Brian Lenihan Jnr (Dublin West, Fianna Fail)

With regard to the misconduct about which Senator Doherty spoke, we have an office of corporate enforcement which is responsible for the enforcement of breaches of company law. A number of Senators have outlined their grave concerns over misconduct in Anglo Irish Bank. It is the function of the Office of the Director of Corporate Enforcement to investigate this matter. I do not transmit instructions to the Criminal Assets Bureau or the Office of the Director of Corporate Enforcement. It is the function of the director to investigate these matters. He has a very good record in the investigation of company law offences and has brought a number of cases to a successful prosecution. He has initiated inquiries in respect of the Anglo Irish Bank and is responsible for corporate enforcement and corporate morality. As Senator Ross pointed out, the key point is that by nationalising Anglo Irish Bank, we put clear blue water between what has happened in the past and what will happen in the future. I welcome the constructive tone taken by the vast majority of Senators in respect of this legislation. In a sense, the legislation is about drawing a line and ensuring that the bank can be reformed and purged.

A number of Senators asked why the Government was saying the bank was a "going concern". It is a "going concern". The current position thereon is that the loan book, which has been criticised by many Senators, is one that remunerates a sufficient income to pay for the costs of the bank and for the deposits. Future losses are a matter of assessment and speculation, as Senator Coghlan pointed out. They are not a matter in respect of which anyone can point to a definite figure. However, after the guarantee was instituted, the State engaged a firm of accountants to do a detailed trawl of all the loan books of the Irish banking system. There are very few other states in the troubled banking world in which we are operating that have had the time to do this exercise with their financial institutions. We did so because we gave the guarantee.

Senator Kelly asked some questions about the guarantee and specifically raised the question of rushed legislation. The Bill before the House was prepared long before the guarantee. It was available to us in its present form last September and has been worked upon ever since. Senators will appreciate that there never seemed to be an opportune time in which to introduce a Bill in the abstract for the nationalisation of financial institutions. The only alternative available to the Government on 29 September 2008 was to consider the nationalisation of an institution combined with a guarantee for the rest. Had no guarantee been given to the Anglo Irish Bank, the question of this legislation would have arisen in any event. I am quite satisfied the guarantee will not be called upon in the case of Anglo Irish Bank up to the time of the guarantee's expiration. Even if there were no question of a guarantee, if a bank posed a systemic threat to the Irish economy the Government would have no option but to nationalise it. Senators generally accepted this proposition and I thank them for it.

I will refer to some figures I mentioned in the other House that were not in my opening speech in this House. The loan book of Anglo Irish Bank lists 7,000 customers, of whom 5,000 are in this jurisdiction. The retail depositors number 300,000, of whom 72,000 are in this jurisdiction, and the corporate depositors number 12,000, of whom 3,500 are in this jurisdiction. The bank, therefore, has a substantial presence in this jurisdiction. If one attempted to carve up the balance sheet between the three main jurisdictions in which the bank is involved — the United Kingdom, Ireland and the United States — it would be fair to say that approximately 45% would be accounted for in this jurisdiction.

The bank, therefore, is important and any threat thereto would pose a systemic risk to the economy. The reason the governor of the Central Bank, the Financial Regulator, my officials and the NTMA recommended that the bank be taken into public ownership was that the bank posed a potential risk to the stability of the Irish financial sector. The advice the Government received from them last September was that the guarantee should be a sufficient method of securing the position of the banking sector. However, it was always envisaged that if the guarantee system failed, the ultimate option of nationalisation would have to be availed of.

I had an interesting discussion with the Danish Finance Minister a few days after our guarantee was initiated. He drew up legislation modelled exactly on our system but complemented it by providing an optional nationalisation provision that would come into effect if nationalisation were required. We went straight into the guarantee and did not include optional nationalisation provisions. I did not believe the introduction of an optional nationalisation measure since the giving of the guarantee would have caused anything other than grave suspicion in both Houses of the Oireachtas and among the public generally. The position at all stages has been that the Government has had a very consistent policy, that is, to maintain the stability of our financial system.

It is very troubling that, in this economic crisis, banks throughout the world and in Ireland are seen to be vulnerable. We have a policy decision to make. We can decide to liquidate a bank or decide not to permit bank failure to arise. Our policy is the latter and I have been clear and consistent about this. The guarantee was the initial method of securing that objective. Following on the guarantee, the measurement and assessment of the loan book was made. Following on that, even more detailed work was done on the evaluation of the loan book by auctioneers. When the initial offer was made to Anglo Irish Bank of a State investment in a 75% stake, due diligence was exercised.

One of the more positive facts I can report to Senators is that the due diligence has not established a great deal more in terms of loan exposure than was already established in the earlier exercises. We will take ownership of the Anglo Irish Bank when, with the permission of the Seanad, the President is asked to sign the Bill this evening. When we take ownership, we will, as Senator Ross pointed out, seek to establish clear blue water between the bank's future activities and what happened in the past.

What has happened is deeply disturbing, as many Senators said. It requires investigation by the Office of the Director of Corporate Enforcement. He has a good track record but will have to be backed up by the Financial Regulator because his powers of investigation in a bank are not as extensive as they are in the case of other companies. I have requested that the Financial Regulator assist the director in eliciting information in every possible way. It is important that we get to the root of any and all corporate malpractices that may have taken place. If it is proven that they have taken place, I have no doubt the law will take its course. This must happen because considerable damage has been done to the country's reputation by the carry-on in the institution in question.

I was criticised initially for restricting my condemnation of the bank's activities to the use of the expression "disappointing". This was a deliberate choice because of the financial instability the making of the disclosures had given rise to at the time in question. I have been more forthright in my use of language as the position gradually stabilised. Not only have the chairman and a director associated with the loan in question departed from the Anglo Irish Bank but a number of senior management figures have also done so.

There has been criticism of the use of the term "going concern" by the Government in connection with the bank but the position is that, in strict commercial practice, the alternative to having a going concern is to liquidate an entity. The strategic direction for Anglo Irish Bank cannot be decided this evening and the State must appoint its own directors, conduct a comprehensive and final review of the institution and decide what should be the best strategic option.

Reference has been made to various options this evening, from support for small and medium-sized businesses on the one hand to the establishment of a toxic dump on the other. All these options require money above and beyond the working capital the State may have to put into the institution in question. In particular, there seems to be a view that a toxic bank can be set up without any expenditure but the reality is that if one considers what Governments are doing worldwide to prop up financial institutions, one will note they are taking three different approaches. One is the guarantee approach, another is the approach of capitalisation, that is, increasing the buffer to reassure the markets that a bank is indestructible, and the third is the option of buying the so-called toxic assets. Many Governments are combining all three approaches. In regard to all of these approaches, it is worth nothing that the last time we had a systemic global financial crisis on this scale in 1929, governments took the orthodox view that banks should be allowed to fail, that there was too great a moral hazard in propping up banks when there were circumstances of potential default. When that approach was taken we saw the rise of a great depression and a huge rise in unemployment and deflation.

Governments in western Europe and North America have taken a different approach on this occasion and to prevent those consequences have sought to prop up these institutions. The danger, as I am sure Senator Ross will remind us, is moral hazard. That is why regulatory systems are seen to be discredited around the world nowadays for permitting this position to have arisen. We have very basic questions to ask about our own regulatory system. It is a fact that until I decided to ask the regulator to examine the rather large director's loan arrangements at Anglo Irish Bank, this matter had not come to the attention of the authority, even though a cursory examination of the documentation available to it should have revealed the difficulty. The position that ensued is a matter of history.

It is a serious matter. When it emerged that someone at some level within the regulatory authority had some knowledge of this matter, I asked and insisted that the board investigate it within a three-week time limit and again the chief executive tendered his resignation at the conclusion of that inquiry. Clearly there is great public anger at the loss of pensions and wealth, much of it by small investors who put their nest egg aside in particular institutions and now find it is worthless. There is understandable public outrage at this.

We have to protect the stability of the financial system. We cannot engage, much as many would wish to see it, in a simultaneous bloodletting of the entire administration of the Irish banking system. Those who are responsible for these actions must be brought to book and I have no doubt the procedures in train will ensure that happens.