Eamon Ryan (Dublin Bay South, Green Party)
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If Deputy Donnelly joins us, I will share my time with him. He may have been caught out by the early end to the previous debate.

I support the Bill before us. I realise it is largely technical in nature, but it provides an opportunity for consideration of the wider banking strategy in which we are engaged. I am happy to support something that arises from the lessons learnt from the financial crash and the need to have a common European mechanism to deal with the inherent instability that exists in our banking and financial system. The technical provision of this loan facility agreement is one of the mechanisms we need to ensure that if there is a similar crash in future, we would be able to cope in a better way than happened in our own circumstances.

I use the occasion to broaden out the consideration and look back to the management of the financial crash in that period. I presume officials from the Department of Finance are in the Chamber. I commend the Department officials on the work they did throughout that period. They took a remarkably dedicated, hard-working and, in the end, effective approach to the financial crash. We got ourselves into a deep hole, but we managed to get ourselves out of it.

One of the books on the issue, I believe it was Too Big to Failby Anthony Sorkin, gave a blow-by-blow account of what happened in the Lehman Brothers crash. There was also Timothy Geithner's book on the stress test. It was a fascinating period in history. Too Big to Failmentions that a number of commentators argued that in the management of a bank financial crash, such as the one we saw, there is a standard operating procedure to provide a guarantee, manage the assets and then capitalise. The expert commentary suggests an approach of halting a crash, trying to provide some certainty, managing the assets and then looking to recapitalise.

We are still not yet out of that process. The political crisis in our neighbouring island will probably affect the proposed sale of AIB. We should have a debate, which could be very interesting, on what we intend to do with AIB. In a sense the management of this process is not finished. We will clearly not sell a bank into a market where bank shares have fallen by 20% to 30% in the past week.

I put it to the Department that we should consider options in terms of changing, adapting and improving our banking system. The former Governor of the Central Bank, Professor Patrick Honohan, recognised that having managed our way through the process, we still have a gap in our banking system. We cannot go back to the three banks, AIB, Bank of Ireland and Anglo Irish Bank at the time having €300 billion or €400 billion in capitalisation. We are not going to go back to having banks of that scale. Therefore, there is still a gap in our banking system.

The most astute closing of that gap and in a sense the adaption and development of our banking system would be to run with a model of banking similar to what Germany has - the Sparkassen banking model, public banking system. The Government's partnership document refers to this, so clearly the Government sees it as providing a real opportunity. What I like about it and what would benefit us particularly is that it goes back to the core skills of banking with banks knowing their customers, business lending which is slightly above that in which a credit union would specialise and below that in which the big commercial and merchant investment banks would engage.

That is the core for regional Irish development, for small town development and for development of our indigenous small businesses. It is a form of public banking involving a new ownership system, possibly local authorities. It is a model that works elsewhere that would be much less risky than what we have seen with the development of other banking models here and elsewhere. It would bring real economic benefits.

If we developed a system whereby deposit rates in a certain region were reinvested in that area, using a professional bank management system with a centralised IT system to keep costs down, it would have particular economic benefits for the region in question. That would be one of the best ways of closing the gap that has opened up because of our banking crash. It would allow us to develop local enterprise in a way that is necessary for regional development and for a broad-based recovery in our system.

We are currently engaged in a heated debate on the EU in the context of what is going on in Britain. As the general secretary of ICTU, Patricia King, said at the National Economic Dialogue on Tuesday, there is widespread understanding that "social Europe" was sacrificed at the altar of "finance Europe". I think that is true. Across the western world, it was the excessive power of capital to move very fast that undid the EU and the US. Undue respect was given to the market banking, or capital finance, system. It was put ahead of other political priorities. A change is needed in that regard.

We have to be careful not to paint the EU as being the worst character in this period of recent history. It is true that the European Central Bank got it wrong in the first period. It was unable to recognise the nature of the crisis. It was excessively worried about the scale of its balance sheet. It was not initially willing to do what Mario Draghi ultimately did, which was to say the crash would be stopped at all costs. Both Mr. Draghi and Mr. Geithner recognised that trust and confidence are important. More than anything else, banking is about trust. People have to trust that they will be repaid. The skill in banking is lending in a way that will result in the repayment of money. Depositors must have trust that they will not lose their deposits. The European Central Bank got it wrong because its approach in the initial stages was wrong in macroeconomic terms and undermined trust in the overall system. We did not have a central bank of last resort, in effect. It took the development of the crisis, to the extent that it happened in Italy and Cyprus, for lessons to be learned and for a different approach to be taken.

There are lessons to be learned from the approach that was taken by the European Commission and the European Council. As I said here last week during a debate on the Brexit issue, I would argue that the biggest failing was the lack of solidarity and the lack of community management. It was not that Europe let us down - it was that a lack of Europe let us down. I will give an example. When Chancellor Merkel and the then President of France, Mr. Sarkozy, suggested in Deauville that the bonds of smaller states like Ireland might not be honoured in the medium term, they did so without telling anyone in advance. They had not discussed or debated it with anyone. That is an example of the lack of European checks and the lack of European integration. Those who say the European Commission is not democratic and is the worst of the European institutions need to bear in mind that it was not the Commission that let us down, rather it was the lack of Council engagement The creation here of a European system that stitches in co-operation and provides for cross-reliance and cover for other banking systems is what is needed and makes a lot of sense.

I would like to mention an interesting technical detail with regard to the banking inquiry. Deputy Donnelly was not on the inquiry. I think Deputy Michael McGrath was on it.

Michael McGrath (Cork South Central, Fianna Fail)
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Yes.

Eamon Ryan (Dublin Bay South, Green Party)
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It seems to me that one of the unsatisfactory elements of the inquiry, which did its work in a professional and proper manner, was that after the publication of its report, full disclosure of all the necessary and relevant documents that were furnished to it throughout the process did not take place. I refer to the written submissions that were made to the inquiry team, such as memos from the Department of Finance that were of relevance to the period under examination. As someone who was involved in government in the period in question, I submitted a large number of documents - it was approximately 2 ft. high - to the inquiry. I understand there is dissatisfaction among the members of the inquiry that some of the documents in question were not shared publicly. They should have been, for a variety of reasons.

As I said at the outset, I believe the Department of Finance broadly got the resolution process right. The advice given by departmental officials and others throughout that period deserves to be recorded. My experience during the period in question was that there was remarkable co-operation with the officials in the National Treasury Management Agency, whom I trusted. I should mention, given that we were debating NAMA earlier, that I include Frank Daly and Brendan McDonagh in that. My experience was that they were straight people who could be trusted and that the information they provided turned out to be true. The same can be said of the Attorney General; the advisers to the then Minister, Mr. Lenihan; Mr. Ahern; the officials in the Department; the officials in the National Treasury Management Agency, including Mr. Corrigan; Mr. Elderfield; and Mr. Honohan. In my mind and in my experience, we were well served at the height of the crisis. The members of the team surrounding the Minister for Finance at the time were as capable as any of the people we had. They worked in a very collaborative way. I do not see why some of the material and the information about that time should not in some way be presented to or put before the House. We have to be careful and get legal advice about possible challenges or possible untoward uses of this documentation.

In general, I believe the more open disclosure we have, the more lessons we will learn and the more we will improve our operations. I put it to the Members of the House that they need to consider how we can share and present information in a way that makes sure it is not hidden or merely archived. Perhaps the banking inquiry material is not going to be archived. I am not too sure what the process is for archiving material from the inquiry. There is material from which important lessons could still be learned. I do not want to reincarnate the banking inquiry or anything like that. I suggest it makes sense for it to be on the record for historical purposes. I will end my contribution on that note. We will support the Bill. I look forward to any other contributions that people may have to make.

Stephen Donnelly (Wicklow, Social Democrats)
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The Social Democrats support the Bill. We support the single resolution mechanism, which is already in operation, and we support the single resolution board, which is one part of the single resolution mechanism. The Bill gives the Minister for Finance the power to provide bridging finance of just over €1.8 billion to the single resolution board in certain eventualities, for example, when the bail-in mechanism has been used up or the existing central financing has been used up. Critically, the Bill describes the €1.8 billion as "bridge financing". Obviously, states should not be in the business of bailing out private banks and private investors. We support the single resolution board and the single resolution mechanism. We are comfortable with any Minister for Finance having the power to provide up to €1.8 billion as "bridge financing" with a clear undertaking, as set out in the Bill, that the single resolution board will repay that money to the State. That money would go into the Central Fund.

When we are looking forward and considering how the eurozone should conduct the wind-up of private banks, we should take the opportunity to look at the past. We are by no means clear of the damage that has been done. Like many others, I argued that regardless of whether a formal mechanism like the single resolution mechanism was in place, banks should have been allowed to fail. There are mixed views among informed people on whether banks like AIB, Bank of Ireland and Permanent TSB should have been allowed to fail. There are pros and cons on each side of the argument. I do not think there will ever be a full consensus on it. However, it is very clear that the banks which subsequently comprised the Irish Bank Resolution Corporation should have been allowed to fail. Anglo Irish Bank should have been allowed to fail. It was essentially a casino for developers and bondholders. Many international investors invested large sums of money in Anglo Irish Bank because it was paying them back higher yields.

They did not do their due diligence because, if they had, they would have concluded quickly that they should not have lent money to Anglo Irish Bank. Unless, of course, they knew something, which the rest of us did not know at the time, namely, even if Anglo Irish Bank went to the wall, they would still get all their money back because the State would step in and pay them back. However, not only did these bondholders get their money back - this is a point that cannot be stated enough - they got all the interest payments on their loans back as well. Not only did they not lose any money, they walked away with all of their profits. Not only did the Irish people pay them back their capital, be it €100 million or €1 billion, we actually gave them all the profits on it too, as if Anglo Irish Bank and Irish Nationwide had not gone to the wall. That is outrageous.

The chances of us getting back any of the money we put in to the pillar banks is slim. An argument is put forth that our equity in those banks, plus the repayments from them, will cover that money over time. That is not the case for Anglo Irish Bank and Irish Nationwide, however. The famous promissory note for just over €30 billion was paid down in tranches over several years. Then, when the political pressure became too great, the Government entered into an agreement with the so-called Anglo promissory notes which was voted through the House one morning at 2.30 a.m. According to the Comptroller and Auditor General's report, up to last September, the interest payments alone on the total cost to the State of the moneys it used to bail out the banks came to €9 billion. Imagine what we could do with €9 billion in this country.

The previous Government heralded the creation of the Anglo promissory note as a great triumph and piece of negotiation. At the time, there was some extraordinary misinformation given in the House when some Government Members claimed - in fairness the Minister for Finance, Deputy Noonan, did not - they had avoided having to pay the promissory notes. That is not only untrue, but exactly the opposite is the case. What the Government did was take two dodgy IOUs from two dead and negligent casinos, which no longer existed and were under criminal investigation, turned them into gilt edged sovereign debt and put a payment schedule against that.

It is important we understand this payment schedule because minimum amounts were put against it. For 2015 to 2018, the minimum amount the State had to pay back was €500 million a year. For 2019 to 2023, the minimum amount per year the State had to pay back was €1 billion. After that, it rose to €2 billion a year. That means that at a minimum, the State had to tear up €500 million a year for a few years, then tear up €1 billion a year for a few more years and then tear up €2 billion a year for a few more years. It turns out, however, that we did not meet the minimum requirements and massively exceeded them. Last year, the Central Bank of Ireland only had to sell - essentially tear up - €500 million. However, it went four times further than that and sold €2 billion worth of sovereign debt. What that means is that it took the IOU to these two dead casinos, sold them out on to the market, borrowed money from the market and tore up that bit of the IOU. There is no way we can get back that money sold out. The Government has gone out in good faith to the markets, asked if it can borrow money, sovereign debt, and then investors have said “Yes”. The Central Bank then took one of the bits of the IOU out of the safe and tore it up. We got nothing in exchange but the national debt gets turned from questionable IOUs into irrevocable sovereign debt.

The Social Democrats, and many others, contest that the debt is odious debt. Odious debts are those contracted against the interests of the population of a state without its consent and with the full awareness of the creditor. That appears to absolutely match the Anglo promissory notes. The Social Democrats contend that the Central Bank of Ireland does not exceed its minimum mandates in tearing up those IOUs by a factor of four. The Social Democrats contend that the State should take a position that those debts - the Anglo, IBRC, Irish Nationwide promissory note - are odious debt. The Irish people have been asked to give money to the Government and the Central Bank of Ireland so that people who loaned money to Anglo Irish Bank in 2007 get it all back as well as their profits. Just paying the interest on that, plus the loans to the other banks, comes to €9 billion so far. That is odious debt.

Leaving Bank of Ireland, AIB and Permanent TSB debt aside, the IBRC debt is odious debt which the people of Ireland should never have to pay. It is debt which the European political, economic and monetary institutions should recognise as odious debt. They should say that whatever about the pillar banks, we gained by keeping those banks alive. However, they should say we did not gain by keeping Anglo Irish Bank or Irish Nationwide alive. Instead, the eurozone did benefit because no bank failed, meaning there was no contagion or additional risk. Accordingly, they should say we are going to waive Ireland’s obligation to pay any more of that money back.

The current position of the Government is that all the money loaned to Anglo Irish Bank by anonymous, foreign, professional investors, who did not do their homework, will be paid back in full. That should not be the State’s position. It should be that we recognise the IOUs are there, we are pausing payment on them, we are seeking multilateral negotiation and agreement to classify them as odious debt and, in so doing, through agreement, Ireland's obligations to pay them will be waived. Alternatively, we can use a fudge for the monetary purists in Germany, Finland and other places. We can say we just do not "discreate" money - I apologise for making up words. While we cannot just make debts go away, we can take a 100 year interest only loan. Accordingly, the money still exists, but inflation takes care of it and it does not act as a burden on the people.

The Social Democrats believe one mechanism for that is a debt conference on everything that has happened over the past several years in Ireland, Greece, Portugal and Italy. As we know, there was such a conference in London after the Second World War. The country that got its debts extended out so inflation took care them, getting the greatest write-down in sovereign debt history in the developed world, was Germany. This was because some of the debts incurred were viewed to be odious debt.

The Social Democrats support this Bill. We support a mechanism whereby banks can be wound down. No bank should be too big to fail. Hundreds of banks fail in America all the time. It has mechanisms in place and guarantees to deal with them. That should be the case in the eurozone too. However, we should not simply walk away from the tens of billions of euro still on the back of the Irish people, plus interest, because of Anglo Irish Bank and Irish Nationwide. We are not suggesting any unilateral action. We should, however, be making the case and maintaining the position that this portion of the banking debt is odious debt. It did not benefit us at all.

It benefited the eurozone and the ECB which has a mandate to secure stability in the European banking system. Multilateral negotiations to classify the Anglo promissory note, or the IBRC promissory note, as odious debt, with a view to having it written off or repayment pushed 100 years into the future at a zero interest rate, are what is required.

Eoghan Murphy (Dublin Bay South, Fine Gael)
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To reassure the Deputy, "discreate" may, in fact, be a word. At least, that is what Google tells me and I believe it. Therefore, we will go with it.

I thank Deputies for their kind words since we began this debate two weeks ago about my recent appointment as Minister of State. I also thank them for their constructive engagement in the debate on the Bill. I look forward to more detailed consideration of its provisions on Committee Stage. As the House will appreciate, the Bill is mainly technical in nature and has been designed principally to facilitate implementation of the EU banking union agenda, but it is important as it allows Ireland to fulfil its banking union obligations.

At this stage, progress in the creation of a European banking union is advanced. The European Central Bank, ECB, assumed its supervisory role in November 2014 and is working closely with national authorities in ensuring banks comply with EU banking regulations. This was an important first step on the road towards a banking union as centralised supervision should ensure a high level of independence and objectivity and will help to rebuild trust and confidence in the European banking sector. The next step in banking union is to ensure that if a bank gets into trouble, there will be appropriate tools and powers to manage the failure in an orderly manner. The Single Resolution Mechanism, SRM, was established for this purpose and should ensure an effective European response where a bank finds itself in serious difficulties. In order for the Single Resolution Mechanism to be credible, however, it was agreed by Ministers that a system of bridge financing though national credit lines needed to be put in place. This is to avoid a situation where the Single Resolution Board may find itself, particularly in the early years after the bail-in process has been completed, in a position where there are still losses to be absorbed. It is important to note that this agreement will only be in place during the transitional phase to 2024, while the Single Resolution Fund is built up. The consequence of not signing the loan agreement with the Single Resolution Board is that, should an Irish bank get into financial trouble, the funding available to the Single Resolution Fund will be limited to the small amount in the Irish national compartment and the mutualised elements of the other national compartments and any borrowing in which the Single Resolution Board can engage. However, if this should prove insufficient, there will be no fall-back source of financing from the Single Resolution Board as the national credit line will not be in place.

It is important to point out that the banks are in general good health. Therefore, the likelihood of this loan facility agreement ever being called upon is minimal. However, the provision of this national backstop to the Single Resolution Board is key from a confidence perspective as it provides another indication to the market that the banking union member states are serious about ensuring stability in the banking sector.

Before responding to specific issues raised by Deputies in the course of the Second Stage debate, I would like to say a few words about the recent UK referendum result on EU membership. Officials in the Department of Finance had been actively preparing for the outcome of the referendum over a considerable period by developing the Government's contingency framework. A summary of the key actions was published last Friday. As part of the planning process, the Department of Finance has been liaising closely with the Central Bank and the National Treasury Management Agency, both of which had been preparing for this outcome and closely monitoring developments. This close engagement will continue. The Minister, Deputy Michael Noonan, spoke to the Governor of the Central Bank on Friday morning and was advised that the Central Bank was confident that the appropriate contingency measures were in place to address any immediate issue of financial stability that might arise. As part of the euro system and the Single Supervisory Mechanism, the Central Bank is closely monitoring the market impact and the banking sector and will continue to liaise closely with the Department of Finance. The Minister also spoke on Friday morning to the chief executive of the National Treasury Management Agency who confirmed that the agency had prepared for this eventuality, that it was well funded for this year and that its debt dynamics were improving.

In response to the main issues raised in the debate, I would like to make the following comments. Deputies Michael McGrath, Seán Haughey, Frank O’Rourke, Pearse Doherty and Paul Murphy raised the issue of the retrospective use of the direct recapitalisation instrument. In current circumstances, it does not appear likely that there would be any benefit for the State in making an application for retrospective use of the ESM's direct recapitalisation instrument in regard to our bank shareholdings. The terms and conditions attaching to the use of the direct recapitalisation instrument are extremely onerous as the instrument is designed to be used almost as a last resort, after the creditor waterfall has been applied and other options are exhausted for the recapitalisation of a bank. Any application to use the direct recapitalisation instrument would need unanimous agreement from the other 18 ESM governors. Achieving such an outcome for a deal which valued our investments at a level above what we might achieve in the market in the current circumstances is unlikely, particularly given the strength of our economic recovery since 2012 and taking account of other concessions won by Ireland in recent years.

Deputies Michael McGrath, Pearse Doherty and Joan Burton mentioned the capital levels of the Irish banks. I would like to offer some clarity on the issue. The minimum capital level required by international standards is 8%, while the SSM has mandated a level of capital specific to each bank. This SSM capital requirement is a mandated CET1 ratio - a common equity tier 1 ratio - which is a measure of a bank's core equity capital compared with its total risk-weighted assets. While it is being introduced on a transitional basis, each of the Irish banks already holds a surplus to the final CET1 ratio required, as reported in or with their 2015 annual reports. The Irish banks have substantially increased their capital positions in the past few years, as have most of their European peers.

Deputy Paul Murphy remarked that the Single Resolution Fund might be insufficient, at €55 billion. At the time of negotiation of the SRM regulation, there was considerable discussion on this issue. However, the general view that emerged was that many of the losses of a bank should be covered by a bail-in of shareholders and creditors, in line with the general philosophy underpinning the Single Resolution Mechanism regulation and the bank recovery and resolution directive. In this regard, a contribution to loss absorption and recapitalisation equal to an amount of not less than 8% of the total liabilities, including own funds of the institution under resolution, measured at the time of the resolution action, must be used before the Single Resolution Fund can contribute. This is a significant contribution to loss absorption and should in many instances mean that the use of the fund will not be needed. In this context, the view of most member states was that a fund of €55 billion struck an appropriate balance between the need to establish a credible and effective fund while, at the same time, not overburdening the banking sector from a contribution perspective.

Deputy Joan Burton also raised the issue of new lending rules and referred to the change to the loan-to-value ratio, which may impact on small builders who can no longer roll equity from one development into a loan for another. It is important to note that the Minister for Finance has no role in the lending policies of Irish banks which are solely the responsibility of the board and management of each institution. While I am not aware of specific regulations in this regard, I understand that, based on this experience, certain banks have chosen to implement lending policies that do not permit unrealised profit or equity from one development to be introduced or rolled into a new development proposal in lieu of appropriate equity. In line with each bank’s lending policies and risk appetite, lending to developers is now largely based on cash flows, repayment capacity and appropriate loan-to-value ratios.

Deputies Pearse Doherty and Paul Murphy raised a number of technical issues around sections 2 and 3 of the Bill, as well as Article 24 of the loan facility agreement. These issues can be discussed in further detail with the Deputies on Committee Stage.

I hope there will be an opportunity to discuss the other matters raised by Deputies as the Bill continues its progress through the House. I thank Deputies for their contributions and assure them that the Minister for Finance will give careful consideration to all of the issues raised. I commend the Bill to the House.

Bernard Durkan (Kildare North, Fine Gael)
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Is it proposed to refer the Bill to a select committee?

Eoghan Murphy (Dublin Bay South, Fine Gael)
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Yes.