Wednesday, 19 November 2008
I am sure the Taoiseach will acknowledge the constructive approach from this side of the House in regard to the protection of Irish jobs and, in particular, small businesses. It is a little more than three weeks since I initially asked about the Government's requirement to introduce a scheme of recapitalisation for the banking system to ensure the protection of Irish jobs and the availability of credit to small businesses.
The Taoiseach in his response yesterday indicated a range of matters. In view of reports today of meetings between the Minister for Finance and Financial Regulator will he accept it is now not a matter of if the Government will introduce a recapitalisation programme but of when and in what format this will be done? In the interests of thousands of small businesses, is the Government working towards a recapitalisation programme which will allow for credit to be extended to businesses to enable them survive and to protect thousands of Irish jobs?
It is important that discussions on these matters take cognisance of possible reactions outside this House and to ensure we are responsible and prudent in this regard. The joint board of the Central Bank and Central Bank and Financial Services Authority of Ireland, CBFSAI, has submitted to the Minister for Finance a report on the financial position of the six major institutions covered by the bank guarantee scheme. The Minister has met with the Governor of the Central Bank, the Financial Regulator and PricewaterhouseCoopers, PwC, to discuss the report which presents an analysis of the capital positions of the six institutions having regard to their loan book. The content of the report is, of course, commercially sensitive, the details of which cannot be disclosed.
The report confirms that all the institutions reviewed are in excess of regulatory capital requirements as of 30 September 2008, the date the guarantee scheme was announced by Government. The PwC report demonstrates, under a number of stress scenarios, that capital levels in the covered institutions will remain above regulatory levels in the period to 2011. The Government's guarantee scheme has been successful in safeguarding the stability of the Irish banking sector and in restoring its liquidity position. However, the Minister is aware that international market expectations in respect of capital levels in the banking sector have altered and that meeting these expectations may be challenging with consequences for the sector and the wider economy. The Minister expects that the covered institutions will explore fully the potential for meeting these capital needs through raising private capital and the disposal of appropriate assets and is, of course, keeping the matter under close review.
This refers to the Taoiseach's comment that the Government will take action in this area only as a matter of last resort. The Taoiseach has read out a number of details in this regard.
If the Government is to introduce a recapitalisation programme, perhaps the Taoiseach will outline what principles will underpin that programme in terms of the availability of competition to the process. We do not want a return to a duopoly. Will the Government ensure the system is transparent and not subject to pressure from large financial entities and that concern is expressed about the requirement for Irish-owned financial institutions, which is important in an Irish context?
In introducing a recapitalisation programme it will be important to ensure that moneys given to Irish banks does not sit in their vaults but is used for the purpose intended, namely, to enable credit lines to flow for Irish business and, in particular, to enable Irish small businesses to survive and to maintain and protect jobs. I am sure the Taoiseach does not want a situation whereby capital extended to banks sits in vaults and is used only for the purpose of supporting delinquent developers in whatever form. Perhaps the Taoiseach will comment on that matter. I make these points in a constructive fashion because, no more than any other public representative, I am acutely aware of the real concern, anxiety and fear of people who have jobs in regard to their being able to continue in employment.
It is inevitable a recapitalisation programme will be introduced. Perhaps the Taoiseach will state, in the interests of providing hope and confidence to people in the small business sector, how and in what format the Government intends to act.
I have given a formal statement in reply to Deputy Kenny's initial inquiry about this matter. I emphasise it is important that people act not in a speculative manner — I am not suggesting Deputy Kenny is doing so — but in a responsible manner in respect of this matter. They should not suggest that any particular way forward is the panacea for all ills. We are in the midst of an international recession and of a situation where credit markets have yet to return to normalcy. The detailed analysis and report from PricewaterhouseCoopers is as I outlined in my initial statement. People must be measured in assessing what is the current stated position. The Government will do all it can to facilitate a strong banking sector that is capable of providing funding for Irish commercial business. We will do everything we can to achieve that but it is important to avoid suggesting that any particular course of action taken immediately would provide the overall solution to this problem. I indicated yesterday that under the State guarantee scheme the question of banks having to submit business plans to show they are prepared to provide credit lines to Irish businesses is an important factor in the Government's consideration of these plans.
If it was the case that capital was provided by private or other means to the banking sector, that would represent capital for the banks concerned. It would not be automatically provided as cash flow to Irish businesses but would go towards improving the capital adequacy ratios of the receiving banks. It is important that people do not think the injection of capital per se provides for increased lines of credit.
We have received a detailed report which confirms that the regulatory capital requirements are being met by the institutions under review and demonstrates in a number of stress scenarios that capital levels in the covered institutions will remain above regulatory levels in the period to 2011. That is an important statement in the context of considering the options which may be available to those institutions in dealing with the changing views in international markets regarding expectations for capital levels in the banking sector.
I wish to follow up on the Taoiseach's response to Deputy Kenny. Did I hear him correctly as saying the report received by the Minister for Finance from the Central Bank and the Financial Regulator arising from a study by PricewaterhouseCoopers shows that the banks were in a sound position on 30 September, when the decision was made to introduce the guarantee scheme? If that is the case, why were we led to believe that one bank, or more than one, was in imminent danger of collapse on 30 September? Given the Minister now has the report, when will he make a decision arising from it? Is the Government considering some form of recapitalisation of the banks, either through the use of taxpayers' money or by means of some scheme to attract private money back to the banks?
Arising from that, I wish to pursue the comments he made yesterday in respect of the capitalisation of the banks. He said on a couple of occasions that it would not necessarily ensue from the recapitalisation of the banks that money would be made available to business and that the credit famine which businesses are now experiencing would not necessarily be relieved. If that is the case, and I believe it is, what conditions does he intend to impose on the recapitalised banks to ensure credit is made available to businesses which need it? I refer to the proposals made to the Government by the Small Firms Association on establishing a small business fund which could draw down the moneys made available through the European Investment Bank and on the development of a mechanism whereby those moneys can be released to small businesses which need them. Clearly, the commercial banks are not availing of this scheme. Will he consider the suggestion by the Small Firms Association that a forum be established involving the State, the banks and organisations representing small businesses to monitor independently the practices of banks in making credit available to businesses?
It is clear that businesses are in trouble and people are losing jobs. We have seen massive rises in unemployment levels over the course of the past year and people are worried the trend will continue for the rest of this year and into the new year because of problems in getting credit.
In regard to the first matter raised by Deputy Gilmore, the position as of 30 September was that a continuation of the situation was not tenable. The continuation of capital outflows at the rate experienced over previous days and weeks meant the stability of the banking system was at risk.
In regard to the question of recapitalisation, I made the point that we are trying to ensure a strong banking sector that can serve the Irish economy in the future. There are constraints on credit markets in every country. It is a problem that banks and businesses are facing everywhere as a result of the global issues we have discussed in this House on many occasions. We need to arrive at a situation on the basis of the State guarantee scheme, which has provided the basis for liquidity in the banking system. The requirement under the scheme to submit business plans is the best mechanism for ensuring transparently that banks are providing lines of credit to Irish businesses. I think the Deputy will agree recapitalisation on its own does not provide that guarantee. Of course, in terms of the expectations of international markets, the improvement of the capital position in banks improves the market's view of those institutions and, by having increased capital, one is in a position to play that off against the possible impairment of assets so that capital adequacy ratios remain sufficient in the regulatory regime that applies.
As I have said from the beginning, the Government is looking at all options in these matters. We have to ensure we minimise to the greatest extent possible the exposure for the Irish taxpayer, which is what we did with the State guarantee scheme. That is an important consideration, particularly given the overall financial and budgetary situation that confronts us.
In regard to the EIB, I encourage the banks to take up that facility to the greatest extent possible. It has to be operated through the commercial bank system and I understand the EIB has entered discussions with banks regarding participation in the facility. These discussions are ongoing and we hope they are successful and that the facility will be taken up by the banks. Financial institutions should use the facility with a view to making the additional funding available to small and medium sized enterprises as soon as possible.
In regard to the final part of Deputy Gilmore's question, we will continue to work with business interests and the banking sector to find out how we can ensure the maximum levels of credit possible are made available to Irish businesses in the present circumstances.
I do not think the Taoiseach grasps the urgency of the situation facing small businesses and the people who work for them and who are concerned about losing their jobs. He outlined a process whereby reports from consultants are discussed by the Central Bank and considered by the Minister, business plans are submitted by the banks and decisions are made which perhaps will resolve the situation but may not, and to please acknowledge the position on recapitalisation. In the meantime, businesses are going to the wall because they cannot get their hands on the money they need to pay wages to their staff or to keep going. That is the problem. Some are facing choices in terms of whether they should lay off staff at the end of the week, which bills they should pay this week or how will they keep going beyond Christmas. In many cases they are experiencing a significant drop in trade. They need some help and not to hear a story that discussions are ongoing with the banks and a process is under way. They need to get access to credit.
How will that be done in the short term? The Small Firms Association has made three suggestions to Government this week. It suggested the Government should establish a small business fund. I know we no longer have a State bank by which that could be done by the State. However, the Government should find some means by which a small business fund can be established so that businesses that cannot get access to credit through the commercial banking system, as it is not lending to them, can get access to these funds through the European Investment Bank. That is the first suggestion and it should be feasible.
The second suggestion is to follow the example of the British Government which has introduced a rule that all state payments to small businesses would be made within ten days. All invoices made out to a Department or State agency need to be paid within ten days. That has been done by the British Government and its example could be followed here.
The third suggestion is to establish a formal forum. Here is the problem: when the business organisations representing small business approach the banks to complain about them not lending or releasing the credit, the banks claim they are doing what they have always done which is to apply the rules. They need a forum to investigate the practice of what banks are doing with individual businesses and compare that with what they claim they are doing and indeed what the Government will probably require them to do when it makes its decision arising from the report it has received.
There is an urgency about responding to the proposals made by the Small Firms Association in order to save those businesses that would otherwise go to the wall this week or next week and give them some breathing space so they can get through Christmas and on into the new year.
I am acutely aware of the situation. The Government is not standing by or sitting back in this situation. The Government is actively engaged in trying to deal with a number of these issues. One of the biggest issues relates to the question of obtaining capital requirements for the banks so that they will in turn ensure they change their loan arrangements because they are reviewing their adequacy ratios all the time. My purpose in this matter is to try to improve the situation for Irish businesses. Of course that is my contention. We also need a functioning banking system to have a proper commercial life in the country and try to maintain to the greatest extent possible the employment we have built up. There is no disagreement on that front.
Regarding the EIB, one must work it through the commercial banking system. The EIB has been in touch with the banks and those issues are being progressed. I have stated I would like to see that facility taken up as a matter of priority and those discussions are ongoing.
Regarding the question of a forum, as I have said, the Tánaiste and I along with other economic Ministers will continue to work with the business community to see in what way we can assist. On the issue of prompt payments within ten days, we are evaluating to see if that is possible. That suggestion came a few days ago and we are investigating whether it is possible. Establishing a fund outside the normal commercial criteria that apply is not something that is possible for the Government to do. We need to see if we can use, for example, the EIB facility as a means of assisting the banks to apply that credit in the way they are applying it at present in terms of their own resources.