Eoghan Murphy (Dublin Bay South, Fine Gael) | Oireachtas source

I move: "That the Bill be now read a Second Time."

As this is the first time I am moving legislation on behalf of the Minister for Finance, I would like to say that I look forward to working with all Deputies in the House, both on this legislation and on further matters as they arise over the period of the Government.

I am pleased to present the Single Resolution Board (Loan Facility Agreement) Bill 2016 to the House. At the outset, it should be noted that the Bill is very much of a technical nature and is designed primarily to address an international obligation arising from the banking union agenda. The basis for the Bill is the requirement to put in place bridge financing arrangements to the Single Resolution Fund. This was triggered by the statement of 18 December 2013 adopted by Eurogroup and ECOFIN Ministers on the funding of the single resolution board. It required, especially in the early years, that member states participating in the Single Resolution Mechanism should put in place a system by which bridge financing would be available as a last resort and in full compliance with state aid rules. It was also stated that such arrangements should be in place by the time the Single Resolution Fund becomes operational.

The Single Resolution Fund is the financing element of the Single Resolution Mechanism, which is designed to provide, within a banking union context, a centralised resolution system which will be applied in a uniform fashion across all participating member states. The Single Resolution Mechanism is the second pillar of the banking union and will ensure that if a bank subject to the Single Supervisory Mechanism faced serious difficulties, its resolution could be managed efficiently with minimal costs to taxpayers and the real economy through the application of resolution tools such as bail-in and the use of a Single Resolution Fund, which is financed by the banking sector.

The target level for the Single Resolution Fund is at least 1% of the amount of covered deposits of all credit institutions authorised in all of 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. During the transition period to full mutualisation, the fund will operate through national compartments into which member states will transfer the contributions collected from their banking sectors.

In practice what this means is that should a bank be put into resolution and the bail-in, which involves the write down of a minimum of 8% of the bank's equity, capital instruments and eligible liabilities, proves insufficient to cover the losses, the next step will be the provision of funding from the national compartment of the affected member state. If there are still losses to be absorbed after this step, funds are then obtained from the mutualised elements of other national compartments. There is also the option for the single resolution board to borrow from the market to cover losses, but depending on the scale and circumstances, this may not always be possible. As a result, the single resolution board may find itself in a situation, particularly in the early years, where after the bail-in process has been completed and the resolution waterfall process has been exhausted, there are still losses to be absorbed. In such a situation, it will require an alternative source of financing and it has been agreed by the Council of EU Finance Ministers that this should take the form of national credit lines.

Most member states have either already put this in place or are about to do so, as there was a commitment following European Finance Ministers' agreement on the approach last December that this needed to be in place by 1 January 2016. It is crucial we progress the Bill as quickly as possible in order for Ireland to meet its banking union obligations.

The consequence of not signing the loan agreement with the single resolution board is that should an Irish bank get into financial trouble before the enactment of the legislation, then the funding available to the Single Resolution Fund will come from the small amount in the Irish national compartment, in the region of €70 million transferred from the national resolution fund for 2015, and the mutualised elements of the other national compartments, also only a very small amount, and any borrowing that the single resolution board can carry out. However, if this should prove insufficient, then there will be no fall-back source of financing from the single resolution board as the national credit line will not be in place.

It is important to point out that our banks are currently well capitalised and in general good health. Therefore, I believe the likelihood of this loan facility agreement ever being called upon is minimal. However, the provision of this national backstop to the single resolution board is key from a confidence perspective as it provides another indication to the market that the banking union member states are serious about ensuring stability in their banking sector.

I want to provide Members with a short introduction to the loan facility agreement between the State and the single resolution board. The loan facility agreement is an individual agreement between each participating member state and the single resolution board in relation to the credit line that it commits to provide to it where the need for bridge financing arises. The terms and conditions of each agreement are broadly speaking identical aside from the amount to be requested from each member state.

The loan facility agreement provides that the maximum aggregate amount to be provided by all member states is €55 billion. To determine the share of each participating member state, it was agreed to use the relative size of each member state's compartment in the Single Resolution Fund using the estimate of the European Commission as of 27 November 2014. This constitutes the allocation key between participating member states for determining the respective credit lines. In this regard it should be noted that Ireland's key is 3.3% of the €55 billion, which equals €1.815 billion.

During the negotiation of the loan facility agreement, two issues emerged: whether it should be possible to pay a credit line in tranches rather than all at once, and whether national approval was required to pay a credit line to the single resolution board. If member states were willing to forgo flexibility on these two points, the board would pay an annual fee of 0.1% of their credit line. In the case of Ireland this fee, known as a commitment fee, would equal €1.8 million per annum. The Minister for Finance consulted the NTMA on this point. It advised that the flexibility whereby the State can pay the loan in tranches over a 19-day period, except in exceptional circumstances, is worth forgoing the commitment fee. In addition, the credit line will also require national approval which will ensure there is appropriate national oversight.

An amendment will be introduced on Committee Stage providing for an additional Part to the Bill. The Department of Finance is currently transposing the recent European market abuse regulations and market abuse directive into Irish law. On legal advice, the Minister, Deputy Noonan, will bring an amendment to the Companies Act 2014, by way of the Bill, to refer explicitly to the new European market abuse regime in section 1365 of that Act. This will ensure the continuation of the existing offences and high-level penalties of up to €10 million in fines, or up to ten years' imprisonment on indictment, or both, for insider trading and market manipulation.

I will now go into more detail about the main provisions of the Bill. The Bill is short, consisting of eight sections, and captures the key points of the loan facility agreement between the State and the single resolution board. Section 2 provides that the Minister for Finance can perform any functions necessary for the purposes of the State's performing its functions under the loan facility agreement. Section 3 provides the legal basis for the payment of money from the Exchequer to the single resolution board. Section 4 sets out the circumstances in which the Exchequer may make a payment of money to the single resolution board. Section 5 sets out the legal basis for facilitating a payment by the single resolution board to the State. Section 6 requires the Minister for Finance to provide an annual report to the Dáil with information on the value of any loans and repayments made. Section 7 enables any expenses incurred by the Minister for Finance to be covered by moneys provided by the Houses of the Oireachtas.

I will now outline the main paragraphs of the terms of the loan facility agreement, which is the Schedule to the Bill. Paragraphs 2 and 3 state the maximum amount of the loan, €1.815 billion, and the purpose for which the loan may be used. Paragraphs 4 and 5 set out how the single resolution board must apply for the loan, the details of the loan, the timeframe for the lender to respond and the making of the loan. Paragraph 6 sets out the conditions around repayment of the loan, and states that in circumstances in which not enough ex post contributions have been made to repay the loan in two years, the loan can be extended by one year. Paragraph 7 sets the out the conditions on the prepayment of a loan. Paragraph 8 sets the conditions for the setting of the interest rate on the loan. Paragraph 9 states that no commitment fee shall be payable by the single resolution board to the State.

The Minister for Finance chose to forgo a commitment fee of 0.1%, or €1.8 million per annum, in return for greater flexibility after consultation with the NTMA. In return for the forgoing of the commitment fee, the credit line will require national approval rather than being automatic. Another benefit is that the State can pay the loan amount in tranches over a 19-day period, barring in exceptional circumstances where the single resolution board needs to avert the immediate default of an entity under resolution and would require more than 50% of the loan facility agreement.

Paragraph 11 describes the information sharing requirements and sets out that the State should inform the single resolution board if any event occurs that may prevent it from fulfilling its obligations under this agreement. It also allows the State, the single resolution board, the European Commission and the European Stability Mechanism to exchange information relevant to this agreement where the State has requested or received stability support. Paragraph 12 contains a provision that national approval must be sought by the State within three days of a pre-notification request from the single resolution board, and outlines a number of procedural items in relation to the operation of the agreement. Paragraphs 14 to 18 set out various technical provisions such as payment mechanics, confidentiality agreements, interest calculations and disclosure requirements. Paragraph 19 sets out how the State may pledge security to the European Stability Mechanism in the event that the State enters stability support.

In conclusion, I would like again to emphasise the importance of the early passage of this Bill to enable the implementation of significant parts of the EU banking union legislative agenda. It will also ensure that Ireland meets its banking union obligations as agreed with other Member States involved in banking union. In addition, the Committee Stage amendment to the Companies Act will ensure that Ireland maintains a robust regime against market abuse, with high levels of penalties, both in fines and in custodial terms. I commend the Bill to the Dáil.

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