Michael McGrath (Cork South Central, Fianna Fail)

I welcome the opportunity to contribute on Second Stage of the Central Bank and Credit Institutions (Resolution) (No. 2) Bill. Fianna Fáil will support this Bill. The Bill was introduced in the Seanad prior to the new Government coming into office but events at the time did not allow for its progression. The Minister has reintroduced it in the House today and Fianna Fáil welcomes and supports it.

Second Stage provides us an opportunity to discuss some of the wider issues to the fore currently. It is appropriate that discussion of the Bill comes at a time of unprecedented crisis in the eurozone and at a time when the Greek Parliament is discussing an austerity package of €28 billion and when a privatisation plan of €50 billion must be decided upon. The current crisis underlines the gross inadequacy of the European Union's ability to deal with a crisis of this nature. Its response to date has been reactionary, ad hoc and has failed to deal in a comprehensive way with the scale of the crisis facing the eurozone at this time and it is breathtaking to think that a parliamentary vote in just one national parliament in Europe has the potential to derail the whole eurozone and the single currency project. It behoves us in this House and every other national parliament to do what we can to ensure that once this crisis passes, the lessons are learned and proper legislation is put in put in place to deal with any future crisis.

The Bill introduced here today is part of an overall package of measures required to improve the regulatory framework. It makes available to the Central Bank and the Minister a wider set of powers in the event of a bank threatening the stability of our financial system in the future and in the event of a bank having to be wound down. Looking at the markets currently, the contagion effect of the Greek crisis is having an impact on Ireland, with a cost of borrowing of in excess of 12% on ten-year Government bonds. It is clear that the markets view Ireland as being in a similar boat to Greece and Portugal. We need to do everything possible to put clear water between our position as a state and the position of Greece. We will only be able to assess the market perception of Ireland when the current crisis passes. Now, we can say that it is the Greek situation that is contaminating the perception towards Ireland, but once this is dealt with - hopefully it will be dealt with quickly and comprehensively - we will need to see an improvement in market sentiment towards Ireland.

In the past couple of weeks, the Minister welcomed the decision by EU finance Ministers, to which he was party, to quash plans to attach preferred creditor status to funds advanced to existing bailout countries under the European stability mechanism, due to come into effect in mid-2013. This is a helpful development. It would be unwise to overstate its significance, but I accept the comment made by the Minister that it is an issue he raised in his recent visit to the United States. It was a concern for investors and it is helpful that the issue has been addressed.

The wider market sentiment towards Ireland will be shaped by a number of issues, including the market perception of debt sustainability in Ireland, the extent to which we can achieve economic growth this year and next, the public finances and the extent to which the Government adheres to the fiscal measures required to bring the country's deficit back to within 3% of GDP by 2015.

There is a huge task facing the Government and the country to ensure that in 12 to 18 months time, Ireland will be in a position to return to the international sovereign debt markets. Given the current environment, the scale of volatility that exists and the questions that hang over the eurozone, this cannot be countenanced currently, but over the next 12 to 18 months we need to get to that position. For that reason, it is essential we seek to achieve economic growth. Last week's CSO figures gave a mixed picture. Unsurprisingly, domestic demand is still very weak, but exports continue to perform strongly. Hopefully, the jobs initiative which will come into effect this week will have a positive impact. We will watch the live register figures, the Exchequer returns and other economic indicators over the next number of months to gauge whether the measures taken are having a positive impact.

The comment made by Mario Draghi when questioned by Mr. Gay Mitchell, MEP, with regard to the ECB providing medium term funding to Ireland was a setback, because the markets attach some importance to the issue of having a secure stream of funding for the Irish banking system. The ECB and the eurozone have committed to providing ongoing liquidity support but market commentators have pointed to the issue of a medium term funding commitment as something that could have been helpful. It is disappointing that opportunity was not taken.

During the Minister's recent visit to the United States, he announced on behalf of the Government the intention to impose losses on unsecured, unguaranteed senior bondholders in Anglo Irish Bank and Irish Nationwide. It has since been clarified that this intention is based on having the support of the European Central Bank to do so. The critical question is the position of the ECB with regard to imposing losses on unsecured, unguaranteed bondholders in institutions that are, effectively, being wound down. We support the Minister's intention to impose such losses.

Every tool available to the Government should be used to convince the European Central Bank to allow such burden-sharing with these bondholders. It is important to point out, however, that an unsecured, unguaranteed bond associated with Anglo Irish Bank worth €200 million was repaid last month. Even since the Minister's announcement in the United States on 15 June, a far more modest bond, worth €14 million, was repaid in the case of Anglo Irish Bank. Another bond, worth €12 million, falls due for repayment tomorrow. I presume the latter will be repaid. While these bonds may appear quite small, if we were in a position to achieve a discount thereon in the shorter term, it would go a long way towards alleviating the damage done by some of the cuts being imposed on, for example, school transport schemes and to the number of special needs assistants in schools.

An unsecured, unguaranteed bond of €12 million is being repaid tomorrow in Anglo Irish Bank. The Minister stated he intends to raise this issue in the autumn with the troika. I heard his comment on Sunday that he will raise the matter in July but that he believes meaningful negotiations will be deferred until the autumn. He needs to raise the matter immediately because much smaller bonds are being repaid as we speak. Clearly, if we are in a position to secure discounts on those bonds, the sooner, the better. The money could be put to much better use in the shorter term. I urge the Minister to take the opportunity to raise this with the troika immediately to try to obtain its permission to impose the losses. The Minister has indicated that the Government will not be proceeding without the support of the European Central Bank when imposing such losses.

There was suspicion that the European Central Bank had threatened to cut off the liquidity supply to Irish banks in the event of Ireland unilaterally imposing losses on senior bondholders. The Minister has indicated this is not the position and that the European Central Bank is not in the business of making such threats. Given that the paying off of unsecured, unguaranteed bondholders forms no part of the EU-IMF agreement, it is an issue that the Government should address urgently. It should seek to achieve the savings on behalf of the Irish taxpayer in the short term.

I do not want to be cynical but the Minister's comments in the United States came on day 99 of the Government's first 100 days in office. It was a very useful element of the following day's marketing and PR campaign for the Government to be able to say it would be imposing losses on senior bondholders. The truth, however, is that there was nothing new in the statement, given that the initiative would be dependent on the support of the European Central Bank. If a 50% discount were achieved on the €3.5 billion, approximately, in unsecured, unguaranteed debt left in Anglo Irish Bank and Irish Nationwide, it would save us €1.75 billion, which would be greater than the cumulative benefit of the interest-rate reduction we are negotiating. This is an important issue. We want to see both a reduction in the interest rate and also the imposition of burden sharing on the senior bondholders in Anglo Irish Bank and Irish Nationwide.

We very much welcome the Bill. It was introduced by former Senator Donie Cassidy in Seanad Éireann on 28 February on behalf of the late Brian Lenihan. It lapsed on the dissolution of the 23rd Seanad on 26 April of this year but has now been resurrected in the Dáil by the Minister for Finance, Deputy Noonan.

The Bill builds on the emergency legislation enacted in December of last year to reorganise and restructure the Irish retail banking system, the Credit Institutions (Stabilisation) Act 2010, which will still apply to certain relevant institutions until it expires at the end of 2012. Therefore, the intention is that the Bill will put in place a permanent resolution regime and replace the temporary measures included in the stabilisation legislation last December. Clearly, existing company law provisions are inadequate to deal the unwinding and shutting down of a financial institution in the State. This begs the question as to what might have been the case had we had the legislation in 2008 when the banking system was on the brink of collapse. The Nyberg report refers to this issue when it stated, "the existence of a resolution regime in itself would not necessarily have been a panacea to avoid high fiscal costs to the State in the absence of burden sharing with creditors".

Professor Patrick Honohan refers to the discussion paper that had been prepared in 2008 by the Central Bank and Financial Services Authority of Ireland on the issue. That paper was discussed by the domestic standing group but the associated legislation did not proceed in time to address the banking crisis of September 2008. One can have all the resolution regimes in the world but, ultimately, if the position of one's paymaster, the European Central Bank, is that no bank can be allowed to fail in a disorderly manner and losses cannot be imposed on senior bondholders, it does not matter what resolution regime there is in place in terms of reducing the cost to the taxpayer. The position of the European Central Bank appears not to have changed. I wish the Minister well in his efforts to convince the ECB that Ireland is in a position to impose the losses because Anglo Irish Bank and Irish Nationwide are effectively being wound down. The sooner this happens, the better.

The Bill is in response to an EU-IMF commitment in addition to being in the programme of Government of the new Government parties. It provides a comprehensive special resolution regime for dealing with bank insolvencies and provides the framework for the introduction of a bank levy. The press release issued by the Minister at the time of the republication of the Bill implies Committee Stage amendments are being prepared that are "designed to enhance the resolution toolset in line with the evolving EU principles on crisis resolution and in the light of discussions with the external partners".

This is an issue in respect of which there is evolving policy at European level. If we have learned anything from the crisis over the past three years, it is that there is a need for a co-ordinated, pan-European response to a financial crisis. While we are obliged to equip the Minister and the Governor of the Central Bank of Ireland with the tools necessary to protect the taxpayer and the stability of our system in the event of financial institutions getting into trouble, this obligation needs to be replicated at EU level, where the impact can be much greater given the interconnectedness and interdependence of the banking and financial systems.

The tools available to the Central Bank under this legislation have been summarised by the Minister. They include the transfer order, the special management order, the establishment of a "bridge bank", a modified liquidation process, and the development of recovery and resolution plans. It is essential that all these tools be available and put in place as quickly as possible so they will be available to the authorities in Ireland in the event of future difficulties.

Section 4 of the Bill sets out the purposes of the legislation. Section 8 details the intervention conditions required for the powers in the legislation to be invoked, including whether the authorised credit institution concerned is of systemic importance to the economy of the State; whether the failure of that credit institution would be 20 likely to contribute to instability of the banking system; the importance of ensuring the depositors of that credit institution will continue to have prompt access to their deposits; the importance of maintaining public confidence in the financial system; the importance of maintaining continuity of banking services to that credit institution's customers; the terms of any resolution plan; and any other matters that the bank considers relevant.

The legislation gives wide-ranging powers to the Governor of the Central Bank to act in the event of a threat to the stability of our financial system, the taxpayers and customers of individual financial institutions. The proposed establishment, under section 12, of the credit institutions resolution fund is welcome and will help to obviate the costs associated with future banking and financial crises. Under section 14, the Minister must make regulations in regard to the establishment of the fund and how exactly it will operate. It would be helpful if later in the debate the Minister indicates his thinking on how the fund will operate and how quickly he envisages it will be established, the level and structure of fees to be paid into the fund by the institutions concerned and the circumstances under which the fund can be invoked to reduce the bill to the State in the event of any future banking difficulties.

We support the Bill. I look forward to detailed engagement with the Minister on Committee Stage when I hope we will be able to discuss in detail the individual sections. It is legislation which properly equips the authorities in the State to deal with any future difficulties in the Irish banking system. It is against the backdrop of a crisis not only in Ireland but in the eurozone. I hope the Minister continues to represent Ireland's interests with strength and conviction. I urge him to raise at the earliest opportunity with the troika the issue of Anglo Irish Bank and Irish Nationwide and those senior bondholders being repaid as we speak. While the amount of money might be quite modest in comparison with the $1 billion bond that will mature on 2 November, any savings achieved could be put to very good use. We fully support the Minister in his efforts to reduce this burden.

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