Feargal Quinn (Independent) | Oireachtas source

I welcome the words spoken by the Senator and his objective or what he hopes to achieve. That is, not just to have rules for banking but supervision to ensure rules are adhered to. I wholeheartedly agree with his efforts to highlight the need to set the conditions for financial stability in order to avoid a repeat of what happened. The Bill also states: "The principal aim of these items of legislation is to reduce the probability of the State being forced to actively support the banking community with public funds." As he said, let the banks use their own money rather than the State's money.

Sometimes I get the impression that the Government is not that worried about addressing failings in our financial system that were highlighted in the past number of years. Instead, the Government is concentrating on getting by. I hope that my words are not too strong. That is the wrong attitude. In business one must learn from mistakes and the Government should do the same. It would demonstrate that the Government is serious about reform thus it might inject confidence into the economy which is our objective.

I welcome the principle of ending the "too big to fail" institutions. The Bill, in Part 2, section 3(1)(a) requires that: "The Governor of the Central Bank of Ireland shall ... establish capital requirements for the ratio of equity capital to total consolidated assets for all [financial institutions]". That is a change. As Senator Barrett has said, we are not just talking about banks but hedge funds and other organisations that may not be around in a couple of years' time. There will be new ones around in a couple of years' time. Given that we seek to overcome the risk to the wider economy should the requirements be linked to GDP? Is that a sensible way to go?

In the United Stated in 2010, as mentioned by Senator Barrett, a failed amendment to the Dodd-Frank Bill called the Brown-Kaufman amendment tried to put limits on the size of financial institutions. It was based on the idea by Alan Greenspan who said, "If they're too big to fail, they're too big". The Bill intended to cap the amount that a bank borrows, in various ways, to finance its operations at an amount equal to 2% of the United State's GDP. Could such a proposal be a way forward for Ireland? It would limit the possible negative effect on the taxpayer.

I support the Bill but we cannot get away from the fundamental fact that such stabilisation measures need to be implemented in a pan-European manner. It would be hard for us to do this on our own. However, it is great to see such an ambitious initiative by the Seanad. We must value the Seanad in the coming years, and certainly in the next few months. Initiative needs to be recognised.

It is interesting that some wealthy bankers are coming around to support the idea that risky benefits that do not benefit the majority of a bank's customers should be separated from a bank's day-to-day activities. Last year, Mr. Sandy Weill, former chief executive and chairman of the City Group, a major financial institution in the United States, spoke in favour of the argument. He said that we should let commercial banks takes deposits and make commercial loans and real estate loans in such a way that they are not going to risk the taxpayer dollar. If they want to hedge what they're doing with their investments, let them do it in a way that's going to be mark-to-market on a daily basis. Senator Barrett made the same argument. Mr. Weill argues that by separating the two elements innovation will prosper on the investment side of banking while not imposing a risk on the taxpayer. I think he has reached the conclusion that banks will inevitably be more regulated and that is the best solution. Some of our bankers need to stop fighting financial reform and the Government. At the very least, the Government needs to implement elements of the Bill tabled by Senator Barrett. In effect, it should introduce a type of Volcker rule to separate risk and everyday banking activities, as argued by the Senator.

It will be similar to the US Banking Act of 1933. This is very interesting legislation, which I studied yesterday. It was enacted after the 1929 Wall Street crash. The restrictions imposed by the Act kept bank deposits and banks themselves separated from the markets. It resulted in 50 years free of any banking crisis. The Financial Times, among others, has argued for a new banking Act in Britain, similar to the 1933 one in America, to put limits on banks to better avoid a future crisis.

It is welcome that the Bill before us contains provisions to separate the banking activities on which households and SMEs depend, from wholesale or investment banking activities that may involve a greater deal of risk and expose an institution to financial problems arising elsewhere in the global financial system.

Pensions will also be afforded protection through this Bill. The provision to ensure that the funding and support of SMEs is not linked to speculations or the wider financial system is both welcome and sensible. Wider shocks related to risky investment should not mean that an SME is denied a loan.

As a side issue, if we break up banks into their constituent parts, could this be of economic benefit? Could parts of the banks increase in value if they were split into their separate parts? Mr. Alan Greenspan has pointed to this possible positive effect. He said that in the United States in 1911 they broke up Standard Oil, which was the largest oil refiner in the world and had a monopoly. What happened was that the 33 individual parts became more valuable than the whole. Maybe that is what we need.

As part of wider financial stability, the Government should also be looking at giving more support to smaller financial lenders. There is actually a big worldwide movement back to credit unions and so-called community banking. Even the former US President, Bill Clinton, thinks this is the way forward. Asked about the Occupy Wall Street movement around the world to shift billions from big banks to smaller credit unions, Mr. Clinton said he believed it was a good thing, especially because bigger banks are now reluctant to lend.

There are various other ways, including billing finance which operates in crowd funding. That is an example of what can happen to encourage investment, particularly for SMEs.

This Bill is worthy of support and I hope the Government accepts it.