Paschal Donohoe (Fine Gael)

Okay. What will happen between now and early next year which will require the Minister to override those shareholders? I would appreciate it if the Minister would come back to this later. As I said, the injection of capital alone is allowed under the current framework.

The second reason the issue of timing is very important is that the special resolution mechanism, about which the Minister spoke, is in place in many European jurisdictions. In the three most prominent cases where it has been triggered - Northern Rock in the UK, Fortis Bank in Belgium and Hypo Real Estate in Germany - the shareholders and the stakeholders in those banks initiated strong legal action against those governments and fought them bitterly in their legal system to ensure this mechanism was not implemented.

Notwithstanding what the Minister said, that is why it is wrong to put through legislation as important as this so quickly. As we have seen in other jurisdictions, this has been robustly challenged and has ended up delaying what the governments have sought to do in each case.

The UK implemented legislation such as this more than two years ago in February 2008. On the one hand, we have had a long delay since the UK and other countries implemented the legislation while on the other hand, there is a major rush to get this legislation in place, for reasons about which I am not clear, within a time period shorter than that to which we committed a number of weeks ago. Clearly, this legislation is needed because the normal insolvency or commercial laws to deal with companies under commercial pressure will not work for a bank. The reason, as we all know, is that the failure of a bank poses a far larger systemic threat to the stability of the economy and the country than the failure of an ordinary commercial business. Last February's IMF report stated: "The introduction of special resolution regimes in individual countries can reduce the overall fiscal burden incurred in resolution and is likely in and of itself to be conducive to more effective management of cross-border failures". This type of legislation is needed and works in other jurisdictions, but it needs to be implemented with care and scrutinised carefully because it is so important. We will be opposing the Bill in order to ask for more time to debate it.

The literature on such legislation in other jurisdictions outlines a number of central features that are required. The Bank of England produced a report on the matter last summer specifying the requirements of this kind of legislation as including clear objectives; triggers for initiating the regime; a resolution toolkit; different options; the ability to effect partial as well as whole-bank property transfers; and the ability to deal with the issue of cross-border banks. In many cases these boxes are ticked by the Bill; however, there are some legitimate concerns that I will address on Committee Stage, but I also want to raise them now.

The first concerns the nature of the relationship between the Central Bank and the Department of Finance and the Minister, in particular. In the corresponding legislation in other jurisdictions the person or body that implements it is not the Minister for Finance or the Department of Finance - it is not the Treasury in the United Kingdom but the British regulatory bodies. Here we have gone for a very different model. In particular, section 6 of the Bill which allows the Minister to lay down written guidelines for the Governor of the Central Bank is very strong and a unique development. In other countries where similar legislation has been in place for some time the regulatory bodies have been capable of delivering it.

The second issue I want to discuss further relates to the timing of the legislation and when it will kick in. Equivalent legislation elsewhere offers a government the ability to intervene before a bank reaches the point where it would pose a systemic threat to the financial stability of a country or an economy. Examples include what happens in France where the regulator has the ability to provide a special manager - as the Bill provides for - before a bank becomes insolvent and poses a threat to the stability of the entire financial system. Similar regulations are in place in Switzerland. Other jurisdictions such as Italy also offer the ability for a moderated form of this legislation to be used when a bank is capable of taking or about to take actions that could make it pose a grave threat to the surrounding economy and other banks.

The third point relates to the purposes of the Bill and the prominence of Anglo Irish Bank and the way it is described. I am beyond puzzled, if not intrigued and disturbed, to see the statement in section 4(c) that the purposes of the Bill include: "to continue the process of reorganisation, preservation and restoration of the financial position of Anglo Irish Bank Corporation Limited begun with the Anglo Irish Bank Corporation Act 2009". On what future path for the banking system are we laying out an objective that specifically includes restoring the health of Anglo Irish Bank? Only a few weeks ago Commissioner Olli Rehn - or an equivalent in another body - said he was looking forward to and believed he would see the day when the presence of Anglo Irish Bank would be removed from the economy completely, yet we are now introducing legislation that seeks to restore the financial position of the same bank. If we have time later, I would definitely like to tease out this matter. We need to understand why the Government believes this is an objective worthy of inclusion in the Bill and its future banking policy.

There is similar legislation in many jurisdictions. While the Bill's proposals have much in common with what has happened elsewhere, there are also many important points of difference, notably the primacy of the Department of Finance, its failure to provide for intervention before a bank reaches a grave stage and the specific numeration of a particular bank with the objective of restoring it to financial health. Even though similar legislation is in operation elsewhere, when it is implemented - the next Government, regardless of the parties involved, will need to deal with bondholders and shareholders - it will be vigorously contested in court. With that in mind, it is imperative that we take a more careful and deliberative approach to tease out the issues involved.

While the legislation allows the Government to initiate a process of debt sharing with subordinated bondholders, it does not allow this to take place with senior bondholders. We have had a discussion about why that might be possible or not possible here and elsewhere on many occasions. In recent weeks the weight of international and, in particular, European opinion on the matter is beginning to adjust. Yesterday's Financial Times quoted a very prominent former German Minister and German MEPs stating they wanted a mechanism to be put in place to restructure senior banking debt. Mohammed el Erian who runs a large investment fund in America and is tipped to be given a prominent role in the IMF has also laid out the need to find a way to restructure senior banking debt. We could find ourselves in a position where the weight of international opinion is moving in a different direction from that taken here, while we have legislation that confines itself only to subordinated bondholders. That is an omission that should be accounted for and addressed later.