Martin Mansergh (Tipperary South, Fianna Fail)

I thank all the Senators who contributed to the debate and acknowledge the spirit in which they spoke. It is perfectly legitimate to make critical points, as that is the essence of debate in a democratic House.

As the financial crises unfolded in the past two years, it became clear that solutions to the serious problems facing the international banking system would not be achieved overnight. However, the Government has taken significant steps to address the challenges facing the Irish banking sector and we will continue to take action, as appropriate, to ensure a return to a strong and fully functioning domestic banking sector in the long term. To achieve the restoration of the banking system, it is vital that banks can continue to access liquidity in the current difficult market circumstances. To ensure this access, it is necessary to maintain the bank guarantee in its current form until the end of the year. Accordingly, the ELG amendment scheme introduced today amends the guarantee by extending the end date to 31 December. As has been pointed out, this is the only substantive change being made to the scheme and the other amendments simply rationalise and update the drafting of certain of its provisions.

I remind the House that the credit institutions financial support scheme will expire at midnight and that any asset covered securities and dated subordinated debt covered under the scheme will no longer be guaranteed from that time. The House should be aware that retail deposits up to €100,000 are guaranteed under the deposit guarantee scheme which has no expiry date.

In the limited time available to me, I will respond as best I can to the issues raised. This debate is taking place against the backdrop of turbulence in the markets and the particular concerns that have focused on Ireland. The recent increase in our bond spreads is of concern, but progress is being made in resolving key issues which are partly responsible for the increase such as financial system issues and, in particular, Anglo Irish Bank. Other EU member states have also seen increases in their borrowing costs due to the continuing uncertainty in global financial markets. An important fact that many commentators overlook is that investor demand for Irish Government bonds has remained firm, even in the current difficult market conditions. Furthermore, the weighted average cost of funds raised in the bond market in 2010 is 4.7%, the same as the average funding cost achieved in 2009.

Senator Twomey and others raised the question of what would happen on 31 December. That date was chosen because the European Commission gave state aid approval to schemes for a period of six months and approval runs until 31 December. The Department of Finance and other relevant State agencies will, with the Commission, monitor market developments in the coming months to confirm whether the guarantee continues to underpin the core principles of financial stability and funding access for financial institutions. Subject to EU state aid approval, the Minister will bring the relevant statutory instrument to the Houses before they rise for Christmas should an extension be considered necessary. In view of the central role performed by central banks in resolution frameworks for financial institutions, the Department of Finance is in consultation with the Central Bank and the Financial Regulator regarding the development of draft legislative proposals which the Minister will consider in due course. This is a complex area where policy is still evolving internationally and the Minister wants to ensure any model introduced in an Irish context meets best international practice.

With regard to the solvency position of Anglo Irish Bank, the focus of the discussions on 29 September 2008, two years ago to the day, was on dealing with the severe liquidity difficulties facing the banks. Detailed information regarding the capital position of the banks, including Anglo Irish Bank, such as the PricewaterhouseCoopers report subsequently completed and published, was not available at that time. Whereas it was clear that Anglo Irish Bank was experiencing difficulties, the extent of that bank's capital problem was not evident at that time. Whether this comes down to insufficient or incomplete information or information which subsequently turned out to be wrong or false, it is a separate question whether this is down to action done in good faith, in an overly optimistic fashion or in a deliberate way in knowing the position. That period is still under detailed investigation.

It has often been debated as to why Anglo Irish Bank was included in the guarantee. Professor Honohan, now the Governor of the Central Bank, stated in a report that the systemic importance of Anglo Irish Bank at the time could not be seriously disputed. The report argues that the interconnection of Anglo Irish Bank to the Irish banking system meant that a disorderly failure of the bank would have had a devastating effect on the remainder of the Irish banks.

Another issue that is constantly discussed is the inclusion of subordinated debt. I have been advised from within the banking system that while in the cold light of day one can separate subordinated debt from senior debt, in the context and atmosphere of the time as it was, the separation was not as neat as is sometimes made out. It would have been legitimate to fear that the confidence impact could have spilled over. In any case, the guarantee to subordinated debt, which runs out, has not been called upon and therefore has not cost the State or taxpayer money.

I do not have time to go into the question which has been a matter of some frustration on all sides regarding the slow progress of investigations, including criminal investigations, of possible wrongdoing. They do not appear as of yet to have come up with definite conclusions or courses of action. This process, needless to say, must be independent both of the Government and the Oireachtas.

Senator Ross raised the question of all the banks being nationalised. I do not believe that would have helped confidence in our sovereign debt position and may have undermined confidence and led to even greater funding problems for all the institutions. It is important to continue to have market discipline applied to the operation and management of the banks. I will not go further into the Anglo Irish Bank issue as it will be dealt with in considerable detail tomorrow.

We do not normally discuss personalities outside the House but we have spoken about public appointments. Mr. Jim O'Leary was a very distinguished adviser to the Fine Gael-Labour coalition in the 1980s and has a long track record. Very few of us in any walk of life, including great experts, have never been involved in misjudgments of some issue or another. This should not be taken as somehow disqualifying a person from being competent to give advice. If one considers what some of the voices outside the Houses who constantly give us an expert view said in 2005 and 2006, some of the records would not be very good. There is always a balance between people with much experience, albeit with some mistakes, versus people with a virgin record and little experience.

There is a tangential point to Senator Alex White's comments. The European Commission will only give state aid approval for schemes for a period of six months at a time. That is why we are talking about something relatively limited in time. We do not have another option and this scheme, if it needs to be continued, must be reviewed regularly.