Seán Canney (Galway East, Independent) | Oireachtas source

-----of our banking system over time. The Government is working to ensure that our banks are able to invest in households and businesses and provide the credit and lending that is needed, all the while ensuring that the most appropriate and effective framework of consumer protection is in place. This Bill does not in any way support or complement these key priorities.

Aside from preventing loan sales to tackle non-performing loans, the Bill would also impede the funding model for mortgages because it makes securitisation almost impossible, increases the risks for lenders and effectively raises questions over the use of asset covered securities as a funding source. All these issues would result in increased interest rates for existing standard variable rate mortgage holders and would also be reflected in reduced new mortgage lending with obvious knock-on effects for the construction of new residential property. This would go against all that we are trying to do in these areas.

As the Bill compromises the transferability of mortgages and weakens them as a form of security, it would also be reasonable to expect that it could render residential mortgages ineligible for use as collateral by banks when seeking European Central Bank, ECB, or Central Bank emergency funding in liquidity operations. This would be a catastrophic development if a crisis were to occur in future. As we saw during the most recent crisis, Irish banks pledged a large portion of their mortgage books as collateral to the ECB for emergency funding and to take away this flexibility would create obvious financial stability risks. The Central Bank of Ireland and European Central Bank will only accept collateral for funding purposes that can be taken over if a bank defaults on its obligations.

The main mortgage lenders in the market have used asset covered securities as part of their funding strategy for many years through issuing bonds for market funding. These bonds are acquired, in the main, by international investors as the structure is well understood and similar to that which exists in other European markets. The covered bonds rely on the assumption that they are secured on the underlying mortgages which can be accessed in a distressed situation. Clearly, anything which could impact investors' ability to access their collateral could severely impact the credit rating of such instruments and, by extension, the pricing and investor appetite for such bonds, potentially rendering the model inoperable.

Securitisation is an important part of the financial system and when the Consumer Protection (Regulation of Credit Servicing Firms) Act 2018 was before the Oireachtas at the end of last year, it was the subject of much consideration. It was accepted that the passive securitisation model, where the investors do not play a role in the administration of management of an individual loan, do not have any significant adverse implications for consumer protection. However, the Bill proposed by Deputy Doherty, which requires borrowers consent for all loan sales or assignments even if the assignment is undertaken for bank liquidity or other legitimate commercial purposes, will, even though it will not impact in any material way on the borrower, reverse this approach and could set at naught the approach adopted for the recent Consumer Protection (Regulation of Credit Servicing Firms) Act 2018.

The rehabilitation of our banking system has been slow but good progress has been made. A critical element has been the reduction in the number of non-performing loans and much of this has been achieved through non-performing loan sales. The continuing high level of non-performing loans on Irish banks' balance sheets is a vulnerability that presents a risk to financial stability and could impede the provision of credit through additional regulatory capital requirements.

It also results in an opportunity cost in foregoing new lending to households and firms. Again, both the Central Bank and my Department believe that the costs imposed by this Bill on financial institutions may in turn have the chilling effect of increasing interest rates for consumers which is the last thing we want to see. It is also important to highlight that if loan transfers to third parties are no longer a viable option for banks to allow them reduce their non-performing loans, a likely consequence would be an increase in the number of repossessions by banks. The significant commercial and financial restrictions imposed on lenders by this Bill has the potential to restrict their ability to raise liquidity and funding on reasonable terms and their inability to sell their non-performing loans could have knock-on capital implications. It could impose significant economic and financial costs for the Irish economy and society and, as we saw in 2008 and the following years, this burden will eventually and ultimately have to be met by the Exchequer and society at large. Therefore, this Bill does pose very significant long-term implications and inherent contingent liabilities for the Exchequer and therefore it does not require a money message.

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