Jimmy Deenihan (Kerry North, Fine Gael)

Fine Gael opposed the Second Reading of this Bill because it is not rooted in any proper investigation of what has gone wrong and no any serious attempt has been made to hold key players accountable for the errors committed, both of which are necessary to determine whether this Bill is an appropriate response. Also, it infers that the most urgent reform is to change the architecture of the existing regulatory bodies but there is no verifiable evidence that such architecture was in any significant way responsible for the shortcomings and failure of the regulatory system. It preserves the system of appointment of directors to the new Central Bank commission exclusively by the Government with no proper scrutiny by the Oireachtas or any other external body. It does not give the new commission the necessary bank resolution powers to put failed banks safely into managed administration in cases where that approach may be the most appropriate policy.

I listened to several speakers, including Deputy Seymour Crawford. I agree with his comments to the effect that we had a framework in place. There is no doubt the banks could have been regulated within the existing framework, but they were not because it was not encouraged in every way possible by the political structure in the country. The banks were encouraged in this way by others as well.

People were encouraged to come to Ireland to invest in such places as the International Financial Services Centre because of light touch regulation. I heard as much in New York, Silicon Valley and throughout the world. The reason they were advised to come to Ireland was because they could do more or less what they wished. The view was there was little regulation and no one would bother with them. More than anyone else, the political establishment promoted that ethic and perception.

I recall the previous Taoiseach speaking at the Irish Banking Federation some four or five years ago. The event was recorded on television and I watched it on RTE. I recall hearing the then Taoiseach praising the banks for their contribution to the economy. His view was that the banks were responsible for our economic progress in this country and that is on the record.

We should balance our overall observations of what took place in this country. Some maintain there was a systemic failure but it was as much a failure of this House - and we may only speak for this House - and especially of the Government during the period when things went wrong. I refer to the bankers that are being maligned on all sides of the House, including the Government side. Certain people promoted Ireland based on light touch regulation.

Several people must take responsibility for the failures. Rightly, certain people have been identified and scapegoated. However, others were involved and were complicit in this matter and such people gave others every possible encouragement. At times, these people made critical phone calls in respect of vast amounts of money being made available to people for various projects. We know for a fact that calls were made by people working in establishments such as Anglo Irish Bank. We are all aware of people in that institution. Calls came from the highest echelons of politics in this country to pay out major money in cases where proper feasibility studies were not carried out or business plans were not presented. That was the reality and the way the system worked. Everyone knew each other.

I will not refer to the great method used in the west of Ireland. However, such people met in other places, not only that particular place every July in the west of Ireland. It was commonplace. I do not play much golf but I play a little and I attended some high profile events. It was very easy to see what was taking place. Very cosy friendships existed between politicians in very prominent positions and bankers, builders and others. They had a great time for several years and that was the reality. Several very good books have been written on the issue. I refer to Senator Shane Ross, who wrote a very good book and to David Murphy who wrote Banksters, which I took on holidays last summer. That was one of the first of such books published. The issue has been well analysed but it remains to be analysed further and a major story remains to be told.

We are trying to get a message to the international business community that we are in some way dealing with our problems. This evening we are dealing with regulation, which is welcome. Hopefully, this legislation will improve the process. The new regulator is sending out the right signals. However, we have not been saying that there was regulation in place but that it was not being implemented because it was not encouraged. We are sending out the message to bond markets everywhere that we are dealing with the problems. For example, we have dealt with our budget and many people have suffered as a result. However, we are dealing with it because we have a banking crisis. People are suffering in this country because of what happened in our banking system.

I was in America for St. Patrick's Day. I paid my own way and I had my reasons for being over there. The Mayor of Chicago and the Governor and Mayor of New York all referred to Ireland and maintained they were pleased that the Government was facing up to the challenge of the banking collapse. That was great and I was not inclined to say to any of their officials that it is not that simple. If that is the perception which exists, then it is good for the country. However, that perception is very shaky if people examine what is behind it. The New York Times newspaper referred to the Irish banking system as a wild west system of banking. It identified that we were going the wrong way about it and that what we were doing in Ireland was not sustainable before any other observers, even those here.

Nevertheless the message is getting out to the bond markets that we are addressing these issues. To some extent we are so doing and if the message keeps down the interest rate we pay for borrowing, that is good. Last week, it was approximately 4.7% for ten year bonds. As a result of what took place in Greece, I understand it has now gone up to in excess of 5%. Bonds in the eurozone were always regarded as investment bonds. They were seen as a good investment for international buyers. Now, Greek bonds are regarded as junk. When Greece is dealt with and on the floor, where will they turn next? Which country will be next to come under scrutiny? It could be Portugal or Spain but it could be Ireland as well. This is something about which we must be very concerned.

Irish Government debt as a percentage of GDP is less than that of Greece at the moment. However, the capital that has been allocated to AIB, Bank of Ireland, Anglo Irish Bank, the Irish Nationwide Building Society and EBS in addition to the capital required to fund NAMA is not part of Government debt. Last week, the European Commission stated that the €4 billion committed to NAMA must be regarded as debt and this has increased our debt to GDP ratio. When everything is added up we will have a serious problem. At the moment, the money is considered an investment and thus recoverable. However, if it is not recoverable, then it will be added to our debt. This has the potential to increase Irish debt as a percentage of GDP to levels greater than those of Greece. Such an occurrence would turn the spotlight back on Ireland in a major way. The cost of our borrowing would increase substantially. In such circumstances, Ireland would have to turn to Europe, just as Greece is doing at present.

Another measure of the debt levels of a country is its budget deficit as a percentage of GDP. According to figures announced by the EU last week, Ireland's budget deficit as a percentage of GDP is increasing faster than previously expected and has now reached 14.3%. This is higher than the Greek budget deficit, which is 13.6%. This relates to the fact that the investment of €4 billion in Anglo Irish Bank is now recorded as a debt. It goes back to Anglo Irish Bank all the time. We have a major problem convincing the people from whom we borrow money that we have a sustainable banking system and that this country is on a sound and sustainable financial footing. I accept that our recent export figures were good. If one examines the very good surplus we have produced, however, one will find that much of it is coming from the pharmaceutical industry rather than from home-grown or indigenous industries. Certain issues are raised when those figures are analysed.

A number of speakers have referred to the consequences of personal debt. Some of them thanked the library and research service of the Oireachtas, which has produced a very good document on this issue. I think it became available yesterday. I will refer briefly to some of the interesting figures contained in the document. It states that household debt in Ireland, including mortgage debt, currently stands at €147 billion. All of us are concerned about the potential social consequences of such levels of over-indebtedness, including repossessions, family break-ups, health difficulties, depression and, in some cases, suicide. It is a major issue. The research document identifies the reasons for our over-indebtedness. It states:

In 1995, Ireland had a household debt (including mortgages) to disposable income ratio of 48. By 2008 [just 13 years on], this had risen to a ratio of 176, an increase of almost 270%. This rise is much higher than for four other countries (Spain, UK, Canada and France) where similar comparative data sets exist.

That is quite worrying. The document continues:

The rapid rise in debt can be linked to changes in access to and use of credit. Over the last decade, financial institutions were increasingly willing to lend, even to those who traditionally found it hard to access mainstream credit. Credit was also generally more affordable as interest rates were lower.

It is clear that the financial institutions gave money to anybody with any type of job, even if the applicant had been in the job for only a year or two. Not only did they provide money for a mortgage, but they also threw in some money for a car for good luck. People bought expensive houses and top of the range cars. I accept that this approach helped the car, house and building industries, which were going well at the time. Many cars were bought with money that was meant for mortgages. I know of some such cases.

Reference has been made to competition in the market. When I spoke during the NAMA debate, I mentioned that when competition came into the market, all it did was put pressure on Bank of Ireland and AIB to compete in the market. The more loans one provided, the bigger the commission one received. That was the incentive. People lost all the discipline they had. I know people who were refused loans by Bank of Ireland or AIB, but got what they wanted from Anglo Irish Bank within two hours. They went back to AIB and Bank of Ireland, which had refused them at the beginning, and started again. Those banks forgot the discipline and standards they had and relented to the pressure. That is what got us into the mess we are in. I would like to quote another statistic that is mentioned in the Oireachtas document. It states, "in 1995, the ratio of household debt to disposable income in Ireland stood at 48% (for every €48 borrowed, €100 was being earned); this is in sharp contrast with 2010 where €176 was owed for every €100 earned". That increase could not continue. The collapse had to come.

Many Deputies have spoken about the current availability of credit. I would like to set out my experience with the banks with which I am familiar. There has been an improvement in mortgage lending in recent times. The regulator is having an impact. Under the previous regime, if a commercial or agricultural business was refused credit the bank did not have to give a reason. Now one can appeal and be told why one was refused, at least. That is of benefit to those who have been refused. Good cases are generally being supported at present. The banks will never go back to the reckless lending they were doing.

People will not get money if they do not have a good business plan that stands up. Regardless of what we say in this Chamber, it will not happen. We hope the Government will not need to give any more money to Bank of Ireland. I understand that approximately €8 billion will have to be given to AIB. In the future, the banks will not provide money unless it is in support of plans that stand up. People will have more opportunities if buoyancy returns to the economy. As things stand, however, there will not be a massive flow of money from the banks. The banks are being forced to deal with their deposit loan ratios. Banks generally lend approximately €1.50 for every €1 on deposit. It is intended to reduce that figure to €1.25. That will restrict the level of credit that will be available to people.

It is obvious that this Bill is very important. Fine Gael has some concerns about it. We are aware that the regulation that existed was not enforced. In the words of Professor Patrick Honohan, although bank regulation in Ireland was compliant with international standards, it "was complacent and permissive" and placed too much reliance on the internal risk models deployed by the regulated entities. People like Professor Honohan, who is now in a good position to do something about it, accept that the system was not working. It was not working because there was no direction or pressure on regulation to work in this country. That is the bottom line and that direction did not come from this Chamber or from the Government.

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