Brian Hayes (Dublin South West, Fine Gael) | Oireachtas source

I thank both Senators for raising this issue. The prosperity of the economy is inextricably connected to the prosperity of our banks because we own most of them and the greater part of one of them. The only way we will get our money back in some shape or form is to bring them back to some trajectory of profitability over the years. Given the enormous amount of taxpayers' money put into these entities, the only way to get it back is to bring them back to a financially viable position. We need a change of culture in banking where bankers know their business no different from Senator Quinn when he was in the retail business or Senator Barrett when he taught young people in TCD. One has to knows one's business. The great dilemma in the banking system was bankers were disconnected from their business. They did not know the people who had deposits in their banks and regarded them with arrogance. They did not make prudential investments in businesses or entrepreneurs and put all their money into bricks and mortar.

We need to imbue a fundamental change of culture and I hope this legislation, which has been hanging around for a long time, meets the challenge of better regulation and exposes us to international experience. Senator Barrett's point in this regard is well made. We need to expose our entire regulatory establishment to the international rigour other countries employ. It is more important in Ireland than other countries because we are small and highly deleveraged. We have a huge private sector economy vis-à-vis our public sector economy. The financial services sector comprises 16% of the economy, which is large, although it is 30% in Luxembourg. In a large financial services sector, which the State wants to expand, a regulatory environment is needed within the Central Bank culture which meets that need and which people say meets the international standard people will stand over. I very much agree with that.

I very much agree with that.

On the substance of the amendment, section 49 already provides for the Central Bank to consult with any entity it considers appropriate, so the consultation envisaged by Senator Barrett is already permitted under the Bill. Section 49(1)(c) provides that the Central Bank may consult with such other persons as the bank considers appropriate to consult in the circumstances. There is no difficulty with the Central Bank consulting with the Competition Authority and the National Competitiveness Council, as it sees fit. As the Minister for Finance pointed out earlier today in the Lower House, ultimately the Central Bank is independent of the political system. It must be, by definition. Unless it is we will not have a regulatory environment or culture that is free of the political shenanigans that can sometimes take place. Section 49 empowers the Central Bank to consult with whatever it chooses in its work.

I read the transcript of the Senator's discussion with the Minister, Deputy Noonan, on Committee Stage. It was an interesting discussion in which the Senator discussed the issue of competitiveness. We need a competitive model in this country. The Senator suggested that the pillar bank model will not fit the bill and will fail. It is a little like the French Revolution in that it is probably too early to tell. However, the Senator is at one with the Minister for Finance when he speaks about competition. In a series of later amendments we try to address that in respect of foreign banks from outside the European Union. We would allow those banks to open branches following approval of the Central Bank, to encourage the type of competition the Senator wishes to see. There is nothing to stop such banks coming to this country at present. The success and stability of the Irish economy is predicated on more international banks coming to invest in Ireland and seeing Ireland as an opportunity. They will not come unless they see a future for the country. The Irish economy and the banks are inextricably linked.

In amendments Nos. 5 and 6 we will deal with the lack of competition issue, which the Senator discussed with the Minister for Finance. It is on foot of that discussion that the Minister has tabled amendments Nos. 5 and 6 to try to deal with that issue and to have a more flexible approach for encouraging non-EU banks to come to this country to establish branches. That will provide the competition and international experience suggested by the Senator.

The Irish banking system has gone through a torrent of change and it is only fair for Senators to ask if that has led to a cultural change. That is the kernel of the issue here. We have set out our stall in terms of the pillar banks. The banks have become smaller entities and following the Mercer report the Government is now seeking reductions of between 6% and 10% in pay and remuneration across the banks. All of the boards have effectively been taken out. There is now more international experience within those banks. If one examines the stress testing that followed the establishment of the pillar banks in March and April 2011, there was a very strong tiered capital ratio of 10.5%. The likelihood is that when the new EU stress testing of banks emerges in the first quarter of next year the capital ratios will be approximately 9.5%. There has been much change within the banks, and they need to get on with that change and make sure they have the people in their retail and commercial settings to deliver the model that is required. Fundamental to that there must be a regulatory environment that works for everybody.

The collapse we experienced was not just a banking collapse but essentially a collapse of the entire regulatory system. There is no doubt about that. It is a matter of huge concern to the Irish people. I agree with the Senator's remarks earlier about the tapes. People want to get to the bottom of this. They want answers and, ultimately, they wish to see prosecutions in the courts. All of these matters will be resolved, hopefully to the satisfaction of the public and these Houses, through the inquiry system the Government intends to put in place. All of those banks, regardless of whether their tapes have been published so far, would have to make themselves available with that information to an inquiry, were it to be established. That point has been made very forcefully by the Minister for Finance today.

While I welcome the Senator's amendment, there is no need for it. Under section 49 the Central Bank can consult with any entity it chooses in respect of the competition issue. We are hoping to deal with the substance of the Senator's point about competition in amendments Nos. 5 and 6.