Pat Rabbitte (Dublin South West, Labour)

I listened yesterday to a number of speeches on this matter and I am a bit reluctant to break the pattern and address myself to the Bill. However, given the background against which this Bill is being introduced, it is inevitable that events happening outside of the House in the banking world, the impact those issues have on the real economy, their impact on real people and, indeed, their impact on industrial relations should hove large in the minds of contributors. It was nonetheless remarkable that such little attention was devoted to the Bill. To some extent, this is because very few Deputies on either side of the House are persuaded that the Bill is the solution, or even part of the solution, to the problems that have arisen. It is a case of the Minister shooting first and asking questions afterwards. After the bitter lessons of recent years, I acknowledge that everyone is in favour of effective bank regulation, and we all agree with the Minister for Finance when he put it in his opening speech that "the previous regulatory system failed spectacularly."

We do not know, however, why it failed. Did it fail because the regulator did not have sufficient powers or did it fail because he, for whatever reason, turned a blind eye? The Minister asserts that he knows the answers and that this Bill is a main part of his solution but he is putting the cart before the horse.

The purpose of the Private Members' Bill that I introduced on behalf of the Labour Party was to permit a public bank inquiry that would answer those and other questions. That public bank inquiry should have got underway as early as the start of 2009 but the Government blocked it. Now the Minister for Finance advocates a new regulatory architecture without establishing, in public at least, what precisely were the defects of the system that allowed the near collapse of the entire banking system. I support a number of measures in this Bill in terms of tidying up the hybrid system in place until now but I cannot do so with any confidence because we have never seen an evidence-based analysis of what went wrong. It is impossible, therefore, to avoid the conclusion that when things went so disastrously wrong, the natural instinct of those responsible is to distract from what ought to be the real focus. There is no better way of doing so than by redesigning the architecture and talking tough.

Is the Minister saying the previous regulator did not do his job because of defects in the architecture of regulation? That is the logic of introducing a Bill to change the architecture. Did regulation fail because of inadequate powers? If not, why did it fail? Why should the regulator have decided to turn a blind eye? Did he believe that in turning a blind eye he was in tune with the temper of the times? Did he believe that blind-eye regulation was exactly the way his political masters wanted it? If he had been operating within the framework of this new Bill, would it have made a blind bit of difference? Is there any evidence that the former regulator felt spancelled because he did not have the necessary statutory powers? If he had available to him, for example, the powers envisaged in Part 3 for "a fitness and probity" regime, would he have used them?

The truth is we are flying blind; we are enacting new law now and afterwards we will have the inquiry. It is a peculiarly Irish solution to an Irish problem. The Minister asserts that this Bill is the solution so we must go with it and later we can work out the precise nature of the problem. To put it mildly, up to now the Minister's assertions about the unfolding banking collapse have not proved very reliable. The result is that every week the mountain to climb gets higher.

In the past 18 months, Parliament should have been doing what Parliament is expected to be doing by the people: we should have been teasing through all of this in a structured way, establishing what went wrong and why and then coming up with solutions, but the Government would not permit it. Instead we rush to change around the deckchairs and hope that nobody will notice we are avoiding the elephant in the room.

All of this is reminiscent of what happened when the existing architecture was put in place. Members will recall that the public anger and the fall-out from different scandals led to a hybrid architecture of regulation being put in place. There was the report of the DIRT inquiry into tax evasion and inadequate provision for consumer protection. Then there was the McCracken report, which highlighted that the Central Bank was responsible for the prudential suspension of Guinness Mahon. Exchange controls were still in place at the time yet huge deposits had fled to the Cayman Islands. There were also the irregularities at National Irish Bank.

The Tánaiste of the day, Deputy Harney, wanted a regulator on a greenfield site separate from the Central Bank. The then Minister for Finance, Mr. McCreevy, favoured the Central Bank. Enter Michael McDowell, then, as now, in political exile, to make peace between the ideological soul-mates Harney and McCreevy. In his report, "The Establishment of a Single Authority for the Financial Services Sector", a minority group recommended a hybrid compromise where a financial regulator would be quasi-attached to the Central Bank and so the Central Bank and Financial Services Authority of Ireland was born. If a camel is a horse designed by a committee, the Central Bank and Financial Services Authority of Ireland was the product of the dispute in Cabinet.

For all of the confusion reposed in this clumsy architecture, it does not explain why it failed so comprehensively. The proposition that it failed because of defects in the structure is doubtful. I also disagree that the architecture now proposed is radically different. If Mr. Honohan and Mr. Elderfield had been in post between 2004 and 2008, this structure would not have impeded them from doing their jobs effectively. What else went wrong? Is anyone in the House saying that if Patrick Honohan had been Governor of the Central Bank and Matthew Elderfield had been Financial Regulator, the previous architecture would have stopped them from taking the steps that ought to have been taken to preserve our banking system? I do not believe so but to an extent we have embarked on creating an entirely new architecture without the Minister showing that was the problem that caused the collapse we have endured.

The new architecture is even more confusing when it comes to the consumer dimension. The Minister stated, "Consumer function will be integral to the bank itself," but the Bill transfers responsibility for consumer information and education to the National Consumer Agency, along with associated staff. This is a confusing distinction and, more fundamentally, it ignores the modern literature that consumer protection ought not be the responsibility of the body responsible for prudential supervision.

At the time that Bill was introduced in 2002 I said that development and regulation of the financial services sector ought to be distinct from the consumer protection dimension because inevitably there would be compromises if the developmental role were, in any way, confused with the consumer protection role. Deputy Bruton made similar points in his contribution. If I remember correctly, he quoted Professor Ray Kinsella, who explained in some detail why it is not a good idea to marry consumer protection with prudential supervision. Nonetheless the Minister, while hiving off a number of staff to education and information functions, maintains the consumer protection role under the bank.

When I brought in the Consumer Credit Act in 1995, I transferred responsibility for bank charges from the Central Bank to the Director of Consumer Affairs. I still think that approach has great merit. For the same reason I welcome the decision in the Bill to remove the bank's role in helping to promote the financial services sector. It is apparent why a role in promoting Ireland as a centre for the financial services sector might not be consistent with a role in the prudential supervision of that same sector.

I ask the Minister to help me because I am not sure I understand the new structure as proposed. I am not sure I understand the difference between financial regulation and prudential supervision. Who is the prudential supervisor? Is it the regulator? Is that not the task of the governor? If, for example, the banks are found to be putting too much money into property, is that a matter for the governor? If a particular bank is found to be putting too much money into property development, is that a matter for the regulator? I ask the question in the context of the provision of the twin heads of functions in the Bill - the head of financial regulation and the post of head of central banking. I ask the Minister to explain to me what exactly are the responsibilities of the head of central banking? Obviously, both persons will report to the governor but I note that unusual care has been taken in the legislation to guarantee the position of the head of central banking. I understand the opinion of the ECB, to which the Minister made reference - he said he would make this available before Committee Stage - draws attention to the unusual provision in this regard.

I do not know who is the head of central banking and I do not wish to reflect on any individual, but it must be asked whether he was there when the house of cards came down. If he was, is it not unusual that we should go to extraordinary steps to protect him in the legislation? The more one looks at the business of the clean up - or clean out - in the banks, as promised by the Minister for Finance, the more one must acknowledge that it did not actually happen. For example, on the last day the House sat before the Easter break I asked the Minister to let me know the position of the chairpersons of the internal audit and risk management committees in the banks. Are they still in situ? These were the critical people. Chairmen of internal audit and compliance and risk management committees are critical posts. If a person goes into Allied Irish Banks to look for a loan of up to €5 million, the request goes to the chairman of the risk management committee. If it is for more than that sum it might go to the board. I asked this of the Minister who undertook that day to let me know whether these same persons are still in their posts. I would be greatly obliged if he did so and I am glad to have the opportunity to remind the Minister that he promised to come back to me on this. I hope he will.

I welcome the proposals in respect of the credit unions. When I brought the Credit Union Act through the Dáil in 1997 I resisted credit unions being transferred from the Registrar of Friendly Societies. Given everything that has happened since, I agree that the Registrar now should be required to report through the Financial Regulator to the Central Bank commission. I also welcome the increase in lending limits for credit unions. It is some 13 years since that legislation was enacted and I hope the Minister is correct when he promised that changes in the area of rescheduling of loans will, as he put it, "facilitate credit unions in their wish to ease the position of their members". Above all, it is important that the changes being proposed by the Minister will protect members' financial stability and ensure the security of their savings.

This Bill is a case of putting the cart before the horse. We should have had a public, forensic bank inquiry. We should have examined whether the architecture was to blame before bringing a Bill to the House to create a new architecture. In the one minute that remains to me, I raise a matter to which I believe the House should return. There are very many people in addition to the Minister or, more particularly, his predecessor as Minister for Finance, who bear responsibility for the tragedy that has befallen us which has wounded so many people, hurt so many families, caused homes to be repossessed, jobs to be lost, and so on. This Bill smacks of saying, "Let's sweep it all under the carpet and get on with creating a new architecture". We need to examine what happened, and have it examined in public, making these people amenable and accountable for the decisions and omissions during that period, especially in the period from 2004 to 2008.

Any person who took time out to read the two articles in The Irish Times recently by the management consultant, Eddie Molloy, about the performance of the Department of Finance, would have very grave cause to be concerned. The juxtaposition of the conflict, in the manner in which the Department viewed itself on its website, and its actual performance during those critical years before the economic collapse, is a matter about which Members of this House ought to be concerned and which they ought to examine. When the Minister comes into the House again to ask us to accept his assertions that this is the prescription for the future, when we have not even analysed the entrails of the reason the previous system was such a failure-----

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