Dara Calleary (Mayo, Fianna Fail)

I move amendment No. 1:

To delete all words after "Dáil Éireann" and substitute the following:

"recognising the sudden onset and serious nature of the worst global financial crisis in more than 75 years, commends the Government for the rapid and effective response it has made to reform the structures of financial regulation, support the banks, restore confidence, protect consumers and establish a basis for a sustainable banking sector in the future; and in particular, recognises:

— the rapid response of the Government in introducing the Central Bank Reform Act 2010 to restructure the financial regulatory system including:

— the creation of a fully integrated Central Bank;

— the replacement of the board of the Central Bank and the Financial Regulatory Authority with a new Central Bank Commission chaired by the Governor, Professor Patrick Honohan;

— the appointment of international expert, Mr Matthew Elderfield, as Head of Financial Regulation within the new structures to lead internal renewal of financial regulation;

— and providing a statutory basis for a new regime of fitness and probity for senior management and board members in banks and other financial service

providers;

— the effective response of the Government to the crisis in putting in place protections for the savings of households and businesses through the Deposit Guarantee Scheme and the general guarantee for the banks;

— the changes at director and senior executive levels at the covered institutions that have been made since September 2008, in which the chairpersons and chief executives of all of the covered institutions bar one – in each case – have changed: some 47 directors have vacated their positions with 33 new appointments being made and some 31 senior executives have departed;

— the establishment of NAMA and the work it has already completed in dealing with transferred assets;

— the nationalisation of Anglo Irish Bank and more recent developments in relation to the funding bank and the asset recovery bank;

— the recapitalisation of AIB and Bank of Ireland and the other financial institutions experiencing difficulties;

— the extensive inquiries under way by An Garda Síochána and the Director of Corporate Enforcement; that these inquiries are proceeding in an efficient manner;

that the Garda have adequate resources to carry out their work and have no higher priority than completing these investigations;

— and the independence of An Garda Síochána and the Director of Corporate Enforcement in their investigations and supports them in bringing those investigations to a conclusion; and notes the intensive work underway within the Government to further strengthen and renew the banks while, and at the same time, ensuring that banks fulfil their commitments given to the Government in relation to lending to Irish households and businesses and, in particular, small and medium sized enterprises."

The Irish banking system has endured an unprecedented crisis. The Government has responded forcibly and decisively to this challenging position. How we continue to manage our collective response to the crisis will affect every Irish citizen now and into the future. The banking system is fundamental to a strong economy. The core purpose of a banking and financial system in a modern economy is to contribute to the economic welfare of all citizens by helping borrowers - both households and businesses - to obtain and utilise funding to meet their investment and consumption needs. A healthy banking system facilitates the most efficient allocation and pricing of risk by paying interest rates on the deposits of savers and by charging rates of interest to borrowers related to the purpose, duration and risk weighting of the loan required.

The Government has commissioned two reports on the banking crisis, The Irish Banking Crisis - Regulatory and Financial Stability Policy 2003-08by Professor Patrick Honohan, Governor of the Central Bank and A Preliminary Report on the Sources of lreland's Banking Crisis by Messrs Regling and Watson. The findings of both reports were published in June this year.

Internal safeguards and proper risk management procedures in the banks did not function effectively in the institutions as they should have done. Some of these matters are under investigation. All investigations into Anglo Irish Bank are at an advanced stage and are being progressed as a matter of priority. The matters under investigation are detailed and complex. The appropriate authorities must be allowed to take the time needed to finalise these investigations. My understanding is that a large number of personnel from the Garda and the Office of Director of Corporate Enforcement are involved in these investigations. I also understand that the relevant interviews have taken place, or are to take place, as part of this wide-ranging inquiry and that the relevant files are being prepared for submission to the Director of Public Prosecutions. The Garda Commissioner had indicated that a file will be sent to the DPP before the end of the year. That is how criminal investigations are conducted in this and in neighbouring jurisdictions. I accept that inquiries on the other side of the Atlantic tend to be much sharper and quicker than they are here. The nature of our criminal justice system is such that investigations in this jurisdiction - like those in the UK and France - take a substantial period of time.

The Garda has adequate resources to carry out its investigation. The Minister for Justice and Law Reform has been assured by the Garda Commissioner that the Garda has no higher priority than completing this investigation. For his part, the Commissioner regularly meets his officers involved, ensuring that, at all times, they have every resource they require.

I will not comment further on the investigations at this stage. The House is aware of the independence of An Garda Síochána and the Office of the Director of Corporate Enforcement in carrying out their investigations. Let us look at the facts. In response to the weaknesses exposed by the crisis in the structure, systems and staff responsible for financial regulation and supervision, the Government has acted vigorously and effectively. Professor Honohan was appointed Governor of the Central Bank in September 2009 and Mr. Matthew Elderfield was recruited as head of financial regulation at the bank at the beginning of this year. The appointment of these two gentlemen has done much to restore public confidence in the Central Bank and in our capacity to regulate and supervise the financial sector. The Central Bank Reform Act was commenced by the Minister for Finance on 1 October 2010, and the House will be aware of its key provisions. In addition, new and enhanced accountability and oversight mechanisms have been put in place, including a specific focus of the Central Bank Commission on regulatory performance,including development of performance benchmarks. Annual performance statements on regulatory performance must now be prepared by the Bank, presented to the Minister for Finance and laid before the Houses of the Oireachtas. There is now a statutory requirement for regular international peer reviews of regulatory performance and a committee of the Oireachtas may call the Governor or the heads of functions to be examined on the performance statement.

The Act provides for a new statutory arrangement to ensure the fitness and probity of persons appointed to high level positions in the management of banks and on their boards. These are designated as "controlled functions". Under the new arrangements the Central Bank may prescribe the functions which are controlled functions within certain parameters set out in the Act. The Act permits a flexible and incremental approach to the prescription of controlled functions so that, for example, it is possible to introduce the fitness and probity provisions in respect of the most urgent functions first, and expand them subsequently to a broader range of functions. A controlled function relates to the provision of a financial service where the person appointed exercises significant influence on the conduct of the financial service provider's affairs. People who perform controlled functions are liable to be removed from the performance of those functions in the event that the Central Bank determines that they are not fit and proper persons to perform those functions.

Last month, the Minister for Finance appointed five members to the Central Bank Commission, namely Mr. Max Watson, Professor John FitzGerald, Mr. Des Geraghty, Mr. Michael Soden and Professor Blanaid Clarke. The new members serve alongside the Central Bank Commission's ex officio members, who include Governor Honohan, Mr. Elderfield, Mr. Tony Grimes, head of central banking, and Mr. Kevin Cardiff, Secretary General of the Department of Finance. The new commission members have brought a diversity of knowledge and experience to the Central Bank, drawing from sectors including economics, financial services, social policy, corporate governance and law.

The Central Bank Reform Act is an important element in a comprehensive legislative programme. The new structure of the Central Bank establishes a domestic regulatory framework for financial services that meets Government objectives for the maintenance of the stability of the financial system. It provides for effective and efficient supervision of financial institutions and markets, and in the future, it will safeguard the interests of consumers and investors. The new structures will also encourage more responsible and transparent management and lending policies in financial institutions. The Government will bring forward a second Bill shortly which will provide for the enhancement and adjustment of the regulatory powers and functions of the restructured Bank.

This Bill will deal with the prudential supervision of individual financial institutions. It will help strengthen supervision and enforcement and also protect consumer interests and overall stability of the financial system. This second Bill is of critical importance to the future of the financial services industry in Ireland. The enhancement of the Central Bank's powers of financial regulation and supervision will be grounded in best practice within the European Union and internationally. I would like to assure the House that the Central Bank remains fully independent in the discharge of its operational responsibilities. Taken together, these two items of legislation will ensure that there is appropriate accountability to the Minister for Finance and the Houses of the Oireachtas and greater transparency and cooperation in the exercise of regulatory and supervisory powers.

A third Bill will consolidate the existing statutory arrangements for the Central Bank and financial regulation in the State. Building on the provisions of the Central Bank Reform Act 2010 - and in response to the regulatory failures identified by the two banking reports - the Central Bank has published its new more assertive approach to banking supervision. In future, banking supervision will be more intrusive and challenging. Banks will be required to change their behaviour and improve governance, risk management and lending practices. Under the new regime, the Central Bank will demand decisive follow through by both supervisory staff and supervised institutions.

Specifically, the Central Bank will bring forward initiatives on internal governance requirements; remuneration standards; risk exposures; and standards on credit risk management and valuation.

The Central Bank has also recently opened consultation on a revised code to strengthen consumer protection. The revised code requires regulated entities to act in consumers' best interests by ensuring that they know and understand the consumer's needs, sell them products and services that are suitable and provide them with appropriate information to enable them to make an informed choice. The code also requires firms to have in place an effective complaints handling procedure and sets out a timeframe within which regulated entities must deal with complaints from consumers.

In addition to the programme of legislation, the Government has progressed a broad range of effective policies to resolve the banking crisis. The Government's approach has been based on three broad principles; not to let any systemically relevant financial institution fail, this involves protecting depositors and creditors; any State involvement in the financial institutions will protect taxpayers' interests; and to ensure the flow of credit to the real economy.

In formulating the strategic approach to the crisis and developing the detail of individual policies for the banking sector, the Government has taken advice from and consulted with the Central Bank, the National Treasury Management Agency and legal and financial advisers. In formulating the strategic approach to the crisis and developing the detail of individual policies for the banking sector, the Government has taken advice from and consulted with the Central Bank, the National Treasury Management Agency and with legal and financial advisers. Moreover, it has sought to reflect agreed principles at EU level and to comply with state aid guidance.

The Government has ensured that there is no return to business as usual.

Contrary to the Opposition's motion, significant changes have been made at director and senior executive levels in the covered institutions. Since September 2008, the chairpersons and chief executives of all of the covered institutions, with the exception of chairman of Irish Life & Permanent and the chief executive of the EBS, have changed. There has also been a substantial turnover of non-executive directors since 2008. In total, based on information supplied by the covered institutions, 47 directors have vacated their positions since September 2008 for a variety of reasons and 33 new appointments have been made. In addition, some 31 senior executives have departed.

Without firm and immediate action to stabilise the banks at an early stage in the crisis, the detail of departures at senior level in the institutions would have been irrelevant. An early example of the Government's effective response to the crisis was the Credit Institutions (Financial Support) Scheme introduced in October 2008. This scheme provided for a blanket guarantee by Government of the deposits and liabilities of Irish institutions. It was introduced in the face of clear and present danger to the financial stability of the State at that time. Had that guarantee not been introduced, it is doubtful whether the economy, let alone the banking system, would have survived. When the Government made the decision on the guarantee scheme, funding had all but dried up and the banks faced closure within days. Anyone who doubts the seriousness of the situation should read the recent report of the Governor of the Central Bank, in particular his remarks in the first chapter referring to the discussions that took place on the night of 29 September.

I accept that Professor Honohan raised in his report the inclusion of dated subordinated debt in the guarantee scheme. However, as the Minister for Finance has explained to this House, there was on that night simply too much at stake to discriminate between different types of bondholders and in the end those whom the Governor felt should not have been included accounted for just 3% of the covered liabilities. The Credit Institutions (Eligible Liabilities Guarantee) (Amendment) Scheme 2010 introduced in September last amended the bank guarantee scheme, known as the eligible liabilities guarantee scheme, ELG, which had been in effect since December 2009. The scheme is now more focused and targeted than was the original guarantee scheme and it is in line with the European model of bank guarantees developed in its wake. The scheme no longer covers subordinated debt and imposes significantly higher fees on participating institutions for the benefit of a State guarantee of their liabilities. At the end of June 2010, bank liabilities covered under the ELG scheme stood at €153 billion

The original guarantee scheme provided a necessary and critical support to banks as other measures to repair and renew the banking system were introduced. The Government's guiding principle in all its interventions since September 2008 has been to provide a financial system that will serve our industry, businesses and households.

See this speech in context