Dan Boyle (Green Party)

As an Opposition spokesperson in the other House in 2002 and 2003, I debated two Bills on the Central Bank and Irish Financial Services Regulatory Authority. Much of the debate focused on whether the recommendations of the McDowell group, which was chaired by Mr. Michael McDowell before he was appointed Attorney General and subsequently joined the Government, were being followed through and an appropriate balance was being struck between the prudential and consumer protection roles. Much of the debate missed the central point of what was necessary.

The disintegration of the Chinese walls between the Central Bank and Irish Financial Services Regulatory Authority appears to have been at the root of many of the problems that arose subsequently. The Central Bank and IFSRA were given strong powers but we have since learned they chose not to use many of them. While the Bill provides for many improvements in the structure of the regulatory system, it also makes changes to the powers that officeholders in the relevant institutions need to exercise. An act of faith is still required, however, in terms of a belief that the individuals who exercise these powers will perform their jobs correctly and diligently. We are lucky to have appointees of the calibre of Professor Patrick Honohan and Mr. Matthew Elderfield, the Governor of the Central Bank and Financial Regulator, respectively. These appointments have created more confidence than there would have been otherwise. The new structure must ensure that such confidence can be maintained when changes in personnel take place in both offices, including changes in board membership.

On leaving office, one of the Minister's predecessors made dozens of appointments to IFSRA committees and made great play of the fact that none of them was politically influenced because all appointees were drawn directly from the financial services industry. I am not sure the same boast would be made today given that one of the flaws of the previous system was that all the internal committees were populated by the financial services industry. This resulted in a low level of self-regulation and caused the malaise we are experiencing.

Senator Ross is correct on several points. Maintaining the power to select the right people for the right reasons is at the heart of the Bill and will inspire confidence. The Minister is inspiring such confidence and while subsequent appointments will need to underline this confidence, I expect this objective to be achieved.

The improvement in the structure of the regulatory system is the all-embracing approach taken to all financial services, extending from banks to the insurance industry to the financial services provided in the social economy. Much of the debate, especially on Committee Stage, will centre on credit unions. While we have been dealing with bank losses and assets, albeit diminishing assets, of billions of euro, the role of social finance has been put on a back burner. This issue will excite more discussion in this debate than the asset base of social finance would lead one to expect. We must ensure that in rescuing financial services as a whole, we do not resuscitate the old banking structure. We must give an enhanced role to credit unions and social finance. For this reason, the debate on section 35 will be important.

I am pleased the Minister saw fit, prior to the debate in the other House, to meet representatives of the Irish League of Credit Unions and make appropriate changes to the legislation. While credit unions do not appear to be satisfied with these changes, there is little room for manoeuvre. Given the approach taken by the new Financial Regulator, a message must go out that all financial institutions will be regulated to a particular standard in future. This requires specific rules on reserves. That said, difficulties arise with regard to how one records what is a performing loan in a credit union. For example, a person who repays a loan at €5 per week may miss a couple of weekly repayments and then pay €15 or €20 one month later. Credit union loans are not measured in exactly the same way as loans provided by other institutions. Perhaps the Minister will indicate how he expects the necessary additional diligence and regulation applied to credit unions will be tempered given that they have smaller reserves and tend to offer smaller loans than other financial institutions. It will be necessary to ensure the type of lending provided by credit unions increases because smaller, more localised loans will resuscitate the economy quicker and more effectively than would otherwise be the case.

The structure proposed for the Central Bank has generated considerable debate. That it has received favourable comment from international institutions inspires some confidence. Nevertheless, structures are only half of what is required. The crisis was caused by the culture that prevailed in the financial sector. The House awaits reports from the commission of investigation and Committee on Finance and the Public Service on developments in the banking sector. These reports must identify which individuals in the sector were directly responsible for the difficulties we are experiencing.

There is some truth in the statement that we have had significant changes in the composition of bank boards. It will be necessary to retain institutional memory as we proceed. The commission of investigation and other inquiries will show that certain individuals were culpable for what has taken place. I do not know who these individuals are and I am unable to identify them directly but when the findings are made, the individuals in question must vacate their positions. The Governor of the Central Bank, the Office of the Financial Regulator and the Minister must act on this matter in the timeframe identified. If many answers have not been provided and action taken in the coming six to 12 months, I fear much of the ongoing misrepresentation will continue. We had a further example of such misrepresentation today when most of those who have opposed the concept of asset management chose to concentrate on the worst case scenario of a number of scenarios cited in a report on the National Asset Management Agency.

We need to create public confidence that the institutions of the State will be in a position to run the banking system effectively. This Bill is an important piece of the jigsaw in that it gets the structures right. However, much more work needs to be done on the larger part of the equation, namely, the need to correct the culture that gave rise to the current malaise.