Sean Barrett (Independent) | Oireachtas source

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

I welcome the Minister of State, Deputy Hayes, to the House. Two years ago on Monday the Members of the House were elected and, like the Minister of State who had been elected some weeks before, we knew we had to face the problem of the public finances and the banking sector. These two issues have exercised most of our waking hours since then. We were pleased to use the procedures of the House for a fiscal responsibility Bill dealing with public finances and a mortgage finance Bill dealing with the need to change how we finance housing. Discussions are still ongoing on the latter, while fiscal responsibility legislation has passed through the House.

Today the Financial Stability and Reform Bill comes before the House, which completes the agenda needed by everybody elected to the Houses of the Oireachtas a little over two years ago. The purpose of the Bill is to promote the financial stability of Ireland by improving accountability and transparency in the financial system, to reduce systemic risk, end the concept of "too big to fail", improve capital adequacy and protect the State from non-transparent safety net subsidies and open-ended bailouts of monetary and financial institutions.

The Bill is presented to the House in a spirit of compromise, absence of partisanship and co-operation. This is a matter which we have all found on the doorsteps, even still. The need to regulate Irish banking genuinely annoys many people in the country. I am a member of the Oireachtas Joint Committee on Finance, Public Expenditure and Reform and we have found that one thing which unites people of very disparate views is the need for reform in this area. As the Bill states, it has already cost us €73 billion and it is rumoured another €16 million will be needed for one institution alone. This would bring the entire cost to approximately 57% of GDP. This is a problem which the Oireachtas and those who lead us in government would much prefer had never happened.

Before I go into detail on what we have before us, I thank the Bills Office, Seanad staff, the Minister of State and Dr. Charles Larkin, Nora Ward and Maura Sullivan from Boston who helped to put together what is in the Bill. The Bill has a most distinguished lineage. Parts are taken from financial reform legislation in the United Kingdom, which is now on report stage, and the parts taken from the United States are from chairman Volcker, Senator Dodd, Congressman Frank and Senators Vitter and Brown. We are bringing the most recent proposals we could find from two countries with which we have significant trading links to see what the United Kingdom and the United States did when they encountered this banking problem, albeit to a much lesser degree than the Minister of State, Deputy Hayes, the Ministers, Deputies Noonan and Howlin, and the Taoiseach had to confront, because I am afraid in this particular case our bank collapse was much more serious relative to GDP than anybody else's.

According to what we found, the key is to increase the equity or capital requirements. I am advised that in the Cypriot case as little as 2% of the capital was equity and 98% was borrowed or leveraged. The key element in the Volcker proposals and in Senator Dodd's legislation is to raise this percentage to require banks to have 10% equity and, in exceptional cases, we would give the Governor of the Central Bank the power to raise this to 15%. We must have a less risky conduct by banks and bank managers. We must protect the taxpayer against any recurrence of what happened in September 2008.

The other idea behind the legislation, particularly in the United Kingdom but also in the United States versions which came into operation in July last year, is to restore the type of banks we had. Utility banking would be restored and separated, as it was historically, from merchant banking, or casino banking to give it a more properly deserved title. The supports which governments give to banks in the old model, which is based on the intertemporal non-concurrence of people saving on short and borrowing on long, with the bank as a financial interrogatory between the saver and the borrower, would be restored. The lender of last resort kept liquidity in the system. What happened in Ireland, and the other jurisdictions which we examined for this Bill, was that the lender of last resort was relied upon for solvency. We hope, along with everybody in the House and in the Dáil, that this crisis never recurs. We want to go back to the old bank model which had money in ATMs and protected people's deposits. I mention ATMs deliberately, because the threat held over the government of the day was that there would be no money in the ATMs. The Bill protects this area.

Once one reaches €1 billion, which is scaled down from the US model, one is required to have 10% capital.

In future bankers will gamble with their own money, not with the taxpayers' money. Those are the two kernels, which are widely accepted in countries with very sophisticated banking systems, and with which we would hope, when all of this is over, to restore parity. There is a reformed system in the United Kingdom which is at Report Stage but before long will receive the royal ascent and there is also a reformed system in the United States. One cannot have the continuation of the so-called zombie bank system here which the Minister and his colleagues have tried to deal with.

The Bill is an important parliamentary initiative. The legislative list of the Minister of State at the Department of Defence includes a betting Bill; legislation on customs and the NTMA and a Central Bank Consolidation Act. Therefore, the Bill is needed and was offered in a spirit of helping. It would fulfil a valuable role for the Seanad, parliamentarians in general and when Ministers meet people whom I find are angry about the role of Irish banks. Yes, we are addressing the too big to fail issue and the gambler issue. We also require banks to be better capitalised. Of course we regret the immense burden that has been placed on so many people. Every day, since we have been elected, we have discussed having to put the best part of €90 billion into recapitalising banks.

Is this light touch regulation? No. It is de-supervision, a word I like. Nobody was supervising. The supervision proposed in the Bill did not happen in our institutions. In section 5, the Governor, our good and mutual friend, Professor Patrick Honohan, will be asked to conduct a study that will apply the Volcker rule to the Irish banking system and to have them supervised again rather than allowing the banks to impose so much costs on the economy. There is even a section on utilities. It means that when we restore a utility the Minister will have the power to restore wages in the banking system to something more appropriate to running a utility. I listened to the Minister of State speak on radio this morning and I am sure that the section will be of interest to him.

The more risks bankers took the more the more they were guaranteed by the Government through its "put option", an amazing phrase. When I studied economics it was called subsidies. Such a provision led to moral hazard and reckless behaviour by banks. The more bankers did the more bonuses they got. This legislation will attempt to put an end to that. If one wants to do that in the future please use somebody else's money and not ours. The bankers should use their own money. In future banks should be funded from profits reinvested in the business and not paid out in bonuses of the kind that led to the problems that the Minister and the Taoiseach have had to deal with. Reckless banking merited the rate of pay that is four times the sum paid to the Taoiseach and multiples of what Ministers receive. We want capital requirements to be met by equity, not borrowing. We want the shareholders to take the risk. We want utility banking and merchant banking separated.

The Minister may be interested to hear the interview by Bill Moyers with Mr. Paul Volcker which was published in Forbesmagazine and described how the Volcker rule would operate in the United States. In the television programme Bill Moyers said:

Forbesmagazine has a good word for you. There was an article last month and I'll quote it: "While the Volcker Rule will surely put a damper on bank trading profits, it will force many firms to go back to the basic blocking and tackling of the financial services business - acting as intermediaries for their clients. It may also help the Fed, shareholders and taxpayers sleep better at night. How about that?"

Mr. Paul Volcker replied: "God bless Mr. Forbes or whoever wrote that". My group offers this legislation in that spirit. We need to tackle the problem but the matter is not on the list of things to do by the Minister of State, Deputy Kehoe.

It has been clear at any committee that I have attended in the House that we must tackle banking. In a cross-party, cosmopolitan and broad encompassing spirit I offer the Bill to the House. We all need to accept it in order to restore the credibility of parliament and redress all of the dreadful things that have happened to us between 2008 and 2010. Therefore, it is my duty, and I am proud to do so, to commend the Bill to the House.