Terence Flanagan (Dublin North East, Fine Gael)

Like most Members, I welcome the Bill. It will ensure speedy solutions in the context of the winding down of Irish banks and other credit institutions encountering serious financial difficulties. As previous speakers indicated, it is under the terms of the EU-IMF deal that the special resolution regime is being introduced. I am delighted that the Minister has decided to introduce such a regime immediately.

The current financial crisis has highlighted the shortcomings of both the current system and those of the previous Government, which continued to bail out reckless institutions, thereby bringing the country to the brink. As a result of the unique status of banks, particularly in the context of their taking deposits and lending and the fact that they are systemically important, it is essential that the special resolution regime be implemented as soon as possible. Certain countries such as Japan, America and Canada have had resolution regimes in place for many years. The Minister for Finance, Deputy Noonan, stated that the Bill represents an important step in ensuring that the Central Bank will have the necessary powers to promptly and effectively resolve distressed institutions when they pose a risk to the financial stability of the State.

What we require are speedy resolutions which can be done at the lowest possible cost to the State. Billions of euro have been poured into the banks to date and this is turning out to be one of the most expensive resolution regimes ever. If the legislation before the House had been introduced previously, Ireland would be in a much better position.

The purpose of the Bill is to manage the winding up of insolvent institutions and to reorganise institutions which are in difficulty. The Bill will apply to authorised credit institutions such as every bank that is licensed, every building society that is incorporated and every credit union that is registered in the State. Unlike the Credit Institutions Stabilisation Act 2010, the provisions of the Bill will apply to banks regardless of whether they have received financial support from the State. The latter Credit Institutions Stabilisation Act is due to expire on 31 December 2012 and, therefore, the Bill before the House will come into effect from 1 January 2013.

In the past the relevant authorities have been forced to deal with troubled banks through regular corporate insolvency procedures. It is not correct that ordinary banks are obliged to go down the same road as companies which are in examinership or administration and that the same rule of law applies to both. Normal insolvency procedures are inappropriate because they can only be implemented when an institution is already insolvent and when depositors have long since departed. At that point, it is already too late. At present, all the Minister can do is either apply traditional corporate bankruptcy laws or inject public money into the banks, thereby nationalising them. We have all witnessed the devastating effects to which the latter method can give rise. The previous Government took us down the wrong road in that regard.

The Bill provides an alternative method for dealing with credit institutions in difficulty. Its provisions are detailed, lengthy and complex. Under those provisions, the credit institutions resolution fund is to be established. That is a welcome development because from now on the banking industry will be responsible for looking after its own affairs and dealing with its own mistakes. As a result, taxpayers will not be obliged to bear the burden. All authorised banks, financial institutions and credit unions will be obliged to contribute to the resolution fund. The Minister will also make a contribution to it.

It is important that the resolution fund should not be used to recapitalise failing institutions but rather to ensure that there will be sufficient resources available to deal with the various resolution costs relating to the winding down of an institution.

Under the Bill, the Central Bank will be in a position to establish a bridge bank. Such a bank will, on a temporary basis, hold the assets and liabilities of an institution that is in trouble. The benefit of a bridge bank is that it will allow a failed institution to continue to operate until a buyer can be found. This will allow for a swift and orderly resolution of such an institution while transfer negotiations take place. The powers of the Central Banks will be beefed up to a considerable degree under section 8 of the Bill. The power to order the transfer of specified assets and-or liabilities of an authorised credit institution to a bridge bank is contained in the Bill.

Provision is also made for special management orders. Under these, the Central Bank will be in a position to appoint a special manager to an authorised credit institution that is in difficulty for a fixed period. The decisions made by a special manager will obviously supersede those taken by the members of the relevant institution. He or she will, therefore, have a great deal of power at his or her disposal. He or she will also have the power to make decisions regarding the remuneration of the directors and officers of the institution. That is an extremely important development, particularly in light of recent reports in the press.

The Bill will empower the Central Bank to present a petition to the High Court for the winding up of a credit institution on specified grounds, for example, where the bank is of the opinion that this is in the public interest. Only the Central Bank will have the power to appoint a liquidator and it will be obliged to ensure that all of the depositors in an institutions will be repaid their moneys up to the required amount of €100,000. This money can be transferred into another authorised credit institution and held there on behalf of depositors while the first institution is being wound down.

Under the provisions of the Bill, the Central Bank may direct an authorised credit institution to prepare and implement a recovery plan in order to try to turn business around and, if possible, haul the relevant bank back from the brink. The Central Bank itself may prepare a resolution plan and this plan will set out the bank's preparations on a contingency basis for the exercise of its functions under the Bill with regard to a credit institution.

The Bill also introduces various miscellaneous provisions, one of which relates to the confidentiality of a proposed order that is to be made. It shall be an offence to publish information relating to the making of the proposed order and there must be adherence to confidentiality. This important power provided in the Bill is crucial to ensuring the confidence of depositors is maintained at all times. There will already be enough uncertainty and lack of confidence in the institution if it is about to fail and the resolution process to be adopted by the Central Bank must not add to that.

The Bill also restricts rights of judicial review in respect of decisions made under the Bill. It is vital the right decisions are made and limitations on rights of appeal to the Supreme Court are justified. It is in the public interest that the Central Bank will take decisive action to prevent a run on deposits of any failing credit institution. Nobody wants to see that happen in the future.

If this Bill had been enacted in the past, it would have saved the taxpayer billions of euro. If it had been enacted prior to 2008, the situation that occurred with Anglo Irish Bank would have been dealt with more efficiently and in a less costly manner and taxpayers would not face the bill they must now pay. It is crucial we plan now to ensure that the situation which happened with Anglo Irish Bank and our other banks does not happen again and that we provide confidence for any new bank and all deposit takers and lenders that privately owned banks of systemic importance will have an effective resolution process available. I support the Minister and this Bill. It is in the interest of taxpayers that the least amount is paid out in the future if we have another failed bank.

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