Michael D'Arcy (Wexford, Fine Gael) | Oireachtas source

I thank the Senator for raising this issue. A secure and well-regulated financial sector is essential to the functioning of the economy and ensuring that consumers have confidence in the safety of the system and its ability to meet their needs. At the outset, it should be noted that Irish retail banks do not generally engage in significant volumes of high risk commercial activity, so providing for a separation between their commercial and retail activities would not significantly enhance the protections afforded to retail consumers.

In January 2014, the European Commission released its proposal on structural measures to improve the resilience of EU credit institutions, the so-called banking structural reform, which would have imposed new constraints on the structure of European banks and would have led to the reform advocated by Senator Ó Domhnaill. The proposal aimed at harmonising the different initiatives that had grown in Europe in the previous years. However, the Commission withdrew the proposal in October 2017 due to the lack of progress in the negotiation of the file after the Council agreed its position in 2015. The Commission also noted that the objectives pursued by the proposed rule have already been achieved by other regulations.

In the aftermath of the 2008 financial crisis, a significantly strengthened regulatory framework was put in place for the banking system. This EU-wide framework, known as banking union, was designed to protect consumers, in this case depositors, ensure banks are robust and able to withstand any future financial crises, prevent situations where taxpayers’ money is used to save failing banks, reduce market fragmentation by harmonising the financial sector rules, and strengthen financial stability in the euro area and in the EU as a whole. There are two key elements to banking union: enhanced capital requirements for banks and mechanisms for the resolution of insolvent banks that will protect retail customers against the effects of future bank failures.

The enhanced capital requirements that banks must meet are set out in the capital requirements directive IV, CRD IV, and the capital requirements regulation. These requirements are to ensure that banks can withstand future economic shocks, manage their risks prudently and continue to carry on their business as normal during economic downturns. The bank recovery and resolution directive, BRRD, was adopted in spring 2014 to provide authorities with comprehensive and effective arrangements to deal with failing banks at national level and co-operation arrangements to tackle cross-border banking failures. The directive requires banks to prepare recovery plans to overcome financial distress. It also grants national authorities powers to ensure an orderly resolution of failing banks. The directive includes rules to set up a national resolution fund that must be established by each EU country. All financial institutions have to contribute to these funds. Contributions are calculated on the basis of the institution’s size and risk profile.

In addition to the work on capital requirements and resolution, a deposit guarantee scheme is in place to protect depositors in the event of a bank failure. The Central Bank of Ireland is responsible for the operation of the Irish deposit guarantee scheme, DGS, which covers licensed credit institutions, including credit unions, operating in the State. The DGS covers deposits up to €100,000 per eligible depositor per credit institution. In November 2015, the Commission proposed to set up a European deposit insurance scheme, EDIS, for bank deposits in the euro area. The EDIS proposal builds on the system of national deposit guarantee schemes, which should lead to the protection of bank deposits being fully financed by EDIS. Discussions on this issue are ongoing.

I remind the Senator that it was the retail and commercial side of the banks that crashed here, not the investment side. Often people lump everything into the same pot but that is not correct. It was purely the retail and commercial part of banking that collapsed in Ireland and brought down our system. The investment banks have received no money from this jurisdiction. In addition, in the case of non-domestic banks that are operating in the international financial services area, where I have authority, no non-Irish bank received any money in the Irish banking crash.