Seanad debates

Wednesday, 19 October 2011

Central Bank and Credit Institutions (Resolution) (No. 2) Bill 2011: Committee and Remaining Stages

 

12:00 pm

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)

I thank Senator Mullen for his good wishes and for raising these relevant points so that we can discuss them in some detail.

To put matters in context I will, first, set out how the modified liquidation provisions will apply. The insolvency of any body corporate will normally result in that body being wound up in accordance with the Companies Acts. Winding up, or liquidation, will continue to be an important tool available to the Central Bank and in many cases will be the appropriate means of resolving the crisis in a particular distressed institution, liquidating the credit institution, paying off its creditors with available funds and letting losses lie where they fall. The State will not invariably step in to bail out or pump funds into an insolvent body. This is, of course, subject to the existing guarantee that depositors hold to be repaid up to €100,000 of the funds they have on deposit from the deposit guarantee scheme. In that context, it is important that where, for example, a bank is being wound up, the liquidator and law relating to liquidations will work with and not against the deposit guarantee scheme. Therefore, an important aspect of a successful special resolution regime for banks is the facility to allow an institution to be wound up while minimising the impact of the winding up on depositors eligible under the deposit guarantee scheme.

Part 7 of the Bill, accordingly, provides for a modified liquidation procedure which requires a liquidator to prioritise eligible depositors' access to their deposits over the usual objective of insuring the best return to all creditors.

The insured depositors may be paid from the deposit protection scheme or their deposits may be transferred to another institution. In place of the more usual committee of inspection, a liquidation committee, comprising nominees of the Central Bank and the Minister for Finance, will be established to monitor the liquidator's process in achieving this prioritised objective. Once this objective has been achieved, the liquidation proceeds as normal. Where a liquidation committee considers the liquidator's process is not proceeding satisfactorily, it can, under section 280 of the Companies Act, apply to the court to determine any question arising in the winding up.

Section 80 of the Bill sets out the two objectives of the liquidator in the winding up of an authorised credit institution. The first objective is to facilitate the Central Bank in ensuring that each eligible depositor receives the prescribed amount payable from the deposit guarantee scheme. In the event of a conflict, this objective takes precedence over the second objective, which is to achieve the best results for the institution's creditors as a whole. Section 83 provides that the liquidator and the Central Bank shall co-operate in the pursuit of these objectives. It also provides that a liquidation committee should be established as soon as practicable after the making of a winding up order to ensure that the liquidator properly carries out his or her functions under this Part. Such committee will be composed of two persons nominated by the Central Bank and one person nominated by the Minister.

Amendment No. 2 would require the liquidator to work in conjunction with the ombudsman as well as the Central Bank to facilitate first, the Central Bank in ensuring that each eligible depositor receives the prescribed amount payable from the deposit protection scheme and, second, in transferring that amount from the deposit protection account to another authorised credit institution or to a credit institution approved by the Central Bank or to hold that amount on behalf of each such eligible depositor. The role of the Financial Services Ombudsman is to deal independently with complaints from consumers in respect of financial service providers. The ombudsman has no role in the administration by the State or State agencies of the deposit guarantee scheme. The ombudsman has the power to award compensation against financial services providers and his or her decisions are binding on the financial institution, subject to the right of an appeal to the High Court.

Given this appeal role of the ombudsman, it would not be appropriate for him or her to be involved in the liquidation process for a credit institution. The ombudsman has no function, role or power, nor should he or she, in the liquidation of authorised credit institutions. The deposits of eligible depositors are guaranteed up to the prescribed amount. I am satisfied as to the adequacy of the Bill's provisions in this area, which will require the Central Bank and the liquidator to work together to ensure that each eligible depositor receives the prescribed amount payable from the deposit guarantee scheme. Consequently, I am not in a position to accept the amendments.

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