Bríd Smith (Dublin South Central, People Before Profit Alliance) | Oireachtas source

We are discussing the Single Resolution Board (Loan Facility Agreement) Bill on which we will vote at some point. The headlines surrounding the setting up of the board is that taxpayers will be protected from bailing out banks in the future and that the mistakes of banks will not be borne by the public. It has been said that under the new system bondholders rather than taxpayers will be on the hook for losses with the creation of a single resolution board. We are told that underpinning it will be a special system of rules to prevent a failure from spreading panic across the financial system.

Ireland will contribute €1.8 billion and the total fund will be €55 billion when completed. The intention is that it will be a nest egg to protect us. The scheme is presented as a way of defending us against future bankruptcy or bank failure. However, when one looks at the figures, the sum of €55 billion is small fry. This State, which relatively speaking is a small one, coughed up €64 billion alone in bailout funding. Let us look at the cost of bailouts elsewhere. In the United Kingdom it cost £133 billion to save the Royal Bank of Scotland and Lloyds, and the United States spent $430 billion bailing out Citigroup and others. Therefore, the fund appears very flimsy when one considers the potential costs of the failure of a major banking institution. One could ask who would believe for a minute that it would protect our system from bank failure.

Even on its own terms the system will not work. The ECB has been pumping €80 billion into the European financial system every month to try to get the banks to lend. The idea behind its approach is that the money will move from the ECB into the banks and on to businesses and households, thereby increasing demand and helping the economy to recover butthe reality is that much of the money is ending up being used for speculation as banks borrow to buy shares and currencies and anything else that will help improve their bottom line. If and when another crash comes, €1.8 billion will be quickly swallowed up and the State will be asked to pay out again.

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Funding this therefore sets an extremely dangerous precedent. Members should vote to make the banks responsible and if they do not have it, it should be the bondholders and speculators that are hit and not the ordinary taxpayer again. More important, Members should now be taking real steps to rein in the banks and the bonus culture that still goes on.

I also am struck by the rhetoric of the Government and the Ministers about this Bill, which is that the fund is unlikely ever to be used and that this is just a technical Bill. They state it is highly unlikely to ever be used as the banks now are well capitalised etc. I am sure this sounds familiar to the people because it is the same rhetoric as before the crash. Moreover, the Government told people that such and such a bank - I will not say its name - was too big to fail, that it would pose a systemic threat to the economy, that the ATMs would close and the sky would fall in. Is this fund really going to stop the same thing from happening again for the same reasons? Will the Government and its Ministers not be terrified about burning the bondholders, about creditors going on strike, about market sentiment, the whole nine yards of capitalism etc.? The last crash was not caused by liquidity or well-capitalised banks and I do not believe the next one will be either. Moreover, I do not believe the threat of taking 8% of a bank's liabilities before it could seek public funds will be much of a protection for taxpayers or the State. Members have been asked to put in place a taxpayer-funded additional insurance scheme for banks, that is, for private banks and for the private sector, which is the sector the Minister and his party constantly eulogise as being the engine of growth and innovation. Members of course cannot do the same for health, education, housing, transport or the environment, as that would be subject to strict guidelines and they would be breaking all the European Union rules. Apparently, however, they can do it for the banks. Members are being asked to vote to potentially give yet more funding over to private banks that make money from speculating and taking risks. The amount certainly is significant, not in banking terms but in other terms, as €1.81 billion would pay for approximately 70,000 new nurses or teachers. It would open schools or three children’s hospitals and could build more than 10,000 houses. Deputy Wallace probably has better figures and one probably would get more houses out of him for the same money than the figures I have quoted.

Before the crash, the Irish banks were making astronomical profits for some of the wealthiest people in the country. Even during the time of the Celtic tiger - this figure is amazing - they made profits of €1 billion per year and together with the Irish developers, they effectively had families in a vice grip. They sometimes handed out 110% loans or 150% loans, thereby pumping billions of euro of extra demand into the housing market and helping to fuel even higher housing and property prices. But the profits here will remain private and all that is public are the losses and the potential losses. This Bill is yet another part of the process of nationalising losses while ensuring profits remain private. Despite the lessons we have claimed to learn about the crisis, it is the same old story, that is, it is socialism for the rich and capitalism for the rest of us.

This brings me to the need to consider this venture. Given the extent of the crash and the €64 billion Irish taxpayers put into the ECB and the EU, I note how destructive it is to let banks do their own thing and lend recklessly without a safety net. This is where the Single Resolution Mechanism is supposed to kick in with banks being brought under a single system for an orderly wind-down in the case of problems. Put simply, this is an insurance system for future reckless behaviour and the taxpayers are being asked to put up the policy, that is, the very people who never benefited from the bonus culture and the recklessness in the first place. It is a bit like if a boy racer crashed his car and forced the costs onto his parents - which would be an awful thing to do – only for them then to be told by him that he was going to continue to speed and continue to crash and they would be obliged to put up the insurance premium to meet that behaviour, which would be obscene. Why are Members not making the bankers pay for their own insurance and, more important, why are they not enacting legislation now to claw back all the money that was pumped into the Irish bank system for which the taxpayers paid? I am not convinced that the culture of banks and how they make profits has changed or will change. I am not convinced that the bonus culture is finished or that caps on bonuses will stay or be around for long enough for them not to regain the reward. For example, Members are aware the cap on bankers' earnings of €500,000 in pay still is in existence. They know that Richie Boucher of Bank of Ireland gets €840,000 a year and know there is constant bleating from banks about the need to reward their staff and to incentivise their entrepreneurs. Consequently, I am not convinced the culture has changed or that lessons have been learned.

Nor am I convinced the risk of banks failing has gone away. Members are told that all this is to ensure that something like that can never happen again and that we, as regulators, and the banks have learned their lessons. In reality, banks are even bigger and more opaque than they ever were and they continue to trade in highly risky and financially rewarding products, just as they did before the crash. Consequently, the volume of derivative trading worldwide has reached more than $700 trillion. Sometimes the figures are mind-boggling but Members should take note of that figure, namely, that derivative trading worldwide amounts to more than $700 trillion, which is ten times the size of the world's real economy. It stood at $648 trillion in 2011 and probably is even higher now. According to one report in Forbesmagazine, “The market has grown so unfathomably vast, the global economy is at risk of massive damage should even a small percentage of contracts go sour". Alongside this, one can see the growth of shadow banking with vulture funds, a sector that thrives outside any regulation or State-sponsored insurance scheme and that makes up 25% to 39% of the total financial system. It is really scary to see where these firms are investing and the real estate and equity they are buying up around the place.

I am sceptical about the ability of this fund to do what it is claimed to do and Members on this side of the House are sceptical about the right of this fund to be used to shore up profit-making for private institutions. The Irish rich are up to their necks in all of this and it is obscene that Deputies, the people’s representatives, are being asked to vote to potentially hand over more taxpayers' money to the reckless banks for reckless behaviour, were the economy to crash again.

People Before Profit wishes to play a constructive role on this issue. We wish to socialise banking in the interests of the real economy and want all the money that was diverted away from schools and hospitals to be returned to the people by the private bankers. For this reason, we obviously will be opposing this Bill.

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