Joan Burton (Dublin West, Labour)
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It is now some weeks since the enactment of the Credit Institutions (Financial Support) Bill 2008, which was introduced to rescue the banks, and it has been some days since the publication of the guarantee scheme. This Act has given extraordinary unilateral powers to the Minister for Finance, basically to do what he likes. Although he set out certain conditions which were to apply to banks joining the scheme, it would appear from notices on his own Department's website that those conditions have changed. He told us in the House that in the event of a bank going under, the first recourse would be to the bank itself, followed by the other banks in the scheme, and that there would be no recourse to the taxpayer. He repeatedly told us the scheme would be cost free as far as the Irish taxpayer was concerned. However, a notice on the Department's website indicates that apparently, arising from understandable objections by some of the bigger banks in the scheme, the banks entering the scheme were advised they would not have to unilaterally guarantee defaults by other banks in the scheme. Other Members of the House have mentioned a report to that effect in the Financial Times.

The Minister's depiction of the scheme was that it was cost free. The market take on the scheme can be seen from the fact that Irish bank shares are still tanking and have lost tremendous value. We should remember these institutions are the lifeblood of most businesses and, indeed, most house purchasers in this country. I draw to the Minister's attention the fact that NIB, which is a Danske Bank subsidiary, has written off a significant amount of bad debt. NIB added €69 million to its impairment charge in its third quarter accounts following a review by Danske Bank. While NIB holds 4% of the total amount of Danske Bank group loans, it represents 30% of its impaired loans. This raises major concerns about banks in the scheme which have more aggressive lending practices and risk having more toxic debts, particularly with regard to the construction sector.

What is the situation now? Is there a recourse to the Irish taxpayer, or are all the banks in the scheme essentially guaranteeing that any bank in the scheme will have second recourse to the other banks in the scheme? Is the Irish taxpayer now carrying the can, as stated in the note on the Department's website, for the financial markets? Will the Minister publish the terms of reference of the appointment of PricewaterhouseCoopers and the review it is conducting for IFSRA? I repeat the question I asked previously — what is the review considering? Is it examining the issue of the accounting treatment of possibly impaired bank loans given for construction purposes, in which the interest has been rolled up or expressed in shares in the company?

My next question is about the disclosure at the weekend of possible directors' loans of €288 million given by Quinn Insurance to a related company within the group which, in turn, may have been used either by individuals or by related companies to purchase or pay for shares in Anglo Irish Bank which were being acquired through contracts for difference. Anglo Irish Bank is one of the companies included in the credit institutions scheme. I called publicly for the Minister to make a statement on this at the weekend. When did he know about this? It appears the regulator has known about it for months as a consequence of the work of the auditors. Is the regulator only now requiring monthly financial stability reports from insurance companies? Insurance companies are similar to banks and need to carry very large reserves of cash in order to pay claims.

I remember the Minister telling me when he was appointed Minister for Finance that he had a qualification in company and commercial law as part of his barrister's training. He told me he was quite expert in commercial law. Irish company law frowns heavily on the device of directors' loans. They are subject to special disclosure requirements and may also give rise to benefit-in-kind issues from a tax point of view. The Minister needs to make the position clear in the House because ultimately it is the Irish taxpayer who is underwriting all of this.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Deputy Burton has raised the issue of the serious financial consequences to the State arising from the guarantee scheme to banks and credit institutions. In the course of her contribution she raised a number of issues which do not arise within the terms of the Adjournment matter. However, I will be pleased to deal with these by way of a reply to a parliamentary question.

There can be no doubt as to the extent and depth of upheavals in international financial markets. The objective of the credit institutions guarantee scheme is to reinforce the strength of the Irish economy and the financial sector and, in particular, to protect the long-term interests of the taxpayer. Maintaining a stable banking system is at the heart of the functioning of our economy and the daily lives of everyone living in our country. The scheme is not about protecting the interests of the banks; it is about safeguarding of the economy and everyone who lives and works in this country. This support is being provided in the public interest to maintain the stability of our financial system and hence to protect the real economy from the consequences of the severe financial disruption that would otherwise arise.

In accordance with the principles of the legislation, the scheme is designed to safeguard the interest of taxpayers. The guarantee to covered institutions is being made available at a significant charge to the institutions that avail of it. The terms of the scheme will also allow the State to reclaim from a covered institution any payments under a covered institution's guarantee.

It is currently estimated that the State will be remunerated by the covered institutions for the guarantee by an amount of at least €500 million per year for each of the two years of the guarantee. The charge is risk-adjusted and is set at a level that is based on the long-term cost to the Exchequer of providing the guarantee. Moreover, the scheme is designed to be self-financing and any financial support under the relevant legislation is intended to be recouped from the institution concerned.

The charge has taken account of Government funding costs. The giving of the guarantee is assumed to increase the cost of borrowing by the State by between 15 and 30 basis points. This is estimated to amount to approximately €1 billion on the cost of ten year funding. If the cost to the Exchequer were to exceed €1 billion, the charge to the covered institutions will be adjusted accordingly.

It is clear, therefore, that the Government scheme is structured to cover taxpayer costs. This is not a free lunch for the banks. However, it is in no one's interest to impose a charge at a prohibitive level that undermines the long-term sustainability and commercial viability of our financial institutions. A balance must be struck between ensuring that the Exchequer is reimbursed for the cost of the scheme and the financial sector is safeguarded at a time of extraordinary financial upheaval. The scheme strikes the necessary balance.

The charge on covered institutions will be substantial but not prohibitive, and will be differentiated to reflect the realistic level of risk in different covered institutions. The covered institutions also indemnify the Minister for Finance in respect of any payments made as a result of claims made under the guarantee and in respect of any costs, claims, losses or liabilities incurred by the Minister for Finance as a result of providing the guarantee. The principle as stated in the scheme is that any costs would be recouped from the sector by the State over time in a manner consistent with its long-term viability and sustainability.

I note that there has been some inaccurate comment in regard to the scheme in recent days. The scheme agreed by the Oireachtas has not been changed. The market notice published by my Department stated that no legal guarantee was required under the scheme from one covered institution in respect of any other outside its group.

Joan Burton (Dublin West, Labour)
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That is not what the Minister said.

Charlie O'Connor (Dublin South West, Fianna Fail)
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The Minister, without interruption.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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As the Taoiseach and I have made clear on a number of occasions, if it was the case that a call was made under the guarantee for an institution and not recouped from that institution, the Government would ensure that any loss experienced by the taxpayer was recouped in a manner consistent with the covered institutions' long-term viability and sustainability. That general principle is reflected in the scheme——

Joan Burton (Dublin West, Labour)
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A big change.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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No. That general principle is reflected in the scheme, and if Deputy Burton examines the scheme with care she will see that the general principle as stated, that in regard to the specific indemnification it is restricted to the particular institution, holds. That is the provision of the scheme. That was always the provision of the scheme and the market notice does not change that in any way.

The covered institutions have provided an indemnity to the Minister in connection with any payments made under the guarantee given in respect of the particular covered institution's liabilities. The indemnity does not extend to amounts owing by other covered institutions to the Minister in circumstances where the Minister is required to make a payment on a guarantee given in respect of that other covered institution's liabilities. There is no cross-indemnity. It is up to the Minister to decide how best to achieve all of the objectives of the scheme in light of the relevant factors over time.

As I have emphasised on several occasions, the over-arching objective of the scheme is to remedy the serious disturbance that might have otherwise unfolded for the economy. It is about taking whatever steps are necessary to ensure that we have a banking system that as a whole works effectively, efficiently and competitively in facilitating all the day to day ordinary economic transactions of commercial, business, family and social life. The Financial Regulator has extensive regulatory powers to supervise the conduct of credit institutions' affairs. Our company law provides a strict legal framework governing the performance of the fiduciary responsibilities of boards and executives. The Government is satisfied that alongside the powers provided directly under the scheme the relevant public bodies, and in particular the Financial Regulator, have the authority and legal power to take whatever steps are necessary to continue to look after the interests of all depositors and customers, as well as that of the State and the taxpayer, which now arises on account of the guarantee.

Deputies will be aware that in order to promote the public interest covered institutions will be required under the scheme to appoint non-executive directors from a panel approved by me. I will shortly announce the membership of this panel. Deputies will also be aware that the scheme provides protection against excessive remuneration of directors and senior executives. I will be moving shortly to appoint the members of the independent covered institution remuneration oversight committee which will oversee remuneration plans in accordance with the scheme.