Brian Lenihan Jnr (Dublin West, Fianna Fail)

I move:

That Dáil Éireann:

— having regard to the significant public concern about the scope and cost of measures that have been necessary to stabilise the Irish banking sector;

— noting the recommendations of the reports, 'The Irish Banking Crisis: Regulatory and Financial Stability Policy 2003-2008', by the Governor of the Central Bank, and 'A Preliminary Report on The Sources of Ireland's Banking Crisis', by Klaus Regling and Max Watson, which were laid before Dáil Éireann on 9 June 2010;

— noting the Government decision of 9 June 2010 referring these reports to the Joint Oireachtas Committee on Finance and the Public Service for its consideration and input into the preparation of the terms of reference for a commission of investigation;

— noting the acceptance by the Government of the seven key policy lessons outlined in Part IV of the report by Klaus Regling and Max Watson and the proposal to refer for further consideration by the Joint Oireachtas Committee on Finance and the Public Service the macro-economic policy lessons arising from the reports;

— noting that it is the opinion of the Minister for Finance that a commission of investigation represents the best method of further investigation of specific serious lapses in respect of specified credit institutions;

— further noting that a draft Order proposed to be made by the Government under the Commissions of Investigation Act 2004 (No. 23 of 2004) has been duly laid before Dáil Éireann in respect of the foregoing matters referred to, together with a statement of reasons for establishing the commission under the Act;

approves the draft Commission of Investigation (Banking Sector) Order 2010, copies of which were laid before Dáil Éireann on 7 July 2010."

Last January in this Chamber I set out a framework of investigation into the problems that arose in the Irish banking sector. I said then that a comprehensive understanding of the events that took place in the banking sector in recent times was an essential component of any economic recovery. We have a duty as a Government and as Members of the Oireachtas to ensure that not only the origins of the crisis are understood but that lessons are learnt and that international and domestic confidence in the banking system is restored so that the economy can return to growth and employment creation.

As the first stage of the process of investigation, the two preliminary reports prepared by Klaus Regling and Max Watson and by the Governor of the Central Bank, respectively, provide a comprehensive and authoritative examination of the crisis in the banking sector in Ireland. The authors have provided us with a detailed and insightful analysis of the global, European and domestic macroeconomic factors at play over the relevant period. Governor Honohan's report details the failures in the regulatory and supervisory arrangements and the weaknesses in the evaluation of the stability of the banks. These reports draw attention to a number of issues which require further analysis and provide a sound basis for the further investigation of these significant issues. I welcome their direction in that respect.

The reports were laid before the Houses of the Oireachtas on 9 June and were debated. The Oireachtas Joint Committee on Finance and the Public Service has had two separate and lengthy engagements with the authors and subsequently with me to discuss how we should proceed. Those meetings allowed a comprehensive analysis of the issues raised in the reports and some necessary rebalancing of the initial interpretation and media commentary by highlighting the complex factors at work that culminated in the extreme turbulence that impacted on the banking system in September 2008.

In their report, Klaus Regling and Max Watson distinguish between those issues that are amenable to further investigation through a legally orientated process and other issues, which are less concrete and verifiable, and may be more appropriately the subject of policy review. That distinction formed the basis of the Government's proposed approach to the next steps in the process.

I draw the attention of the House to a number of points about the findings of the preliminary reports. First, both reports, but especially that of Mr. Regling and Mr. Watson, describe in some detail the nature of the explosion in the availability of credit in the Irish banking sector and characterise the failures in governance and risk management in the banks as disastrous, and ultimately leading to systemic difficulties in the financial system. What went on in the banks leading up to the crisis remains a cause of significant public concern. The public interest demands that we investigate the very serious failures in the standards and controls that should have ensured prudent risk management policy and procedures.

Second, it is clear that there were especially egregious failures in corporate governance and risk management at Anglo Irish Bank and the Irish Nationwide Building Society. Certain matters are already the subject or investigation by the relevant authorities, and I do not propose to comment on them now. However, there is a clear need to examine more deeply and broadly what went wrong in those two organisations while taking account of the other investigations. That is why the draft terms of reference prepared by the Government specifically set out the need for a full examination of the business models and strategies adopted by the boards of those institutions and the implementation by their senior managements of business and lending practices which resulted in those institutions experiencing such uniquely severe financial distress. The investigation will cover the period from 1 January 2003 to 15 January 2009, the date on which Anglo Irish Bank was nationalised.

Third, building upon the need to investigate failures in governance and risk management, it is proposed that the commission should also investigate whether the external auditorscommented in their audit reports on the standards and controls and risk management policy and procedures or on the business models and strategies and business and lending practices that led to the severe difficulties experienced by the banking system.

Deputy Burton made an interesting suggestion in the course of the committee deliberations about how that particular element of the terms of reference should be drafted. I raised her concerns with the Attorney General but he insists that the current formulation before the House today is the best one to ensure that the commission can bring its business to an expeditious conclusion and that the adoption of the alternative would unnecessarily prolong the duration of the commission's deliberations. That said, I assure her that the matter was considered in some detail.

Fourth, on foot of the analysis by Governor Honohan of the failures of financial supervision, there is a need for further examination of the nature of supervision and oversight of the banks by the Financial Regulator. For that reason it is proposed that the commission would examine the failures of the Central Bank and Financial Regulator to regulate and supervise the covered institutions and to maintain financial stability.

These draft terms of reference are appropriate in the light of the findings of the preliminary reports. Under the Commissions of Investigation Act 2004, a commission of investigation may be established by the Government, with the approval of the Oireachtas, to investigation any matter considered to be of "significant public concern". There can be no doubt that the banking crisis and its origins fall squarely within that category. It has had a profound impact on the State and on its financial position and we will live with its consequences for some time to come. It is essential that we identify what went wrong and why and that we learn the lessons of the past to ensure that we never make the same mistakes again.

I am pleased to inform the House that Mr. Peter Nyberg, former director general for financial services at the Finnish Ministry of Finance, has agreed to lead the commission. Mr. Nyberg has the necessary experience to undertake this important role. He will be supported by the expertise he requires. I have made provision in my Department's Estimate for this year to cover the costs of the commission.

I also remind the House that there are ongoing investigations by the relevant regulatory and other authorities into specific matters of a serious nature in a number of institutions. The commission of investigation will not supplant or hinder those investigations. In fact, it is open to the relevant authorities to initiate further investigations into additional possible breaches arising out of any findings that the commission may make.

The motion before the House seeks approval of the draft Government order, laid before the Houses yesterday, providing for the establishment of a commission of investigation into the banking sector. I draw the attention of the House to the Government's decision, following the recommendation of the Joint Oireachtas Committee on Finance and the Public Service at a meeting last Monday, to extend the period to be covered by the commission of investigation from 1 January 2003 to 15 January 2009. This means that the commission will now be in a position to examine all relevant matters relating to corporate governance and risk management in each of the banks covered by the Government's guarantee up to the date of the Government's decision to nationalise Anglo Irish Bank.

The second motion before the House seeks to refer certain macroeconomic policy lessons to the Joint Oireachtas Committee on Finance and the Public Service arising from recommendations set out in the Regling and Watson report. As is clear from that report, these policy issues can be divided into two groups; those that relate to macroeconomic management and those that relate to financial stability and prudential matters. The former are primarily my responsibility in the first instance and the latter fall within the remit of the Financial Regulator and the Central Bank.

I propose that the Joint Oireachtas committee, taking account of the emerging EU proposals on fiscal and economic governance, examine the following matters highlighted in the Regling and Watson report: the role of macroeconomic management and surveillance in securing the long-term sustainability of Ireland's economic performance and also in responding on a timely basis to risks and imbalances that may build up in both the private and public sectors of the economy, including external imbalances vis-À-vis other euro area members and the funding of any imbalances that might arise; the role of fiscal policy in securing an appropriate alignment of the national business cycle with monetary conditions in the economy; the requirement for the design and conduct of budgetary and taxation policies to take account of the cyclical nature of particular revenues as well as their temporary nature in certain circumstances in order to maintain an appropriate and effective tax base and; the case for the establishment of new institutional structures to provide an independent validation of economic and fiscal projections as well as for the introduction of domestic medium-term fiscal rules.

Following my discussions with the committee, I understand that the committee is agreeable to the main elements of the overall proposed scope. It is proposed that its deliberations be concluded by the end of October in order to publish and report back to this House and the Upper House by 4 November 2010.

Regarding the issues within the remit of the regulatory system, the House will be aware that the Central Bank published a report on 21 June setting out its proposed approach to future regulation of the banking sector. This report also addresses how the range of measures it is putting in place will address the issues raised in the Governor's report and that of Messrs Regling and Watson. This is another step on the road to the recovery of the banking system.

It is the Government's view, underpinned by the two preliminary reports, that certain decisions and processes which are fundamentally political in nature, are not amenable to an investigation whose purpose is to make findings of fact. The Government will not be changing its position on that point. There are no good reasons for it to do so. Let me also be clear however that my Department will feature in significant ways in both of the investigations. First, the terms of reference of the commission require it to examine whether any advices or directions given by the Department to the Financial Regulator were in any way relevant to failure of the Financial Regulator in the performance of its supervisory functions.

Second, in regard to the proposed policy review by the committee, I have already indicated my own availability to meet the committee as the accountable Minister to assist it in its deliberations as necessary. At all times, my predecessors and I have been accountable to this House for the decisions taken as Minister and for the actions of my Department. That will continue to be the case.

Deputy Noonan suggested yesterday evening the terms of reference of the commission should be broadened to include advices given by the Department to the Minister. My Department is now finalising the documents on the bank guarantee and the deliberations thereon that it intends to put into the public domain. The request was initially made by the Committee of Public Accounts but the documentation will be also put at the disposal of the Joint Committee on Finance and the Public Service. My Department has had to take the advice of the Attorney General on complex issues associated with legal professional privilege and the confidentiality of Central Bank information and certain banker-customer information in the preparation of these documents.

On Deputy Noonan's suggestion that the documents be made available, I am open to persuasion that documents pertaining to the period up to 15 January 2009 should be put into the public domain. I am examining this with a view to making a decision on it in a short period. As Minister, I am accountable to the House regarding the documents, but I am also prepared to make myself available to the Joint Committee on Public Finance for questioning in respect of them.

As I have informed the committee and the House, I am establishing an independent review by an international expert or experts with relevant international or domestic experience to evaluate the systems, structures and processes used by the Department of Finance in providing advice to the Minister and the Government. The review will examine the Department's role and performance in the past 10 years in providing advice to the Minister and the Government. This would include advice on the Government's management of the current crisis, with a view to ensuring that the lessons of this period of extraordinary stress will inform the development of the Department in the future. The review will have due regard to the skills, training and staffing mix required by a modern finance and economic Ministry so it can best fulfil its role and mandate.

I want to ensure for the future that the Department of Finance can give the best possible policy advice, better assess risks and opportunities in the fiscal, economic and financial system, and manage its own operations with high levels of effectiveness and efficiency. The Department has good, skilled and capable staff but I want to be sure they are used to best effect and that the mix of skills is optimised.

The matters we are discussing today are important and will have enduring consequences for future economic and financial policy. It is appropriate, given the scope and cost of measures that have been necessary to stabilise the Irish banking sector, that this matter be completely investigated and that lessons be learnt in order to put in place the best systems and structures so this kind of crisis can never happen again. I commend the motion to the House.

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