Kieran O'Donnell (Limerick East, Fine Gael)
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Question 50: To ask the Tánaiste and Minister for Finance whether he has assessed the impact of the international credit crunch on Irish financial institutions and on credit conditions; and if he will make a statement on the matter. [29951/07]

Brian Cowen (Laois-Offaly, Fianna Fail)
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The Financial Stability Report 2007 published last week by the Central Bank and Financial Services Authority of Ireland, CBFSAI, is a comprehensive and detailed assessment of the impact of international financial market conditions on the Irish financial services sector and on financial conditions in the economy generally. I welcome the CBFSAI's conclusion that the financial system is well placed to withstand any adverse economic and sectoral developments in the short to medium term. The report highlights that based on key indicators such as asset quality, profitability, solvency and liquidity the Irish banking system is strong and robust and is clear that domestic banks have no significant direct or indirect exposure to US sub-prime mortgages.

The Central Bank's report draws attention to a number of welcome improvements in the overall financial environment over the past year, in particular to the moderation in growth in house prices and private sector credit growth. The report also finds that underlying fundamentals of the residential property market continue to appear reasonably strong. It emphasises that the safeguarding of our international competitiveness is essential to securing the growth potential of our economy, particularly in the context of the expected moderation in the residential construction sector.

Effective and efficient financial regulation is a key element of overall financial stability in the context of international financial market developments. In Ireland, the Central Bank and Financial Services Authority of Ireland provides a highly effective financial regulatory and supervisory regime. This is central to the resilience and well-being of the sector, helping to maintain financial stability, ensuring effective prudential supervision and promoting the interests of consumers. The integrated structure we have adopted for the supervision of individual financial firms and the monitoring and maintaining of financial stability overall confers significant advantages in ensuring effective and timely co-ordination of these important functions.

The authority functions within the overall context of the Eurosystem and the European Central Bank whose operational framework has functioned well in response to recent financial market developments. My Department will continue 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.

Additional information not given on the floor of the House.

There is also a co-ordinated EU response to international financial market conditions. EU Finance Ministers have 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 market developments. Ireland is of course participating 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.

In conclusion, I share the Central Bank's assessment that the Irish economy continues to support the stability of the financial system and that the Irish financial sector remains in good health.

Kieran O'Donnell (Limerick East, Fine Gael)
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I wish to ask two questions. The Minister raised the financial stability report of the Central Bank. However, he neglected to mention this report states the system has a weakness. The Central Bank carried out a survey of the licensed financial banks and found that joint ventures or special purpose vehicles are sub-prime conduits and are not regulated. Is the Minister concerned about this? We do not have proper controls. The ISTC, which is on the verge of going out of business, directly entered the retail sector through Friends First and 125 retailers invested in it, one of which was a credit union. That has an impact on the ordinary man on the street. Based on the financial instability report and what I have said, is the Tánaiste satisfied that proper controls are in place? Will he comment on the fact that the value of bank shares, which make up a substantial proportion of the Irish Stock Exchange's value, has dropped by nearly half? Can he explain this significant decrease?

Brian Cowen (Laois-Offaly, Fianna Fail)
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Special investment vehicles fall outside the remit of regulation and do not have an interface with the public in terms of taking deposits.

Kieran O'Donnell (Limerick East, Fine Gael)
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Clearly they had.

Brian Cowen (Laois-Offaly, Fianna Fail)
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The issue raised by the Deputy pertains to the fact that complex financial vehicles and arrangements are in place and we have to regulate them in so far as it is possible and consistent with normal commercial arrangements to do so. With regard to the Stock Exchange, markets react to sentiments and events in the sub-prime market and across the world. Obviously, the inter-bank market has experienced turbulence and that is feeding into market sentiment and affecting bank shares.

Kieran O'Donnell (Limerick East, Fine Gael)
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The Tánaiste did not answer my question. Does he think regulation should be introduced in the area of special investment vehicles? If the sector is so secure, based on the Central Bank's assurances, why are the share prices of banks falling? Is he satisfied the banking system does not have any inherent problems?

Brian Cowen (Laois-Offaly, Fianna Fail)
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The Governor of the Central Bank spoke on the matter at the launch of the bank's financial stability report for 2007. He noted that while much depends on the possible evolution and duration of the current market turbulence, there are concerns that a prolonged period of market disruption could affect economic activity by increasing the cost of credit to firms and individuals and reducing the volume of credit banks are willing to extend to borrowers.

Kieran O'Donnell (Limerick East, Fine Gael)
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Is the Tánaiste happy?

Brian Cowen (Laois-Offaly, Fianna Fail)
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I am happy that we have a robust financial system in Ireland which is well regulated.

Kieran O'Donnell (Limerick East, Fine Gael)
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Is the Tánaiste confident that we will experience no issues in the next several months similar to those which affected ISTC?

Brian Cowen (Laois-Offaly, Fianna Fail)
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There is nothing, of which I am aware——

Kieran O'Donnell (Limerick East, Fine Gael)
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Should we not therefore have controls over the area?

Brian Cowen (Laois-Offaly, Fianna Fail)
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If the Deputy wants a reply, I will give him one but if he asks ten further questions while I am answering, it will be difficult for anyone to know what is going on. I have given my reply and I concur with the Governor. The Central Bank and the regulatory authority continue constantly to monitor the situation. We have seen turbulence in financial markets but I am satisfied we have a well capitalised and regulated banking system.

Special investment vehicles are considered at European level. Deputies will recall that when the Northern Rock issue arose, a meeting was held that weekend of Finance Ministers. One of the conclusions of the meeting was that methods of working together needed to be found so as to address these issues in a way that does not hinder the efficacy of the system but enables commercial dealings to continue.