Dáil debates

Thursday, 29 November 2012

Credit Institutions (Eligible Liabilities Guarantee)(Amendment) Scheme 2012: Motion

 

11:10 am

Photo of Brendan HowlinBrendan Howlin (Wexford, Labour)
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I move:

That Dáil Éireann approves the terms of the draft scheme entitled Credit Institutions (Eligible Liabilities Guarantee) (Amendment) Scheme 2012 a copy of which draft scheme was laid before Dáil Éireann on 26th November, 2012.

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Ceann Comhairle)
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I understand the Minister of State at the Department of Public Expenditure and Reform is taking this motion.

Photo of Brian HayesBrian Hayes (Dublin South West, Fine Gael)
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Almost one year ago to the day, the Minister for Finance addressed colleagues in the House on the subject of the bank guarantee scheme, otherwise known as the ELG scheme. A lot has happened since in the banking sector. The covered banks have continued to make progress overall under the financial measures programme - the rigorous analysis of the capital and liquidity requirements of the domestic banks presented in March 2011 - and advanced in terms of recapitalisation, asset deleveraging, deposit inflows and restructuring plans. The recapitalisation of the PCAR banks - AIB, Bank of Ireland and the PTSB - and the IBRC has been successfully completed. According to the survey of European banks carried out by the European Banking Authority published late last year, the Irish banks more than met the minimum standard set down for core tier 1 capital ratio of 10.5%. Deleveraging has progressed well so far and total covered bank deleveraging of about €63 billion had been achieved up until the end of September this year. Further significant disposals have also been targeted for completion by the end of the current quarter of 2012 as part of the pillar banks' planned run-down of non-core balances. With respect to funding, the banks' positions have improved significantly. Deposits in AIB, Bank of Ireland and the PTSB have stabilised, with a gain in net inflows achieved since last year; international debt markets have opened up to the Irish banks; and reliance on ECB funding sources is down on previous levels. As part of the EU-IMF programme, the Irish authorities had submitted revised restructuring plans for all of the participating institutions by the end of September this year. On a related and supportive level, market sentiment towards Ireland as a sovereign borrower has improved considerably and this has been assisted by the re-entry of the NTMA into the bond auction markets, the fall in Irish Government bond yields, from 7.34% last May to 4.47% yesterday, and the prospect of a future agreement on breaking the link between bank debt and sovereign debt.

Against this background, as I have outlined, we have been looking in recent months at the future of the eligible liabilities guarantee scheme. In reply to a parliamentary question to the Minister for Finance on 4 October it was mentioned, inter alia, that an ad hoc working group chaired by the Department of Finance and involving both the Central Bank and the NTMA was looking to develop a strategy to exit the scheme, consistent with preserving financial stability.

In the context of the subsequent recent visit of the troika partners and the eighth review of the programme, it was agreed that such a strategy would be finalised by year end. The early indications from this strategy are that a withdrawal of the scheme could occur in the first quarter of 2013. However, I can assure the House and give reassurance to depositors that the Minister for Finance will give sufficient notice in advance of the withdrawal of the scheme.

I do not want to pre-empt what that strategy will recommend but I am very much conscious of the negative effect that the payment of fees by the participating institutions, in return for the guarantee, is having on those banks' profitability. Furthermore, I am aware that the banks themselves are anxious to continue to move away from the cover of the guarantee as soon as is practicable. From the perspective of the Government also, and the contingent liability on the State that results from the scheme, I consider its removal would be seen by the markets as a further positive step with respect to re-establishing Ireland's borrowing credentials.

In the meantime, however, while the details of winding down the scheme in the near future are being worked out, it is necessary to address the prolongation of the scheme. In the normal course, the scheme would expire after 31 December 2012 if steps were not taken to extend it beyond that date. Expiry would mean that new deposits made, or debt issued, from 1 January next year would not be covered by the guarantee, although of course liabilities incurred up until that time would continue to be guaranteed until their maturity. It is in this context that the extension of the ELG scheme needs to be considered and 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 2012.

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 Irish credit institutions. As I have referred to already, and because of its nature, the scheme is time-limited so any prolongation requires that the scheme be amended periodically. 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) Act 2008 - the CIFS Act.

The Statutory Instrument before the House, therefore, contains two amendments to the Schedule of the scheme which relate to its extension in time. The opportunity is also being taken to include a third amendment, which is essentially a drafting or technical one. I will deal with these amendments in the order in which they appear in the draft statutory instrument. Item 1 updates a cross-reference which appears in the list of definitions set out in Article 3 of the Credit Institutions (ELG) Scheme 2009. This clarifies that a financial support order means an order under section 6(4A) of the CIFS Act 2008 rather than under section 6(3B), a change that resulted from amendments to the Act made by section 74 of the Credit Institutions (Stabilisation) Act 2010.

Item 2 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 2012 with 31 December 2013.

Item 3 amends paragraph 11.1(c)(ii) of the Schedule to the scheme, which sets out the time-related criteria which a liability must meet to be considered eligible. This amendment seeks to replace the current end date of 31 December 2012, by which eligible liabilities must be incurred if they are to be guaranteed, with a proposed new date in national law of 31 December 2013.

The amendments are, in both cases, "subject to the continuing approval of the European Commission". This role for the Commission arises because, under state aid rules, all banking guarantee schemes require an assessment - every six months - of the case for their continuation. It follows, therefore, that, if approved, such schemes can only be prolonged for a maximum period of six months at a time. Consequently, the ELG scheme would remain subject to biannual Commission approval, notwithstanding the proposed one-year extension in national law, which is essentially a practical step to avoid having to legislate on a too frequent basis.

The necessary approval for prolongation has already been sought from the Commission and is expected to be formally given shortly. Once given, this would mean explicit EU approval for the scheme until 30 June 2013, that is, for the six months from the end of 2012, in line with existing practice. If, and only if, extension beyond this period were required, would further state aid approval be sought. In addition to obtaining the approval of the European Commission as I mentioned, it is necessary to consult with the ECB: this process is already underway and the bank's opinion awaited. For reasons of good administrative practice and timeliness, it has been necessary to proceed on this basis in advance of the formal consideration of the motion before the House, in line with the procedure on previous occasions.

As is also the normal practice, before deciding to notify the Commission of our wish to seek prolongation of the scheme, the views of the other relevant Irish authorities, the Central Bank and the NTMA, which are part of the usual starting point in any assessment of the future of the scheme, were sought and they were supportive of its extension. I shall return to this matter later.

At this point however, it might be helpful to go into some detail on the scheme itself and set out the background to, and reasons for, its proposed continuation. As I mentioned earlier, the scheme commenced in December 2009. It succeeded the CIFS scheme, although both schemes over-lapped for a time until the expiry of the earlier scheme on 29 September 2010. The scheme has been extended three times already, from its original end date of 29 September 2010 to the end of that year; subsequently, to 31 December 2011; and, on the last occasion, to the end of the current year.

The ELG scheme was designed to be more focused in application than its predecessor and to cover both a narrower range and smaller amount of liabilities. The ELG 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. Because eligible deposits of up to €100,000 are already covered under another scheme - the deposit guarantee scheme - the ELG scheme only covers the balances, where they exist, above this threshold. Deposits which do not qualify for deposit guarantee scheme coverage in the first instance but are nevertheless eligible under the ELG scheme, for example, corporate deposits, are covered by the latter scheme alone.

The credit institutions which avail of the guarantee provided under the ELG scheme are described as the "participating institutions". Essentially, there are four main ones, apart from their subsidiaries. The four are AIB, Bank of Ireland, Permanent TSB and the IBRC or Irish Bank Resolution Corporation, formerly Anglo Irish Bank and Irish Nationwide. Among the best-known subsidiaries are EBS and ICS Building Society. The full list can be viewed on the NTMA website. The participating institutions in the scheme 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 2012.

Compared with liabilities of €375 billion at the beginning of the CIFS scheme in 2008, eligible liabilities outstanding under the ELG scheme at end-September this year stood at €78 billion, which represents a major reduction in coverage. Over the course of 2012 itself, liabilities have fallen by about €25 billion, down from the €102 billion that was outstanding when the scheme was last discussed in the House.

The decrease in liabilities under guarantee during 2012 has been due to a number of factors. First, the subsidiaries of the two pillar banks, Bank of Ireland and AIB, in the UK have been reducing their participation in the scheme since March last by not taking on new deposits under guarantee.

The Minister for Finance facilitated this move by issuing a series of notices under paragraph 13 of the schedule to the ELG scheme, whereby he is empowered to limit the applicability of the guarantee to different categories of deposit. In this way it was possible to restrict the guarantee to that category of deposits existing up to - but not after - a given date in the case of the UK institutions concerned. The outcome is that deposits under guarantee have fallen by approximately €11 billion to date in these entities, but without any significant accompanying loss to the institutions of the deposits concerned. In other words, the deposits were successfully retained even in the absence of the guarantee.

A second reason for the fall in liabilities covered during 2012 is that bank debt that has been maturing this year has not been replaced. This accounted for approximately €6 billion of the reduction in liabilities. A third, albeit more modest, factor has been the uptake of unguaranteed deposits which in turn displaced an equivalent amount of guaranteed deposits to a total of almost €1 billion. This positive move stems from the original request - also made in accordance with paragraph 13 of the schedule to the ELG scheme - from the participating institutions to be allowed to offer unguaranteed deposits to certain corporate and institutional customers. Again, the Minister for Finance facilitated this request by allowing such offers to be made, subject to certain conditions. This move may now be seen, in retrospect, as being a small but significant first step towards removing the necessity for the maintenance of the guarantee in the first place.

I previously mentioned 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 wish to 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 of the Credit Institutions (Financial Support) Act 2008. 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. I have set out what the two orders are in my speech for the information of colleagues.

I believe that we are in a much stronger position than we were a year ago but, notwithstanding that, I am bringing this statutory instrument before the House today. We are very near to bringing closure to the guarantee narrative. There have been similar guarantee schemes internationally, including in Europe - for example, in Finland, Austria, Denmark and Sweden - and these have all been successfully ended when the time was judged right. For Ireland, this time is close. We want to continue our return to more normal banking conditions under which, inter alia, a guarantee should not be necessary. To facilitate this move, it is proposed that we provide for prolongation of the ELG scheme into 2013 with the intention that this will be the last time we will have to discuss such a motion in the House.

I wish to make a final point, one which is often not fully comprehended when the ELG scheme is being discussed. The vast majority of bank, building society and credit union depositors are not affected by the existence of the ELG scheme at all. Most account holders, excluding the corporate sector, in the participating institutions are covered by the deposit guarantee scheme only, operated by the Central Bank of Ireland, which guarantees qualifying deposits of up to €100,000 per depositor per institution. This is the standard form of guarantee scheme in the majority of EU member states.

I began by setting out the improvements in the banks' capital, deposit and funding positions. All of these improvements point to a normalisation of our banking system. The removal of the guarantee will be a further reinforcement of this return to normal operations. I again assure the House that the vast majority of depositors will continue to benefit from the deposit guarantee scheme. I commend the motion to the House.

11:30 am

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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I welcome the opportunity to speak on the motion, which in essence is to extend the Credit Institutions (Eligible Liabilities Guarantee) Scheme 2009 for a period of 12 months, up to the end of December 2013. That is subject to continuing EU state aid approval. It is important to state that at the outset.

The current guarantee expires on 31 December 2012. We are talking about extending the scheme only for new deposits made in 2013. Existing deposits are guaranteed by the scheme until their maturity date. As the Minister of State indicated, we are talking about deposits of more than €100,000. It must be said, in the week before the budget, that if one has less than €100,000 in one’s account in a bank, post office, credit union or State savings bank, or with An Post or Postbank, they are guaranteed by the Central Bank. One need not have any fear in that regard. When people hear the issue being discussed in the Dáil they often get worried, especially older people. We want to reassure them in that regard.

The order will extend the liabilities scheme for a further year, subject to the approval of the European Commission. The Secretary General of the Department of Finance, John Moran, recently indicated that, if possible, he would like the covered institutions to stop using the guarantee scheme in early 2013. He was more specific than the Minister on the matter. That is his target and he has stated it on the record. He said the income from the guarantee was not accounted for in Ireland’s medium-term fiscal projections published earlier this month. The Department is saying that there is an income of €1 billion and that it will have a budgetary implication. It is important with regard to the memorandum of understanding, meeting our fiscal targets by 2015 and working our way out of the IMF programme at the end of next year. The Secretary General of the Department of Finance was categoric in saying that the continued guarantee is not accounted for - in other words, he presumes it will no longer be in place. The Department did not build it into its medium-term fiscal projections which the Minister for Finance published recently. That must be said. The scheme is on its way out and the Government does not expect it to continue into the future. It is important that this is taken into account. While there is a loss of income, this is already factored into the Government’s medium-term fiscal projections.

Currently the scheme costs the banks approximately €1 billion, which does have an impact on their profitability. Both Bank of Ireland and AIB have deposits in the United Kingdom not covered by the scheme and at the end of September approximately €78 billion was guaranteed, with €56 billion of that by way of deposits and the balance of €22 billion by way of guaranteed bonds. The amount covered has fallen since the original guarantee was introduced in 2008, as shown in the schedules. Both AIB and Bank of Ireland recently issued covered bonds, backed by loans to customers, which were unguaranteed. That suggests the banks are almost ready to fund themselves without the aid of the guarantee. The majority of deposits guaranteed are now in this country as the main banks' UK deposits are not guaranteed. Even if the ELG scheme was not renewed, deposits in Irish banks of up to €100,000 would be protected.

The main banks joined the ELG scheme on 4 and 11 January 2010, while the EBS joined on 1 February 2010. Irish Life & Permanent, Bank of Ireland, ICS Building Society, Bank of Ireland Mortgage Bank, Allied Irish Banks plc, Anglo Irish Bank Corporation Limited, EBS and Irish Nationwide are all covered under the guarantee scheme, although some of them have changed their formats and their names. In addition, a number of subsidiaries are covered. I do not expect the Minister of State to have time to reply on the matter but I would welcome the sending of a note to me and to the spokespersons in this regard. I understand that when the scheme came into operation in 2010, Irish Permanent (IOM) and Bank of Ireland (IOM) became involved in the scheme. Bank of Ireland (UK) plc joined the scheme in July 2010. AIB Group (UK) plc is involved in the scheme, while AIB (CI) limited joined the scheme in 2010.

Does "CI" stand for the Cayman Islands? I do not know, but would be delighted to hear it does not. The Minister of State might tell me what AIB (CI) is. AIB North America Inc.-----

11:40 am

Photo of Brian HayesBrian Hayes (Dublin South West, Fine Gael)
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It refers to the Channel Islands.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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Right. I knew it was an island somewhere, so that was my suggestion. Anglo Irish Bank Corporation International plc and Irish Nationwide are also included in the scheme. The Minister of State might indicate whether some of those subsidiaries are involved. He stated that with the Government's prompting, as well as on their own behalf, the banks are looking to their bottom line and want to reduce their participation in this scheme. This applies particularly to the subsidiaries and deposits in the UK. The Minister of State might provide a note as to how much of the deposits and bonds not based in Ireland are covered by the scheme we are passing today.

The amount of money paid by the financial institutions under the scheme to date has been phenomenal. Total fees received to the end of September were €3.597 billion. It is important to say, in regard to restructuring our banks, that under this heading alone the banks have contributed that amount of almost €4 billion back to the Exchequer already, with the balance to come in by the end of the year. A brief breakdown can be shown under two headings - the current eligible liability guarantee scheme, which replaced the original credit institutions financial support scheme. Combining the two schemes, Irish Life and Permanent has paid €442 million, Bank of Ireland €1.264 billion, AIB €1.254 billion, IBRC €444 million, Irish Nationwide €33 million and EBS €152 million.

We are talking today about the eligible liability guarantee scheme but what intrigues me is that the income received under the original scheme has effectively expired because all the institutions have migrated to the new scheme. I note that in the course of 2011 Anglo Irish Bank was paid €750 million. The Minister of State might inform us whether that has been washed out of the system, or if there is any more to come. That bank still seems to have accounts some under the old scheme, although I accept the figures apply to last year.

The Secretary General of the Department of Finance stated that the banks would eventually be weaned off the scheme but the guarantees would remain in place for deposits and bonds that have not yet matured. Some of these will mature next year or in the coming years. I understand the maximum period involved is five years so in theory it could take up to five years for the scheme to wind down fully. The Minister of State might give us an estimate, based on current levels, of how much is expected to be received each year from 2012 to 2015. We cannot predict how much will come in during 2013, but it is known that €78 billion is in the system so we should be able to calculate how much that will generate in the coming four years.

Is there a system whereby the banks could buy themselves out of the current guarantee? For example, Bank of Ireland, which seems to be our strongest bank, issued €1 billion of three-year unguaranteed cover bonds last week, the first time an Irish bank has tapped into the markets in more than two years. If that bank is in a position to replace some of the guaranteed bonds by its own unguaranteed bonds, raised on the markets as a result of its improving position, and wants to rid itself of this cost affecting its bottom line, can it buy out the guarantee? Is there a mechanism whereby it can exit the guarantee scheme in regard to current deposits, buying out the Exchequer in that way? Mr. John Moran stated it is Government policy to wean the banks from the eligible liability guarantee scheme in the first quarter of next year, so we are very close to that date.

Professor Philip Lane of the international macro-economics department in Trinity College observed that the removal of the guarantee would not impact on Irish deposits because the evidence throughout Europe shows there is no risk to depositors in the event of a bank collapse. That is the underlying assumption at EU level. In the first place, the EU will not allow a bank to collapse so there will be no such collapse in Ireland, given that we have signed up to the ESM and all such arrangements. From that point of view there is no serious threat, and I believe it will be possible for the banks to exit the guarantee scheme very quickly.

It is very important to mention that when the first figures were reported, a total of €375 billion was applied to all the banks covered on the night of the guarantee. The document does not outline the assets of the banks at that time but that was one of the reasons the Government was allowed to provide the guarantee. It was controversial, however, and we could talk about it forever and a day. The Labour Party Members who are now in government opposed the scheme all the way although they made a remarkable somersault when they supported the guarantee last year. I am sure they will do the same this year. We are used to the Labour Party making political somersaults - the people can see that happening. The longer that party stays in government the more the people will understand that Labour will say anything in opposition and then do the exact opposite in Government. It is not good for politics that the Labour Party acts like that but that is its choice. The people will adjudicate on that in due course.

When the guarantee was introduced the assets in the Irish banks were considerably more than €500 billion. Their assets were always over and above the value of their liabilities under the guarantee. Notwithstanding the €64 billion we have had to write off the bank balance sheets since then, there were always more than enough in assets to cover the amount issued under the guarantee on that night several years ago. It was widely criticised and we are all curious to know why it was necessary. The people of Ireland and the Government were not told the truth by the banks. I do not claim the banks deliberately misled anybody; my belief is they did not understand how badly off their institutions were and considered they had a liquidity problem. It has taken a long time for some of them to come to realise the level of the write-downs that were necessary. That realisation was forced upon them. The transfer of their loans to NAMA helped to crystallise it.

In his final remarks, the Minister of State spoke about improvements and the reduction in the guarantee, noting:

All these improvements point to a normalisation of our banking system. The removal of the guarantee will be a further reinforcement of this return to normal operations.
I do not accept the good faith of the Irish banks but I accept the good faith of the Minister of State and his Department in stating that. I doubt if there is anybody who accepts the good faith of the Irish banks in regard to such claims. They have to be sat on, watched and stamped upon to make them do their business. When the banks mention "normalisation" they refer only to the normalisation of their profits, their capital reserves and their ratios. The function of a bank is to lend money, charge for it and make a profit, but these banks are not lending money to small and medium-sized businesses or to individuals. People with excellent credit ratings cannot get car loans; people in small businesses cannot get loans and those who want to start up a business must make an application to their local enterprise board because they will not get a loan. In spite of all the official statistics that appear, we all know that the local bank manager will regularly tell his customers not to bother putting in a loan application because he knows it will not succeed. The official statistics on loan approval may show one thing but they do not reflect the level of inquiries or the applications people would like to make if they thought they might get a fair hearing. We know about the difference between the figures for loan approvals and those for actual draw-downs. Banks describe loan restructuring as new loans but that is a sham in some cases. Some banks stand by their good customers and will give them additional finance but generally the loan situation is very difficult.

I would like to see normalisation of bank lending, not of the old bank profits or financial ratios. It is good to know, in the last quarter of the current year, that in regard to what we are guaranteeing today, 72% is customer deposits with only 1% being interbank deposits. The balance of 28% is bank debt. The banks have been streamlined, their balance sheets have been made smaller and they are becoming more fit for purpose but they need to be kicked even more than before because they are not lending to the Irish consumer. I would like to have confirmation that at this stage we are not guaranteeing any deposits outside the State or in any bank subsidiaries similarly outside.

My party will support this scheme because it must be put in place. I look forward to the entire scheme being wound down naturally, and as quickly as possible.

11:50 am

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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This is the third occasion on which the Government has sought to extend the operating period relating to the eligible liabilities guarantee, ELG, scheme. In June 2011, under the secrecy of a Cabinet meeting, it extended the scheme by six months. Then, last December, the Minister for Finance came before the House and sought a 12-month extension. On both occasions, I said that the Government had no exit strategy in respect of the guarantee within the timeframe set down under the scheme. While both Bank of Ireland and AIB have started to return to the international money markets, there is still no sign that the Government has succeeded in its strategy for exiting the guarantee. It is clear that it has failed in its attempts in this regard. Not only are Fine Gael and the Labour Party continuing to accept the liabilities of the existing scheme; they have gone further and are insisting that the banks should continue to pay out in respect of unsecured and unguaranteed bonds that are not even covered by the scheme. The fact that the Minister of State is before the House to seek a further 12-month extension proves beyond any doubt that the Government has again failed to release the State from the grip of the guarantee.

As of the end of September, the total amount guaranteed under the current scheme was €78 billion. What the Government wants to do now is to reopen the guarantee after 31 December and allow banks to place new liabilities on the State and its taxpayers. How times have changed. When Fianna Fáil sought to introduce this scheme in December 2009, both Fine Gael and the Labour Party spoke out against the proposal. The Labour Party's Deputy Burton and Fine Gael's Deputy Bruton were both highly critical of the proposal. Deputy Burton opposed the extent of the liabilities being placed on taxpayers' shoulders and Deputy Bruton demanded that the banks should demonstrate that they had changed their errant ways before being given any further public moneys. Nine months later, when Fianna Fáil sought to extend the scheme, Fine Gael and the Labour Party - along with Sinn Féin - rightly rallied against the guarantee. Deputy Burton said it was yet more evidence of the failure of the then Government's banking strategy and informed the House that the Labour Party "does not write blank cheques". The Minister of State, along with the Minister for Finance, voted against the extension on the grounds that the then Anglo Irish Bank continued to be covered by the scheme. Yet here we are again. The former Anglo Irish Bank continues to be covered by the scheme, senior banking executives continue to receive pay and pension packages in the hundreds of thousands of euro and small and medium-sized businesses continue to be starved of credit.

All of the arguments used by Fine Gael and the Labour Party to oppose the ELG scheme while in opposition are just as valid today. The only difference is that the Minister of State now sits where Brian Cowen and the late Brian Lenihan previously sat. Like so many of its other broken promises, the Government has swallowed lock, stock and barrel the failed policies of that which preceded it. The motion before the House is proof, if more proof were needed, that Fine Gael and the Labour Party are now enthusiastic supporters of the failed banking policy of Fianna Fáil despite having opposed it only two years ago. Today, the Minister for Social Protection, Deputy Burton, and her Labour Party colleagues will write another blank cheque for the banks, the Minister for Finance, Deputy Noonan, will support the inclusion of the former Anglo Irish Bank's toxic debts in the extended scheme, the Minister for Jobs, Enterprise and Innovation, Deputy Bruton, will agree to potentially take on more bank liabilities despite the banks' ongoing failure to lend to new businesses and Fine Gael and the Labour Party will do exactly what Fianna Fáil did in December 2009 and September 2010.

The Minister of State will be well aware of reports in this morning's newspapers to the effect that the number of families facing difficulties making ends meet has more than doubled in the past four years. The latest Growing Up in Ireland survey of 7,400 children and their families shows that 61% are struggling now, compared to a figure of 29% just four years ago. People across the State are gripped by fear as they wait to see what additional hardship the Government is going to impose on low- and middle-income families in next week's budget. Yet here we are once again throwing a lifeline to failed banks such as the Irish Bank Resolution Corporation, IBRC, which continue to cost the State billions of euro every single year. People want to know why there is one rule for the banks and another for struggling families. Why there is unlimited funding for bailing out the banks yet so little for investment in jobs? Why is there no action on the excessive pay and pensions of top bankers when struggling families are being hit with extra taxes and charges? Why has no attempt been made to use the guarantee in order to secure real reductions in payments to bankers or real increases in lending to small and medium-sized enterprises?

The bank guarantee is not just bad policy; it is a symbol of all that is wrong with the financial and economic strategy begun by Fianna Fáil and continued by Fine Gael and the Labour Party. What does it say about our Government that it is willing to guarantee the banks to the tune of hundreds of billions of euro but that it did not for one second think to provide a guarantee for citizens in order to shield them from the social and economic crisis created, in the first instance, by the reckless behaviour of the banks? The guarantee represents the great inequality at the heart of Government policy. The basis of that inequality is that the banks must be saved at all costs and the people must pay the price. This is the meaning of the word "austerity". The latter is the policy that protects financial institutions and their senior management while imposing the full burden of the economic crisis on ordinary people.

In my home county of Donegal last week we once again witnessed the human face of the burden to which I refer. An emergency call was made for an ambulance to attend to a young child who was unconscious. The ambulance was dispatched with only one advanced paramedic on board and that individual was driving the vehicle. At the scene, the paramedic made the clinical decision, based on the needs of the unconscious child, to travel back to the hospital. As the paramedic was the only staff member on duty at the time, the boy had to be transported to hospital in the back of his mother's car with the paramedic tending to him there. When I sought clarification from the HSE on this matter, it was confirmed that the advanced paramedic was working on his own from 5 p.m. to 8 p.m. on the evening in question. The HSE had failed to provide cover in order to ensure there would be two paramedics on duty at the time. When the paramedic to whom I refer was on site, I understand he requested that the HSE allow one of two paramedics who live a number of a number of doors away from the unconscious child's home to assist him. This request was refused, all in the name of trying to keep costs down. This is the very real effect of Fine Gael's and the Labour Party's policy of austerity on our public services.

When the Government bails out banks to the tune of €21.4 billion, as it did last year, and then makes the State potentially liable for billions more through the extension of the guarantee scheme, it is making a very clear choice. It is choosing to follow the lead of Fianna Fáil. It is choosing austerity over recovery and banks and bankers over ordinary people. Let me be clear: Sinn Féin will be opposing the motion before the House. It was a bad policy in 2009 and 2010, when Sinn Féin, the Labour Party and Fine Gael voted against it, and it remains a bad policy today. The only thing that has changed is that Deputies Micheál Martin, Michael McGrath and the others in Fianna Fáil are no longer running our economy and society into the ground. That job is now being ably done by the Taoiseach, Deputy Enda Kenny, the Tánaiste and Minister for Foreign Affairs and Trade, Deputy Gilmore, and the Minister for Finance, Deputy Noonan.

Photo of Michael KittMichael Kitt (Galway East, Fianna Fail)
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I call Deputy Boyd Barrett, who is sharing time with Deputy Ross. Is that agreed? Agreed.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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We are discussing the notorious blanket guarantee that Fianna Fáil gave to the banks, the major corporate donors, the bondholders and the speculators who helped to cause the crash in our economy and the wider European economy.

Fianna Fáil initiated it and Fine Gael at the time also backed this guarantee. Whatever qualifications they may have put on it, when it came to it, just like the European political establishment, they prioritised the interests of the very institutions, speculators and financiers who had caused the crisis. They rushed in to provide an emergency guarantee to these gangsters, frankly, who had caused the crisis.

The Government is claiming success in that we are moving towards the winding down of this guarantee. It claims this is being enabled because the banks are now able to access money on the international markets. Whatever small bit of stability might be returning to the famous markets, the Government should not count its chickens on that stability being retained over the medium to long term, particularly considering the net effect of the policy of bailing out the banks and paying for it with an austerity that is crippling economic growth across Europe. At some point the markets will recognise the significant contradiction. I would confidently, but regretfully, predict that the panic will return at some point when the extremely damaging downward spiral caused as a result of the austerity measures imposed on the European economy, begins to kick in and to make its way into the core of the European economy. This is beginning to happen. Even in so far as the Government is claiming success in its efforts to move towards the winding down of this guarantee, we should remember that this so-called success has only been made possible because these banks have been stuffed with the cash of ordinary people. The previous Government and this Government, under the diktat of the ECB, said that they would do whatever is necessary to protect the banks; it is their top priority. Everything will revolve around restoring the banks to so-called normality, bringing them back to profitability, bringing them back to where they were before the crisis began. I find this to be a bizarre aspiration, that we are going to nurse them back to the situation they were in before all this mess started and that we think that is the recipe for sustainable economic and financial development over the long term. This shows a complete failure to understand what caused the crisis in the first place. It is not just a case of studying past history because we will be counting the cost when the crisis hits again, as it surely will.

The cost being paid by Irish citizens for returning the banks to so-called normality is the €64 billion we have had to borrow - for which we will be paying interest for many years to come - in order to stuff these banks with cash and restore the confidence of the all powerful markets. The cost is an unsustainable debt burden taken off the backs of the private banks, the for-profit banks, and unloaded onto the backs of the Irish people. If people are made suffer to the extent that we are making them suffer, the banks will be nursed back to health but at what cost for ordinary people. It is a cost we will be counting for decades, possibly. We are counting this cost now because of an unsustainable debt burden. The cost next year will be €9.1 billion in debt interest. The spectre of the deficit is constantly raised by the Government. We are warned that the deficit is €15 billion which we must cover. We are told that anyone who criticises the Government's policies is living in Cloud Cuckoo land. I ask the Government please to state the qualification that €9 billion of that deficit is in debt interest-----

12:00 pm

Photo of Brian HayesBrian Hayes (Dublin South West, Fine Gael)
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Deputy Boyd Barrett wants us to default.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Yes. We should not pay their debts and cripple our economy.

Photo of Brian HayesBrian Hayes (Dublin South West, Fine Gael)
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The Deputy is talking about a situation like Argentina.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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This is a terrible price which is even more galling when one considers that these banks which we have nursed back to health refuse to give relief to distressed mortgage-holders. They refuse to lend to small and medium enterprises and they refuse to put the mountains of cash we have given them back into the economy to create jobs. I draw the attention of the Minister of State, Deputy Hayes, to the sharp contrast between the behaviour of the banks we bailed out to this extent and the offer of the credit unions to use their assets to finance job creation programmes, social schemes and so on. They are pleading with the Government to use their assets to help the economy but the banks, which have been stuffed with our cash and which we own, refuse to do so. That is the contrast between the two.

We will not support the extension of this guarantee. Over the next three or so years, we will be paying off the bondholders at a rate of €17.4 billion in 2013, €6 billion in 2014 and €11 billion in 2015. If we were to assert control over these banks, which we own, and if we were to default on these bondholders, that money could be used for the stimulus programme needed to create jobs, economic growth, the protection of the vulnerable and the development of the economic and industrial infrastructure of the country. Why not do this instead of continuing with this insane protection of the financiers and banking system that caused the crisis? The Government is allowing them to walk off into the sunset after we have bailed them out and paid this terrible price. They will walk off into the sunset, be again privatised and return to making profits, while we are left holding the can.

Photo of Shane RossShane Ross (Dublin South, Independent)
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There might be some sort of a case for an extension of this guarantee if the Government were prepared to take responsibility for the banks and were prepared to direct their operations. There might be some sort of a case for saying the banks need to attract further funds, that they are too fragile at the moment to be allowed depend upon the bond markets and that the Government should decide what the banks should do with the money on deposit. However, the banks are in an extraordinary situation. They are being guaranteed by the Government, subsidised by the taxpayer and allowed to run themselves as some sort of quasi-independent organisations. I cannot understand why the Taoiseach - and I am sure the Minister for Finance also - told the House it was nothing to do with the Government when AIB increased the variable rates for mortgages some weeks ago. The Taoiseach said it was nothing to do with the Government, that AIB is an independent commercial organisation and that the Government has to leave it alone. Yet at the same time, the Government guarantees the money, some of which is used to lend out as mortgages. This cannot happen unless one is prepared to defer to the banks, as every Government had done in the history of this State. I thought that perhaps the crisis would prompt this Government to take a hold of the banks and to direct their operations in the interest of the people of Ireland who, after all, own the banks. This has not happened. The banks are still allowed to do exactly what they like commercially, under the guise of being detached, even though they are fully owned by the taxpayer.

I would like to know what the Government thinks would happen if this guarantee were not extended. As other speakers have said, all the past deposits are guaranteed and only the future or present deposits would come into this category.

The only reason the Minister of State appears to have given is that the banks need breathing space. They have had a very long time to breath owing to a series of extensions, yet they are still nowhere near out of the woods and not nearly credible.

I worry when I hear Ministers state in the House that they have taken the advice of the NTMA. It is about time we took a proper and critical look at the NTMA. It is a prop for Governments. Always, when they are in trouble regarding the finances or the banks, they take the NTMA's advice. The NTMA is in the banking loop. As I believe people are beginning to realise, staff in the NTMA receive vast salaries and are joined at the hip to the banks. I am sure the Minister of State is aware that Mr. Michael Somers, former head of the NTMA, was the only public servant ever to walk away with €1 million in one year. That is a formidable achievement, but it is very difficult to understand how it happened. What is more interesting – this is why I worry about taking advice from the NTMA – is that Mr. Somers retired on a pension of €265,000. As if that were not enough for him, he was then compensated by being made deputy chairman of Allied Irish Banks, on a salary of €150,000 a year. The NTMA, therefore, is used to the banking culture and springs therefrom. Before the current chief executive of the NTMA, Mr. Corrigan, entered office, he was in AIB. Ms Eileen Fitzpatrick who was appointed as chief executive of NewERA was in AIB beforehand. Therefore, taking advice from the NTMA is like taking advice from the banks' country cousins. It is deeply involved in the banking culture and will look after the banks before the nation.

I also worry when a Minister tells us not to worry on the grounds that we and the banks are back in the bond markets. Our presence in the bond markets is fragile. While it is welcome and represents an achievement, the Minister of State will know that if one pays interest at a high enough rate, one will always get back into the bond markets. We are paying very high interest rates, as is evident from the fact that one fund, Franklin Templeton, owns 10% of the Irish bond market. This is a precarious place to be because Franklin Templeton is showing a massive profit – I believe 12% - on its investment in the Irish bond market. The fund is hanging over the market and if it decides to sell, yields will rise, bond prices will fall overnight and we will not be able to present such a cheery picture of Ireland's position in the bond markets. Our position depends on the future agreement on the link between bank debt and sovereign debt. That agreement has been promised for a long time, but it has not been reached. There is a great deal of doubt about legacy debt and not everybody believes an agreement will be reached. I would not rely on it.

The guarantee is dangerous because I worry about banking policy for the future. The Government has cleverly spun the term "pillar banks" into banking language as if these banks were in some way secure. The dependence on the so-called pillar banks is worrying. We had a duopoly in the past and are heading for it again. If we have another, involving Bank of Ireland and Allied Irish Banks, we will have a new cartel as sure as night follows day. The Minister of State will remember the unhealthy dominance of the two big banks in the 1980s and 1990s. The entry of Bank of Scotland into the market initially was good news. When it established here, the cartel on mortgages was broken. Apparently, this will not happen anymore because the Government's banking policy is now to build up the two pillar banks such that they will be virtually unassailable. This territory will not be welcome to foreign banks anymore and the two pillar banks will be able to run a new cartel. One should remember the way in which the banks overcharged, what they did in respect of DIRT and foreign exchange and how they treated whistleblowers. The banks reigned supreme and one should remember the way in which the Central Bank co-operated in this regard.

12:10 pm

Photo of Brian HayesBrian Hayes (Dublin South West, Fine Gael)
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I thank my colleagues for their contributions to the debate. In the five minutes allowed to me I will reply on some of the issues raised.

I recognise the appalling circumstances in which the country has found itself because of the reckless lending policies and arrogance of the banking sector over a generation. Many in the House today were, in their own way, cheerleaders for that arrogance and some of the well known personalities who fronted that arrogance over a generation. Of course, they have changed their position because the popularity stakes have changed.

The task of the Government on entering office had two dimensions, the first of which was to correct the appalling deficit of fiscal mismanagement by the previous Administration having been in power for 14 years. The second was to create the conditions in which the economy could grow again. In this regard, it is essential to have a banking system that is trusted by the people. Since we cannot say the banking system is trusted by the people, owing to the collapse brought about by the banks, we must take incremental steps to get the country into a better position. The Government stands over the decisions it has taken. The first decision it took on entering office was on further bank recapitalisation, built on the pillar banks. This is evident from a statement issued to the House in March 2011 by the Minister for Finance. There has since been a significant improvement in respect of the banks and the new banking culture we want to have instigated in the State. In the first instance, we have seen money coming back into the banks. I am not over-egging the pudding or suggesting there has been a radical inflow of money from international markets into the Irish banking system because that has not happened. However, there has been a slow, consistent inflow of moneys into the banking system to stabilise the banks. Deposits have stabilised. News on AIB this week indicates that, independent of the guarantee, €500 million was raised in three year bonds and that they were four times oversubscribed. The announcement on Bank of Ireland two weeks ago showed that, independent of the guarantee, the bank was able to obtain money in the international market. There was no chance that this could have happened two years ago or last year.

Our ambition in asking the House to accept the extension of the ELG scheme is to ensure it is brought to a swift conclusion next year. Will those who are criticising the two Government parties today support the Government when the scheme comes to an end? The bringing to an end of the guarantee, more than anything else, will be an example to the country, the banking sector and the international markets of our putting our house in order and changing the dynamics of the Irish banking sector. In asking colleagues to support the motion our objective is to exit the ELG scheme at some point next year. This would be an example of normalisation and Ireland making further progress in rebuilding the tattered banking system the Government was left to clear up. If we are to make progress, we must have a totally new banking system. That is why we put our store in the pillar banks. We got rid of the directors. It is also why the new banking unit in the Department of Finance is leading bilateral discussions with the banks and the Central Bank on a daily basis.

That is why the Taoiseach, Tánaiste, and the Ministers for Finance and Public Expenditure and Reform have been in direct negotiations and discussions with the banks about their commitments. They gave us a commitment when we set out the new strategy in March 2011 that, over a three-year period, €21 billion would be lent into the economy to help SMEs and to help existing businesses restructure their debt. We will hold them to those commitments because they have been recapitalised by the taxpayer.

The objective is to bring this guarantee to an end and to get the banks out of the accident and emergency ward we found them in when we took up office and to get our money - the €64 billion colleagues referred to - back from them. I agree with those who say competition is needed in the banking sector. It would be good if banks from other markets competed in the Irish market but that will only happen when we get to a more normal arrangement when the guarantee ends. The ambition of the Government and the banking sector is to enable banks to move to a more profitable position.

Deputy Boyd Barrett argued for default. He is correct that 20% of the taxes we will take in this year will go to paying the national debt. He says we should not pay that debt, that we should default on it, as some of his descamisados in Argentina did, and take the consequences of that. He should not forget that the Argentinian Finance Minister said that when Argentina did that this, one quarter of the population went hungry. That is what he wants to bring down on the Irish people in the context of that crazy, mad man strategy of defaulting. We can get this country to a better place. It requires determination on the part of the Government to correct the deficit but also a new banking culture. The ambition of the Government is to exit the guarantee next year and, hopefully, that will happen. That will be another example of weaning the banks off taxpayer's money and putting them on a profitable trajectory into the future in order that we as taxpayers can get the money back that we put into them.

Question put.

The Dáil divided by electronic means.

12:25 pm

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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As a teller, under Standing Order 69 I propose that the vote be taken by other than electronic means just to remind the Labour Party that this is about the extension of the bank guarantee.

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Ceann Comhairle)
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The vote will proceed.

Question again put:

The Dáil divided: Tá, 85; Níl, 31.

Tellers: Tá, Deputies Paul Kehoe and Emmet Stagg; Níl, Deputies Aengus Ó Snodaigh and Pearse Doherty.

Níl

Question again declared carried.