Deputy Brian Lenihan:

Within each of the institutions guaranteed by the Government the main causes of the serious failures to implement and adhere to appropriate standards and controls should be examined, specifically in regard to Anglo Irish Bank and Irish Nationwide building society, as should the main causes of the adoption by their senior management and the implementation by their boards and senior management of business models and strategies which caused severe financial distress in these institutions, the position of external auditors, supervisory system and any advices given by the Department thereto.

Deputy Brian Lenihan:

Let me draw the attention of the House to a number of points in regard to these draft terms of reference. First, both reports but, in particular, that of Mr. Regling and Mr. Watson, described in some detail the nature of the explosion in credit growth in the Irish banking sector and characterised the failures in governance and risk management in our banks as disastrous. This ultimately led to systemic difficulties in the banking system. Allied to the failures in internal controls is the need, as identified in both reports, to examine what exactly was said by the external auditors of these institutions. Second, it is clear that there were especially egregious failures in corporate governance and risk management at Anglo Irish Bank and Irish Nationwide Building Society. In this context there are specific matters which are subject to investigation by the relevant authorities but there is a clear need to delve more broadly into what went wrong in these organisations while taking account of these investigations. Third, and building on the analysis by Professor Honahan of the failures of the organisation he now leads, there is a need to probe in more detail the nature of supervision and oversight by the Financial Regulator of the covered institutions. Fourth, the terms of reference propose that the commission should also examine whether the advice or directions given by my Department to the regulator in regard to the supervisory role were in any way relevant to the failures of the Financial Regulator.

Deputy Brian Lenihan:

One of the primary purposes of the preliminary reports was to crystallise those specific issues that are capable of further investigation by the legal process. This has now been achieved and the draft terms of reference set out by the Government provide a way forward to get to the bottom of that aspect outlined in the reports. In this context there is a necessity to ensure the issues are clearly defined to enable the commission to investigate fully the issues that are to be referred to it by the Oireachtas in as timely a manner as possible. I point out that the terms of reference published by the Government are draft only. The Oireachtas is invited now to provide its views on shaping these terms of reference. I will attend the Joint Committee on Finance and the Public Service for that purpose. I did not wish to be present at the testimony of persons in respect of reports I had commissioned.

Deputy Brian Lenihan:

The Government proposes that when the joint committee has provided its views the final terms of reference will be put to a vote in both Houses of the Oireachtas in the form of a draft Government Order to establish a commission of investigation. I envisage that this vote should be taken by the end of June because I am anxious that the commission meet the six month deadline. Deputies and others have taken time, rightly, to discuss the terms of reference for the commission and put forward suggestions that they be expanded to include policy issues within the scope. The Fine Gael motion before the Dáil today proposes to add a number of policy related elements to the terms of reference. I question the benefit of this approach which is completely at variance with the recommendations of Messrs. Regling and Watson. It completely ignores their distinction between issues that are capable of investigation through a legal process and other issues which are more appropriately the subject of policy review. That is why the Government has decided to consider the policy issues separately. As a Government, we fully accept the policy lessons set out in the report by Messrs. Regling and Watson. Again, they have set out the key policy issues in their report. The Government proposes to invite the Oireachtas finance committee for its views on those key policy lessons in the report. It is important that we analyse them and see how they can be implemented in our financial system.

Deputy Brian Lenihan:

There are a number of points in the Fine Gael motion and a question on fiscal policy. My time is short and I cannot go through all the arguments. I went through some last night. It is important to note that the design of fiscal policies is being examined at a European level as well in the wake of current difficulties in Europe. President von Rompuy's taskforce is formulating proposals in this area.

Deputy Brian Lenihan:

In regard to tax reliefs, I do not wish to go over the substantial argument that has taken place already. There is a very long history of these tax reliefs and a very substantial appetite for them on all sides of the House. It is clear their days should be numbered and if we are to learn one lesson from the report it is that.

Deputy Brian Lenihan:

In regard to the scope of the guarantee and the decisions surrounding it, the Governor has given what he believes is a comprehensive examination of the issues surrounding the guarantee. He had access to the files of the Department as well as of those of the Central Bank and the regulator. Herr Regling and Mr. Watson said the Government's crisis management was superb throughout the period. There are questions that can be asked legitimately in regard to Professor Honohan's report but it is clear the report is comprehensive in its scope concerning the guarantee.

Deputy Brian Lenihan:

I cannot think of a better person to conduct the report than the current Governor of the Central Bank, an international expert on banking crises, who was not present on the night in question and who brought his own detached and very nuanced view to an analysis of the question and a balanced way to his presentation of the issues. I am happy to accept his conclusions - would that others did. The primary objective of the guarantee was to bolster confidence among senior investors in the wholesale capital markets in so far as the funding position of Irish banks was concerned. Of course, there are questions which were raised by Professor Honohan about consultation with other European countries. He believed that within the short time available and the very limited timescale greater consultation might have taken place. He also raises the question of subordinated debt. It is worth noting that no dated subordinated debt, or guaranteed form of that debt, has been paid in Anglo Irish Bank or Irish Nationwide building society since the guarantee, nor will any sum be paid until the expiration of the guarantee. I have made it clear the guarantee will not be extended in respect of dated subordinated debt after the end of September. That said-----

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