Wednesday, 1 October 2008
Credit Institutions (Financial Support) Bill 2008: Committee Stage.
I move amendment No. 1:
In page 1, before section 1, to insert the following new section:
"1.—This Act (other than section 7) shall not come into operation until the Minister has published and laid before each House of the Oireachtas for its approval full particulars of the terms and conditions under section 6(4) including the terms and conditions of any scheme."
I do not wish to quibble but I only have a white copy of the amendments that was printed earlier. I am concerned about whether the green copy contains changes and whether it contains the full list of amendments.
The purpose of this amendment is to ensure the Minister for Finance outlines the details of the scheme to the House. Before the Act comes into operation the Minister should lay before each House of the Oireachtas, for its approval, full particulars of the terms and conditions set out under section 6(4), including the terms and conditions of any scheme.
This scheme is being toasted by bankers and financiers not just throughout Ireland but in Europe. There is now a suggestion that every European government should unconditionally guarantee the loans of its banking houses and financial institutions. The costs of that will be enormous. I am reliably informed that the figure involved is €400 billion, although nobody as yet has confirmed the figure so perhaps the Minister will do so. If the State steps in as the final guarantor of banking probity, underwriting banking deposits and borrowings to that extent, we need to know the terms and conditions of the scheme. In particular, we need to know that the reckless behaviour of the banks that led to this situation will be reined in.
For a number of years we have experienced a carnival of capitalism, partly because of globalisation and partly in the fever of ultra-deregulation which has swept through western economies going back to the time of Ronald Reagan and Margaret Thatcher. Banks and financial institutions have been free to expand and to make money on a scale previously unheard of. The only parallels which come to mind are the eras of Gatsby, the Weimar Republic and France in the 1930s, when capitalism made unbelievable profits and acted with neither restraint nor any social, national or international responsibility. Ultimately those systems came crashing down and some people may feel that might provide a bonus for left-wing politics but the legacy for later generations in Europe was fascism and, in eastern Europe, an ultra-Stalinist form of communism remaining in power for 30 or 40 years longer than it should have. This has been an historic stage in the story of western democracies, in which banking institutions have had things all their own way, which has led to a collapse and the requirement that they now be reined in.
The Minister has said he wants to support the banking framework and we support him in that. He wants to support the core system in which deposits are taken from individuals and institutions but we want that money to be lent out in an orderly, valuable and structured way for businesses, for employment creation and young people starting businesses, and for science and technology. We also want it to be lent out to people investing in a property in which to live, rather than as a speculative vehicle. The Minister says he is guaranteeing the lifeblood of the financial system but he is providing a guarantee of unbelievable value and he is either unable or unwilling to tell us the conditions and regulations under which the guarantee will be given.
Members on the Government side are fond of talking about moral hazard. When people's homes are damaged in a flood but they have no insurance the Government does not bail them out because it does not want to set a bad example, encouraging other people not to take out insurance. I first heard about moral hazard from no less a doyen of international banking than Mr. Peter Sutherland when I debated with him the idea of forgiving Third World debt. Mr. Sutherland, who was well educated by the Jesuits, who originated and refined the concept of moral hazard for generations of Catholic businessmen, said that to forgive Third World debt would be to encourage every reckless country in Africa or elsewhere to repeat their mistakes. There is no perfect answer to that point but schemes and regulations can be put in place to save people from themselves.
I worked for an international accounting firm for seven years during the early part of my career and I carried out a lot of work with different banks, many of which do much valuable work. If, however, we do not impose regulations on the banks they will do the same again. They will look for the next boom in the cycle, from which they will make their money while our successors will have to come back in ten years time to clean up the mess. Given that he is giving a guarantee on behalf of every taxpayer and person in Ireland it is not unreasonable to ask that the Minister lay the scheme before the Houses so that those elected by the taxpayers have the opportunity to judge if the scheme is reasonable and to ascertain the risks associated with it, as well as its upside and downside elements.
I am worn out listening to lectures from some parties on the "polluter pays" principle, which has become a common phrase in economic and political life. The people who have polluted and ultimately wrecked the banking system are not the ordinary Joe and Josephine Soaps who put their money on deposit but the bankers and the leaders of financial institutions. If they have caused the current collapse within banking I suggest the Minister take a leaf out of his own book and apply the "polluter pays" principle. Yesterday, the Taoiseach mentioned figures of €600 billion in assets and €400 billion in borrowings. If one were to buy an insurance policy on the commercial market, such as from AIG, to cover that amount of assets and debts, one would not get it for less than €1 billion per year inclusive of fees and insurance cover. That may even be a conservative estimate. Parents who part-guarantee loans for young people buying houses pay 1.5 percentage points on top of the loan rate for loan guarantee insurance policies, when they can get such a policy. They are very difficult to get nowadays. The cost of insurance is very significant. We want to hear from the Minister for Finance if his officials have evaluated a commercial cost and value to the insurance scheme. Has the Minister worked out a scheme whereby the banks will contribute to the cost, rather than what was indicated where the banks will only pay something if and when they have to dip into the scheme? That would be like, as the leader of the Labour Party said earlier, the case of someone affected by a flood being told to pay the insurance premium after the flood and then the claim will be accepted. This is a very valuable commodity and we want taxpayers to get value for their money. Another reason for having the levy at a commercial rate is that it is one of the ways that bankers acknowledge a requirement to change behaviour.
The second area we want addressed is the issue of bank compensation packages. Unlike other people, senior bankers do not get paid. They do not get salaries or wages; they get compensation for their strenuous efforts on behalf of the banks. We wish to see what the Minister for Finance proposes to do to rein in the climate of recklessness that has infected the banking system in Ireland and around the world. I will provide an example, which concerns the construction industry in Ireland.
At least two of the banks on the Minister's list to get the guarantee have been widely written about in the newspapers and in the Irish media now, probably for several years. These are the last two banks on the list. They, more than anyone else, are heavily exposed to construction industry lending. In some cases they are heavily exposed to speculative loans for land purchases and construction projects widely believed by the business community to be extraordinarily and excessively risky. If the Minister for Finance gives them a free pass with this guarantee, what is there in the scheme — we wish to know before we vote on it — to caution these people so they cannot go out and do it again next week or the week after? It is a very important question and I am unsure now that the Irish taxpayer is going to rescue them. I do not expect them to be grateful, but I expect them to have a more cautionary approach to their behaviour. There is nothing in the Bill to indicate that such a measure will be inserted as a precondition which will be understandable to Members of the House. Will the Minister for Finance state the position regarding banks' capitalisation? Does the Minister have a view on this matter?
The debate on this section has wandered way beyond the amendment to which I have to reply. I will deal with all of Deputy Burton's questions as the Bill proceeds. However, the Deputy is speaking on subsequent sections of the Bill.
We are asking for the principle that it will be laid before the House. The Minister will say subsequently to the Opposition that he was never asked about this point. He is an able debater and he will be on various media shows saying: "They never asked about it." This is our one opportunity to do so. We wish to know what the Minister will do to rein in the banks and to make them pay for this scheme? Will the Minister for Finance lay before the House the scheme and publish it before it is implemented?
Deputy Richard Bruton will speak next. In deference to the remarks of the Minister for Finance, the point of this amendment, as I read it, is the commencement of the Act and the role of the House in same. Although I do not wish to confine the debate, it is important to remember that point.
I will be as brief as I can. The whole rules of the game for banking have changed. Any money the banks raise has a guarantee from the taxpayer, which radically changes the way we view banking. It is essential that a regulatory regime is in place in which the House can have confidence. The Minister for Finance is taking sizable powers and there is no doubt that, under the legislation, he will have powers to provide a regulatory regime that is exhaustive and thorough. However, the problem is that the Houses has not seen what that regime involves.
The problem is the Minister is asking us to make an act of faith and trust that he, in consultation with the regulatory authorities, will come up with a scheme that is robust. Prudence would suggest that we should not make that act of faith quite so easily.
We need to see a scheme. I further believe that some of the powers the Minister proposes to take, which will not be included in this scheme under this legislation, should be laid before the House so we can examine the broader conditions that he intends to impose regarding the companies' operations. The Bill does not provide this detail. I do not agree with Deputy Burton that it is necessary the details should come before the House before the Minister operates the guarantee. However, I believe they should come before the House as quickly as possible — we say within three days. There should be a positive debate to approve the details in the House. Anything the Minister does under the scheme should continue to be lawful before we make that positive resolution. While we are not preventing the Minister from taking emergency action, his room for manoeuvre is strictly for the time between when he starts to operate the guarantee and when the House approves it. The Minister should continue working until we see the scheme. However, once we see the scheme, he must get our approval before continuing indefinitely; this is the way forward.
We have proposed certain matters and we will come to them in detail during the progress of the Bill. However, these include that there should be representation by the State on the main board of the banks covered by the scheme and there should be representation by the regulator on the risk assessment committee of the banks covered by this scheme. We have many other proposals we wish to debate in the course of Committee Stage. We must see the details of what is proposed, or at least have an absolute certainly that all of those details will be brought back to the House for approval. This is so that we can have confidence that, as the scheme develops, the taxpayer is adequately protected, that we can be confident the banks' behaviour under the new regime is robust and inspires confidence in the financial system and that the taxpayers underwriting it can have confidence that this is being done.
We do not know what the Minister's system of regulation will be. We take it on trust, but the Minister asks us to take a great deal on trust. I support the amendment and especially the call by Deputy Richard Bruton that we debate the matter. The Minister should share more with us. The banks operate very secretively and it is time there was more transparency.
The story appears to be that sometime one night recently chaos descended on the Irish banking system and the Minister had to stay up all night to save a bank from going down the tubes. I do not know the facts and I do not want to know the facts about that matter, but I wish to know — I cannot measure the effectiveness of the Bill without knowing this — was the crisis a liquidity or a solvency crisis? If it was a liquidity crisis, the very fact the Minister has published this legislation, that deposits which were moving out of the Irish banking system now seem to be moving back and because now inter-bank loans will be guaranteed here, means the banks can borrow all the money they want in the inter-bank system.
Publication of the Bill should solve the problem if it is a liquidity problem solely, and the Minister will probably not be asked to invoke it. If, on the other hand, there is a solvency problem attached to the liquidity problem or if the solvency problem was the primary issue when the Minister stayed up all night with the Taoiseach and the various bankers, that is a different matter. If it is a solvency issue that caused the crisis, it will not be resolved by publication of the Bill and there will be a transfer of taxpayers' money at some point, probably sooner rather than later, to underpin one or more of the financial institutions in question. The Minister must make clear to the House the genesis of the crisis. Is it liquidity, solvency or both because what solves the liquidity problem — this Bill — will not necessarily solve the solvency problem without it being implemented in a detailed way. That is the difficulty I have with it.
It is also difficult to measure the effectiveness of the Bill, given that the Minister is granting himself very strong powers, as provided for at the end of the Bill. Effectively, he is transferring the notification provisions of the Competition Act to himself from the Competition Authority. Is that a case of the Minister deciding that while he can he will take more power or is there something in the background about a merger or an acquisition which requires the Bill to be brought through the Houses quickly?
I am addressing amendment No. 1 because as I understand Deputy Burton's amendment, the reason for it is that the Minister has to be more transparent with us and must give us fuller information. At this point we cannot continue to operate in such a secretive banking system where only a few weeks ago the regulator and the Governor of the Central Bank told us everything was all right.
They came before committees of the House and gave us absolute guarantees that there was no problem with the Irish banking system. We then wake up one morning and there is chaos. We need more information and, as parliamentarians, if we are to measure the effectiveness of the Bill we need information along the lines I am suggesting.
I will conclude on this point. Is the Minister transferring the notification provisions to himself from the Competition Authority because he believes there may be an imminent acquisition or merger and he needs to act very quickly or is it simply a measure to underpin the system which he may or may not use in the middle distance or ever? In particular, will the Minister answer the question later as to whether he sees this as a liquidity or solvency crisis, or both?
A Cheann Comhairle, I am glad we are having this discussion at the beginning. Your observation is an accurate one. The role of the Oireachtas in dealing with this legislation is at stake. For example, if we had rattled on to section 6 of this legislation the assumption would be that one accepted the logic of section 2, which invokes the public interest. The public interest is best served by answering adequately the questions in the minds of the public, and that is the purpose of the amendments that have been put down by the Labour Party finance spokesperson, my colleague, Deputy Joan Burton.
A number of questions arise which it is only reasonable to require the Minister to answer. His assumption that a guarantee can be offered that will fall equally available to all banks assumes a homogeneity of practice that is demonstrably untrue. The banks differ in terms of their exposure and their practice.
I will speak plainly. The people in the street and those watching television programmes and listening to radio programmes absolutely reject the suggestion of the Government that this is about keeping the show on the road as it was. That is not acceptable to the public. It is to assume that one does not make an analysis on how we have arrived at this point, admittedly, some of it due to a highly speculative environment internationally, but much of it due to irresponsible lending that, when we come to deal with the Bill, we must deal with in terms of social distress on families. I have not heard a single word, for example, on the protection or guarantee that will be given to the victims of irresponsible lending by the banks. They are supposed to drag themselves through queues to social welfare offices as they seek to extricate themselves from debt in which they should never have found themselves.
Staying with the fundamental principles, and if we take Dr. Allan Kearns's conservative comment this morning, it would be assumed that the charge that will eventually be made on the banks would somehow or another be related, if one believes in market principles, to the degree of the risk being undertaken. The risk is different in a cautious, conservative bank than it is in a highly speculative bank but the Minister is asking us to blindly wave them on as they were and continue to trust those who have been guilty of a massive breach of trust, be it in terms of the Central Bank or the Financial Regulator. Members will have heard that representatives of both gave assurances to Oireachtas committees that everything was fine. Everything was fine when it was not disclosed. Those of us who believe in democracy in many cases now ask for a minimum of transparency in regard to the banks.
The question has been asked: what exactly are the public being exposed to by way of guarantee? If the Minister answers the question posed by Deputy Noonan as to whether it is a liquidity or a solvency crisis to the effect that it is the latter, how then will the Minister decide what should be the taxpayers' exposure? Does that mean that in the unlikely event, we all hope, of any aspect of insolvency, the taxpayer takes responsibility for the speculative bad debts of a bad bank that engaged in bad banking practices, that was rewarded with millions of euro and where people awarded themselves, sometimes at a slight remove by having a remuneration committee, hundreds of thousands of euro for speculative risk taking to people who in turn fed into the economy destructive principles in regard to the cost of building land, property and housing? The Minister may say that gentlemen or bankers do not talk about this and that it can all be taken for granted, but that is not good enough in terms of answering people's questions on the nature of the guarantee and its general or specific effect.
Another question will be asked of the Government, namely, if there was to be more discipline, transparency, responsibility to the Oireachtas and so forth, would it not look for pre-conditions before people were allowed to participate? This is an extraordinary club where one does not need any kind of character in terms of banking to belong. Membership is open. The only qualification for membership is perceived distress or having been caught out in one's irresponsible banking.
On the question of participation, if a bank, for example, was not willing to disclose the degree of its exposure to assets that are highly speculative or unreal, a Minister could say it cannot participate. I read the Bill and I do not see evidence of that in terms of it being a pre-condition. It is a conservative view to require that the degree of guarantee should be related to the risk and that in turn should be related to the charge. Those of us who argued for equalisation of access in terms of health insurance had to fight a battle to have older people included with people who would not have a charge in respect of the VHI and so forth.
The Minister, for the sake of the economy, may not want to be specific in his disclosure but everyone on the street wants to know which banks are exposed to highly risky speculative loans and to what extent. We are familiar with the notion that this is about the blood of the economy. It has been suggested the economy is about to freeze up. That follows on from the notion in the United States that people will be unable to get a student loan or buy a car. None of us wants the economy to grind to a halt in such a manner. There is no comparison between a person who wants some money to stock the shelves of his or her shop — a person who needs some liquidity to start a small business, to keep such a business going, or to pay his or her staff — and a person who has borrowed €500 million or €1 billion for a highly speculative development, much of which may not be in this State at all.
I wish to speak about the Minister's general approach to these matters. I assume he will reflect on the reorganisation of banking philosophy and practice during his considerations in advance of the budget etc. He will have to do so in the context of the national development plan. Is there the slightest indication that the banking system will adopt a new credit policy to assist employment-rich social projects? Is there any suggestion that there will be any shift of lending or credit into what have been described as "green technology" projects? The banking sector has not given a whit of commitment to doing anything differently. Those at the very top of the sector seem prepared to stay at the trough. It appears they are prepared to continue with the mad speculation in which they have previously engaged. Perhaps they made some kind of confession when they were in Government Buildings. Did they get down on their knees to say "we are very sorry we let the Government and the construction industry down"? Did they admit they have been caught out? I do not think they have offered a jot of admission that they brought us to this point, or suggested they will ever change.
It is entirely reasonable to ask the Minister to outline the circumstances in which he was forced to introduce emergency legislation to deal with this crisis. With respect, the Bill is rushed and sloppily drafted.
It is terribly important to point out that people need to get real when they reflect on what happens during banking transactions. I am sure the Minister, Deputy Ryan, remembers the campaigns which his party and my party ran in respect of the Tobin tax. I wish to remind him that just 2% of all international capital transactions involve goods. If one includes foreign direct investment, that figure increases to 4%. Therefore, 95% of international transactions are highly speculative. I agree with the suggestion made by the Minister, Deputy Gormley, that it is time for international regulation. When Lord Keynes suggested that in the 1940s, the institution was agreed but never came into existence.
It is time to deal with the issue of hot money. We never hear about it. It is regarded as some kind of left-wing argument, but it is not. It is a responsible argument. At a global level, hot money is having immensely destructive effects. I have every sympathy for poor people in the United States who are being asked to take on——
It is not my view of the social economy that is in crisis. The speculator-led economic model, to which the Minister subscribes, is in crisis at home and internationally. Speculative investment with no responsibility is the global contagion to which the Minister referred as some kind of flu. Last night, the Tánaiste spoke about this measure as a new tool in the toolbox. That is the depth of thinking at the top of the Government. Somebody else referred to it as a contagion, somewhere between the Asian flu and bird flu.
The reality is that we have an international financial crisis for certain reasons. I agree with the Green Party that new initiatives are required at UN level, for example. At home, the Government has produced an emergency Bill and is asking us to wave it on. It wants us to keep things as they are, with no additional increment of transparency. Deputies on all sides have spoken about the appearances of representatives of the Financial Regulator and the Central Bank before committees of this House. Where are the Minister's proposals for giving additional disciplinary powers to such bodies? Is it the case that the Minister's proposed scheme does not follow any principle of disclosure? Does the Minister intend to give additional power to the Financial Regulator or the Central Bank to require compliance with the scheme?
While I do not like to restrict debate in any way, I remind the Deputy that the House is considering an amendment to the section of the Bill that relates to the commencement of the Act and the role of the Oireachtas in that regard.
Yes. I am about to conclude. I wish to set out the fundamental principle in this regard. We are not talking about amending section 6 of the Bill. We are talking about the fundamental obligation on the Minister to come in at the beginning of the debate on the legislation to set out what he is proposing and the basis for it. In our amendments, we are seeking a guarantee that this is not more of the same. We need to be assured that things will be different. We are willing to listen to the Minister's proposals. We are being asked to place trust where it has previously been abused. I refer to institutions where certain practices took place in the absence of control or accountability on the part of the Financial Regulator or the Central Bank. That is simply not on.
We need to consider these matters before we move on to section 2 of the Bill, which invokes the public interest. I suggest that clarity and transparency are required in the public interest. We need a different kind of banking. The banking practices I demand will help this country to protect employment. We need to acknowledge that wild and mad speculation, which has been a destructive principle within the economy, must end. The suggestion that we must fumble on the way we were, bad and all as it was, is irresponsible and destructive of the economy. It will have social consequences. As the public discusses what we did last night, it is raising the questions I have asked. They want to know if the status quo will continue.
Details of the salaries and expenses received by Members of this House are published on a regular basis. Could any Deputy justify the remuneration that the people at the top of the banking system gave themselves over recent years? The answer to that question is "no". Will those who wish to participate in the Minister's scheme be required to allow others to be represented during decision-making? No. Will they have to lose some of their control over remuneration? No. That is why it is necessary to say all of these things at the outset. I am trying to give the Minister an opportunity to respond to certain concerns at the beginning of the Committee Stage debate.
Like previous speakers, I will speak about the proposed new section in the context of the need for transparency and accountability. The details of the scheme the Minister proposes to enter into with the financial institutions, or has already entered into, need to be available to the House in full. Over recent days, the Government has made repeated appeals to Opposition Members. References have been made to the Tallaght strategy and other things. It was obvious that something was coming down the pipeline. We all should have been made aware of it.
Like other Members of the House, a few years ago I served on a committee that thoroughly investigated this country's banking institutions. I think Deputies Ardagh and Rabbitte are the only two members of the committee who are still in this House. We investigated the procedures and practices of the financial institutions at length over a three-month period. We were given numerous reassurances that the situation which unfolded at that time would never be repeated. We examined all the practices which had taken place, some of which were still taking place. Deputies will recall that the various flaws in the system were supposed to be corrected. We were assured that what happened at that time could never happen again. We were told it was impossible that the Government or a Minister would be oblivious to what was going on.
Great emphasis has been placed over recent days on the suggestion that this difficulty developed as a result of the international credit crisis. It did not arise from that source — it arose in this jurisdiction. If the Minister does not recognise that, he is avoiding the facts. He can appeal to this side of the House as much as he likes. We were told repeatedly that the fundamentals were sound and in good order. This proves that was not the case. They have not been good for several years. The Minister can laugh if he wants to, but the fact is that the dogs on the street knew what was happening.
Well-placed economists who knew what they were talking about were rubbished. They were ostracised, set aside and dismissed, yet people should have asked questions at that time. For instance, why was a house in New York or Texas cheaper to purchase than a house here? This is a simple question. Why was that happening? It was an extraordinary situation. The same was true of a house in France, a big country with a large population and a long-established economy. What was happening here? It is still happening.
Obviously, the economy was inflated. What the Government decided to do was to pour more petrol on the fire. During the past eight years, when the Minister for Finance came into this House and read his budget speech, what was the reaction from the Government side of the House? All of the backbenchers with one accord rose from their feet and gave a standing ovation. They cheered and called for more.
The Government has the audacity to call on members of the Opposition to support it blindfolded without giving them the information, telling them into what agreements it has entered or giving any indication to the House as to what the liability might be. Does anybody realise what the consequences of this will be?
As one who has been through this arena already, I would like to see clear evidence as to what arrangements the Minister for Finance has entered into with the financial institutions, what undertakings he has received from them, what indication he has received from them as to their liabilities and how they intend to proceed with the backing of the taxpayers of this country. This is not to be taken or given lightly and one should not in any way be flippant about it.
What worries me most of all is that there is a tendency on the Government side of the House to dismiss anybody who has any reservations, and state that this is big finance and that only certain people understand it. I would not go there, Minister. All the mere plebs in the country and in the House know full well what the implications are and they do not need any explanation or guidebooks to tell them. We have been there before. We read and saw it all and we know what the consequences were.
At this late stage, instead of depending on and asking the Opposition to come in and accept something as a fait accompli I would like to see thorough and proper investigation into how these things happened and what will happen from here on in. If these issues were addressed it would reassure not only Members on all sides of the House but also the general public and consumers, and one must remember that this is all about confidence.
The fact that there is a need for this legislation and the intervention of the Government is a clear indication that if it can go right it can also go wrong. Let us be quite clear. I do not want this situation revisited all over again in a couple of years when we look into our hearts and state we should have asked these questions at the time or that we should have got an undertaking from the Minister or that the Minister should have sought clarification and undertakings but did not do so. We have no way of finding this out. Nobody can reassure us.
What has happened is something that should not have happened. It was totally within the control of the institutions here, namely, the Minister for Finance, the Central Bank and the regulator. Where were they? What happened? Did the Government tell the Central Bank to go easy? Deputies who were members of the Committee of Public Accounts all those years ago will remember all the nods and winks and understandings from time gone by. Was there an understanding that nothing would happen which would in any way arrest the upward trajectory of the economy as it was seen at the time? What were the consequences of this? What are the implications and liabilities now? Why did the regulatory system not work?
During the past seven or eight years, I heard arguments that interest rates were low internationally and it was a great time for the development and expansion of economies and a great time for everybody. However, it was stated that the Governments of Europe did not have the same control because in the eurozone we had low interest rates which were determined by the ECB. There was nothing to stop Governments from having some type of credit control. It was available to any Government at any time. This was the most simple and most obvious thing to do.
There is a great deal of talk about negative equity and sub-prime lending in the United States. A hell of a lot of this also went on here. In these circumstances, I would like to hear from the Minister at the earliest possible stage what he intends to do to bring more confidence back into the system. This can only be done by whatever undertakings he can give to the House today.
I will begin by referring to the end of Deputy Durkan's contribution on this amendment when he used the phrase "more confidence". The quickest way to instill confidence is to pass this legislation. This is why while I agree with the sentiments of the amendment wholeheartedly, it would be flawed to place this type of constraint on the Minister.
I agree that the worldwide financial system is shattered. As far as I am concerned, it is a global pyramid scheme. The financial markets have long since left marking their speculation against value. If one could return to the gold standard at least one would have something to measure it against. Today, most of the world market is based on speculation. It is based on human emotion, greed and fear. It is not based on any reality.
A couple of years ago, our deputy leader, Deputy Trevor Sargent, referring to peak oil production rather than economic collapse, though they are related, stated that very soon Ireland would have to enter a wartime economic footing. This emergency legislation is that wartime footing. In a wartime situation we fight to defend ordinary people and this legislation is about defending ordinary business people, PAYE workers and people on social welfare. Unfortunately, I must support it with gritted teeth because there are a lot of scum, and I state this deferentially in one sense, who do not deserve to be bailed out in this way. These people made a great deal of money out of many innocent people. Unfortunately, this is the only way we can protect our society. Passing this legislation is very much in the national interest, a phrase which is often used.
The banks have lent money improperly and this was supported by successive Governments. We had a good Celtic tiger spurred on by Fianna Fáil and the PDs and by Fine Gael, the Labour Party and Democratic Left. However, bad decisions were also made, including with regard to developer-led greed and speculation. This was not only in terms of macro-economic policy, but also with regard to decisions made in council chambers throughout the country where corrupt or incompetent local representatives increased the value of land tenfold overnight by rezoning, thus encouraging baby developers to get onto the ladder, encouraging people to speculate and banks to lend more and more money until the bubble expanded to the point where it is just about to burst. This is the problem with which we are dealing now.
Absolutely. Questions were asked of the Minister about which banks were more fragile than others. To mention the name of a particular bank which the Financial Regulator might have secretly told the Minister was a little more dodgy than another would start a run on banks and increase the lack of confidence in the financial sector. A bank may be in such a situation. I do not know and to be quite honest I do not want to know. Right now, I am happy enough with the statements of the Minister and the Financial Regulator that the fundamentals of the banking system are sound, at least when compared with other banks, such as those in the United States. I am happy right now to accept that it is a liquidity issue. That is what we are debating — the issue of ensuring that ordinary people and businesses are able to borrow money at critical times to keep normal economic activity going. I am referring to bread and butter economic activity, not speculative economic activity. Deputies Higgins and Burton have suggested that by offering this guarantee the State is encouraging banks to embark on another orgy of speculation. That risk is obviously there but I would argue that banks now have a triple-A rating and will have to pay the State the difference between what they get as a triple-A and a secondary bank. They will be a lot tighter in how they lend money from now on. If the Minister had to outline exactly the terms, conditions and schemes that would apply it would take longer than one day. It would serve to increase the lack of confidence in the market, so that is why we need to have this done and dusted today. It is not without precedent that primary legislation is passed and details of the statutory instruments or regulations are examined at a later stage.
In deference to Opposition spokespersons, I ask the Minister to give as much information as possible. However, I also argue that because we are in a wartime economic situation vis-À-vis the factors that might influence the stability of the Irish banking system over the next two to five years, the terms and conditions the Minister may apply are fluid. We do not know exactly what is needed until we know what situation we will face. Asking the Minister to lay down a list of criteria now would, first, be false because the situation may change and, second, it would delay the passage of this legislation. It would also have a negative impact on economic stability. While I agree with Deputy Burton's sentiments, I ask her to withdraw the amendment on the basis of its negative impact on confidence. We need to increase confidence and let the public know the Government and Opposition are standing foursquare behind them. People should be able to do their business as much as possible in this constrained market without fear of the whole edifice tumbling down on top of us.
Listening to the tone and tenor of the Opposition contributions, with the particular exception of Deputy Bruton, it sounds like the prophets of doom. I wonder if the situation was reversed and the Opposition was in Government, would it have the bottle to put forward this plan?
Would they take the swift and decisive action that this Minister and Government have taken to protect the economy and the jobs about which we are all so concerned? The Government is to be congratulated on taking such action.
Yesterday, the Taoiseach mentioned €100 billion — the difference between €500 billion and €400 billion. The Minister for Finance has mentioned €80 billion. Today is 1 October and yesterday marked the end of the third quarter, so I would like to see the equity or net assets of the banking system in Ireland valued on a prudential basis, under which the Central Bank has always stated it does business. Naturally, the net assets of the banking system depend on the value of the loans. Some people can say they are worthless while others put a high figure on them. I would be prepared to take the prudent value put on them by the Central Bank. We should know what is the value of the net assets of those six financial institutions.
It would be difficult to put the amendment into effect, given the terms and conditions under which a bank can get into trouble and the way fees and sanctions can be applied. There is an extensive matrix of the type of problems that a financial institution can get into. Some of those difficulties have not yet been defined. Similarly, the sanctions that can be adopted by the Minister, including fees, levies, interest rates or shares, and whether a bank can effectively afford to pay for it at all, entail many different options. To set out all of those terms and conditions would be an impossible task.
I agree with the exemption of section 7, which concerns the Competition Authority, from the amendment because swift overnight action would have to be taken if any bank got into difficulty. However, the Bill is not being put forward on the basis that banks are in difficulty. Various Members, including Deputies Noonan and Higgins, asked if solvency is the reason for the Bill, but I do not believe it is. I am sure the Minister will confirm that the whole purpose of the Bill is to deal with inter-bank lending and the ability of the Irish banking system to lend on international markets so that it can lend, as Senator Obama says, to "main street" Ireland. In that way jobs, business and the economy generally can continue. We will do the best we can to come out of the situation in which we find ourselves, so that we can resume economic growth as soon as possible.
Whatever the net value of the banks' assets at the end of the third quarter, there is no denying that we are providing an immensely valuable insurance policy for the liabilities of the named banks. There is no gainsaying that and whether it is €100 billion or €200 billion the provision being made in this Bill is immensely valuable. All Deputy Burton's amendment requires is that the Minister will tell us what the broad terms are for the provision of this immensely valuable policy. It is entirely wrong for Deputy Gogarty to say that Deputy Burton's amendment would delay the legislation. It would not do so because the legislation will proceed to conclusion. However, it does not permit the legislation to be invoked until such time as the Minister provides the terms of provision as provided by the amendment. Therefore, it does not stop the legislation but, given the record, it does invite the Minister to be more transparent with this House on a critical issue.
Yesterday, I said it was equivalent to turning Ireland into one massive AIG in terms of underwriting these kind of liabilities. For example, I understand the going rate for credit default swaps is about 2%. If one applies 2% to the figures we have been given here it is a payment of about €8 billion, so it is immensely valuable. The banks will now be able to borrow money at a cheaper rate than they would otherwise have been able to do. The Irish State, Ireland Incorporated, which will have an excessively increased borrowing requirement as a result of the imminent budget, will have to pay more for our borrowings. I do not think it is unreasonable at all for us to ask the Minister to set out the terms that will apply to the critical provision of section 6(4), which is the provision of financial support for credit institutions in the circumstances envisaged. I say that because of our experience. Did the banks change their habits as a result of being bailed out in ICI or as a result of the DIRT inquiry? What did the banking chiefs say when they presented themselves at this campus only six weeks ago? What did they tell questioners about the issues now in front of us? What did banks say on the international scene? A bank was in deep trouble yesterday, even though it was mooted that it would take over another bank a few weeks ago. As a number of Deputies said, trust is at the heart of this. We are being asked to buy a pig in a poke as things stand. This is an enabling Bill that is just the scaffolding and we do not know what we are getting in return.
Deputy Noonan asked whether we are seeking to address a liquidity crisis or a solvency crisis. I expressed it differently last night when I asked whether it was a liquidity crisis or a capitalisation crisis. I am sure the Minister for Finance knows that there is a credible school of economic thought which believes that the banks concerned have a capitalisation problem, that this does not do a thing for that problem and that the problem will remain. It is all very well to watch economists for stockbrokers and banks being rolled out to say that this is a marvellous innovation. These are not stupid people so what would one expect them to say? They are after getting an insurance policy for their liabilities so of course that is what they would say. Some of the more feeble-minded commentators will take that up and say that this is marvellous. They do not know whether this is marvellous. I hope it is marvellous, but we do not know. As Brendan Keenan said, we will know it works when it works. I hope it will work, but for those who believe there is a capitalisation problem, it will not solve that problem. I would like to hear the Minister dwell a little on Deputy Noonan's question as to whether we are addressing a liquidity problem or a solvency problem.
The more thoughtful commentators have an open mind on what confronts us. Alan Ahearne has a track record on the property bubble going back a long way. He had an analysis that was the subject of much ridicule by exactly the same stockbroker and mortgage lending economists who are now telling us that this is fantastic. These guys came out and said that Alan Ahearne was a doomsday merchant and that his prognosis would never be realised.
I am concluding now. In today's edition of The Irish Times, he states:
The charge to the financial institutions should be set at high levels to compensate for the risks that taxpayers are being asked to take. If a bank or building society refused to pay those charges, then that institution should not have been included in the scheme. . . The Government is putting at risk public funds to provide financial institutions with an extremely valuable insurance policy.
Public funds are being put at risk and the essence of Deputy Burton's amendment is the following. If Hank Paulson was in this country, he would not be able to believe his luck. Does the Minister think that Hank Paulson would get away with a Bill like that on Capitol Hill? He tried it and he did not succeed, and the representatives of the people were heard and were entitled to be heard about the deficiencies in the two and a half page Bill that became a 100 page Bill. All Deputy Burton is asking for is that we have the necessary elaboration from the Minister in specifying the terms and conditions that will apply to the provision of finance. We are not saying that we should hold up the progress of the Bill — let it be concluded — but we are saying that we should see the terms and conditions applied by the Minister because that is where the nuts and bolts rest in this scheme. People reasonably ask us what the Government is getting back. We need to know that before the provisions of this Bill become operational.
I support amendment No. 1 put forward by the Labour Party. It is entirely reasonable that the Government should be asked to include a model of the scheme with this Bill and to outline at least a general guideline of the terms and conditions that will apply in any such schemes. We are giving the banks a blank cheque, but we are also giving the Minister a complete blank cheque. We have heard about blank cheques at the tribunals and we know that is not good practice.
The buzzwords this morning are confidence and trust, but I am not sure about having confidence and trust. When we look at the example of the banks and their rip-off practices, we see AIB bailed out and not having to pay back anything like the reward it received from the State. We should contrast that treatment of the banks with the treatment of constituents of ours who have received an overpayment of welfare benefits of €200 or €300 and who receive a letter straight away demanding the money back. This does not apply to the banks so it is easy to understand why there are reservations in this House regarding the absence of a model of the scheme.
I received a letter this morning from the Ceann Comhairle stating that my amendments Nos. 18 and 19 are out of order as they may involve a potential charge on the people. Even Members of this House are being tied down due to potential charges on the people, yet we have no idea of the potential charge the banks will apply on the people. There is an explanation needed urgently.
I do not trust the Government, and with good reason. Deputy Rabbitte quoted an economist who warned about this, and there are others, but many in this House, including myself, warned more than three years ago that the economy was grossly over-reliant on the construction sector and that the Government needed to develop alternative options. There was construction and internal consumption, and as soon as one began to shift, the other naturally melted like snow off a rope, but the Government did nothing about that. It was warned about the lack of a regulatory regime in the banking system as far back as 2005, when the Joint Committee on Finance and the Public Service, on a proposal of my colleague, Deputy Ó Caoláin, had a look at the regulatory regime in the banking sector. That committee recommended strongly that there should be a review and that an effective regulatory regime should be put in place. This did not happen and it has not happened in the past three years. If it had happened, at least some of this current crisis may well have been averted. I support the amendment because it would add substantially to the legislation and I hope the Minister will accept it.
I compliment the Minister for Finance on his shrewd judgment and his quality timing on a number of issues over the past three months. This is an island nation where 90% of GDP is dependent on an export market. We cannot operate in a global market without taking into account the impact of the current global economic crisis. The Minister must be complimented on the fact that not one financial institution in this country has gone to the wall.
Ireland is a member state of the European Union. In the past week, governments and banks have collaborated across borders to sustain banks in other member states. We are Members of a sovereign Parliament of a small country, this Republic and as legislators we have a duty of care to our citizens, our nation and our banking system. The banking system has four clear elements, including currency with its value fluctuations, trust in business and in banking and the ability to take risks and to make judgments to ensure economic growth can prevail. Our job is to ensure we sustain this system and drive it forward. Ultimately, those three elements are underpinned by the fourth element of banking, which is confidence. We must discharge our duties and provide the basis for the necessary confidence in the banking system at this time.
In the United States which is the biggest democracy in the world, banks have collapsed or have been nationalised or amalgamated.
I agree with Deputy Morgan and Deputy Rabbitte that this is an insurance policy. Any of us who ever had an insurance policy and examined it in detail will know one can be very fortunate; a policy can realise wonderful growth and mature at the right time or one can be very unfortunate and it might not return——
The banks have a duty and the Bill proposes that banks must be responsible. We are fortunate to be in the eurozone at this time. If we had to protect our banks with only our own little punt currency, how could we stand against the ravages of the international marketplace? The European Central Bank has a key role to play because we are part of that system, we are in the eurozone and we have the Stability and Growth Pact to protect our borrowing requirements within that eurozone. Over the years, the Government put together one of the most robust regulatory systems, including the Irish Financial Services Regulatory Authority, to put structures in position——
Gently, please. This was done to protect our financial institutions. The Governor of the Central Bank, the Irish Financial Services Regulatory Authority and the Minister for Finance, either individually or collectively, can put an inspector into a bank at one hour's notice.
This is very important legislation. The Minister is taking into account the importance of this House, this Legislature. The Bill proposes to give responsibility to the Minister, to the custodian of the country's financial system, and we as his colleagues, as legislators, can question him at any time, either in the House or in committee, on any aspect of the financial system. We can take back the powers that perhaps may have been given over to others. The Minister will also have the advice of the Governor of the Central Bank and the Irish Financial Services Regulatory Authority, the officials in his Department and the Governor of the European Central Bank. There is no point in us tying the hands of either the Minister for Finance or the banking system with regard to the rejuvenation of the economy.
People talk about an overhang in the market but this is not the first time we have had a crisis. In the 1920s there was an international crisis and in the 1970s the banks had neither reserves nor resources to give mortgages to people. In the 1980s, from 1987 to 1990, the same situation prevailed and the economy ultimately delivered.
There have been sectoral failures over the years. I refer to the collapse in the technology sector a number of years ago which was dealt with. The Government is introducing legislation that will give sustainability and confidence and that protects the resources, savings, investments, deposits and credit lines of our people and our companies. We have a duty to do this and we must support the Minister. There is no point tying the Minister's hands. We must ensure we have the best deal possible so that banks can loosen up resources, increase credit lines, look after the retail and business sectors and provide mortgages for the young couples who want to buy houses. This would also allow senior citizens and those who have reached retirement to transfer their assets to their children and allow them enough resources to purchase apartments for their retirement. It is the duty of the banks to loosen up the cash that is vital for growing this economy and absorbing the intellectual capital of our nation, absorbing the intellectual talents of our people. There is no point tying the Minister's hands in his outstanding efforts to ensure that as a small sovereign nation dependent on a global banking system and on a global economy, we make the right decision at this time.
Please excuse my Freudian slip. I welcome the spirit of this amendment. It is vitally important that we place some form of restriction and method of scrutiny into this Bill. In my lifetime I have never read a Bill that proposes to give such wide-ranging powers to one individual. This potentially makes the Minister for Finance a very powerful man. While I have a certain amount of faith and confidence in the Minister, I have certain concerns, and my concerns and reservations are shared by many Deputies on this side of the House. I refer to the unprecedented latitude being afforded to one Minister and those concerns should be noted on the record of the House. There is a shocking lack of checks and balances on those powers and this amendment would address this lack to some extent.
Fine Gael supports the Bill as a whole and in good faith. We are not privy to the same level of detail as the Minister and his Cabinet colleagues about the actual and real situation in which the banks find themselves. Last week, the House was assured by the Minister that there was no problem with Irish banks and no danger or risk of any of them going under. Obviously, we entered different territory this week and found out that was not the case. The Minister is asking the Opposition to take a giant leap of faith and, to a large extent, we are prepared to do that. However, it is difficult for a variety of reasons, primarily because the Government and the Department of Finance have in no small part contributed to the mess in which we now find ourselves. It is important to acknowledge this point. It is not nay-saying or negativity. Deputy Seán Ardagh may take issue with Members from the Opposition benches criticising any aspect of this legislation. However, that is our duty. It would be highly irresponsible for the Opposition not to seek reassurances from the Minister for Finance or ensure safeguards are put in place.
We have heard contradictory figures concerning the guarantee. If we take the figure of €400 billion at face value, it is a massive guarantee based on taxpayers' money. When it is broken down, it amounts to €92,000 for every man, woman and child. That is a large responsibility for us who represent the taxpayers and non-taxpayers who ultimately will foot the bill should the guarantee be called into play. It is a noose around the necks of the ordinary citizens. If a single bank goes down, the chair will be kicked from under them. I have concerns about this and find it difficult to support an open-ended Bill without any safeguards for the people, particularly as we have arrived at this position because of reckless financial behaviour, a failure to adequately regulate the banking sector and, as Deputy Michael D. Higgins pointed out, the speculative nature of the property industry. We now realise the so-called "property boom" was a false bubble.
I have grave concerns about section 6. I do not like to draw extreme analogies but the powers being vested in the Minister for Finance are somewhat akin to those seen in 1930s Germany. While I accept the Minister will not abuse them, should he be in the frame of mind to do so, the section provides him with much latitude. There is no requirement for the Minister to present any details of secondary legislation to the House. He is simply required to consult with a person or a body. He then has 21 days to introduce whatever measures he so wishes and return to the House with them. Even if his resolution is rejected by the House, this cannot take effect retrospectively. Should damage be done, it cannot be undone.
I support Deputy Richard Bruton's argument that three days would be adequate in this regard. It would provide much greater safeguards for parliamentary democracy and greater accountability to the people. There is no reason that an extended period of three weeks is necessary. If the Minister was required to take action for a particular bank, there is no reason this could not happen by re-calling the House in two or three days. We are all acutely conscious of the gravity of this issue but also of the responsibility on us to protect taxpayers' money. I am sure every Member would be willing to agree to such an amendment.
There is a large responsibility on the Minister and the Government. The Opposition is prepared to play its part in this and support the legislation to re-inject confidence into the financial markets. We cannot, however, in good conscience or faith give the Minister the type of blank cheque as presented in the Bill. Meaningful amendments must be accepted by the Government. I hope every amendment is not pushed to a division but that the Minister will — in the same good faith as the Opposition — take on board some of the constructive suggestions put forward by the Opposition.
I commend Deputy Joan Burton's amendment. I hope the Minister will consider the other amendments and take them on board in a responsible fashion as we would expect from the Minister for Finance.
I hope the system being put in place by the Minister for Finance and the Government works. I hope it withstands the vicissitudes of the marketplace and the legal challenges — which no doubt are being considered at home and in Europe — to the Bill's provisions. In many ways an Opposition in a situation such as this has to take a Government on trust. We must don the green jersey in what is presented as an emergency situation. We hope this trust will be well-founded in the coming months and years.
The one major defect in the Credit Institutions (Financial Support) Bill is its democratic deficit. The Oireachtas has been asked to write a blank cheque for the Government and Ireland's financial institutions. In doing this, we must bear in mind the background to these events.
Alan Greenspan spoke about irrational exuberance at the time of the dotcom bubble. Everyone accepts that over the past several years we have had irrational irresponsibility on the part of Irish lending institutions. Lending practices were in place that were absolutely outrageous from the point of view of any prudent banking system. What is worse is that no one shouted "Stop". That is the real concern for the future. The Central Bank and the regulatory authority issued reports now and again, raising a cautious voice about what was happening in the financial sector. Yet no one shouted "Stop", or anyone who raised a whisper about these practices was simply not heard. That contributed substantially to the difficulties which now confront our financial institutions.
Could it happen again now that we are providing this underwriting guarantee? If it does, will there be a cost to the taxpayer? Yesterday, the Taoiseach said there was no exposure to the taxpayer in this scheme. That was a rather simplistic interpretation of this legislation. Already there is an indirect cost to the taxpayer in that the level of interest payable on Government bonds is creeping up. If this guarantee was called in at any stage, undoubtedly the taxpayer would be exposed to substantial costs.
Who will look after the taxpayers' interests? I am a bit old-fashioned but in a democratic system I always regard parliament as the body that looks after the taxpayers' interests. Apart from giving this blank cheque to the Government, Parliament has become functus officio. It has a few small responsibilities regarding positive resolutions on motions and regulations but no direct function or role. It does not have the watchdog role I believe it should have regarding the exposure of the taxpayer arising from this legislation.
That is why I strongly believe that what is needed is a public accounts type banking committee of the Oireachtas. We need a committee of the Oireachtas to which the various bodies can report. This would provide a platform for the Central Bank, the Financial Regulator, officials from the Department of Finance or the Minister for Finance to express their views; a platform through which the interests of the taxpayer could be protected. One issue that could be raised in opposition to such a proposal, which I will counter straight away, is that in many instances sensitive information, commercial or otherwise, could become public knowledge improperly. However, that issue has been dealt with in other countries. Basically we should believe in a system of openness, transparency and accountability. In so far as there is any sensitive information to be protected, it can be dealt with by committees in this House in the same manner as in other countries.
As someone who has been a Member in this House for some time, I agree that we must support this legislation and I hope it will work. However, I would like to see the major defect I am highlighting, namely the democratic deficit, addressed. I am putting forward a concrete proposal as to how that might be done, through the establishment of an Oireachtas public accounts type banking committee. There is enough expertise in this and the other House to provide that kind of safeguard for the taxpayer. I ask the Minister to consider that proposal.
Apart from one short observation, I will confine my contribution to a question. My observation is that we are now two hours into the debate, there are 28 amendments tabled and it will take 48 hours of continuous debate, at the rate we are going, to complete Committee Stage.
I have a question for the Minister which I hope he will answer at the conclusion of this debate. If, for example, Mr. X, Mrs. X or Ms X is currently in debt to a lending institution in this country to the tune of €2 million and is unable or unwilling to repay that debt, what happens in two years' time? Who will take up the tab for the €2 million owed? Will the Irish taxpayer have to take up the tab? While €2 million is a large amount of money to many individuals, it is a small amount of money in banking terms. I read in one of today's newspapers information on the earnings of the chief executives of Irish banks. The top earner is earning €9,781 every day of the week.
I am only relating the information to the man or woman who owes €2 million to the bank. I will not delay the debate at all. The second highest earner is earning €8,493 per day, which is €59,449 per week. It is no harm to put that information on the record of the House because people in the street are asking if we are propping up institutions that will continue to pay exorbitant wages to their chief executives and directors. What assurances can the Minister give this House that there will be any control over the earnings and bonuses of chief executives over the next two years, during which time we are guaranteeing the viability of the six lending institutions in question to the tune of €400 billion? That is one of the questions the ordinary person on the street is asking, and on whose behalf I ask the Minister for a response. The salaries and wages in question are inconceivable to ordinary people. I ask the Minister to reassure us on that question in his reply to this debate. What guarantees can he give us?
I note that amendment No. 2 proposes limiting salaries to level of that earned by the Minister for Finance, which is a very sensible suggestion. Will the Minister do that? Were he to do that, the people on the street would understand. We would be talking about normal figures then, rather than the abnormal ones about which people are reading. They cannot understand how we could be propping up institutions that would throw money about like that.
What happens to the man or woman who is now in difficulty with the banks? Is the Minister going to do any deal for such individuals? I received a call from a constituent yesterday who asked me to ask the Minister that question today. The ability to do so is one of the privileges of being a Member of this Parliament. What will the Minister do for the ordinary person? Now that he is saving the banks, will he also do a deal for people who are in difficulty with mortgage repayments and whose homes are in danger of being repossessed?
In the United States of America, the FBI was sent in to investigate the banks. I want to——
I want to know if the fraud squad will investigate the banks because they have dragged this country down to its current level. Last week a man was caught working while drawing the dole and he is now in Loughlin House. Thanks to the banks, the country is almost at a standstill. Where was the Financial Regulator and the Governor of the Central Bank? These are people in the quangos that we set up and they did not do their job. Nor did the officials in the Department of Finance.
How could we be in this state again? This is not the first time we have saved the banks. I have been a Member of this House a relatively short time but it is not too many years ago when we had to come in here and save AIB and PMPA. It is not too long ago that the taxpayer had to shoulder the enormous costs relating to beef exports. I listened to Deputy Treacy talking about the wonderful job done by the banks. They should all be in jail for what they have done to this country and its young people.
As we are dealing with bankers and money, Mr. and Mrs. Citizen will have to pay, those people who cannot afford to do so and who are already struggling to pay their mortgages. They are the ones who will have to pick up the tab. It is outrageous. This is the third or fourth time we have saved the banks.
What protection will be provided by this legislation to ensure we never see this happening again? Where is the Governor of the Central Bank and the Financial Regulator, to whom we are paying big money?
As Deputy McCormack said, paying the bankers who have put this country in the state it is in €2 million or €3 million per annum is a disgrace. The first thing the Minister should do, before this package is agreed, is ensure that their salaries are halved. In fact, half is too much for them. He should not worry about the executives going anywhere because if they ran any other company in the same way they have run the banks, they would be sacked, as would many others along with them. The Minister might think it is great for the country. It is good for the country in that we must save the banks. I would like to vote against the banks today but I would not be doing the country any good. I want to vote to save the country.
This is not the first time that we have saved the banks in this country. There are two laws in this country, one for the rich and one for the poor. When I came into this House 14 years ago a man said to me at the door to remember when it comes to money——
——whether it is Fianna Fáil or Fine Gael, the rich man will be saved. That is what is happening again today. Do something now for those with mortgages, the people who are in difficulty and the people whose homes are repossessed, and do not have the bank hounding them on one end and the taxpayer keeping them up at the other end.
The amendments that have been put forward by the Labour Party are sensible because they seek to give a parliamentary oversight to the process that is about to be undertaken here.
The amendment on the financial aspects — I refer specifically to amendment No. 24 — to the effect that an equity stake could be taken by the State in the event of a call on one of the loans is something that should be considered. The people of this country would then have some sort of a stake and say in the control of the banking system into the future.
The other issue relates to the power of the Minister for Finance. In any parliamentary democracy there must be checks and balances. What is being proposed by the Government in its current form gives undue power to the Minister for Finance and the amendments that we have put forward would seek to keep that in check.
I do not want to engage in a rhetorical speech here about the nature of global financial capitalism, but what we need in this country, which we can bring about only through our membership of the European Union, is a greater degree of regulation that will ensure that the confidence that has always been in the banking sector will continue.
Unlike Deputy Gogarty, I do not envisage that we should return to the gold standard.
Confidence is all important but if the taxpayers of this country are being asked to underwrite this, there should be some pain for the banks, there should be some quid pro quo, and there should be a possibility that the State would at some future date have a degree of equity in the banking system, if necessary. That is what is being proposed, and that there would be complete transparency in that process as well. Our amendments are reasonable and should be taken on board.
We are discussing section 6(4). The Labour Party amendment in the name of Deputy Burton clearly indicates what is wrong with that section, that is, the references, for example, to "such commercial or other terms and conditions", and that, "Without prejudice to the Minister's discretion ... all financial support provided shall so far as possible ultimately be recouped". That section, and the fundamental amendment which my colleague seeks to extend to it, shows the problem with the heart of this Bill.
I would hope that Fine Gael colleagues who spoke so vehemently about the misbehaviour of bankers over recent years would now have the courage to vote against this Bill. It is a bad Bill. It was thought out, if you like, on the back of a beer mat and following people reading what trendy commentators perhaps feel is the only way forward in the current circumstances. It is based on a vacuum of knowledge in terms of what action could be taken at this particular time.
For example, I asked the Minister's predecessor and the Financial Regulator repeatedly over recent years to see what could be done about the horrendous scandal of endowment mortgages where in the region of 90,000 young families——
I want to make the point. Some 90,000 young families were ripped off in a callous way by institutions and I was told by the regulator, who has such a woeful track record, that what I sought could not be done. However, the Minister or his predecessor did not rush in here and try to protect householders and he is not rushing in here today to protect them. His motives are first and foremost to protect some grossly irresponsible bankers who behaved so badly.
He is now coming in here with a pig in a poke and expecting us to sign off on this essentially bad Bill.
I must ask why this was necessary in the first place. Two weeks ago, as Mr. David McWilliams correctly stated, the Minister implicitly gave a guarantee of all deposits. As he had already done that effectively, what was different yesterday and what is different about the legislation here today, which tells us nothing?
By the way, last night and all day yesterday the Dáil was treated in the most disgraceful way that I have seen over the past 16 years——
——and we are still being treated like this here today because we still do not have the key information, which my colleague is seeking to extract from the Minister.
At the end of the day, who will carry the can? How big will the can be? We do not have a clue. We do not know. Professor Morgan Kelly last night correctly sought to estimate the amount of toxic debt that was out there and was thinking in terms of €20 billion or €30 billion, which is a considerable liability.
This relates to section 6(4) — what can be recouped, and how it will be recouped, for the taxpayer. I am addressing the amendment under discussion.
As colleagues have stated, what about the other big day the Minister will have in a few weeks time, when we face one of the biggest budget deficits in our history and when this country will have to borrow? The Minister has seriously affected our credit rating by this global measure that he has taken and we will have to pay through the nose to try to maintain basic State spending on services for which we in this House have responsibility. The Minister has acted grossly irresponsibly.
What is happening in this regard? The Minister has no details on the appalling performances on corporate governance in the banking sector. I will not go over the history of the failures throughout the years, like the Government backbenchers did. I mentioned one, namely, endowment mortgages. Those people were ripped off and the Minister and his party did nothing about it throughout the years. In fact, it told them to get lost. That is the bottom line. Householders who are now in difficulty are being told the same.
——and are barely able to make ends meet. How will the Minister help them? What is he doing for them in the context of this legislation? There is absolutely nothing here. As I said, we are effectively buying a pig in a poke and, personally, I am strongly opposed to it.
We have not had an opportunity in the discussion to put forward anything, but there are alternatives. As I stated, the Minister took a step a couple of weeks ago and has now sought to retrospectively protect himself by this kind of global legislation.
We have the experience in Scandinavia in the 1990s, with Sweden, Norway and so on. The economics textbooks have been written about how to manage a banking crisis.
The Scandinavians did not embark on the adventure on which the Minister is embarking, whereby he is endangering the taxpayers and citizens of this country.
I applaud the Labour Party amendment, which seeks to bring some facts and figures into the debate such that we will know what we are likely to face and what we can get back. I strongly support my colleagues' contention that we should be prepared to take equity where necessary, be it at the rate of 80% or, if necessary, 100%. We should not run away from this proposal and should be prepared to take on the responsibility. The Minister has a lot of thinking to do about this Bill.
I will shock the Ceann Comhairle and the House by confining my remarks to amendment No. 1.
This is a very important issue and the Bill is one of the most important this House has dealt with in a very long time. It is probably one of the most important instruments with which any of us will be involved and that is why the scarcity of detail is so alarming. It is a framework for action. While we are all agreed that action is required and while we all have a shared ambition to achieve the desired outcome of that action, that is, to restore equity and confidence in the banking sector and ensure there is capital available to do genuine and honest business in this State, our job is not to underscore business as usual and allow those who have brought us to this point to continue on their merry way.
For us to be certain that this instrument will be fit for purpose, we need to have the detail; it should not be post factum. There will be no point putting the detail of the scheme to the House in a week or three weeks for comment or annulment because we are not going to renegotiate a deal done. We need to have the framework in advance so we will know what we are getting into.
I am motivated to speak more than anything else because I believe this first amendment is a matter of fundamental principle, a matter of proper parliamentary function and oversight. Over recent days, I have listened to some shrill voices, most of which were from outside the House but some of which were from within, accusing Members of the House of temerity for wanting detail. They ask whether we know there is a crisis, point to the formula and suggest Members should not be involved in working out detail and desiring accountability. This morning, when this point was being raised generally, the Minister stated we do not want to end up like Capitol Hill.
Capitol Hill takes its legislative function seriously. Would it not be wonderful if Paulson's blank cheque were rubber stamped and all were hunky dory? Parliament does not work like that because it is the people's assembly and its job is to ensure we make laws, as we are constitutionally charged with doing.
I am worried about two principles that underpin this entire scheme. First, the Dáil is being asked to hand over to the Minister its constitutional prerogative to make law. We are providing for considerable potential in secondary legislation for the Minister to craft law. The Supreme Court has already spoken on this in respect of another issue. It is for us to make law, not to give authority to the extent envisaged in this measure to any individual.
The second worrying principle is that we are being asked to give the assets and future assets of the State to the Minister for a stated purpose. The purpose is good but what is being asked is incredible. It literally involves a blank cheque and a volume of demand that has never been handed to any Minister for Finance in the history of this State.
A few reasonable questions were asked this morning by the Leader of the Opposition and Deputy Joan Burton, in moving this amendment, on the scale of the liability. To request knowledge of the scale of the liability is reasonable and we need to know it. I imagine the liability is changing by the hour as more funds move into our banking system — this is welcome — but we need to know what exactly is being guaranteed and the extent to which it is being guaranteed.
Many Members, in their contributions on this amendment, stated we must have regulation. However, regulation must have concrete form. It is no use having the Minister say to us it is referred to in the Bill. There will be regulation, an equity stake and a cost to the banks but we do not know the scope or nature of any of these. We do not know the amount of money to be underwritten and we do not even know the yardstick by which the cost is to be measured and recouped to the State. Having listened to different Ministers, I note the goalposts have moved several times. Some say there will be no payment unless there is a call on the funds and others say there is an insurance-type scheme on foot of which there will be a real charge.
The Minister acknowledged last night that there is a real cost to the State in respect of our ability to borrow and the cost of borrowing——
It is most people's opinion that this new liability will make it more expensive for the State, qua State, to borrow. The Minister has acknowledged that fact. Will that quantifiable sum be part of the budget arithmetic so we will know how much is to be borrowed, the cost thereof, the additional cost subsequent to this legislation and the manner in which it is to be levied on those who are benefiting from the legislation? I hope this will be part of the budget arithmetic.
A number of other issues must be part of the decision-making process before we allow this to become a fait accompli. Otherwise, we can fold up our tent as legislators. The cry for the past five to ten years has been for little government, open markets, no regulation or light-handed regulation. Those who argued for these for ten years should now show some modicum of humility. Since they have come to the State, the elected representatives of the people and ultimately the people themselves to dig them out of the hole they have created, they should allow us to set the terms. We should demand that we be allowed to set the terms and not listen to the very people who brought us to this point telling us to get on with our job in a way that they determined.
In advance of any decision of the Minister under this scheme, there should be an analysis of its impact on competition generally. Some Members, including Members who contributed in this debate today, said this is a wonderful whizz that the Government has and that it is a model that will be replicated across Europe. Where stands the market? If every bank in Europe is guaranteed and if there is no risk involved, how can there be competition?
My point is relevant to the amendment to the extent that these are the issues that must be set out in advance to the satisfaction of the Members of the House. There may be some who happily buy pigs in pokes but the rest of us want to know the detail of this most profound decision. By and large, we want to make the decision but want to do so in a way we will not regret shortly. Deputy Jim O'Keeffe said we have to take the Government on trust on many of these matters. To some extent we do, because we must give sufficient flexibility to the Minister to act in the national interest. However, we must circumscribe that in so far as we can to the cause of public accountability and prudence.
As a man who I have never quoted before, former President Ronald Reagan, once said: "Trust, but verify." We need to include this House — the people's voice — in ensuring the decisions that are made are thought through, real and do not expose us to unnecessary risk. For all those reasons, this amendment is a necessary one. It is not a great burden on either the efficient working of this scheme or on the Minister. This House needs to change the way it does its business to be relevant in these matters. I hope the Minister will give careful thought to accepting the amendment and shaping the workings of this House to ensure the people's business is done effectively, with proper regulation and proper oversight, so we do not end up in this mess again.
I support the remarks made earlier by Deputy Bruton and also by Deputy Noonan in stating we need more information as to what we are doing here. We need more information on what it is we are trying to achieve and how we are to ensure we achieve it.
The Minister stated that this problem is one of liquidity, which is what we are dealing with. There is no doubt there has been an international credit crunch. The truth of the matter is that the ECB has made liquidity available, albeit at a price. The problem the Irish banks are facing is not an absolute shortage of liquidity in the overall market but that they cannot access it through the interbank market. We must ask ourselves why this is the case. Why is it Irish banks are perceived to be more of a risk than their peers in the rest of Europe?
While the banks, the Government and the Central Bank have told us the banks are sound, the market does not think so — that is the reality.
We are, of course, supporting the notion of giving a guarantee of liquidity where it is needed, which is essential. I totally support the Government's move in that respect. However, the reality is that we are only dealing with the symptoms of what is an underlying problem, namely, the elephant in the corner that is the concern about the solvency of the Irish banking system. The Minister cannot deny this. The reason the Irish banks are having such difficulty getting funds in the market is because the international markets are looking with a very jaundiced eye at the quality of the portfolios of the Irish banks.
Indeed, and this is very relevant. The situation is quite scary. In the case of AIB, one of our main banks, 60% of its total loan book is concentrated in the property sector, either in residential mortgage lending or in construction and property lending, and that figure is 70% for Bank of Ireland. This makes us very exposed to any downturn in the property market, which is the worldwide problem. However, this situation is exacerbated further in the Irish case by the degree of borrower concentration. A very frightening figure I read recently suggests that a mere 40 borrowers are responsible for half of the commercial development loans given by our two main banks. The same figure for residential borrowing is not available but from what we all know about the residential market, the level of borrower concentration there must be even more extreme.
By any stretch of the imagination, one cannot claim the Irish banks have a balanced portfolio — that is the problem. When one adds to that the economic problems — the negative growth we are now experiencing, unemployment and the drop in house prices — we have our own toxic bank debt that the other international banks must look at with a very jaundiced eye. We need to deal with the underlying problem and we need to know how we will do so. For example, what will happen to the young mortgage holders and first-time buyers who borrowed at the top of the market and now face negative equity?
We need to see the terms and conditions to know what will happen with regard to these people. Is there any requirement for the banks to restructure their loans? Will they be allowed to make a massive number of repossessions and have fire sales, driving house prices down further and sending the economy into even deeper recession? Has the Government any plan to deal with this?
Will there be any watchdog system to ensure the banks' portfolios are more balanced in future?
I am not trying to be populist about the banks. I recognise that we all want to be part of the dream. For every risky loan that is given out, there is a risk taker and somebody only too willing to take the money. I also recognise that banks must lend money. However, we need a return to the banks of old — to the image we had of them as being dull, staid, boring, cautious and careful. We no longer have that image. What is the Government's plan to create the conditions that will ensure this happens? What will happen to restore confidence in the banking system? If we do not restore confidence in the banking system, what the Minister is doing now——. I do not know what the Minister is laughing at.
In the context of the amendment put forward by the Labour Party, while we need the scheme to come into operation, it is critical that the terms and conditions would be brought before the House as a matter of urgency. Section 6(5) of the Bill gives no indication as to when these will be laid before the House and, furthermore, does not allow the House to debate them. Fine Gael has put down an amendment that would allow them to be debated and they should be brought before the House within three days of being ready. When will the Minister have the terms and conditions ready, given this is extremely important?
Liquidity and solvency are interlinked. In layman's terms, liquidity is cashflow and solvency is profitability. The current problem is that the capital requirements ratio within the banking sector in Ireland is lower than that of our international competitors. In Spain, for example, the central bank applied higher requirements for banks in that country and they are not experiencing the same problems as banks here.
What must happen here first, as a matter of urgency, is that we need to know the terms and conditions, and I ask the Minister to outline when he will bring them before the House. He should deal with the amendment put down by Deputy Bruton and allow the matter to be debated and voted on in the House.
Second, due diligence is now required for the banking system in Ireland. Where solvency comes in is with regard to the elephant in the room, which is bad debt. We read reports in the newspapers, including a report in The Sunday Tribune, to the effect that developers are at present considering writing down the value of their assets so they can obtain a refund of corporation tax based on what they paid in advance. Will the banks do the same? What is required first is liquidity, and I accept it is important the Bill has been brought before the House, but it is critical we also ensure there is solvency in the banking sector.
Section 6(4) states that, as far as possible, the banks will themselves pay for the cost of the supports. In the House yesterday, the Taoiseach stated that any shortfall within the banking sector would be made up by a levy on that sector. The key point is that we need to return the banking sector to liquidity and solvency but, equally, we need to protect taxpayers' money. While this is critical, the Bill does not deal with it satisfactorily. We need to make absolutely certain that we have proper financial regulation. The financial regulation system in place under the Central Bank and the Financial Regulator has failed. The Government is introducing an historic Bill to effectively give a personal, sovereign guarantee — our guarantee — on behalf of taxpayers, to the tune of €400 billion. That sum is twice our gross national product. This is monumental.
The key requirement is for us to see the terms and conditions as a matter of urgency, while allowing the scheme to go ahead because the banks are already borrowing on the inter-bank market with that guarantee in place. Last night, the Minister indicated he is in discussions on the terms of the guarantee with the National Treasury Management Agency. The banks are now able to borrow money at a lower rate of interest on the inter-bank market than they were two days ago. That benefit must be passed on to the consumer. In addition, the Minister is aware that his borrowings on the international market for the Government have increased in terms of Government bonds. That means taxpayers are paying for it. They cannot pay for it.
Deputy O'Donnell is in possession and Deputy Connaughton is next, followed by Deputy Timmins, Deputy Shatter, Deputy Flynn, Deputy Perry and Deputy O'Keeffe.
Progress reported; Committee to sit again.