Martin Mansergh (Tipperary South, Fianna Fail)

I wish to share time with the Minister of State, Deputy Peter Power, and Deputies Mattie McGrath and Niall Blaney.

I am pleased to speak to the House this evening on behalf of the Minister for Finance to elaborate further on the Government's comprehensive approach to framing an inquiry into the banking sector. The Minister indicated that he will participate in this debate tomorrow.

I move amendment No. 1:

To delete all the words after "Dáil Éireann" and substitute the following:

"— commends the ongoing programme of actions being taken by the Government to restore banking stability and restructure the financial sector; including the recapitalisation of the two main banks, which will facilitate increased access to funding for SMEs and for first-time home buyers, as well as offering protections for existing homeowners in arrears;

— calls for the transfer of assets to the National Asset Management Agency (NAMA) to be expedited in order to further enhance the stability and financial soundness of the institutions concerned;

— notes the Government decision to introduce important reforms to financial regulation in Ireland which will secure confidence in the banking system through the introduction of new standards of banking regulation and corporate governance, will restore Ireland's international reputation and will reposition the country's regulatory system;

— commends the Government's support for the comprehensive programme of reforms to financial regulation that are being put in place at the EU level;

— notes that essential work remains to be completed in order to bring further stability to the banking sector; including the critical 'transfer of assets' to NAMA, agreement on the bank's restructuring plans and their future capital requirements and expected early progress on the consolidation of the building society sector;

— notes that significant resources are being devoted to these efforts and the officials involved continue to be fully engaged in achieving the objectives of banking stability and restructuring of the financial sector;

— notes that any inquiries that are established must also have regard to the ongoing criminal and regulatory investigations into wrongdoings at certain financial institutions;

— commends the decision of the Government:

— to request the Governor of the Central Bank to report to him on the performance of the respective functions of the Central Bank and Financial Regulator in the period since the establishment of the Financial Regulator up to September 2008 having regard to the statutory powers, roles and responsibilities of the Central Bank and Financial Regulator;

— to commission an independent review from a recognised expert or experts of high standing and reputation to conduct a preliminary investigation into the background to and causes of the recent crisis in Ireland's banking system up to September 2008 to assess what lessons can be learned and to inform the future management and regulation of the sector, both in relation to individual institutions and in relation to the management of risks and stability issues within the regulatory and governmental systems;

— that these reports will consider also the international, social and macroeconomic environment which provided the context for the recent crisis in the banking sector;

— that these reports shall have regard as appropriate to the de Larosière and Turner reports;

— that both reports are to be initiated as soon as possible and completed urgently and no later than 31 May 2010;

— that following completion of these reports, an independent, statutory commission of investigation is to be established by 30 June 2010, chaired by a recognised expert of high standing and reputation, to identify, examine and report on the causes of the systemic failures such as corporate strategy, governance and risk management in the Irish banking sector which culminated in the need for the State guarantee, the recapitalisation programme, the nationalisation and rescue recapitalisation of Anglo-Irish Bank and the establishment of NAMA in order to preserve financial stability;

— that the terms of reference for the commission of investigation will be informed by the conclusions of the reports of the Governor of the Central Bank and the independent review; and

— that the report of the commission of investigation would be completed within six months;

— notes that:

— an appropriate Oireachtas Committee will meet both the Governor and the independent expert(s) at the outset of their work to be briefed on the Oireachtas's priorities for investigation;

— the two preliminary reports, when completed, would be laid before the Houses of the Oireachtas and the appropriate Oireachtas Committee will be invited to consider the findings of the reports;

— the terms of reference and draft Government Order to establish the statutory commission of investigation will be laid before the Oireachtas; and

— the report of the commission of investigation will, when completed, be laid before the Oireachtas for further consideration and action."

At its meeting today, the Government agreed the proposed framework set out in the amendment for an inquiry into the banking sector proposed by the Minister for Finance and for its subsequent consideration by the Dáil. This framework envisages a cohesive two-stage approach. The first stage will consist of two separate preliminary reports to be commissioned immediately, that is, one from the Governor of the Central Bank on the performance of the functions of the Central Bank and the Financial Regulator and the second from an independent "wise" man or woman to conduct an examination into the recent crisis in our banking system to assess what lessons can be learned and to inform the future management and regulation of the sector. Both reports will be completed by 31 May 2010.

These two reports will constitute detailed groundwork in preparation for the undertaking of the second phase of the Government's plan. This will involve the establishment of a statutory commission of investigation within one month, by 30 June 2010, which will be chaired by a recognised international expert or experts of high standing and reputation. The terms of reference for this commission will be guided and informed by the conclusions of the two preliminary reports in consultation with the Oireachtas. It will be completed by the end of this year and will be laid before the Oireachtas for further consideration and action by an appropriate Oireachtas committee. The need to examine and learn from recent events in the banking sector is paramount. A key part of this will be to learn lessons from these events and the Government's announcement today, in seeking two preliminary reports to be followed by a statutory commission of investigation, will form another important input into the ongoing reform of Ireland's regulatory systems and structures, as well as the internal governance of its financial institutions.

It is of course important that a retrospective look be taken at the banking sector in light of the significance of the measures that the Government has been obliged to take over the past 18 months and the substantial financial support it has proved necessary to provide to the domestic banking system to secure financial stability and which have been the subject of extensive debate in the House over the past year or more. As Members will be aware, over the past year and a half the Government has moved decisively to ensure confidence in the financial system in Ireland by announcing a series of measures, starting with a guarantee arrangement for depositors and lenders to Irish credit institutions. That was the first essential step on the path to stabilising the banking system in this country. All are agreed that this is one of the key requirements for our economic recovery, which will serve the needs of the wider economy. In the absence of a properly functioning banking system, economic recovery will be significantly delayed and the economy's medium-growth potential will not be fully realised.

The overall objective of the Government has been to stabilise the banking sector to ensure that Ireland is best placed to take advantage of the global economic recovery when it occurs. Needless to say, it also must ensure that the interests of the taxpayer have been protected to the maximum extent possible. The proper functioning of the banking system is critical to the effective performance of the economy and therefore must be safeguarded by the Government. In this context, it is worthwhile to outline briefly the various measures that have been taken by the Government to secure this objective here. I refer to the introduction of a bank guarantee scheme in September 2008, the €3.5 billion of recapitalisation of Ireland's two largest banks, namely, Allied Irish Banks and Bank of Ireland, to assist in securing the banks' funding base and the €4 billion recapitalisation of Anglo Irish Bank. In addition, a new code of conduct on mortgage arrears took effect on 27 February 2009 and a new code of conduct on business lending took effect on 13 March 2009. Other measures include the announcement of the reforms of our financial regulatory structures encompassing the establishment of a single fully integrated Central Bank of Ireland to replace the current board structure of the Central Bank and the Financial Services Regulatory Authority with unified responsibility for both the soundness of individual institutions, as well as the stability of the financial system overall, the establishment of NAMA to strengthen the banks' balance sheets so as to considerably reduce uncertainty over bad debts and as a consequence facilitate the flow of credit on a commercial basis to the real economy, and the establishment of an independent credit review process together with a credit review system to examine the credit policies and practices of the banks in respect of SMEs. This review process will help the Minister to decide what further action might be necessary to secure the flow of credit.

It should be noted that the actions being taken by this Government are taking place against the backdrop of continued widespread and significant Government supports for, and reforms of, financial services sectors in the European Union and in other developed countries. The banking crisis has highlighted weaknesses in the financial regulatory and supervisory framework of the EU and its member states. This EU framework remains largely nationally based, despite the creation of a European Single Market in financial services more than a decade ago and the highly significant growth in cross-border provision of financial services, as well as the emergence of large and systemically significant pan-European financial institutions. A highly significant programme of reforms is, therefore, under way at EU level in the areas of financial supervision, prudential regulation and corporate governance, as well as crisis management.

These EU reforms are building upon the analysis for the European Commission of the high level group on cross-border financial supervision, the so-called de Larosière report. This and other reports, such as the United Kingdom's Financial Services Authority's Turner report, have provided the impetus for the international reform which is now under way. Ireland is a strong supporter of such international reforms, and has played, and will continue to play, its part at EU level to ensure that they are implemented swiftly and effectively. These reports also will form a significant input into the work of the Governor and the wise person providing a detailed overview of the causes of the financial crisis internationally.

One must draw a link between the features that are particular to the crisis in the Irish banking system and the available international analysis and reforms that are under way. The completion of the reviews by the Governor and independent expert, together with ongoing disclosures regarding possible malfeasance in particular institutions, will provide the basis for identifying specific issues that warrant further investigation through a statutory commission of investigation. This statutory commission, to be established by 30 June 2010 and chaired by a recognised international expert of high standing and reputation, will be asked to pursue particular lines of investigation which will have been identified by the two preliminary reviews. The Government is aware that the potential scope of an inquiry into the banking sector is very broad and it is essential that the inquiry maintains a clear focus on key issues and is concluded within a reasonable timeframe. The terms of reference for the statutory inquiry will be shaped by the conclusions of the two preliminary investigations and in consultation with the Oireachtas. There clearly are a number of broad themes that require thorough examination. These include the performance of individual banks and bank directors where wrongdoing and lax practices have contributed considerably to the crisis, the performance and structure of the banking system generally, the performance of the regulatory and Central Bank systems and the response of the relevant Departments and agencies, including in respect of the linkage between the banking crisis and overall economic management.

There are valid reasons for the approach that has been agreed by the Government. Under the legislation, the commission will conduct specific parts of its investigation, for example, into the affairs of individual institutions, in private. This will minimise the risk of interfering with the ongoing Garda and ODCE investigations. Significant State resources are fully engaged in achieving the objectives of banking stability and restructuring of the financial sector, and these resources must continue to be devoted to the task at hand. The approach being adopted by Government will also ensure the ongoing criminal and regulatory investigations into alleged wrongdoing, which are expected to take some time, can proceed without the possibility of prejudice. Taking account of all these factors, the Government is proposing the multi-stage investigation to be completed by the end of the year. This approach will lead to an expert, authoritative, robust and structured examination of the financial crisis.

An important priority for Government will be to ensure the Oireachtas has a central role to play in these investigations and will be involved at each stage of the process, as set out in the Government's amendment. This envisages that an appropriate Oireachtas committee will meet both the Governor and the independent experts at the outset of their work to be briefed on the priorities of the Oireachtas for investigation; the two preliminary reports, when completed, will be laid before the Houses of the Oireachtas and the appropriate Oireachtas committee will be invited to consider the findings of the reports; the terms of reference and draft Government order to establish the statutory commission of investigation will be laid before the Oireachtas; and the report of the commission of investigation, when completed, will be laid before the Oireachtas for further consideration and action. It will be open to the committee to hold public hearings on the report.

I refer to the social context of the financial crisis referred to in the Government amendment. In debates about responsibility for the present state of the country, there is constant and repeated reference to the triad of bankers, developers and politicians. Books published by columnists in the broadsheets, who are also, in many cases, broadcasters, excoriate poor decision-making and regulation and cronyism - real and alleged. There is rarely any reference to the relentless hype in property supplements, which fuelled what has been described elsewhere as "irrational exuberance", which was the cause of many of our present problems and which, in the prevailing climate, would be difficult enough to contain or control. It has been alleged that published guide prices were often very wide of the mark, auction results were not always faithfully reported, and headline prices could be manipulated by under-the-counter payments.

As a person said to me yesterday in another context, the media drive issues and they are not just passive reflectors. We all recall the campaign to abolish stamp duty in the autumn of 2006, running into 2007, intended to save and prolong the property boom. Was this just sincere concern for hard-pressed home buyers or was it dictated in part by commercial self-interest? There is much discretion about the parallel collapse of revenues and the sharp economies that news organs have experienced and have had to make. Was, taken as a whole, the Fourth Estate more provident than others, or did it, just like others, and indeed the State itself, become badly overextended? Were the property pages, at least for a time, an integral part of the forces driving the bubble? Without overstating its significance relative to other bigger factors, it would be good if this were examined, if any holistic explanations were sought and lessons learned, and if improved safeguards were provided for the future.

The preliminary reviews and the commission of investigation and their appropriate consideration by the Oireachtas, together with ongoing Garda and ODCE investigations, will form a comprehensive framework of investigation into the recent crisis in the banking sector. This will allow the Government to assess how lessons can be learned to inform our future management of the sector, both in regard to institutions and their management and direction and in regard to the management of risks and stability issues within the regulatory and governmental systems.

See this speech in context