Brian Lenihan Jnr (Dublin West, Fianna Fail)

The Government statement on 28 November announcing the EU-IMF programme for Ireland included as part of the bank recapitalisation and restructuring measures the commitment to prepare specific legislation to support immediate restructuring actions. This legislation has now been published as the Credit Institutions (Stabilisation) Bill and received Dáil approval last night. I can appreciate that some Senators take exception to the fact that the measure is being rushed through the House with considerable speed and expedition. It went through Dáil Éireann in the same way yesterday. However, it is important that we reflect on the nature of the crisis that emerged in the Irish financial position in recent months.

The position with regard to banking issues was made very clear to us with the gradual erosion of the deposit base of the banking system and the insistence by our European partners that we take immediate action to address this.

In respect of the fiscal position, the necessary actions were taken in the four year plan for national recovery and in the budget. In the case of the banking crisis, the immediate actions can be dealt with under this legislation. This is why it is urgent. The various approaches taken by the Government to date through the guarantee scheme, recapitalisation and the establishment of asset relief through NAMA were all specifically endorsed by the EU, the IMF and the ECB. However, if a criticism was made of us it was that we did not move with sufficient speed and expedition in these matters. We had many leisurely debates, sometimes too leisurely, on previous banking measures. This legislation enables us to take swift and immediate action.

The detailed recitals contained in the Bill set out the fundamental rationale for this legislation. They highlight the relentless negative effect of the banking crisis on this State's economy and the need in the public interest for strong measures to resolve the continued serious threat to the stability of the financial system generally. The preamble to the Bill strongly underlines the need for the functions and powers provided under the Bill to effect a reorganisation of the guaranteed domestic credit institutions in the context of the National Recovery Plan 2011-14 and the European Union-International Monetary Fund Programme of Financial Support for Ireland, consistent with EU state aid requirements.

As the Senators will be aware the key elements of the programme include an immediate and significant recapitalisation of the banks; stringent stress testing and rigorous validation of asset valuations, which may result in further recapitalisation, as required; and a substantial downsizing of the banking system by way of the identification of non-core bank assets and the disposal or run down over time of these assets. The powers provided in the Bill allow the Minister for Finance to execute key aspects of the agreed support programme for bank restructuring. Direction orders may be issued to relevant institutions to take or refrain from taking any action in support of the Government's banking strategy. Transfer orders may be issued in respect of relevant institutions' assets and liabilities to facilitate the restructuring of the banking sector. Consistent with the terms of the support programme, subordinated liabilities orders can be made under particular conditions to achieve appropriate burden sharing by subordinated creditors in relevant institutions which have received State support.

I draw the attention of the House to a particular policy priority under the Bill, namely, ensuring that the reorganisation and restructuring measures are recognised in other EU member states through the mechanisms available in the European Communities (Reorganisation and Winding-up of Credit Institutions) Regulations 2004, which implement the credit institutions winding up directive, CIWUD, in Ireland. This is an important issue because many agreements entered into by Irish credit institutions are governed by the laws of other EU member states. It goes without saying that all the powers provided under the Bill must be implemented in a manner fully consistent with EU state aid requirements.

In any situation where a Minister is provided with strong powers, as is certainly the case in this Bill, there is a need for appropriate judicial oversight of the exercise of these powers. The Bill ensures significant judicial supervision of any proposed orders that the Minister prepares. In respect of each of the four orders for direction, special manager, transfer and subordinated liabilities, they are provided for and are to be utilised in a manner which is fully consistent with our legal and constitutional framework.

Any proposed order under the Bill must be confirmed by the High Court, which must be satisfied regarding the legal process undertaken, including in relation to securing the views of the affected institutions and the reasonableness of the Minister's proposed decision making within the framework of the overall Bill. Moreover, the High Court may set aside, amend or vary an order if it thinks it appropriate and an affected party can apply to the court within a five-day period to have the High Court order set aside. These orders may be subject to judicial review or appeal to the Supreme Court. There are restrictions on when judicial review and an appeal may be made. This approach is in keeping, for example, with the measures adopted in the National Asset Management Agency Act 2009 and in planning legislation. Therefore, the exercise of the Minister's powers is conditional upon High Court scrutiny and approval by way of High Court order, including through the participation in the courts of affected parties. Importantly, court orders made under the legislation will be recognised in other jurisdictions.

The powers provided under the Bill are fully in accordance with the Constitution. In addition, section 53 will ensure the effective operation of the Bill. Any orders made by the court must be aligned in an appropriate manner with legislation on the Statute Book in order to avoid any actual or perceived conflict of laws. Section 53 ensures clarity and certainty on how the strong powers provided under this Bill interact with the existing legal framework. The purpose of section 53 is to ensure the implementation of the powers in this Bill is consistent with the technical and procedural requirements in existing provisions in any other enactment, rules or other relevant legal documents which might otherwise apply to the business of credit institutions. This is important because any inconsistency will be an obstacle to the implementation of the orders which can be made under the Bill. For that reason, unless otherwise provided, the provisions in this Bill have effect notwithstanding any other provisions in any other enactments, rules of law, codes of practice, listing rules, memoranda and articles of association or any other agreement. It should be obvious that section 53 is an essential provision of this Bill. There is no question whatsoever that it usurps the role of the Houses of the Oireachtas by enabling the Minister to make orders that make or change laws. These powers are reserved to the Houses of the Oireachtas by our Constitution. The Oireachtas will be amending existing enactments, rules or other relevant legal agreements in this Bill. The orders referred to in section 53 are orders of the High Court. While the Bill provides that the Minister can make a number of proposed orders in respect of directions, special management, transferred and subordinated liabilities, only the High Court can make orders under the Bill. The orders that the High Court can make on foot of my proposed orders relate to matters which are clearly and comprehensively set out in the legislation. There can be no doubt that section 53 is a necessary and proportionate provision in the Bill overall to ensure the efficacy of these orders to intervene in the business of credit institutions.

I will address the key provisions of the Bill. Section 2 sets out the definition of a number of terms used in the Bill. A key definition in this section is that of a relevant institution. Section 3 provides the Minister with the power to prescribe any body corporate with a registered office in the State as a "relevant institution" for the purposes of the Bill. Section 4 sets out the purposes of the Bill which I have already outlined for the House.

Section 5 safeguards the independence of the Governor of the Central Bank. Section 6 provides the Minister with the discretion to agree a framework to govern the relationship between the Minister and the Governor in regard to the exercise of the Minister's powers under the Bill.

Part 2 of the Bill addresses the making of direction orders. While important powers of direction are available to the Minister for Finance under the eligible liabilities guarantee scheme, it is important to strengthen the legal basis for that power of direction under this Bill. Section 7 sets out the circumstances under which the Minister can make a proposed direction order. Sections 8 to 11 set out the procedures for the court to make a direction order on the terms of that proposed order.

Part 3 is an important part of the Bill because it gives the Minister for Finance the power to appoint a special manager with knowledge, expertise and experience of the financial sector to take over the management of a relevant institution where the Minister believes this is necessary for the preservation or restoration of the financial position of that institution. This is an important legal innovation because it provides a mechanism that can be used as an alternative to nationalisation. The special manager is required to operate the institution in a manner consistent with the objectives of the Bill, thus helping to ensure the conduct of the special management is at all times underpinned by the public interest in the maintenance of financial stability. Sections 20 to 24, inclusive, provide for the special management arrangements.

Part 4 provides the Minister for Finance with powers to take certain actions in respect of the subordinated liabilities of relevant institutions to which financial support has been provided under the Credit Institution Financial Support Act 2008. The purpose of this Part is to achieve appropriate burden sharing with holders of subordinated debt in the relevant institutions under the particular circumstances set out in the Bill.