Peter Mathews (Dublin South, Fine Gael)

I welcome the Central Bank and Credit Institutions (Resolution) (No. 2) Bill 2011. It addresses the vacuum that faced the authorities when the blanket guarantee was introduced on 29 September 2008. Banks are a different type of corporate entity than non-banks and non-credit institutions. When they hit difficulties as a result of insolvency or illiquidity, the corrective regime, the rehabilitation regime or the resolution regime is going to be different. This Bill sets out under the relevant Parts the way to approach the situation when a credit institution gets into severe difficulties.

The framework for dealing with the situation is spelled out. The important ingredients that must be addressed include clarity in the legality of a resolution regime, the operational trigger points, the legal mandate and the autonomy requirement, where the banking authorities should be endowed with operational autonomy adequate to the legal powers and the human and budgetary resources necessary to effectively perform their functions free from external pressure, and the Bill addresses all of those. The co-ordination aspect that is required is also met by the sections of the Bill.

When we look back over our experience over the period from 2003 to the present, in retrospect we saw the institutions going out of control. There are principles of banking that were completely abandoned, such as the basic prudential principle of fractional reserving, whereby high street banks reserve a proportion of their deposits before they will lend out the remainder. That was clearly abandoned when we see loan to customer deposit ratios in the banks averaging in the six Irish-owned institutions in excess of 165%; in one instance it stood at 300%.

The failure at the time was that while there may have been a degree of supervision, it was very lax and there was no follow through. That was discovered by Patrick Honohan when he was compiling his report and Max Watson and Claus Regling also saw it while drawing up their report. No matter what legislation we put in place, it will be imperative that the follow through on the execution of the requirements of that legislation is conducted properly. In the case even of the very poor supervision in the past, there was no follow-up even to some of the findings that indicated things were amiss. It is important there is complete and effective follow-up to whatever is prescribed in legislation.

We need to see the international context. Similar behaviour and a similar lack of effective legislation and supervision occurred elsewhere. That is why the crisis was pan-European and global. It is a pity this legislation, as previous speakers pointed out, is coming after the horse has bolted. It is important, however, to have this legislation in place in case we arrive at a time in future where institutions are in a weak or unviable situation. We must protect the stability of the financial system in the State and also the interests of savers and depositors. The Bill does that. Accordingly, I would recommend it to the House.

There are amendments to follow. They will be important because the amendments come after people have read, digested and considered the Bill and when the proofing of the legislation is put in place.

A systematic resolution framework is what is required for financial institutions. They are different from other types of business enterprise. The all-important safety of depositors and savers is paramount. Even in the past three years where there have been failures, not alone in this country but abroad, there were huge shortcomings in the resolution frameworks in other jurisdictions. Our legislators have put together a commendable initial framework for dealing with the situations. The particular sections that deal with the elements of the framework are clear. The trigger points for assessment for when intervention is needed and action must follow are also fair and clear. Previous speakers on the opposite side have mentioned that there could be an element of tension between our own Central Bank, which will be the overarching authority for this resolution regime, the European level and the European Central Bank. The forthcoming amendments will address that type of situation. Overall, I join my colleagues, Deputy Lawlor, the preceding speaker and the Minister in recommending the Bill to the House.

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