Kieran O'Donnell (Limerick City, Fine Gael)

I welcome this legislation and congratulate the Minister on its introduction. Had it been there at the time of the bank guarantee back in 2008, Anglo Irish Bank would have been dealt with in a very different fashion and we might not have had to pay out so many billions of euro in taxpayers' money. When I talk about taxpayers I am speaking about all individuals, whether they are paying tax or on social welfare. People on social welfare have paid PRSI and made a contribution. The term "taxpayer" includes all people living in Ireland.

It is interesting to note that when the Committee of Public Accounts examined the documents provided at the time of the blanket bank guarantee in September 2008, they showed clearly that the Government, the Financial Regulator and the Central Bank had considered the issue of a special resolution mechanism for banks. It was not as if they were not aware of it; they were. In 2009 the UK introduced such a resolution mechanism. When the current Financial Regulator, Matthew Elderfield, appeared before the Joint Committee on Finance and the Public Service in the previous Dáil, I asked him about the special resolution mechanism, and he said his understanding was that it had been considered prior to the introduction of the blanket guarantee in September 2008 but had not been introduced. My view is that it should have been introduced. We should consider the knock-on effects of what happened to Anglo Irish Bank - the bank was nationalised, NAMA was brought in, and the discounts on the NAMA loans turned out to be significantly higher than expected. My understanding was that the transfer of loans to NAMA was supposed to be based on long-term economic value. The haircuts on the Anglo Irish Bank loans were so large - up to 60% - that the international markets looked in and concluded that the level of banking debt the Irish State had to take on was significant. Thus, Anglo Irish Bank was a major contributor to the rise in our bond yields.

Our bond yields are rising at the moment because of external factors such as the situation in Greece. I welcome the fact that austerity measures have been passed in the Greek Parliament tonight, but the important thing, which has been discussed at length by both the Minister for Finance and the Taoiseach, is that we are different from Greece. I hope that on this occasion Greece will seek to meet its targets because it is in the interest of everyone in Europe. The situation of Ireland brings to mind the parable of the prodigal son. We are the son that continued to do his daily work, while Greece is the prodigal son. I hope that when the Greek situation is resolved with a second rescue package, the interests of Ireland are taken into account at European level and we get the attention and priority we deserve.

We are now establishing a special resolution mechanism, as countries such as Denmark, Germany and the UK have already done. I understand similar mechanisms are under consideration in Europe and will be introduced next September. It is important that we have a Europe-wide mechanism. If the issue is addressed at European level, that will be to the benefit of all of Europe, including Ireland. We are very much to the forefront in this area.

The Bill provides for the setting up of a credit institution resolution fund, which I welcome. It is systematic, providing for bridge banks to deal with institutions that are felt to require intervention. The special management order is a practical measure, ensuring that if an authorised credit institution runs into difficulty, the Central Bank, along with the Minister, will be able to ensure the issues with the specific bank are addressed without bringing contagion to the general financial markets in Ireland, as Anglo Irish Bank did. If a special resolution mechanism had been in place, similar to the one we had called for when we were in opposition, it would have prevented contagion from Anglo Irish Bank spreading to other institutions. I welcome the fact even in the short time he has been in office, the Minister has introduced this mechanism.

Earlier, Deputy Shane Ross commented on the idea of the pillar banks. The mechanism the Minister has put in place is practical and puts the banking system on a sound financial footing. While there may have been too many banks in the market in the past, if it begins to do well again, there may be new entrants, all properly licensed. The pillar banks' commitment to provide €10 billion per year over the next three years and to concentrate on specific small and medium-sized enterprises, SMEs, is to be welcomed.

There is a need for an enhanced Credit Review Office to ensure effective credit availability. Currently, the office can only examine credit or loan applications up to €250,000, a threshold that should be raised. I have constituents with small businesses that cannot access credit for various reasons. The proposed partial loan guarantee scheme will make a significant difference in this regard. When working as an accountant, I knew of cases where a small business, employing three or four people, might need an increase in its overdraft facility of €10,000. It was often easy to come to an arrangement with the business's bank to avail temporarily of such a facility. These days, however, the banks are so risk adverse they will not even provide such temporary small-scale credit facilities. The partial loan guarantee scheme will give comfort to the banking system, taking on some of that risk and allowing a credit flow to be provided.

The small and medium-sized enterprise sector will be instrumental in taking us out of recession. More than 700,000 people are employed in SMEs, making the sector one of the key contributors to the lifeblood of the economy. While the multinational sector is important, particularly in the mid west and Limerick, the SME sector needs to be encouraged with programmes such as the jobs initiative and reductions in PRSI and VAT rates.

We have succeeded in ensuring the banks are sound financially. Now, we must concentrate on getting them to lend again, the next part of the process. We must also ensure the banks can operate in an independent manner. In time, the banking debt needs to be separated from sovereign debt to allow a return to a normal market economy. The plan with the pillar banks will lead to these outcomes. Deputy Shane Ross's point on them does not stand up to scrutiny or take into account what is best for Ireland in the medium to long term.

Deputy Tom Hayes's point about how bank directors ran the banks is valid. When the chief executive officer of Anglo Irish Bank became its chairman, he remained in the same office, effectively being as involved in the bank as chairman as when he was chief executive officer. That was no way to run a bank. We also need to ensure those bank directors at the time of the bank guarantee are no longer around.

The Central Bank and Credit Institutions (Resolution)(No. 2) Bill 2011 is welcome legislation in the overall banking sector reform plan. It will ensure at an early stage that banks that run into difficulty can be dealt with effectively without affecting the rest of the system. When the bank guarantee scheme was introduced, we were told the problems with the banks concerned only liquidity. However, Anglo Irish Bank's problem was insolvency. If such a resolution mechanism were in place at the time, it would not have led to that bank's contagion spreading to the other banks.

I commend the Bill to the House.

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