Ivana Bacik (Independent)

I thank Senator Quinn for sharing time. I share his view that the problem of capital has not been resolved.

On the night of 1-2 October I criticised the absence of adequate protection for taxpayers in the Credit Institutions (Financial Support) Bill 2008 and, as an Independent Senator, I believed it was my duty that night to vote against the Bill.

I am glad to have an opportunity to speak on the credit institutions (financial support) scheme 2008. This is an important scheme but, as with the legislation, it does not provide adequate safeguards for taxpayers. I remain concerned about the absence of these safeguards. During the debate on the Bill, the Minister, with great eloquence, assured Senators that the detail of the protections would be included in the scheme and that these protections would be adequate.

The terms of the scheme are inadequate for four reasons. First, as other Senators noted, the scheme does not provide a guarantee regarding State oversight and board representation. While the scheme provides that the State will have at least one and perhaps two directors on bank boards, the absence of a guarantee that two directors will be appointed makes it improbable that more than one director will be appointed.

It is also a matter of concern that persons appointed by the State to remuneration committees will have only observer status. The fine print of paragraph 32 on board representation states that the institution shall, at the direction of the Minister, take all reasonable steps to appoint at least one but no more than two non-executive directors from the Minister's panel, about which others have expressed concern. I am concerned that the words "take all reasonable steps" ensure the banks are not obliged to appoint any non-executive directors from the panel. The wording leaves too much scope and leeway for banks to wriggle out of the terms of the scheme.

Second, we need a stronger guarantee that banks will not pay dividends. An update issued by NCB Stockbrokers on 8 October describes dividends as a thing of the past and states the company considers it "inconceivable that listed banks will pay cash dividends for the foreseeable future." The scheme does not provide a sufficient guarantee that dividends will not be paid by banks availing of the terms of the scheme.

Third, I am concerned about the wording in paragraph 8 which states the Minister "may review" the scheme every six months. The wording should be prescriptive rather than facilitative by providing that the Minister "shall review" the scheme. Given that the scheme will run for only two years, at a minimum one would expect a review to be carried out every six months.

Fourth, directors' pay was debated at length in the House on the night of 1 and 2 October and amendments were tabled on the issue. I am sorry a cap has not been imposed on directors' pay, although I welcome the provision to establish an independent committee to review pay and all types of remuneration for directors. This rather open-ended approach to controlling directors' pay should be replaced by a more prescriptive provision.

The scheme sets out criteria governing how the charge will be levied. I am glad to hear spokespersons on the Government side suggest a bank levy would be appropriate. The charge is not in the nature of a bank levy. In addition, the scheme does not provide a sufficient guarantee that banks will be charged at a sufficiently high rate to compensate taxpayers. I am concerned by the statement in the annex that funding costs of Government debt will soon increase as a result of the guarantee. Even those of us who do not have financial expertise will recognise that this is an inevitable consequence of the scheme. Alarm bells must ring because we do not know exactly how much the banks will have to pay, whereas we know the cost of servicing Government debt will increase.

As many speakers noted, the State will have to take equity in financial institutions because neither the legislation nor the scheme will resolve the capitalisation problem facing banks. We still do not know the true extent of banks' liabilities. The banks claim the value of their assets exceeds the value of their liabilities by €80 billion and this, we are told, will act as a cushion or safety net. As I stated previously, however, we do not know on what this figure is based or if it has any reality given the current state of the property market.

Most of us assume the figures supplied by banks are open to question. We have been asked to take a great deal on trust but our trust has been severely undermined by what has occurred in recent weeks. Unfortunately, under this scheme we are being asked again to take a great deal on trust in terms of the overall solvency of the institutions taxpayers are being asked to guarantee and may yet be asked to bail out by investing substantial sums in them. More adequate safeguards are required.