John Perry (Sligo-North Leitrim, Fine Gael)

I thank Senators for their contributions on this important motion. We are a peripheral country and our economic welfare depends on the influence of the wider European and global economic environment. It is within this context that we must continually review our policies and make adjustments to meet the challenges the situation brings. The motion before the House today to approve the draft statutory instrument amending the end date of the ELG scheme is a reflection of the Government's commitment to restoring the banking sector to financial health and, in this way, to contribute to the overall recovery of the economy as a whole.

All important deliberations, such as the request for the approval of today's motion, must be realistic and objective in assessing the facts before reaching a conclusion. What are the facts relevant to this motion? We are making progress in restoring stability to the Irish banking system through the combination of interlocking initiatives that make up the financial measures programme referred to earlier.

A key element is to address the funding problem being experienced by the participating institutions in the deposit and debt issuance markets. Part of the approach used in the bank funding area is the eligible liability guarantee scheme. We have seen progress on funding on a number of fronts here, with the cessation of deposit outflows from institutions in the past six months and a marked reduction in dependence on the European Central Bank funding since April. A number of liability management exercises since April, which led to savings of approximately €15.2 billion, have been completed within two of the participating institutions. Large international banks have recently given an indication there may be some demand in the near future for non-guaranteed deposits for certain corporate customers.

Notwithstanding these positive indications, market sentiment continues to be negative towards the participating institutions and the Irish sovereign as the external economic environment has deteriorated with the intensification of sovereign debt concerns in Europe, turbulence in the global financial markets and concerns regarding world economic recovery.

The main reason for the motion to approve the extension of the ELG scheme is the considerable uncertainty regarding the impact on individual banks and domestic financial instability that could result from non-extension. The risks posed and the potential consequences of the non-continuation of the guarantee are too great to ignore, including a threat to bank deposits. In this context the Minister for Finance has been advised by the Governor of the Central Bank and the NTMA that an extension is essential in present circumstances to maintain the competence of investors and deposit holders in the banks and to ensure the continued recovery of the banking sector. The EU Commission and the ECB agree the scheme should be extended. The requests for the extension of the ELG scheme should be seen in the light of the consensus of the Irish and European authorities that such an action is absolutely necessary.

The announcement to extend the guarantee helped to raise, support and promote the continuing work of the Government and Irish authorities in repairing and restructuring the banking system.

Senator O'Brien asked about the interest rate cuts. Bank of Ireland operates at arm's length from the Government, and its management assesses mortgage and deposit rates in a very competitive environment. The State shareholding is approximately 15% following the sale of the equity stake to a consortium of international investors. The regulator has stated that he does not require legislation to manage mortgage interest rates. The topic remains an area of focus for the Government and the Department of Finance. The fees for the ELG have been paid on a quarterly basis in cash, not preference shares.