John Gerard Hanafin (Fianna Fail)

I welcome the Minister of State to the House. I am happy to support the credit institutions (financial support) scheme 2008 and propose its adoption. It was not the Government that got us into this difficulty. As a Member of the Opposition said yesterday, there is a global financial meltdown. This responsible and necessary motion is before us because there was a serious threat to the stability of the credit institutions in the State generally. The threat was so imminent that if the Minister did not provide the support, there would have been serious repercussions for one or more of our banks.

This motion is necessary to support the economy. It is easy to make a decision when there is no choice. The Minister made his decision quickly, took it on with gusto and made full provision for the Irish banking system. His action was copied quickly by Greece, Portugal, Denmark and Austria and applauded by the European Union. The action taken here strikes the right balance in terms of cost and State intervention. Whatever the cost to the State, it will be recouped. The decision also offers further facilities, as for example we had previously when we put a levy on the banks when the Insurance Corporation of Ireland was taken over. Therefore, if the €1 billion being proposed is insufficient, there is nothing to stop the State from saying it has not received sufficient recompense for its guarantee and it will impose a levy.

However, this is not the time to be looking for a pound of flesh but to ensure our banks are in a position to continue to trade and to trade correctly and deal with whatever difficulties exist within the financial sector and the debt bubble here. There are positive signs and it would be wrong not to mention these. Within the past few weeks, as inevitably with a recession, a number of events have occurred. One of these is the fall in the price of commodities. I am pleased the price of oil has fallen quite significantly as that will make a difference. The price of money has fallen too and that will make a difference. We will pay less for money next year. The 0.15% increase we will pay for giving this guarantee on the national debt will be offset and more by the 0.5% decrease in the ECB rate, allied to the fact we will get €1 billion back from the banks.

I suggest the Minister should consider using the €1 billion we intend to get back from the banks to purchase shares in the banks. This is a wonderful opportunity for that. It is as if having requested a blood transfusion, the person giving the transfusion is gaining from it. I have no doubt that in years to come the price Gordon Brown paid for RBS HBOS will be seen as very low and that vast profits will be made when the situation stabilises.

The credit institutions scheme follows the advice of the Central Bank and the Financial Regulator, who decided to guarantee the retail, wholesale, dated term debt, secured borrowings and interbank deposits of the six domestic credit institutions. The Government acted first and foremost in the interest of the stability of the economy and the long-term interest of the taxpayer. A secure and stable financial sector is essential for the economy and is in the best interest of the people. It is important to note that this guarantee is intended to secure the funding of these institutions. Equity investors will take first charge on the risk of any losses in them. As we speak, equity investors are down by up to 90% on their investment in the banks. This measure was taken as a response to the severe dislocation in the international credit markets which has impacted world wide. The banks are to pay €1 billion over a two-year period to get cover under the credit institutions scheme. This amount is approximately 10% of the annual profits of the Irish listed banks and less than 10% of the quoted value of those banks.

We did not arrive at the current situation overnight, but slowly. It began some years ago as a result of unregulated financial markets in the international marketplace. This has been the difficulty and is the reason the situation must be addressed. I am pleased to note the EU has endorsed calls for a financial overhaul. This has become an international imperative because so much money has been exposed to bad debt and there has been so much bad practice. We can go back to the days of Nick Leeson of Baring's Bank when £800 million was lost in trading. The overseer of trading in that case was Nick Leeson himself. That case was followed by the case of John Rusnak in AllFirst, an AIB subsidiary in America. This was followed quite recently — the lesson was not learned — in Credit Generale in France, where £4.5 billion was lost as a result of unregulated trading in the commodity markets.

It is astonishing how financial institutions can watch over sums of money in transit with the help of the Garda and the Army but fail to watch over trades within the institutions themselves. On my way to Dublin I frequently see Securicor vans, with perhaps a few hundred thousand euro in them, escorted by Army guards in front and behind. At the same time, significant amounts in commodities can be traded in France without any checking of what is going on, thereby exposing all of us to enormous risk.

I am glad to note that in that most terrible of banking practices, sub-prime lending, the FBI is taking action to arrest and charge people for the mis-selling of those products. It is difficult to understand sub-prime lending. Basic reasoning would suggest that to offer people who have already defaulted on debt money at a higher interest rate is bad practice. If people did not pay their debts when rates were low, how can they be expected to repay debts at a higher rate? Sub-prime products were repackaged and resold. The equity received for the resold packages was, in a short space of time, pumped back into the marketplace, funding more less-secured mortgage lending. Without any responsibility for the package, it did not matter because one was selling it on to some other bank. Now the latest figures from the IMF are that sub-prime debt will reach €1 trillion. The sums are mind-boggling. What has this led to? The list of institutions that have failed or been bailed out as a result of this bad international banking practice includes Northern Rock, Bear Stearns, Merrill Lynch, AIG, Lehman Brothers, HBOS, Washington Mutual, Bradford and Bingley and Fortis and Wachovia. Institutions bought over include Royal Bank of Scotland, HBOS and Lloyds TSB. These are just the major institutions. Other failures include IndyMac, Lehman Brothers and Fannie Mae and Freddie Mac. It goes on and on. There are also the small institutions we do not hear about, which are continuing to fall daily. Yet not one Irish bank has fallen. That is a credit to the way in which Ireland and its economy are perceived. However, I have no doubt that if we still had the Irish punt, we would have been speculated against to such an extent that we would be like a cork in the ocean, bobbing around without support. It is by the grace of God that we are a member of the euro. Otherwise, like Iceland, we would have had no support. The value of Icelandic króna went from 120 to the euro to 360 to the euro over a short period of time. There was a run on food in the shops and one can only get goods and supplies into Iceland by paying cash. This was a leading first world country which is now in severe difficulty, with debts five times its GNP.

We now have the facility to put board members onto the boards of banks. I am pleased with that. I suggest that there are Members of this House — Members on the Independent benches who may not even support this amendment — who would be good sound people to sit on those boards. They have a strong, ethical view on how money should be managed. This would represent a direct link between the Oireachtas and the banks. I restate the call to use the €1 billion to recapitalise the banks and buy shares in them, which can only be worth more in the future.

I am pleased this motion is before us today because it represents some security for the future. However, in case we thought the worst was over, not only is there €1 trillion of debt in the sub-prime area, which could have knock-on effects as yet unimagined, but there is also credit insurance — insurance taken out against the loss of these mortgages, which may cause more institutions to go under. We are talking about significant amounts of money.

What do we need to do? We need to stop mortgage lending becoming a casino. Certainly that did not happen here, and it should not happen internationally ever again. Unfortunately, financial memories are short. It was Roosevelt who wanted to dispose of investment banks altogether for the damage they had done in 1929 by creating the speculative debt bubble. Bond ratings should be internationally overseen. There should be no sub-prime lending. It is not sub-prime but sub-prudent. Excess leverage, whereby banks are leveraged for up to 30 times their deposits, should be stopped. Conflicts of interest should be policed. Funds such as those we mentioned earlier with regard to Barings, Allfirst and Société Générale should be re-regulated. In fact, having regulated the Irish market and ensured the security of the Irish banks, we should now play a role in international security. We live in a global market and moneys can be transferred at the flick of a button. Somebody in America should not have control over how our economy fares without our having some say in the matter. We must have control over how we manage our economic affairs into the future.