Sean Barrett (Independent) | Oireachtas source

I move: "That the Bill be now read a Second Time."

Cuirim fáilte roimh an Aire Stáit agus molaim an Bille don Seanad. Is as an Ghaeltacht é an tAire Stáit agus mar sin ba cheart dom an Ghaeilge a úsáid anseo.

I thank the Bills Office for its help, which was most valuable indeed, my assistants and, of course, this great House, its officers and Members, and the staff, for the opportunity to put before them today a radical measure needed to reform housing finance and banking in this country. It is the second Bill that we brought in. The fiscal responsibility Bill was brought in about this time last year, and I gather it has been to the Dáil and comes back to us fairly soon. It was important when all of us were elected in the spring of last year to take measures to assist in rectifying the public finances and to assist in the reform of banking, and that is what we seek to do.

This Bill is a piece of macro-prudential legislation and will be part of a suite of reforms to make the financial system more stable. We came across it in endorsements of what happens in Denmark. I had not heard about it until recently, although one of us might have raised it here in the House.

The IMF report on the Danish financial sector assessment programme dated March 2007 states:

The Danish mortgage system is among the most sophisticated housing finance markets in the world and presents some unique characteristics. The combination of a tight regulatory framework with developed specialized, "in-house" expertise in lending and credit assessment, and in wholesale funding and risk management has translated into a highly rated system (and institutions), able to deliver a variety of mortgage products at close to capital market conditions. ...
... Through the implementation of a strict balance principle, the system has proved very effective in providing borrowers with flexible, transparent and close-to-capital markets funding conditions. Simultaneously, as pass-through securities, mortgage bonds transfer market risk from the issuing mortgage bank to bond investors.

The key to it are these mortgage credit institutions of which the IMF speaks so highly in the Danish situation. The bonds that these institutions issue are preferred, particularly in our circumstances, either to the bank shares or to the sovereign. Of course, that is because the rescue of banks four years ago tied the Irish sovereign to the finances of the banks.

These finances here appear to be available in Denmark, at between 2% and 3%. That is a substantial advantage over what the Government would have to borrow on open markets and it is substantially better than the difficulties which Irish banks experience.

I am informed that there are low defaults because of the loan-to-value restrictions. On this kind of borrowing, the loan is maximised at 80% loan to value. At that loan-to-value rate, the default is 2% internationally and only 1% in Denmark.

This appears to be attractive to the borrowers. It appears to work well in Denmark. It is commended internationally, with warm endorsements by the IMF, the Bank for International Settlements and the European Union.

It would be a good time to start now because interest rates are low. Some of those who investigated this previously, with whom we caught up after we tabled the Bill, stated that people may have been caught in the past when interest rates were high and then declined but if we were going to start it, this would be an extremely good time to do so.

We need, as we state in our memorandum, to stimulate the economy. Senators, and, I am sure, Deputies in the other House, have spoken about the difficulties of the mortgage market. I note in The Irish Times today that Ms Fiona Muldoon, the Central Bank's head of banking regulation, stated the Central Bank has strongly criticised banks for their slow progress in tackling the mortgage crisis. The Secretary General of the Department of Finance, Mr. John Moran, expressed similar sentiments. Yesterday the The Irish Times also reported that Dr. Joachim Faber, chairman of the supervisory board of the Deutsche Börse, stated that it was almost untenable that five years into the financial crisis there was still no clarity on banking reform, and the industry itself was completely passive and this was unacceptable.

This House, however, is not completely passive and we have already worked on the Fiscal Responsibility Bill, which will return to the Seanad shortly. The House has addressed the crises in the public finances and in banking. The Central Bank and the Department of Finance indicated only yesterday that there is a need for a Bill such as the one we propose today. It is important that people cannot say the Seanad is standing idly by or, indeed, that both Houses are doing so. We are not; we are bringing an innovative system from another country and pointing to its success.