John Dardis (Progressive Democrats)

I welcome the Minster of State, Deputy Parlon, and support the Bill. I wish to comment on points made by Senator Mansergh with regard to the International Financial Services Centre. Given the economic background of the country at the time, it was remarkable to have had the vision to go ahead with the initiative which has been extremely successful. The Minister of State and Senator Mansergh gave us the figures for the enormous revenues from taxes and the large numbers employed in the sector. The centre has done our international standing a lot of good, not alone from a financial point of view but also in general.

I recall that when the Progressive Democrats were founded, we discussed reducing rates of capital and personal taxes and taxes on business. The general reaction was one of universal horror and fear that services such as hospitals and social services would collapse. When we argued it would increase revenues available to the State, people stated it would not happen but it did. Senator Mansergh is correct to state the British Chancellor seems to have converted to a similar philosophy.

The Bill pertains to an area which involves extremely large sums of money. It is important to strike a balance between regulation and securing moneys, a point on which Senators Phelan and Mansergh touched. There is a tendency to overregulate in these areas. In this circumstance, given the enormous sums involved, we must have due regard to the potential for disaster. It would be disastrous if these instruments went wrong.

We must also consider the degree to which the financial industry changes. It is creative in coming up with new and wonderful products within retail banking services and elsewhere. We must keep an eye on these matters. We saw in the US mortgage market the inherent dangers if one does not exercise proper control or have proper financial prudence. Even extremely large financial institutions can be open to collapse. One saw the influence Nick Leeson had on a particular bank.

The Minister of State mentioned actively managing the assets in the pool on an ongoing basis. Active management is a recipe for people to lose the run of themselves, unless there are adequate safeguards. An important distinction must be made between public asset covered securities and mortgage covered securities. There is a greater degree of confidence that public credit covered securities bonds are secure. The area of mortgage covered securities is more problematic, particularly residential mortgage loans.

I am aware the collateral figures amount to more than 100%. I believe the figure is 3% on residential mortgage loans and public sector loans and increases to 10% on the commercial mortgage covered securities pool. It is important that within the securities there is more than enough to ensure the moneys will be secured in the event of something going wrong. We also have the matter of ring-fencing. In the event that an enormous financial institution crashes we must have a way of isolating these instruments from the general pool which would become amenable to the creditors of the company.

Certain key and important matters relevant to the Bill require a great deal of consideration and careful management. I was a member of the Joint Committee on Finance and the Public Service at a time when the Governor of the Central Bank had more fiscal powers than he does now. The matter of confidence in the banking system always arose and seemed to be used as a cloak. If anybody asked difficult questions, he or she was told confidence in the banking system was very important and such questions might have an effect on confidence in the system. This is a load of rubbish. We must ask those critical and important questions; otherwise people have the capacity to run away with themselves and we do not have the degree of public accountability we should.

This legislation is important and must be renewed on an ongoing basis because of the creative capacity of the sector to introduce new, improved and novel instruments and perhaps circumvent the important regulations imposed to ensure assets are secured and nothing untoward can happen. One has confidence that nothing untoward will happen one's money in extremely large, secure and government-backed bodies such as the International Bank for Reconstruction and Development, the European Investment Bank and the European Bank for Reconstruction and Development, of which the former Deputy, Mr. Des O'Malley, was a director, and the International Monetary Fund. Even there, perhaps there is the capacity for somebody who is mischievous, creative or bad enough to put funds at risk.

We must strike a balance between regulation to ensure funds are secure and not over-regulating to the point where the instruments become so unwieldy that the ordinary business required to underpin the success of the International Financial Services Centre is not jeopardised. The Bill must be welcomed and I will support it.