Joan Burton (Dublin West, Labour)
Link to this: Individually | In context

I apologise for being a little late. I was confused about the timing as a result of all the votes.

With the current turmoil in the financial markets, it is now a matter of urgency that a reformed compensation scheme for depositors and savers with banks should be put in place. We have seen a number of banks experiencing severe financial difficulties in recent weeks and people would have witnessed depositors and savers in Northern Rock queuing outside the bank's headquarters. In Ireland, if the bank was to fail utterly, the maximum compensation currently available to savers and depositors is extremely low. It equates to 90% of savings, with a maximum limit of €20,000.

Despite the introduction of the Irish Financial Services Regulatory Authority, this particular area has yet to be reformed. The British Chancellor of the Exchequer recently announced that the UK system was to be reformed, with the Bank of England and the UK Treasury offering high levels of guarantees to savers and depositors. Northern Rock is an on-line bank without a bank structure here, so it became very difficult for customers to make phone and e-mail contact with the bank in the early days of the panic.

The Minister for Finance must put in place appropriate structures that will protect the integrity of the banking system and bank customers. The integrity of the banking system is fundamental to our economic well-being. Problems in the global credit market will, in turn, impact on those who wish to purchase houses, start businesses or simply ensure that their savings are secure. To date, the Minister for Finance has been astonishingly silent in respect of these issues. There has been no opportunity for any form of Dáil debate, not even at the Joint Committee on Finance and the Public Service, which the Government has not bothered to re-establish since the general election.

The people have a right to know if the Minister for Finance has his eye on the ball in respect of these key issues. He simply cannot hide behind the Financial Regulator. I want the Minister to make an honest statement, setting out clearly the likely impact of the turmoil in the financial markets on the banking sector, in particular, and the economy in general. What response, if any, does he propose to make as regards the clear risks involved for Irish savers and businesses as a result of recent events? Financial services have been a key component of growth in the economy during the past decade. Any difficulties experienced by this sector will, therefore, have a knock-on effect elsewhere.

The Financial Regulator must clearly outline the protections that are in place or indicate the structures that need to be revised in order to protect the customers of banks and credit unions. A full analysis must be made of the sub-prime market in Ireland, both in terms of investments by Irish banks and credit unions in financial derivatives and other new financial products. In addition, there is a need to produce a profile of the lending activities of sub-prime lenders in the economy. I am concerned that a number of such lenders are taking unacceptable risks as regards some of the lending in which they are engaged. The Joint Committee on Finance and the Public Service should be immediately re-established to examine these issues in public.

I want to be assured that the Minister is sending out a clear message that cowboys and unacceptable lending practices on the part of financial institutions in Ireland will not be tolerated. On previous occasions I raised with the Minister of State, Deputy Noel Ahern, the fact that the representatives of sub-prime lenders are calling door to door in local authority housing estates and in areas where people have purchased affordable housing and are offering to roll-up all their debts, including car and holiday loans. They are also placing inflated values on these people's homes and giving some of them more than 100% mortgages. Mr. Des Geraghty, chairman of the affordable housing partnership, recently and correctly stated that this type of behaviour, as it relates to lending, is insane. If the individuals involved default on their new loans, the level of charges and penalties imposed by sub-prime lenders means that many of them stand to lose their homes.

Noel Ahern (Dublin North West, Fianna Fail)
Link to this: Individually | In context

The first and most important point I wish to make on behalf of the Tánaiste in responding to these issues is to highlight the importance of a well capitalised and soundly regulated banking system in underpinning the safety and security of savings, particularly in situations of financial uncertainty. Ireland has an excellent regulatory regime and a very solid banking system. The recently published IMF report on the Irish economy concluded that the Irish banking system is well capitalised, profitable and liquid. It also noted that the Central Bank is satisfied that major lenders here have adequate resources to cover a range of potential shocks.

As far as the effectiveness of the Irish regulatory system is concerned, the House will be aware that financial regulation here is based on a comprehensive and detailed EU template and conforms to international standards of best practice. The IMF report to which I refer explicitly acknowledged the strengthening of the financial regulatory and supervisory system in Ireland in recent years. In terms of the response to the change in financial market conditions, the Financial Regulator has said on a number of occasions that it has increased its ongoing dialogue focusing on recent financial market developments with other regulators and regulated entities in Ireland.

Major progress has been made in strengthening consumer protection in the financial area. The consumer director of the Financial Regulator has an explicit mandate to protect the interests of consumers. The introduction of the consumer protection code represents significant progress in that regard. The Tánaiste has already announced his intention to bring forward legislative proposals during the current Dáil session to ensure that all consumer lending, including what is described as sub-prime lending, will be subject to the consumer protection code. The debate on that legislation will present an opportunity to discuss this matter and to reign in those cowboys, if they exist, to which the Deputy refers.

In reviewing recent events affecting Northern Rock, it is important to state that the branch structure under which it operates in Ireland places responsibility for the overall prudential supervision of the bank with the UK authorities under EU law.

Joan Burton (Dublin West, Labour)
Link to this: Individually | In context

It is not regulated in Ireland.

Noel Ahern (Dublin North West, Fianna Fail)
Link to this: Individually | In context

The UK authorities have made it clear that Northern Rock is solvent, exceeds its regulatory capital requirement and has a good quality loan book. The UK Chancellor's statement that all deposits are safe was obviously welcome and was successful in reassuring savers in Northern Rock, including those in Ireland. The Tánaiste would note that the Central Bank and Financial Services Authority of Ireland, CBFSAI, operates within the overall context of the euro system and the European Central Bank.

It is obvious that there are important lessons to be learned from all of this, including the effectiveness of deposit protection arrangements across the EU. The European Commission recently concluded a review of the deposit protection schemes directive, which sets the framework for national schemes in the EU. It will be necessary to re-examine this work and, in light of recent developments, to ensure that deposit guarantees strike the right balance between protecting depositors and seeing to it that banks are not encouraged to take inappropriate risks. If the system provides total protection, banks will not be encouraged to play ball and be responsible.

The performance of the global economy will be an important factor in restoring confidence among investors and in financial markets. In that regard, growth internationally remains relatively robust despite continued uncertainty in financial markets. As far as the national picture is concerned, prospects for the economy are very favourable by international standards. A clear focus on our competitiveness and on a prudent and responsible approach in respect of the public finances will contribute in that regard.

I assure the Deputy that the Tánaiste has his eye on the ball. The proposed legislation to which I refer will provide us with the opportunity to debate this matter. When I held my previous portfolio, I spoke on many occasions about financial institutions, one to two years ago, being over-generous as regards mortgages. At the time, I did not receive a great deal of support. Some people in the media and elsewhere rubbished what I had to say. Many individuals could see that a problem was coming down the tracks. It is fine to give a 100% mortgage to someone who has major potential and who has left college to take up an extremely lucrative career. However, some people were handing out leaflets relating to lending on Grafton Street as if they were advertising pizzas for lunch. Some irresponsible lending activities were engaged in. The Tánaiste's proposed legislation will provide us with ample opportunity to discuss this matter.