Seán Fleming (Laois-Offaly, Fianna Fail)

I welcome the opportunity of speaking on the Central Bank and Credit Institutions (Resolution) (No. 2) Bill 2011. The publication of this Bill is a commitment under the EU-IMF deal. The Bill provides the Central Bank with additional powers to achieve an effective resolution regime for credit institutions that are failing or are likely to fail, with the objective of protecting the Exchequer and the stability of the financial system of the economy.

It is important that we have such an item of legislation because for too long people were not facing up to the issue of financial institutions failing. It has taken us a number of years to come around to the realisation that because an institution is a financial institution it is not a sacred cow and no commercial organisation should be too big to fail in any country or here in Ireland. People have been afraid to deal with the concept of a big failure and rather than deal with the consequences of a big failure we put the issue on the long finger and put guarantees and protection around them through the arm of the State in the hope that in due course they would not ultimately fail but as we know some of them were failed institutions at the time they got various guarantees. Most people accept that the Government did not know they were failed institutions at that time and it is a moot point as to whether the people who were running those organisations, the directors, knew they were dealing with insolvency rather than liquidity issues. That is something we will have to get to the bottom of ultimately because if they were insolvent, and the directors and senior executives had a fiduciary duty to know the state of the organisation of which they were directors, they would be guilty of fraudulent trading as they were continuing to run a business that was insolvent, take on commitments and take people's money when they knew they were insolvent. If they did not know, they should have known. That is an issue about which people feel very cross. People ask about the law they broke and say they might have made a misjudgment but in most organisations that principle would come into it. At best they are guilty of reckless trading and most people would say at this stage that in view of the scale of the difficulties that have emerged, what happened was far worse than reckless trading. In my opinion it was fraudulent trading.

The legislation before the House is an update on previous legislation passed here before Christmas last year. The Minister, Deputy Noonan, said that the Bill seeks to ensure that the Central Bank is empowered to promptly and effectively resolve distressed institutions when, for example, they pose a risk to financial stability. The Bill proposes a permanent special resolution regime for the credit institutions whose key tools are listed as a transfer order, a special management order allowing for the establishment of a bridge-bank, a modified liquidation process, and the development of recovery and resolution plans. That will lead on to what I consider to be possibly one of the fundamental structural weaknesses in this legislation which I will deal with off and on as I make my contribution. Notwithstanding that particular criticism, we support the Bill because it is necessary that we have a system in place, and other countries are developing resolution mechanisms to deal with banks and financial institutions in danger of failing.

The principal problem I have with this measure is that we are giving too much authority to the Central Bank. Previously, the Central Bank and the Financial Regulator had a great deal of authority but they are only two individual institutions. In the past those individual institutions, and we are all on record in this regard, were not doing their job. They were asleep at the wheel, so to speak. We will not revisit that now but what I am most concerned about is that in a few years from now, and we have been in the eye of the storm for the past two years, when hopefully the economy picks up and the emphasis moves off this area, how competent will the people who have yet to be employed in those key posts be in their jobs? They will have enormous powers and will be one arm removed from the Government but the Government will not have sufficient control over them. Can we be guaranteed that these people will be able to do their job into the future? That is not a criticism of the current incumbents but there is no guarantee that future incumbents in those posts will always act as scrupulously and as diligently as the current incumbents are doing.

That leads me to my basic criticism of this legislation and all similar legislation we have passed in this House. I have said here previously that we must look at the big picture. This is a European wide and international problem. People are saying we are helping to bail out Europe. This is a European issue and the time has come to consider whether each of the 27 countries in the EU should have their own domestic central bank. We have a European Central Bank. We will be in a situation here where all the key banking and financial institutions will be completely controlled by the State. Bank of Ireland will probably be the only bank not substantially controlled by the State and the question arises of Ireland having a Central Bank to manage what are non-commercial semi-State bodies, as I would call the banks that are operating in the country with the benefit of the Irish taxpayer. They could not be called commercial institutions; they are non-commercial because of the financial support they must get.

Part of the problem is that the banks, and I refer to Anglo Irish Bank and AIB in their heyday, were too big to be managed and regulated by the Irish Central Bank. They were based in one office. I am certain that part of the problem was that they were almost in awe of the success of the big banks. Their profits were going up year in, year out. Their business and lending was increasing. They were sending in the reports but the reports were being put on shelves and they did not dare question them. I believe they were intimidated by them. That can happen in other European countries. Having 27 small central banks across the EU is not a good recipe for the future.

That goes back to a point I made here previously. There are 17 countries in the eurozone but when we set up the euro that was what I would call the front of house part of the overall regime where people had the currency in their pockets for dealing with day to day basis but we print notes and mint the coins in the 27 countries. We have one common currency but we do not have one central bank with sufficient control at European level. We need a bank with the financial power, size and scale of the European Central Bank to be able to regulate banks operating in the various countries throughout the EU. Ultimately, the European Central Bank calls most of the shots in these areas but it is only a bank of that scale that has the authority and the power and that will not be intimidated, side-tracked or put off course the way a local central bank would be, as happened in the past, which is one of the reasons we are here today.

It might be an unusual call to give more powers at European level but I and most Irish people have lost confidence in the Irish Central Bank and the Irish financial regulatory system. We have some new people in place but there is more to dealing with the problem than that. We are building up an armoury of legislation.

What we are doing in this Bill is essential but it is only a sticking plaster in that we are only dealing with the small problem before us. How will this measure operate if the Central Bank wanted to move on one of the State controlled banks?

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