John Paul Phelan (Fine Gael)

I welcome the Minister of State, Deputy Conor Lenihan.

Will there be a further debate on the terms of reference for the inquiry into banking? There are conflicting stories and lines emanating from the Government as to the terms of reference and what periods would be considered by the proposed commission. Senator Norris was spot on earlier when he spoke about the need to ensure other items such as the events surrounding the night of the bank guarantee and its legislation come under an inquiry's investigation.

I join other Senators in commending Professor Honohan, Mr. Regling and Mr. Watson for their work and their frankness and brevity in their remarkable reports. Quite often, Members are presented with reports from the Central Bank and other bodies which are lengthy documents. The three authors of these reports have brought their thoughts and analysis together in a very succinct fashion.

Professor Honohan indicated in his analysis that the Government's budgetary and macro-economic policy, poor regulation and lax bank lending standards were the three key components to our current banking difficulties. The political reality is that two of those particular areas directly relate to the responsibility of the Government.

I concur with Senator Coghlan that lax banking and lending standards were commonplace in the past several years. As the banks proceeded to outbid one another for business, their standards of lending and the thresholds people had to meet dropped continuously. There was a belief among some in the media, and also in the Oireachtas, that banks that did not get on the property development train were somehow missing out. It was believed their shareholders were missing out while they were running the risk of being taken over by more aggressive institutions. As a result, many of our financial institutions dropped their standards, some to an alarming degree.

It is remarkable that when one considers the different levels of State recapitalisation in different institutions, we do not seem to be much nearer a position in which the banks will be able to restart lending consistently to small businesses and individuals. We need a credit flow again in the economy with sensible lending.

It was not surprising the Taoiseach decided the best form of defence was attack, announcing his position before the reports were published. I must confess I was surprised at the level of direct criticism of the Government's policy contained in these reports. Over the past several years, we have had to listen to a litany from Government spokespersons on how our banking difficulties were the result of international factors and a global banking problem. For once and for all, these two reports blow that argument out of the water.

They lay not all but a large portion of the blame on the policies enacted by the Government since the late 1990s. The decision the Government made, following the recommendations of a committee headed by a future Progressive Democrats Tánaiste, Michael McDowell, to break up the regulatory function of the Central Bank has had serious implications as the level of regulation which ensued was not satisfactory. Politically, we must ensure the taxpayer and those who elect us are never exposed again to the levels of recapitalisation they are currently having to put into our financial institutions. I support whatever course of action is required to ensure this does not occur again.

Professor Honohan's report commented on the "unduly deferential approach to the banking industry". Our colleague Senator Ross has written extensively on the same issue. Professor Honohan also stated "intrusive demands from line staff could be and were set aside after direct representations were made to senior regulators". This is a shocking indictment of how work was carried out in the Financial Regulator's office.

Mr. Regling and Mr. Watson go into more detail of the Irish dimension to our banking crisis, dealing with the fiscal policies put in place by the Government. I was previously the finance spokesperson for the Opposition for five years and one difficulty I had with the formulation of fiscal policy is that there was no consultation with the Opposition. The system and process by which the budget is put together must be radically transformed. Understandably and correctly, there is talk of lending an EU dimension to the way our budgets are formed and some oversight from a European Union level. It is shocking that there is no oversight in this House or the other House. Statements and comments are made after the Minister delivers his budgetary speech but that is the extent of our involvement in fiscal policy which is completely unacceptable.