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

I am pleased to have the opportunity to contribute to the Second Stage debate on the Central Bank Bill 2014. While this debate is about the Central Bank Bill, I would like to point out that I have just come from the Oireachtas Joint Committee on Finance, Public Expenditure and Reform, which has been meeting with the various banks this week, primarily in regard to the issue of mortgage arrears. Yesterday, the committee met officials from Ulster Bank, this afternoon it met officials from Permanent TSB and AIB and tomorrow it will meet officials from Bank of Ireland.

A clear picture is emerging from these meetings and I would like the Minister of State to take a message back to the Minister for Finance, Deputy Noonan, in this regard. The Fianna Fáil leader, Deputy Martin, raised this same issue with him on Leaders' Questions. Looking at the information that has been provided by the banks so far, in excess of 30,000 individual mortgage arrears cases are now undergoing legal proceedings or the mortgagees have received a letter from the bank advising them legal proceedings are about to commence. Therefore, we are witnessing a serious ramping up of enforcement activity by the banks in respect of mortgage arrears cases. I do not claim that all of these cases will result in the loss of the home in question. Hopefully, deals can be reached and solutions arrived at to protect the family home in the majority of cases, but inevitably many of the families involved will lose their homes. This seems certain now and is happening already. With over 30,000 cases in the system, this is an inevitable consequence.

The Government's response, in terms of providing a safety net for families in this situation, is the mortgage to rent scheme. It is clear from the evidence being presented by the banks that this scheme is not working. In the case of the three banks that have come before the committee so far, only one mortgage to rent transaction has been completed. While there are a few hundred more in the pipelines, the banks are all saying the same thing, that these are exceptionally difficult transactions to conclude as they are complicated and bureaucratic. I urge the Minister of State to take the message to the Minister that he needs to provide a safety net or backstop for individual families who now face the prospect of losing their family homes. The mortgage to rent scheme is not working and needs to be reviewed so people can be given support.

The Central Bank Bill 2014 is a short, essentially technical Bill. I support the provisions relating to Greece and I intend to bring forward some amendments on Committee Stage relating to the potential sale of ICS mortgages. It is noteworthy that as the two main provisions of the Bill are not by their nature linked, the Bill could be regarded as some sort of miscellaneous provisions Bill. This raises the question as to why other matters pertaining to the work of the Central Bank, for which there is a clear need to introduce legislation, are not being dealt with at this time.

In regard to the Bank of Ireland-ICS Building Society issue, in July 2013 Bank of Ireland agreed an amendment to the restructuring plan it had in place with the European Commission. The essence of this was to allow it to retain its life assurance business, New Ireland, while requiring it to substitute alternative measures for this, including the sale of the ICS distribution platform, together with up to €1 billion of mortgages and up to €1 billion of matching deposits.

As an aside, I might mention that the Commission was far more efficient in concluding an agreement for the restructuring of Bank of Ireland than it has been with Permanent TSB or AIB, whose restructuring plan remains not concluded. In a reply to me in respect of Permanent TSB this week, the Minister said the plan is still under negotiation, nearly two years after the plan was first submitted to the Commission. This is creating considerable uncertainty over the future of Permanent TSB, a subject I will return to at an appropriate time in the future.

The underlying reason for the legislation is to facilitate the transfer of the ICS Building Society loan book to its parent company, Bank of Ireland, and the subsequent sale of its distribution network and possibly part of its mortgage book. I can see merit in allowing Bank of Ireland hold on to its New Ireland division. It is a stable business requiring relatively little capital and generating solid fee income on an annual basis. It makes Bank of Ireland an overall more attractive proposition to investors. However, I have serious concerns about the potential sale of ICS mortgages if the issue is handled in a manner similar to that of the former Irish Nationwide customers of IBRC in special liquidation. I would be grateful if in his reply to this debate, the Minister could provide us with some more detail on the current state of the ICS mortgage book. In regard to IBRC, it was a drawn out process to try to ascertain details of how many mortgages were in existence and the level of arrears. We have been given a figure in respect of ICS, the total value of the book and the number of customers. However, if we are to make a proper assessment of any sale of ICS mortgages, this information should be made available up front.

The idea of generating more competition in the Irish banking sector is laudable. The decision by Danske Bank to join ACC in withdrawing from personal banking in the Irish market was another blow to hopes of real competition in the financial services sector. Fewer banks means higher borrowing rates, increased charges and reduced rates for deposits for both business and personal customers. The requirement to allow Bank of Ireland give KBC the opportunity to market its current account services to Bank of Ireland customers was a novel way of encouraging a more competitive market. We need more of these types of initiatives.

When taking action to increase competition, it is crucial that the Central Bank balances its role as the regulator of banks that are struggling to become profitable again with its responsibility to protect the interests of bank customers. In essence we need a twin-track approach, effective regulation and competition. While the legislation may help competition somewhat by facilitating the sale of the ICS distribution network, I am concerned about the prospect of the sale of up to €1 billion of ICS mortgages. If the average balance on the mortgages sold is €150,000, this could involve over 6,000 mortgages being sold. When we debated the issue in committee, the possibility of these mortgages being sold to an unregulated third party was raised. This issue was addressed in the Minister of State's opening remarks.

I am grateful for the briefing we received from Department officials, although I have concerns over their contention that as the purpose of this exercise is to generate greater competition in the market place, the European Commission would be unlikely to approve any sale to an unregulated entity. I am not so convinced on this point. It is quite conceivable that Bank of Ireland could look to de-risk its portfolio by selling off those ICS mortgages that are most in distress. This is something that should concern all of us. It would amount to an effective outsourcing of repossession actions. Can we be sure the Commission would block such a proposal if Bank of Ireland claimed to have a ready buyer for these assets? As we saw in the recent IBRC sale, there is most certainly a speculative market for distressed Irish property assets. Will the Minister confirm whether his approval will be needed for any proposed sale or will he simply defer to the wishes of the Commission?

I am also concerned by the price that Bank of Ireland will get for the ICS assets being sold. The State is still a 14% shareholder in Bank of Ireland.

While ultimately we will make a profit on our investment in Bank of Ireland, the sale of part of the State's equity stake in 2011 as well as the contingent convertible notes, CoCos, and preference shares was done at prices below their long-term value.

I ask the Minister to use Committee Stage of this Bill to bring forward amendments to deal with sale of mortgages to unregulated third parties. The issue cannot wait until next year when the Government intends to publish its legislation. Although the Minister accepted a Bill I introduced on the subject in March and has promised to deal with the issue, the sale of IBRC has come and gone without action being taken. ICS Building Society customers are potentially in the firing line. How much longer can we afford to wait before action is taken?

I also ask the Minister seriously to examine the recent ESRI report on competition in the banking sector and produce proposals as to how mortgage lending to couples and individuals can be improved. Yesterday in this House he said he would like to see house prices rise further. That is a one-dimensional view of the property market. We need a stabilisation of the market whereby a potential buyer with a good income and clear capacity to repay can get a mortgage at an affordable rate. We are a long way from that. Today's legislation may help if it generates more competition but there are risks attached to it and we need a wider range of actions to give us a functioning mortgage market.

The second item in the legislation is a provision to allow the profits from the holdings of Greek Government bonds purchased through the ECB's securities markets programme, SMP, to be repatriated to that country. In its own right I welcome this. It was a concession to Greece as part of the various support programmes of bailouts and debt write downs the country went through. Today is a good day for Greece as it is re-entering the long-term debt markets. Its long-term bond yields are at or below 6%. Many thought we would not see this day for a very long time. However, it does not mean the European approach to Greece has been a success. It has been an unmitigated disaster.

The Greek people have been put through a tortuous process of cuts and tax increases since the crisis began to unfold in 2008. The concession on profits on the securities markets programme is small in this context. The concession on profits on Greek bonds has implications for Ireland. It raises the issue of what will happen to profits made by the ECB on Irish Government bonds. While we are in the dark as to the extent of these profits, given the rally in Irish Government bonds and yields below 3% it is likely that they are considerable. Figures of between €3 billion and €5 billion have been mentioned. It would be an act of solidarity by our eurozone colleagues and a recognition of the huge debt burden Ireland still carries if a process were put in place for these profits to be paid back to Ireland. The Minister has been unusually silent on it to date and I urge him to pursue it vigorously.

While I am on the subject of debt sustainability, I also urge the Minister to take action on the provision that if Ireland repays some of its IMF loans before maturity we must also pay off a proportionate amount of European Financial Stability Facility, EFSF, and European Financial Stabilisation Mechanism, EFSM loans. Our IMF loans are costing us 4.15% annually and have an average seven years to maturity. Our five-year bond yields have a yield of less than 2.5%. There is, therefore, an opportunity for Ireland to make a saving on our annual interest bill if we were allowed repay our IMF loans without a corresponding requirement to repay EFSF and EFSM loans. Given that the EU authorities were happy to extend these loans and reduce the rates, this is a concession we should actively pursue with them.

Finally, the major unresolved question of retroactive recapitalisation of the banks will not go away. The Government has made various attempts to long finger the issue by saying it cannot be dealt with until the single supervisory mechanism is in place. By the time this happens nearly three years will have passed since the commitment to break the link between sovereign and bank debt. We need a clear commitment that this issue will be pursued vigorously and that the Government will not accept any going back on the deal that was entered into in respect of the promissory notes by accepting an accelerated timetable for the disposal of the Government bonds held by the Central Bank.

As I mentioned at the outset, the two main provisions of the Bill cannot be regarded as related matters. During the pre-legislative stage we heard that while the ICS provisions are urgent given the deadline for the completion of actions under the Bank of Ireland restructuring plan, the item relating to Greece was essentially an add-on as it was convenient to deal with the matter in this Bill rather than introduce a separate one at a later stage. In this context I suggest two matters that we might consider could equally be dealt with under this Bill. The first relates to the Statute of Limitations for mis-selling of payment protection insurance and other claims before the Financial Services Ombudsman. The issue was back in the news recently and is one I have sought to deal with previously. As the law stands, the Ombudsman cannot deal with claims for mis-selling which date back over six years. This is patently unfair as many people may not become aware that they were the victim of mis-selling until after the six years has passed. A relatively simple amendment to give people three years from the date they become aware of the mis-selling would be an effective remedy to potentially thousands of customers.

I will bring forward certain amendments on Committee Stage, which may be taken as early as next week. Overall we are supportive of the Bill and look forward to a constructive debate on it.

See this speech in context