Seán Fleming (Laois-Offaly, Fianna Fail)

I welcome the opportunity to speak on the Central Bank Reform Bill 2010.

I want to deal with the specifics of the legislation and then outline the further measures that will be needed to regulate Irish banks beyond the contents of the legislation. After that I will deal with Bank of Ireland and Anglo Irish Bank. We are here today because of institutions like them. This legislation is the first of a three-stage legislative process to create a fully integrated structure for financial regulation. It will provide the statutory basis for the new structure which will replace the Central Bank and the Irish Financial Services Regulatory Authority. The second Bill, to be introduced later in the year, will enhance the powers and functions of the restructured Central Bank in regard to prudential supervision of individual financial institutions, the conduct of business, including consumer interest, and the overall stability of the financial system. In due course, there will be consolidating legislation to bring everything together into one piece of legislation.

Certain specific aspects of this Bill are very complex and difficult to follow because substantial amendment to existing legislation is involved. However, the principles are straightforward. The purpose is to change and give effect to structured changes in the Central Bank and financial regulatory authority in Ireland. This will involve the creation of a Central Bank commission, the dissolution of the Irish Financial Services Regulatory Authority, the establishment of a new management structure within the bank and the introduction of new accountability measures, in particular, enhanced accountability to the Oireachtas. In addition, the Comptroller and Auditor General will carry out the annual audit.

Regarding some of those provisions, sections 7 to 12 set out the continuity provisions to enable the Central Bank carry out various activities it will inherit from the previous regulatory structure. I wish to speak on that issue. Some of these will include superannuation and pension payments that may exist under the current arrangements. I believe every Member accepts - I know few people who can disagree - that the former Financial Regulator, Patrick Neary, and John Hurley, former Governor of the Central Bank, did not do the job they were paid to do by the State. Many people strenuously object to what has been going on not only in the past week but for months. These two men walked out of top-paying public service jobs with considerably enhanced pensions and lump sum payments as a reward for not doing their jobs.

I have a straightforward view on Mr. Neary's term in office. I do not know much about his history but he was probably a distinguished civil servant over many years and, as such, would have contributed to his pension and would therefore be entitled to it. In respect of the period during which he was Financial Regulator, however, he did not do his job. I maintain he was in fundamental breach of his contract and there should be no pension entitlements payable to Mr. Neary, today, tomorrow or at any time in the future, in respect of a contract he did not fulfil. I do not say the man should be stripped of his pension for all his years of public service but he should get no pension in respect of the years during which he did not carry out the function for which he was employed as Financial Regulator. The same should apply to Mr. Hurley. The most charitable statement that can be made about both men is that they were asleep at the wheel during the course of their tenure in their respective offices.

I get worried when I hear about continuity provisions because I have a genuine fear that in 20 years' time Members of the Oireachtas will be discussing these provisions in regard to the Irish Financial Services Regulatory Authority. While we are setting up the new legislation and transferring the new powers inevitably some item or other will be left hanging and even though we have the authority to close it down it will be deemed right to keep it open for some administrative, operative or legal reason. When the new legislation is passed I want to see, within a defined period, perhaps six months, that every item concerning the current Irish Financial Services Regulatory Authority is closed down, absolutely. IFRSA should cease to exist, not have a bank account or an administrator or anybody doing anything for it on an agency basis. There should no longer be even a brass plate on the door. People might think it strange for me to say this but in Ireland we have a history regarding structures we think we have closed down that instead we let run forever. I wish to highlight this matter although I may have mentioned it before.

The PMPA insurance company collapsed in 1983. Under administration it continued to trade until 14 July 1989 on which date its ongoing business was sold to Guardian Royal Exchange for £110 million. From that date the company ceased writing new business as PMPA and began to wind up its affairs. It changed its name to Primor plc to reflect its new business and continued under administration. Current legal advice to the Department of Finance, which I received last year when I made an inquiry, is that the company is required to remain in business until July 2011. After it collapsed, therefore, the PMPA was kept operational, writing business for six years after which it stopped and began to wind up its business. However, in 2011 it will have taken 22 years plus the original six years - a total of 28 years - to wind down the old PMPA company.

I have a vision that the same might happen in the case of IFRSA. I would not like to see any remnants of that body around in 28 months, never mind 28 years. I will be told that insurance is different but somebody may come along in 28 years' time and say that IFRSA was different too. I want an absolute guarantee during the passage of this legislation that every vestige of the old company will be wound down.

Regarding the actual legislation, it is intended to create the Central Bank commission, to be chaired by the Governor of the Central Bank, and the Irish Financial Services Regulatory Authority is to be dissolved. I sincerely want it to be dissolved not merely for there to be a provision to dissolve it. Most of its existing functions will be merged into the new structure. The functions of the consumer director, with regard to the promotion of the interests of consumers through the provision of information and the development of financial education and capability, are to be assigned to the National Consumer Agency. That is fine and I do not believe people have any problem with consumer issues being dealt with through that agency.

Within the new structure the positions of head of the Central Bank and head of financial regulation will be given a statutory basis and the officeholders will be ex officia members of the Central Bank commission. The remaining members of that commission will be appointed by the Minister for Finance. Details of the appointment procedures will be dealt with publicly and transparently in due course.

That legislation is important and we need it. It is important for all the reasons the Minister mentioned and I concur with them. However, I am trying to take a longer term view, beyond this or next year. Essentially, there will be two main banks in Ireland and one regulator. We must look forward. The scale of the banks in regard to the Irish economy means that both are too big. Duopoly may be the word for this. Only today we heard that the ESB has been told to reduce its business in Ireland below a certain level of activity. If a supermarket has 35% of business share we are told it is too big and therefore not in the consumer's interest. We are engineering a situation whereby the two main banks will have an absolute stranglehold on almost all domestic banking activities. I do not refer to the foreign banks in the financial services sector.

I do not take from the new regulator, the Governor of the Central Bank or the Department of Finance but in my view the scale of these banks will be too big for us to handle or regulate. It is important to remember that when the banks submitted their business plans to the EU it was able to insist on some changes to these plans before it would allow them. It stipulated to what degree they would have to divest some of their current activities in order to bring them back to their core activities. I believe EU regulation of banks will be required across Europe because individual regulators in the different countries will not have the power, strength or ability to carry out regulation on a country-by-country basis.

These factors are all being examined. We are aware of the Greek example. Many countries of the EU are in the euro area. Because there is a single currency and central banks across Europe print currency for each country in the euro area in due course it would be logical to move to having EU regulation of banking, with less individual regulation. There may be inconsistencies in approach, with some countries doing a good job and others being overly diligent, leading to a mixed bag. The basic principle is the Irish banks will be almost too big relative to the size of the economy. If the banks do something wrong we will not be able to close down the banks or the country will collapse. They have size on their side no matter what mistakes they make.

An example has been referred to at length here and I support much of what has been said with reference to Bank of Ireland and Mr. Boucher's pension fund top-up. I do not think it is right and although somebody may have legal advice to back up the action, it is still not correct. Legal advice is still just advice and every time a person goes to court there are two sets of legal advice, neither of which is always right. We are being told this is part of Mr. Boucher's contractual arrangements and former CEOs were required to retire at 55 from the bank. There is no reason he had to sign a similar agreement, although those were the arrangements in place for former CEOs.

Will the pension for every other staff member in the bank be fully funded to the extent that Mr. Boucher's will be? If not, it is extraordinary that the senior people in the bank, including Mr. Boucher, will look after their own pension funds when the same does not apply to other staff members. It effectively comes down to the captain of a ship looking after his own lifeboat. I and most other people will see it as such. It is not satisfactory and I reject the notion that the Government cannot take action.

We have heard much about the salary cap for chief executives and other executives in banks, along with a cap on bonuses, but that is only part of the picture. Remuneration includes pensions, company cars and perhaps chauffeurs, as well as many other benefits. We might hear at some stage that dividends are being paid through a subsidiary or associated company of the bank; we would be told dividends are not part of a salary and it is a different issue. A company in Ireland or an offshore company could be used to that effect. I reject the narrow interpretation of the cap applying to salaries and bonuses.

I also reject the argument that it is not the function of the Government to deal with the matter. We are putting money into the banks and this issue is in the public interest. The Government, on behalf of the Irish public, has a duty, and the remuneration committee of the board should be called in to explain the position, either to the public interest directors or directly to the Minister for Finance. This issue affects the majority of Irish people, who are very sore because of the current financial position. People are feathering their own nests, which is not satisfactory.

One of the principal reasons we are here is the mess Anglo Irish Bank made of its affairs, the banking industry, the Irish economy and Irish reputation across the world. It is not a bank and is long past needing life support; it is a dead duck. Most of the decisions made regarding Anglo Irish Bank in the past 18 or 20 months have been based on bad information. We were relying on the former regulator, Mr. Neary, former Central Bank Governor, John Hurley, and other such people. Now they are gone, we know the quality of work they were doing. They were not working at all. If they were the people providing advice, it is no wonder such poor advice was given.

Every time we speak about Anglo Irish Bank, the figures get worse, and they will deteriorate further with more disclosures in a few months. I suspect we have been only given details of the known losses from property transactions that will go to NAMA but I am sure Anglo Irish Bank has many other bad loans on its book not connected to property. As the exercise proceeds, the cost of closing the bank is getting closer to the cost of keeping it open. We have agreed to put €22 billion into the bank but it will not stop at that. Events in recent weeks show further exposures that will cost billions across the Irish economy.

The auditors of these major organisations should have been more careful, particularly with banks which had buccaneer chief executives and chairmen. These people may have built up the company from nothing and be the owners or in the case of Sean FitzPatrick or Michael Fingleton, built up a small bank, but they were lord and master of the entire operation. These people had absolute control, and every auditor knows this shows a much greater risk to the financial security of the organisation. There are common features in all the companies which have seen the biggest disasters in recent times.

People said when we provided the bank guarantee that Anglo Irish Bank was of systemic value to the Irish economy, and had we closed it down there would have been a systemic shock. At best that was a subjective opinion. I have never accepted that point, although some people do, and I have never seen figures to back it up. It is not of systemic value to the Irish economy now and 50% of the business is going to NAMA, with the balance of activity in loan collection. Nobody can argue for its systemic value at this stage.

I agree with the people who argue that Anglo Irish Bank should not be wound up quickly. I do not know who has called for it to be wound up quickly. There should be an orderly winding down of the business. People may argue that a quick loss would lead to a fire sale but nobody in a position of responsibility has ever argued that there should be a fire sale and a quick wind-up. Given that 50% of Anglo Irish Bank is already on its way to NAMA, 100% of the bank should be transferred to the agency.

We have great confidence in NAMA and we see it has the best people to manage the billions of euro in loans from all the Irish banks. There is no better organisation to manage an orderly winding down over the next ten years or so. The Oireachtas has put more confidence in NAMA than in the boards of any of the existing banks. It would be almost a logical extension of NAMA, given that some of the rest of the associations of Anglo Irish Bank is also connected to property loans. I have confidence in NAMA but none in Anglo Irish Bank. It would be logical to transfer the bank to NAMA in its entirety, with a view to NAMA managing its business in an orderly winding down.

This leads us to Sean FitzPatrick, the former chairman, who owes more than €70 million to the Irish taxpayer because we now own Anglo Irish Bank. I find it offensive that he is even considering a legal scheme in an arrangement with his creditors which would involve the Irish taxpayer, through Anglo Irish Bank, making some reduction on the money he owes to the bank. This is a point of principle and there should be consequences for his reckless action. I am reminded that Judge Peter Kelly ordered gardaí to break down the door of a man's house in Cork recently to bring that person to court because of an unpaid €28 million loan. The same should happen to Mr. FitzPatrick. The man owes a civil debt and Anglo Irish Bank should go after it the same way that Judge Kelly ordered the front door of a man's house be knocked down in order to bring him to court to answer for his unpaid bill.

People must vacate their houses when they owe money to banks and there is no reason we cannot follow Mr. FitzPatrick for his civil debt. This is not tied to a criminal or other investigation and the current Anglo Irish Bank management should be sacked if it does not proceed with the action. It is a civil debt and the taxpayer has been left carrying the can. The taxpayer would be better to take charge of whatever assets can be used; the value of the assets could be worked out by the taxpayer rather than allowing Mr. FitzPatrick the opportunity to work out the value of his remaining assets at a profit to himself and a loss to the Irish taxpayer.

Much more could be said about this but I am out of time. I am sure we will have further discussions on the matters during the course of the year. I welcome the Bill as important legislation which corrects and improves the Central Bank and financial regulatory system in Ireland.

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