Martin Mansergh (Tipperary South, Fianna Fail)

Can I defend my party colleagues in this House? They contribute a great deal to debates. The Minister has given a particularly authoritative presentation and my understanding is that he will be here for most, if not all, of Committee Stage. That will happen a little bit earlier than might have been anticipated. I wish to make a few general points and then to deal with the specific points raised by Members.

A key commitment in the financial support programme with the IMF and the EU is the comprehensive restructuring of the banking system. As has been articulated by the Minister for Finance, the programme provides for the downsizing of the domestic retail banking sector to create a smaller national banking sector more proportionate to the size of the economy and capitalised to the highest international standards. This Bill provides the broad powers needed for the Minister for Finance to act on financial stability grounds to effect swift restructuring action and recapitalisation measures as envisaged in the programme. It is the first important step in putting in place an extensive special resolution regime that will provide for a comprehensive framework to facilitate the orderly management and resolution of distressed credit institutions. In that context the Bill includes the powers to appoint a special manager to a relevant institution, which will only arise in limited and exceptional circumstances, to achieve the objectives of the legislation.

Under the EU-IMF programme, there is a commitment providing for a comprehensive special resolution regime to be introduced to the Oireachtas by the end of February 2011, which would include the full suite of SRR powers based on international best practice and the evolving EU framework. Depending on electoral timetables, it could be one of the first items of legislation in a new Oireachtas.

Once this Bill is enacted, the powers available to the Minister would enable the substantial and significant restructuring actions envisaged in the support programme to be progressed and the provisions would facilitate the disposal of non-core assets to support the achievement of funding targets set by the Central Bank of Ireland, while allowing the Minister to provide credit enhancement that could help to support progressive reduction in the balance sheets of the domestic credit institutions through, for example, the securitisation of bank assets. These powers would underpin the restructuring of Anglo Irish Bank and Irish Nationwide Building Society, as set out in the programme agreement and, as is consistent with EU state aid requirements, provide scope for appropriate burden sharing for subordinated debt and provide the Minister with the power, if necessary, to effect a recapitalisation of AIB prior to the end of the year to meet regulatory capital requirements set by the Central Bank of Ireland.

There was much comment in the debate about the need for senior bondholders to accept their share of the burden of this crisis. This point surfaced in this debate. When those who deplore the erosion of the deposit base of the Irish banking system come to reflect on it, they will see the substantial contribution made to that process by the unhelpful level of domestic discussion about this matter over recent weeks. To be fair, there was a European dimension to it as well. The Minister dealt with this issue yesterday in the debate on the IMF-EU support programme. There is simply no way this country, whose banks are so dependent on international investors, can unilaterally renege on senior bondholders against the wishes of the European Central Bank. In such circumstances the Central Bank stands behind the affected banks throughout the resolution of the crisis and those who think we could unilaterally renege on senior bondholders against the wishes of the ECB are not facing reality. The suggestion that there are no costs associated with default is entirely incorrect. This country is dependent to a great extent on foreign direct investment. These companies have large funds and investments in Ireland and directly or indirectly employ 250,000 people. Any default on senior debt and the uncertainty that would cause would undoubtedly have an impact on future investment decisions of such companies.

The introduction of SRR type powers in this Bill will be a powerful instrument to secure the necessary restructuring of the Irish banking system in the context of the programme. It will provide the Minister with a strong toolkit for dealing with distressed financial institutions. As the Minister made clear in the Dáil, however, contrary to conventional wisdom, SRR is not a panacea for minimising the fiscal cost to the State of our banking crisis, especially in light of the legal considerations in Ireland. The major banking costs incurred by the State could only be reduced where some of these losses were imposed on creditors of the banks. This Bill provides the powers for burden sharing involving subordinated debt by legislative means. Voluntary exchanges in respect of these instruments already undertaken and currently under way have avoided the requirement for even more State support for the banks. Discussions are ongoing at EU and international level on the mechanisms that may be available in future to share the fiscal costs of bank resolution with senior creditors of banks other than depositors.

Senator Alex White raised the question of whether these powers should have been introduced at an earlier stage. While Irish banks were still seeking to issue longer-term debt, it is very likely that the market reaction to the broad and extensive nature of the powers included in this Bill over the covered institutions would have been negative. There would have been serious potential to provoke the scenario for which it has been necessary to adopt a programme to resolve the exclusion of the domestic Irish banks from longer-term funding markets and a substantial dependence on funding from the euro system. The scope for utilising the powers available under this Bill is enhanced by the availability of the resources provided under the programme for the repair of the banking system. This is not to indicate that the Government intends to draw resources from the contingency fund available other than are strictly necessary to achieve the objectives of the programme. Rather, it is unlikely to have been credible to advocate that the type of measures envisaged under the Bill would be deliverable solely within the fiscal capacity of the State.

The lead role and responsibility assigned to the Minister under this Bill reflects the major commitment of State resources to the banking system and the need to fully safeguard the State's fiscal position in moving forward to implement the programme agreement. It is essential the Minister has wide discretion, drawing on the best expert advice, regarding the necessary steps or courses of action that should be embarked upon in seeking to resolve the challenges facing our banking system. I note that Senator Alex White expressed some understanding of the powers in section 53. These will be exercised by the Minister and by his successor.

Senator Donohoe raised the question of why the legislation is urgent. The pace at which this legislation is being prepared and the urgency with which it must be enacted by the Oireachtas reflect three separate but related objectives. The first is the real and tangible value of demonstrating to the external parties to the programme, the wider international community and international markets the strength of the Irish authorities' commitment to the delivery of key elements of the agreement, consistent with the ambitious timeframe for implementation.

The second is the clear benefit of having the necessary powers available to the Minister at the earliest possible stage when initiating a profound restructuring of the banking system envisaged under the programme. The reputation of our domestic banking system and its ability to meet its funding needs from market sources will only be rebuilt by undertaking the concrete measures to bring about a substantial reconfiguration of our banking system.

The third point is the imperative of empowering the Minister for Finance with the statutory authority to ensure all our institutions are in conformity with regulatory capital requirements set by the Central Bank at the end of this year. It is also essential the Minister is in a position to progress the joint restructuring of Anglo Irish Bank and Irish Nationwide Building Society while safeguarding the Exchequer. No Senator should doubt that the Minister for Finance is appropriately equipped with the necessary legal powers to continue to maintain financial stability in the State. That is the sole purpose of the legislation before us today and its enactment is urgent.

It is not true that extensive SRR legislation is widespread. The British legislation is extensive in scope and is regarded by many as international best practice. It has only been used for the resolution of a small regional building society. It was not used to deal with the difficulties in any of the larger British institutions. It is only in recent weeks that Germany received the approval of its lower house for its legislation. Denmark also recently published SRR legislation. At EU level, the European Commission has been developing legislation for a European resolution framework for some time and a proposal is not expected to be published until June 2011 by the European Commissioner for Internal Market and Services.

While the specifics of this Bill have been subject of intense work since the conclusion of the discussion with the EU-IMF authorities, as the Minister has indicated, his officials have been examining options in recent months for the introduction of an extensive SRR having regard to evolving work at international level and the emerging EU framework. This Bill is an important bridge to the publication by March 2011 of a comprehensive SRR, taking account of developments elsewhere and being mindful of the specificities of the Irish banking system.

Senator Alex White asked about section 59. It is to ensure the Minister can use his powers under this Bill to make proposed orders without it being made public he is so doing. There will be considerable sensitivities, commercial and otherwise, surrounding the exercise of these powers and it could prove detrimental to the achievement of the objectives of the Bill if this requirement for confidentiality were not in place.

Senator Quinn will understand there are important issues relating to commercial confidentiality and market sensitivity relating to AIB. The bank issued a statement earlier this week acknowledging the publication of the Bill and the statement in the Minister's press release that it provides powers to the Minister to ensure aid meets regulatory capital requirements by the end of the year.

Senator Donohoe mentioned the sale of assets in financial institutions. AIB sold its Polish subsidiary earlier this year, raising a good deal of money. A Polish diplomat said to me that possibly it was worth more than the market value of the rest of AIB put together. When assets are sold, the sale must be related to their value at the time. If they have a high value at present, there is a value in doing so.

I agree with Senator Boyle that it would have been an error to nationalise the banks at an earlier stage. I do not know where Senator Quinn got his information that the Bank of Ireland should be nationalised and, even less, where he got suggestions that John Bruton is in the Middle East with a particular purpose.

Iceland is not a member of either the EU or the eurozone so I do not consider it to be comparable to Ireland. It does not accept the IMF and does not have obligations of a multilateral character to other countries in the way Ireland does.

It irritates me at times so I must ask where the hard-nosed businessmen and bankers were during the property boom. There is an idealisation of the private sector, that those in it are more hard-nosed than the Government. The Financial Times pointed out last week that the genesis of our crisis was the private sector losing all restraint and getting itself into vast debt through over-optimistic development. There was nothing hard-nosed about Anglo Irish Bank or any of the others during that period. I am not saying for a second that the State sector, particularly the regulatory branch, acted perfectly; far from it. We have gone through all the criticism appropriate in that quarter. From my experience, negotiations between states and agencies are different from commercial negotiations and there is no evidence from around the world that businessmen are better at them just because they are good at commercial negotiation. I simply do not buy that. There have been examples in other countries of businessmen being brought into politics and there is no evidence that they perform any better than people who have long experience of politics, diplomacy and dealing with international financial issues.

I am a member of the Council of State so I will not pass comment on Senator O'Malley's question on the constitutionality of the legislation. People of my generation, which is also that of Senator O'Toole, enjoyed "Hall's Pictorial Weekly", and phrases such as "in the national interest" and "in the public interest" are now resurfacing after a generation. There is an important point, however, that the Minister, when he wants to make orders, must go to the High Court, so the existence of the preamble relates to that. An article in the Constitution relates to the exercise of private property rights and their protection subject to the common good. We are legislating in the context of a financial emergency. The phrase is fully justified. When I was a Senator, and subsequently, I have been persistently critical of the tendency to deify private property rights. I am not accusing Senator O'Toole in this regard. In certain instances, it has landed the State in considerable and unnecessary expense. A more hard-nosed approach was adopted 30, 40 or 50 years ago. In the culture of the 1950s, if a county council wanted to build labourers' cottages in the countryside, there was no question of paying over the odds for the land. If anything, councils paid considerably under the odds. Under the same Constitution governing us today, the Land Commission issued land bonds for the acquisition of estates.