Thursday, 8 July 2010
Banking Sector Crisis: Motions
The following two motions will be discussed together, motion re proposed approval by Dáil Éireann of the draft Commission of Investigation (Banking Sector) Order 2010 and motion re referral to joint committee of macroeconomic policy lessons as set out in the report by Klaus Regling and Max Watson entitled, A Preliminary Report on The Sources of Ireland's Banking Crisis.
That Dáil Éireann:
— having regard to the significant public concern about the scope and cost of measures that have been necessary to stabilise the Irish banking sector;
— noting the recommendations of the reports, 'The Irish Banking Crisis: Regulatory and Financial Stability Policy 2003-2008', by the Governor of the Central Bank, and 'A Preliminary Report on The Sources of Ireland's Banking Crisis', by Klaus Regling and Max Watson, which were laid before Dáil Éireann on 9 June 2010;
— noting the Government decision of 9 June 2010 referring these reports to the Joint Oireachtas Committee on Finance and the Public Service for its consideration and input into the preparation of the terms of reference for a commission of investigation;
— noting the acceptance by the Government of the seven key policy lessons outlined in Part IV of the report by Klaus Regling and Max Watson and the proposal to refer for further consideration by the Joint Oireachtas Committee on Finance and the Public Service the macro-economic policy lessons arising from the reports;
— noting that it is the opinion of the Minister for Finance that a commission of investigation represents the best method of further investigation of specific serious lapses in respect of specified credit institutions;
— further noting that a draft Order proposed to be made by the Government under the Commissions of Investigation Act 2004 (No. 23 of 2004) has been duly laid before Dáil Éireann in respect of the foregoing matters referred to, together with a statement of reasons for establishing the commission under the Act;
approves the draft Commission of Investigation (Banking Sector) Order 2010, copies of which were laid before Dáil Éireann on 7 July 2010."
Last January in this Chamber I set out a framework of investigation into the problems that arose in the Irish banking sector. I said then that a comprehensive understanding of the events that took place in the banking sector in recent times was an essential component of any economic recovery. We have a duty as a Government and as Members of the Oireachtas to ensure that not only the origins of the crisis are understood but that lessons are learnt and that international and domestic confidence in the banking system is restored so that the economy can return to growth and employment creation.
As the first stage of the process of investigation, the two preliminary reports prepared by Klaus Regling and Max Watson and by the Governor of the Central Bank, respectively, provide a comprehensive and authoritative examination of the crisis in the banking sector in Ireland. The authors have provided us with a detailed and insightful analysis of the global, European and domestic macroeconomic factors at play over the relevant period. Governor Honohan's report details the failures in the regulatory and supervisory arrangements and the weaknesses in the evaluation of the stability of the banks. These reports draw attention to a number of issues which require further analysis and provide a sound basis for the further investigation of these significant issues. I welcome their direction in that respect.
The reports were laid before the Houses of the Oireachtas on 9 June and were debated. The Oireachtas Joint Committee on Finance and the Public Service has had two separate and lengthy engagements with the authors and subsequently with me to discuss how we should proceed. Those meetings allowed a comprehensive analysis of the issues raised in the reports and some necessary rebalancing of the initial interpretation and media commentary by highlighting the complex factors at work that culminated in the extreme turbulence that impacted on the banking system in September 2008.
In their report, Klaus Regling and Max Watson distinguish between those issues that are amenable to further investigation through a legally orientated process and other issues, which are less concrete and verifiable, and may be more appropriately the subject of policy review. That distinction formed the basis of the Government's proposed approach to the next steps in the process.
I draw the attention of the House to a number of points about the findings of the preliminary reports. First, both reports, but especially that of Mr. Regling and Mr. Watson, describe in some detail the nature of the explosion in the availability of credit in the Irish banking sector and characterise the failures in governance and risk management in the banks as disastrous, and ultimately leading to systemic difficulties in the financial system. What went on in the banks leading up to the crisis remains a cause of significant public concern. The public interest demands that we investigate the very serious failures in the standards and controls that should have ensured prudent risk management policy and procedures.
Second, it is clear that there were especially egregious failures in corporate governance and risk management at Anglo Irish Bank and the Irish Nationwide Building Society. Certain matters are already the subject or investigation by the relevant authorities, and I do not propose to comment on them now. However, there is a clear need to examine more deeply and broadly what went wrong in those two organisations while taking account of the other investigations. That is why the draft terms of reference prepared by the Government specifically set out the need for a full examination of the business models and strategies adopted by the boards of those institutions and the implementation by their senior managements of business and lending practices which resulted in those institutions experiencing such uniquely severe financial distress. The investigation will cover the period from 1 January 2003 to 15 January 2009, the date on which Anglo Irish Bank was nationalised.
Third, building upon the need to investigate failures in governance and risk management, it is proposed that the commission should also investigate whether the external auditorscommented in their audit reports on the standards and controls and risk management policy and procedures or on the business models and strategies and business and lending practices that led to the severe difficulties experienced by the banking system.
Deputy Burton made an interesting suggestion in the course of the committee deliberations about how that particular element of the terms of reference should be drafted. I raised her concerns with the Attorney General but he insists that the current formulation before the House today is the best one to ensure that the commission can bring its business to an expeditious conclusion and that the adoption of the alternative would unnecessarily prolong the duration of the commission's deliberations. That said, I assure her that the matter was considered in some detail.
Fourth, on foot of the analysis by Governor Honohan of the failures of financial supervision, there is a need for further examination of the nature of supervision and oversight of the banks by the Financial Regulator. For that reason it is proposed that the commission would examine the failures of the Central Bank and Financial Regulator to regulate and supervise the covered institutions and to maintain financial stability.
These draft terms of reference are appropriate in the light of the findings of the preliminary reports. Under the Commissions of Investigation Act 2004, a commission of investigation may be established by the Government, with the approval of the Oireachtas, to investigation any matter considered to be of "significant public concern". There can be no doubt that the banking crisis and its origins fall squarely within that category. It has had a profound impact on the State and on its financial position and we will live with its consequences for some time to come. It is essential that we identify what went wrong and why and that we learn the lessons of the past to ensure that we never make the same mistakes again.
I am pleased to inform the House that Mr. Peter Nyberg, former director general for financial services at the Finnish Ministry of Finance, has agreed to lead the commission. Mr. Nyberg has the necessary experience to undertake this important role. He will be supported by the expertise he requires. I have made provision in my Department's Estimate for this year to cover the costs of the commission.
I also remind the House that there are ongoing investigations by the relevant regulatory and other authorities into specific matters of a serious nature in a number of institutions. The commission of investigation will not supplant or hinder those investigations. In fact, it is open to the relevant authorities to initiate further investigations into additional possible breaches arising out of any findings that the commission may make.
The motion before the House seeks approval of the draft Government order, laid before the Houses yesterday, providing for the establishment of a commission of investigation into the banking sector. I draw the attention of the House to the Government's decision, following the recommendation of the Joint Oireachtas Committee on Finance and the Public Service at a meeting last Monday, to extend the period to be covered by the commission of investigation from 1 January 2003 to 15 January 2009. This means that the commission will now be in a position to examine all relevant matters relating to corporate governance and risk management in each of the banks covered by the Government's guarantee up to the date of the Government's decision to nationalise Anglo Irish Bank.
The second motion before the House seeks to refer certain macroeconomic policy lessons to the Joint Oireachtas Committee on Finance and the Public Service arising from recommendations set out in the Regling and Watson report. As is clear from that report, these policy issues can be divided into two groups; those that relate to macroeconomic management and those that relate to financial stability and prudential matters. The former are primarily my responsibility in the first instance and the latter fall within the remit of the Financial Regulator and the Central Bank.
I propose that the Joint Oireachtas committee, taking account of the emerging EU proposals on fiscal and economic governance, examine the following matters highlighted in the Regling and Watson report: the role of macroeconomic management and surveillance in securing the long-term sustainability of Ireland's economic performance and also in responding on a timely basis to risks and imbalances that may build up in both the private and public sectors of the economy, including external imbalances vis-À-vis other euro area members and the funding of any imbalances that might arise; the role of fiscal policy in securing an appropriate alignment of the national business cycle with monetary conditions in the economy; the requirement for the design and conduct of budgetary and taxation policies to take account of the cyclical nature of particular revenues as well as their temporary nature in certain circumstances in order to maintain an appropriate and effective tax base and; the case for the establishment of new institutional structures to provide an independent validation of economic and fiscal projections as well as for the introduction of domestic medium-term fiscal rules.
Following my discussions with the committee, I understand that the committee is agreeable to the main elements of the overall proposed scope. It is proposed that its deliberations be concluded by the end of October in order to publish and report back to this House and the Upper House by 4 November 2010.
Regarding the issues within the remit of the regulatory system, the House will be aware that the Central Bank published a report on 21 June setting out its proposed approach to future regulation of the banking sector. This report also addresses how the range of measures it is putting in place will address the issues raised in the Governor's report and that of Messrs Regling and Watson. This is another step on the road to the recovery of the banking system.
It is the Government's view, underpinned by the two preliminary reports, that certain decisions and processes which are fundamentally political in nature, are not amenable to an investigation whose purpose is to make findings of fact. The Government will not be changing its position on that point. There are no good reasons for it to do so. Let me also be clear however that my Department will feature in significant ways in both of the investigations. First, the terms of reference of the commission require it to examine whether any advices or directions given by the Department to the Financial Regulator were in any way relevant to failure of the Financial Regulator in the performance of its supervisory functions.
Second, in regard to the proposed policy review by the committee, I have already indicated my own availability to meet the committee as the accountable Minister to assist it in its deliberations as necessary. At all times, my predecessors and I have been accountable to this House for the decisions taken as Minister and for the actions of my Department. That will continue to be the case.
Deputy Noonan suggested yesterday evening the terms of reference of the commission should be broadened to include advices given by the Department to the Minister. My Department is now finalising the documents on the bank guarantee and the deliberations thereon that it intends to put into the public domain. The request was initially made by the Committee of Public Accounts but the documentation will be also put at the disposal of the Joint Committee on Finance and the Public Service. My Department has had to take the advice of the Attorney General on complex issues associated with legal professional privilege and the confidentiality of Central Bank information and certain banker-customer information in the preparation of these documents.
On Deputy Noonan's suggestion that the documents be made available, I am open to persuasion that documents pertaining to the period up to 15 January 2009 should be put into the public domain. I am examining this with a view to making a decision on it in a short period. As Minister, I am accountable to the House regarding the documents, but I am also prepared to make myself available to the Joint Committee on Public Finance for questioning in respect of them.
As I have informed the committee and the House, I am establishing an independent review by an international expert or experts with relevant international or domestic experience to evaluate the systems, structures and processes used by the Department of Finance in providing advice to the Minister and the Government. The review will examine the Department's role and performance in the past 10 years in providing advice to the Minister and the Government. This would include advice on the Government's management of the current crisis, with a view to ensuring that the lessons of this period of extraordinary stress will inform the development of the Department in the future. The review will have due regard to the skills, training and staffing mix required by a modern finance and economic Ministry so it can best fulfil its role and mandate.
I want to ensure for the future that the Department of Finance can give the best possible policy advice, better assess risks and opportunities in the fiscal, economic and financial system, and manage its own operations with high levels of effectiveness and efficiency. The Department has good, skilled and capable staff but I want to be sure they are used to best effect and that the mix of skills is optimised.
The matters we are discussing today are important and will have enduring consequences for future economic and financial policy. It is appropriate, given the scope and cost of measures that have been necessary to stabilise the Irish banking sector, that this matter be completely investigated and that lessons be learnt in order to put in place the best systems and structures so this kind of crisis can never happen again. I commend the motion to the House.
I welcome the motion. We are not coming cold to it because there has been considerable discussion on this matter at the Joint Committee on Finance and the Public Service. I attended last week's meeting but Deputy Burton and others have been attending meetings for quite some time. The amendments being made to the proposed terms of reference by the Minister are acceptable. He has moved very close to the position at which the committee wanted to arrive.
I want to comment in particular on the Minister's extension of the period under investigation. The original terms of reference would have required the commission of investigation to cease its inquiries once events up to 28 September 2008 had been investigated. This is a significant date as the guarantee was discussed on 29 September 2008 in the Department. On that day, the Minister informed the House of the serious problem emerging in our banking system. He obtained the approval of the House for the guarantee he introduced, and he had the support of Fine Gael on the day. We felt the crisis was such that we would take the Minister's advice on trust.
It has emerged since that time that events after 28 September 2008 need to be the subject of an inquiry. One should consider the period of crisis I want investigated as beginning with the guarantee across the banking systems and ending on 15 January 2009. The latter date was the date of the nationalisation of Anglo Irish Bank. Between the two dates, an enormous number of events occurred that threw light on the banking system. They need to be inquired into.
When the Minister sought the approval of the House on the guarantee, he presented, on the basis of the information available to him, the crisis as a liquidity crisis. It emerged subsequently that it moved very quickly from a liquidity crisis to the associated insolvency crisis, on foot of which the banks went bust. I am glad the terms of reference allow for the failures in corporate governance and risk management at Anglo Irish Bank and Irish Nationwide Building Society to be investigated. In effect, they became insolvent and went bust, and the State had to move in and rescue them.
There are many events to be considered. One of the most curious was the information that Anglo Irish Bank was involved in a process entailing back-to-back loans with Irish Life & Permanent. Its money was channelled through the latter institution and was returned as deposits. This improved its balance sheet. This was an attempt to disguise the fact that the bank was well on the way to insolvency. How this happened needs to be investigated. It is very important that the period in the terms of reference was extended.
It emerged that the Central Bank was aware of this matter, in addition to the Financial Regulator. Officials in the Department of Finance have put it on record that PricewaterhouseCoopers became aware of it and informed the Department at official level. For some reason, this information was not passed on to the Minister.
It was eventually but not at the time in question. This must be examined. It is very important that this be done.
One point made by the Minister may meet the requirements I sought last night when we referred to these issues during the debate on the Private Members' motion. He said in his speech that "the terms of reference of the commission require it to examine whether any advices or directions given by the Department to the Financial Regulator were in any way relevant to failure of the Financial Regulator in the performance of its supervisory functions." That is appropriate but there were surely advices from the Financial Regulator and Central Bank that were given to the Department. Submissions, petitions and advices were submitted by the banking sector to the Department. These should be also the subject of investigation and not be ruled out in the terms of reference.
The Minister has moved a certain amount by stating he will examine in due course the appropriateness of putting the advices on the public record. Considerations associated with legal privilege, etc., must be taken into account. However, the Minister should include in the terms of reference provision for the commission to examine the advices that flowed to the Department in addition to those that emerged from it.
The referral of certain macroeconomic and fiscal policy lessons to the Joint Committee on Finance and the Public Service for its approval is appropriate. It is a little unclear what the ultimate product will be. On first reading, the committee will require professional economic advice. Since the procurement process involved could be long, the Minister may need to reconsider the dates on which he expects the committee to report. Were the standard 90-day European procurement notice to commence now, the committee would not get under way until October, so having it conclude by November would be difficult. The Minister might take note of this point.
I am pleased with the proposals and we will not call a vote on them. The Minister has met the committee's request fairly. We never get everything, but the many serious concessions he has made will improve the work of the commission. Were he able to find a formula for taking my other requests on board, I would be pleased.
I welcome this debate and wish to take up a number of points with the Minister. He has extended the period covered by the commission of inquiry from 1 January 2003 to 28 September 2008 in respect of all elements bar the supervisory role of the Central Bank and the Financial Regulator. The Minister has extended the period in respect of the institutions to 15 January 2009, when Anglo Irish Bank was nationalised. Where the supervisory role is concerned, however, the period has not been extended. I do not know whether this is a typo. Will the Minister clarify the situation? It is important that the date be extended to 15 January to match the period applied in respect of the other elements, namely, the individual banks, specifically Anglo Irish Bank and Irish Nationwide, and the external auditors.
My reason for making this request is straightforward. In terms of the issue of Anglo Irish Bank and the back-to-back loans with Irish Life and Permanent, €3.45 billion was provided on 26 September and the balance of the €4 billion was provided on 30 September. The latter action would fall outside the period under review. The preliminary financial report on Anglo Irish Bank was published in December 2008, putting it outside the terms of reference. In those accounts, bank deposits were represented as customer deposits to give the impression that the bank's balance sheet was stronger than it really was. I hope the Minister will clarify this point and extend the period.
I wish to raise two issues concerning the commission. The Minister, the Taoiseach and former Ministers for Finance should make themselves available and evidence should be given in public. It is critical that the advice given to the Minister at the time be made available to the commission.
I will deal with the macro level shortly. I am digressing slightly, but these are important matters. NAMA's revised business plan is inadequate in that it has no profit and loss accounts or cash flow projections. When the draft business plan was debated, the Minister did not state from where the information had come. He now informs the House that it came directly from the banks. In late 2008, he commissioned PricewaterhouseCoopers, PWC, to carry out due diligence reviews of the various institutions and their loans. Those PWC reports need to be disclosed in full so that we can know what advice was available to the Minister while NAMA's draft business plan was being proposed. Anything less and there would not be proper disclosure.
The macro report will be before the finance committee, of which I am a member. According to the Minister, it is the Government's opinion that certain decisions that were fundamentally political in nature are not amenable to an investigation the purpose of which is to make a finding of fact. When the report is before the committee, it is important that officials from the Department of Finance attend our meetings with the advice in question if we are to implement clear measures.
I hope the Minister will take my request for an extension on board. Where the commission of investigation and the committee's macro level review are concerned, I also hope he will accept the necessity of making available all of the advice given to him by the regulator and departmental officials. Ministers drive policy and officials only implement it. We need to know the background to decisions.
The PWC due diligence reports started in August or September of 2008. Commissioned by the Minister, they should have fed into the NAMA process. It is not good enough to say that-----
In which case, why are the figures in the draft business plan that was laid before the House during our discussion on the NAMA legislation so far off those in the revised business plan? We need more detail on the plan.
I accept that, but my point is critical in the context of Anglo Irish Bank. Subordinated debt will not be guaranteed under the new loan guarantee fund, LGF, scheme. When I raised the matter of Anglo Irish Bank's senior debt during Priority Questions more than one week ago and asked whether it would form part of the new guarantee, the Minister assured me he would examine it. Between Anglo Irish Bank's senior debt and subordinated debt, there is €5.5 billion in taxpayers' money. The bank referred to a figure of €8 billion, €2.5 billion of which will go towards setting up the new bank. The European Commission has significant concerns in this regard. Will the Minister comment briefly on this matter, update me on his review and correspond with me on whatever reviews have occurred?
The Labour Party moved an amendment to extend the terms of reference to include the Government and the Department of Finance. Unfortunately, the Ceann Comhairle ruled our amendment out of order. Down the road, the Minister and Fianna Fáil will come to regret that, for reasons of political expediency, they have sought to exclude from the commission of inquiry's terms the roles of the Department, successive Ministers for Finance and the Government. This is a mistake of historical proportions.
Ours is a parliamentary system with a Cabinet Government. Under the Constitution, the Minister for Finance is the Cabinet member with responsibility for financial decisions. He should bear in mind that this is no ordinary crisis. This is a crisis of such proportions as the country has not experienced before, unless one considers the period between the Easter Rising and the foundation of the State. Therefore the notion that Fianna Fáil would seek to exclude the institutions of governance, namely, the Minister and Department of Finance and the actions of Government, in effect, from the terms of the inquiry is ludicrous. The Minister and the Government are excluded entirely from the inquiry, and the Department of Finance has a very small role to play.
I do not believe that Fianna Fáil will emerge well from the historical decision in the greatest economic crisis the country has ever faced to exclude its role and actions and those of the Department of Finance. That is a fundamental historical error on the Minister's part. It is a bad choice and bad authority in terms of his proposal for the terms of reference of the commission.
I tabled a series of amendments on behalf of the Labour Party, one of which included extending the date to 15 January 2009. I thank the Minister for the spirit in which he examined the Labour Party's proposal and accepted it. I believe the Minister accepted that this would make the commission of inquiry much more sensible in terms of its scope and operation. The events that led up to the crisis and the fatal blanket guarantee the Government adopted are included in the terms of reference as is strange decisions we never understood regarding Anglo Irish Bank, including the collapse in its share price.
The property market capped itself towards the end of 2006 and was on the slide thereafter. The House will recall the various television programmes such as "Future Shock" by RTE in the spring of 2007 involving Richard Curran and the "Prime Time" team and articles by people such as Professor Morgan Kelly in UCD. Large numbers of people in business, politics and I presume the Civil Service, were concerned. Nobody doubts the dedication to the public interest of the people in the Department of Finance, who are very smart. A legitimate question is whether those smart intelligent people who operate in the Department of Finance in the public interest said, at any stage, from 2003 onwards, in effect, to the incumbent Ministers, "This policy is inadvisable. It will create a bubble in the property market. Bubbles in property markets internationally eventually burst, history shows, and cause economic ruin for the people involved".
As Regling-Watson and Honohan said, our enormous crisis is home-made and is a plain vanilla property burst. It is inconceivable to me that the people in the Department of Finance – as the key Department – were not, at the very least, nervous and concerned, and did not express their opinions to the governing Minister of the day. During this period I had repeated debates with the former Minister for Finance, Deputy Cowen, now Taoiseach, when I pointed out to him the folly of the property based tax reliefs, and the cost of those. I received information from the Revenue Commissioners to the effect that millionaires paid no tax. The then Taoiseach, Deputy Bertie Ahern and then Tánaiste, Deputy Mary Harney agreed that this was a scandal that had to be brought to an end. Please do not tell me that people in the Department of Finance were not aware of this and did not offer advice.
One must pay all due respect to the Minister as a lawyer. In a lawyer's way he seeks to avoid that aspect. The terms of reference include the need to get the advices or communications from the Department of Finance to the Regulator and the Central Bank but there is nothing about what was said to the Minister or what the Department of Finance officials might have considered among themselves, as public servants. This is a very clever confinement of the supposed role of the Department of the Finance in this investigation to a very specific point.
We are spending €1.8 million on this to the end of the year, which appears adequate for the type of inquiry into the banks the Minister has in mind. Many taxpayers might believe that it is even on the high side. However, it is extraordinary the way the Minister has sought to draw a line of exclusion around Fianna Fáil and the various Ministers of Finance. On the Minister's part that may be a political desire to protect his boss, the Taoiseach, from any inquiry into the conduct of his role as Minister for Finance and how he steered the ship onto the rocks.
I want to refer to the Labour Party's proposal to widen the terms of examination of the commission into the role of auditors. I have great respect for the Attorney General and know he is exceptionally hard working. The problem is the terms of reference and whether the auditors actually advised the banks as regards policies which were wrong. That is not the role of an auditor, however. If Michael O'Leary, for example, decides to make Shannon Airport the hub of his operations and chooses to have all his flights out of there, it is not the role of an auditor to tell the businessman that his fundamental idea is wrong. That is business decision. It is the role of the auditor to decide whether such a decision is within the powers of the company, not to tell the business person that this or that is what he or she may or may not do – or to suggest an idea about lowering prices is crazy, or that basing Ryanair at Shannon Airport is unwise. That is not the point of an audit, yet I fear that the response the Minister's investigator will come up with is predetermined.
The former Comptroller and Auditor General, Mr. Purcell, is undertaking some inquiries, I believe, for the Institute of Chartered Accountants in Ireland. God only knows when we are going to see them. I do not believe the terms of reference will give the quality of answer and insight into the role of auditors that is needed. Despite this I believe there is agreement in this House in regard to what we want to find out.
Turning to the issue of confining the date in regard to the Central bank, the Regulator and the small reference to the Department of Finance, to 28 September.
That is very sensible, otherwise it is Wallender-like - I assume the Minister is aware of the Swedish detective, Wallander, and we are having someone now from Finland. This Finnish Wallander, would have to approach it in an opposite direction from the banks, and work back from the period starting 29 September, into the banks, the Central Bank and the Regulator. I do not know whether Mr. Nyberg is Wallander, but he will need to be when it comes to dealing with the terms of reference. It is good that the Minister accepts this.
The most extraordinary aspect of the revised NAMA business plan is the board's admission of a deterioration in its original estimates with losses of €5 billion now predicted. The House has got so used to talking in billions that the value of money has lost its meaning. The outcome, however, of these decisions has left people with an extraordinary debt overhang. While I never contested the banking problem would cost much money, if the Labour Party's proposals – even variations of them - had been accepted, we would have some functioning banks now with only half of what the Government spent.
NAMA's revised business plan contained one line stating derivatives worth €14 billion were being taken off the banks' balance sheets and taken on by the taxpayer. During the crisis, we were repeatedly given the Lehman Brothers defence which Regling, Watson and Honohan blew out of the water by pointing out that the Lehman collapse was irrelevant as the crisis was homemade. We were also told constantly that there was no problem with complex financial instruments affecting our banks.
Yet, now in the revised NAMA business plan up pops €14 billion of derivatives with a note saying a considerable amount of these have no value. The business plan states:
Derivative transactions with a nominal value of €14bn (principally interest rate swaps) will also be transferred. A substantial number of these derivatives are nonperforming and NAMA will pay nil consideration to acquire them.
The problem is we are taking on the contingent liability that goes with these derivatives. They are interest-rate swaps – the very products that did for Lehman Brothers and many other financial institutions.
Economic governance is so poor in this country that this revised business plan does not even set out the likely level of the liability that may arise. When the State guarantee was introduced, the Government said over and over again the banks did not have fancy financial instruments. In the last days before the empire went down, did someone in Anglo Irish Bank buy and sell interest-rate swaps? How much of these €14 billion derivatives and their contingent liability stem from Anglo Irish Bank?
For ten days before they were published, the Minister for Finance and the Government had the Regling, Watson and Honohan reports in their hands, during which they could analyse them and prepare their rebuttal. Will the Minister for Finance give a commitment that when Mr. Peter Nyberg, the Finnish Wallander, completes his report it will come directly to the House and not be offered to Fianna Fáil to do a scissors-and-paste job to suck anything out of it that defends its position? Holding the first banking reports for ten days was an abuse.
I welcome the Minister's recent substantial move at the Oireachtas finance committee on the terms of reference for the banking crisis commission of inquiry and the investigation into what can be best termed regulatory governance, including auditing. I also welcome the hearings into the macroeconomic aspect of this. This has instilled some confidence that this could be a constructive exercise, avoiding some of the squabbling that has gone on.
It is critical the role of auditors is examined in this whole mess because they have a public function, whether it is in the banks or corporate entities, and they are self-governing. I agree with Deputy Burton on their role as not to be giving advice to companies but to report to the regulators and the public as to the viability, or otherwise, of companies. It is beyond me how the auditors missed so much of the goings-on in the banks. Why did they look the other way? Were they taking their nod from the regulators in the Central Bank or the Cabinet? I would love to know why they thought they could do what they wanted.
Will Ministers of the time in question give evidence, if invited to do so, at the committee's deliberations on the political management of the macroeconomic issues? The committee's capacity would be diminished without this input.
The review of the Department of Finance will be interesting and necessary. I look forward to that report when it is published. I cannot wait to read Mr. Nyberg's CV to see how he has preformed in his career to date.
I welcome the extension of the time to be examined to 15 January 2009. This was necessary as it will now include the decision to nationalise Anglo Irish Bank. It would have been easy for the Minister for Finance to seek to avoid such an extension, so I am glad he came clean on it.
One of our jobs is to examine economic policy. Since 2003 to the banking crisis it was misjudged, to put it mildly. Current government economic policy is equally misjudged in that it does not recognise the need for a State bank. The chief executive officer of NAMA, Mr. Brendan McDonagh told the Oireachtas committee on finance three weeks ago that the banks were not giving him the accurate information he required or co-operating as fully as he would have expected. Although there is provision in legislation for NAMA to pursue institutions or bank executives, it is not happening.
This is creating the perception among many that a golden circle of untouchables exists. Mr. Frank Daly, chairman of the NAMA board, told the committee he was surprised at some of the atrocious findings made when examining toxic accounts in several banks. Why Mr. Daly would be surprised is beyond me because he was chair of the auditing committee and a director of NAMA for some considerable time.
Well, it has been untouchable up to now. I agree that it has been a circle of incompetence, but perhaps to describe these people as incompetent is to let them off the hook. Some would say they are particularly competent but have their eyes on something else - enriching themselves and their friends. Let us hope some of this will come out in the inquiry.
The bottom line is that if institutions are not co-operating with NAMA in the way they are expected to, why have prosecutions not arisen from this? It is bizarre in the extreme. A substantial in-depth investigation is needed. The major surprise for me was that Mr. Daly was surprised at all. I thought that having held a position in the most toxic bank of all, he would have had an insight into what was going on. Thus, it is quite telling that he says he is surprised at the level of deceit that had continued up to recently with regard to the extent of toxic loans.
The absence of specific and detailed figures, projections and so on leaves the business plan quite weak. The principle of long-term economic value is still being applied by NAMA, and we do not know where it will stop. One can calculate long-term economic value on the back of a cigarette packet and one's guess will be as good as anyone's. Why are we not talking about current market value when discussing these toxic loans? In that case we would all know what we were talking about. It certainly will not be the 50% of the total value that NAMA has been paying to date; it is more likely to be of the order of 20% or 25%. We know this from the Carroll High Court proceedings. The business plan mentions a worst-case scenario of a loss of €800 million, but I am concerned that it may go well beyond that.
If the Government's policy had been to create a State bank, the Minister and his colleagues at Cabinet would have had their hands on the levers of that bank. They could have appointed people with credibility - decent, honest people - to run the State bank and ensure that the Government knew exactly where it stood. Another major positive outcome would have been the safeguarding of credit for SMEs, which would have saved thousands of jobs across the land.
At the meeting of the Joint Committee on Finance and the Public Service, we discussed in private the work of the committee. In terms of expertise, we must make a difficult appointment. I accept that we in the committee need expert guidance, advice and briefing on a host of matters that will arise along the way. The selection of a person to do this is likely to be controversial, although I hope it is not. I hope that somebody with an international reputation, whether he or she is Irish or otherwise, can be found, because Sinn Féin is not looking for a squabble on this; we want to get through the business at hand and make a report as quickly and efficiently as we can. That is the objective of all parties in the committee.
The timing will be difficult; the Minister will be even more conscious than us of the budget coming down the line just a few weeks after the report is due to be completed. It is imperative that the report is done and dusted and discussed on the floor of this House well in advance of the budget, because we all know that will be a major challenge for the Government and, even more so, for those who will be at the sharp end of it. It appears that this will again be a slash-and-burn budget, with more cutbacks, even though it does not need to be. There are other options. I am not talking about borrowing but about raising money in a fair and equitable way. The Minister knows better than I the extent of the wealth that has been out there since long before the Celtic tiger. There is still substantial wealth in the State and there are people who could afford to pay a wealth tax. This would yield more than €1.5 billion; the minimum figure I am given by economists with regard to the yield from a 1% wealth tax is €1.6 billion. They are the people who are able to bear that burden.
The Minister said there were signs of life in the economy. I am afraid that if he were listening to the news he would probably describe the economy as still critically ill. We need to find a way to stimulate the economy to create jobs.
No. I have dealt with the wealth tax; that is a separate issue. The Minister is taking money from the National Pensions Reserve Fund to support the banks. Why will he not take a small amount from the fund to stimulate the economy, for example, through a schools building programme, which would create jobs and get some of the 452,000 people on the live register back to work? That in itself will create activity in local areas to stimulate further economic activity, whether in the form of garage industries or entrepreneurs doing what entrepreneurs do, which is to create employment and make things happen. However, it needs that stimulus from the Government, and this has been singularly absent to date. I acknowledge that some measures have been introduced by the Government in an effort to retain and create jobs, but it has been minuscule in the context of what we are facing. We need a substantial lift. I am suggesting that €2 billion taken from the NPRF would be money well spent, and the pensioners of the future, who will rely on the fund, would be repaid many times over if such a stimulus package were introduced.
I hope we can get through this investigation expeditiously, thoroughly and with substantial accuracy so that we can deal with these issues once and for all. However the investigation ends, though, the current policy direction of the Government is wrong in the extreme.
I thank Deputies for their interventions in this debate. I will deal with issues raised on all sides.
Deputy Noonan raised the question of the information flow from the regulatory and central banking system to the Department. The difficulty is that we are trenching upon the distinction I drew in the debate - which is the one point of difference between our position on the terms of reference and those of Fine Gael and the Labour Party - between areas of political accountability and those relating to the banking system itself. The Government has decided to draw a distinction with regard to these inquiries.
Deputy O'Donnell raised the question of why a different date was provided for the banking system as opposed to the regulators and supervisors, and Deputy Burton echoed that concern. Deputies will appreciate that there was considerable telescoping of time in the preparation of these terms of reference because the committee kindly met on Monday evening and then I had to brief the Government on Tuesday, and I must admit the differentiation escaped my attention. It is not really sustainable because if one is considering the banking system and regulation at the same time-----
Procedurally, I am advised that we cannot change the terms of reference today in the House, so I am undertaking to the House that the terms of reference will be changed. I understand there is the power to subsequently amend the terms of reference-----
-----so I am proposing to do that. That cannot now happen until late September or early October, but I can make the decision now and advise the chair to proceed on that basis. The necessary change can be made by way of a motion without debate in the House in the autumn.
That is what I said I intended to do. I undertake to make the necessary change and I will advise Mr. Nyberg of my intention to do so in order that he can proceed with his work along those lines.
That deals with the issue and we do not need to develop it further. Clearly it is essential, since the regulatory system is inextricably linked with one of the transactions identified by Deputy Noonan in his contribution. It is essential that aspect of the matter is part of the terms of reference and I do not have any difficulty with that.
Deputy Noonan also asked whether the advice the committee will seek to obtain will delay the operations of the committee. That is a matter for the committee itself. I do not know, but if the advice was provided on a party rather than on a committee wide basis, it might enable the members to proceed without the necessity for procurement. However, that is a matter the committee should examine and not a matter for me. I am not trying to intervene in the business of the committee, but I am sure some way can be found to ensure that the necessary expertise is available to the committee to examine what can be difficult and complex matters.
Deputy Noonan went on to make more general remarks on the question of the liquidity crisis, which was the main concern of the Government in late September 2008. I recall saying in that debate that we were going in deep. We were well aware that we were going into a system that required detailed examination and, therefore, the PriceWaterhouse Coopers' examination of the bank assets then took place. Deputy O'Donnell touched on that in his contribution. A significant amount of information was assembled in that regard, some of which was put into the public domain. However, much of it could not be put into the public domain because of its sensitive character.
Deputy O'Donnell raised the issue in the context of the recent operations of NAMA and the business plan now approved by the board. That is the business plan of NAMA. The one advantage NAMA had as against its predecessors was that it was building on the work PriceWaterhouse Coopers had done, on the work of the due diligence exercises which took place prior to the capitalisation of Bank of Ireland and Allied Irish Bank and the abortive capitalisation of Anglo Irish Bank. In effect the due diligence led to the nationalisation rather than the capitalisation of Anglo Irish Bank. NAMA had the advantage of that work already being done and has been able to bore deeper as a result. It has also, of course, had the advantage of a statutory mandate and of statutory provisions in respect of disclosure by the institutions themselves.
Let us be clear. The draft business plan that was submitted to the House last autumn was just a draft, prepared by the interim NAMA executive. At that stage, NAMA was far more dependent on information voluntarily supplied by financial institutions, including the PriceWaterhouse Coopers' report, than it was in its more recent exercise.
Deputy Burton raised the question of the terms of reference and asked why these did not extend to the Government and the Department of Finance. I believe there are two distinct issues Deputy Burton is anxious to see examined. One relates to the causes of the crisis and the fact that the response, the analysis, the assessment, the Department may have made and the advice it may have given to successive Ministers with regard to the causes of the crisis. The other relates to the phase of crisis management and how the Department responded when the crisis became manifest and how decisions were informed in that regard.
With regard to the causes of the crisis, Messrs Watson and Regling have said there is a fundamental distinction between issues which are susceptible to legal analysis and examination and determination of fact and wider political issues. In my respectful view, this question of the causes of the crisis is a wider political issue and is not a matter into which a commission of inquiry should inquire. It is a wider political issue and there is much information on it in the public domain. Deputy Burton herself participated in much of it and in this House participated in questioning of successive Ministers. There is a wealth of information in the public domain on these matters already. Clearly, were the commission to be asked to look into that matter, it could continue its investigations for a very long time. The request for a commission of inquiry into the causes of the crisis reminds me somewhat of the commission the late Éamon de Valera always wanted to see, into the causes of the Civil War. One cannot have a commission of that type, going on forever into a complex set of historical circumstances, where there is a wealth of information in the public domain already, all of which has been parsed and analysed by the partisans of different historical interpretations.
The second aspect of the Deputy's concern relates to the crisis management aspect, once the problem came into the public domain. The Deputy has always fastened on a date around St. Patrick's Day 2008 when the first signs of a disturbance in the share price of Anglo Irish Bank materialised. Others fasten on September, where the lava that was building up in the subterranean caverns of the banks finally imploded and came to the surface. Whatever date we fix upon, it is clear that the Department, and I as Minister, had to undertake the task of crisis management at that stage. Many legitimate criticisms can be made, given the scale of management that had to be undertaken in such a crisis. However, what is lacking in any suggestion that this should be referred to the commission, is any foundation of any impropriety that has been laid.
When we have had inquiries into Departments in the past, such as the inquiry we had presided over by the late Chief Justice, then the President of the High Court, Mr. Justice Hamilton, into the beef industry, we had concrete allegations with regard to the administration of the Department and its political head. We do not have that here. We have had plenty of political charges on the floor of the House, but at no stage has it been suggested with regard to the phase of crisis of management that there was any impropriety in the conduct of the Department. Therefore, it is not a matter for a commission of inquiry. Indeed, Messrs Watson and Regling gave the opinion to the committee that the crisis management had been excellent. I might not subscribe to that point of view myself, but there is certainly no foundation for referring that aspect - the Department's management or myself - to a commission of inquiry. I believe it is important that my Department is enabled to get on with the job of continuing the important job of economic management that must take place in the country here and now. I am quite satisfied there is nothing that would immobilise my Department faster than the establishment of a commission of inquiry into it now.
I have dealt with most of the points raised. Deputy Morgan asked about the Taoiseach and asked who was prepared to go before the Joint Oireachtas Committee on Finance and the Public Service. The Taoiseach has made it clear he is prepared to go before it and I am also prepared to go before it. I cannot speak for persons who are not members of the House.