Brian Lenihan Jnr (Dublin West, Fianna Fail)

I thank Senators for the constructive manner in which they have approached this legislation and for the many kind comments they made about me. Senator Donohoe led the comments on the Bill for the Opposition and made a number of pertinent points.

He was concerned about the position of the Secretary General of the Department of Finance and whether that person should be on the board of the Central Bank. It has been traditional to have the Secretary General of the Department on the board and the Secretary General is named in the legislation. The Secretary General is not there as a representative of the Minister for Finance, which is an important point, but is there as the administrative head of a Department which has a vital bearing on the finances of the State. It is important that there be a sharing of information between the Secretary General of the Department and the Central Bank. The Secretary General is not present to supervise the Governor or hold him to account on behalf of the Government, rather the Secretary General's job in this regard is to exchange information and reflect on the operation of the bank in the context of its essential function in maintaining monetary stability. I cannot speak for previous Ministers for Finance in this regard, but I am in a position to state that neither of the two Secretaries General with whom I have worked has commented in any detail on the proceedings of the board of the Central Bank. I do not believe it would be normal practice for them to do so. It is valuable to have that linkage to which I refer in place. I accept that Senator Donohoe did not make a major point in respect of this matter and raised it more to seek clarification.

The Senator and others, including Senators Ross and O'Reilly in particular, did make a major point in respect of who, under the legislation, should have responsibility for appointing the members of the Central Bank commission. One of the difficulties I have with this aspect of the debate is that it begins with the presumption - I find it extraordinary that such a presumption is made by the seasoned politicians who populate the Opposition benches - that "politics" is a dirty word. It is stated we should not introduce politics to the debate when it comes to the question of making appointments. However, we must introduce politics because we are elected by the people to make decisions on their behalf. That is the function of Members of the Dáil and, on an advisory basis, the Members of this House. There is that mandate from the people, either directly or indirectly, and we are obliged to discharge it. If we commence our consideration of legislation by presuming politics is wrong, the Oireachtas should not really exist as a body. I am not referring solely to Seanad Éireann in this connection; I refer to both Houses. We must have some pride in ourselves as public figures and politicians and account for our decisions.

In an interesting contribution Senator O'Reilly stated we should establish a commission to make all public appointments. It is worth considering this proposal to identify what might be its impact. Under the Senator's proposal, the power the Government exercises in the making of appointments would be removed and vested in a commission. Senator Ross, as is his absolute democratic entitlement, referred to certain appointments made to the board of Anglo Irish Bank and I must account for these appointments. It may not be appropriate to comment on the matter during this debate, particularly as it is not directly relevant to the legislation. However, as Minister, I am accountable in this regard, a fact to which the Senator has referred in various newspaper articles he has published. One issue that occurs to me in respect of Senator O'Reilly's proposal is how we would question the commission about decisions it might make in making appointments to the board of the Central Bank. I do not understand how the establishment of an appointments commission would be of assistance in addressing the issue of who should take responsibility for the making of appointments.

Another suggestion frequently advocated in debates on this matter in the House is that the Oireachtas should have responsibility for making these appointments. The Dáil already has responsibility for forming a Government. If the power to make appointments was vested in the Oireachtas, it is not obvious to me that it would be necessarily responsible to anyone for any appointments it might make. The only exception in this regard is that general elections and Seanad elections take place every four or five years and the Members of the Houses might then be held accountable.

The question of appointments is a difficult one and was also raised by Senator Ross. In so far as the Central Bank commission proposed under the legislation is concerned, I will be obliged to make appointments thereto in a very speedy manner. That is, of course, based on the assumption that certain Opposition amendments which have been tabled will not be accepted. This is a matter with which I will be obliged to deal in an extremely serious fashion.

It is important that the legislation specifies the qualifications which persons for appointment must possess. However, I do not like the argument that involvement in politics should disqualify people from appointment. Under this argument, it is axiomatic that involvement in politics should disentitle one from being appointed to anything. That seems to be the presumption underlying some of the arguments made. I accept, however, the argument made - in good faith - that some of the appointments made by all parties have been of poor quality. If we are devising a system, the best one to adopt is that of accountability. If a Minister knows that Senator Ross is going to question or criticise him or her in respect of appointments he or she has made, he or she will think twice before making certain appointments. That is the most valuable sanction. I am not convinced that an independent commission would be accountable to anybody. I am also not convinced that the Oireachtas, in respect of a collective decision it might make, would be more accountable than an individual Minister. However, I am sure this matter will be teased out on Committee Stage.

Senator Donohoe referred to living wills - in the context of the banks - and commented on how the banks might be restructured in the future in cases of insolvency. The Central Bank has published a document on this matter and considered the various options. Legislation has been promised in other jurisdictions, but it is far from easy to devise it. The more detail one includes in the living will, the less confidence the investor has in investing in a particular bank. Legislation such as that to which I refer is essential because we must ensure that in the future we will be in a position to deal with banks which are of importance.

It is clear from the progress of banks throughout Europe since September 2008 that the option of a classic liquidation was not available to any government. However, there seemed to be no intermediate solution between liquidation and providing unlimited taxpayer support for these institutions and underwriting their losses. When Axel Weber, president of the German Bundesbank, visited Dublin recently, he stated no institution was too small to be saved in September 2008, particularly given the fragility of financial markets at the time. It is extraordinary that few, if any, financial institutions in the eurozone have been allowed to fail during the crisis. One extremely small Dutch building society was liquidated, but that occurred some considerable time after the onset of the crisis in September 2008. The legislation in question is extremely important and the Central Bank has published a document on the area to which it refers. The Government is committed to introducing such legislation.

Many Senators referred to the arrangements made for credit unions. I remind the House that the Government has an obligation to ensure those who entrust their savings to credit unions are properly protected. The Government has given legal effect to extending the deposit guarantee scheme which was announced on 20 September 2008 to credit union savers. Since the implementation of the Financial Services (Deposit Guarantee Scheme) Act 2009, the guarantee is now applicable to all savings of up to €100,000 in credit unions. The guarantee covers the vast majority, if not all, of members' shares in the relevant credit unions. The State will, therefore, be exposed if proper prudential considerations are not observed.

It was at the request of the credit union movement that I examined the section 35 requirement. The credit unions wished to be put in a position where the write-off of loans could be extended more easily by them in respect of members who found themselves in difficulty in the current financial circumstances. I was of the view that this was a worthy objective and that we should take action in respect of it. We took such action in the relevant legislation. However, the Government decided to put in place countervailing safeguards in respect of regulation. This was not an arrangement into which it entered lightly. It was, in fact, advised to take this course of action by the Financial Regulator. Since the debate on the legislation in the Dáil, the regulator has written to me welcoming the fact that it was passed and was before the Seanad. He is aware of the continuing opposition on the part of some to the proposed amendment to the Credit Union Act 1977. As head of financial regulation, he has extremely strong views on this matter and is of the opinion that section 35, as drafted, is sensible and prudent. He would have viewed the original version of the section as even more sensible and prudent.

I was prepared to meet representatives of the credit unions and did so on two occasions in order that I might, at least, address some of their concerns about this matter. As Members of the Houses, we have certain responsibilities. Those who suggest public figures are somehow captured by the banking interests are very wide of the mark. There is no interest which captures public representatives in this or the Lower House more than that of the credit union movement. However, we are required to make a distinct determination as to what is required in the public interest. This requires that there be minimum protection for depositors who are now covered by the guarantee. The Financial Regulator has advised the Government that this is essential.

I have tried, in so far as is possible, to meet the concerns of the credit unions. The crucial point with regard to the amendments that have been tabled is that which provides that the exercise of power by the regulator, through the registrar, must be proportionate. This is not a blank cheque that is being given to the regulator - the regulator is being given the power to exercise controls in a prudential and proportionate way. That is very important. Public confidence in the credit union movement has to be sustained. Throughout my discussions with the movement, I have stressed the importance of working together in this regard.

It is not the case that banks are being treated more leniently than credit unions. Credit unions are financed by the highly liquid demand deposits of their members, rather than by the mixture of deposits, bonds and equity that is common in other financial institutions. If we are to make provision for arrears and the rescheduling of loans, it is critical that we have a basic prudential framework in place. That is why these provisions were introduced. It is not as if some bureaucrat in the corner decided this should be done - it is the considered view of the regulator, which I have taken into account. I have not gone the entire distance requested by the regulator. After I met the credit unions, I decided to temper some of the regulator's requirements with the need for proportionality. I agree with Senators who have made the point that one size does not fit all. There is a huge diversity of types of credit union. Some credit unions have embarked on extensive lending, whereas other credit institutions continue to be quite small in scale.

I heard some Opposition Senators, including Senators Coghlan and Alex White, argue that this measure should be deferred while a review takes place. We cannot defer issues all the time by organising strategic reviews. When the regulator advises one that a matter needs to be addressed, we have an obligation to heed his views and act on the matter. We cannot simply decide to postpone our consideration of this difficult issue for a year or two while we have another debate and another round of lobbying about it. This matter requires attention now. The guarantee for the credit union movement has been in place and will be in place into the future. I am proud to be the Minister who introduced the guarantee, which is very important. I agree we do not want the credit unions to be assimilated into the banks. The provisions contained in this legislation, which are specific to the credit unions, give the registrar certain powers. We can make progress on these issues if the regulator works with the credit union movement.

The credit union sector will be very important in Ireland in the future. It has not been as important in recent years due to the high interest rates that have been offered by some of the financial institutions on the markets. That led to an ageing in the membership profile of many credit unions. In this financial crisis, we have seen how the other traditional mutual model has disintegrated in this country. Our two mutual building societies will not be mutual societies indefinitely into the future. The credit union movement has an important role to play in providing finance in communities. Credit unions provide the type of service that was extolled by many Senators. If we are to learn anything from our experiences of recent times, it should be that such a type of service can only be provided in the context of a definite regulatory framework. The idea that every time one tries to regulate a credit union, a lobby can be mounted to resist it is unrealistic in light of all we have learnt about the financial crisis of recent years. I do not suggest that the credit unions made all the mistakes the banks made. Nobody in the credit union movement would pretend that the movement did not make some mistakes. The regulator has made it clear that we need a regulatory system. I have had to act on that advice. That is the position in relation to the credit unions. It may be difficult for Senators to accept.

Senator MacSharry spoke about mortgage arrears. He has always been a strong advocate of the protection of those who are in financial distress with their loans. This afternoon's interim announcement in that regard was made by a group that is working very well. It has prepared a set of recommendations, some of which are being implemented by the regulator and others of which are being implemented by the Minister for Social Protection. There will be a further instalment of change in that regard.

Senator Ross made an interesting contribution. I thank him for his kind words. He was careful to criticise certain appointments with which he did not agree. I am not sure whether this debate is the appropriate place for me to reply to the issues he raised. I can say that some of the names were proposed by the bank itself as part of a panel. I wish to say, in response to the comment about the need to appoint someone with legal expertise to the board, that I was not disposed to appoint someone from one of the larger firms, which have excited a degree of criticism among commentators as well.