Thursday, 1 December 2011
Credit Institutions (Eligible Liabilities Guarantee) (Amendment) Scheme 2011: Motion
That Dáil Éireann approves the terms of the draft scheme entitled Credit Institutions (Eligible Liabilities Guarantee) (Amendment) Scheme 2011, a copy of which draft scheme was laid before Dáil Éireann on 28 November 2011.
This year has been a significant one for the Irish banking sector. The financial measures programme, FMP, announced on 31 March last by the Central Bank was a rigorous analysis of the capital and liquidity requirements of the domestic banks and formed the backdrop against which the Government announced proposals to comprehensively restructure and reform the banking sector. These proposals represented a benchmark in the process of reorganising and strengthening credit institutions in Ireland and were a necessary follow-up to the decision to accept assistance from the external partners in November 2010, and to carry out the consequential adjustment programme.
Given the main role played by the weakness in our financial system in bringing about the need for external intervention, it was vital to quickly address this issue. This has and is being done through a number of actions, in particular, by requiring an increase in bank capital sufficient to ensure adequate capitalisation based on conservative and rigorous assumptions about future requirements; by initiating a sizeable de-leveraging of the banks concerned through the amortisation and sale of non-core assets, with the intention of achieving a more prudent loan-to-deposit ratio; by creating a domestic banking system centred around two universal, pillar banks, AIB and Bank of Ireland; and by focusing on a drive to meet bank funding requirements, both in terms of deposits and issuance of debt securities. It is in this latter context that the extension of the eligible liabilities guarantee, or ELG, scheme remains of crucial importance, and so I would like to turn to the motion before the House to approve the draft statutory instrument entitled the Credit Institutions (Eligible Liabilities Guarantee) (Amendment) Scheme 2011.
As the House is aware, the ELG scheme, which was introduced in December 2009, provides a Government guarantee in respect of certain liabilities of a number of credit institutions in Ireland. Given its nature, the scheme is time limited so that any prolongation requires that the scheme be amended periodically, and this must be done by bringing a motion before the Houses of the Oireachtas in accordance with section 6 of the Credit Institutions (Financial Support), or CIFS, Act 2008, as amended. As matters stand, the ELG scheme would expire at the end of December of this year in the absence of a prolongation.
The statutory instrument contains two necessary amendments. Item 1 amends paragraph 3.1(b) of the Schedule to the scheme, which sets out the period within which institutions may apply to join it. This amendment seeks to extend the application period by replacing 31 December 2011, with 31 December 2012, to reflect the one-year time extension to the scheme in law. Item 2 amends paragraph 2.1 (c)(ii) of the Schedule to the scheme which sets out the temporary criteria which a liability must meet to be considered eligible. This amendment seeks to replace the current end date of 31 December 2011, by which eligible liabilities must be incurred if they are to be guaranteed, with a new date in national law of 31 December 2012. Both amendments are subject to the continuing approval of the European Commission.
This conditionality arises because all banking guarantee schemes are subject to EU state aid rules and these rules provide in practice that schemes be approved for a maximum period of six months in advance. Therefore the ELG scheme will remain subject to six-monthly Commission approval, notwithstanding the proposed one year extension in national law. This necessary approval has already been sought from the Commission and is expected to be formally given within a matter of days. Once given, this will mean explicit EU approval for the scheme until 30 June 2012, that is, for the next six months, in line with existing practice. Further state aid approval could then be sought before this date in order to cover the final six months of the scheme's extension to the end of December 2012 if this is required.
It is also necessary to seek the views of the European Central Bank in these matters and the ECB has already given a favourable opinion on the proposed prolongation of the scheme, stating that: "Taking into account financial stability considerations, a further extension of the ELG scheme would be beneficial". The views of the relevant Irish authorities, the Central Bank and the National Treasury Management Agency, NTMA, which are fundamental in any assessment of the future of the scheme, are also supportive of its extension. I shall return to this matter later.
I shall now give some detail on the scheme and on the raison d'être for its proposed continuation. The scheme, as I already mentioned, commenced in December 2009. It was effectively a successor to the credit institutions financial support, CIFS, scheme, although both schemes co-existed for a period until the expiry of that scheme on 29 September 2010. The ELG scheme is more focused than its predecessor and covers both a narrower range and smaller amount of liabilities. The scheme covers eligible liabilities as defined in paragraph 11 of the Schedule to the scheme. These liabilities can be summarised as consisting of certain deposits and various unsecured debt securities. As retail deposits of up to €100,000 are already covered under another scheme, the deposit guarantee scheme, the ELG scheme only covers sums above this figure in such cases.
The credit institutions which are part of the ELG scheme are described as the "participating institutions". They are, principally, AIB, Bank of Ireland, Irish Life & Permanent and the IBRC or Irish Bank Resolution Corporation, formerly Anglo Irish Bank and the Irish Nationwide Building Society, and their subsidiaries, including the EBS. The full list is published on the NTMA website. Participating institutions may take deposits and issue debt, with a maximum maturity date of five years, during the so-called issuance period which runs from the date the institutions joined the scheme to the end date of the scheme, currently 31 December 2011.
At present, some €100 billion in eligible liabilities are covered under the ELG scheme, compared with liabilities of €375 billion at the beginning of the CIFS scheme. Later, in mid-2010, a combined figure of €256 billion was guaranteed by both schemes when they overlapped and just before the CIFS scheme expired. After this expiry, at the end of the third quarter of 2010, the amount guaranteed under the ELG scheme alone was €147 billion.
The decrease in these eligible liabilities figures from €256 billion to €147 billion and, later, to the €100 billion figure mentioned, reflects a number of factors. These were, principally, the non-renewal of some senior unsecured debt and deposits which matured under the CIFS scheme; second, a "fall-out" of those liabilities - asset covered securities and dated subordinated debt - which were not eligible to be covered under the ELG scheme; and, third, there were the turbulent market conditions and negative sentiment that prevailed about the financial system in Ireland in 2010, which resulted in large outflows of corporate deposits from the institutions in the latter half of that year. However, this year the rate of deposit outflows from the institutions has slowed significantly and the level of deposits since mid-year has been steady. Nevertheless, the market remains fragile and it is imperative that no action be taken that would cause any negative movement in deposits which remain so important as a funding source for Irish credit institutions in the absence of conditions that would allow normal debt issuance by the participating institutions.
It is against this background that the Central Bank has advised of the necessity to continue and extend the ELG scheme until 30 June next, in line with the EU six monthly approval period, while also agreeing with the extension of the scheme in national law until 31 December 2012. The operator of the scheme, the NTMA, has also confirmed that an extension is advisable. The consensus of the authorities is that in a market where there is little opportunity for Irish banks to issue debt or paper and where depositors, especially the public, still need to be reassured that both bank funding and their deposits remain secure, the need for the continuation of the scheme is beyond question. Moreover, the extension of the scheme complements the financial measures programme announced in March as it was assumed by the Central Bank, in the context of the prudential capital assessment review, that the ELG would remain in place during 2012 and 2013, subject to EU approval.
Of course, since the Minister for Finance, and thus the State, is guarantor for all eligible liabilities under the ELG scheme, there must be a quid pro quo for the provision of the guarantee and therefore the participating institutions must pay a significant fee to the Exchequer. The fee structure is set down under recommendations which apply to all EU banking guarantee schemes and which are based on first, recommendations dated 20 October 2008 of the governing council of the European Central Bank on government guarantees for bank debt and, second, on subsequent recommendations from the EU Commission set out in a DG Competition staff working paper, dated 30 April 2010, which apply state aid rules to government guarantee schemes concerning bank debt issued after 30 June 2010.
The outcome of the Commission recommendations was a staggered increase in fees payable in respect of new issuances in the second half of 2010, in accordance with the maturity of the debt concerned and the credit rating of the institutions involved. In a nutshell, the fee structure is aimed at encouraging banks to move away from dependency on short-term funding, in particular that less than three months in duration. Consequently, for debt or deposits issued today which fall into this category, the guarantee fee is 160 basis points, excluding retail deposits which attract a fee of 90 basis points. All debt and deposits with a maturity of between three months and one year attract a fee of 90 basis points also. For longer-maturity debt, the fee is between 126.5 and 134.5 basis points.
The consequences of the revised pricing structure are that the level of fees earned by the Exchequer has increased. As a result, participating institutions are now paying an average of some 100 basis points compared to the 50 basis points for short-term debt that was charged at the beginning of the scheme. In monetary terms, about €1.8 billion in fees have been paid to date under the ELG scheme of which more than half, or €947 million, has been incurred in the first three quarters of 2011, compared with €855 million for all of 2010. A new Commission fee structure is expected to be in operation in 2012 which will leave fees unchanged for debt of less than one year's maturity while resulting in some small decrease initially for debt of longer maturity. The fee structure may be revisited in the future if member states were to reach agreement on so-called pooling arrangements for EU-wide guarantees of bank liabilities.
Earlier I mentioned the two specific amendments to the scheme before the House that are necessary to extend the scheme in law. For the further information of the House, however, I should mention in passing that there are also two amending orders of a consequential technical nature which will have to be made if the statutory instrument amending the scheme is passed by this House. These are called financial support orders and will be made in exercise of the powers that are conferred on the Minister for Finance under section 6(3)(b) of the Credit Institutions (Financial Support) Act 2008 or CIFS Act. These orders do not have to be brought before the House as they are not part of the proposed amendment to the scheme but are supplementary to it.
The first order specifies the issuance period during which financial support, that is, the Government guarantee, may continue to be given, in accordance with section 6(3)(b) of the Credit Institutions (Financial Support), CIFS, Act, in respect of eligible liabilities incurred under the eligible liabilities guarantee, ELG, scheme. Effectively, this allows the current end-date of the scheme of 31 December 2011 to be extended to 30 June 2012 for the purposes of allowing the guarantee to continue to apply to eligible liabilities incurred. The new issuance period will therefore run from 1 January 2012 to 30 June 2012, that is, the period approved by the Commission under state aid rules. It replaces the existing issuance period which runs from 1 July to 31 December 2011.
The second order sets down the end-date for financial support in accordance with section 6(3)(b) of the CIFS Act 2008, which allows the Minister for Finance to specify the date beyond which such support cannot be given. This date will now be extended to 30 June 2017 instead of the current date of 31 December 2016. This is to deal with those liabilities under the ELG scheme which may have a maturity of up to five years and which would therefore have to be guaranteed even if the scheme itself were to expire on 30 June 2012. In this way, for example, a depositor who has made a fixed-term five year deposit with an institution on, say, 31 May 2012 would enjoy a guarantee of the sum involved up until 31 May 2017.
Notwithstanding the overarching need to extend the ELG scheme for an additional period, I should mention here a positive development in this area, namely, the recent indications that there may be some demand in the near future for non-guaranteed deposits from the participating institutions. This was shown by the request, made in accordance with paragraph 13 of the Schedule to the ELG scheme, from these institutions to be allowed to offer unguaranteed deposits to certain corporate and institutional customers. I responded positively to this request by publishing the necessary technical notice on 16 November last, a notice which allowed such offers to be made subject to certain conditions, which made clear that unguaranteed deposits had to be clearly labelled as such and that they were not open to normal retail depositors as defined in the rules of the scheme. It was also made explicit in the notice that guaranteed deposits were unaffected by the new development.
The fact that a request to be permitted to offer unguaranteed deposits has been made by the participating institutions is a positive sign that may yet be seen as one of the first steps in removing the necessity for the maintenance of the guarantee but I will not exaggerate the position. It is likely that internationally, especially in the European Union, market conditions will have to improve substantially before the issue of Irish bank unguaranteed paper can become significant. Nevertheless, a recommencement of the substantial downward trend in Irish Government bond yields on the secondary market evident since July until quite recently could help move sentiment in the direction of unguaranteed bank paper also.
In summing up, it would in truth be preferable if there were no need to bring this statutory instrument before the House today since such a situation would infer that a guarantee for bank liabilities was no longer required. That this is not the case is a fact of financial life, however, and we must accept it for the present. Nevertheless, the need for a bank guarantee is kept under review and the requirement to obtain formal EU state aid approval every six months is a continuing obligation that ensures that the ELG scheme will be extended only as necessary and only after the reviews of all the relevant authorities are taken into account. In the meantime, present market conditions and the need to safeguard the stability of bank liabilities in a turbulent market on the one hand while, at the same time, giving comfort to providers of such funding on the other hand mean that the ELG scheme must be extended. The position will be reviewed in advance of the 30 June 2012 date in accordance with the existing state aid approval schedule. I commend the scheme to the House.
I wish to share time with Deputy Kelleher. I will take ten minutes and Deputy Kelleher will take the balance.
This debate is taking place against an extraordinary back-drop of uncertainty and fear. My party will be supporting the motion before the House. I do not believe we have any choice as a country. The consequences of ending the eligible liabilities guarantee scheme at this time would be extremely serious. It would inevitably result in a deposit flight from Ireland and our banks would suffer devastating consequences as a result. At this time investors, the markets and the international community are very sensitive to any policy shift, however minor it might appear to be, but ending the ELG at this time would be a fundamental shift of policy and would certainly result in changed behaviour in terms of where deposits are being based. In that context and against that back-drop it is important that the motion before us is supported.
I will not spend time discussing the politics of this; it got a good airing on the Order of Business and I am sure it will again later in the debate. It is fine when in opposition to discard the advice of the National Treasury Management Agency and the Governor of the Central Bank, as the then Opposition parties did in December 2009 when the ELG scheme was first introduced by the then Minister for Finance, the late Brian Lenihan. In September 2010, when the ELG scheme was being extended for a further year to the end of 2011 and the amount being guaranteed under the ELG scheme had been substantially reduced from the CIFS scheme down to €147 billion, it was again opposed by Fine Gael and Labour. They are now proposing an extension of the same guarantee substantially on the same grounds set out by the then Minister in late 2010 for it to be extended.
We must acknowledge that people are very fearful about the security of their deposits. When they watch the news every night and hear political leaders in the European Union talking about having days or weeks to save the euro it sends shivers down the spine in terms of the safety of their money. Along with many other Deputies, I am sure, I am taking telephone calls from very concerned constituents who are worried as to what they should do with their money. We all want to advise them that the euro is safe, that the Irish banks are safe, that there is a guarantee in place, and that there is no risk whatsoever but that advice is undermined by what they are hearing every night on the news. It is essential that finality to the greatest extent possible is brought to this crisis at next week's European Council summit.
In that regard I welcome the co-ordinated intervention yesterday by the main central banks across the globe - the European Central Bank, the Bank of England, the Bank of Japan, the Swiss National Bank, the Bank of Canada and the United States Federal Reserve - in making unlimited US dollars available to European banks. That in itself should be a precursor to a far more aggressive government bond buying programme by the ECB. It has been speculated that the ECB would target a limit on government bond yields or on the spread between the interest rate on German and other government bonds. That would be a significant boost to confidence in the wider market.
The fact that the central banks have moved ahead of the politicians is in itself instructive. As well as providing help for banks, the co-ordinated action sends a signal that the central banks will not wait on political instruction before they act. That is implicitly acknowledged in the statement by the Bank of Japan, for example, which stated:
There is ... a possibility that Japan will be adversely affected, should conditions in global financial markets deteriorate further. The Bank of Japan will continue to maintain financial market stability in close co-operation with other central banks.
Given the endless rounds of crisis meetings and summits we have had at European level in recent months it is reassuring to know that we are not depending exclusively on the outcome of any negotiations at Franco-German level to design a solution to this crisis. Next week's summit will be of critical importance and I hope next week will mark another milestone in terms of the interest rate being charged by the ECB, which could provide some easing of the burden for tracker mortgage holders and, hopefully, variable mortgage holders, if the governing Council decides to reduce the main interest rate further at next week's governing Council meeting.
The extension of the ELG scheme is the correct decision for the Minister to make. The banks are still rebuilding their deposit base and that process would be quickly put in to reverse if the guarantee were suddenly withdrawn. The risk of deposit flight is certainly real and substantial.
To put this in context, I have been looking at some numbers going back over the last few years. Total deposits at the six covered institutions came to €425 billion at the end of 2008. By the end of March this year, when the financial measures report was published, that figure had fallen to €311 billion. The most significant move in the banks' deposit base was in their non-domestic deposits, which collapsed from €196 billion to €76 billion; a fall of €120 billion. Domestic deposits had actually increased over the period from €229 billion to €235 billion. This showed that in terms of stabilising domestic deposits, the guarantee had broadly worked, but the banks' ability to attract funds from outside the domestic economy evaporated over that period of time.
The banks have made up this loss of deposits via an increase in reliance on central bank liquidity, both from the Central Bank of Ireland and the ECB. At the end of March, the banks had borrowed €180 billion from this channel. This is ultimately not a sustainable situation. The ECB simply will not term fund the Irish banking sector, and the need for the Irish banks to attract further deposits, while carefully reducing their loan books, is the biggest challenge facing them. At the same time, we are demanding of them that they meet the credit needs of the economy. They have a very difficult challenge to meet in that respect.
The timetable on the deleveraging of the banks' balance sheets, set out in the memorandum of understanding with the ECB and the IMF, needs to be revisited and renegotiated. Forcing them to carry out deleveraging in the manner agreed will be unhelpful and is inconsistent with the requirement that we all want them to fulfil, in terms of meeting the domestic needs of the economy. In respect of the sale of the non-core assets and the rebuilding of the banks' loan to deposit ratios, the Minister should consult with the Central Bank, examine the terms of the MOU and seek to renegotiate a lengthening of the time for the banks to meet those criteria.
The banks are making some progress in this regard, which is welcome. Bank of Ireland reported an increase of 3% in deposits in the three months to the end of October. The covered banks have reduced their dependence on Central Bank funding to a total of €148.6 billion.
The State has become quite dependent on the level of fees being paid by the banks on foot of the ELG. The Minister acknowledged the figures in his own contribution. The State has received €1.8 billion under the ELG since it was introduced in December 2009. It received €969 million to end of October in the Exchequer returns. That is more than three times the receipts that the State received over that time from CAT or CGT. It is effectively becoming a new form of stamp duty. When the ELG eventually ends, there will be a hole in the public finances. If the ELG had ended this year and the fees were not paid, it would have been to the tune of €1 billion. As the banks are weaned off the guarantee, this money will be available to the banks to offer more attractive deposit rates or to improve their profitability. The corollary of this is that in time, the income will be lost to the State and the Minister will need to plug the gap in the State finances. I am sure he is well aware of that.
I welcome the opportunity to debate this issue in the House. The extension of the guarantee scheme for another year was originally announced as a press release in the dark hours of the morning from the Department of Finance. Deputy McGrath has outlined the technical reasons behind it and the importance of this scheme in rebuilding confidence in the banking system. The way it has been announced is an indication that there is much disquiet in Government circles, as it has had to do a volte-face of major proportions.
This debate has been ongoing since September 2008 and it has been a big political football. I accept that there is cut and thrust in politics, but given that this Government has decided to extend the guarantee, in view of all that was said by the Government parties when they were in opposition, it shows that the right decision was made from the start. We had to make sure that we had a functioning banking system and that we were able to build confidence in that system in Ireland, admittedly in a different scenario, following the winding down of Anglo Irish Bank, its amalgamation of deposits with AIB and the restructuring announced in March by the Minister. The announcement by the Minister was indicated by the previous Minister for Finance, who said just before the election that due to the major decisions which had to be made on restructuring the banks, it would be more appropriate for the new Government to make them, rather than the outgoing Government which was vacating office.
This has been a very expensive exercise for taxpayers, but equally it had to be done and it is critically important that we have honest debate in this Chamber on how we deal with the banking system. As Deputy McGrath outlined, it is becoming a source of revenue for the Government to be used in current expenditure this year and next year. While the then Opposition opposed the decision tooth and nail, it has been very quick to spend the money that the scheme has generated now that it is in Government. I am in this House for nearly 20 years and this is one of the most breathtaking U-turns I have ever seen. The then Opposition vilified anybody who supported the guarantee in those very difficult times in 2008, when this country was on its knees and a tough decision had to be made.
Does the Minister actually have confidence in the Governor of the Central Bank? When in Opposition, the Government parties said it was one of the worst decisions ever made, yet Professor Honohan's report quite clearly states that a broad guarantee had to be delivered on that night to ensure the survival of the banking system in Ireland and to ensure that we did not have a meltdown of the Irish economy in 2008. The Labour Party in opposition campaigned vehemently against that proposal and against the idea that we saddle the taxpayers with huge burdens. We did this, but we did it for the right reasons, when we made a very difficult decision to secure and guarantee debt of bondholders and depositors at the same time.
We then heard all about burning bondholders. It was to be Frankfurt's way or Labour's way. Quite clearly, nothing has happened in that respect. I raise these issues because it shows the absolute hypocrisy in the space of ten months. When he was in opposition, Deputy Shatter was constantly accusing the previous Government of not jailing bankers. We assumed that when he became Minister for Justice and Equality, there would be funeral pyres outside Dublin Castle, with bankers and bondholders being burned daily. Nothing has happened. It is very easy to stand on this side of the House and cast aspersions on the integrity of individuals on the other side of the House when they are making very difficult decisions. I am obliged to highlight the absolute hypocrisy of senior Ministers, when we remember what they said from this side of the House and when they were running around the country last February. I do not like saying this, but it must be said, because it was very dishonest campaigning to say the least.
I would like to read some comments into the record:
The amendment before us this morning is the recommencement of the bank guarantee of billions in the name of Irish taxpayers...It provides for the roll-over of the bank guarantee...The Minister is asking the taxpayer to provide yet another line of defence for the banking system...[Next week when the Government will announce €3.8 billion of] cuts in welfare and elsewhere, it will be to meet the higher interest charges Ireland has to pay on an increased national debt because of the incompetent way the bank guarantee was cooked up and then handled...The critical issue to be addressed is whether the banks have changed sufficiently to warrant the taxpayers dipping into their collective pocket once again.
These are not my words; they are the words of Deputies Joan Burton and Richard Bruton taken from their speeches to the House on 3 December 2009. The Dáil was debating the Credit Institutions (Eligible Liabilities Guarantee) Scheme that day. This is the same scheme that Fine Gael and the Labour Party are seeking to extend today. Both parties, then in opposition, argued strongly about the new banking guarantee and both voted against the scheme.
Nine months later on 29 September 2010, when Fianna Fáil sought to extend the eligible liabilities guarantee, ELG, scheme for a further six months, the Fine Gael and Labour Party opposition to the scheme remained steadfast. Deputy Joan Burton described the extension as a vote of confidence in the Government's banking strategy, firmly stating that the Labour Party does not do blank cheques. Deputy Michael Noonan, while supporting the principle of the extension, voted against it on the grounds that it would continue to provide cover for Anglo Irish Bank.
How the times have changed. Fine Gael and the Labour Party voted against the ELG scheme in 2009 and against its extension in 2010. Nevertheless, today we are being asked by Fine Gael and the Labour Party to extend the bank guarantee not for a further six months but for 12 months. We are being asked to saddle the State and its taxpayers with an unknown liability on top of the existing guarantee of €100 billion. We are being asked to write a blank cheque for the banks, including Anglo Irish Bank. Given the volatility in the eurozone it is likely that the scale of this liability will increase in the coming 12 months. Given the risk to the State and the taxpayer of the bank guarantee this represents the greatest and most expensive political U-turn in the history of the Dáil.
The Minister will be aware that the move today does not mark the beginning of the U-turn. That sad event took place behind closed doors in Government Buildings in June of this year when the Cabinet, including the Minister, Deputy Noonan, Deputy Joan Burton, Deputy Richard Bruton and others agreed to extend the bank guarantee until the end of 2011. However, today, unlike in June, every member of the Government and its backbenchers must vote on whether they wish to breath a further 12 months of life into what is universally regarded as the most costly and the most damaging decision ever taken by an Irish Government.
The scale of that U-turn is breathtaking given the depth of opposition to the bank guarantee, especially from the Labour Party. If there were one decision that represents the Labour Party's capitulation to the failed policies of Fianna Fáil it would be this one. So much for not writing blank cheques for failed banks. Naturally, those in the Labour Party, stung by the exposure of this complete U-turn, will attempt to deflect attention from its bad decisions. They will allege that they alone stood against the blanket guarantee in 2008 and that they alone had the courage to stand up to Fianna Fáil at the time. Naturally, this is not true but they have repeated it so many times that it is possible they now genuinely believe it to be true. The Dáil record shows and tells a different story.
Let me set the record straight. At the end of September 2008 there was widespread fear that a run on Irish banks was imminent, that our banking system was at risk of collapse and that many small depositors would be burnt. Many credible economists and commentators argued for a time-limited guarantee of deposits and liabilities of banks of systemic importance to serve as an emergency measure. Fianna Fáil, acting under pressure from the ECB which advocated not letting any bank fail, introduced the Credit Institutions (Financial Support) Bill on 30 September 2008. The Bill empowered the Minister to produce a financial support scheme to provide a guarantee for Irish banks which would be presented for approval by the Houses of the Oireachtas.
Sinn Féin gave conditional support to the Bill. We criticised its lack of detail and called for specific protections to be provided for the taxpayer. We argued for tougher regulation of the banks. We stated that any bank in receipt of State support should assist struggling mortgage holders in distress. We called for a specific levy to be applied to covered institutions. We made it clear that we would only support the scheme if our substantive concerns were met in the secondary legislation. Many of these concerns were echoed in the contributions to the debate made by the Labour Party, including that of the then finance spokesperson, Deputy Joan Burton.
Two weeks later the Government brought forward the Credit Institutions (Financial Support) Scheme to the Dáil. It met none of the tests set down by Sinn Féin during the debate on the enabling legislation. Rather it provided for a guarantee so expansive and comprehensive that anyone with an ounce of sense could see that the level of risk to the State and the taxpayer was unacceptable. Sinn Féin voted against the scheme on that basis. This is not an academic point. As the Minister is aware, the blanket guarantee only came into legal effect after the passing of the scheme by the Oireachtas on 17 October 2008.
The Dáil record clearly shows that Sinn Féin and the Labour Party were the only parties to vote against the scheme. The first banks to join the scheme did so on 24 October. The Minister of Finance confirmed as much in a reply to a parliamentary question from me on 8 November this year. This is on the Dáil record. Sinn Féin opposed the blanket guarantee then and we have done so consistently since. To suggest that Sinn Féin supported the blanket banking guarantee introduced by Fianna Fáil is a lie casually thrown about to distract attention from the facts and not supported by the Dáil record.
Perhaps some of the Labour Party Deputies and backbenchers will not accept my word for it but I suggest they would accept the word of the Minister, Deputy Noonan, in a reply to a parliamentary question on 8 November 2011 in which he stated that "The formal statutory legal basis for the guarantee was provided by the Credit Institutions (Financial Support) Act 2008 and the Credit Institutions (Financial Support) Scheme 2008", known as the CIFS, which were formally approved by both Houses of the Oireachtas on 17 October 2008. The Dáil record shows that Sinn Féin voted against the scheme but, more important, the decision on 17 October 2008 by Fianna Fáil, the Green Party and Fine Gael to saddle the State and the taxpayer with a liability running into hundreds of billions of euro had consequences more profound and long lasting than any politician or economist could have predicted at the time.
Throughout 2009, Sinn Féin and the Labour Party continued to oppose the bank guarantee. When the Government brought the Credit Institutions (Eligible Liabilities Guarantee) Scheme before the Dáil in December 2009 both parties rightly saw it as a mechanism to further extend the disastrous decisions of 2008. Deputy Joan Burton was right to suggest that supporting the ELG scheme was akin to voting confidence in Fianna Fáil's failed banking strategy. She was right to describe the ELG scheme extension as a blank cheque that would be used by the Government to increase the risk to the State and the taxpayer. Deputy Richard Bruton was right to withhold support from the ELG scheme on the grounds that the banks were not doing enough to help foster lending in the economy and to change their greed-driven culture. When Fianna Fáil came back again in June 2010 seeking to extend the ELG scheme for a further six months, Deputy Joan Burton rightly criticised the Government for having no exit-strategy from the banking guarantee while Deputy Bruton rightly questioned the inclusion of Anglo Irish Bank into any support scheme. With such a strong and vocal record of opposition to the ELG scheme by Fine Gael and the Labour Party one might believe that upon taking office they would have set about developing an exit strategy from this toxic debt.
However, at a Cabinet meeting in June this year Fine Gael and the Labour Party abandoned two years of principle and adopted wholesale the failed banking policy of their predecessors. Worse, today they seek a 12-month extension of this failed guarantee. The Minister's arguments and those of Fine Gael and the Labour Party are no different to those presented by the late Brian Lenihan in 2008 and by Deputy Éamon Ó Cuív on his behalf in 2009. There are no new justifications for saddling the State and the taxpayer with the additional risks that will arise from today's decision. This represents another blank cheque written by a Government in hock to the Irish banking system and the European Central Bank and has little or no regard for the consequences for ordinary working people. Clearly, the Labour Party writes blank cheques when Fine Gael asks it to do so. It seems an apt, if depressing, description of everything that is wrong with this coalition and the Labour Party's participation in it. Sinn Féin will oppose the proposed extension to the bank guarantee scheme today, as we have consistently done since October 2008. We will do so because it is the right and honest thing to do.
I want to make it clear to every Government backbencher that today it has asked us to write another blank cheque for the banks, including Anglo Irish Bank. It is asking us to give Government guarantees to unsecured private banking debt, a sum we will not know. We are asked to do this at a time of uncertainty and volatility in the banking system which will increase the level of risk to the taxpayer. Unlike others in this House, Sinn Féin will remain true to its principles and word and vote against this irresponsible request. We will push the issue to a vote and make others vote likewise.
I accept that the Government in 2008 was probably bounced into the bank guarantee, given the manner in which it was established. History will come down on the side of the view that the banks were pretty economical with the truth. The notion that they had a liquidity crisis no longer stacks up.
Over the following three years, we have slowly learned more and more. Things were far worse than they pretended. The banks all over Europe had one great comfort of the time, namely, lenders of last resort. Countries would back them to the hilt with unlimited support. Things have changed and the banks are calling the shots and deciding what happens. Sovereign countries are in difficulty and need help but do not seem to have a lender of last resort, unless the Germans decide to change their mind and allow the ECB to become such a lender. All the talk suggests they will not but perhaps the future might dictate otherwise.
September 2008 was a case of the tail wagging the dog and nothing seems to have changed. We are at the mercy of banks and the current banking squeeze on the real economy, which is a result of the problems in the banks, is causing huge problems all over Europe. The prospects of growth are constantly diminishing. Everybody agrees that growth is essential if we are to make any inroads into the unemployment figures or progress in creating jobs. Every Government in Europe would like to see more jobs but as long as governments, who have been the lifesavers of the banks, cannot tell the banks what to do, it is hard to see them playing ball.
The notion that taxpayers are paying for the poor decisions of the banks and we now cannot access funds is difficult to take. The chances of people, especially those running small and medium businesses, of getting money today are very small. Apart from financial issues, the financial markets are now interfering dramatically in the democratic process. There are unelected leaders in Greece and Italy. There has been a change of government in Spain and more people abstained or spoiled their votes than voted for the new Government. A democratic deficit is developing on the back of the crisis.
The editorial in today's Financial Times states:
The mother crisis – bigger even than the banks' woes – is of course the run on sovereign debt. Ireland found out the hard way that if a stressed sovereign tries to bear the excessive losses of banks, it breaks the back of sovereign and banking system alike. There is no need for the eurozone as a whole to make the same mistake – provided it prioritises securing governments' liquidity over the bottomless taxpayer rescue of banks. Central banks clearly meant to send the markets a message of global readiness to act, and to act together. One hopes that eurozone leaders got the message too, and that they will heed the example at their summit next week.
The fact that the Government is seeking to extend the disastrous decision to guarantee the banks in this country is proof positive that there is not a scintilla of difference between it and the last one. It demonstrates most graphically that Fianna Fáil and Fine Gael, notwithstanding the Punch and Judy show that sometimes goes on in here, are exactly the same when it comes to the core issues. It is a case of Tweedledum and Tweedledumber.
The bank guarantee was a disastrous decision. This country led the way and was the poster boy for the deranged neoliberal economic dogma that has plunged the entire European and global economies into an unprecedented crisis. It was also the people who led the way in the disastrous response to that by being the first to initiate a blanket guarantee of private profit crazed institutions whose reckless behaviour plunged this economy towards an abyss. Now the rest of Europe seems to be copying us in moving down the same road.
The policy is to protect the banks at all costs, regardless of the consequences for society or the possibility of economic recovery. The guarantee forced us into the clasp of the EU and IMF and the need to borrow money to pay off and recapitalise banks because of their reckless lending. It allowed them to put us in a vice grip where they can ram brutal austerity down the throats of our citizens, crucifying them and ransoming our entire future against the interests of the bankers and bondholders. This was not necessary and was done solely to protect the bondholders and corporate depositors.
We had a guarantee for ordinary deposit holders. What have we got for this? For all the money we have put into the banks and back stop that our citizens have provided for them, we have received nothing. They will not do anything for distressed mortgage holders and will not lend money into the economy. No matter how much we bow down in front of the bondholders, they will still not lend us money at reasonable rates.
The important point for people to grasp is at the beginning of 2009 the ECB demanded, in the guidelines it issued, that we had to rescue the banks but not divert them from their central goal of profit maximisation. The ECB was explicit in its instructions that the funding should not be diverted towards social or other macro-economic goals and that the overriding priority must be profit maximisation. That is the problem. Balance sheets and bondholders come first for the banks and they will not lend money into the economy or invest in it.
We should repudiate this guarantee, tell the bondholders to take a hike and guarantee the moneys of ordinary deposit holders. We must then set up a State bank which would not have all these liabilities to bondholders and others and which the State would instruct to give relief to ordinary mortgage holders and to invest in our economy so that we can put our people back to work. If the Government is worried about money flowing out of the country, we should do as the Icelandic people did and impose capital controls to prevent that.
I welcome the opportunity to contribute to this debate. I am sick of Labour Party Members claiming theirs is the only party opposed to the bank guarantee. If that is so, why are they supporting its extension? Are they saying that it is now necessary to do so in order to prevent deposit flight and a run on the banks? Those are the arguments used by Fianna Fáil and the Green Party for the introduction of the guarantee. Is the change in the Labour Party's position simply a consequence of its now being in government? Its undertakings on this issue, on the renegotiation of the IMF-EU bailout, on third level fees and its absolute pledge to protect child benefit from any further reductions are as worthless as shares in Anglo Irish Bank.
The reality is that our financial institutions are still effectively zombie banks, mere conduits for the ECB funding which is used as blackmail to ensure continued payments to bondholders in order to shore up the EU banking system at the expense of our economy, welfare payments and social services. In October 2011 lending to households fell by €614 million, while lending to business was down by €500 million. International deposits are still being withdrawn, amounting to €4 billion in October, which was a small increase on August and September. Since September last year banks have lost one third of their deposits.
The policy of propping up zombie banks is a disaster which has cost €70 billion thus far. The only solution is a publicly owned, democratically controlled banking system. I refer the Minister to a recent report from the United Nations Conference on Trade and Development - not exactly a socialist think tank - which argued strongly for publicly owned banks which would provide greater stability and would not engage in speculation. I ask the Fianna Fáil Members who support this proposal to reflect on the statement by the former Minister for Finance, the late Brian Lenihan, that the guarantee would turn out to be the cheapest bailout in history. It has already cost Irish citizens €70 billion, which is half a year's GDP. It is shameful.
Like my colleagues, I am very reluctant to support this measure. If we go back to September 2008 we see that the initial decision - we still do not know exactly what happened behind closed doors - was dictated by a small group of bankers, probably four, who terrified the people inside the fortress of the Department of Finance on Merrion Street into giving way on this blanket guarantee. The Minister's statement today would suggest that little has changed since then. The views he sought in coming to a decision on an extension were from the Central Bank, the NTMA, the Department and so on. In other words, all the usual suspects are being reeled out in support of a decision to extend the guarantee.
The guarantee was apparently introduced in order to protect depositors. Now we are told that this extension is also necessary to protect depositors. However, the Minister indicated that last year, when the guarantee was already in place, there was a massive outflow of corporate deposits because the holders of those deposits had no confidence in depositing money in our banks, guarantee or no guarantee. That is because the credit rating of the sovereign, that is, the State, has tanked in recent years. We must ask whether there is any value to depositors in this, whether the State's guarantee is worth anything and why deposits were flowing out of the country despite the existence of the guarantee.
That guarantee was an opportunity for the last Government and this Government to take the banks by the scruff of the neck, control them and reform them. The last Administration did not do so and nor is its successor. If the Government is serious about being in control, why is it not insisting that finance be made available to small business? If the banks, with the exception of Bank of Ireland, are now State-controlled bodies, why is that lending not taking place? The Credit Review Office is nothing but a puppet organisation of the banks. Anybody who examines its composition, operations and findings will agree with that. It is operating as a type of subsidiary of the banks and making recommendations on a very small scale without assisting people in any way. It is a cover for the banks' failure to provide money to small businesses.
The second opportunity, of which neither Government took advantage, was to control the boards of the banks. That failure is clearly evident in the case of the two so-called pillar banks. Two weeks ago the chiefs of the two pillar bank boards, and a couple of others, had a meeting with members of the Government, including the Minister. Despite the fact that the State is supposedly in control of at least one of these institutions, they eyeballed the Government and would not agree to its request in regard to variable interest rates. This guarantee has given the banks everything. They have taken advantage of it and have spat in the eye of the Government. Why should we tolerate that type of behaviour from institutions which still consider themselves independent republics? They seem to be able to defy those who either have a majority shareholding or membership of the boards.
In that regard, one wonders what has happened to the public interest directors. Have they all gone native? They are certainly not acting in the interests of the public in conceding on issues like charges and remuneration. On every issue, they are conceding to what the banks dictate. In certain cases they have even given way to the desires of the boards of the banks against the wishes of the Government, particularly in regard to certain appointments.
I thank all the Deputies who contributed to this debate. Unfortunately, however, there was little reference to the statutory instrument itself. Instead there were strong attempts by certain Members to visit the past and rewrite history.
I thank Deputy Michael McGrath for supporting this initiative, recognising the factual situation and dealing with the issue in a straightforward manner rather than seeking to gild the lily in any way. Deputy Pearse Doherty's piece of casuistry reminded me of Bart Simpson's defence, "We didn't do it, nobody told us, we weren't there, it was the other people". The record of the House shows that on the night Fianna Fáil proposed the guarantee it was supported by the Green Party, Fine Gael and Sinn Féin, while the Labour Party voted against it. Those are the facts. Deputy Doherty can make his case in prose or in poetry but, either way, he is trying to rewrite history-----
They are always in denial. It is a case of, "No one saw me, it wasn't me, it was the other fellow". The record of the House shows that Sinn Féin voted. In my view, the Deputy is correct on the facts, because the House was misled on the night. When we asked whether it was a liquidity crisis or an insolvency crisis we were solemnly assured by the Minister that it was only a liquidity crisis and that the banks were quite solvent. We voted on that basis and it looked like the right thing to do on the night. Therefore, I do not blame the Deputy but he should admit what his party did and he should not be pretending that they did something different-----
-----and it was all the fault of poor Joan; it was all Joan's fault because Sinn Féin voted for it on the night. That is not credible at all, for God's sake, Deputy. What kind of rubbish is that?
I will not refer to Deputy Kelleher because we know Deputy Kelleher's speeches and they are all very entertaining. I thank Deputy Mick Wallace for a very reflective contribution. There is much in what he says and I always listen to him. As for Deputy Boyd Barrett, I cannot pass the same compliment to him. He dances around the edge of the great European crisis like a kid at a bonfire, cheering for more flames and looking for more burning but he does not really contribute to any solutions in the debate. Deputy Ross is always very direct in what he says but he is economical with the truth on occasions because when he deplores that cabal who were in the Department of Finance on the infamous night, I ask who was there such as Seán FitzPatrick or Michael Fingleton? I recall reading Deputy Ross's piece back in 2004 when he presented the Anglo Irish Bank business model as the prototype model that should be followed by all banks in Ireland and when he deplored the ineptitude of the Bank of Ireland when it did not follow the model of Seán FitzPatrick and really get profits for its shareholders. Has he forgotten all this? As we rewrite history, let us refer to all the facts and to all the things in the past and then move forward. We voted for the guarantee on the night. We thought it was the right thing to do because we were given assurances by the Minister.
I believe the Minister was misled himself and I agree with Deputy Ross on this point. I do not think the Minister had the full facts on the night but that is the way the Parliament made its decision. We are in a situation now where, effectively, the banking policy of the previous Government has proved to be disastrous. They left Government without reconstructing and recapitalising the banks, again, probably because the Minister for Finance could not get the support of the Government at the end to take action. It was left to us to do it and we have done it. We now have two pillar banks which are working properly and they are lending to small business again-----
As a teller, under Standing Order 69 I propose that the vote be taken by other than electronic means. I do so to give Labour Party Deputies an opportunity to reconsider in light of the consequences of the vote.
The Dail Divided:
For the motion: 98 (James Bannon, Tom Barry, Joan Burton, Ray Butler, Jerry Buttimer, Catherine Byrne, Eric Byrne, Dara Calleary, Joe Carey, Paudie Coffey, Michael Conaghan, Seán Conlan, Paul Connaughton, Ciara Conway, Noel Coonan, Marcella Corcoran Kennedy, Joe Costello, Simon Coveney, Barry Cowen, Michael Creed, Jim Daly, John Deasy, Jimmy Deenihan, Pat Deering, Regina Doherty, Timmy Dooley, Robert Dowds, Andrew Doyle, Bernard Durkan, Damien English, Alan Farrell, Frank Feighan, Anne Ferris, Peter Fitzpatrick, Terence Flanagan, Seán Fleming, Eamon Gilmore, Brendan Griffin, Dominic Hannigan, Noel Harrington, Simon Harris, Tom Hayes, Martin Heydon, Brendan Howlin, Heather Humphreys, Kevin Humphreys, Derek Keating, Colm Keaveney, Paul Kehoe, Billy Kelleher, Alan Kelly, Seán Kenny, Séamus Kirk, Michael Kitt, Seán Kyne, Anthony Lawlor, Ciarán Lynch, John Lyons, Eamonn Maloney, Peter Mathews, Michael McCarthy, Charlie McConalogue, Shane McEntee, Nicky McFadden, Michael McGrath, Joe McHugh, Tony McLoughlin, Mary Mitchell O'Connor, Dara Murphy, Eoghan Murphy, Gerald Nash, Denis Naughten, Dan Neville, Derek Nolan, Michael Noonan, Patrick Nulty, Éamon Ó Cuív, Seán Ó Fearghaíl, Aodhán Ó Ríordáin, Kieran O'Donnell, Fergus O'Dowd, Joe O'Reilly, John Perry, Ann Phelan, Ruairi Quinn, James Reilly, Michael Ring, Brendan Ryan, Alan Shatter, Róisín Shortall, Arthur Spring, Emmet Stagg, David Stanton, Robert Troy, Joanna Tuffy, Jack Wall, Brian Walsh, Alex White)
Against the motion: 30 (Gerry Adams, Richard Boyd Barrett, Tommy Broughan, Joan Collins, Michael Colreavy, Seán Crowe, Clare Daly, Pearse Doherty, Dessie Ellis, Martin Ferris, Luke Flanagan, Tom Fleming, Noel Grealish, Séamus Healy, Joe Higgins, Pádraig MacLochlainn, Mary Lou McDonald, Finian McGrath, Mattie McGrath, Sandra McLellan, Catherine Murphy, Caoimhghín Ó Caoláin, Aengus Ó Snodaigh, Jonathan O'Brien, Maureen O'Sullivan, Thomas Pringle, Shane Ross, Brian Stanley, Peadar Tóibín, Mick Wallace)
Tellers: Tá, Deputies Paul Kehoe and Emmet Stagg; Níl, Deputies Aengus Ó Snodaigh and Catherine Murphy.
Question again declared carried.