Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

I thank the Minister for his remarks on the motion and confirm that Fianna Fáil will be supporting it. However, I take the opportunity to make a number of points on the operation of the banking system.

It is true to say there are signs of stability within the banking system. The Minister has highlighted that stability has been brought to the deposit base of the banks. As we all know, there was a massive flight of deposits from the banks in 2010 and 2011. International deposits fell by almost €100 billion, while Irish deposits dropped by approximately €60 billion, but certainly they have stabilised in recent months. The most recent data show that up to September deposits placed by ordinary households and businesses decreased slightly in the State-supported banks - Bank of Ireland, Allied Irish Banks and Permanent TSB.

In a number of respects, we need to ask the fundamental question whether the banking system is working, it is functioning in the way we want it to function and meeting the needs of the economy. On a number of fronts I do not believe we can say with certainty that it is, as the evidence before us is to the contrary. While there is certainly a greater degree of stability in the banking system brought about by the enormous recapitalisation of the banks by the State - ordinary citizens - I do not believe the banks are fulfilling their responsibilities and playing their part in the economic recovery we all want to see. It is true to say the targets for the financial system set out in the memorandum of understanding with the troika are being achieved in the deleveraging of the banks and loan to deposit ratios, which is to be welcomed, but much more needs to be done by the banks to ensure they do what is required in supporting economic recovery. In that regard, I want to highlight a number of issues.

The first which we have discussed many times in the House is the issue of credit. In the budget announced last week I welcomed the inclusion of new initiatives with regard to the National Pensions Reserve Fund. The Minister is proposing that there be a range of support funds available to provide equity finance, for restructuring and recovery investment for the SME sector, ranging in size from between €100 million and €400 million. In a sense, this is a recognition of the failure of the banks to do what they are required to do. What the Minister announced in the budget last week for the National Pensions Reserve Fund was related to what the banks should be doing. Despite all the protestations from the banks that they are providing credit and are open for business, regrettably, my experience of dealing with people involved in business is that they are still finding it incredibly difficult to obtain credit where it is most needed. I understand invariably that the ones that come to us are the cases where problems have occurred, but there is no question that the banks are not providing the level of credit for the economy that is required.

The Minister has said the pillar banks are required to provide €3.5 billion of new credit in the case of AIB and Bank of Ireland. I do not believe we have satisfactorily dealt with the issue of defining what new credit is and how it will be measured. When Mr. David Duffy, chief executive officer of AIB, came before the finance committee recently, he confirmed that of the credit it stated had been extended, the figure for new lending to the SME sector was €600 million so far this year. That is the actual amount of new money provided. Under the definition allowed, the renewal of existing credit arrangements counts towards the figure of €3.5 billion. The bundling and repackaging of existing credit facilities in a term loan, for example, are also reckonable. We should, therefore, cut to the chase and measure the amount going into the economy. I accept that there are difficulties on the demand side also because many businesses are in a weak position and many of them are cautious about drawing down additional credit at this time. Not of all the credit approved is drawn down in the economy, which is also an issue. I, therefore, ask the Minister to be more proactive in dealing with the banks on the issue of credit. He should bring greater clarity to exactly what they are required to achieve because, let us be honest, the €3.5 billion target is a joke. When AIB confirm its actual new lending figure is €600 million, can we nail down exactly how this will be measured and come to some agreement on that issue?

I have received a number of calls from people involved in business in particular, people who have commercial loans and people who invested in properties and who are coming under enormous pressure from the banks and it is not being done in a very nice way. It is not a pleasant business at the best of times, but the pressure on the people concerned is enormous. Unfortunately, I frequently hear of cases of suicide in which financial pressures were to the fore and the role of the banks has been brought to my attention. They are putting individuals and families under incredible pressure and in many cases there is a genuine inability to pay. I call on the banks to be more humane in their approach when dealing with distressed borrowers because behind the loan account on the computer screen is an individual and a family to whom they need to show a little compassion. The people came to the rescue of the banks when they were on their knees and there was a risk they would have to shut their doors. The people supported them and this is the time for them to treat people fairly and with a degree of dignity, which is not happening in all cases. It is regrettable that I have to say this, but some of the cases brought to my attention in recent weeks are very disturbing and sinister. I, therefore, call on the banks to be more humane and compassionate in their approach.

We will return to the issue of mortgage arrears later when we discuss the property tax Bill. Again, this is an area in which the banks have singularly failed to meet their responsibilities. The figures are getting worse every quarter when the Central Bank releases the official figures.

We now have a situation in which almost one in four family home mortgages is in some sort of distress. They are either in arrears or have already been restructured. We cannot ignore the fact that up to 24% of family home mortgages are in trouble. The insolvency regime will, hopefully, help many of those people to deal with their other personal debts on credit cards and unsecured loans. There is no doubt the mortgage arrears crisis is getting worse. When a director of the Central Bank publicly condemns the banks for failing to deal with the issue adequately, we must sit up and take notice. Much more work needs to be done in this area.

I also want to highlight the plight of variable-rate mortgage holders. Many of them are typically being charged 4% to 4.5% while someone on a tracker mortgage only pays 1.5% to 1.75%. That makes an enormous difference to level of monthly repayments. The banks cannot keep going back to the same well of variable rate mortgage holders to cover losses made elsewhere in the banking system. When the banks appeared before the finance committee, one chief executive made the point that in the medium term variable rates could be heading towards 5% and 6%. That is a frightening prospect for families already struggling with mortgage repayments. There was much talk about negotiations being under way to move tracker mortgages out of the main banks and to warehouse them in IBRC, Irish Bank Resolution Corporation, where they would be underpinned by a funding stream from the European Central Bank, ECB. This would improve the funding position of the main banks and allow them not to have to penalise variable-rate customers as has been done heretofore. When wrapping up, the Minister might take the opportunity to inform the House whether there are any moves on this issue.

The Minister referred to the liability management exercises the banks have undertaken over the past several years under this legislation. Up to €15 billion has been saved by way of the imposition of losses on junior bondholders. The Minister made the point that any CISA, Credit Institutions (Stabilisation) Act, liability exercise that has been brought before the Irish courts has been upheld. However, it is not the case in the UK where a case was taken against IBRC and the UK court found in favour of the litigant. I accept this case is under appeal and will be heard in the new year. However, there is a potential risk to the banks, and by extension to taxpayers, that some of these savings could be unravelled. It has been reported that groups of bondholders in Bank of Ireland and AIB have lodged letters with the Department of Finance. These junior bondholders are seeking to unwind the liability management orders issued under this legislation. Will the Minister address that issue when wrapping up?

The Minister has commissioned Mercer to conduct a review of pay levels in the covered institutions, which it is hoped will be completed by Christmas. If the Minister is not satisfied with the report or does not get the co-operation from the banks to reduce pay levels in the way he wants, does he believe he has adequate powers under legislation to intervene and bring top-end banking pay to a more realistic level.

Ordinary staff members of the banks have borne the brunt of what has happened in the banking system. Thousands of them have lost their jobs and thousands more are to be made redundant in the next number of months and years. The Irish Bank Officials' Association, IBOA, has expressed concern about the lack of an overall plan for the banking sector, as well as for those who have lost and will lose their jobs. A specific plan needs to be tailored for staff who are exiting the banking sector to ensure they have the necessary training and skills to take up opportunities elsewhere in the workforce. It is unlikely, given the way the banking system is shrinking, that they will be in a position to find work opportunities in banking. There should be a plan for the model of banking we will have in the future. Most banks are closing branches, particularly in rural areas, with services being moved online or joined with the post office network. People want to know the vision for our banking system model. Are we trying to attract new banks into Ireland to provide a further retail presence, as well as competition on the high street?

Fianna Fáil will support this motion. Will the Minister address the issues I raised when wrapping up? We must ensure the banking system meets its responsibilities. It is fine to meet the troika commitments, which must be done. The banking system, however, is not meeting the needs of the economy.

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