Paschal Donohoe (Dublin Central, Fine Gael)

I want to join with Deputy Humphreys in welcoming this Bill to the House. It is a very important Bill, given the difficulty in which we find ourselves in respect of the banking system. This Bill is important because the absence of such legislation did two things to us in the past. First, it reduced the options and tools available to the Government at the time to deal with a banking system that was in grave difficulty. The absence of such legislation meant that the armoury available to the Government was impaired, because it did not have the ability to manage a situation where a bank might fail, or the ability to handle the failure of that bank in an orderly manner. This is the hole which the Bill before us is aiming to fill, which is why it is to be welcomed. Second, in the absence of a Bill like this, somebody else must pick up the cost for great banking difficulties. This is either the shareholder or the taxpayer. Everybody acknowledges that the taxpayer has borne too much cost for the failure of our banking system. This Bill means that were something like this to develop in the future, there would be more options available to the Government to ensure that the cost of banking failure is not borne almost exclusively by the taxpayer.

I want to make four points on the Bill. The first point is about the degree of progress this Bill offers on the previous legislation. That legislation was stabilisation legislation, whereas this is resolution legislation, which goes a step further. The Bill contains three elements that are of particular importance and which could be of help if they are called upon in future. First, the Bill puts in place the capacity for the State to manage the orderly wind up of a bank. Second, it puts in place the capacity for the State to establish a bridging bank or bridging fund, which has been absent up to this point. Third, it puts in place a firm footing for a levy to be put on banks to ensure that the potential cost of a banking difficulty in future is not borne exclusively by the taxpayer. These are three improvements in the Bill that are very important and which should be noted.

The second point is about the area in which this Bill is triggered. People who are greater experts in this area than I have written quite a lot about this subject. They have detailed the intervention criteria which should be put in place for a Bill like this to be triggered. This Bill does not seek the consent of the shareholders of the bank to trigger the power of the Bill. That is very important, because in at least one case in Europe where a resolution process was triggered, the shareholders of that bank disputed it and fought it, which slowed down the implementation of this process. The lack of that consent in this Bill will make a big difference to its implementation.

I would appreciate if the Minister would clarify the criteria laid down for the Central Bank to trigger this legislation. There are four criteria, the first of which is that either the financial stability of the institution be threatened or the overall financial stability of the system be threatened. The Central Bank is given the option of choosing either of those for fulfilling the terms of the Bill. It then lays down two other criteria that must be fulfilled, that the bank could fail a regulatory test in the future and that the immediate winding up of the bank is not in the public interest. My question on those criteria which are in the Bill is whether they are too prescriptive to slow the implementation of this Bill at a point in the future. The dynamic of something like the legislation being successful is so dependent on whether it is implemented at the right time. Is it necessary to lay down the criteria for the triggering of the legislation within the Bill or could this be done in another way?

My third concern relates to the operation of the special management which is laid down in Part 6 of the Bill. The special manager is a feature of the legislation which is carried over from the Credit Institutions (Stabilisation) Bill 2010. For colleagues who are not familiar with the special manager, he will be a figure of significant interest, if we are ever unfortunate enough to need him. The power that the 'special manager' is granted in respect of the operation of a failed bank is vast. Section 50 sets out the function of special managers. The special manager has the ability to order any employee, manager, director, or anybody associated with the bank to act in a particular way, if the special manager judges that it is necessary for the stability of the bank or the system to be preserved. The reason I raise this issue is that if one looks at the current difficulty we face, in requesting and ensuring the banks carry out the will of the Legislature or of the Government, we are then creating the ability to put in place this special manager who will have a degree of power to oversee everything that is happening in the bank. My simple question is whether we are sure that will work. My expectation is that if something like that is triggered it will be resisted fiercely by the bank into which the person will be moving because the special manager will, I believe, have the power to override the chief executive officer or any members of the board. We know to our cost the difficulty which individuals or officeholders like that have caused us in the past.

The legislation will operate in a new culture. I think there could be a tendency to look into the past and say that if we had given people more power, we would not be in the difficulty we are in. Of course, the truth is more complicated, there was a culture that meant that even the power that was there was not levied. That point is made clearly in the Nyberg report. The author of the report asked how so many people in positions of power did not carry out their duty and spot the risk to our system. My point is that as welcome as the development of the new power is, we have no guarantee that it will be implemented in the proper way. The answer to that question will rest on ensuring that the people who are wielding this power, those in the Central Bank and those in the office of the Financial Regulator, have been well chosen so that we have people with the right training and exposure to the right culture to be able to use the power in the Bill for the benefit of us all.

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