Kieran O'Donnell (Limerick East, Fine Gael)

Fine Gael has put forward this motion on foot of the two excellent reports published by Professor Honohan, Governor of the Central Bank and Messrs Klaus Regling and Max Watson, which are objective in their orientation and criticism of Government policy. What we are seeking is the context of the proposed Commission of Investigation, in particular the draft terms of reference in this regard as proposed by Government.

The motion commends the depth of reporting and analysis in the reports published by Professor Honohan and Messrs Regling and Watson. It also notes the conclusions in those reports on several issues including that our fiscal policy was very much relevant to our economy being dependant on property, thus creating the property bubble which had a major impact on our loss of export competitiveness and leading to the banking crisis.

I want to deal with a number of other factors and to give an objective critique of Government policy. I do not wish to personalise this matter but to deal with it as reported in the banking reports and to set out the areas I believe need to be considered as part of the Commission of Investigation to ensure a whole rather than selective approach which will provide extra weight to the initial reports and ensure that we not alone learn the truth but note the mistakes made and changes required.

The reports state that the issue of directors' compliance statements was put forward by the then Financial Regulator but that this was effectively blocked by the Department of Finance and then Minister for Finance, Deputy Brian Cowen. The authority was informed in December 2006 that the Minister for Finance felt it was important to assess the competitiveness issue. Following a discussion with the Department of Finance it was agreed with the Financial Regulator not to implement the provision as set out in the Central Bank Act and to examine the requirements for compliance statements from financial service providers in the context of projects to consolidate and modernise financial services legislation. In essence, this never happened. The introduction of directors' compliance statements would have improved immeasurably corporate governance within the banking system.

I turn now to the bank guarantee scheme. Professor Honohan's report is an excellent and easy to read report. I have no doubt it will be easily understood by everyone. Professor Honohan stated that the guarantee scheme introduced on the night of 29-30 September was too broad and as a result ended up costing the taxpayer, in particular in terms of its coverage of subordinated debt. The Government came into this House on 30 September and stated that the bank guarantee scheme had to be introduced because the banking system was at crisis point. We now know from Professor Honohan's report that in July 2007 a group had been established to review the banking system and that many of the issues were considered in the context of Anglo Irish Bank. A decision was taken by Government that no bank would be allowed to fail. Anglo Irish bank fell into a different category. The Government included in this regard lower tier II subordinated debt. The banks then effectively took more risky subordinated debt and allowed it to be converted into lower tier II, which brought it within the guarantee scheme. It is clear from Professor Honohan's report that subordinated debt should not have been guaranteed as part of the bank guarantee scheme.

What we want in terms of the Commission of Investigation is for the two elements missing from the banking reports to be addressed. It was not within the terms of reference of both banking reports to consider the motivational aspects in terms of policy. Policy is determined by Government. During the crisis, in terms of the fiscal element from 2004 to early 2008, the Taoiseach, Deputy Cowen was Minister for Finance. We have no idea of the motivational aspect in terms of the policies he introduced or the official advice provided to him by the Department. It is a weakness in our democratic system that advice provided by departmental officials is not put into the public domain thus allowing us to know the background upon which Ministers made decisions. We are told this information cannot be disclosed. We have, therefore, an information deficit.

Professor Honohan and Messrs Regling and Watson appeared before the Joint Committee on Finance and the Public Service. When I asked each of them whom they interviewed I was told that none of them had interviewed the main player in this period, namely, current Taoiseach and then Minister for Finance, Deputy Brian Cowen. This is a weakness in the reports and the proposal in this regard as contained in the motion should be included in the terms of reference of the Commission of Investigation. The Government has provided to the Joint Committee on Finance and the Public Service the draft terms of reference for the Commission of Investigation which it is to overview and make recommendations on.

The Commission of Investigation must take into account Government policy. We have within this House and at ministerial level the power to determine people's future through Government policy. Professor Honohan, as Governor of the Central Bank, implements Government policy. We need to know why the Taoiseach, Deputy Brian Cowen, when Minister for Finance, indulged in pro-cyclical budgets and why in 2007 and 2008 we had an 11% increase in real expenditure, which effectively, according to Professor Honohan, worsened the situation. Why did this happen?

Professor Honohan is on record as saying that in a final twist real expenditure rose by 11% in 2007 and 2008 following the budgets of 2006 and 2007 respectively introduced by the then Minister for Finance and current Taoiseach, Deputy Cowen. There was an unfortunate late burst of spending, which boosted the underlying deficit at almost the worst possible time. That was at the end of his tenure as Minister for Finance. On page 28, the report says the following about the start of his tenure:

Although Ireland's public debt level immediately prior to the crisis was low, the fiscal deficit and public sector borrowing surged quickly with the onset of the crisis. This was partly attributable to a rise in Government spending in GDP [after 2004] which became embedded in the system.

When Deputy Brian Cowen became Minister for Finance he presented budgets which turbo-boosted the economy when it did not need that. The Taoiseach has said that in December 2005, he decided to curtail, or disband, tax incentive schemes. However, the tax incentive schemes continued until 31 July 2008, two and a half years later, and bang in the middle of the financial crisis. The commission of investigation must establish the Minister's motive for allowing the schemes to continue for so long. Why did he allow expenditure to increase at an alarming rate during his period as Minister for Finance, culminating in an 11% increase in real expenditure in 2007 and 2008? The commission must include the Department of Finance in its remit. We must know what advice the Department gave to the Minister. What was the train of thought in the Department and the reason for the advice given?

Until 2002 or 2003, we were, in the main, an export nation. The property crisis had not gone out of control and we were reasonably competitive. Suddenly, our exports fell, lending by the banking sector went out of control and the Minister for Finance was spending as though there was no tomorrow. The impression was given that, in the words of the Honohan report, "the party would never end". The property market was fuelled by budgetary policy which fanned the flames. Between 2004 and 2008, we had inflationary budgets, which made us uncompetitive, and no check was placed on the banks. In the financial stability reports, the Minister would have seen references to the problems created by the increase in property prices and the loan books of various banks, particularly Anglo Irish Bank. Between 2005 and 2007, there was a doubling of the loan books of the other banks, much of it property related.

We want full and complete clarity as to what happened, why it happened and who were the parties to what happened. The key player is the Taoiseach, who was Minister for Finance at that time. I do not know why he did it or what information he was given by his Department. Why did he not allow the corporate compliance statements to be introduced by the Financial Regulator in 2006? That would have had a major impact, in terms of corporate governance.

The draft terms of reference for the commission of inquiry limit it, interestingly, to the period from 1 January 2003 to 28 September 2008. The last two days of September are left out. They were the two days when the major discussions on the Government guarantee scheme took place. Furthermore, on page 120 of his report, Professor Honohan said:

A detailed review of the ensuing discussions is hampered by the absence of an extensive written record of what transpired. Although the minutes of meetings of the Central Bank and Financial Services Authority of Ireland, CBFSAI, board and the authority during the period contain references to various options, there is an absence of documentation setting forth the advantages and disadvantages of possible alternatives and their quantitative implications. While CBFSAI board members expressed some broad views on possible approaches, no decisions were taken, as the solutions would need to be found at governmental level. The key discussions took place via the very many informal contacts and meetings between senior officials of the DSG agencies, the NTMA, and consultants; what follows relies to a very large extent on the personal recollections of participants.

This is probably the most significant financial decision taken in the history of the State, involving €440 billion of taxpayers' money. It is frightening. In a footnote, Professor Honohan states:

Only sketchy records appear to have been kept of the intensive round of informal meetings in the days and weeks prior to 29 September or of the events of that night itself. Although recognising the severe pressures of rapidly unfolding events, greater transparency with respect to the unprecedented decisions being considered and the far reaching implications would have been desirable.

He also states:

Throughout this period up to and including 30 September, as noted above, the clear consensus was that the problem was essentially one of liquidity rather than of solvency.

Why was the solvency issue not considered? Why were balance sheets ballooning in the banks? Was their solvency not considered at the time? Anglo Irish Bank's position was particularly pertinent in this regard.

Members of the board of Anglo Irish Bank came before the Joint Committee on Finance and the Public Service today. They stated that €14 billion has gone into the bank. That money will never be seen by the taxpayer again. The board requires a further €8 billion, making €22 billion. Furthermore, they want another €2.5 billion of share capital to establish a good bank-bad bank. We need to know the details of these key fundamental issues.

I commend the motion to the House. The draft terms of reference for the commission of investigation must be widened by the Government. Fine Gael will propose this extension at the Joint Committee on Finance and the Public Service. The terms of reference should include the political and policy context for the conduct of budgetary policy in 2005 - 2008, including official advice given to the then Minister for Finance and the lessons to be learned; the political and policy context for the decision to extend tax reliefs for property developers in 2006 up to 31 July 2008, including the official advice to the Minister for Finance and the lessons to be learned; the political and policy context for the failure by the Financial Regulator to implement tighter compliance rules for bank directors; and the political and policy context for the decision to extend the bank guarantee scheme on 30 September to invest in long-term subordinated debt.

As Professor Honohan said, only sketchy records remain. We need to know exactly what happened. What was the political and policy context for the failure of the Department of Finance and the Financial Regulator, in December 2008, to stop Anglo Irish Bank from publishing financial records that misrepresented the strength of its customer base? What are the lessons to be learned from that? Anglo Irish Bank's deposits went to Irish Life & Permanent as bank deposits, in effect, and came back as customer deposits. Why were these accounts allowed to be published in that context? Who knew what?

I commend this motion to the House. I hope Deputies on the Government side will appreciate that all we want is an inclusive commission of investigation. The Government should have nothing to worry about, in terms of the context. The public is entitled to get the facts in a clear, concise and comprehensive report on the all the individuals involved. When the Taoiseach was Minister for Finance, what were his motives and those of his officials? I hope we will get support from all sides of the House. I commend the motion.

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