Martin Mansergh (Tipperary South, Fianna Fail)

When I was a Member of the Seanad, I always considered it was an independent House. This motion is being taken in both Houses and we are permitted to complete the process here in parallel with that in the Dáil.

Senator Fitzgerald mentioned a democratic deficit. I wish to make two points in that regard. The contributions made by Members of both Houses on the Bill with regard to what the scheme should or should not contain have all been considered in the formulation of the scheme. The question was put in the Dáil as to whether the scheme would be open to amendment and a clear answer was given. The Fine Gael Party supported the legislation on that basis, perhaps reluctantly.

The scheme protects the public interest as a whole. We all know how vital confidence is in the banking system. By putting this scheme in place, we help to restore confidence in the banking sector here. Senator Leyden was right to point out that the banks do not simply comprise a few well remunerated directors. I do not have the exact figure, but there are at least 50,000 people working in the banks, among them a daughter of mine.

I support what Senator Buttimer said with regard to strengthening corporate responsibility and morality. I remember, going back to the 1980s, two interventions by the Government in the case of failing financial institutions. One concerned the collapse of the PMPA. This was, effectively, put into a form of administration which was funded by the insurance industry, not the public. My recollection is that this worked well. There was another rescue in 1985 of AIB in the case of the Insurance Corporation of Ireland. AIB was put back on its feet in double quick time, but there was a feeling that the terms were much too light. The scheme we have before us today is much more stringent.

Senator Fitzgerald spoke about collusion between banks and Government. It should be recalled that in the 1980s and into the 1990s there was collusion between banks and members of the public to defraud the rest of the public and the Revenue through particular schemes.

The principal feature of this scheme is the provision of a guarantee to covered institutions. This guarantee provides for a pricing mechanism to determine the economic charge for individual covered institutions by reference to their risk profile, the application of strict terms and conditions on covered institutions to ensure that the public interest is paramount and that neither the covered institutions concerned nor their shareholders will be unfairly advantaged from the receipt of financial support. That is important from the broader EU competition point of view.

The other main features of the scheme include a return to the Exchequer for the value of the financial support provided to the credit institutions consistent with the requirements of EU state aid and competition law; measures to ensure that any potential competitive distortion caused by financial support is minimised to the extent possible and that any advantage to an institution is offset by a cost to them; arrangements to advance the strategic change required in the Irish financial sector to secure long-term stability when financial support under the scheme is withdrawn on 29 September 2010; substantial additional oversight, scrutiny and control of the credit institutions while they are in receipt of financial support from the State, including the appointment of representatives to the boards of directors of those institutions in receipt of financial support; regular and detailed reporting to the Minister to ensure protection of the taxpayer and the realisation of the objectives of the scheme; strict controls on and oversight of the remuneration of executives and directors of the credit institutions in receipt of financial support; and a number of measures which promote higher standards of corporate social responsibility in the banking system overall. The implementation of the scheme will be subject to close ongoing monitoring by the regulatory authority on the Minister's behalf. The scheme provides for the Minister to report to the Oireachtas on the scheme by way of quarterly reports to the Joint Committee on Finance and the Public Service.

I would like to deal with as many as possible of the issues raised by Senators. The issue of the quantification of bad debts was mentioned, and there was a question why there is no provision to ensure impaired assets are written down. The purpose of the scheme is to assist the covered institutions to access their required liquidity through the provision of a guarantee for certain covered liabilities of the covered institutions. In Europe there has been a move away from forcing immediate write-downs of assets in current distressed market conditions. On Wednesday it was agreed that across Europe accounting rules would be amended to allow financial institutions to reclassify certain instruments. This means they can move them from their trading books, where they must be marked at fair or current market values, to their banking books, where they can be reported at amortised cost. This means that any further falls in market prices would not have to be reported and any gains would be spread over the lifetimes of the assets.

A key obligation on covered institutions is that they actively manage their assets and liabilities to improve liquidity and solvency ratios over the period of the guarantee. This is a priority task imposed on all covered institutions and will be subject to direction by the regulatory authority and the governor. This will take time, and an important benefit of the guarantee is to ensure there is an opportunity for the institutions, their auditors and the Financial Regulator to assess the balance sheet as a whole while benefiting from the security of the guarantee and taking account of the change in economic and financial circumstances.

Many Senators raised the topic of recapitalisation of the banks, making different points on the subject. The guarantee has to date been successful in stabilising the position of the banking system in Ireland during an unprecedented period in international financial markets. The Irish scheme is firmly aligned with the main themes of the euro group plan, which contains an option to provide additional capital resources, where appropriate, to the banks. If it is the case that an assessment is made by a particular institution that higher capitalisation would be appropriate, the first step is for the institution itself to consider all possible options to meet this requirement. The purpose of this scheme is to provide for a guarantee to assist the covered institutions in accessing their required liquidity. Section 6(9) of the Act provides that the Minister can take shares in an institution to which financial support is provided, but it does not arise under the present scheme.

Senator Boyle, in moderate terms, and Senator Donohoe, in passionate terms, made a point which I think tends to be lost sight of in this debate, namely, that capitalisation by the State carries an opportunity cost. I do not think it is the business of the State, as was suggested in some contributions, to speculate on a rise in share value. That is not the purpose of the State's intervention. The State's purpose during this whole period has been to stabilise the banks so they can resume services to the public, including the small businesses, firms and people to which Senator Buttimer referred in his contribution. It is not about the State trying to make a buck out of the situation, although it is about its covering its costs. That point was well made.

Going back to the question of impaired assets, we do not have toxic debt here and we have no significant exposure to such debt. There is a point that is worth making——