threatened with house repossession. We are told we can expect a good deal more of this between now and the end of this year and into early next year.

It is important to discuss these issues and this is the most important debate we have held here. I want Committee Stage of the Bill completed in the Chamber, not hidden somewhere in the bunker. Mr. Colm McCarthy stated this country has gone bust, which scares the living daylights out of me. We must see real leadership and I am very concerned about NAMA, especially when so many international experts have expressed such concern. This is beyond politics. I call on all Deputies to really examine what is being said and written about this issue. Let us forget about the medical card, planning permission, the pot hole down the road and the vote in two years time; this is far more important than any of those matters.

See this speech in context