Michael Noonan (Limerick East, Fine Gael)

I move:

That Dáil Éireann condemns the Government for its incompetence in dealing with the

banking crisis and, in particular:

— the failure of the Government to ensure adequate supervision of the banks;

— the failure of the Regulator, Central Bank and the Department of Finance to monitor the banks and provide advance warning of the crisis;

— the failure of the Government to act in a timely fashion when banks abroad had collapsed and it was clear that banks here were facing difficulties; and

— the failure of the Government to change bank directors, to make senior appointments from outside the banks and to change banking culture in dealing with customers;

recognises the widespread public anger that those chiefly responsible for the crisis have not been held to account despite extensive inquiries by An Garda Síochána and the Director of Corporate Enforcement; and calls on the Government to adequately resource the Garda and the Director of Corporate Enforcement to enable them to complete their inquiries as soon as possible so that files may be forwarded to the Director of Public Prosecutions (DPP) and prosecutions taken if appropriate.

I propose to share time with Deputies Alan Shatter, Kieran O'Donnell, James Bannon, P.J. Sheehan and Leo Varadkar. The Government's policy on banking has been an absolute fiasco. On every step of the road from the misguided guarantee, given under pressure in the last days of September 2008, to the recent decision to wind down Anglo Irish Bank, the policy of the Government has been seriously flawed and has led to ever-increasing estimates of the cost of the bank rescue to the taxpayer. We started at €1.5 billion on the night of the guarantee, it became €4.5 billion on the day of nationalisation. Subsequently it became €10 billion, then €18 billion, then €24 billion and has ended up at €32 billion. The guarantee was flawed and should not have covered Anglo Irish Bank.

Since the night of the guarantee in September 2008, Fine Gael has maintained that the bondholders in Anglo Irish Bank should have shared in the losses that completely wiped out the shareholders. The Minister has argued very forcefully that while some discounts could be made in respect of subordinate debt, no discounts could be made in respect of senior debtors, as in law they are the equivalent of depositors. The Minister claimed he had legal advice to this effect and I presume this is from the Attorney General. He was as good as his word three weeks ago when he agreed that €7.9 billion be paid to senior Anglo Irish Bank bondholders just three weeks ago without any discount.

The Minister may be interested in a recent editorial in the Financial Times in respect of the new policy of the Government of seeking discounts on Anglo's subordinated debt. It states:

It has dawned on the Government that the Irish people should not spare Anglo's creditors the cost of the foolish eagerness with which they funded the bank's real estate punts. After burning 29 bn of taxpayers money Dublin has found the gumption to let Anglo pick a fight with investors one rank up from the already-wiped-out private shareholders.

In a deathbed conversion, the Minister has realised he can take discounts on subordinate debt held by Anglo Irish Bank. That is the faint praise in the editorial that damns. The editorial continues:

This is why, regrettably we are unlikely to see similar "liability management" for senior debt. Ireland's leaders remain convinced they cannot force a haircut on senior bank creditors anymore than on depositors or holders of Irish sovereign debt. They are mistaken.

Senior debt ranks equal to deposits under insolvency rules. But a government can selectively bail out depositors of an insolvent bank in exchange for their pari passu claims on its estate, as the UK did with Icesave depositors. The equivalence of private and sovereign debt is a creature of Dublin's imagination – though increasingly one of its making: the government has far too promiscuously expanded its legal guarantees of bank liabilities.

That is an astounding indictment of Government policy and of the Government's legal advice. It shows this side of the House was correct all the time and that taxpayers have carried an unnecessary burden because the Government did not, would not, and thought it could not, get discounts on senior debt. That is the view of the Financial Times of the Minister's actions, of his failure to protect the Irish taxpayer and of his legal advice. The Financial Times goes to every boardroom in Europe and beyond. It is a journal of incomparable influence in the financial world. Is it any wonder there are problems in the bond market and that Irish bonds were being traded up to 7.3% at close of business this afternoon? Is it any wonder the country is in trouble? When the question was raised, the Minister assured us he had legal advice to the effect that what the Financial Times is suggesting was impossible and that senior debtholders always had to be treated as equivalent to depositors under Irish law. According to today's article, this is not true so I would like the Minister to publish the legal advice he received. Whatever about the Minister's reputation, the country's reputation cannot afford any more damage.

The failure to protect the taxpayer and to punish recklessness leads us on to another concept much ignored in this country, moral hazard. This concept is fundamental to capitalism - people and institutions who behave recklessly should not gain from their recklessness but should be punished and be seen to be punished as an example to others who might be tempted to take reckless measures in the future. This concept was much debated in the United States, which led to Lehman Brothers being allowed to collapse without any attempt to rescue it. There are different views of what moral hazard should be and some argue that Lehman Brothers should have been saved. As a concept, it seems to be unknown in Ireland, especially in Irish banking circles.

AIB has had a scandal in each decade. It had to be rescued by the State when ICI collapsed in the 1980s; it was exposed as being involved in widespread and systemic tax evasion in the 1990s; in this decade it has become insolvent and the State has been forced to bail it out and acquire 92% of the bank in doing so. Moral hazard does not stop at AIB. Anglo Irish Bank has wiped out its shareholders and Bank of Ireland shares were trading at 52 cent yesterday. That is some hit for those who hold Bank of Ireland shares in their elderly years as a safe place to put money - usually on the advice of bank managers who claimed people would get a better income stream from dividends than from the highest deposit interest available in the banks at the time. Irish pension funds also put money in bank shares and yet Anglo Irish Bank shares have been wiped out, AIB is practically wiped out and Bank of Ireland shares were trading at 52 cent yesterday. What do we have in terms of moral hazard? Despite these disasters, 32 of the directors on whose watch the decisions leading to the collapse of Irish banks and building societies were made are still in position. The Minister's amendment refers to the directors who have moved on. What about the 32 who were there for the past two years and held office while this was happening and served on audit and lending committees? Who are the 32 untouchables left there? I am not saying they are personally culpable but they presided over the policy that led to the disaster. The rules of capitalism are that if it happens on one's watch, one is responsible and must take a hit. No one in Ireland takes a hit for anything. It is a case of "It will be all right". If we had an honours system in the country, these people would have been knighted five or six years ago. When people argue about reform of this House and want Ministers to be parachuted into Cabinet without going through the electorate, these are the people who would have ended up in the Cabinet if that facility had been available to the former Taoiseach, Deputy Bertie Ahern. Until very recently the top management at AIB and Bank of Ireland were recruited from insiders. The culture of the bank has remained the same. Unreasonable targets are again being set. Staff are being pushed towards further charges on customers and salary packages are linked to achievement of those targets. The banks are not providing the stream of credit the economy needs. The Government is perplexed that the banks are not functioning as intended. Einstein said the definition of insanity is to do the same thing over and over again and to expect a different result. That is where the Government now finds itself and that is what it is doing.

I hope the inquiries of the Garda and the Director of Corporate Enforcement are speedily concluded and that the files to be forwarded to the Director of Public Prosecutions will have sufficient evidence to support prosecutions. Why does everything take so long? There is an old joke that a Mexican tourist in Ireland inquired what word was used here for mañana. The reply is that we do not have any word that would communicate that sense of urgency. Two years later the inquiries of the Garda and the Director of Corporate Enforcement continue.

How can the Government stand over an appointment to the new banking commission under the Central Bank Act of a person who wants to take Ireland out of the eurozone? Is that the kind of appointment that inspires confidence in the halls of Brussels, among the bankers in Frankfurt and in the International Monetary Fund? The Government has appointed someone well known by the media whose first statement as a commissioner is that Ireland should get out of the eurozone. God help us. It is time the Government went.

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