Frank O'Rourke (Kildare North, Fianna Fail) | Oireachtas source

I also join my colleagues in congratulating Deputy Eoghan Murphy in his role as a Minister of State. I wish him the very best in the time ahead. This Bill is designed to address an international obligation arising from the banking union's agenda. European Finance Ministers agreed that member states participating in the Single Resolution Mechanism should put in place a system by which bridge-financing in the form of national credit lines would be available as a last resort for the Single Resolution Fund in the event of a large resolution. Most member states have either already put this in place or are about to do so, as there was a commitment following the European Finance Ministers agreement on the approach last December that this is needed to be in place by January 2016.

It is crucial, therefore, that we progress this Bill as quickly as possible to enable Ireland to meet its banking union commitments.

The primary purpose of the Single Resolution Board (Loan Facility Agreement) Bill 2016 is to give full effect to the State's obligations under the intergovernmental agreement on the single transfer and mutualisation of contributions to the single resolution board and to enable Ireland to proceed to ratify the intergovernmental agreement, IGA. The single resolution board is part of the Single Resolution Mechanism, SRM, which also comprises the Single Supervisory Mechanism, SSM. The SRM was established to centralise resolutions responsible at EU level for large financial institutions within the euro area. Ultimately, the SRM is aimed at ensuring the orderly resolution of failing banks without resort to taxpayers' money. The Single Resolution Fund is a common bank resolution fund which supports this resolution. The board is a pan-European resolution authority responsible for managing the wind-down and restructure of failing credit institutions and, as such, managing the fund. All credit institutions, regardless of type, are required to contribute to the national compartment of the fund. The board is responsible for significant credit institutions that are directly supervised under the SSM or the European Central Bank. In Ireland's case, the banks concerned are Bank of Ireland, Allied Irish Bank, Ulster Bank and Permanent TSB. In practise, this mean that if a bank is placed in resolution there is a clear process to be followed before funds can be drawn from the loan agreement between the State and the single resolution board. A minimum of 8% of eligible liabilities must be written down in the bailing process before the Single Resolution Fund can be used. The single resolution board could find itself in a situation, particularly in the early years, whereby following completion of a bailing process there are losses that remain to be absorbed.

It is important to point out that, as my colleague stated earlier, the Irish banks are currently well capitalised and are generally in good health. Therefore, the Minister for Finance is of the view that the likelihood of this loan facility agreement ever being called upon is minimal. However, the provision of this national back-stop 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 the banking sector going forward.

This legislation will enable the State to provide to the board a bridging finance agreement. This will take the form of a national credit line of up to €1.815 billion to the Single Resolution Fund. During the initial build-up phase the fund will be composed of national compartments which were set up under the banking recovery and resolution directive and the Single Rulebook for the European credit institutions. These compartments will be subject to gradual merger over eight years so that they will cease to exist at the end of the transitional period in 2024. Compartments of the funds will be held by the participating member states which will make moneys available, as a last resort, to the board should the resolution mechanism be called upon. Responsibility for placing credit institutions into the resolution procedure lies with the board. During the eight-year transitional phase a common back-stop will be developed to facilitate borrowing by the fund and these will be ultimately reimbursed by contributions from the banking sector.

As detailed, the credit lines extended to the participating member states will ultimately be accompanied by contributions from all European credit institutions. During the recent crisis the Government and taxpayers provided support to failing banks. In the absence of an appropriate resolution to underline the importance of establishing a common EU resolution framework to address failure in a timely and orderly manner, as a resolution authority, the Central Bank will be now in a position to have an input into resolution matters, domestically and at European level, in terms of participation in the single resolution board.

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