Dara Calleary (Mayo, Fianna Fail)

I wish to be associated with all the tributes to the late Senator Kieran Phelan and I compliment the House on the manner of the tributes.

The position of the Irish banking sector remains challenged at a time of significant continued financial market dislocation. Market conditions have not normalised and funding pressures remain necessitating the further extension of the bank guarantee scheme. Yesterday's euro group statement on Ireland welcomed the measures taken to date by Ireland to deal with issues in its banking sector. The euro group endorses the measures taken by Government, including bank guarantees, as well as recapitalisation and the asset segregation achieved through NAMA to support the banking sector.

Market sentiment towards Ireland has become very negative, particularly since the end of October, reflecting intense speculation in the bond market regarding possible debt restructuring in the design of a permanent crisis resolution mechanism in the eurozone. While these concerns were addressed by the joint statement by the Finance Ministers of France, Germany, Italy, Spain and the UK on 12 November last, market sentiment towards Ireland and the eurozone remains negative. The State guarantee for bank liabilities provided under the ELG scheme, which the Government has put forward for approval by the Oireachtas today, continues to provide very significant support for the funding of the banking system. This draft statutory instrument amends the bank guarantee scheme known as the eligible liabilities guarantee scheme or ELG scheme which was introduced in December 2009. Senators will recall that a similar statutory instrument was before this House in September to extend the ELG scheme from 29 September to 31 December 2010.

Funding conditions have not normalised for credit institutions in Ireland and the requirement for the guarantee remains. On the advice of the Governor of the Central Bank, the Government is proposing to extend the issuance period under the scheme beyond the current end date of 31 December 2010 and on financial stability grounds the statutory instrument before the House will enable the issuance period to run to 31 December 2011. As the House may be aware, the European Commission has already announced the approval of the scheme for six months, the maximum approval period allowed under the Commission's state aid rules.

I will now set out the details of the draft statutory instrument before the House. The instrument proposes to amend the credit institutions (eligible liabilities guarantee) scheme 2009. Under section 6 of the Credit Institutions (Financial Support) Act 2008, the approval of both Houses is required for such an amendment. The 2009 scheme allows participating credit institutions to accept all deposits and issue short and long-term debt on a guaranteed or unguaranteed basis. Eligible liabilities under the scheme comprise deposits, senior unsecured certificates of deposits, senior unsecured commercial paper, other senior unsecured bonds and notes or other forms of senior unsecured debt specified by the Minister for Finance and approved by the European Commission. The participating institutions under the scheme are the AIB, Anglo Irish Bank, Bank of Ireland, EBS, Irish Life & Permanent and Irish Nationwide Building Society. Their relevant subsidiaries also joined and are listed fully on the website of the Department of Finance.

Institutions are able to issue debt and take deposits guaranteed under the scheme with a maturity of up to five years. According to the latest data available to my Department, bank liabilities covered under the scheme stood at €147 billion in aggregate at the end of September. Liabilities must be incurred within a limited issuance period that currently ends on 31 December. The main amendment made by the statutory instrument before the House proposes to extend the scheme such that it will now end on 31 December 2011, subject to continuing state aid approval from the European Commission. This is similar to the mechanism used in the original scheme when it was introduced in December 2009. Other consequential changes are made to the scheme by the statutory instrument.

EU state aid approval was granted on 10 November for the extension of the issuance period to 30 June 2011 for all debt and deposits and short and long-term liabilities under the scheme. European Commission approval follows closely from the recent legal opinion of the European Central Bank dated 2 November which endorsed the extension in national law to 31 December 2011 on financial stability grounds. This extension is subject to continuing Commission approval beyond the current date of 30 June 2011, the maximum period allowed at one time under EU state aid rules. Further state aid approval will be required to extend the issuance period end date for another six months from 30 June to 31 December 2011. The draft scheme before the House would facilitate that further extension.

The participating institution must pay a significant fee to the Exchequer for the benefit of the guarantee. The fee is in line with or, in certain circumstances for shorter term bank liabilities, exceeds the fees applicable generally for guarantee schemes approved by the European Commission. The precise pricing arrangements for the guarantee are set out in the rules to the scheme at Annex 7.By the end of October, a total of €1.3 billion, divided into €760 million in respect of the covered institutions credit institutions financial support scheme and €573 million in respect of the eligible liabilities guarantee scheme, was collected from the institutions. The fees collected surpassed the original minimum target of €1 billion for guarantee fees when the covered institutions credit institutions financial support scheme was introduced in September 2008. The draft statutory instrument gives legal effect to this time extension.

The eligible liabilities guarantee scheme covers specific issuances of debt or deposits of up to five years in duration incurred during the period set out in the scheme. Item 1 inserts a definition of "financial support period order", an order made under section 6(3) of the Credit Institutions (Financial Support) Act 2008. This order which the Minister for Finance will make in conjunction with the scheme sets out the issuance period, that is, the period within which guaranteed liabilities can be incurred and guaranteed under the scheme. As European Commission approval was granted for the period 1 January to 30 June 2011, this will be the issuance period for the next phase of the scheme.

Item 2 amends paragraph 3.1 of the schedule to the scheme which sets out the period within which institutions may join. This amendment seeks to update the application period by substituting 31 December 2011 for 31 December 2010 to reflect the time extension to the scheme.

Items 3 and 4 amend paragraph 5 of the schedule to the scheme. Paragraph 5 provides that the Minister shall review the scheme and its rules at six monthly intervals. This amendment proposes that the Minister may review the scheme at shorter intervals than six months if so required by the European Commission in accordance with state aid policies. This would allow for a future exit strategy on a gradual basis for certain liabilities in line with prevailing market conditions and based on the advice of the Governor of the Central Bank.

Item 5 proposes to substitute a new paragraph 11.1(c) to the schedule to the scheme. The new paragraph replaces the current scheme end date of 31 December 2010 with an extended end date in national law of up to 31 December 2011, subject to continuing EU state aid approval. Such approval was obtained on 10 November for the continuation of the issuance period up to 30 June 2011. Any future extensions of the issuance period beyond 30 June 2011 will require further state aid approval.

Item 6 amends paragraph 18 of the schedule to the scheme which sets out the maximum period the Minister will stand as guarantor of liabilities. This amendment proposes to substitute a period of five years after the end of the period specified in the most recent financial support period order as the end date of the scheme instead of the current date of 31 December 2015.

The extension of the scheme to 31 December 2011, subject to EU state aid approval, will continue to facilitate funding access in the short and longer terms for participating institutions and provide security for depositors. The scheme, as extended, complements the broad Government strategy to restore fully the banking system and maximise its contribution to overall economic recovery. I commend the scheme to the House.