Paschal Donohoe (Fine Gael)

I welcome the Minister of State to the House. I wish to comment on many of the earlier contributions from both sides of the House. There has been much discussion on capitalisation and re-capitalisation of the banks. I noticed a distressing and worrying trend. The idea is being created that re-capitalisation of Irish banks by the taxpayer is inevitable. Let us pause and consider what re-capitalisation actually means. It means the taxpayer's money, which should be used for building hospitals, schools and roads, and putting gardaí on our streets, will be put into the equity of banks to prop up the financial system.

We may reach that point in the future, but Senators on both sides of the House, including — I am saddened to say — some Independent Senators and all on the Government side, say that re-capitalisation of Irish banks by the taxpayer is inevitable. Let us forget about the language of capitalisation and face the consequences of what it means. It means the money we need to look after our society and to invest in the productive capacity in our economy will be used to pay for the mistakes of an elite. I do not believe this should be inevitable and that we should rush into doing this. If events happen beyond our control, and we need to do it, I do not want a member of a board of a bank or a hedge fund manager to think that the Irish taxpayer and Government will rush to re-capitalise and bail out other people. As Members of the Oireachtas, we must pause and think about the consequences of the language we are using. I am saddened to hear many Senators think there is an inevitability about spending taxpayers money, not on hospitals and schools, but on looking after bankers.

I wish to focus on the failures and weaknesses that have that have resulted in this situation, and why Fine Gael will support this legislation. The Government claims the global financial crisis was responsible for the current situation. There is a global financial crisis that we are all part of but over the past ten years the Government has taken specific and conscious policy actions that have encouraged reckless behaviour by the banks.

There has also been a failure of leadership in the banks themselves. The non-executive directors and the directors of the banks have been silent about the mess they have created. Senator Boyle asked why the shareholders are not calling for resignations. Why are the executive or non-executive directors not calling for them? The reason is because all of these banks have invested in each other, and a cosy consensus has built up among them regarding how they should operate and what are acceptable standards of behaviour. My other colleagues have commented on the failure of regulation and the failure that has taken place on behalf of non-executive members who should be participating in these banks.

In the debate on the Bill earlier this month we were given a different explanation as to how banks would be charged for participation in this scheme. The consequence is that banks will be charged less to participate in this scheme than we were originally told.

One of the objectives of the Bill concerns the issue of liquidity. We should not continue to mix up liquidity with capitalisation; they are very different. An objective of the legislation should be to ensure that once banks return to the state to which we require they will lend again. We need to also know the quality and the quantity of their lending. There is no such provision in the legislation. It does provide for a clearly laid out reporting mechanism ensuring that we would know regularly, say, every week or every month, the level of credit within the Irish banks.

Senator Hannigan pointed to the fact that subordinate debt holders are now being included in the legislation. That is a major change to the legislation and its principles as we debated it when the Bill was before the House. Other people have commented on the fact that the banks will decide who will be appointed to their boards. At some future time I will attend a meeting in a community hall or school in my constituency and will have explain to people the reason they cannot get approval for a school building project. I will have to outline why State money may have to be invested at some point to deal with the issues under discussion, which I sincerely hope does not happen. However, as there will be no mandate to decide who should be appointed to the boards of the banks we may well look back on this debate and realise it was a grievous mistake that we did not take the opportunity presented by this legislation to address that.

I have a final observation to make on the general economic system and how we have got ourselves to this point. Up to now we believed that the way to run a national economy or a bank was to spread risk across as many people as possible. However, risk has been spread so widely and lightly that nobody understands the nature of it. The derivative market globally is worth $55 trillion, twice the value of the national income of the leading industrial nations. Therefore, we should not be merely talking about the regulation of these financial instruments but about how, in some cases, we can abolish them because their creation has brought us to the point that we have had to engage in this debate and put time, effort and taxpayer's money into resolving it.