Richard Bruton (Dublin North Central, Fine Gael)
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Question 83: To ask the Tánaiste and Minister for Finance if he is satisfied Ireland has robust mechanisms in place to anticipate and deal with a crisis in an Irish financial institution; and if he will make a statement on the matter. [23770/07]

Brian Cowen (Laois-Offaly, Fianna Fail)
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As the Deputy will be aware, the most important safeguard of financial stability is the existence and effective operation of the financial regulatory and supervisory regime. Following the establishment of the Central Bank and Financial Services Authority of Ireland in 2003, encompassing an independent Financial Regulator responsible for prudential supervision of financial institutions and consumer protection, we have such a system in place in Ireland. The Central Bank and Financial Services Authority of Ireland integrates within a single institutional structure both the supervision of individual financial firms by the Financial Regulator and the monitoring of overall financial stability, which is the independent responsibility of the Governor of the Central Bank. This structure yields significant advantages in terms of monitoring and maintaining financial stability in ensuring effective and timely co-ordination of these two key functions.

It is important to emphasise that the framework for financial regulation here is shaped by a detailed and comprehensive template which applies across the EU. There have been a number of positive assessments of the effectiveness of our system of financial supervision. A recent report from the International Monetary Fund, a body that carries out comparative examinations of financial regulation internationally, acknowledged the strengthening of the financial regulatory and supervisory system in Ireland in recent years.

The Financial Regulator adopts a risk-based approach to the supervision of financial firms, targeting its supervisory resources on those businesses and sectors with higher risk profiles and with the propensity to have the greatest impact in the event of failure. In doing so, it must balance a number of key objectives including the safety, soundness and competitiveness of industry, and it must facilitate innovation.

In the current financial market environment, the most important point that needs to be made in the national context is that Ireland's banking system is well capitalised, profitable, liquid and soundly regulated in this regard. I look forward to the publication of the Central Bank's 2007 financial stability report in November, which will set out the bank's current assessment of the financial environment.

There are obviously important lessons to be learned from recent events in international financial markets. This process of review and examination is already under way. At the recent ECOFIN Council on 9 October, EU Finance Ministers agreed on a set of common principles and a roadmap of further actions to enhance financial stability arrangements and the ability of authorities to respond to serious disturbances in EU financial markets.

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Ireland will of course participate fully in this work to ensure there is an effective EU-wide system to maintain financial stability, taking into account the important cross-border linkages that now exist in EU financial markets. My Department is continuing to work closely with the Central Bank and Financial Services Authority of Ireland to oversee national financial stability planning arrangements in line with EU requirements.

It is also important to note the key role of the Central Bank and Financial Services Authority of Ireland operating within the overall context of the Eurosystem and the European Central Bank in maintaining financial stability overall. The Governor of the Central Bank and Financial Services Authority of Ireland has recently highlighted the fact that the euro area operational framework has functioned well in response to recent financial market developments.

I am satisfied Ireland has an excellent regulatory regime and a solid and robust banking system.

Richard Bruton (Dublin North Central, Fine Gael)
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I think people will agree that in recent months we have seen the unthinkable happen — a run on a bank where many Irish people had deposits, a huge fall in the value of Irish financial institutions on the stock markets because of fears of excessive exposure to the property market and the collapse in value of the new securitised instruments. How would we deal with a crisis if it occurred? It is significant the Minister did not address that question in his response, but dealt solely with the part of the question concerning anticipation. Does he believe changes need to be made to our deposit protection scheme, which is now much worse for Irish depositors in financial institutions than applies in the United Kingdom scheme, which was triggered by the Northern Rock collapse? Does Ireland need to manage its exposure more robustly, for example, by examining the issue of risk management?

As the Minister will recall, the Central Bank's report for last year provided a series of early warning signs. It noted that credit growth here was the highest in Europe, our reliance on property-related lending was excessive, as was the level of risk-taking in certain areas, and the funding gap was widening. How does the Minister propose to pre-empt any possible threat to an Irish financial institution?

Brian Cowen (Laois-Offaly, Fianna Fail)
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Developments in the financial system are taking place against a background of strong economic fundamentals. We have a well capitalised, liquid, robust and financially sound banking system, which has withstood recent turbulence in international markets ably and well.

Lessons must be learned in terms of the globalisation of markets and we need to examine these matters, including the issue of deposit guarantee, with our European Union partners. In a recent case in Britain a particular bank encountered difficulties to which the Chancellor of the Exchequer responded in his own way. Our approach must be to take a considered view of these matters and work with our EU colleagues within the EU template of supervision and the financial regulatory regime currently operated in the euro area. We will probably see the outcome of deliberations on these matters by the middle of next year.

Richard Bruton (Dublin North Central, Fine Gael)
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While I do not oppose working with EU colleagues, the greatest area of concern relates to the Irish property market. Financial institutions here have experienced the greatest fall in revenues. For this reason, rather than waiting for the slowest mover in the European Union, it behoves us to examine what action we can take to get our house in the best possible order. I ask the Minister specifically to consider the possibility of providing deposit protection. In this difficult period and with a credit crunch under way, savers need assurance that their deposits are safe. The Minister should not wait for the slowest partner in the EU to move.

Brian Cowen (Laois-Offaly, Fianna Fail)
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It is not a question of waiting for the slowest mover in the European Union but of recognising the state of health of the Irish financial system. I spoke to those involved in the system and they continue to regard it as robust. With regard to the downturn in the property market to which the Deputy referred, stress-testing is being carried out by the financial institutions and there has been no increase in stress in terms of mortgages in the financial institutions etc. Those involved in the markets and those working with people who have purchased property will confirm that we still have low unemployment and a high rate of disposable income, and consumers attach a high priority to repaying mortgages.

The system here has withstood the turbulence we have observed internationally because it is in robust health, liquid and well capitalised. Working with other countries in the euro area does not mean postponing consideration of these matters. We will work with our partners to ensure an EU-wide approach is adopted which provides protection to all of us, particularly in light of the globalisation of markets. Recent developments affect all markets, not only the Irish market.