Dáil debates

Thursday, 10 July 2014

Strategic Banking Corporation of Ireland Bill 2014: Second Stage (Resumed)

 

Question again proposed: "That the Bill be now read a Second Time."

1:00 pm

Photo of Peadar TóibínPeadar Tóibín (Meath West, Sinn Fein)
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Roimh an briseadh, bhíomar ag caint faoin geilleagar agus na fadhbanna atá againn, go háirithe an fhadhb atá againn mar go bhfuil an córas infheistíochta tar éis briseadh síos go hiomlán. Tá an tóin tar éis titim amach as na bainc agus as an Rialtas mar gheall ar an fhadhb seo. Tá fadhb mhór againn de bharr easpa infheistíochta príobháideach agus poiblí. Sin leath an fáth go bhfuil muid sa bponc ina bhfuilimid ag an bomaite seo.

Dúirt Sinn Féin ón tús, ó 2008, nach mbeadh réiteach againn ar na fadhbanna go dtí go mbeadh airgead againn le cur isteach arís sa gheilleagar. Muna bhfuil an earnáil phríobháideach in ann an t-airgead sin a chur isteach sa gheilleagar, caithfidh an Rialtas a bheith sásta an t-airgead sin a chur isteach. Cuireann muid fáilte anois faoi an chinneadh atá déanta ag an Rialtas anois, go bhfuil sé, faoi dheireadh, ag leanúint straitéis Shinn Féin maidir le seo.

Agus mé ag teacht chun deiridh mo ráiteas, seo atá le rá agam. Caithfidh gnólachtaí beaga na tíre seo a bheith in ann dul chuig an banc nua atá i gceist anseo. An fhadhb atá againn faoi láthair ná nach bfhuil aon eolas ag an cuid is mó de na gnólachtaí thar timpeall na tíre faoi na forálacha nua atá curtha ar fáil in áit na mbanc.

It is important that SMEs are encouraged to look beyond the traditional banking system in this country. This will require a major cultural shift. My colleague, Deputy Pearse Doherty, mentioned that the dependance on overdrafts in this State is far higher than in other EU countries. In order to make a cultural shift in this regard, we need to train and educate people. The local enterprise offices now opening up around the country provide a mechanism for this. I encourage the Government to ensure this is done. SMEs need new, innovative, competitive and flexible credit products to grow their businesses. We have yet to see if the SBCI will deliver on this.

Since the Government introduced new lines of credit, the experience has been that these new lines have not been used enough. Microfinance Ireland was supposed to put €90 million up for small businesses to draw down, but it has yet to achieve even 25% of that objective. As I said earlier, there is a major problem in regard to small businesses which are tied down with legacy debt. I mentioned Morrisey's quarry in Carlow, which has €8 million worth of business on its books. It is an efficient, well organised company, but it is under threat of closure from a bank because of its legacy debts. Also, Spicer's bakery in Meath, which had been on the go since the 1830s, was closed because of its legacy debts.

Firms that are not in danger of closing because of legacy debts remain paralysed in regard to further investment, because they must service their legacy debts rather than innovate, invest, create and build. The pillar banks and farm banks have not been up to scratch in regard to delivering credit. Instead, at a time when we should have seen increasing credit granted, credit into the system has been static. If private and State investment collapse, we will be caught in this lost decade for many more years.

SMEs need the Government to grasp the thorny nettle of SME debt, with one out of every four loans in default and limited lending going into working capital and restructuring. The sector needs a structural solution if the potential is to be realised. Stimulus is necessary. I believe the proposal in this Bill is a stimulus, but stimulus in a straitjacket. The Government needs far more ambition in its objectives with regard to ensuring that funds get to certain sectors in a researched and balanced manner which improves efficiencies, productivity and competitive advantage for businesses in the coming years.

Photo of Seán BarrettSeán Barrett (Ceann Comhairle; Dún Laoghaire, Ceann Comhairle)
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We move on to the Technical Group. Deputies Richard Boyd Barrett, Stephen S. Donnelly, Shane Ross, Catherine Murphy, Mick Wallace and Joe Higgins are sharing their time.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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There is a slight change in the order. We will have Deputies Mick Wallace, me, Deputy Stephen S. Donnelly and Shane Ross.

Photo of Seán BarrettSeán Barrett (Ceann Comhairle; Dún Laoghaire, Ceann Comhairle)
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The Deputy should submit a new list to me.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Will we have seven and a half minutes each?

Photo of Seán BarrettSeán Barrett (Ceann Comhairle; Dún Laoghaire, Ceann Comhairle)
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No, five minutes each; there are six Deputies.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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There are fewer of us now, only four.

Photo of Seán BarrettSeán Barrett (Ceann Comhairle; Dún Laoghaire, Ceann Comhairle)
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Nobody told us that. Who is missing out of the six?

Photo of Mick WallaceMick Wallace (Wexford, Independent)
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Deputies Catherine Murphy and Joe Higgins.

Photo of Seán BarrettSeán Barrett (Ceann Comhairle; Dún Laoghaire, Ceann Comhairle)
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The Deputies will have seven and a half minutes each.

Photo of Mick WallaceMick Wallace (Wexford, Independent)
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In the past three years, I have asked about the Government's commitment to establishing a strategic investment bank 13 times. I wonder why this has been so slow in coming, but better late than never. It is somewhat disappointing that such little time has been allocated for debate on an issue so important. There is a serious democratic deficit when we do not discuss these issues properly. Deputies like Deputy Peter Mathews should be allowed time to participate. It would be good for the parliamentary process to maximise opportunities for those who want to speak.

Speakers have commented on the provision in the Bill which will allow the company to use the word "banking" in its name. This seems to be a token gesture.

Photo of Seán BarrettSeán Barrett (Ceann Comhairle; Dún Laoghaire, Ceann Comhairle)
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If the Deputy wishes to give some of his time to Deputy Peter Mathews, he can do so. I have no problem with it.

1:10 pm

Photo of Peter MathewsPeter Mathews (Dublin South, Independent)
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Deputy Mick Wallace needs all the time that has been allocated to him.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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The point that was made was that the Government should have allowed more time for the debate.

Photo of Mick WallaceMick Wallace (Wexford, Independent)
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We are not saying we have too much time. If fact, we do not have enough.

Photo of Peter MathewsPeter Mathews (Dublin South, Independent)
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Exactly.

Photo of Mick WallaceMick Wallace (Wexford, Independent)
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I draw the Minister's attention to comments about the proposed banking corporation by the director of the Nevin Economic Research Institute, Mr. Tom Healy, to the effect that a proper State development bank needs to be able to deal with and lend directly to small and medium enterprises and that the existing banks constitute a significant part of the problem which SMEs face seeking to access credit. What guarantee is there that those banks will play ball on this occasion? We know from research carried out by the Central Bank that the loan rejection rate relating to SMEs in Ireland is one of the highest in the eurozone. In 2012 - the year in which this research was carried out - the rejection rate for SME loans and overdraft applications in Ireland was second only to that which obtained in Greece. I know many people involved in the SME sector. The general experience of those individuals in the past five years has been that when they rang the pillar banks to discuss asset financing, on many occasions their calls were not even returned. This is because the banks in question lack the appetite for what is required.

The difficulty is that the pillar banks are interested only in maximising their profits, where possible. They are not about providing a service. A State investment bank would provide such a service. It is crucial, therefore, that we should have a serious State investment bank which will be independent of the pillar banks and which will have a genuine appetite for assisting SMEs that are really struggling. It is bad enough that it is extremely difficult for SMEs to borrow money, it is also the case that the fees charged by the main banks are actually rising. In the past year alone, cash-handling fees have tripled from 17 cent to 45 cent per €100. That is crazy because it is giving rise to major problems. The fees in question are a huge drag on small businesses. The fees relating to debit cards have been increased, with 28 cent being charged irrespective of whether the transaction involves €1 or €1,000. That is draconian. A State-led bank could deal with these issues in a fair way in respect of people who are trying to keep their small businesses in operation.

Most of the discussion about jobs in recent years has focused on foreign direct investment and multinationals. We have not afforded the same priority to SMEs, which comprise 99.8% of all businesses in the country and which employ seven out of every ten people. It is imperative that the Government should afford a much greater priority to taking care of SMEs and ensuring they remain in existence.

It was good to hear the Minister of State say that in addition to SMEs, other strategic sectors could be also supported in the future. However, it is disappointing that no detail has been provided with regard to the other areas in which the strategic banking corporation might operate. How long will it be before it will be in a position to operate in other areas? The lack of information does not inspire confidence in the context of the Government being really serious about establishing a proper State investment bank. As the Nevin Economic Research Institute points out, "Consideration of the role of a new state development bank takes place within a much wider debate not only about what type of banking system is needed for the future but what sort of society we seek to create from the recent economic conflagration." Has consideration been given to allowing the new corporation to lend to not-for-profit organisations such as those which operate in the housing sector? In the light of the State's failure thus far to roll out a comprehensive social housing construction programme, surely it would make sense to allow a strategic bank to lend to housing associations that are ready and willing to deliver affordable homes to the many who need them. Only 283 local authority houses were built last year and this did not even put a dent in the waiting list. It is extremely important that the State should commence a real social housing programme but it should also try to facilitate access to funding for the organisations that want to assist in filling the gap.

What is the position with regard to the State's responsibility for child care? Is there not a role for a proper State development bank to play in supporting the development of a high-quality system of child care? Last night I reminded the Tánaiste and Minister for Social Protection of her promise not to cut the one-parent family payment until she obtained a credible, bankable commitment to a Scandinavian-style system of child care. For young parents, this is both a serious issue and a key factor in deciding whether they can take up work. Dr. Michéal Collins of the Nevin Economic Research Institute is on record as stating, "For all households with children, the additional costs associated with childcare represent the largest additional household cost associated with taking up either part-time or full-time employment." The lack of State-supported child care is preventing some people from participating in the labour market.

If the State had direct control in respect of giving small businesses access to credit, it would lead to a massive improvement in the way we operate in this country. I fear, however, that this new venture will not go far enough in that regard.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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The move to establish a strategic bank is a very long overdue recognition of the failure of the banking and wider economic strategy employed by this Government and that which preceded it in the aftermath of the economic crash. We bailed out the so-called pillar banks to the tune of €64 billion, privatised some of them and beggared the country in the process. The rationale behind doing so was that we needed these banks. The attitude was, "We do not like it but we need to do it because the main commercial banks are critical to economic recovery". Three or four years have passed and we now realise that this just did not work. We gave the banks all the money they required and they continued to act as a law unto themselves. They do not give a hoot about the State's rationale. They only have one rationale, namely, to make money. Their balance sheets constitute the bottom line. The strategic priorities relating to our economy and the needs of citizens are irrelevant to the banks. As a result of the realisation that has been reached, we are now obliged to set up a strategic bank.

One could say it is better late than never and that at least we are doing this now. However, having made the decision to introduce legislation to facilitate the establishment of the new corporation, the Government has imposed a guillotine. We are whacking through this Bill in one day. In the context of anything discussed in the Dáil, this legislation is extremely important by any standards, particularly as it will have far-reaching implications for our economy's capacity to recover. The Bill contains provisions which will give the Minister for Finance power to guarantee up to €4 billion in investments by foreign entities without having to have recourse to the Dáil. That is extraordinary. Despite the damage done by the blanket bank guarantee, the Minister will have the power to issue a guarantee without being obliged to discuss the matter in the House.

The art of political distraction currently being practised with mastery by the Government is amazing. What are we discussing while this Bill which involves bank guarantees and strategic investments and is the result of the failure of the Government's banking strategy is being whacked through the Dáil by means of the use of the guillotine? The answer is Garth Brooks and the drama of the Cabinet reshuffle. People have been speculating as to whether the latter would take place on Tuesday, yesterday or today and whether Phil or Eamon will be appointed as Ireland's next European Commissioner. They are also anticipating the press conference to be given later today by Garth Brooks. That is just extraordinary. What the Government is doing is on a par with the distraction tactics employed by the Roman emperors, namely, give them bread and circuses while the real business is taking place. The media, of course, go along for the ride, which is absolutely pathetic.

The headlines on RTE and in the media are all about Garth Brooks while something substantial like this Bill, which is about the economic future of the country and a belated recognition of a failed economic and banking strategy, is going through. At least we are beginning to address it but there are major problems or gaps in this legislation because it is being whacked through, or, perhaps, the Minister is whacking it through with the these gaps and problems because he hopes everyone will be looking at Garth Brooks and the summer holidays and, therefore, we will not be looking at the deficiencies of the Bill and the issue of the guarantee.

It is good that there is a focus on small and medium-sized enterprises. I welcome this although it is a pity the Minister will not do all the other things that the SMEs have been asking for. It is a pity the Government is not doing something about the rates system or public contracts, which are going to multinationals all over the place instead of small and medium-sized enterprises and benefiting local economies. It is pity the Minister does not do something about the disaster of parking charges and so on. Unbelievably, the Comptroller and Auditor General wants to spread the disease of parking charges, which has blighted Dún Laoghaire's small and medium-sized enterprise sector, over to Howth and other such madness.

At least we are talking about prioritising SMEs. The banks have singularly failed to help them, although that was supposed to be the purpose of the billions of euro we poured into those banks. Why is this strategic bank not dealing with other areas? KfW, the German strategic bank that will be investing in this bank has a far wider mandate than the mandate proposed for this bank and, crucially, it includes housing finance. This week the Joint Committee on Finance, Public Expenditure and Reform and all the organisations dealing with the mortgage distress have all said the insolvency legislation is failing abysmally. They indicated that the banks have refused to engage properly with the mortgage arrears process. There are 136,000 households that are financially crippled and, consequently, unable to participate fully in the economy or help it recover because they are in mortgage distress. The banks are not interested in them or in the impact that their situation has on the wider economy. Why is this bank not going to deal with that area? Distressed loans should be transferred. The loans of people who cannot get a decent deal from the banks should be transferred to this State strategic bank and it should give them a decent a sustainable mortgage arrears resolution for their situation. I have tabled amendments to the effect that the mandate should be widened at least as far as that of KfW, which the Minister is proposing as a co-investor in this bank.

The problem is similar with the issue of housing, which, we know, is an absolute disaster. We have seen hand-wringing from the Government on the issue of housing but no concrete action. The key issue is that the banks are not interested in financing the type of social and affordable housing that we need, yet here is an ideal opportunity for that to be done. This bank should have addressed housing as part of its mandate, just like the American Federal Reserve. The issue of housing is critical. Financing social and affordable housing is in the interests of citizens and vital in terms of the macroeconomic stability of the economy and the wider housing market. This should be one of the key priorities and imperatives in any strategic bank but it is not included.

I will be dealing with the guarantee in the amendments later. It is absolute madness. At the very least the Minister should accept an amendment that will require any bank guarantees given to KfW or the European Investment Bank to be examined. It seems we have to bribe these banks with guarantees although this country has been bled dry by Europe with the debt interest repayments. We must bribe these banks with bank guarantees for them to invest into our economy. It is not acceptable.

1:20 pm

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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I offer a cautious welcome to the Bill before the House. We all accept that SMEs are the bedrock of the economy. While I welcome the foreign direct investment that continues to come to Ireland, I am concerned at a macro level at Ireland's over-reliance on foreign direct investment. Anything that can be done to create a more robust long-term domestic sector, especially in the SME sector, is to be welcomed.

It is clear to anyone who has been talking to people who work in or run small and medium-sized enterprises in Ireland that they have struggled, in many cases, to get money at reasonable interest rates and on reasonable terms. This Bill includes a mechanism for a significant amount of money, up to €5 billion, to be provided at reasonable terms to SMEs and that is welcome. I am cautious for two reasons. First, neither this Bill nor any accompanying legislation addresses the demand for credit. It is a supply-side Bill. The overindebtedness of individuals and the SMEs is not addressed in this Bill - I would not expect it to be - but there is no accompanying policy to address indebtedness, an important point. Second, we do not have enough time to get into it, unfortunately, but the Bill appears to give significant sweeping powers to any Minister for Finance. The current powers introduced by the last Government give the Minister licence to put any amount of public money into the banking system. This is a dangerous power that should be repealed. While I do not have an issue with the Minister for Finance doing what is in this Bill, I believe there should be far stronger parliamentary and Dáil oversight of it. It makes me nervous.

I echo some of the comments made before about the process. I commend the officials, who gave a thorough briefing to the Technical Group and, I imagine, to the others also.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I should have said that. I am sorry.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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This is welcome legislation. It is serious stuff and there is a good deal of technicality to it. I believe the Dáil and the Joint Committee on Finance, Public Expenditure and Reform could have added considerable value. I simply cannot understand why such important legislation, which is relevant to so many sectors of society represented by Members of the Dáil and Seanad Éireann, is getting only three hours in Parliament. I cannot get my head around it and I do not understand it. I believe that more scrutiny would have helped.

This is not the first time the Government has tried to introduce credit. We have seen the micro-enterprise loan fund scheme, the seed and venture capital scheme, the development capital scheme and innovation fund Ireland. It is fair to say none of these schemes is working. Let us consider the micro-enterprise loan scheme. As of late last year only 224 start-up companies had applied and only 79 grants or loans had been approved. The micro-enterprise loan fund is applicable to businesses which have already been turned down by the banks. It is a dubious situation for a company because the bank has already decided the company is not worth investing in and then Government money may be put up to invest in it. That money is not really being lent. The credit guarantee scheme had a budget of €450 million. It is a sizeable policy instrument. It has been up-and-running since October 2012. It underwrote 75% of the risk of private banks investing in SMEs using public money. It was expected at the time that it would distribute or facilitate approximately €150 million per year. However, in the first ten months we know it lent less than €10 million. A certain amount of money is being lent but it is fair to say that the figure is far less than it should have been. What if this Bill, which has major potential, had been brought before the Joint Committee on Finance, Public Expenditure and Reform for several days? The finance committee is working well at the moment. Had the committee been given the opportunity to bring in people from the SME and banking sectors to ask whether it would solve the problem, would it have helped? The Government has tried to solve the problem in numerous ways with numerous funds and various mechanisms but none of them appears to have worked. It is a shame not to have had proper constructive parliamentary input to the process to ensure that whatever was not working in all those other funds is address such that this time it does work.

One of the reasons the previous schemes have not worked is the lack of demand-side legislation or policy being introduced. There are ambitious supply side policies being introduced and this is one such element. We know that many SMEs are overindebted. Professor Morgan Kelly recently carried out some analysis and spoke to the matter. He indicated that the upcoming European Central Bank tests will probably uncover it. There are two areas at issue. The first is SME debt. For example, the classic case would involve an SME in a given town which invested in an apartment in 2005 when it should not have and, as a result, it is overindebted. No matter how much money is offered to that company, it will not invest any more. Then, there is the personal indebtedness issue.

According to a great factoid, the average age of a founder of a successful high-tech company in Silicon Valley is 39 years. That is my age, not 22 or 25 years. In Ireland, many of the people in or around that age are in the negative equity generation. They do not have money. I know many people who, in a normal economy, would be setting up the fantastic, high-tech and innovative enterprises that we want and need, but all they are doing now is trying to pay down negative equity.

Not enough has been done, but the good news is we know how to fix this. I hope the Minister has read the finance committee's report on the mortgage crisis. In fairness to the committee and its Chairman, Deputy Ciarán Lynch, that good, cross-party report goes quite far. If its recommendations were implemented, personal indebtedness could be tackled. Many of the people whom this Bill aims to facilitate to borrow and invest would be free from personal indebtedness or, rather, their personal indebtedness would be more sustainable. They would be financially and psychological more likely to invest the kind of money that the Bill has in mind.

Although it does not relate to Deputy Michael Noonan's Ministry, I introduced an examinership Bill that was voted down. Since its introduction, PricewaterhouseCoopers has stated that we need a non-judicial examinership process. Such a process would be useful and, with a new Cabinet in place, it might be encouraged. Between the examinership Bill and the finance committee's report on the mortgage crisis and, therefore, personal indebtedness, much of the demand-side challenges to this supply-side solution would be addressed.

I will support this Bill. We should have had more time to debate it, as much more could have been done with it. Please, Minister, consider the demand-side challenges. There are solutions. Between this supply side solution and tackling the demand side solutions, we could achieve something interesting.

1:30 pm

Photo of Shane RossShane Ross (Dublin South, Independent)
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I agree with my colleagues who stated that this corporation's necessity reflects the precarious nature of the Irish banks, not the great confidence that we are used to hearing from official sources. The Minister is well aware that the formerly largest shareholder in Bank of Ireland, once a welcome shareholder but now no friend of Ireland's, recently dumped his shares on the market. He dumped a portion of them in March declaring that he had no intention of selling any more, was locked into 90 days and, on the 90th day, sold the rest. The lesson is that not only are those shares prey for vultures, but people who are objectively watching what is happening in the Irish banks, even people with profit motives, are doubtful about the banks' future. The share price has dropped from approximately 39 cent to 24 cent, a reflection of the level of market confidence in Bank of Ireland, of which I hasten to add I am a small, but destitute, shareholder. AIB has fallen proportionately to approximately 9.5 cent. The confidence in the Irish banks that is regularly blared by propagandists on the airwaves is not shared by the international holders who found the banks a convenient vehicle for coming in, ripping off money and leaving with several hundred million euro in their pockets at the expense of the taxpayer.

Photo of Peter MathewsPeter Mathews (Dublin South, Independent)
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A sum of €500 million.

Photo of Shane RossShane Ross (Dublin South, Independent)
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Correct. This is something on which we should reflect, particularly given the fact that the stress tests are approaching. It is no coincidence that Mr. Wilbur Ross, who is no relation, decided to sell in advance of those tests. He also left the Minister in a rather difficult situation as the largest shareholder with a declared interest in selling at some stage overhanging the market. We are in trouble on that front.

Even if we do not like doing so, we should reflect on the fact that, despite the banks now forming a duopoly, others outside Ireland do not see the bright future that we have been led to believe they have. The two pillar banks are not just a duopoly. When two such powerful bodies operate together, we revert to the old days when AIB and Bank of Ireland ran what was close to a cartel. This is reflected in the difficulties, not just for small to medium-sized enterprises, SMEs, to which this Bill is tailored, but also for retailers and small customers.

I will tell the House two short stories that reflect the arrogance of AIB, which is almost completely State-owned, and its failure to adapt in any way to customers' changing circumstances and about whom it does not care. The small customer will pay for the banks' debts one way or the other where the taxpayer does not.

A few days ago, I received a letter from AIB. Thousands of people also did - I asked around. That letter was a response to my application for an overdraft facility for the next year, subject to a number of terms. The bank decided to give it to me, it was granted at a charge of €25 with all sorts of penalties, etc. The bank claimed that I had applied to get it renewed. The fact of the matter is that I never applied for it, but the €25 charge was to go straight onto my account. When I rang the bank about it, the person who had signed the letter did not have a clue what it was about and stated that he had signed hundreds of thousands of letters. All of those people were each charged €25 for something they had not requested.

Accompanying the letter was another one asking me to sign a customer consent form, although I cannot remember its exact name. By signing it, I would have consented to AIB coming to my place of work to address my loan at any stage. In other words, AIB could send the heavies around to Leinster House or Agriculture House at any time to embarrass me, presumably if I was running against the rules of the overdraft. This would not have embarrassed me particularly, but that AIB would call to the doors of more vulnerable people because they gave consent in the belief that it was the right and probably mandatory thing to do is unacceptable. This is the sort of bullying tactic that is going on and is the Government's responsibility because it owns AIB. The previous Tánaiste told me that the Government could not micromanage, but it can and it should to inject a new culture into the arrogance in AIB.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Especially if the Government can micromanage Garth Brooks.

Photo of Shane RossShane Ross (Dublin South, Independent)
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Yes. We will find out later today for sure, but I think it can do it.

I will not get around to my main points, but my second story illustrates a similar issue and I will tell it quickly. I encountered an instance of someone with a dollar account. That is perfectly legal, but the currency it was most difficult and expensive to get from AIB, despite holding that dollar account was dollars. If one holds a dollar account in AIB, one does not have a hope of getting dollars. One must go to the bank, change one's dollars into euros and then change them back into dollars because that is "the system". "The system" is also how this House operates. If "the system" says one must do something, that is it. If one wants to change dollars into Swiss francs, Australian dollars or sterling, one is not even charged once. If one wants to withdraw dollars, one gets charged twice. There is still this sort of rip-off culture in the banks.

I have very little time to discuss SMEs, but I welcome this attempt to address them. It is inadequate in many ways, but it recognises and addresses the problem and the failure of the other banks.

1:40 pm

Photo of Michael NoonanMichael Noonan (Minister, Department of Finance; Limerick City, Fine Gael)
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The establishment of the Strategic Banking Corporation of Ireland, SBCI, by increasing the availability of longer term flexible debt finance which is appropriately priced will provide SMEs with access to the type of patient intelligent capital that will increase productive investment, encourage growth and generate additional employment opportunities. In this context, the SBCI will be supportive of both domestically-focused and export-orientated SMEs. It is being established as a private company, but it will operate with a strong public policy mandate in providing additional finance for the SME sector, stimulating economic activity and contributing to the economic well-being of the State. As a wholesale lender, providing funds for on-lending institutions, it will enhance the supply of funding both by using existing channels and encouraging new entrants into the market. The provision of loans designed to meet the customised needs of SMEs should also incentivise demand and build confidence in the SME sector, thereby encouraging investment in growth and employment.

The strategic role of on-lending development institutions is a well established model that is both effective and successful in other markets such as Germany, Spain and France. The SBCI does not require a bank licence to carry out the activities which have been assigned to it and there is no need to spend time or resources on a process of applying for a banking licence. Its relationship with on-lenders will be vital to its effective operation. As part of this process, it will design products that on-lenders will provide for SMEs. Furthermore, it will also impose a number of requirements on on-lenders to ensure they use SBCI funding for SME financing to fulfil the purposes of the Bill. These will ensure the actual benefits of the funding arrangements provided by the SBCI are clearly passed on to the ultimate end user, SMEs.

The reporting requirements set by funders of the SBCI, in conjunction with the nature of the lending agreements with on-lenders, will also provide the SBCI and the Department of Finance with sufficient data and information to enable them to analyse and explore the effectiveness of the SBCI in financing SMEs. Moreover, this information will be utilised to inform and shape ongoing product development to ensure the customised financing needs of SMEs continue to be met by the SBCI. A key function of the SBCI is to finance projects which promote economic development. It is also possible for it to provide, via on-lending institutions, financing for social and environmental projects that enhance economic development, provided they present the on-lender with reasonable repayment prospects.

The SBCI is an important intervention in the SME credit market that will contribute to economic development; however, it cannot be expected to be the vehicle for addressing all policy issues, especially where such issues are already being tackled by other bodies and policy initiatives. At the same time it is important to recognise that the SBCI, in conjunction with NewERA and the soon to be established ISIF, will collectively provide a more robust infrastructure for financing productive investment in the real economy, thereby contributing to more sustainable long-term economic and employment growth. Achieving this type of economic and employment growth will provide not only economic but also social and environmental benefits for the country and its citizens. The SBCI Bill is being expedited to ensure the benefits that can be achieved through the formation of a State-sponsored financial institution can be brought to bear on the Irish market without delay. Negotiations commenced with KfW and the German authorities within days of the Taoiseach's announcement in November 2013. In addition to trying to ensure the formation of the SBCI was arranged so as to maximise and sustain the benefits for Irish SMEs of this enhanced co-operation, the project team also opened up discussions with the European Investment Bank. Adding another funder has meant that the SBCI can offer more liquidity to the SME market, but it also has meant more work on the establishment of the SBCI. Arriving at an optimal solution for the start of operations which does not preclude further evolution of the SBCI has taken some time and brought us to the point where legislation has been prepared but Oireachtas time before the recess has been limited.

In order to establish a company which can enter into agreements with both the international providers of finance and the on-lenders in the Irish SME market, we first need enabling legislation. Waiting until the autumn semester to commence or complete the legislation would effectively mean that the work that needs to be done in establishing the company could not proceed until September at the earliest and the sequential actions which follow such as the establishment of a board, the hiring of staff, the signing of agreements with the international lenders, establishing internal operations, signing agreements with the on-lenders and awareness raising initiatives could not commence until October or thereabouts. It was decided, therefore, to expedite the enabling legislation in order that additional and enhanced lending to SMEs would be facilitated this year and without delay.

It is important to note that officials from my Department provided a number of briefing sessions for the relevant spokespersons of the Opposition parties. Furthermore, the said officials also worked with the Bills Office to extend the time available for submitting amendments. I am sure Deputies are appreciative of this effort to accommodate their input into the legislative process.

On the matter of issuing guarantees, the potential exposure of the State has been capped at €4 billion in the legislation and the Minister is obliged to inform the Dáil of the use of the guarantee each and every time it is extended to the SBCI. The SBCI is also to be accountable to the Committee of Public Accounts for the effectiveness of its operations. I expect that the SBCI will be covered under the amendments to freedom of information rules which are the subject of a separate Bill, but this is subject to agreement with my colleague, the Minister for Public Expenditure and Reform. I consider, therefore, that the provisions in the Bill are sufficiently broad to ensure effective public oversight of the ongoing operations.

Under the legislation, the Minister of Finance is to be the sole shareholder in the SBCI. It is not our intention that the shares will be sold or disposed of at any time. The SBCI will be a key element in the future financing of the real economy and contributes to our stated ambition of creating a more diversified, competitive and responsive financial infrastructure that can finance growth in the SME sector as we move to a new phase of economic recovery and growth. State-sponsored development or promotional institutions are an integral part of the financial architecture in other countries such as Germany, Canada, France and Spain and it is recognised that they will continue to play a key role in the financing of the economy in years to come. It is important that SMEs in Ireland have access to similar financial products available to comparative enterprises in competitor states, otherwise they will be operating at a serious competitive disadvantage. The SBCI, with its concentrated focus on improving the supply and quality of financing to the SME sector, ensures Ireland will have in place an institution capable of supporting long-term investment in the sector.

A robust, dynamic and innovative indigenous SME sector is key to ensuring sustained economic recovery and employment growth. The establishment of the SBCI builds on the measures and initiatives already put in place by the Government to enhance SME access to finance and can be considered to be a major milestone in our continued economic recovery.

The SBCI is mandated to provide additional credit that is tailored to the business needs of SMEs. In carrying out its core functions the SBCI will make an important contribution to stimulating economic activity, enhancing competitiveness and thereby generating employment opportunities for people across the State.

Negotiations commenced with KfW and the German authorities within days of the Taoiseach's announcement in November 2013. The project team has moved quickly to establish the structures now being debated. While the assistance provided by the European Investment Bank has resulted in the SBCI being able to offer more liquidity to the SME market, it has resulted in more work on the establishment of the SBCI. Now that this work is complete, we have this opportunity to debate the Bill.

Deputy Michael McGrath spoke about the Bill as initiated. The Bill enables the formation of the SBCI in a flexible manner that will allow it to develop to cover any strategic area of investment. SMEs are singled out as indigenous growth will be necessary. SMEs always face a structural disadvantage in funding.

On Deputy Dara Calleary's point, the SBCI will demand from existing lenders and other entrants that all funding drawn down by it is used or returned to the SBCI. The Directorate General for Competition and SBCI will require proof that the benefits have been passed on to SMEs. Additionally, the SBCI will supply credit products that are innovative, are in no way designed with the lender in mind and in every case are tailored to the needs of the SMEs. For example, working capital is now available but this may only be available for a 12 month period. Term loans are also available to SMEs, typically over three years but up to five years in certain circumstances. What we are talking about here is low interest loans that would be available for development of a company, perhaps of a ten year duration. This fills a gap in the product market for SMEs wishing to expand and currently finding it very difficult to get the finance to do so.

Deputy Pearse Doherty in a thoughtful speech also made a number of points. Under the Bill "other persons" means that the SBCI can lend to any legal person and not only to SMEs. Flexibility to grow and adapt is key to the architecture of this legislation. We see it as organic. As experience is taken on board it will grow organically to serve wider needs in the economy but the particular focus will be on SMEs. The legislation has not only an economic mandate but a social and environmental mandate. I will be pleased to work with Deputies on all sides of the House to extend its mandate as we see fit to grow the economy and to create additional jobs.

Deputy Peadar Tóibín echoed a number of the points made by Deputy Pearse Doherty. I thank Deputies Richard Boyd Barrett, Shane Ross and others who contributed to this debate for their support for the principle of the Bill, even though they had some limited criticisms of it. On Committee Stage, we can deal in greater detail with some of the points made. I take the point that the Government has been in office now for three years and that Deputies have been calling for the establishment of a strategic investment bank for a number of years. While we committed in the programme for Government to the establishment of a strategic bank, it is only now that we have the investment capital available to put it in place. This capital was raised in the first instance through the initiative of KfW in terms of the talks between the Taoiseach and the Chancellor and then the decision of the European Investment Bank to not only equal the funding provided by KfW but to put more in. We also have our own strategic investment fund. In simple terms, approximately €800 million will be available in the first year and, as the company is renewed, the balance sheet should be approximately €4 billion. This money will be available to the SME sector. In comparative terms with other strategic investment institutions across the OECD countries this is a balance sheet which is proportionate to our economy and fits the need of the economy.

I thank Deputies for their support.

Question put and agreed to.