John Gilroy (Labour)

I welcome the Minister of State to the House. I also welcome this addition to the armoury of our regulatory authority. I will resist the temptation to point a finger of blame but it is recognised that when the financial crisis started the number of mechanisms available to deal with it were inadequate, crude and blunt in their application, be they bailout, examinership or nationalisation, or some variation of all three. I do not intend to speak on the detail of the Bill but I will do so on Committee Stage tomorrow.

There is no question as to the need for this Bill. It has been acknowledged by Professor Honohan and others that had such powers been available to the previous Government on the infamous night in September 2008, the decision would not have narrowed the options taken and would not have resulted in such disastrous consequences for our country and for our people. This statement is in no way intended to allow the previous Government escape from responsibility for that decision, because the warning flags were raised early in 2008 at the very latest. The previous Administration, if it had cared to notice, could have taken some pre-emptive action at that time.

The special resolution regime being introduced gives considerable power to the Central Bank to deal with distressed institutions or those institutions showing signs of distress. This is welcome. I was very interested to hear Peter Brierley from the Bank of England identify the weaknesses in insolvency law that pertained before Britain introduced its special resolution regime. The need for early intervention was the key element to ensure the continuity of key banking functions. He also identified the issue of confidence or the lack of it and there was particular recognition of a key group of investors that insolvency laws do not recognise, namely the depositors. These are welcome additions to the resolutions.

There are some key differences between the UK model and the one we propose to introduce here, in that the Bank of England takes the lead as a lead agency and makes recommendations to the financial services authority there, whereas here, it is the Central Bank, in consultation with the Minister. This is an important difference. Will the Minister explain why we saw fit to take that direction as opposed to following the UK model? I suppose that following the collapse of Northern Rock, it became obvious that something more needed to be done and perhaps that is why the UK authorities moved so quickly to implement their resolution regime. It helped restore confidence in the British system, avoided contagion - which was vital - and allowed the UK economy escape the worst of the banking crisis.

The mere existence of a special resolution regime helps confidence flow through the entire financial super structure, which is important and welcome. The Bill proposes to introduce a range of tools to help resolve problems. However, as suggested by Senator Barrett and said by some commentators, it is like closing the door after all the horses have gone. Even if we acknowledge that damage has been done on a massive scale and that this is unlikely to happen again to the same degree, it is important to provide resolutions and a legislative framework for the future. We have seen how our banks have remained in a state of denial about the reality of the destruction of their balance sheets and, for one reason or another, have failed to face up to the consequences, making a bad situation even worse.

The requirement in the Bill that all credit institutions will provide recovery or resolution plans will ensure that the mistakes of the past are not repeated and that the regulatory authorities are clearly apprised of the condition of balance sheets and other elements within the banks, so that any land mines are discovered at an early stage. If this provision had existed prior to 2008, the Financial Regulator would not have fallen asleep at the wheel, as he appeared to do.

The proposal to establish a bridge bank eliminates the necessity of moving, in the first instance, towards nationalisation. This is welcome and allows a great deal of flexibility to be introduced into the system. Transfer orders are technical in nature, but they are a welcome addition to the suite of responses. The special management orders will ensure that the wishes of the regulatory authorities are implemented in full, on time and in a transparent and accountable manner. This is also welcome.

One of the more important elements of the Bill relates to trigger mechanisms and I have one or two questions on these. It is proposed the trigger mechanism will be called into action when breaches or disturbances in the licensing conditions of the banks become apparent. In that regard, will it be necessary to introduce any secondary or supporting legislation around the Central Bank Act 1971, where the conditions are attached to the banking sector? Also, what is the target this fund seeks to accumulate or do we have a target? Is it necessary to have a target and if that target has not been specified, why not?

Senator Michael D'Arcy touched on another question. Is there a need or an opportunity in this Bill to redefine the ranking of debtors? It seems to have caused us much difficulty in the past. I understand it must be done in a Europe-wide context. As we move towards European co-ordination of banking resolutions, is this something we must put on the table in Europe? I will reserve further comment until the debate on Committee Stage tomorrow but I wish to make two further points.

I am interested to see the amendments the Minister proposes regarding credit union, to which the Minister of State referred in his contribution. Perhaps more information can be provided on this before tomorrow. This measure has the potential to interfere with the spirit and the law of what credit unions do. They are core assets in every community.

Concerns have been raised in Europe about some of the provisions in the Bill, which I will discuss further tomorrow. In the meantime, perhaps the Minister of State can bring forward more information on why the Troika and Europe raised such concerns and why we are diverting towards a different course. I welcome the provisions of the Bill and thank the Minister of State for his attention.