Brian Lenihan Jnr (Dublin West, Fianna Fail)

My objection to the amendments tabled by the Fine Gael and Labour parties relates to the use of the word "oversight". Oversight in NAMA is a matter for the board of NAMA. It is elementary good corporate governance standard. The first issue to be resolved is the board and how it will hold the managing director and staff of NAMA to account. When one has addressed that issue one must consider how the board will put into the public domain sufficient information to ensure public confidence. I agree with Senator Alex White that public confidence is important. The main issues are how the maximum amount of information is put into the public domain and how we, as representative institutions of the State, are scrutinised in terms of what is taking place in the agency. Oversight is a matter for the board.

The legislation provides that the first managing director be appointed by the Minister. Thereafter, such appointment will be made by the board, which is as it should be. The Minister makes the first appointment owing to an urgency to appoint a managing director. The managing director will be held to account by the board. What the Houses of the Oireachtas must do is scrutinise the operations of the agency. To be in a position to do this, the Oireachtas must have the maximum amount of information at its disposal. That is the issue raised by Senator White. If one examines the legislation in terms of corporate governance one will see we have gone a long distance in this regard.

This legislation includes a number of innovative steps, for which I do not claim credit, not taken in other legislation. These steps are, as stated by Senator Donohoe, essential given the amount of public investment involved and the need to sustain public confidence in light of all the damage that has been done by financial institutions and of all the failures in terms of holding them to account. It is important we put in place a sustainable system of governance and surveillance of what we are establishing.

Section 19 lays down specific qualifications in regard to board members. The requirement for the establishment of a register, in terms of declarations of interest, is specifically set out in sections 30 and 31, which is an unusual type of provision. A register of members' interests, similar to that which applies in respect of Members of the Houses of the Oireachtas, is fully provided for in section 31, which is not a normal type of section in terms of the corporate governance of the majority of State bodies, agencies and corporations. The levels of disqualification provided for in section 22 are largely standard. On the question of board committees, again these are specified in the legislation, including the audit, credit and risk committees. I am open to suggestions in that regard.

The Prevention of Corruption Acts are specifically applied to this body by section 16. In regard to reporting, as a result of the discussion in the Dáil we moved from a biannual report to a quarterly report. I agree with Senator O'Malley that to insist on a monthly report would put a huge burden on any organisation. What is important about the report in section 55 is the high level and amount of information that must be furnished in the report. For example, details of the amount of legal proceedings instituted by the agency must be set out.

The position of the Comptroller and Auditor General is fully safeguarded in section 57. The audit is conducted by the Comptroller and Auditor General. Senator Norris should be aware that applies also to any NAMA group entity, such as the special purpose vehicle.

Senator Bacik made the case that three years was too long a period, but when one takes into account that there is a quarterly report, an annual audit, a three-year report from the Comptroller and Auditor General separate from the audit and a ministerial review every five years it is apparent that there is an intense level of supervision. That is as it should be in the context of the legislation. There is also a power in section 35 to provide for codes of practice. Within three months after the establishment day NAMA must prepare codes of practice for approval by the Minister on a wide variety of matters that would be of understandable concern to all of us. A robust corporate governance structure is written in to the legislation, which is as it should be.

Senator Alex White made the point that there is a great deal of public distrust. He stated the Taoiseach and members of the Government indicate they are acting on the best advice available but that public trust has broken down. We have written into the legislation many provisions that are unusual for bodies of this kind, which ensure public trust can be rebuilt in the body itself. As part of that I have indicated in the other House, and I wish to confirm it again in this House, that I would consult with the Opposition leaders not just on their suggestions for appointments to the board, but that I would disclose to them whom I have in mind for appointment so we would have genuine all-party agreement on the appointments.

The amendments canvass the possibility of Oireachtas hearings. That would be a big innovation in our system. It is a subject that has been discussed previously and comparisons are drawn with the United States. However, the United States has a different form of government from us in constitutional terms. Our system of government rests on the proposition that Ministers are responsible for their decisions and have to account for their mistakes, including those in regard to appointments. I am not satisfied that a more diffused system of responsibility will necessarily produce the right choices for the jobs.

What I have done is given an undertaking in the other House, which I will repeat in this House, that I will consult with the Opposition leaders on the composition of the board and the identity of the chair. That is essential. The most important oversight issue relating to NAMA is to get the right people on the board in the fist place, because they are the people who will be dealing with the managing director and his staff day in and day out. That is the first fundamental corporate governance issue and public confidence issue. We have to jump that hurdle. I appeal to the parties opposite to take a responsible approach in that regard.

When we guaranteed the banks we insisted on having two public interest directors appointed in each of them. Those appointments were made in consultation with the Opposition leaders. That procedure worked well. Senator Norris suggested that one of the arguments he saw in favour of nationalisation is that the State is the shareholder in a nationalised entity. Again, as I pointed out last night the State has become a shareholder in the case of Bank of Ireland and Allied Irish Banks. As we know, it is an exclusive shareholder in Anglo Irish Bank. The State is a substantial shareholder in the two principal retail banks. The Minister has power to appoint four directors who have a fiduciary duty to all the shareholders, including the State. The argument suggesting that the original public interest directors were in a weakened position because they had no shareholder behind them has now in effect disappeared. The State is in a position to appoint directors and they act in the best interests of a block of shareholders who include the Minister for Finance. The argument about the public interest director being ineffective has lost a great deal of its weight since the State became a shareholder in the two principal financial institutions.

Senator Alex White referred to the question of an inquiry into banking generally. It will be essential in the future to carry out such an inquiry. Were a detailed inquiry instituted at this point I am not sure that the banking system in its present fragile state would be in a position to perform its duties and to operate a banking system. We must also take into account the current pressure on the State institutions. I accept there is a need to have a retrospective examination of what has happened, but I do not accept that now is the time to do that. I say that because of my experience of working with the various institutions of State and also dealing with the banks in question.

Contrary to the suggestion that has been given much publicity, that there has been no change in the banks, there has been a great deal of change in them. In the six guaranteed banks, for example, five of the six chairmen of the relevant boards have disappeared and five of the six chief executives have disappeared. That is a substantial level of change. We all know how in most corporate bodies the chairman and chief executive are the most important positions. We have also insisted on the rotation of the remaining independent directors who are not connected with the executive management of the banks in question. In addition, taking the executive managers' positions in those institutions, apart from the fact that five out of six chief executives have gone, in the case of Anglo Irish Bank and to a lesser extent Allied Irish Banks, there has been an enormous executive turnover and retirement. That puts any bank under serious pressure to recruit suitable replacements and to ensure the bank can continue operating as a viable entity. There is not an endless number of persons available who know how to operate and manage banks. It is a specialised skill requiring specialised qualifications.

The Attorney General has advised us that the Bill is in accordance with the Constitution. It is for the President to decide if a reference is appropriate. It is not a Money Bill. I am not seeking an earlier signature motion but, equally, it is a matter for the President to consider in the exercise of her powers. I do not suggest she should exercise that power, I simply say the Attorney General has advised us that the Bill is in accordance with the Constitution.

Senator Twomey raised the issue of Oireachtas oversight. In this context, oversight is not the correct expression. Oversight must be in regard to the board and I have outlined my proposal in that regard. I should then say where the Oireachtas should position itself. There was much discussion on the matter in the other House. When I introduced the supplementary budget I brought in drastic reductions in the remuneration for the position of Chairman of the various Oireachtas committees and I abolished the remuneration for the Vice Chairman and convenor. My thinking was to allow the Oireachtas itself to tailor its appropriate committee structure.

The committee structure in the Oireachtas should spring from the agreement of all the parties. I did not want it said that financial incentives were provided to have a proliferation of committees. If the Oireachtas wants a proliferation of committees it is open to it to do so because there is no great financial advantage to its members in so doing but, equally, it might be that the efficiency of doing business in the Houses is impaired by having too many committees. In the other House some in the Labour Party expressed the view that a sub-committee of an existing committee would be preferable. Fine Gael preferred the idea of a distinct committee which would have some functions in regard to NAMA. I have an open mind. Senator O'Toole suggested we should use the Oireachtas Joint Committee on Economic Regulatory Affairs and arrange for more work for it to dispose of. What I am willing to do is to see how the Oireachtas scrutiny of NAMA can be strengthened through the establishment of a dedicated committee or sub-committee or the adaptation of an existing committee. It does not require legislation to do that. It is my intention to write to the Chief Whip with a view to preparing an Oireachtas resolution setting out how a committee or sub-committee can be established to ensure there is effective Oireachtas scrutiny of the appointment of the agency. Any such resolution will have to be approved by the Houses. Oireachtas scrutiny is important to ensure there is public confidence in the operations of NAMA. Quarterly reports will be laid before the Houses and codes of practice submitted to the Minister, as well as codes of practice relating to lending. Therefore, there is a vast wealth of information to be scrutinised.

On the question of valuations, there is an EU requirement that the Financial Regulator designate an official to validate the valuation process in an independent manner. That information can also be made available to an Oireachtas committee. There is merit in having an Oireachtas scrutiny committee of whatever shape or form and I have no objection to it. However, the amendments seek to provide for the committee in legislation. At a time when we are discussing rationalising Oireachtas committees there is not a great deal of sense in referring specifically to them in legislation and entrenching their existence ad infinitum. It appears more sensible to let the Oireachtas decide the terms of reference and I will not stand like a policeman objecting to them. I have made my basic view known that I do not believe it should be the function of the committee to exercise oversight or substitute its judgment for that of the directors, but if its function is scrutiny, I have no objection and, in fact, would support the establishment of such a committee.

Senator Twomey was concerned about the business plan. The current business plan is a draft plan, not a finalised plan. Under the legislation, the final plan will have to be approved by the board. Its approval is another matter that could be considered by the committee.

Senator Bacik was concerned about the review of the Bill. I am concerned about the number of reviews already provided for. There are two ministerial reviews over the envisaged period and three reviews by the Comptroller and Auditor General, as well as the quarterly reports and the annual audit. A substantial amount of reviews is already provided for in the legislation. That is important.

Senator Bacik also referred to the French mediation scheme and Senators Hanafin and MacSharry echoed her call in that regard. I will examine the matter. For once, I welcome the foreign reference, as it is an accurate and well founded one. However, I am advised that the section we have drafted regarding credit supply is broad enough to encompass what Senator Bacik advocates. Perhaps we will return to this matter when we deal with that section.

With regard to ethical regulation, that is something we must examine in the context of the regulatory legislation. It does not arise in this context.

Senator Donohoe also argued for the oversight role. I have made my view known on oversight. In terms of scrutiny, I agree there is political benefit in involving all of the parties in the analysis of where it is going. I do not believe it should be a matter of a Government using its majority either. A number of candidates were mentioned as possible Chairmen but that is a matter for the Whips.

Senator O'Toole raised a very important issue, the Basel rules and the higher level of capitalisation which banks will require in the future. In making the announcement on Second Stage I confined myself to an industry-wide estimate of the likely discount which would be applied to the financial institutions. I gave a specific figure for each institution in terms of its book debts but I did not give a specific figure for the actual discount which would apply to each institution. That will have to be done through the bottom-up valuation. It is clear that when that valuation is complete, an amount of losses will be accelerated in the banking system. That, of itself, will raise a capital requirement for some of the institutions.

In addition and apart from that issue, there is an international debate about what the appropriate levels of capital provision are in financial institutions. This issue was also raised by Senator Twomey. The new Governor of the Central Bank and the Financial Regulator will guide me on the appropriate level at which the capital ratio should be set to command confidence. The important point is that if one sets them too high, it will inhibit lending. There is a balance to be struck between the confidence one wishes to create in the institution and the level at which one fixes the ratio. The higher capitalisation requirements will also require that the banks raise the funds. In the absence of a capacity to raise the funds on private markets, it will inevitably involve a deeper State investment and greater ownership of the institutions.

Senator O'Toole drew attention to sections 58, 59 and 60 which provide for a substantial amount of Oireachtas accountability and scrutiny. The section containing the time honoured, hallowed formula about the performance of public servants before committees still stands in the Bill. That is simply an expression of the status of the person before the committee.

Senator Norris raised the issue of the special purpose vehicle and, correctly, sought reassurance on it. He understood it was an accountancy device and wanted to know if the taxpayer was protected. I arranged for the Attorney General to examine these sections during the Dáil debate and brought forward a number of amendments which ensure the transparency, disclosure and corporate governance requirements, as well as the audit by the Comptroller and Auditor General, will apply to all the special purpose vehicles. The expression "NAMA group entity" is used throughout the Bill. A NAMA group entity includes a special purpose vehicle. That is how this concern has been accommodated.

I have mentioned the point raised by Senator MacSharry who is attracted to any model that will ensure credit is supplied. I agree with Senator O'Malley about the 30 day reporting. Senator Hanafin also raised the issue of credit.

I believe I have dealt with the amendments and my general approach to them. It is important that we appoint the right board to this agency. That is fundamental. Members of the Oireachtas might wish to scrutinise but they will not scrutinise this operation on a full-time basis. Members have given the Bill much attention but they will not have time to scrutinise NAMA on a full-time basis. Of course, Members have an important role to play but the chairman and the board will have a very heavy burden in ensuring this agency is operated in a correct way. It is very important to strive for all-party agreement on the composition of the board.