Simon Harris (Wicklow, Fine Gael) | Oireachtas source

I thank Senators for their contributions and constructive engagement with this Bill. I look forward to a more detailed consideration of the provisions on Committee Stage and will revert directly to Members on some of the detailed questions posed during the Second Stage debate.

This Bill is designed principally to facilitate the implementation of the EU financial services agenda. It is important to note this intergovernmental agreement to which Members have made reference throughout this debate obviously was negotiated as a need to establish the Single Resolution Fund. It was signed on 25 May and a Government decision taken on 13 May 2014 approved that course of action.

As Members are aware, banking union probably has been the most high-profile EU legislative issue in recent years. I agree with those Senators who made the point that, effectively, we are retrofitting a currency with provisions and safeguards but there is a duty on those who find themselves in these positions at these times to take every course of action possible to ensure there are as many safeguards and protections in place for the citizens and for financial stability as possible. Banking union was seen as a necessary response to the financial crisis and its purpose is to put in place a more integrated and harmonised supervisory and resolution regime for the euro area banking sector.

At this stage, progress on the creation of a European banking union is at an advanced stage. The ECB took over its supervisory role in November last year and is working closely with national authorities to ensure that banks comply with the EU banking legislation. This was an important first step on the road to a banking union, as centralised supervision should ensure a high level of independence and objectivity and will help to rebuild trust and confidence in the European banking sector.

As for the valid question posed by Senator Hayden in respect of the 124 banks, it is more a matter for the regulatory structures but I will get that information for the Senator and revert to her directly in this regard. The next step was to ensure that if a bank gets into trouble, there are appropriate tools and powers to manage the failure in an orderly manner. In this regard, it was agreed that a Single Resolution Mechanism, SRM, would be established for this purpose. This should ensure an effective European response where a bank finds itself in serious difficulties. However, as the Minister, Deputy Noonan, has already noted, for the Single Resolution Mechanism to be made operational it is necessary to ratify this intergovernmental agreement to the Single Resolution Mechanism and to lodge the necessary documentation with the European Union by 30 November. The importance of completing this process on time cannot be underestimated and I welcome the support from Senators on all sides in this regard.

The rationale behind the main amendment to the Financial Services (Deposit Guarantee Scheme) Act 2009 seems to me to be clear. Its purpose is to ensure the scheme continues to have access to a reasonable level of resources as we move from the old regime to the new rules under Directive 2014/49/EU which are currently being transposed.That is important from a confidence perspective as, while the likelihood of the fund being used is quite small, it provides an important reassurance to depositors that DOS funding is available if needed, as has been demonstrated in the cases of IBRC and Berehaven credit union.

In my opening speech, I made clear why we need to legislate for insurance continuation provisions, as in their absence, there would be no regulatory regime for insurance undertakings outside the scope of the Solvency II directive. There will be an appreciation in the Seanad that with the difficulties we have had with insurance companies in the past, to which Senators have referred, this legislation is essential in order to protect the position of policyholders.

The amendment to the National Treasury Management Agency (Amendment) Act 2014 is a technical amendment to remove any potential ambiguity from existing legislation and, therefore, from a substance perspective is not designed to change the underlying intention behind the original provision. A number of Senators, including Senators Michael D'Arcy, Hayden and Barrett, raised the sufficiency of the €55 billion. At the time of negotiation of the Single Resolution Mechanism regulation at European level, there was considerable discussion on this issue but the general view emerged from member states that much of the losses of the bank should be covered by the bail in of shareholders and creditors in line with the general philosophy underpinning the Single Resolution Mechanism regulation and the bank recovery and resolution directive. In that regard, a contribution to loss absorption and recapitalisation equal to an amount of not less than 8% of the total liabilities, including own funds of the institution under resolution measured at the time of the resolution action, must be used before the Single Resolution Fund can contribute. This in itself is a significant contribution to loss absorption and should, in many cases, mean that the fund in itself may not be required. Therefore, in this context the view of most member states was that a fund of €55 billion struck an appropriate balance between the need to establish a credible and effective fund while at the same time not overburdening the sector from a contribution perspective.

In terms of safeguards to ensure the lessons have been learnt from the past in relation to the regulation of insurance companies in this country, it should be noted that the underlying framework will be strengthened with the introduction of the Solvency II directive from 1 January next year. This system will be much more risk sensitive and demanding, with increased capital requirements which will be unified across all member states. The role of supervisory authorities will be significantly enhanced, including provision for more co-operation between member states and it should make previous scenarios less likely. In addition, since the issue with Setanta arose, the Central Bank has enhanced its market intelligence on freedom of services firms and will maintain regular contact with the regulators of those insurance firms with whom it has concerns. The Central Bank will also conduct more on-site inspections of intermediaries and managing general agencies who distribute products underwritten by FOS insurers.

In relation to retrospective recapitalisation, I wish to knock this issue on the head. While retrospective recapitalisation is potentially available as a tool for the Government to seek, it seems to me rather foolish that we would apply to sell a stake in a bank to one body, albeit this European body, when we now, thanks to the recovering economy and the position we find ourselves in this country, have an opportunity to sell those same stakes to a more competitive market where there may be more potential buyers.

I was asked what is the strategic vision of the Minister, Deputy Noonan, for AIB. It is very simple; to get every cent of taxpayers' money that was put into the bank back out of it and back to the taxpayers. If anyone thinks we should have a more lofty strategic vision, I would be interested to hear it but that is what my constituents and most citizens in this country want us to do, namely, get the money back that was put into AIB. That is what the Minister, Deputy Noonan, will do.

Advice is being sought in the Department of Finance, and the process has nothing to do with electoral cycles, it will be done at an appropriate time and in the appropriate way to maximise the return for the taxpayer. We believe we now have a plan in place to get every cent of public funds that were put into AIB and other banks, back over time, with the exception of Anglo Irish Bank and Irish Nationwide Building Society.

In response to the question on why demutualisation should take place over eight years, this was a political agreement that 60% of demutualisation should occur by the end of year two, with the balance occurring evenly over the remaining six years. What this means, therefore, is that the mutualised element of the fund makes a very significant contribution to the funding of resolution should that need arise within two years of commencement. That was the decision made at the time.

Reference was also made to the deposit guarantee scheme. In addition, a banking union deposit guarantee scheme is ultimately required if we want to complete banking union. The Commission is expected to present a proposal for such a deposit guarantee scheme before the end of the year. We will await the details of this scheme.

I hope there will be an opportunity to discuss the other matters raised by Senators as the Bill continues its progress through the Seanad. I thank Senators for their contributions and assure them that the Minister for Finance will give careful consideration to all the issues raised before we take the next Stage in this House. I commend the Bill to the House.