Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I move:

That Dáil Éireann approves the terms of the Intergovernmental Agreement on the Transfer and Mutualisation of Contributions to the Single Resolution Fund as required under Article 29.5.2° of the Constitution, signed at Brussels on 21 May 2014, a copy which was laid before Dáil Éireann on 9 October 2015.

I seek the approval of the Dáil of the motion on the terms of the intergovernmental agreement on the transfer and mutualisation of contributions to the Single Resolution Fund which will enable the subsequent ratification of the intergovernmental agreement to the Single Resolution Mechanism. This motion was considered by the Select Sub-Committee on Finance on Tuesday, 3 November. Approval of this motion is an important part of the overall ratification process, with the other major element being the enabling legislation in Part 2 of the Finance (Miscellaneous Provisions) Bill 2015, Report Stage of which will be dealt with shortly. There is a requirement for the member states to ratify the intergovernmental agreement before 30 November for the Single Resolution Mechanism to come into force by 1 January 2016. As Members are aware, the Single Resolution Mechanism is a very important part of the banking union agenda and it is essential that it is ratified on time. That is why I am seeking support for this motion.

The intergovernmental agreement was negotiated to enable the Single Resolution Fund, a key element of the Single Resolution Mechanism, to be put into operation. The Single Resolution Mechanism will have a fund known as the Single Resolution Fund which will be financed by the banking sector. In an ideal world, such a fund would have been fully mutualised from the outset. However, because of concerns about legacy issues from a number of member states, this was not possible. Consequently, the intergovernmental agreement was negotiated to facilitate a transition period of eight years to full mutualisation of the Single Resolution Fund by requiring that the contributions from the banking sectors of the participating member states are paid into national compartments within the fund in this time. This structure enables the progressive mutualisation of the fund by requiring that in the event of a call upon it, the national compartment of the affected member state pays first before, if necessary, the other compartments make a contribution. As the transition proceeds, a smaller percentage is taken from the affected national compartment and a greater percentage is taken from the other compartments, until after eight years when full mutualisation occurs. From that point, any funds required for the resolution of a bank or banks will come from the Single Resolution Fund as a whole.

I will give a brief overview of the Single Resolution Mechanism. It is the second pillar of the banking union and will ensure that if a bank subject to the Single Supervisory Mechanism faces serious difficulties, its resolution will be managed efficiently, with minimal costs to taxpayers and the real economy through a single resolution board and a Single Resolution Fund financed by levies imposed on the banking sector. The Single Resolution Mechanism applies to all credit institutions in the banking union. The single resolution board is responsible for the effective and consistent functioning of the Single Resolution Mechanism but the operational side of its work is split with the national resolution authorities. In this regard, the board is responsible for drawing up resolution plans and adopting all decisions relating to resolution from significant institutions, the category into which our four major institutions fall. They are AIB Bank, Permanent TSB, Bank of Ireland and Ulster Bank. National resolution authorities, on the other hand, will be responsible for similar decisions for small institutions, except where the use of the Single Resolution Fund is required, where the board shall adopt the resolution scheme.

What this means in practice is that should any of our four major banks get into financial trouble, the decision about putting it into resolution will be made by the single resolution board rather than our domestic resolution authority. In addition, where bail-in of shareholders, capital instruments and eligible liabilities are insufficient to cover the losses of the bank in question, there will be access to funds from the Single Resolution Fund. This has the aim of breaking the link between banks and the sovereign and thus avoiding a repeat of the issues faced by countries during the recent financial crisis.

It should be noted that the target level of the Single Resolution Fund is at least 1% of the amount of covered deposits of all credit institutions authorised in all the participating member states, which is to be reached at the end of eight years. This is estimated to be in the region of €55 billion. We estimate that the contribution of Irish banks to the Single Resolution Fund will be €1.8 billion over the eight years, which amounts to approximately €225 million per year. The contribution of international banks to the overall total is likely to be significant - in the region of at least 50% - but unfortunately it is not possible to be more precise in the matter at this stage.

On the question of whether the fund of €55 billion is sufficient, it should be noted that at the time of the negotiation of the Single Resolution Mechanism regulation, there was considerable discussion around the topic. However, the general view that emerged was that most of the losses of a bank should be recovered by the bail-in of shareholders and creditors in line with the general philosophy underpinning the Single Resolution Mechanism regulation and the bank recovery and resolution directive. In this regard, a contribution to loss absorption and recapitalisation equal to an amount of not less than 8% of the total liabilities, including own funds of the institution under resolution, measured at the time of the resolution action, must be used before the Single Resolution Fund can contribute. This is a significant contribution to loss absorption and should, in many instances mean that the use of the fund will not be needed. Therefore, in this context, the view of most member states was that a fund of €55 billion struck an appropriate balance between the need to establish a credible and effective fund while at the same time not overly burdening the banking sector from a contribution perspective.

As noted at the outset, the passing of this motion is an essential part of the ratification process for the intergovernmental agreement and I would appreciate Members' support.

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