Thursday, 28 January 2016
Joint Committee of Inquiry into the Banking Crisis: Statements
In its final report published today the Oireachtas banking inquiry concluded that there were two crises - a banking crisis and a fiscal crisis. These were directly caused by four key failures - in banking, regulatory, Government and Europe. The theory of a soft landing or gradual slowdown for the Irish economy was never substantially tested or challenged, and the idea of a guarantee was not conceived on a single Monday night in September 2008. Among the report’s key findings are the following. The almost universal adoption of the soft landing theory, without any substantial test or challenge, must be regarded as a key failing for the Government, Central Bank and the Department of Finance. The night of the guarantee has become something of a myth. In reality the idea of a guarantee was considered as part of a range of options as early as January 2008. No independent in-depth deep-dive investigation of the banks had been commissioned by the authorities before September 2008, and the guarantee was decided upon in the absence of accurate information about the underlying health of financial institutions.
By October of 2010 Ireland’s entry into a bailout programme was inevitable. However, the timing of the entry into the programme was determined by factors outside the Government’s control. The ECB put the Government under undue pressure to enter a programme but also insisted that there would be no burden sharing with bondholders.
The crisis in the banks was directly caused by decisions of bank boards, managers and advisers to pursue risky business practices, either to protect their market share or to grow their business and profits. Banks moved far away from prudent lending principles in their dealings with the property development sector in favour of a riskier asset value-based lending model. The introduction of new mortgage products masked the accumulating difficulty of the year-on-year increases in house prices, while facilitating a situation whereby affordability could be met in purchasing the mortgage product. No single event or decision led to the failure of the banks in the lead-in period to the crisis, but rather it was a cumulative result of a series of events and decisions over a number of years.
Ultimately, the end result was that exposures resulting from poor lending to the property sector not only threatened the viability of individual financial institutions but also the financial system itself. The Financial Regulator adopted a light touch and non-intrusive approach to regulation. The Central Bank underestimated the risks to the Irish financial system. The committee found that both institutions had the powers to intervene, but neither did so decisively. The Central Bank and Financial Regulator were aware as early as 2003 that the Irish banking sector was placing increasing reliance on lending to the property sector and that different lending practices were being adopted. Neither the Central Bank, at a macroprudential level, nor the Financial Regulator, at a microprudential level, intervened decisively at the time or in the years prior to the crisis.
Government taxation policy reduced direct taxes and transferred reliance on pro-cyclical taxes leading to a structural deficit. Government fiscal policy resulted in significant, long-term expenditure commitments funded by unsustainable transaction-based revenue streams. Fiscal policy after 2001 was not focused on mitigating and managing property price increases. If steps had been taken, for example, through reducing or abolishing property tax incentives, as originally planned from 2002 to 2004, the severe overheating from 2003 to 2007 could have been mitigated, at least to some degree. In this regard tax incentives were introduced and extended without sufficient analysis of the costs, benefits and impacts. They fuelled an already strong construction industry during most years from the mid-1990s up to and including 2006. Government, including individual Ministers, made policy decisions based on a range of considerations, including having regard to, but not always accepting, the advice of the Department of Finance, Central Bank and international organisations, and during the public hearings ultimately accepted overall responsibility for decisions made.
The committee has recommended changes for banks, external auditors, State institutions and Government policy and the Oireachtas to minimise risk in the future. Among the recommendations are the following. All members of bank boards should have requisite financial skill sets and experience to include banking, risk and governance. The risk of a mismatch between liabilities and assets in terms of composition, stability, currency and tenure should be reviewed regularly at board level. The capacity for direct reporting of critical business risk to the regulatory authority by an external auditor should be strengthened. A detailed and comprehensive commercial property price register should be introduced. Membership of the board of the Central Bank, appointed by Government, must include sufficient expertise and relevant direct experience in financial stability and prudential regulation. In situations where there are conflicts between the advice provided by the Department of Finance on matters where exceptional risks are involved and the decision proposed by the Minister, a formal process with clear procedures should be established through legislation. Bands should be set with regard to the proportion of the total State tax revenue accounted for by defined cyclical transaction taxes, which should also include triggers for action when breached. Oireachtas committees should be reviewed and resources provided to increase their effectiveness. An independent budget office should be established to provide independent costings of budgetary and pre-election proposals made by political parties and Members of the Oireachtas.
Each crisis has at its origin a belief that this could never happen again or that this time it is different. One description of this recent crisis was that it was a systemic misjudgment of risk, that those in significant roles in Ireland, whether public or private, in their own way got it wrong, and that it was a misjudgment of risk on such a scale that it led to the greatest financial failure and ultimate crash in the history of the State. This is one part of the story. The failure to identify the potential risk posed to the overall financial stability of the State by the banking system is another key lesson which must be learned. Recognition must also be given to the lack of an overall framework, at a European level, for dealing with the financial crisis.
This report’s findings and recommendations show that lessons must be learned and applied. There is no certain formula to avoid another crisis, but constant vigilance and early preventative action are critical. The final report laid before the House contains three volumes. Volume one is the main report, volume two explains how the inquiry operated and deals with recommendations for the running of future inquiries, and volume three involves the publication of all the documentary evidence considered in preparing the main report. The inquiry was asked to examine the reasons Ireland experienced a systemic banking crisis. In reality, however, there were two crises - a banking crisis and a fiscal crisis which combined to bring about the crash.
I thank the members of the joint committee for their hard work and commitment throughout the inquiry, which commenced 18 months ago. The determination of all the members of the inquiry to complete the task put before the committee is, I believe, unique in Irish political life. Despite varying party political affiliations, all members participated fully and worked together to deliver the best report possible within the framework of the Act and on time. However, it must be acknowledged that Deputies Pearse Doherty and Joe Higgins, while they continued to remain as members of the joint committee, were in the end unable to support the final report. Committee members are the visible side of the inquiry, but there is another. Enormous credit is due to the staff of the inquiry and to members’ staff, to the investigation team, the legal team, the secretariat and all those who worked behind the scenes, working long days and long hours in the evenings and through weekends. The dedication, determination and commitment they gave to supporting the committee make them exemplars of good public service in this country.
I also acknowledge and welcome the co-operation we received from institutional participants and individual witnesses through their attendance at public hearings, preparation of written statements and provision of documents to the inquiry. However, co-operation was not evident across the board and the joint committee is critical of the failure of the ECB in particular to co-operate with the inquiry. While acknowledging that there was no legal obligation on it to do so, the stance of the ECB stands in stark contrast to the full co-operation and engagement offered by both the European Commission and the IMF.
It was a privilege to serve on this committee. It was an opportunity to shine a light on a dark and difficult time in our recent past, an opportunity to piece together the events of that time, an opportunity to learn from the mistakes that were made and an opportunity to ensure those mistakes are never repeated.
It was a privilege to have been involved in this cross-party banking inquiry along with my ten colleagues. It must be recognised that this inquiry had two strands - public hearings and the publication of the report. Each was equally important. The inquiry was held in public. For the first time the public could see, in real time, all the stakeholders appearing before the committee to be questioned. That should not be lost in the review of the banking inquiry.
I will discuss a number of areas in the time I have to speak. First, I acknowledge the work of the chair, the secretariat and everybody involved with the inquiry. What was new about this report, given that there has been a myriad of reports on this area? We made some key findings. The first finding is that this was a commercial real estate crisis for the banks, not a residential crisis. It was a residential crisis for ordinary people whose homes fell in value through no fault of theirs and who effectively, as a result of the crash, could not afford to pay their mortgages. However, for the banks it was a commercial real estate crisis. We know that because when NAMA took over the loans from the banks it paid €32 billion for loans of €74 billion, which is a write-down of over €42 billion. Over 80% of those loans were commercial loans. The write-down on the remainder of the commercial loans in the banks was of the order of 58%. It was about a third of that figure for residential properties. If the commercial real estate crisis had not happened, in all likelihood the Irish citizen would have ended up putting significantly less money into the banks, if any at all. We must lay to rest the myth that everybody partied. They did not. The ordinary citizen struggled. A few partied - the big boys - and they caused a situation whereby there is €30 billion of taxpayers' money in a black hole deep in IBRC, formerly Anglo Irish Bank.
A second key finding relates to the issue surrounding the guarantee. There were many options on the night of the guarantee, and they had been examined over the previous year. The only written document we got sight of was where the Central Bank had provided a press statement with the outline of a guarantee on that night, which just guaranteed deposits and inter-bank lending. There was no guarantee of any bondholders. A couple of hours later, however, everything was guaranteed, including bondholders across the board. Clearly, it is not the case that the blanket guarantee was the only decision that could be made.
The other issue was the many warning signs that arose beforehand. The National Treasury Management Agency, NTMA, is charged with managing taxpayers' money and borrowing on behalf of the State. As far back as August 2007 it refused to put money into Anglo Irish Bank and, successively, the other banks because it believed it was putting taxpayers' money at risk. The Minister at the time used legislation to force the NTMA to put money into the banks, to the point that €790 million of taxpayers' money from the NTMA was in the banks at the time of the guarantee. We have recommended in this report that the powers of the Minister over the National Treasury Management Agency be reviewed. There must be more independence, and those warning signs must be available.
There are key findings in the overall summary. There was a lack of judgment of risk by the banks, particularly regarding commercial lending, and excessive remuneration was paid to top executives in the banks. The remuneration was completely out of line with what the ordinary citizen was earning or, in many cases, what people were earning in top jobs elsewhere. The Financial Regulator and the Central Bank did not use the powers available to them. They did not need new powers as the powers were available already. One of them was that they could have insisted on the banks providing for extra capital to deal with possible losses, particularly in the commercial area. Policies were pursued at Government and fiscal level, in terms of tax incentives, which continued to fuel the cycle. There was talk that they would cease in 2002 but they did not cease until 2008. They all contributed to a whirlwind where the property sector went out of control. A total of 25% of our GDP was coming from the property sector. It was madness.
I will refer to the primary recommendations which seek to ensure this never happens again. First, in the commercial area, we recommend that there should be a comprehensive commercial property price register. If that had existed at the time it would have highlighted the fact that the price of commercial property was going out of control and also the risk the banks took on commercial property. The banks basically deemed that diversifying their portfolios was including property in Ireland, England, France, Europe and the US. That was diversification. However, all commercial property fell in value at the same time, so that was a complete misjudgment of risk.
Second, the European Central Bank, ECB, must appear before Oireachtas inquiries and must be held more accountable. The ECB blocked burden sharing for the Irish State on two occasions - in the bailout in November 2010, when there was €20 billion of unguaranteed bonds available, and in 2011 when there was approximately €9.2 billion available, based on the studies we received from the NTMA. Remuneration in the banks must be linked to medium-term results for the institutions. Boards of banks must be held accountable for the risk appetite and the judgment of risks within the banks. Boards abdicated their responsibility in that area and they must be held to account.
We also refer to the auditing area. The European Commission produced a Green Paper in which it stated that auditors must be replaced after six years. It was agreed to be ten years. In the nine years prior to the crash, three auditors dominated all institutions. There must be proper rotation. The second issue that emerged from the Green Paper is that as part of their auditing duties auditors should be required to audit the banks' concentration of commercial loans and residential loan books and report to the Financial Regulator, as a distinct requirement.
In terms of NAMA's work and the appraisal of its work, we were curtailed by the timescale as we could not look beyond 31 December 2013. We recommend that once NAMA has concluded its work a comprehensive review should be carried out of its work, value for money for the taxpayer and so forth.
Was the banking inquiry worthwhile? I believe it was. One reason is the public hearings. We went through matters forensically with 131 witnesses. I would have liked it to happen earlier but we held a referendum and the people gave their view on the new type of banking inquiry. They turned it down. However, we now have a body of work. It is a cross-party work, which is very important, where the citizen can get clarification of why and how it happened, the people involved and the recommendations to ensure it does not happen again.
I will conclude with one point. As a country, we do people very well.
If one has a good person in a position, one will find that the role is carried out to perfection. If a person is weak, however, our system does not compensate for that personal weakness. It is something we need to look at because situations will arise where a person is not particularly great in a role and a system will need to be in place to protect the interests of the taxpayer and the citizen.
I am glad to have an opportunity to say a few words on the banking inquiry report. As a group, we embarked on a journey in June 2014 when our first meeting took place. In November 2014, the Oireachtas concluded the terms of reference which were given to the inquiry team. The initial deadline for the conclusion of the report was November 2015, one year later, but we ended up getting an extension of time. As such, it has been an 18 months process and journey for us. At the outset, I acknowledge the work of the Chairman, Deputy Ciarán Lynch, to whom I pay tribute for the manner in which he chaired the private and public meetings. He had to invest a great deal of additional time as Chairman to deal with various issues and to ensure that the inquiry ran as smoothly as possible. It is a personal achievement for Deputy Lynch to have chaired the inquiry so well. I also acknowledge the work of all of my colleagues on the committee, many of whom took on significant additional duties in the last couple of months, including drafting and redrafting sections and working to bring the report to a conclusion. I thank and acknowledge my parliamentary assistant, Morgan Shelley, without whom I could not have given as much time as I did to the inquiry along with everybody else. I acknowledge the work of the investigators and, of course, the legal advisors and all of those who supported the work of the inquiry in the background.
It is an achievement to have completed a report. There were certainly times in recent months when I was not sure we would get this over the line. Having concluded the work and looking at the finished product, it was an achievement to conclude our work and have a finished report. The constraints in the 2013 legislation have been articulated and are dealt with comprehensively in Volume 2. Whoever forms part of the next Government and has the privilege of being in the next Oireachtas will, I hope, examine the recommendations in the report with a view to implementing them to improve the legislation which is in place. I remain true to the view I expressed at the very beginning of the process over a year and a half ago that a non-political inquiry would have been preferable. I am not going to change my mind on that at this stage. That is why my colleagues and I in Fianna Fáil advocated a Leveson style inquiry. Whether we like it or not, politicians were being inquired into in effect and the inquiry was, by its very nature, inherently political. As such, it would have been better if it had been conducted by a truly impartial person with adequate resources. We need to revisit the Tribunals of Inquiry Bill 2005 which is still sitting on the Order Paper and has not been concluded. It needs to be enacted as quickly as possible.
As Deputy Kieran O'Donnell said, all of our work in terms of receiving testimony took place in public. Getting people before the inquiry who had not said a single word in public as regards their roles in the different organisations was in itself a public service. Certainly, it has added to the body of knowledge we all have about the banking crisis. People will make up their own minds having read the report. The truth is that many people had already made up their own minds as to what led to Ireland's banking crisis and how it was responded to. The important point is that we have enhanced the overall understanding of the banking crisis and brought many pertinent new pieces of information into the public domain, which is very important. It must be acknowledged that we have not told the complete story because we have been unable to. The reality is that we were only able to scratch at the surface of the story of Anglo Irish Bank, a bank which will ultimately cost the State in the region of €30 billion. Any inquiry into Ireland's banking collapse which did not hear testimony from people like David Drumm and Sean FitzPatrick is clearly not a complete body of work. We all acknowledge that as members of the inquiry. However, significant new information came into the public domain and is now on the public record. There is a great deal of information and documentation which has now been made available on the Internet in Volume 3 and which will provide fertile ground for journalists, academics, researchers and future policy makers who can go through it all to tease out further points we were not able to cover in the detail we would have liked. The time we had was limited. I acknowledge that having a series of crisis meetings towards the end was not ideal and undoubtedly sapped some public confidence in the inquiry. All of that will be forgotten in the fullness of time, however, and the inquiry report will stand the test of time. It is there as a permanent record of the work we have done.
It is a great pity that somebody who could have contributed so much to the work of the banking inquiry, the late Brian Lenihan, was not able to do so. He would have had much to say and the inquiry would have been far richer had we been able to hear from Brian Lenihan in the course of our work. We got some sense of the immense pressure he must have been under. It is something I thought about personally in the course of the inquiry when the full extent of what was going on the background in the lead up to September 2008, the nationalisation of Anglo and, ultimately, the bailout programme in November 2010. He must have been under the most extraordinary pressure as a human being. None of us will ever know whether the pressure and stress he was under contributed to the illness to which he eventually succumbed, but it would not surprise me if that was the case. From the point of view of the inquiry, it was all the poorer that Brian Lenihan was not there to tell his story and to answer many of the questions. One of the key questions was whether Anglo should have been nationalised. I question at times whether it would have made any great difference if that was done at the end of September 2008. Ultimately, money would only have been saved if someone was not repaid. Who would that have been? No one is suggesting it should have been depositors. People suggest senior bondholders, but would that have been permitted? What would the consequences have been? No one, had they known then that rescuing Anglo was going to cost in the region of €30 billion, would have embarked on that course of action. I do not believe that anyone would have ultimately made that decision.
On the banks themselves, a great deal has been covered. The fact that they simply did not know the full exposure of individual borrowers to whom they were giving loans is remarkable. There was clearly a major failure at board level across a number of the institutions. There was a failure at so many levels across different organisations. The role of the financial regulator - the Central Bank - is comprehensively dealt with. There was a serious shortcoming in terms of the preparation for the crisis that struck us in September 2008 despite serious warning signs and alarm bells ringing. As the Chairman has said, there was no deep dive into the financial institutions in the course of 2008 which was a very clear failing. There is no evidence that such a deep dive would have provided information that would have led to a different course of action, but having the information would certainly have been very helpful. There was also, of course, the failure at the level of the Department of Finance, at Government level, which has been well documented in terms of pro-cyclical fiscal policy and the underlying deficit which was subsequently exposed when the property and construction industries collapsed entirely. The ECB and its role is also covered. I have no doubt, having sat through all of the hearings, that the actions of the ECB added billions of euro to the ultimate cost of rescuing the Irish banking system. I have no doubt whatsoever that was the case. All of the evidence is on the record to back that up.
It was clear from our work that there was an intolerance of dissenting voices. If we are to learn anything as a country and an Oireachtas, it is to be more tolerant of those who hold contrary views. We could all improve in this regard. There were some dissenting voices during the so-called boom years. While they were certainly in a small minority, they were strong and much of what they said has been proven true. We should learn from that.
If the work of our inquiry is taken seriously and carried forward into the next Oireachtas, it should be taken to the next step. Implementing our recommendations would reduce, but not eliminate, the risk of a future crisis afflicting this country.
I do not know whether I can sum up 18 months of participation in a banking inquiry in ten minutes, but I will try to add to what its other members have stated. I thank Deputy Ciarán Lynch for the major effort that he put into the inquiry. When the public hearings began, we as members had to take a step back from the process on the investigative team's side to focus on the public sessions, but the Chairman had to focus on those sessions while running the back room. It was a significant task, one that involved extra background work on those days when the inquiry did not sit, of which people who tuned in on television or read about the inquiry in newspapers may not have been aware. Deputy Ciarán Lynch carried that burden on his shoulders admirably.
I thank the secretariat's staff and the legal investigators. I got to know some of the latter well in the course of the report's final preparation when I was based in the inquiry's offices for a brief time. They were a great team with which to work. I thank my parliamentary assistant for the banking inquiry, Mr. Darragh McGreal, and my office, which also helped. Much work was done by everyone. I thank my colleagues on the inquiry for everything that they did, including putting up with me. I might have been a bit schizophrenic at some of the private meetings depending on my mood and where I believed we were going. It was great to work with everyone all the way to the end. I have some nice memories of those moments when we were not in public session and worked together as colleagues on a big project. I am glad to have them.
I also thank my constituents for their patience for the past 18 months in allowing me to do this work and be a parliamentarian. I appreciate it. I wanted to be on the inquiry. What happened was part of the reason that I came home and got involved in politics. I sought to be on the inquiry while I was a member of the Committee of Public Accounts. Deputy O'Donnell and I prepared the report on how one might conduct an inquiry. I was privileged to be appointed to it by the Taoiseach, for which I thank him. I was appointed to the inquiry at a time when I was having questions about the effectiveness of the Oireachtas. People have such questions, but the inquiry restored my faith in the Chamber, the people elected to it and the work that we do. I underwent a great deal of professional development.
My view on a Leveson-style inquiry was similar to Deputy Michael McGrath's until we started our work. The elected representatives of the Oireachtas had to do this. If we did not, it would have been an abdication of our responsibilities and a loss. It was political at times, but that was minimised. We were not there to land a blow for the media. As members of the media would always tell us privately after a meeting, we did not lay a hand on a witness, but that was not why we were there. As some members of the public might say, no one is going to jail. We were not there to replace the courts either. We were there as a group of parliamentarians to do a serious piece of work and get on the record the testimony and evidence of the key people involved during the crisis period. Let others judge. We did this away from the fauxtheatrics that we sometimes see in the Chamber. I had no doubt about the ability of each inquiry member to leave the party jersey at the door during the public sessions and do the work professionally. Good work was done, good questions were asked and good evidence is there for those who want to take the time to read the transcripts.
I will make a recommendation on the future of inquiries. We should focus our efforts on the public sessions, compelling the right witnesses, collecting documentation, examining and cross-examining. Of course there must be reports, but they should be approached as additions to the work, not as attempts at summations. If we are being honest with ourselves, this is where we started encountering difficulties. We finished the public sessions and went off to try to summarise everything, but it was too much. We had taken in more witnesses than we had intended, we had hundreds of hours of evidence and there were 500,000 pages of documentation. Never could one do all of that justice in 400 pages. A future inquiry should view a report as an addition rather than a summation, in particular given the constitutional constraints that we face. There is no lack of will on the Parliament's part to give more powers to an inquiry or make it more effective. Rather, the Constitution determines what we do. We must be cognisant of that.
I acknowledge Senator O'Keeffe's work in getting the report published. It would not have happened otherwise. Everyone played a role in the final weeks and a heroic effort was made, but the Senator got this over the line. I congratulate and thank her. A fine report, it has been published across three volumes. As Senator Barrett stated at a press conference yesterday, future PhDs will come from our work. I hope so. It will not be academic for its own sake. Rather, this will be an opportunity for people to drill down outside the constraints of a Dáil term or anything else and draw up further lessons and recommendations as well as more truths that we must face openly and honestly.
The failing of the banks was massive. After all our work, I wonder whether they have learned their lesson, in particular when I see some of the current advertisements. This is a worrying development. As the Chairman mentioned, there is a belief that things are different this time. One of the greatest failings of human nature is that we always think that this time it will be different and special, only to make the same mistakes. It is a failure of imagination, as a playwright put it. The problem during the crisis was the failure to comprehend what might be happening. When dissenting voices were raised, they were ushered away because people did not want to hear them. We could not imagine the kind of catastrophe that was coming. This trend continued during the crisis and the attempts to assess the real damage to banks' portfolios, whether they needed bailouts, the requisite fiscal adjustment, the necessary interest rates, whether there should be burden sharing, etc. When we view banking behaviour today, perhaps we can see this continuing. That is a concern.
As Deputy Michael McGrath mentioned, there are not as many recommendations as we would have liked because of the constraints on the report, but it cannot sit on a shelf. Too much time, money and resources have been invested and good recommendations made. They may not be all of the recommendations that we need, but they should be implemented. That will fall to the next Government, whoever that may be. If I am re-elected to the House and have the opportunity to serve again, finding out what has been done with the recommendations and findings of the banking inquiry will be a bugbear of mine and a regular question to all officials and authorities. There are key recommendations. For example, the Central Bank's enforcement division has to appear before the Oireachtas committee. Let us make the Irish Fiscal Advisory Council directly responsible to the Oireachtas. Let us get independent oversight of the banking function in the Department of Finance. Let us have a review of NAMA when its work is done. Let us examine how the National Treasury Management Agency, NTMA, operates and what powers the Minister should or should not have over it. All of these recommendations should be examined. The inquiry gives us the impetus to do so, which I hope will carry through to the next Administration and every future Deputy. As we start to plan for the future following the economy's recovery, the duty will fall to the 158 people elected to the House to scrutinise and pay attention to detail to a degree that was not the case previously.
A large part of what I wanted to do on the inquiry was examine the role of the Oireachtas and how the structure of its system might have failed to act as an adequate brake or check on Government behaviour. This has formed a great deal of the work that I have done in the House to date. We need to give space and motivation to parliamentarians to examine legislation, ask difficult questions, stay at committee meetings for long hours, chase up leads and go into detail. Currently, the system does not give us this opportunity. Many recommendations have been made across the parties as to how we can improve the Parliament and ensure that future finance committees, independent budget oversight offices, budget scrutiny committees and so forth can hold future Governments to the fire on key details. The previous Government had a disregard for the Parliament, which was part of the reason I joined the Dáil, but I do not want to move into the political space in this debate. These lessons must be taken on board for the next Dáil.
We were not able to tie together parts of the inquiry in the report as we might have liked.
Others may be able to do that. As a committee, we were bound by very specific rules. It was always curious to note the distance placed between officialdom and the NTMA at key moments in the crisis. The NTMA was not placing deposits in Anglo Irish Bank but was made do so. The NTMA was not represented on the domestic standing group in the initial stages. It seems the NTMA was fully aware of the intended approach of the Government when it emerged there was a systemic crisis. The NTMA was not involved in the negotiations on burden sharing at the 11th hour. The NTMA was making calculations as to what might be achieved on burden sharing that seemed to be at odds with what the Department of Finance was pursuing at the end of 2010 and the beginning of 2011. That stood out for me as a point of interest. The NTMA, as an institution, is important; it is the nation's banker. It acquitted itself excellently during the crisis through getting us back into the bond markets and back on our feet. We cannot let any kind of institutional bias that may exist or have existed continue.
I thank my colleagues on the inquiry for their work and support over nearly two years. I am aware of their incredible dedication and the work they all put into the process, at a significant cost to themselves in terms of time and commitment. I thank the Chairman, Deputy Ciarán Lynch, in particular not only for his work chairing the sessions, but also for the work he had to put in behind the scenes. It was very interesting observing him for the past 18 months. At times during the inquiry when tensions grew the odd time, he sometimes allowed them to explode and then picked just the right moment to intervene and point to the right direction. There may be a lesson there for the Ceann Comhairle in the dying days of this Dáil. I commend the Chairman on his work. Without his stewardship, we would not be in the position we are in today.
I wish to show my appreciation for the inquiry support team, the investigators, the administrative staff in Agriculture House and the legal team for the work they did. Their work was tremendous and very much went unrecognised. Some of them went through a very difficult time during the inquiry. I thank, in particular, my own assistant, Mr. Conor McCabe, without whose support I would not have been able to be as inquisitive, put the right questions to those who appeared before the inquiry or strengthen a report I ultimately felt I could not support.
Seven years on from the night of the guarantee, it is important that we recognise when talking about the report that people are still paying for the decision. The last of the treasury bonds set up to replace the Anglo Irish Bank promissory notes are not due to expire until 2053. People continue to suffer as a direct result of the causes of the crisis and the policy responses. People wanted those at the helm to be held accountable for their actions. That is what we attempted in the public hearings of the inquiry, which I believe were successful.
The report itself finally lays to rest the myth that "We all partied", as was mentioned already. The critical fault line in the loan books of the banking sector was in commercial property. From 2000 to 2008, banks increased their lending from over €100 billion to €400 billion, with a heavy concentration on commercial real estate. This was a very select business that was concentrated in the hands of a small number of individuals. By September 2008, the top 25 customers in Irish Nationwide represented 51% of the its entire commercial loan book.In Anglo Irish Bank, 20 customers accounted for 50% of the Irish loan book. Just 190 people had debts of €62 billion in the covered institutions. This was not by accident. It was core to the growth strategies of the banks, funded through credit sourced from the international wholesale markets.
Anglo Irish Bank was a monoline bank focusing almost exclusively on commercial property lending. Irish Nationwide followed this strategy, with almost 85% of its loan portfolio centred on commercial property activity. Soon both AIB and Bank of Ireland jumped in. By 2008 in the Irish banking system, there were just 29 property developers with borrowings equivalent to 18% of Irish GDP. That was of a direct result of bank lending policy, Government tax and planning policy, and Government regulation policy, which was light touch in the extreme.
The American academic Professor Ed Kane, who gave evidence to the inquiry, once said that the resolution of a crisis is often informed by a political and economic struggle over who pays for the losses, and that a crisis is defined by the battle over loss allocation. The struggle over who should pay for the crisis is the defining event of our time. It is felt in every town and village across the State. It is also felt abroad in places where hundreds of thousands of our young people now reside, having been forced to emigrate as a result of the policies of the establishment parties.
The Irish people were told by the Fianna Fáil-led Government that they had to carry the can for the banks and developers because, somehow, it was their fault for wanting to provide homes for their families. The reality, however, is that the crisis was caused not by the masses but by the few. It was caused by the lending and speculative activities of a tiny group of bankers and developers, spurred on by a Fianna Fáil-led Government. When the crisis revealed itself, that Government gave the banks and developers a blanket guarantee that led directly to Ireland's seeking of a bailout programme. Will we hear an apology for the lie that we all partied? I will not hold my breath.
While the report touches upon this cosy relationship between bankers, developers and politicians, it fails to examine those relationships in any critical way. These relationships were raised by Professor Morgan Kelly in an article in The Irish Timesin January 2009. He criticised the Government’s assertion that Anglo Irish Bank was worthy of a bailout. He said the reality is that Anglo existed "as a vehicle for a few politically connected individuals to place reckless bets on the commercial property market". He stated:
The proposed Anglo nationalisation marks a decisive watershed in Irish democracy. With it, an Irish government has coolly looked its citizens in the eye and said: “Sorry, but your priorities are not ours.”
This goes to the heart of how Ireland really works and whose interests the State serves when push comes to shove. Addressing this was the whole purpose of the nexus phase of our inquiry. Our terms of reference, set by this House, required that we critically analyse the links between banks, property and politics. Unfortunately, it is a key aspect of this whole crisis that is all but missing in the report, which lists events and policy responses but does not analyse them in any meaningful way. It has been explained why some of that analysis is missing, making reference to time constraints we were under. The report merely presents a rationale for the key players' position and presents their viewpoint as the defining narrative of the crisis. This is unacceptable and a fundamental failing in the report.
The report also fails to consider in any real way the operation of NAMA and whether its policies were appropriate. NAMA was forced by the current Minister for Finance to reclaim a certain proportion of its bonds by a certain date and this led it to hold a fire sale of its commercial properties, yet we have seen an increase each year in the value of commercial property. Last year alone, there was an increase in the value of commercial property of 21.7%. However, that uplift is now in the hands of private speculators, not NAMA. The real question we need to be asking ourselves is how many billions the State has lost by this fire-sale policy. We do not know. NAMA has now become a debt collection agency. It has ceased to be an asset management agency. This policy, initiated by the Minister for Finance, Deputy Michael Noonan, was not analysed in the report. There is absolutely no reflection in the report on the business strategy of NAMA and whether any lessons can or should be learned from it. Instead, we get the impression that NAMA is working away in the best interest of the State and that we can reflect on its policies only after it has finished its operations, or after the horses have bolted. What is the point in that? I refer again to our terms of reference.
The report does not deal in any substantive way with the liquidation of IBRC. We all remember the famous "prom night" in this House. Are we seriously to believe that there is no room for reflection on the actions presented at that time by the Minister for Finance? The liquidation of IBRC fell within the terms of reference of the inquiry, but on that event the report is mostly silent. With regard to burden sharing, the failure to pursue effectively this option imposed an immense cost on the Irish people in terms of crisis resolution.
In the run-up to the 2011 election, the current Minister for Finance told the Irish people that "once Anglo ceases to have a bank licence, burden-sharing by its senior bondholders would become a reality as it would no longer be considered capable of having a contagion effect". On 9 February 2011, weeks before the people went to the polls, the current Taoiseach, Deputy Enda Kenny, said the "the junior, and senior, and non-guaranteed bondholders are going to have to pay the price".
However, within three weeks of its formation, the new Government ditched those election promises and adopted a policy that no senior bondholder would be left behind. This was despite the fact that the banking inquiry uncovered that the National Treasury Management Agency had informed the Fine Gael-Labour Party Government at the time that the markets not only expected burden sharing but had priced it in. We also know from the banking inquiry that the Minister for Finance made two telephone calls to Jean-Claude Trichet as part of the negotiations on the issue, on which he spent half of one day. Despite the finding in the report, the Government ultimately had the power to impose or not to impose burden sharing on bondholders and it took the decision not to do so. That the Minister spent one paltry afternoon on this issue and made only two telephone calls in connection with it shows the level of seriousness that he accorded the matter.
The question we must ask ourselves is whether lessons have been learned. One of the clear lessons for anyone reading the report is that the Fianna Fáil-led Government reduced sustainable tax levels and placed its hopes in unsustainable tax levels. While affordable at the time, this approach was not affordable for the country in the long term. The Government is promising exactly the same approach, with Fine Gael planning to cut taxes by €22 billion and the Labour Party promising a version of the same thing.
The Government has applauded the banking inquiry report and why not given that the boom and bust approach of cutting taxes to win votes pursued by the Fianna Fáil Party is now Government policy. On this issue, unfortunately, it has learned nothing from the past.
I thank my fellow members of the banking inquiry, the inquiry Chairman and its staff, including the external staff who were brought in to participate in the investigation. The past 19 or 20 months have been interesting to say the least. At times, it appeared a report would not be produced and the inquiry would not complete its work. Thankfully, the report was published yesterday and I salute everyone involved in that endeavour. The experience was among the most interesting periods in my 14 years in the Oireachtas.
One of the questions members of the banking inquiry were asked yesterday was whether a follow-up report would be necessary. I do not know if that is the case but if I am in a position to do so, I will not immediately volunteer to take part.
Having been involved in many Oireachtas committees, I was struck by the remarkable absence of party politics from the proceedings of the banking inquiry. While there was much in the way of politics because virtually everything in life is political at some level, party politics were largely absent from the public hearings of the inquiry. In that respect, I regret that my colleagues, Deputies Joe Higgins and Pearse Doherty, were not in a position to sign the inquiry's report. Nevertheless, I understand most of their reasoning for not doing so.
Deputy Pearse Doherty raised a point regarding evidence that was given by certain witnesses. One of the binding and extremely frustrating circumstances in which members of the committee found themselves was that where four or five people gave an opinion of a particular event and one of them differed from the others, the inquiry did not have the power to adjudicate on who was right or wrong. Members may have had personal views on the matter. For this reason, I do not understand the argument made by Deputy Doherty as he will have known from the outset, as all members did, that the inquiry did not have the power to adjudicate in such circumstances. I regret the more political tone in the Deputy's contribution. It was a shame because he contributed as much, if not more, than many of the other 11 members, particularly in the inquiry's private meetings. I suspect there were other political matters at play in his decision not to sign the report.
Previous speakers addressed the major causes of the economic crash. The Chairman of the banking inquiry, Deputy Ciarán Lynch, spoke about the fiscal and banking crashes and noted that the two were interlinked. The fiscal aspect of the crash is often overlooked and, as Deputy Lynch noted, the State became completely dependent on transient, temporary construction taxes for funding. This was the fundamental reason for the large increase in the national debt and the burden imposed on people for the past seven or eight years.
Many people, particularly in institutions that provided witnesses to the inquiry, promoted the theory of a soft landing for the economy. However, none of the witnesses was able to present to the inquiry an example of a soft landing occurring anywhere else in the world. Despite this, many people believed Ireland would be an exception and experience a soft landing. Sadly, the opposite was the case.
It is clear from the hearings of the banking committee that the boards and senior management of the financial institutions bore fundamental responsibility for the bank collapse. They failed miserably in their primary responsibility to their shareholders who have been largely ignored in public comment. Many people who had shares in banks were not well off but individuals who had put away a few bob for their retirement. In many cases, their investment was completely wiped out. We all meet people whose future was thrown into turmoil as a result of the collapse in bank share prices. The boards and senior management of the banks bear full responsibility for this.
On the external audit function, all of representatives of the external audit companies that appeared before the inquiry flagged the fact that their companies reported in accordance with the audit rules in place at the time. They argued that the rules needed to be changed. It remains the case, however, that all of the external audits, with the exception of one or two minor notes issued in the years immediately before the crisis, failed to flag any potential bubble, particularly in the commercial lending sector.
On the matter of regulation, we managed to create a unique Irish solution to regulation, whereby we removed responsibility for regulation from the Central Bank and vested it in the Financial Regulator. From the evidence provided by witnesses from both organisations, they appear to have been somewhat confused at times as to what their specific respective roles were with regard to regulation. It became clear - in fairness to Deputy Pearse Doherty, his questions to the former Governor of the Central Bank elucidated this issue - that responsibility for maintaining overall financial stability came within the remit of the Central Bank, which failed to use its powers in this regard.
It also became clear from the evidence of Mr. Bertie Ahern and Mr. Brian Cowen that they placed complete and absolute trust in the Financial Regulator in terms of how the process of regulation worked. To find out that three people were responsible for the regulation of two of the biggest financial institutions in the country beggars belief. In their evidence to the inquiry, Mr. Ahern and Mr. Cowen seemed to be as surprised by developments as everyone else, yet they were in charge of the Office of the Taoiseach and Department of Finance, respectively, when the so-called regulation was in place.
Light touch regulation is the term often used to describe the system of regulation that operated in Ireland at the time. Regulation seemed to be non-existent rather than light touch at times. There was also an inherent contradiction in the legislation that established the Financial Regulator in that as well as having the responsibility to regulate, the Regulator was also given a designated responsibility to promote financial services in Ireland throughout the rest of the world. While the legislation has been amended in this regard, this was an inherent contradiction. The then Taoiseach, Bertie Ahern, referred in his evidence to an address he gave to a conference at which he was promoting Ireland as a country with light touch regulation and a location in which financial institutions should invest.
Previous speakers referred to the role of the European Central Bank, ECB. Representatives of the ECB should have appeared as witnesses before the banking inquiry and the bank did not proffer any proper reason for not doing so. The failure of witnesses from the ECB to appear definitely curtailed the inquiry's ability to carry out its task fully because the ECB was a key player in the events surrounding the banking collapse in Ireland and further afield.
I will briefly address four or five new issues that were uncovered by the banking inquiry.
The first is the Big Bang myth of the guarantee, in other words, the view that somehow the guarantee appeared out of nowhere in September 2008 and that there was no other option. That was said many times in debates in this House and the other House. I remember getting my half-hour slot at 5.30 a.m. in the Seanad to speak on the legislation following the guarantee. I said that it made me sick to my stomach but that on the basis of the evidence given by the Minister and the officials I had to support it, although I opposed it personally.
I was struck afterwards by one thing and I was reminded of it yesterday at the press conference. I was very good friends with the late Brian Lenihan, a man who I admired very much. He came up to me after the debate finished at 8 a.m. and said that he completely agreed with everything I said. That was partly his manner, in the sense that he was a barrister and he could see every side of each argument. However, it left me wondering something at the back of my head when Professor Honohan said during one of his first visits to the inquiry that he believed Brian Cowen had over-ruled Brian Lenihan. I wondered whether that had been Brian Lenihan trying to tell me that he was in fact on my side of the argument and that he had doubts. I wondered whether that was it or whether that was simply the way he conversed with people. He was a man who probably had not slept for days at that stage and I can remember him being very tired. Obviously, he was ill as well. It is a pity for us that he was not before the inquiry, but more is the pity for his family and friends that he is not around anymore. The guarantee was first talked about up to ten months before the guarantee night. That was news.
The fact that representatives from the National Treasury Management Agency were physically present in the building and yet not present in the room where a decision was made to put a potential liability of €400 million on the backs of Irish taxpayers beggars belief. None of the people in the room gave us any clear reason why that was the case.
Some of the representatives of the banks present on the night obviously had worries about the future sustainability of the institutions. The Bank of Ireland minutes that followed the inquiry show that they were talking about a possible taxpayer injection only weeks after the guarantee.
The fact that the International Monetary Fund went as far as to bring Lee Buchheit, the international expert on debt restructuring, to Ireland to consider the option of burning senior bondholders was not known before the inquiry began its hearings. On the whole, the inquiry, while flawed in its process and limited in what its members could do, has elucidated many new matters that Irish people did not know before the hearings took place.
There is one issue and only one issue on which I am in agreement with the majority of members of the banking inquiry committee. This was that an extraordinary amount of work, research, personal stress and communal stress went into the workings of the committee, including the work by the personal staff of the members of the committee. I wish to acknowledge warmly and appreciate the work of my colleague, Diana O'Dwyer, in that regard as well as the teams of public sector workers who did a vast amount of background work. There is absolutely no issue with the amount of time and effort that went in. However, there are serious issues with the conclusions of the committee majority.
Witness after witness came before the banking inquiry, including bankers, developers and others. They spoke of the cutthroat competition that developed among themselves. This, in turn, drove the reckless lending practices that inflated the property banking bubble and led to the economic crash.
One of the grandees of bubble banking who gave testimony, a former chairman of Allied Irish Banks, had evidence to the effect that his vast institution was aping Anglo Irish Bank because it was driving faster than AIB in lending to developers and increasing profits. A former director of EBS, Eithne Tinney, herself a stern critic of many of the practices that went on, spoke about how there was a feeling within EBS that the Irish Nationwide Building Society was wiping their eye as it expanded its lending and began to post profits five times the size of the profits of EBS. Those were her words.
What was the result of all of this? Encapsulated in the figures given to the inquiry is the result. The six banks that were eventually covered by the guarantee increased lending exponentially from €120 billion in 2000 to almost €400 billion by 2007. They raked in €25 billion in profits from 2002 to 2008. They paid the six chief executives of those institutions an astounding €71 million in salaries. This was mirrored shortly afterwards in the disastrous €65 billion that the bankers and banks lost in the crash.
A fundamental question remains and it is the source of my fundamental disagreement with the majority on the committee. The question is not answered - it is not even asked. How could a small cohort of bankers, bondholders and developers be allowed to wield such enormous economic power in pursuit of private corporate profit and in the process inflict incalculable economic and social destruction on society? The second question is why the political establishment not only deferred to this cohort but in fact served their interests as they chased the maximisation of profit. The political establishment of the day positively pushed the deregulation of the financial industries to allow the banks and the developers to do what they did.
In their speeches to banking federations and others, the former Taoiseach, Bertie Ahern, and former Minister for Finance, Mr. McCreevy and Mr. Cowen, laid it out clearly. In March 2007 the then Taoiseach, Mr. Ahern, said to the financial services industry in New York: "Our commitment to supporting foreign direct investment is absolute" and "Ireland is very lightly regulated compared with most of our European colleagues". The then Minister for Finance, Mr. Cowen, lauded the type of derivative products that were being driven by the bankers in these terms: "Increasingly sophisticated derivative products seem to be arriving daily as a sector seeks to become ever more professional in the way it manages and hedges its risks and chases after that elusive higher yield." He was speaking to the Institute of Banking. These were derivative products that the billionaire Warren Buffett described as time bombs and weapons of mass destruction. The Minister, Mr. Cowen, went on to say:
Of course, that’s easy for me to say because you are players on the field and I’m just an ardent supporter on the sidelines. I will continue to wear your colours.
Mr. Cowen should be advised to watch the recently released movie "The Big Short". He would learn very quickly about the nature of the products for which he was praising the bankers.
My finding is this: extreme profiteering, driven by corporate greed, drove the property bubble and caused the crash. The bubble Governments of the then Taoiseach, Bertie Ahern, the then Tánaiste, Ms Harney, and the then Minister for Finance, Mr. McCreevy, served the interests of bankers and developers and not those of ordinary people. Deputy Enda Kenny, who at the time had been the Fine Gael leader for five years, was a silent non-opposition figure in the field.
It is true the regulators failed disastrously, but they were merely following the political leadership of the State to which they were responsible. Free reign was given to developers to speculate outrageously with the price of building land. They ensured the price of a home for ordinary people increased fourfold in the space of ten years, shackling them to the horror of unsustainable mortgages and negative equity, a situation that many of these people are still in. They were represented politically by the major parties of the day.
Seriously, the one finding of the majority of the committee in the area of property and all of this was that there should be a property register. That is embarrassing. What about controlling the price of building land and directing that its use should be subject to the needs of society rather than private profit?
Many people have asked me again and again why no one went to jail as a result the massive destruction caused to society by the cabal of bankers, bondholders and developers.
It is very simple. The vast majority of what they did was legal because it was legislated for in this Chamber by a majority of the political parties. They legislated to allow them to profiteer in the way that they did, which put the whole of our society at risk. That is why they are not in jail. The media is not asking any questions about its role and was let off the hook by the committee. Significant sections of the media glamourised developers, bankers and their profiteering. They called them the men with the Midas touch and said they turned everything they had into gold.
The 2007 property awards, sponsored by the Irish Independent, embarrassingly gave the property deal of the year award to the Irish Glass Bottle Company, which cost the people hundreds of millions of euro. Some five out of the seven award-winning developers at a glittering gala dinner sponsored by the Irish Independentwere among the top ten debtors in NAMA. The media did not just glamorise the sector; it was a player in the market and earned tens of millions of euro from developers, advertisements, etc.
If any lessons comes out of this disaster, surely it is that the provision of homes, the most basic human need of our people, and banking should not be the playthings and subject of profiteering by a small cabal of developers and bankers, but should be public services. Therefore, let us put billions of euro into the creation of new, decent and modest homes for our people that workers on middle and lower incomes can afford to buy. Social housing should be built for those who desperately need it.
The Minister, Deputy Noonan, should come to the House and explain why in March 2011 he did not come to the House, where we sat and waited for him, to announce that he would burn bondholders, something he intended to do. He was interrupted on his way over here by a phone call from Jean-Claude Trichet, the president of the European Central Bank, who threatened him with a bomb in Dublin if the bondholders were burned. The Minister came to the House, changed his speech and said nothing to the assembled ranks of the democratically elected people. He was speaking on behalf of a supposedly sovereign Government which had been blackmailed in that way. He should apologise for the fact he did not explain to us and the Irish people there and then that he was threatened in this way by a virtual economic and financial dictatorship. They are some of my views on what we have done over the past year and a half.
I want to thank the Chairman of the inquiry, Deputy Ciarán Lynch, and the members of the committee for their hard work and dedication over the past year. The work they have done has given a very good service to parliamentary democracy in Ireland. I would like to single out my Labour Party colleague, Senator Susan O'Keeffe, as the only woman involved in the inquiry. People said of Lehman Brothers that it only ever had brothers; there were no Lehman sisters. It seems that in the case of the inquiry only the Labour Party, which also opposed the bank guarantee, was ready, willing and able to put forward a woman to serve alongside men on the inquiry on its behalf.
A very important element of the inquiry, unlike previous ones, was that witnesses were met in public. The people responsible for the destruction of the economy and the near-ruin of our State were brought into the glare of public scrutiny to answer questions that people wanted asked. The IMF described the Irish banking crisis as the costliest crisis in advanced economies since at least the Great Depression. It resulted in a €64 billion bill for the taxpayer to recapitalise the banks. It saw the economy collapse, with more than 300,000 people losing their jobs and unemployment soaring above 15%. It bought the public finances to the point of bankruptcy. The deficit reached an incredible level of over 30% of GDP in 2010 and public debt increased fourfold to over 120% of national income. The result was the troika arriving into town on Fianna Fáil's watch. All of this was a far cry from the cheapest guarantee in the world so far, as described by the then Minister for Finance in 2008. In fairness to the late Brian Lenihan, he was left grappling with a situation that his colleagues in Fianna Fáil had stoked for several years. Nonetheless, the reality was catastrophic. That is what the Labour Party and Fine Gael Government was elected to tackle. The report describes in great detail the role of the many actors in this tragedy. The banks, which abandoned any semblance of prudence, lent recklessly to the property sector, feeding a property bubble of historic proportions overseen by external auditors which adopted a "See no evil, speak no evil" approach.
The regulator and Central Bank had sufficient powers to intervene, but chose a light-touch approach to regulation which, in effect, amounted, as we heard over the months and weeks of the evidence, to no regulation at all. Overseeing all of this was the Fianna Fáil and Green Party Government, which ignored all of the advice available to it and pursued policies that made the crisis many times worse.
Property tax incentives fed and nurtured the bubble - the kind of tax breaks that I spoke out against time and again in this House. The report notes the lost opportunity to mitigate or reduce the property bubble from 2003, when the Government failed to reduce or abolish property tax incentives as originally planned, although the then Minister for Finance established a review of these schemes in 2004. By 2006, most were still in place and deadlines were still being extended. Against the clear advice of officials, successive Fianna-Fáil-led Governments doubled up on pro-cyclical policies and hollowed out the tax base, masking an enormous structural deficit in the public finances. Over the ten budgets between 1999 and 2008, the contrast between the proposals in the June fiscal framework and the size of the tax and spending measures in the subsequent budget reveals the recklessness of their policies. In only one year, 2003, was the size of the subsequent budget day measures less than recommended. In that case the difference was marginal. In 2001 and 2007, on the eve of the disaster, the gap was particularly shocking, with the size of budget measures almost double what was recommended. I note that in 2011, Deputy Micheál Martin apologised for the many disastrous mistakes Fianna Fáil made in government. The publication of this report and the debate today would be a timely occasion for Deputy Martin and his colleagues to repeat that apology, rather than conveniently develop amnesia about it.
Fianna Fáil will say that it was chiefly a global crisis that caused our collapse, but what is particularly striking in the report is the dominance of domestic actors in propagating the crisis. International events and actors played a role, and the weakness of external surveillance from international organisations such as the OECD and the IMF is notable. However, in cases where clear warnings were given, such as the European Commission ruling on fiscal policy in 2001, they were ignored.
The report is a survey and story of what happened. The purpose of the report is to tell the story of what happened so that future historians, and possibly PhD students, will mine it for commentary on what brought our island down. We now need to focus on what is helping Ireland to recover. The schedule of loans and anticipated interest rates provided for when the troika came into town show that, for instance, last year we were expected to pay €11 billion in interest on our borrowings. In fact, the current Government reduced that suggested interest to less than €7 million.
In opposition and during the run up to the last general election I advocated that probably the worst feature of the deal struck by Fianna Fáil was the promissory note. I was very happy in government that we were in a position to renegotiate that, put it out into very long-term loans, and provide for significantly reduced rates of interest. The consequence of that has been billions of euro in savings for Ireland and for Irish people.
The key issue is that of the 330,000 people who lost their jobs. We now have 135,000 people back at work and modest stimulus into the domestic economy. The result of that has been to see families and people on very low incomes such as the minimum wage getting small increases from 1 January this year. For public servants, particularly lower paid public servants who bore significant wage cuts and tax increases imposed by Fianna Fáil in 2009 and 2010, we have seen the beginning of a modest restoration as well as a reduction of the universal social charge, USC, the emergency additional income tax introduced by Fianna Fáil at the height of the crisis. Not only have people on low and middle incomes, up to €70,000, seen their USC reduced in the last budget and again in this budget, we have also been able to remove 700,000 low paid workers from the USC net.
We are now experiencing a recovery. The principal aim of Government policy is to learn from the facts and figures set out in this report. When Regling and Watson did their initial report into what went wrong in our banks, they said that while there were international elements to the crisis, it was very much a home-made crisis, and that happened on Fianna Fáil's watch. We now have a much reformed and improved system of regulation and it behoves us all to ensure that this regulation continues to operate as toughly as possible so that if difficulties arise in the future, the public institutions that regulate will be in a position to respond as quickly as possible.
I compliment all the people who took part in the inquiry. I know there have been many differences among the committee members in reaching a desired outcome. I know that the work of the committee was restricted to some degree by very narrow legal guidelines but it is important to have this report, the documents and the information on the public record. Many documents we never saw previously were brought out into the public domain. In historical terms, that will be very important to future students and guardians of the regulation of banking and finance in Ireland.
I begin by concurring with the Tánaiste on just one aspect of what she had to say, that is, to extend all our thanks to those members of the committee of all parties and none who spent very considerable time holding the public hearings and sifting through the mountains of documents to produce this report. I do not know if it will benefit them electorally but I believe it was a job well done and that it will benefit future generations of politicians, bankers, regulators and the public alike.
The inquiry report provides a balanced account of the complex facts of the financial collapse. It might not suit the Tánaiste's agenda or the agenda of the Government generally to suggest that there were complex facts which led to the collapse, and subsequent recovery. The report identified failures in banks, regulators, Government, politicians, and at a European level. That was across all political parties, whether in government or in opposition. I know the burden of responsibility must rest on the shoulders of those who were in power at the time, and that has been accepted by all concerned, but where the general thrust of debate and financial thinking was shared across the floor it would be of benefit to everybody if the Tánaiste had the good grace to issue an apology, on behalf of her party, for the approach her party took and the kind of policies she and her party wanted pursued rather than demanding a repeat of an apology made in a heartfelt and clear way by the leader of my party.
People have been able to watch the hearings and they will make up their own minds about what happened during the period, and who is to blame. That was not something the committee had the powers to do, but the members of the public are well able to make their own decisions on that. The boards and senior executives of banks must bear primary responsibility for the banking crisis, but the regulators should also have intervened, notwithstanding that the Tánaiste used emotive language similar to "on the watch of the Fianna Fáil-Green Party Government." Had the Government sought to interfere in the independence of the regulatory regime, she would have had something else to say about that, but she chooses to ignore the fundamental principles of the separation between independent regulators in government when it best fits a political agenda on the eve of an election.
The inquiry found that the Government ensured that the Financial Regulator and the Central Bank both had sufficient powers to intervene in the banking sector to protect the financial stability of the State, but neither intervened decisively when required. I am taken by the comments of my colleague on the inquiry, Deputy Michael McGrath, when he said that in many cases issues had been identified and paperwork generated but, very quickly, the trail ran cold. There was no execution of appropriate penalties or implementation of sanctions.
The Financial Regulator put in place sectoral lending limits to stop any bank becoming too exposed to the property sector, but when these rules were breached, the regulator did nothing. In some cases, the response to a bank breaking its property sectoral lending limit was for the regulator to just increase the limit. That speaks volumes in terms of the light touch approach taken to regulation.
The inquiry was reminded that ten out of 11 budgets before the crisis period were in surplus, but all politicians failed to look behind those fiscal surpluses to the underlying structure of the budget. With the benefit of hindsight we can now see that permanent spending commitments were being made on the back of taxes from the property sector that proved to be unsustainable.
The Tánaiste fails to recognise that as an Opposition politician and, if my recollection serves me right, the Labour Party spokesperson on finance for a period at the time, she does not believe that her approach and that put forward by the Labour Party played any role in the crisis that developed. That is fine, but I remind her again before she seeks a repetition of an apology that was made to consider apologising on the eve of the election for the mistruths that were proffered in advance of the last election where commitments were made by the Labour Party - I would have thought on her behalf as spokesperson on finance - by the then Labour leader when he said that it would be Labour's way, not Frankfurt's way when it came to dealing with such important matters as the burning of bondholders. It is very clear that this Government, of which the Tánaiste plays an integral role, failed absolutely in burning any bondholders, particularly within the senior ranks, over and above what had already been set out prior to her coming to office. The indication was that if Labour was part of the Government, an entirely different approach would have been taken to dealing with Frankfurt or the ECB. The truth is that there was no difference in the approach, and perhaps an apology for that would be appropriate at this stage.
While she is considering an apology for that particular commitment, it might also be worthwhile apologising for the commitments that were made to the Irish people.
She said no water charges would be introduced by a Government of which the Labour Party would be part, and that no cuts would be made to social welfare, child benefit or maternity benefit, but very quickly these emerged. Despite the commitments she made prior to entering Government, many of the cuts were delivered by her at the Department of Social Protection. Before demanding the repeat of an apology I stated was given in a clear, concise and heartfelt way, the Tánaiste would be very wise to consider her confession, even this late stage, before she faces the electorate. I will await, I am sure with bated breath, her position on this.
You suffered a bit of harm when you crossed swords with her.
The recovery has been hard won, and credit should be given to Brian Lenihan for his achievements. Ultimately, the national recovery plan brought the State finances back on track and set out the structure we needed for economic recovery. It was interesting to hear Ajai Chopra of the IMF giving evidence at the banking inquiry that the current Government made no fundamental changes to the troika programme or Brian Lenihan's national recovery plan when it came to office, notwithstanding the commitments and some rewriting of history. It had the benefit of coming into office in 2011, after the expiry of the guarantee and the negotiation of the troika programme, and with the benefit of the national recovery plan being in place. The economic recovery over the past few years has taken place against this backdrop.
As we face the electorate, it is now clear real benefits accrued to the State by the plan put in place, which was largely followed by the current Administration with some minor changes. Lest we over-congratulate ourselves on the work we do here as we face into the election, a bit of common sense needs to come to the fore. Absolute recognition must be given for the way in which the Irish people have accepted the difficult circumstances placed before them and for the way in which they have rolled up their sleeves and tried to get the economy back on track after the enormous collapse in the coffers of the State. They have worked to the greatest extent possible to try to put Ireland back on track. It would be wrong of any political colour, or any Member who is not in a political grouping, to try to take credit for it. Without the support of the Irish people for the very difficult measures which had to be taken to put the economy back on track there would be no recovery. Even at this, we have a considerable way to go.
While a recovery is taking hold largely on the east coast and in the greater Dublin area, many communities outside of these areas are struggling to see any level of an increase in economic activity. They are certainly burdened with some of the ravages thrown out as a result of the crisis. I hope that whatever the colour or creed of the next administration, it will be in a position to put in place the fundamental building blocks of an economic recovery throughout the rest of the country in a fair and equitable way rather than to the benefit of those who are best off and who could see a recovery in their own finances based on the size of their income. We must look to the people in the lower economic groupings, the people on middle to lower incomes, in an effort to support them for the support they have shown to the recovery.
Dáil Éireann gave the members of the banking inquiry an almost impossible mission, given the constitutional and legal restrictions in which they had to operate. We owe the Chairman, Deputy Ciarán Lynch, and each member of the too large inquiry team a considerable debt for the remarkable effort, patience and diligence with which they discharged a very difficult responsibility. They have done the State some service for which future economic historians will be grateful. The DIRT inquiry remains the model for inquiry by parliamentary committee. Only Deputy Durkan and myself are left standing from that experience, and we would be the first to say that the inquiry conducted by Deputy Lynch and his team was more complex, more extensive, more contentious and more problematic for several reasons. For the Chairman to have navigated a completed report to dry land is a very considerable achievement.
First out to criticise the report were those who dodged the hard work involved in the inquiry. Bankers considered ideal a few years ago for the post of Central Bank Governor are now considered pariahs whom the inquiry let off too lightly. I heard Deputy Donnelly on radio today starting a hare to run about the Minister for Finance, Deputy Michael Noonan. Sometimes when I hear Deputy Donnelly I think that perhaps all young Deputies in the House should get a few months in McKinsey and Company. It does wonders for one's self-confidence, if not for one's economics or one's attendance at committee meetings. In the 14 months during which I have been a member of the finance committee I recall seeing Deputy Donnelly twice.
It is my impression that the legal advice available to the inquiry erred consistently on the side of caution, but if the inquiry members had spurned that advice the report would never have seen the light of day. Indeed, it is very probable that the immensely valuable public hearings would have collapsed if some of the more simplistic criticisms had prevailed. I will return to this critical issue of inquiry by parliamentary committee.
Let us take as read the failure of the Central Bank, the incompetence of the Financial Regulator and the dereliction of duty and negligence of the Fianna Fáil and Green Party Government. The rot started in the banks. The wild recklessness of Anglo Irish Bank was breathtaking, but how did two conservative banks which, in one guise or another, preceded the founding of the State itself go bust, losing money mainly in their core business of making loans in Ireland? Every bank, Irish or foreign owned, got into serious trouble and had to be rescued by the Irish State or by foreign parent banks. Anglo and Nationwide lost a mind-boggling eight to ten times their capital. There is a wide variation in the scale of the losses. In terms of loan losses, AIB seems to have been three or four times worse than the similar sized Bank of Ireland. The business model of the two banks was and is similar. One building society, Irish Nationwide, was much worse than another, EBS.
I do not yet know if the voluminous back-up papers explain these discrepancies or if there is a bank by bank scrutiny into the sources of these wide variations. Whereas all of the banks were mismanaged, some were recklessly mismanaged to a degree that defies understanding. It must be the case that individual banks did their own investigations of the sources of the disaster. Were these analyses furnished to the inquiry? If not, it is a failure of accountability on the part of the banks and I presume the modern Central Bank has the authority to demand production of these reports.
Dáil Éireann cannot signal approval for the cavalier treatment of the inquiry by the ECB. Given the flaws exposed in the ECB's own architecture, is it acceptable that an occasional appearance in the European Parliament is the only gesture to accountability?
The Government of which I was a member was resolved that there should be burden sharing and we had quantified the value of it. The NTMA estimated, as contained in the memo of 28 March 2011 in the appendices to the report, the financial benefit to the Irish Exchequer at €14.9 billion. The savings made in respect of subordinated bondholders means that the net cost of the ECB veto to the Irish Exchequer was in excess of €9 billion. This was the second occasion on which the ECB stopped a sovereign Irish Government from imposing haircuts on holders of unsecured and unguaranteed bonds issued by banks which necessitated recapitalisation at public expense.
The inquiry is clear that the ECB threatened on both occasions to withdraw approval for emergency liquidity assistance to the Irish banks unless the bondholders were paid in full, which would have shut down our entire banking system. Ajai Chopra of the IMF rejected in his testimony the proposition advanced by the ECB president that haircuts to senior bondholders in Ireland would cause contagion to eurozone markets in senior bank bonds. Subsequent experience in Cyprus, Italy and Portugal would seem to bear out Mr. Chopra's view and, of course, in the bank resolution and recovery directive, burden-sharing is now expressly contemplated.
Mr. Trichet's diktat was punitive for Ireland, but the question of whether the ECB had the legal authority to impose arbitrary costs on the Irish Exchequer in pursuit of broader eurozone objectives remains. The Irish Timesreported in December that the inquiry team wished to recommend that the Government sue the ECB for damages over its actions in 2010 and 2011 but were prevented from so recommending by the inquiry's own lawyers. If that is so, it seems to be an unnecessary intrusion into the domain of politics. Whether an Irish Government should use its statutory entitlement to seek judicial review at the European Court of the actions of an EU institution is a political matter and one that I hope the next Government will consider.
This may be the last working day of the 31st Dáil. It is the last time I will address Dáil Éireann. It has been a unique privilege to have been elected to this House by the people of Dublin South-West in six successive general elections, and I would like to thank those who worked with me here and outside. I did not envisage that my final remarks would concern a banking and fiscal collapse that constituted an existential crisis for the State itself. Thanks to the work of Deputy Ciarán Lynch and his colleagues, economic historians and others will be able to study the lessons to be learned.
I remain convinced that any parliament that does not have the right of inquiry by parliamentary committee into legitimate matters of public interest is a diminished parliament. Properly organised and conducted, it is a natural extension of parliamentary oversight and would improve the performance of Government. Following the failure of the referendum, repeated experience of the costly and slow public inquiry system under the 1921 Act and the difficulties latterly encountered under the Commission of Investigations Act, we have now reached an impasse. What is so unique about our jurisprudence that makes impossible here a form of hearing that is routine in so many other settled parliamentary democracies? Unless we frame another amendment and return to the people, we can never have an inquiry in which there is an adjudicatory finding upon the conduct of a person who was not a Minister, a holder of other constitutional office or a Member of the Oireachtas. The difficulty, therefore, as shown by today's report, is that there is no clear demarcation between an inquiry into policy and an inquiry into culpability. By "adjudication" I mean a simple finding of fact, without any legal effect, whose impact is solely on the reputation of an individual. I draw to the attention of the House the remarks of the retiring President of the High Court, Mr. Justice Nicky Kearns, when he said in December that "judges and courts should not be excessively overactive or interventionist in areas where the boundaries of the judicial and executive function intersect". Mr. Justice Kearns acknowledged that many commentators now seemed to feel successive court interventions had "virtually paralysed" the investigatory process "where accountability for matters of serious public concern is required". The courts, he said, "should never put themselves in the position of realising, all too late, that a particular decision has opened a Pandora's box of unintended consequences".
In his dissenting judgement in the Abbeylara case, then Chief Justice Keane delivered his understanding of Irish law:
The power of the Oireachtas to conduct investigations is inherent in the legislative process. That power is broad. It encompasses inquiries concerning the administration of existing laws [and] defects in our social, economic or political system for the purpose of enabling the Oireachtas to remedy them.
That was the view of the then Chief Justice and I believe, notwithstanding what happened in the referendum, that the next Government should take its courage in its hands, reframe an amendment and go back to the people. It would strengthen the functioning of this Parliament.
Guím gach rath ar an Teachta Rabbitte. I might not have agreed with him on everything in the last few years, but there is no doubt that he raised the level of oratory in this Chamber and brought much colour in his time. Gabhaim buíochas freisin le muintir an choiste baincéireachta mar gheall ar an méid oibre atá déanta acu le linn an imscrúdaithe. Obair uafásach deacair a bhí ann agus rinne siad a ndícheall mar gheall ar an obair sin.
There is no doubt that the report had certain limitations on the findings it could make, but it did not have the same limitations when it came to its recommendations. This is where I feel the report has its drawbacks. One of the key findings of the report was that “[b]ank failure, which required the intervention and support of the sovereign, was the responsibility of senior executive management and the boards of directors”. This is true; the bank boards had ultimate responsibility for their lending practices, yet they have spent the past seven years blaming everyone and everything around them, while at the same time getting the Irish people to pay for their mistakes. With this finding in mind, what does the report suggest as a possible solution? What we get is this: “All members of bank boards should have the requisite financial skills set and experience and should undergo ongoing compulsory Continuing Professional Development (CPD) appropriate to banking, to include risk and governance.” Are the authors of this report seriously suggesting that the solution to the structural problems in Irish banking at a board level are to be tackled with a training course? Is the report telling us the fundamental problems with Irish bank boards can be solved with a weekend in the country and a PowerPoint presentation? There is a serious paucity of vision here.
Let us be clear: this crisis was caused by a vicious circle of reckless property speculation by developers. This was facilitated by unsustainable lending by banks that were poorly policed by a financial regulator that was intentionally created with insufficient powers and resources by a political class that was itself beholden to those developers. The abandonment of prudential lending practices by banks’ senior executives was reinforced by board-level groupthink. This, in turn, fuelled a race-to-the-bottom mentality, which put pressure on others to match the unsustainable terms offered by competitors. The pursuit of reckless lending was justified by the requirement to maximise shareholder value, even though this was not in the long-term interest of the business. There was a change in culture of banking away from service to customers and towards meeting arbitrary sales targets. This culture change was reinforced by a shift from basic pay to performance-related pay and bonuses within salary structures. On what planet can these issues be resolved with a PowerPoint presentation and a certificate? Serious and practical measures need to be implemented. For example, boards need to act in the long-term interest of the bank rather than pursuing the short-term maximisation of shareholder interest. The regulator should consider governance structures. There is a need to expand representation on bank boards to people such as community representatives and employee representatives. This would reflect and recognise the broader and social role of financial institutions, not just the commercial role they are involved with at the moment.
The regulator should lead a major review into the culture of banking which would include consideration of how the structure of remuneration within the financial services sector affects its actions, especially the services delivered to customers. This review should involve employers and unions. They should recommend appropriate balance between basic pay and incentives. If the Government were serious about reforming the banking sector, it would legislate for banks to act in their own interests for the long-term objectives and also in the interests of the communities they are supposed to serve.
The report concludes that it was commercial property speculation that ultimately led to the failure of the Irish banking system. This activity, of course, was not only assigned to Ireland - Irish banks were funding British projects as well as ones here - and yet the sole recommendation in this report is that "A detailed and comprehensive commercial property price register should be introduced." Obviously, I welcome this, but how would such a register deal with the issue of Irish banks funding Irish developers for projects abroad? Approximately 40% of the value of the loans transferred to NAMA related to properties outside of the Twenty-six Counties. How would the register deal with any of that? Furthermore, a price register is not regulation. There is a fundamental need for clear and direct oversight of the property sector. It is incredible that an inquiry can find the commercial property sector directly responsible for the crisis and yet offer no recommendations whatsoever with regard to reform or regulation of that sector. Neither does it offer any ideas for reform or regulation of the oversight of lending in that sector. The authors of the report cannot blame the terms of reference for this. It is a true and sad reflection that in this world it is still seen to be necessary to tug the forelock to the bank.
Between 2008 and 2013, real political power in Irish society revealed itself in a way that had not been seen for decades. The scale and depth of the crisis made it impossible for the nature of the influence that existed in that nexus to remain below the radar. The crisis brought clarity to the focus of the State's economic and political system. What we saw in that period were the consequences of the empowerment of financial dealers and commercial property developers aided and abetted by mainstream political parties which were unable or unwilling to see an alternative to that process. The unprecedented use of credit sourced from global financial markets from the mid-1990s formed a fuel for that nexus of power and influence and that had a devastating consequence for everybody living in this State. At the same time, all the social and economic myths that were built up during that period that Ireland was a prosperous land and a classless society simply vanished before our eyes. Instead, business interests, concentrated mainly on financial administration and property speculation, used the full power of the State to protect themselves from their own decisions and strategies. Those individuals, who had sat for decades and reaped and creamed the profits of Irish society, literally looked around the room at each other and said, "Who is going to pay for this? It will not be us. It will be Irish society who will pay for it." The manifestation of that is that we pay €7.1 billion in interest on the debt of the State. The education budget amounts to €8 billion. That is a phenomenal amount of money. Considering the existing infrastructural deficits, the health deficits and the education and housing deficits in the State, the hangover of the decisions made by that nexus of power will affect this generation and the generations to come. It will mean a reduction in opportunity for these individuals as they go about their lives. In some cases, it will mean people losing their lives. In some cases, it will mean people not having proper housing in which to live. It will mean that people will not attain the academic or educational opportunities that would help them fulfil their potential in society. The nexus element of the report is a major weakness.
If one looks at the State today and sees what has happened with NAMA and the fact there are investigations in NAMA, the FBI is involved in an investigation in Britain and we have the fraud squad but, unfortunately, no investigation here - if any Member has any information, he or she can give it to the Committee of Public Accounts, PAC - and one sees IBRC, where there have been billions of euro of write-down landing in the pockets of individuals who have been major benefactors of Fine Gael, it is clear therefore that nexus power has not yet finished. Obviously, the democratic deficit within the State did not begin in 2008, but the crisis brought it into sharp focus. It is up to our generation to learn from that.
With the permission of the House, I wish to share time with Deputy Donnelly.
This debate marks the departure, and possibly the last speeches and contributions, of two of the most eloquent Members of this House that I can remember. Deputy Higgins's contribution to the banking inquiry was unmatched. His contributions to the workings of this House over the years - many of which, of course, many of us have disagreed with but which have been utterly honourable and well thought-out - have been elegant, and his dedication to his constituents and his own ideals has been uncompromising and utterly admirable in the history of this House and very unusual. The speech made by Deputy Rabbitte, which was also his farewell speech, was consistent with his long history of, as Deputy Tóibín stated, raising debate here onto a higher plane. Indeed, some of his successors might take that into account. He has done the State a great deal of service and his final contribution was also a great credit to him. It is right that I would say that.
Of course, I disagree with almost everything Deputy Rabbitte said in his speech but that does not in any way detract from what I said earlier. When he said that any parliament that does not have the right of proper inquiry - as this one was not - is a diminished parliament, he was correct. Dáil Éireann is a diminished House. However, the Deputy ought to ask why it is a diminished House. The people decided that the Members of this House in their wisdom were not fit to carry out an inquiry of the sort that perhaps they would have wished. That is an honourable decision. It is a decision we should respect. It is a reflection on who is sovereign and on the low esteem into which this House has sunk as a result of its failure to reform. We should take cognisance of that and not merely state that we should go back to the people and have another referendum.
As a result, the inquiry chaired by Deputy Ciarán Lynch - I share the tributes to their hard work, not to their findings - was utterly hamstrung in what it could produce. As I said yesterday, the result of this was that the happiest people in Ireland yesterday and today are those who were being or were meant to be asked the hard questions. When I look at this report, at the reaction and at the leaks, I realise that, far from putting in the dark or on the defensive those who were asked the questions, the report is a get-out-of-jail card for the bankers. The bankers are the ones rejoicing because this report could not find any fault with them. They could come in, answer the questions and, in effect, get a clean bill of health because no finding of fact could be made against them. The same is true of the developers, the auditors, the consultants and, indeed, individually, the regulators.
That is the effect of the inquiry. It has half-rehabilitated those people who were meant to be on the defensive. They are walking free, obviously innocent people, but also uncriticised, because the report could not criticise them. What sort of report is it? We have a fall guy who is rightly indicted in the report, namely, Jean-Claude Trichet. While what he did was utterly unacceptable, the fact that his name is in lights because the others could not be touched makes the report a fiasco, a waste of time and very difficult for many of us to accept.
There is another reason the inquiry was flawed from the beginning. Just a few minutes ago, the debate deteriorated into a political spat between Fianna Fáil and the Labour Party. The banking inquiry was all about politics.
I have six seconds left. The inquiry was established to crucify Fianna Fáil. It could not and did not do so, and it backfired on those who established it. We Members of the House have not earned the public's trust by making findings of the sort that should be required of us.
I acknowledge the hard work done by Deputy Ciarán Lynch and the committee during the past year. They did as good a job as could be done in an imperfect situation without the tools or the time needed to do the job they might have liked to do.
The most important line in the banking inquiry's report is: "The withdrawal of [emergency liquidity assistance] was used as an explicit threat to prevent the Government from imposing losses on senior bondholders in March 2011." This is the finding of the cross-party banking inquiry team. There was an "explicit threat" in March 2011 from Jean-Claude Trichet to the Minister for Finance, Deputy Michael Noonan. In his testimony, the Minister, Deputy Noonan, stated that Mr. Trichet said, "if you do that [burn the senior bond holders], a bomb will go off and it won't be here, it'll be in Dublin." The Minister told the inquiry that he had told Mr. Trichet that as part of the programme he intended to burn bondholders and that Mr. Trichet had not agreed. The Minister said:
He didn't agree and he asked me was I aware that this would be treated by the markets as a default, which was reasonably strong pressure ... . [ELA] was underpinning Anglo to the tune of €41 billion at that time. ELA can't be given to a bank that defaults.
Deputy Ciarán Lynch and the team, correctly, based on this and other testimony, concluded that the withdrawal of ELA was used as an explicit threat.
In November 2011, several months after this explicit threat had been made directly to the Minister, I asked the Minister in this House whether any threat had been made to withdraw emergency liquidity assistance if Ireland sought to burn the bondholders. The Minister said that "neither of these threats was ever made". This is unambiguously misleading the Dáil on a matter of national importance. The Government was elected with a clear mandate to burn the bondholders. It appears it tried to do so, was threatened and made a certain decision. If the Minister for Finance feels he can walk into the House and deny those threats were ever made, we have a serious question.
In any other country I have lived in, what the Minister, Deputy Noonan, did in misleading the House on a matter of national importance would be an immediate resigning issue. Unambiguously, a Minister would resign for being found to have misled the House on such a serious matter. I have no doubt that this will be brushed off by Fine Gael as semantics or whatever. We do not have political accountability, which is a great irony given that the banking inquiry was trying to show a lack of accountability of the Regulator, the Department of Finance and politics. The Social Democrats and I believe the Minister, Deputy Noonan, should resign.
Now that we know the threat was made, we also believe an independent legal review should be immediately established. This review would determine whether a case could be taken against the European Central Bank, ECB, either to sue for damages and see if we can recoup all of the €25 billion still outstanding in Anglo promissory notes, or, at the very least, to seek a legal position from the European Court of Justice that states that, in threatening Ireland in the outrageous way it did, the ECB clearly overstepped its legal remit. We should use that ruling to go back to Europe and say we want burden sharing and that the €25 billion that is outstanding should be deemed odious debt and written off by the ECB.
Is maith an rud é deis a fháil labhairt ar an ábhar tábhachtach seo atá os ár gcomhair. I am pleased to have the opportunity to say a few words about the important report before us. It is a very substantial piece of work, 455 pages long, and is the culmination of 49 days of public hearings and 128 interviews. I hope nobody is suggesting that a debate of two and a half hours is sufficient for such a substantial volume on such an important issue. It would be to undervalue and underestimate the work that has been undertaken. I hope that as soon as the 32nd Dáil convenes, the work of the banking inquiry becomes an important first part of the agenda to be considered both by the House in plenary session and by the finance committee and the Committee of Public Accounts, if they are the two most appropriate committees to examine the work.
I thank all of the committee members for the work they did. I saw this at first hand in respect of my colleagues Deputy Michael McGrath and Senator Marc MacSharry. They devoted themselves selflessly to the inquiry. Given where it came in the electoral cycle, their dedication may have electoral consequences for them. That is also true of people from all political parties and none who participated in the process.
I have particular admiration for the Government members of the inquiry team. What they did has brought some credit on the body politic, the Houses of the Oireachtas and the ability of the Dáil and Seanad to conduct an inquiry. They did not do what their political puppet masters set them to do. They did not avail of the carefully orchestrated timing of the inquiry geared and intended to cause the maximum political damage in the run up to a general election. This was very much at variance with what we heard earlier from the Tánaiste, who was incredibly partisan in her contribution. Rather, they set about the job in the national interest, setting aside party political considerations.
I think they are to be commended for the maturity and statesmanship they demonstrated in the job they did.
People have questioned the value of the work that was done. We have spoken about the culpability of the banks and the poor level of regulation that existed. This report explicitly sets out that the regulatory system we had in this State was not working. We knew it was completely ineffectual, but now it is clearly set out before us. The regulator was not functioning as it needed to function and the Central Bank was not acting as a central bank is required to act. We have conclusive evidence that there were appallingly bad practices in our banks. I suppose it is implicit in that that responsibility must be accepted in some instances by the executives of those banks. Indeed, direct responsibility rests with the directors of those banks, who may not have shouldered the level of responsibility that they could have done.
Deputy Donnelly is absolutely correct when he seeks to identify the third area of culpability. He has done the process some considerable service by highlighting the role of the European Central Bank, particularly the role of Mr. Trichet. He is quite right to raise questions not only about the manner in which the involvement of the ECB and the actions of Mr. Trichet were carried out and conducted, but also about the manner in which this situation was reported to this House by the Minister for Finance in the earlier part of this Government's term in office. At any time, a Minister would be required to tell this House the truth, the whole truth and nothing but the truth, but I suggest it is a particular requirement that the unambiguous truth be put before us at a time of national crisis, such as that from which we are currently emerging.
I would like to make a point about political culpability. Undoubtedly, that is recognised and accepted within the report. My party leader, Deputy Martin, has accepted responsibility because my party was in government when the crash happened. The policies pursued by my party in government contributed to some extent to the problem and to the crisis, but so too did the policies that were being advocated by Opposition parties. In the run-up to the 2007 general election, Fine Gael and the Labour Party campaigned vigorously for less tax to be collected and more public money to be spent. The inevitable consequence and conclusion is that if they had assumed power in 2007, the crisis would still have happened but the situation would have been even worse. I am not saying that to try to make a political point - I am saying it to illustrate the extent to which there was groupthink across the political spectrum. This was supported in many instances by outside interests, including people in the media, supposed experts on economics and finance and people in the banking sector. If we are to learn anything from what has happened to us since 2008, it must be that the role of the contrarian is an important one. When a contrary view is advanced and argued for, that view must be listened to and evaluated. It must not be cast aside on the basis that the person expressing it needs to go off and take a running jump. We need to listen to the voices of reason, even in circumstances in which that voice seems to represent a small minority point of view. We did not do that in Fianna Fáil, but Fine Gael and the Labour Party did not do it either.
That brings me to where we are currently. What have we learned from the mistakes of the past? As we head into the general election campaign, the auction has started, the parties in government are promising to reduce the taxation base substantially and the Taoiseach has said he wants an American-style taxation system. Good God knows one cannot erode or narrow the taxation base without creating a situation in which the State achieves less income and is therefore less able to provide the essential services needed by the people of this country. It seems to me that even though an incredible number of people in this country have suffered enormously - we would all wish to see the return of the many thousands of people who have been driven out as a result of the recession - we have reached a juncture at which it is clear that many of the political parties have learned very little indeed. Various commitments were made at the time of the 2011 general election, which was supposed to mark a watershed in the political history of this country on the basis that we were going to do politics differently, we would have a new beginning and we would empower the people, but I suggest we are back to where we were before. It is a case of the old ways again. The cycle has started again.
I could go on. I think we all could, but there is not enough time. I will conclude by saying it is vitally important for the subject matter of this report to be prioritised by the new Government, regardless of its composition. These issues need to be discussed here in plenary session and taken into the committees. The recommendations of the banking inquiry committee need to be considered seriously and acted on.
I wish I could say otherwise, but I believe the outcome of the banking inquiry - the report that has been produced - is depressingly predictable. It offers us nothing that will prevent a repeat of the crisis that brought this country to its knees. I am a member of the Joint Committee on Finance, Public Expenditure and Reform. Many members of that committee put themselves forward for the banking inquiry. After thinking about it a little, I decided not to put myself forward because I feared that what has happened would happen. Sadly, that fear has been borne out. A substantial amount of time and significant resources have been spent on this inquiry, but the outcome will teach us nothing. It will do absolutely nothing to prevent a repeat of the economic crisis and the crazy mistakes that crashed the banking system and the entire economy.
I am saying this outcome was predictable because I am aware that if we were to learn anything from the crash, it would have radical if not revolutionary implications for banking and for the way we organise our society. Frankly, I do not believe the political establishment in this country has any stomach for the sort of radical or revolutionary action that would be required to take on the ideology of the vested interests who produced this crisis in the first place. Instead, sadly but predictably, the Government is blaming Fianna Fáil. In turn, Fianna Fáil is blaming the regulators and perhaps the European Central Bank to some extent. It is saying that Fine Gael was just as bad. We can all agree on the role of the bankers because that means the finger is less likely to be pointed at us. If we agree that everybody can take a little bit of the blame while arguing that everybody else is more to blame than we are, we are saying "everybody is to blame but nobody is really to blame" and "everything will be okay if we just have a little bit of regulation".
That is where it is left but that is not the truth. The truth is that the entire political establishment was captured and remains captured by the financial and corporate elites and it dances to their tune. It continues to dance to their tune even though being captured by those interests was what produced the crisis that has had such devastating consequences for the ordinary citizens of this country and for which we are still paying a terribly bitter price. The human consequence of the madness that drove the banking system, economic policy, the bailout and the austerity programme continues to be felt in the most cruel way, most obviously with the housing and homelessness crisis, which is beyond catastrophic and is a shame to any society that calls itself civilised. The consequences are also seen directly in the health service, which was butchered of 10,000 staff, €3 billion and thousands of beds so that people are sitting on trolleys and waiting years for operations. The consequences are felt in the most overcrowded classrooms in Europe by our children and future generations. However, nothing in this report points to the sort of action that needs to be taken. We need radical, fundamental and systemic change, not a little bit of regulation.
What have we learned? The report confirms what we knew before it was produced. There was reckless lending and borrowing by a small financial elite in the banks and by developers who went absolutely crazy, driven by the hunger for profit, all cheered on by the political establishment. In his minority report, Deputy Joe Higgins gives a number of quotes but this one sums it up. It is of Brian Cowen speaking to the Institute of Bankers in 2006 on the subject of the financial instruments that wrecked the economy:
Of course, not all these brave new initiatives are successful. It is a hard game but there is all to play for. Of course, that is easy for me to say because you are the players on the field and I am just an ardent supporter on the sidelines. I will continue to wear your colours.
That was the attitude of the Taoiseach, the ardent supporter of the bankers who "will continue to wear your colours". With that attitude in government and the political establishment, is it any wonder that bankers and developers thought they could do anything they wanted? Fintan O'Toole's book tells how Seán Dunne was being married on the yacht of Mr. Onassis in Greece with gold-plated swimming pools and he sends a message back to Bertie and Charlie. They apologised for not being there because it would not have looked good but they say they would have liked to be on the yacht with these developers whose greed was about to wreck the country. This was all driven by an absolute ideology summed up by Charlie McCreevy, who believed we should not regulate these people. He believed in light-touch regulation and allowing the market to do its thing. Translated into ordinary people's language it meant "Let profit be king, before everything". Has that changed? Is there anything in this report which suggests we should change it? There is nothing, and, in fact, the opposite is the case.
The Minister, Deputy Michael Noonan, promised to burn the bondholders, undo the injustice of this and reverse the priorities to put people first. However, within weeks of being in Government, he did a U-turn and submitted to the bullying of the ECB. The Government comes out with the excuse that it was being bullied by the ECB but why did the Minister, Deputy Michael Noonan, not come into this House to say he was being bullied by Mr. Trichet? We should not put up with it.He could at least have told us the ECB was bullying us but the Minister, Deputy Michael Noonan, would not do that because he has spent his entire political career, as the Fine Gael and Fianna Fáil parties have done and continue to do, saying that, at all costs, we must stay with the European Union and do whatever they say and we must be the good boys in Europe because we believe in the project. He knew that what the ECB was demanding of him would have devastating consequences for our economy and our citizens, who have paid a cruel and brutal price for his betrayal and his submission to the bullying of Trichet.
Even after all of that, nothing changes. When we took over the banks and when NAMA took over all the development land, we should have said: "We, the democratically elected representatives of the people, are going to control the banks, dictate policy and control development. We will decide development and housing priorities and all of that." Instead, the Government did the exact opposite. It has reprivatised the banks that we bailed out and has let them continue to do whatever they want. It has sold all the land NAMA had to vulture funds who care only about profit and who are guaranteed to do exactly the same thing. Even in the Central Bank, a person sent in to do the internal audit a few years ago on its failure to manage the financial system has become a whistleblower and says he was sacked and told to delete sections of the audit because he was exposing the continuing failures of governance and the lack of proper risk management in the bank. There is no serious investigation of this and it is still happening.
There is no willingness, energy or interest in actually challenging the golden circle driven by profit and greed who crashed the economy. Quite the opposite - in fact Fine Gael and Fianna Fáil support handing the economy and wealth to these people instead of redistributing it in a fair way and ensuring the public interest trumps that of a small minority interested only in profit.
I commend the many members of the committee on the tremendous effort, commitment and time they had to dedicate to this over the past 18 months. We all know the onerous work responsibilities that are put on us as Deputies and Senators and for the members of the committee to give the time required to hold the hearings and compile the report afterwards is to their great credit. They have done the State some service. Their commitment was not in their own interests in the run-up to a general election as it took them away from other commitments, though that is ultimately what is required for the Oireachtas committee system to operate effectively. I commend the Chairman, Deputy Ciarán Lynch, on his work and my own party's two representatives, Deputy Michael McGrath and Senator Marc MacSharry, who worked very well with the other committee members. The hearings and proceedings were conducted in a non-partisan manner despite the fact that the Government, at the outset, insisted on having a majority. The membership of the committee operated in a way that remained focused on the task in hand and did not let party politics intervene.
The ability of the committee to make findings and apportion direct responsibility to actors in the run-up to the banking crisis was very limited because of the legislation under which they had to operate.
Also, it was unfortunate that it was unable to hear from all the witnesses it had invited. I refer in particular to some of the witnesses who were invited to give evidence relating to Anglo Irish Bank. An investigation that did not hear from them was hampered by that, particularly the lack of evidence from Seán FitzPatrick and David Drumm with regard to the very significant role Anglo Irish Bank played, which will ultimately cost the State up to €30 billion.
Overall, the committee and the report perform a vital function. Although the committee could not make many findings of responsibility, many of the key participants in the crash of the banking sector appeared before it to account for their actions and to explain as best they could how it came about. It will allow the public to make up its mind about how things happened. Unfortunately, the inquiry was established much later in this Dáil's term than was required. That this is quite possibly the last full sitting day of the current Dáil and that the report has only been published this week, with only a short window of time for the debate on it this evening, reflect the fact that the inquiry was set up too late and went down to the wire. Also, at the outset, there was a clear political motive on the part of the Government in establishing the inquiry, as was reflected by the Taoiseach's statement in advance of its commencement in which he alleged there was an axis of collusion in which Fianna Fáil and the previous Government were involved. That certainly was not the spirit with which the inquiry should have been established, and the Taoiseach did not serve it well in that regard.
The hearings and the participation of so many people in the inquiry allowed the public to put in context how the banking inquiry came about and to form their own opinions on the dynamics that led to it. The fact that the Taoiseach was willing to go to the country last November, although he changed his mind, showed that the completion of the banking inquiry was not necessarily a top priority, given that it was still ongoing. However, I welcome that the Dáil term was extended to allow the inquiry to complete its business.
The key findings demonstrate that there was poor regulation. That played a key role in the downfall of our banking sector. The banking inquiry found that the Financial Regulator and the Central Bank had the required powers to intervene in the sector to protect the financial stability of the banks but, despite having those powers, failed to intervene and carry out their roles effectively. From 2000 to 2008, no enforcement measures were taken by the Financial Regulator against any of the banks for breaches of rules that had been identified during that period. The Financial Regulator was also found to have failed to identify some of the key systemic risks that had been building up in the banking sector, despite its being part of the Financial Regulator's remit. In addition, there were no consequences for any of the banks that breached sectoral lending limits. That failure to enforce the law and ensure there were penalties for banks led to a situation in which the Financial Regulator was seen not to have the teeth it had been allocated in the first place. It allowed things to get out of hand.
With regard to the banks' practices, the inquiry has shown that the banks' lending was far from prudent and, indeed, was reckless. The practices with regard to lending to property developers, and in many cases entering joint ventures with them, played a large part in the subsequent downfall of the sector. Traditionally the banks were funded by customer deposits, but during the property boom they became over-reliant on wholesale financial markets for their funding. This meant that when borrowing on a short-term basis became exceptionally expensive their viability was totally undermined.
As regards the Government and the performance of State institutions, the inquiry found that too many subscribed to the idea of a soft landing. That consensus and the failure to listen to strong dissenting voices, albeit voices that were very much a minority, is a lesson we must learn from to ensure the same thing is not repeated. The State's finances, unfortunately, were vulnerable because of an over-reliance on a pro-cyclical economic cycle. The report also finds that all political parties advocated pro-cyclical policies and demanded reductions in taxes and increases in expenditure, despite the fact that they were based on short-term income and what subsequently proved to be short-term revenue.
The report finds that the idea of a bank guarantee was considered well in advance of the week in which it was implemented. Indeed, it is indicated that there were documents dating back to January 2008 discussing the merits and potential for a bank guarantee, if required. The report is also particularly critical of the fact that there was no proper record keeping in the Department of the Taoiseach of the discussions that took place on the night the guarantee was implemented. The Government was advised by both the Central Bank and the Financial Regulator that as far as they were concerned, all of the banks were solvent on the night of the guarantee. That is made clear in the report. The ECB, through its then president Jean-Claude Trichet, made it clear that no bank could be allowed to fail. That was a key consideration in the Government's decision to proceed with the option of the bank guarantee. With regard to the troika programme, the same president, Jean-Claude Trichet, threatened to cut off essential emergency liquidity assistance support for Irish banks, leaving the Government with little choice but to pursue the guarantee option. The report also finds that the European Central Bank position on burden sharing in both November 2010 and March 2011 was a key element in contributing to the placement of the banks' debts on Irish people.
Overall, the report is positive, in that the inquiry has managed to complete its business. I thank the members who were so crucial to carrying out its work.
I thank the Deputies for their statements on the final report of the Joint Committee of Inquiry into the Banking Crisis. The report was published yesterday after tremendous effort on the part of the committee. There was much hard work over the last year and in the period before that. The significance of this undertaking should not be underestimated. The hard-working commitment of the Deputies and Senators involved is acknowledged and appreciated on all sides of the House. The findings and recommendations of the inquiry are welcomed by the Government. It will be a matter for the next Government to consider and act on the recommendations. Deputy Ó Fearghaíl asked for more time to go through them, and that can be facilitated by whoever is next in the Government.
It is important to note the key findings in the report. There was no single decision or event that led to the failure of the banks; rather, it was the result of a cumulative series of events and decisions over a number of years. There were two crises rather than one - a fiscal crisis and a banking crisis. I have maintained that for a long time. The equally big crisis we had was the public expenditure crisis. It was mentioned by some Members that Opposition parties had the same policies, but successive Governments over a couple of terms were obsessed with construction-based taxes and made long-term decisions based on them. That is what resulted in a fiscal crisis. There were too many eggs in the basket. That was not the case with other parties. When they were in the Opposition, Deputies Enda Kenny and Richard Bruton repeatedly said at every budget that there was flawed budgetary decision-making based on construction-based taxes.
One cannot put all one's eggs in one basket. When we left office in 1997, the rainbow coalition Government was creating 1,000 jobs a week across many sectors. Similarly, we are back there again after four or five years in government and Fine Gael and Labour are creating 1,000 jobs a week across many sectors. In its wisdom, Fianna Fáil believed for a long number of years in only having construction-based jobs which is what led us to the fiscal crisis which was just as detrimental as the banking crisis.
The lending practices of the banks made them vulnerable to a liquidity risk which was not recognised. By 2008, banks had moved away from prudent lending principles towards a riskier, asset value-based lending model in their dealings with the property development sector. The business model of key developers in the boom years led to them being overwhelmingly reliant on Irish financial institutions. The Central Bank and Financial Regulator had sufficient powers to do their jobs effectively and could have required banks to hold additional capital to absorb losses which would have arisen in the event of a financial crisis. While an independent review and assessment of the effectiveness of the Central Bank and the Irish Financial Services Regulatory Authority, an organisation created in 2003, should have been carried out by the Government, it was the execution of the Central Bank and the regulator of their mandates and the absence of interventions which directly contributed to the crisis. The systemic risk that was building up in the banking sector was not identified by the Financial Regulator. The financial stability reports of the Central Bank to monitor the key risks to the financial system and financial stability did not identify the key risks. The Department of Finance relied too heavily on the reports of the Central Bank and external agencies such as the IMF, the OECD, and the European Commission and the soft-landing theory accepted by the Department and external agencies was not substantiated by robust analysis or research. The Government at the time did not always follow the advice put forward by the Department of Finance or the Central Bank. The ECB threatened the then Minister, Brian Lenihan, that it would not continue to provide emergency liquidity assistance support to Irish banks if Ireland did not enter a bailout programme. Ireland's entry into a bailout in October 2010 was inevitable but the timing of the entry was determined by factors outside the Government's control. The ECB's position on imposing losses on senior bondholders in November 2010 and March 2011 contributed to the inappropriate placing of significant banking debts on Irish citizens.
It is important that we all learn from the mistakes of the past. Significant work has been undertaken by the Department of Finance in recent years to address the issues highlighted by the crisis. A comprehensive overhaul of the regulatory framework for the financial sector has been pursued at both domestic and EU level since the financial crisis. Through the introduction of various initiatives, the stability and resilience of the financial sector has been strengthened and restored to a point where it better serves the economies and peoples of Europe. A series of measures has been introduced at EU level to reduce the risks across the financial system and to minimise the adverse effects of future financial crises. These includes the capital requirements directive and the regulation and directive for banking recovery and resolution. The single supervisory mechanism, SSM, transfers key supervisory tasks for significant banks in the eurozone to the European Central Bank which means additional oversight beyond national central banks.
While the reform of our statutory code for the financial services sector has been and continues to be driven by the comprehensive set of reforms that have been brought forward at EU level, a number of significant domestic legislative reforms have been undertaken to build a strengthened domestic regulatory framework. The Central Bank Reform Act 2010 created a single, fully-integrated Central Bank of Ireland with a unitary board, the Central Bank Commission, which is chaired by the Governor of the Central Bank. In 2011, the new fitness and probity regime was rolled out by the Central Bank. The Central Bank (Supervision and Enforcement) Act 2013 enhances the Central Bank's regulatory powers. Drawing on the lessons of the recent past, it strengthens the ability of the Central Bank to impose and supervise compliance with regulatory requirements and to undertake timely assertive interventions. Legislation establishing a central credit register has been passed. The Credit Reporting Act provides that the Central Bank of Ireland shall establish, maintain and operate a central credit register as a means to enhance and promote more responsible lending in Ireland and to thereby contribute to overall financial stability. The bank has now entered into a contract with a partner to build and operate the register and it is planned that the system will be in place later this year. More importantly, all of these legislative reforms have been supplemented by real change in the culture of the Central Bank and a significant increase in regulatory activity with a corresponding increase in staff numbers and skills levels. The revised Central Bank Acts have produced peer review and independent oversight arrangements for the bank's operations. In combination with the single supervisory mechanism, these changes will be important in terms of preventing future instances whereby the Central Bank might fail to fulfil its responsibilities and mandate.
There have been a number of important responses in the context of applying the lessons learned from the crisis, both nationally and at EU level. Nationally, we have put in place the Fiscal Responsibility Act. The Irish Fiscal Advisory Council has been established on a statutory basis to provide independent assessments of the Government's fiscal stance. At EU level, there is now considerably greater scrutiny of the fiscal and economic policies of member states. The measures set out in the "six-pack" and "two-pack" of regulations and directives reformed and strengthened the Stability and Growth Pact and now provide for greater scrutiny and oversight of budgetary and economic policy. Economic and fiscal governance in the euro area has been reformed considerably since the crisis in response to deficiencies in the conduct of fiscal policy which became evident in many member states. The relevant measures are contained in two groups of EU legislation referred to as the six-pack and the two-pack. Under the two-pack, which came into force on 13 May 2013, draft budgets must now be based on forecasts which are either produced or endorsed by independent bodies at national level. The aim is to ensure that fiscal policy is framed in such a way as to guarantee that it is free from either an optimistic or pessimistic bias in the underlying macroeconomic forecasts. In Ireland, we have chosen the endorsement route and the task of providing endorsement has been assigned to the Irish Fiscal Advisory Council, which was established during our first year in government in 2011. This represents a significant change compared to the previous arrangement and should address the type of self-reinforcing loop between domestic and international forecasters about which the inquiry was so critical.
At EU level fiscal rules which now apply were adopted in response to the problems which the recent crisis revealed not just in Ireland but also elsewhere in Europe. The rules now in place in particular and the structural targets and expenditure benchmarks are aimed at breaking the link between cyclically unsustainable revenues under long-term expenditure commitments. The rules now provide for growth and expenditure in line with long-term economic growth trends. Anything above that will have to be funded through discretionary tax increases. Accordingly, the possibility of using windfall revenues to fund primers expenditure increases is much reduced if not altogether eliminated.
I repeat my thanks to all involved in the inquiry for their dedication to seeing it through to a successful conclusion. Their efforts have resulted in a significant increase in the level of information in the public discourse. It is critical that we all learn from past experiences to ensure that those mistakes are not repeated. The report will help to improve on progress already made in that regard. Since 2011, €15 billion of burden-sharing has been imposed on subordinated bondholders. However, as the Minister has stated on numerous occasions, the ECB and EU Commission were opposed to its use in respect of senior debt. The Minister for Finance, Deputy Noonan, set out to the banking inquiry that the then ECB President, Jean-Claude Trichet, was clear and spoke in graphic terms of what he saw as the consequences of Ireland burden-sharing with senior bondholders. During the banking inquiry, the Minister made it clear to Deputy Higgins that he was never threatened. He stated:
I was never threatened that they'd withdraw ELA or assistance to the Irish sovereign but, and you'd well know from your experience here, in saying that Ireland would be treated as a country in default and a bank would be treated as a bank in default, the implications of that to me were clear. ELA could be suspended. ELA was always temporary.
The Minister for Finance has set out on numerous occasions that the Government considered burden-sharing in the winding down of IBRC - comprising Anglo Irish Bank and Irish Nationwide - but was prevented due to the ECB's unwillingness to provide the necessary support to allow such an action to take place, which is to say emergency liquidity assistance. However, it must also be remembered that as a Government, we were aware of the risks of burden-sharing with senior bondholders. Indeed, the Minister stated prior to the 2011 election that no action could be taken without ECB support. To be very clear, there has been no U-turn on the Minister's part. He was very clear on the matter. I worked with him in opposition in the context of the finance portfolio before the 2011 general election and he was very clear that this would not happen without ECB support. As such, I do not like the way people try to rewrite what he said. He stressed on numerous occasions and was very clear where he stood before we came into government and he did not change his view on taking office. People try to be selective in picking bits out of manifestoes or in recounting what was said. However, I know what was said. I was there beside him at the time and it is all on the record. To be clear, the Minister did not perform a U-turn in this regard.
The Government's banking strategy was announced to the Dáil on 31 March 2011. It set out that the Government was aware of the very real risks of imposing losses on senior bondholders in the banks that would have to finance economic recovery. Unfortunately, some Deputies are confusing threats of action with the consequences of action. It is important to remember that the Government's actions and negotiations from 2011 to 2013 led to vital successes which paved the way for our successful exit from the EU-IMF programme of assistance. More importantly, however, these successes included the promissory note arrangement, which reduced the deficit by over €1 billion annually. They have also reduced the State's cash borrowing requirements by €20 billion over the next ten years.
Such an arrangement would not have been possible without ECB support.
Some people have questioned whether the Minister for Finance, Deputy Noonan, and the Taoiseach made the right decisions or were tough enough in the negotiations with Europe. The record speaks for itself. While in charge of this country over the past five years, those two gentlemen made the right call on every decision on which card to play, when to negotiate and what deals to push for or accept. Their judgment has been proven correct by the way in which the economy has turned around. Ours has been the fastest growing economy in the past two years and will probably remain so in the year ahead. More important than the full economic recovery has been the jobs recovery. Unemployment, which was at 15% when we entered office and was predicted to reach 20%, is now below 9%. Indeed, it is probably closer to 8%. This proves that they made the right decisions. All of us accept that we have only gone part of the way towards ensuring that the recovery reaches everyone's house, given the fact that there is still some unemployment, but we want to deal with that. This is what we mean when we say that we want to use proven policies and plans to keep the recovery on its path.
Deputy Ó Fearghaíl stated that the Government was beginning to make the old mistakes. That was an unfair charge. The Ministers, Deputies Noonan and Howlin, who are in charge of the Departments of Finance and Public Expenditure and Reform, respectively, have been clear about their work, prudent in everything they have done and, unlike previous Governments that used to spend all of the money they could find when nearing an election, kept expenditure well under growth rates. The Ministers have been careful with resources.
There is a commitment to remove the USC as the growing economy allows. It is a Fianna Fáil-imposed emergency tax, but not a permanent one. We have started in the right way by gradually reducing the USC in the past two budgets. This will continue over the next five budgets. It is wrong to claim that this is a return to the old ways. Instead, an emergency tax is being removed gradually as the economy allows and when it can be replaced with growth. This is the key point.
The Government welcomes the committee's report and congratulates all of its members on their considerable efforts. I commend the report to the House.
If I could have a minute, I know that many Members are saying their goodbyes today. I would like to join in wishing them all the very best and to say it has been a privilege to serve the people of east Galway for almost 41 years in the Dáil and Seanad Éireann. It was also an honour to be proposed as Leas-Cheann Comhairle five years ago. I thank the Ceann Comhairle and the Acting Chairmen. I thank all Members of the House for their co-operation. I thank the staff of the House and the private secretary and two parliamentary assistants in my office. I thank my family and, above all, my constituents, who elected me in a by-election, nine general elections and three local elections. To all of you, mo mhíle buíochas agus go raibh míle míle maith agaibh go léir.