Martin Mansergh (Tipperary South, Fianna Fail)
Link to this: Individually | In context

I am pleased to present to the House the details of the Government's recapitalisation package for Allied Irish Banks and Bank of Ireland. The recapitalisation of our two largest banks is a central element in the Government's broader strategy for addressing the financial crisis, ensuring our two major financial institutions remain sound and stable and in position to fulfil their vital role in the economy. The Government has also progressed the other main elements of its approach to securing our financial system, including the package to address the concerns of ordinary customers of the banks, and I will later take the opportunity to outline to Senators the position on these other measures.

Without covering old ground, in introducing the recapitalisation package to be offered to AIB and Bank of Ireland, and the substantial State funds that this involves, it bears noting the unprecedented conditions that persist on international financial markets and in the international economy generally. Sources of funding for banks globally have been under significant pressure, while the expectations of international markets have increased on the levels of capital that should be held by banks to cover potential losses. At national level, the contraction in economic activity seen in the past year, and the related fall in property values, places pressure on the asset side of the banks' balance sheets. All these pressures, national and international, have come to the fore at a time when the need to maintain the flow of credit to the wider economy is, perhaps, more vital than ever to ensure funds are available for sound businesses and entrepreneurs to enable them to provide the employment and the output which will be the base of our economic recovery.

The Government's strategy to address these various financial and economic pressures in the banking sector has been comprehensive. It was in a context of fear and uncertainty which permeated international funding markets that the Government quickly moved last September to introduce the guarantee of Irish bank liabilities, which has provided certainty to depositors and investors alike regarding Irish banks and which was successful in securing the liquidity requirements of our banks. The Government's recapitalisation programme, announced in December, addresses both the expectations of international markets on Irish banks' capital levels and the needs of our major financial institutions in covering potential loan losses in the coming years.

Following the announcement of the recapitalisation programme, the Government initiated further intensive discussions with Allied Irish Banks and Bank of Ireland with a view to securing the position of our two largest banks. As a result of these discussions, the Government has decided on a comprehensive recapitalisation package for the two banks, which will reinforce the stability of our financial system, increase confidence in the banking system here and facilitate the banks involved in lending to the economy.

The Government will provide €3.5 billion in core tier 1 capital for each bank. The capital to be provided to each bank was determined following detailed engagement with the banks and with the benefit of survey information of the banks' loan books, which was conducted on behalf of the Government by PricewaterhouseCoopers. A careful assessment was made of the potential losses that the banks face on their loan books in the coming years, taking into account the impact of likely trends in property values and various stress scenarios for the economy. While the Government was criticised in some quarters for taking too long to proceed with a recapitalisation of our major financial institutions, the time taken to assess as accurately as possible the capital requirements of each bank is worthwhile in terms of the assurance that can be offered to markets on the levels of capital in the two largest banks, and the fundamental strength of their position in the coming years. The capital being provided by the State will boost the core tier 1 capital ratio of AIB to 8.5% and that of Bank of Ireland to 9%. These are high capital ratios by international standards and the banks will, therefore, be in a strong position to raise the funding they require on international markets and withstand loan losses arising.

In return for the substantial investment being made, the State will hold preference shares which have a fixed dividend of 8% of the total sum invested, payable in cash, or with ordinary shares in lieu in the case where the banks do not have profits to pay a dividend to its shareholders. The banks can redeem the preference shares to the State at par value within the first five years and at 125% of face value thereafter. Warrants for the purchase of shares also give the State an option to purchase in five years up to 25% of the ordinary share capital of each bank at predetermined strike prices, which are based on the current market share prices. These warrants provide the State with access to the future upside of the investment it is making in the banks as this will be reflected in future increases in the banks' share prices.

As part of the terms of the investment the Minister for Finance will have the right to appoint 25% of the directors in total to the board of each bank. The Minister will also hold 25% of the total ordinary voting rights in the two banks in respect of certain key functions, including decisions on change of control and board appointments. These terms provide for an adequate degree of State representation in the corporate structure of the two banks, given the substantial investment it is making. However, the Government has been clear that it does not intend to take control of these banks and the terms of the recapitalisation carefully provide for this. Following this recapitalisation, the State will not hold ordinary shares in either bank, other than existing NPRF holdings, while the option to exercise warrants in the future is capped at a defined level of shareholding.

In addition, the terms of the recapitalisation provide that each bank will have the possibility of redeeming up to €1.5 billion of the State's investment by raising privately sourced core tier 1 capital prior to 31 December 2009. In this case the warrants held will be reduced pro rata to that redemption to an amount representing not less than 15% of the ordinary shares of the bank. The Government has made clear on a number of occasions that it encourages the banks to access private sources of capital where possible, and the banks are therefore incentivised to do so under the terms of this recapitalisation. Equally, the terms of the deal convey a clear message internationally that the State will not inhibit private investors now or in the future in the Irish banking sector. Ireland, as a small, open economy, is by nature dependent on the investment it can attract internationally and the key task now for the two banks is, therefore, to raise funds to enhance their funding and capital position and expand the contribution they make to our economy. The terms of the recapitalisation provide a clear path for the two banks to remain privately run, privately owned institutions, not least because this is by far the most efficient way to organise the vital role played by the banks in the economy.

While the State is clear in not seeking to take control of the banks, the terms of the recapitalisation provide an appropriate return to the State for the investment it is making in the banks, in the context of current financial market conditions, while avoiding the mistake of placing overly stringent costs on the banks, which would impede them from lending. The capital investment also brings a clear return to our economy. Our two largest financial institutions are in a strong position, able to withstand losses arising on their loan books, and equipped to maintain the flow of credit to our economy. I will outline later the commitments the Government has secured from the two banks in terms of their lending to the real economy.

The recapitalisation programme will be funded from the National Pensions Reserve Fund. Some €4 billion will come from the fund's current resources while €3 billion will be provided by means of a frontloading of the Exchequer contributions for 2009 and 2010. The necessary amending legislation to the National Pensions Reserve Fund Act will be introduced shortly.

The recapitalisation package for the two banks has been recommended to the Minister by the Governor of the Central Bank, the Financial Regulator, the Minister's financial advisers and the National Treasury Management Agency. The Financial Regulator has confirmed that the preference shares qualify as core tier 1 capital, meaning that such funds are of maximum utility to the banks in terms of the buffer provided against loan losses.

The recapitalisation package is subject to the approval of the ordinary shareholders of each bank, at general meetings which will be convened without delay. The Government's proposals on recapitalisation have also been designed having regard to the European Commission recapitalisation communication and are subject to EU state aid approval.

The Government is continuing its discussions with the other covered institutions, Irish Life & Permanent, EBS and Irish Nationwide Building Society, concerning their respective positions. While capital is available where such is required, any possible requirement for these institutions would of course be substantially less than that for the two main banks. As Senators are aware, Anglo Irish Bank, now under full public ownership, will continue to trade as a going concern with appropriate Government support as necessary, following consultation with the EU authorities, to ensure its viability.

I turn to the other aspects of the Government's strategy for addressing the impact of the financial crisis in Ireland. The Government is committed to underpinning its recapitalisation proposals with further measures to strengthen and secure the Irish financial system. In that context and within the six-month review of the guarantee scheme to be completed by mid-April 2009, the Government will examine how the guarantee scheme could be revised in ways which include supporting longer-term bond issuance by the banks. This review will be subject to European Commission approval and consistent with EU state aid requirements. Such a review would be in line with international and EU trends where the average term of state cover for bond issues extends beyond 2010.

The Government is also conscious that in current market circumstances there is a need to bring greater certainty and transparency to the operations of systemically important financial institutions, in particular for specific asset classes currently perceived as carrying a higher than average risk. Irish institutions have engaged in lending for land and property development which exposes them to specific risk at a time of falling property prices and difficult economic conditions.

In line with developments internationally where the UK and US have made specific proposals, and current discussions at EU level, the Government will examine proposals for the management and reduction of risks within financial institutions with respect to specific land and property development exposures. Ongoing work at the level of the European Central Bank and in the EU will inform this process.

I have already outlined to Senators the conditions attached to the recapitalisation proposals to protect and ensure a return for taxpayers. I would like to highlight broadly further measures to which the banks have committed regarding credit supply and their interaction with customers.

The continued flow of credit is vital for our economy. To establish the exact position regarding the availability of credit, the recapitalised banks have agreed to fund and co-operate with an independent review of credit availability which will be managed jointly by the banks, Government and business representatives. The recapitalised banks have also agreed to work closely with IDA Ireland, Enterprise Ireland and State agencies to ensure the supply of appropriate finance to contractors engaged on major projects sponsored by them. They have also agreed to engage in a "clearing group" to identify specific patterns of events or cases where the flow of credit to viable projects appears to be blocked and to seek to identify credit supply solutions. The banks have also agreed to provide €15 million each to a new seed-capital fund.

Importantly, statutory codes of practice on business lending and mortgage arrears have been finalised and will be published by the Financial Regulator this week. The codes will be put in place to ensure all banks operating here deal in an honest way with customers and that consumers in particular are treated in a reputable and respectable fashion. The business lending code will require banks to offer annual review meetings to inform customers of the basis for decisions made and to have written procedures for the proper handling of complaints. Where a customer gets into difficulty the banks will seek to agree an approach to resolve problems and provide reasonable time and appropriate advice.

Under the mortgage arrears code where a borrower is in difficulty the lender will make every reasonable effort to agree an alternative repayment schedule and will not commence legal action for repossession until after six months from the time arrears first arise. The two recapitalised banks will not commence court proceedings for repossession of a principal private residence until after 12 months of arrears appearing, where the customer continues to co-operate reasonably and honestly with the bank. The recapitalised banks have also assured Government that in the normal course of events they will make every effort to avoid repossessions, as has been evidenced by the low level of repossessions by them to date.

It is important that I address the issue of remuneration in banks. The Government is of the view that significant reductions in the remuneration structures of banks are required. The banks benefiting from State capital, AIB and Bank of Ireland, accept that pay restraint is important in the overall context of the economy and the supports being provided by the taxpayer, and will act accordingly. As a step in this direction, they accept that the pay of senior executives will be curtailed. Total remuneration for all senior executives will be reduced by at least 33% and no performance bonuses will be paid to these senior executives and no salary increases will be made in respect of 2008 and 2009. The two banks have also accepted that, for non-executive directors, fees will be reduced by at least 25%.

In addition, the report of the covered institution remuneration oversight committee, CIROC, is expected shortly. As Senators will be aware, the role of CIROC is to consider the remuneration plans of each of the institutions covered by the Government guarantee. The Minister for Finance has indicated he will be writing to the chairman of CIROC, Mr. Eddie Sullivan, to ask him to examine whether an overall cap on executive remuneration can be introduced for the banking sector, in light of the significant State support that is being provided to the sector, and the pay restraint which is now a feature of other sectors, including the public sector. The banking sector will need to play its part, along with other sectors, in reducing our cost-base to ensure our competitiveness in the years ahead. The Government will therefore be bringing forward proposals regarding remuneration in the banking sector on receipt of the CIROC report.

The Government's recapitalisation package for AIB and Bank of Ireland and the associated measures I have outlined represent the taking on of a significant and indeed unforeseen role by the State in securing the banking sector. There have been important issues for the Government to address in taking on this role, at a time when we also need to ensure fiscal prudence, taking difficult decisions to ensure our competitiveness internationally. The proposals presented by Government crucially provide for an adequate return to the taxpayer who is making the investment, appropriate representation for the State in the banking sector and most importantly the future health and viability of our banking sector.

A priority for the Government has been to ensure that all intervention in the banking sector has the ultimate goal and effect of benefiting and securing the position of customers of the banks - account-holders, mortgage holders, businesses and entrepreneurs. The bank customer package will ensure the interests and concerns of consumers are to the fore.

In all, the Government's recapitalisation proposals for AIB and Bank of Ireland represent a comprehensive Government commitment by the State to maintaining the two main banks as strong, forward-looking, confident institutions, able to play their part as the primary financial services and credit providers in this country.

Paul Coghlan (Fine Gael)
Link to this: Individually | In context

I welcome the Minister of State and thank him for his explanation of the Government's intention regarding the recapitalisation scheme. I wish to share time with Senator Paul Bradford.

Paddy Burke (Fine Gael)
Link to this: Individually | In context

Is that agreed? Agreed.

Paul Coghlan (Fine Gael)
Link to this: Individually | In context

We all accept we are in very difficult and dangerous times with the economy and because of the banking situation. If our economy is to have any future success - which we all wish for - and if it is to get out of these doldrums, the stability of the banking sector is vital. While Fine Gael might not agree with the proposal outlined, we still hope it will be successful. My party's spokesperson on finance, Deputy Bruton, has outlined another model worthy of consideration and to which I will refer later.

The shocking situation was referred to briefly on the Order of Business and there have been daily revelations which have not been doing us any good. We thought that the difficulties were largely confined to the concealment between Anglo Irish Bank and the Irish Nationwide Building Society but now we have learned of the exceptional support offered by Irish Life & Permanent. I am not quite sure whether this was offered under the cover of the guarantee scheme as there seems to have been conflicting views but it had the effect of artificially boosting the deposit base of Anglo Irish Bank at a crucial time. The guarantee scheme is very important and the Minister of State referred to it in his speech. Investor confidence will be hindered unless the Government extends that scheme and I presume it has made provision to do this beyond 2010. It does not really matter what we think but the markets will not react properly unless they have trust and confidence. The Government has superior control and moral authority because the banks have their hands in the lion's jaw, so to speak, and the Government can oppose the appointment of directors and the scale of remuneration. This approach is supported by Fine Gael. However, it is crucial the Government takes further measures as necessary to extend the guarantee scheme beyond 2010.

The assistance given to Anglo Irish Bank by Irish Life & Permanent and the routing of this assistance through the investment management arm of Irish Life & Permanent is a practice upon which there has not been a word from the Irish Association of Investment Managers or from the Pensions Board. They have been strangely silent but they should have something to say. We thought this sort of malpractice had finished but now it seems to have extended to Irish Life & Permanent. It is to be hoped that Allied Irish Banks and Bank of Ireland were not involved in anything of that nature but if anything turns up in this regard, it will damage confidence further. The other three institutions were caught using practices which some would regard as fraudulent, which they may be. Is the appointment of an inspector required? The Government has appointed independent directors to Anglo Irish Bank and they are carrying out an investigation. I do not know the results of this investigation and other investigations and I do not know the timescale for the investigations. I ask the Minister of State to comment in his reply.

Following the putting in place of the guarantee scheme, the Minister spoke about the necessary recapitalisation and also about restructuring of the banks. He said that the six banks covered amounted to too many in number for this economy and I think he thought it desirable that this number should be reduced to two or certainly three. What is the Government's plan because we have not heard anything of late? I await the Minister of State's response on this matter. There is no doubt about the very cosy insider arrangements in place in all the interbank lending that took place and this damaged confidence and was the cause of our current problems. It would appear as though there was a golden circle in place to whom the normal rules did not apply and they thought they could make it up as they went along. This has been a sad event for the country and it has damaged our reputation abroad. However, this is the situation we find ourselves in and we have to get out of it.

Despite Fine Gael's reservations we welcome this proposal and wish it success. However, in our opinion there is another way of dealing with this issue and that is to set up new banks out of the old banks and leave behind a legacy bank. I know that Senator Butler and I are at one in this view. We have to stir things again and assist small and medium-sized businesses throughout the land. We know that these people are starved and choked at the moment because the ability of the banks to lend is impaired and we have to free this up. The Government's proposal to recapitalise the banks to the sum of €7 billion will not result in the banks making that amount available as they will just use it to improve their ratios. I agree they must be prudent in their lending policies but if Deputy Bruton's proposal had been adopted by the Government, we could have a new bank, pay the legacy bank for what it would undertake to buy and the banks could begin with a clean balance sheet and have capital available. This would better inspire investor confidence and perhaps bring in outside private funding. I ask the Minister of State to state his views on this proposal.

Paul Bradford (Fine Gael)
Link to this: Individually | In context

I welcome the Minister of State to the House for this debate on the crisis in the banking system. We are now entering the Donald Rumsfeld world of the known unknowns and unknown unknowns and over the past 48 hours, more of the unknown unknowns have appeared and have reduced even further the public confidence in our banking system. This side of the House recognises the absolute and urgent need for a credible banking system which is working properly. Without such a banking system we cannot have an economy and without an economy we cannot have a proper functioning society. A debate on bashing the banks is not sufficient because we need to respond to the crisis which has been caused and recognise what is at the heart of it and try to ensure it cannot happen again. We need to restore public confidence along with investor confidence and international confidence. We may not all readily be able to have a full understanding of the banking system. When the man and woman on the street talk about the banking system, they talk about the scandals, the persons involved and the levels of remuneration. They also note those who led us into this crisis continue heading up the banks. The cry on the street is there must be changes in personnel at the top of banking management with significant levels of resignation at executive level. For better or for worse, that is necessary to restore public confidence in our banking system.

There is a deep anger among people, particularly those who have lost their jobs, at the banking system and the mechanisms which have resulted in the current economic crisis. It cannot be readily addressed or properly analysed. However, when people see top banking officials going unpunished for what they have caused, that must be addressed.

Maintaining international confidence in the Irish banking system is the gravest concern. The revelation in the past 48 hours of yet another sweetheart deal for Anglo Irish Bank has damaged international confidence. It is not just a question of international investors wondering about the competence, or otherwise, of the political system. As was said this morning by Senator Quinn, they will also question the ethics behind the conducting of banking and business in this country. That needs to be addressed as a matter of urgency.

Over the past several months, all Members have raised the recapitalisation issue. Clearly, not enough money was going around the banking system to generate economic activity. Recapitalisation of some form was urgently necessary. The Minister of State has presented one such proposal to the House while Senator Coghlan outlined the Fine Gael Party's proposals. Where they differ is in the separation of the toxic debts. Will the Minister of State outline how the recapitalisation programme will respond to the bad debt crisis? The House could have an all-day debate on this issue because we still have not grasped the scale or level of toxic debt in the banking system. The investment of €7 billion, a large amount which only a few years ago would have run the country for a year, is being pumped in on one side while there is an unknown level of toxic debt on the other side. This is a concern, not just simply from a political perspective but a broader economic one, when we are investing pension funds into a black hole the size of which we cannot comprehend. Will the Minister of State give his views on the toxic debt issue?

I was initially concerned about the proposed 8% dividend from the banks because a similar proposal was introduced by the British Government in its recapitalisation programme. It demanded a dividend of 12%, which simply did not work as it did not allow the banks have a sufficient liquidity ratio to put money back into circulation. However, I now accept there is some flexibility in the Government's 8% dividend in that if the banks are not in a position to pay by way of cash, it can be resolved by way of ordinary shares in lieu. That is an improvement on what I thought was the original proposal. We would like to ensure the banks repay the taxpayer and the Government as soon as possible. Being realistic however, the most urgent necessity is to ensure money flows into the economy again.

The proposed 33% increase in mortgage availability and the 10% increase in assistance to small business look positive on paper. As Senator Ross pointed out earlier, however, these increases are occurring when there are zero flows in both areas. It is not enough and we should be demanding a quantifiable pool of money being made available for mortgages which would allow 20,000 people, say, over the next several months to buy homes. The same principle of a defined amount should be applied to loans to small businesses. Vague percentage figures are not sufficient. We need to get precise numbers and figures as to how many couples and young people will be facilitated to buy houses, getting the property market moving and increasing State revenue. We need precise figures of the loans to be made available to small businesses. On every high street, low street and no street, small businesses are shutting down because of zero capital. Ten percent of zero is still zero. The Minister needs to put further pressure on the banks regarding that figure.

The so-called sacrifice by banking personnel to reduce salaries at the top scale by 33%, while a step in the right direction is still a token response to the scandalous levels of executive pay which existed and resulted in this disaster. I am disappointed the penalty they are paying is not in any way in proportion to what it should have been.

I recognise the scale of the crisis. The Government's policy is set out in this programme. I am, however, concerned about the level of toxic debt which we cannot quantify. I am also concerned about the levels of moneys being made available for mortgages and small businesses. While they are there in theory, they may not be there in practice. The next few crucial weeks will decide the future of the banking industry and the short to medium-term future of the economy. We cannot yet fully grasp the grave economic crisis facing the country. Banking is at the core of it, which means it is important for all of us that this programme works. It will require closer regulation by the Department to ensure the commitments, both verbal and written, come to pass, money flows again and economic activity is generated. If that does not happen, the country will go down the tubes, a tragedy for all of us.

Larry Butler (Fianna Fail)
Link to this: Individually | In context

I welcome the Minister of State's speech on the recapitalisation programme. It is important we focus on our banking system. Running a small business, I had dealings with the banks for over 35 years. My business could not have continued without a good credit and banking system. I always had good relations with my bank and kept it up to date with my business activities. The old system meant the bank manager used to visit my business projects to evaluate them. Some ten or 15 years ago, that all came to an end. One never saw one's bank manager because he was obliged to refer matters to head office. As a result, customers who were dealing with banks for perhaps 35 years have become mere numbers. The banks have lost all the contact they had built up with customers under the system that previously obtained.

Perhaps it is time the banks reviewed what they are doing wrong. They do not know their customers, they lent money in an irresponsible fashion, they did not evaluate when the market was going to fall and there was no consistency with regard to the actions they took. Everyone is paying as a result. The banks went completely out of control and taxpayers will now be obliged to support them.

We have a responsibility to taxpayers. We must draw up new rules and regulations and we must put legislation in place to protect the investment that is being made in the banking system on behalf of taxpayers. We are due to receive a return of 8% on the money that is being invested and we must ensure that this will be forthcoming. In addition, we must ensure that our capital investment is safe. I would prefer us to invest in something tangible, such as our banking system, which will help our economy, than to make investments abroad. Doing this represents a much safer course of action. If we can manage this investment correctly, taxpayers will enjoy a good return. It is our job to ensure that it is managed correctly and that proper governance structures are put in place. There is no governance whatsoever in the banking system. Senator Ross has been making statements to that effect for a long period.

A number of Government-appointed directors are already in place in the banks. However, there should be such directors in the six institutions covered under the guarantee scheme. We must evaluate the agreements that have been reached in respect of recapitalisation to ensure that money is lent to small businesses. We must be informed as to what will be the increase in the level of loans made available to such businesses. It has been stated that 10% of the €7 billion used for recapitalisation will be made available in this regard. We must be able to rest assured that this money will be invested where it counts. If we ensure that those who require such money receive it, matters relating to business will improve.

The position is similar with regard to mortgage lending. It was announced that there will be an increase of 30% in such lending. However, 30% of nothing will come to nothing if people are not put in place to monitor the position. Government-appointed directors must be charged with examining lending patterns and the way the money that is being invested is managed. If this does not happen, the banks will again run rings around us and our investment of €7 billion will come to naught.

It would be extremely difficult to quantify the damage done to Ireland's reputation internationally by the banks. Matters must be put right in this regard and that should be the next item on the agenda. The Government guaranteed deposits in the banks and the financial system was stabilised as a result. However, we are now making a tangible investment in the two main banks and we must ensure that they put proper governance procedures in place. Those who got us into this situation are not fit to manage the banks, not to mention any other form of business, and we must get rid of them. If we do so, we will improve both our international reputation and the way the banking system operates. This is the type of action we must take and the Minister of State and the Minister for Finance will ensure that it is taken.

David Norris (Independent)
Link to this: Individually | In context

I do not mean to interrupt, but I am wondering who is responsible for providing Senator Butler with violin accompaniment.

Martin Mansergh (Tipperary South, Fianna Fail)
Link to this: Individually | In context

I apologise, my mobile phone went off.

Paddy Burke (Fine Gael)
Link to this: Individually | In context

Senator Butler, without interruption.

Larry Butler (Fianna Fail)
Link to this: Individually | In context

We must ensure that there are proper monitoring procedures in place. The Government-appointed directors have a job to do in that regard. It cannot be the case that directors merely sit and listen at board meetings; they must query what is happening. Senator Leyden suggested that a number of Members of this House should serve, pro bono, on the boards of the banks. There are a number of able Members, such as Senators Ross and Quinn, who would ensure that the types of proposals I am putting forward would be adopted. We must appoint people to the boards of the banks who are experienced with regard to business and the importance of credit thereto, and who are aware of the importance of obtaining a good return.

If a person submits a quotation in respect of, for example, a construction job, he is aware that his bank interest must be included in the equation. If he does not do so, he and his bank manager will be in trouble. There must be accountability in respect of the taxpayers' money that is to be invested in the two main banks.

It was vital that agreement was reached with the two main banks in respect of a number of extremely important issues. People must realise that this may not be the last occasion on which we will be obliged to provide support for the banks.

David Norris (Independent)
Link to this: Individually | In context

It will not be.

Larry Butler (Fianna Fail)
Link to this: Individually | In context

It is good that the Bank of Ireland made an announcement this morning with regard to its intention to write down its bad debts. When the extent of those bad debts is realised, I am of the view that market support will be created and that the bank's shares will be revalued. Bank of Ireland's shares are quite low in price at present. All of the six institutions covered by the State guarantee should come clean with regard to their bad debts. It may be bad news but it will eventually emerge so why not make it public now?

People should remember that the financial institutions under discussion are in possession of sizeable land banks. While the value of this may be low at present, once there is a scarcity of land and there is an upturn in the economy and demand returns, the price of land will rise. There is a scarcity of land for development in Dublin and other cities. The value of land will increase again in the future.

If we put in place what is termed a "bad bank", perhaps it could operate in the same way as the National Treasury Management Agency in the context of managing the national debt on a long-term basis. This would give an opportunity to address the issue of public housing. It is a disgrace that county councils have 40,000 people on waiting lists for local authority housing. We should address the problem using the land bank. This would be an investment for the future.

This debate provides an important opportunity to receive from the Minister of State a full report on the proposed recapitalisation of the banks and the conditions attaching to it. The directors appointed by the Minister to the boards of the banks must be able to act in accordance with the wishes of members of the public on whose behalf the Government is investing this capital.

Shane Ross (Independent)
Link to this: Individually | In context

I propose to share time with Senators Norris, Quinn and Bacik.

I thank Senator Butler for his free investment advice on buying land. I remind him that the Senator Cassidy offered similar advice from the same seat not so long ago.

Larry Butler (Fianna Fail)
Link to this: Individually | In context

I was offering a long-term view.

Shane Ross (Independent)
Link to this: Individually | In context

About 18 months ago, Senator Cassidy told us to buy property. While I do not know what would have been the results of any such investment, I doubt if Senator Butler is in the right place to offer similar advice.

I welcome the Minister of State to the House. His speech amounted to a statement by the Government that it is waving a white flag. It is an appalling document which demonstrates an appalling surrender. I cannot believe negotiations have taken place. The Government has offered, with some conditions attached, €7 billion to people who have behaved appallingly and in some cases unethically. Much more remains to be revealed in this regard. It appears all these conditions melted away during the negotiations.

This entire process involved, on one side, a Government with good motivations rescuing the banks because the economy needs them, albeit not the banks in question, and, on the other side, a group of clowns who have disgraced themselves over many years negotiating one thing alone, as is clear from the document, namely, how to save their jobs. From the point of view of the bankers, the negotiations were about nothing else. What happened? Not only did the bankers save their jobs but the concessions they gave are comical and laughable. According to the document before us, the Government gained virtually no concessions. I cannot understand the reason it did not get what it wanted. Despite holding all the cards, weapons and money, it has emerged from the process almost empty-handed.

The Minister of State's speech was devastatingly weak on the important issues. I presume his words about the "flow of credit to the wider economy" refer to lending to small businesses. He stated "the recapitalised banks have agreed to fund and co-operate with an independent review of credit availability which will be managed jointly by the banks, Government and business representatives". Why on earth do we need an independent review? The Minister of State added that the banks have also agreed to work closely with the IDA, Enterprise Ireland and State agencies. This is not a concession. How dare the banks even consider not doing this? He also noted that they have agreed to provide €15 million each to a new seed capital fund. This is a laughable amount of money which, in banking terms, amounts to very little.

Will the banks somehow save small business? A completely mistaken impression is abroad, one which has been deliberately given by the Government, that this money will somehow help small business. Not a penny of the €7 billion will go into small business and it is about time people were told the truth and not given the wrong impression. The money is being made available to protect the property developers and the shock they imposed on the banks. None of it will go to small business and the attempt to make a gesture to small business is nonsense. There is nothing in the proposal for small businesses or mortgage holders.

Yesterday, I was informed by a man who was involved in a bank engaged in mortgage lending that the concession to mortgage holders under the proposed arrangement did not amount to a concession because the period involved is exactly the same as the period banks normally would allow.

Nothing has changed on remuneration. The decision to reduce salaries of millions by 33% is crazy and is being presented to us by the Minister and Government as some sort of concession. Senator Bradford is correct. Everybody is crying out for bankers to resign because they are responsible for this disaster. It is not unfair to describe them as the principal culprits in landing the economy in the manure business, yet they have brilliantly secured their own positions by making so-called concessions which are not concessions. In doing so, they will continue to wreck the economy.

I read carefully the concessions on remuneration. It is absurd that a committee, the covered institution remuneration oversight committee or CIROC, has been established. Why do we need a committee for everything when we should tell banking executives what pay they will receive? Under the new arrangement, bonuses will not be paid for the foreseeable and annual salaries will be reduced by 33%. This will reduce top salaries to about €1.5 million. Why have options not been addressed? The reason is share options are one of the greatest rackets operated in the banks in recent times. The Minister of State should mark my words, if the issue is not addressed in the document, the executives in the banks will write themselves share options galore within months or years of this arrangement entering into force. Share prices are at rock bottom. The Minister of State should not tell me that these guys would not do such a thing. They are the very guys who would do so and they will have spotted the omission a mile away.

The banks have outwitted the negotiators whoever they are - we never find this out - because while bonuses and salary increases will not be paid for several years, share options are the great gravy train. It is there that the millions are being made. Any annual report will show that these guys hold millions of shares, most of which they have received for free. This practice of awarding share options will continue.

The document is a complete surrender. I cannot believe a Government which held every card did not use these cards to get rid of every member of the boards of the banks, including the chairmen and chief executives. It is a disgraceful sell-out to the banks which have won an incredible victory.

David Norris (Independent)
Link to this: Individually | In context

The picture painted by Senator Ross is both accurate and grim. We have been confronted with an apocalyptic scenario. Good governance has been absent at senior levels in the banks, regulation has been poor, the banks have engaged in speculation on private accounts and mischarging of accounts and have provided assistance with tax evasion. The record is astonishing. Appalling investments were also made from which the taxpayer had to rescue them. That is the context in which the House debates this issue.

The following statement by the Minister of State is highly significant:

Importantly, statutory codes of practice on business lending and mortgage arrears have been finalised and will be published by the Financial Regulator this week. The codes will be put in place to ensure all banks operating here deal in an honest way with customers and that consumers in particular are treated in a reputable and respectable fashion.

What an innovation. How extraordinary. Does the Minister believe the banking system will survive this? Is this new? Suddenly, starting now, the banks will be honest and treat their customers in a reputable and respectable fashion. This is the measure of the utterly scandalous behaviour at the top of banks.

The €3.5 billion being given to each bank is certainly not enough. Every commentator we hear says it is not enough. When will it be enough? When will we have full disclosure? When will we know the extent of the exposure? From time to time, I listen to the economic analysis from RTE. George Lee is a most balanced, moderate man. One could hear from the tone of his voice last night——

David Norris (Independent)
Link to this: Individually | In context

Those on the Government side are sniggering. I would not be laughing at this particular situation.

Cecilia Keaveney (Fianna Fail)
Link to this: Individually | In context

It was Senator Norris's description of George Lee as balanced.

David Norris (Independent)
Link to this: Individually | In context

He is extremely balanced and he told the truth when those on the Government side concealed it. That is why they want to deride him. I have a lot more reliance on people like George Lee. Listening to the quality of his voice on the recording last night, there was despair, bewilderment and fury in it. That is what the people feel. If the Government does not get into tune with it, it will certainly find it will get its marching orders at the next election, if not before.

The Minister said the terms of the recapitalisation provide that each bank will have the possibility of redeeming up to €1.5 billion of the State's investment by raising privately sourced core tier 1 capital prior to 31 December 2009. Let us hear the laughter from the Government benches. There is no laughter or sniggering because this is the most idiotic thing I ever heard. Who exactly will invest in these completely discredited institutions? This is on Bloomberg as we speak and is being reported all over the world. Who will invest? This is a completely empty thing.

We must look at this whole circular transaction. Apparently, the money originated in Anglo Irish Bank but from where it got it, I do not know. It then went through Irish Life & Permanent. I read this morning that, apparently, it was divided into two lots. First, €3 billion was put in, which was complete exposure of investors' money as the guarantee scheme was not in place. Then when the guarantee scheme clicked in, it put in another €4 billion. This is endemic and is a disaster for the way in which we appear in the world.

The Dublin Docklands Authority invested in property speculation with Anglo Irish Bank and it has openly said it has not paid a penny in interest in the past six months. What is happening? Get all the toxic assets and dump them into Anglo Irish Bank. That is what it deserves as it has no reputation left and make it a national property management agency.

Feargal Quinn (Independent)
Link to this: Individually | In context

I welcome the Minister of State but I am not sure I welcome this proposal. I want to be convinced that it will solve the problems facing this nation and the citizens. I tore a page off the calendar yesterday and it said that if we do not take care of the customer, somebody else will. A very important customer in Ireland is the foreign director investor who has lost confidence because of the inefficiency of our regulation system. I want the Minister to convince me that his proposal will restore that confidence. What emerged last week was not only a lack of confidence in the efficiency but a huge lack of trust in the ethical behaviour of our bankers. Will the Minister's proposal solve that? I want him to convince me that is what it will do.

The Sunday Times last Sunday talked about British banking and stated that problems there were caused by irresponsible bankers who had to turn cap in hand to the Government to be bailed out. Will the Minister's proposal ensure that irresponsibility will not be rewarded and that it will be eliminated? I want him to convince me of that too.

Our economy depends on the banks and the availability of credit, about which Senator Butler spoke. Lending to business once again, especially to small and medium sized business, is essential. Without that credit and that banking system, activity will slow down, jobs will disappear and we will not have a successful economy. I want the Minister to convince me that his proposal is going in that direction and will solve that problem too.

I have a problem with this whole area of risk. I have a relative who sold her house ten years ago. The stockbroker or whoever her adviser was told her to put the spare money into something safe and not to risk it at her age as she was in her 60s. She put it into Allied Irish Banks, Bank of Ireland and Anglo Irish Bank shares. This year she got no dividends and her shares are worthless. Will the Minister's proposal ensure safety while at the same time ensure banks are risk takers as well?

I worry there will be many stipulations. When I see the heavy-handedness of the State running the banks, or believing it has such a say in the banks, I fear the banks may not be risk takers anymore. That is as big a danger as being irresponsible.

A business wants the best people to work in it, so I have a problem with the Government saying it will control the salaries of the people working in the three banks. I was stunned by the huge amounts of money being paid but what happens if the best people say they are being attracted elsewhere? Will the heavy hand of the State mean we will not have the best people working there in future because they will say there are other banks which are not controlled? I want the Minister to convince me that we will have the best people working here.

Ten years ago I became a banker. My company, in conjunction with a financial institution, opened 14 branches of a bank called Tusa, but it failed. It failed because we stuck to the rules which were not adhered to by our competitors. Perhaps that is an excuse on my part and we were bad at running that business. However, we failed and had to close 14 branches and say to those working in them that we had lost the business.

As a taxpayer, I am a banker once again but I am not sure I am delighted about it. I want the Minister to convince me that his proposal is in the best interests of consumers, taxpayers, citizens, those who are threatened with losing their jobs and their businesses and, in particular, of getting the economy going again.

Ivana Bacik (Independent)
Link to this: Individually | In context

As Senator Quinn said, apparently we are all bankers. I welcome the opportunity to put on record two fundamental concerns about the proposed recapitalisation plan. It is essential we have a cap on remuneration. It is simply not enough to talk about percentage cuts and so on when the base amounts are so enormous. In terms of the public having confidence in what is being done, it is important that a cap is put on the remuneration of the senior executives, as has been done in the US, if nothing more than as a symbolic gesture.

The second, more fundamental concern is that it appears the banks played hardball with the Government. They negotiated with the Government, which is a very disturbing thing to read when we know that €7 billion of our money is going into the banks. Surely they were not in a position to negotiate and the Government should have dictated and imposed terms on them. However, it appears from the language of the Minister's speech that the banks accepted certain things and agreed other things. It seems conditions were not imposed in a way they should have been.

For example, there is no recognition of bankers being at fault, no commitment to a change in behaviour, no substantial commitment to free up credit for small businesses and no substantial commitment to ensure home owners will not be put out of their homes once the 12 month period, which is far too short, has passed. Ordinary people, quite rightly, have many concerns about this proposal and about the €7 billion of our money going into the two banks.

I express my concern about reports of the transaction which occurred between Irish Life & Permanent and Anglo Irish Bank. Again, €7 billion was involved. It was a back to back loan. We should not be afraid to use the "F" word and say this was fraud, this was fraudulent behaviour. It gives a lie to and undermines entirely what the Minister told us at the end of September when we were negotiating the bank guarantee. I am one of the few Senators who voted against that Bill. I voted against it because I did not trust what the Minister said at the time about the banks having a cushion of assets——

David Norris (Independent)
Link to this: Individually | In context

Same here.

Ivana Bacik (Independent)
Link to this: Individually | In context

——which exceeded liabilities. Many of us had real doubts about what the Minister said. What we know, having heard about the back to back loan and fraudulent presentation of loan money being presented as a customer deposit and therefore part of the assets of the bank is that the cushion is exposed to have been a fiction.

What we do not know is how many other fictions we were legislating on the basis of and how many other fictions and back to back loans exist between individual financial institutions. We will find it very difficult to believe what the banks and the Minister for Finance, Deputy Brian Lenihan, tell us. I have a lot of respect for him personally but he should have read the report on Anglo Irish Bank. Everyone knew this was the dodgy bank. It was 120 pages; he should have read it and an alarm light should have gone on when he knew his officials had referred a particular matter to the Financial Regulator. That is incompetence.

Dan Boyle (Green Party)
Link to this: Individually | In context

A successful, viable financial banking system needs a number of attributes, chief of which are trust and confidence. It is quite clear that Irish banking, at this time in our country's history, is sadly lacking in both. In dealing with the effects of the failure of trust and confidence, the political system needs to deal in candour and honesty. I must admit I am at a stage where I do not believe either quality exists in sufficient quantity.

To regain the trust, initially of the citizens of this country and ultimately of the international community in identifying Ireland as a country worth investing in, we also need degrees of openness and transparency, which, as a country, we seem to have left long behind. If we address this question by trying to instill those qualities back into our political and business systems and into how we interact with the rest of the world, it will go some way to overcoming the maelstrom we have had to experience in recent months.

We in this House have an opportunity to discuss the heads of any Bill prior to it being introduced and that will help to inform the Bill when it is eventually presented to both Houses of the Oireachtas. The Minister's statement yesterday addressed several of the concerns that exist regarding our banking and finance industries. Chief is a recognition of the degree of the problems that exist among our major banks. The decision today of Bank of Ireland to mark down its loan book is the first sign of honesty which has been long missing in recent months in many of our financial institutions. At last one of our two major banks is identifying the scale of the problems it alone is facing. We as a State and group of taxpayers are investing in this bank.

Legitimate questions exist on whether €7 billion will be sufficient. Sufficient work has gone into identifying this amount of money as being necessary to kick-start and revitalise the financial institutions concerned. I am satisfied that safeguards exist, both in terms of the 8% return the State will gain for investing the money and the incentives for the money to be paid back earlier. Some of this money will be paid back up front by the end of this year. Many speakers were correct to highlight that where the Irish public want to see movement and precision in the Bill, when it is eventually presented to us, is in the Irish banking system.

There must be a realisation by the banks and those who have been managing them that they are now utterly dependent on this State to become viable again. There still remains a degree of arrogance and a lack of proper understanding of the failure of the institutions and the people who have been managing them as a reason for creating this economic crisis. To restore confidence we need to go as far as possible to make sure the people who have brought us to this position are not the people who will help to get us to where we need to get to, and I said as much in this House already.

Some Senators are correct in saying the preliminaries to this agreement and the eventual legislation are an affront. The idea of negotiating with people who have shown themselves to be incompetent in how they run their institutions is something the public find greatly to their distaste. That it continues to be done in a culture where salaries and remunerations are paid which are beyond the fantasies at the height of the Celtic tiger and beyond the realisation of 99% of the people of this country is something the individuals concerned still have to confront.

There is also a failure, which must be accepted, of the systems we had in place to protect the public interests regarding the proper behaviour of our banking system. We have had inadequate and flawed regulation in this country and for confidence to ever be restored we must first ensure such a system can be put in place. I am not sure if that can be done within our own resources or through the experience of Irish people in the financial services sector. One of the reasons we had flawed regulation is the degree of "clubishness" and knowledge about individuals which people have, not only in the banking sector but in the political world and the general business world that permeates our society. Unless we are prepared to break those links it will be very difficult to bring in the systems of regulation we need.

I would go so far as to say we need to buy in that expertise. We need people from outside this country to come in, show us the remaining flaws that exist in our banking system and expose them quickly so they can be dealt with quickly. We can then move on as a country. If we are prepared to engage in what happens far too often in this country, which is a high degree of self-regulation, there will be many motes in people's eyes which will remain unmoved because no one wants to talk about the consequences of doing otherwise. It is the domino effect and one person's reputation leads to the fall of another's reputation.

Until we are prepared to confront those contradictions, the minutiae of the legislation is one area we should be least concerned about. We will have a Bill quickly. I am happy the Minister's statement mentioned the areas of agreement needed and that the money, as and when it is invested, needs to go into small and medium enterprises and into certain areas of lending. People have concentrated on the mortgage market. I think the new financial products will bring viability to financial institutions.

The first thing we need to do is invest a new reality into our banks, which means new people, cultures and ways of acting. If today's debate helps to inform the Bill to help it happen, the €7 billion to be invested will, ultimately, benefit the people of this country. If we continue to go down dark alleys and ask questions of each other rather than of the financial system itself, I fear we will be running around in circles and the problems that exist in our financial system will remain untouched.

Dominic Hannigan (Labour)
Link to this: Individually | In context

Senator Boyle mentioned new people, new cultures and new ways of acting. This is exactly what we want but are not getting from this Bill and announcement. In my brief contribution I will discuss how I think we should have been dealing with the banks.

Regarding the current board, other Senators mentioned that the reality is that those who got us into this mess will stay in this mess. Furthermore, we will not really cut their salaries because a cut of 33% does not mean much when one is earning €500,000. It was stated in the speech that total remuneration for all senior executives will be reduced by at least 33%. We looked for a cap of approximately the same level of salary that the Minister for Finance, Deputy Brian Lenihan, draws. It would be much more appropriate.

There is also no mention of options in the speech, from what I can see. We do not think it would be appropriate to give senior executives options because of the risk that they would engage in some inappropriate egging on of the company. I would like the Minister of State to clarify a point. The speech states that total remuneration for all senior executives will be reduced by at least 33%. Does that mean that each individual's remuneration will be limited? Can he clarify that it is not the remuneration of the entire board that will be limited by 33% cuts, which would mean that some would not be subject to the reduction? Does the Minister of State understand what I am getting at?

Noel Ahern (Dublin North West, Fianna Fail)
Link to this: Individually | In context

Yes.

Dominic Hannigan (Labour)
Link to this: Individually | In context

I would like him to clarify that. We are disappointed that there was not a complete clean out of the boards so that we would, in effect, start again. That would have been important to show the people that we do mean business when we talk about changing the current culture of the banks. Confidence would have been helped also if the Minister had gone further on the moratorium on house repossessions. The measure introduced suggests 12 months but the Minister will be aware that many organisations, such as the Society of St. Vincent de Paul and the money advice and budgeting service, have called for a 24-month moratorium. The proposal, as I understand it, is that legal action can commence after six months. As well as that, it states, "until after 12 months of arrears appearing——

John Paul Phelan (Fine Gael)
Link to this: Individually | In context

What is the Senator quoting from?

Dominic Hannigan (Labour)
Link to this: Individually | In context

From the Minister of State's speech. He stated:

The two recapitalised banks will not commence court proceedings for repossession of a principal private residence until after 12 months of arrears appearing, where the customer continues to co-operate reasonably and honestly with the bank.

It is not at all clear what "reasonably" means or how one defines "honestly". Who will define these terms? I would be loath to allow the bankers themselves to define both terms given the mess they have got us into.

Yesterday, the Master of the High Court said he was so concerned about recent job losses that he expected an avalanche of repossession cases to come before him. He has seen a dramatic rise in such cases in recent months. The Minister of State also said:

The recapitalised banks have also assured Government that in the normal course of events they will make every effort to avoid repossessions, as has been evidenced by the low level of repossessions by them to date.

As I said, however, the Master of the High Court is indicating that he is seeing a large rise in applications for repossessions. I am concerned about that and I am disappointed that the opportunity was not taken to extend that period to 24 months because people are losing their jobs every day. There has been a horrible announcement at Dublin Airport today concerning the loss of 1,200 jobs in SR Technics, and we also saw the impact on Waterford Wedgwood at the start of the year. People have made significant contributions throughout their working lives to the tax base, but their taxes are now being used to bail out these banks. We must ensure therefore that their homes are not put at risk and that we bear with them through the rest of this economic depression. We must not put their homes in danger of repossession. That is a missed opportunity because I would like to have seen a longer moratorium period.

I also want the Minister to clarify the return that will come to the State from investing this money in these banks. The Minister of State said:

The banks can redeem the preference shares to the State at par value [which means face value] within the first five years, and at 125% of face value thereafter. Warrants for the purchase of shares also give the State an option to purchase in five years[' time.]

Can we exercise the warrants before five years are up? This statement does not say that. It says we can exercise the warrants "in five years". I am concerned that in four years' time, if the shares happen to rise, the banks will just buy them back at par value and in effect there is no upside for the State. If the value of the shares rises or even doubles within the next four or four and a half years, the banks will redeem the shares at face value. They will not wait a further six months before we can come along and exercise our warrants. It may just be a slip-up in the wording but, as I read it, it seems to indicate that we are unable to exercise these warrants until five years have expired.

I am also seeking clarification on what the strike price of those shares will be. The speech states that they can be bought back "at predetermined strike prices, which are based around the current market share prices". Why does it not say "which are based on the current market share prices"? The word "around" could be 20% or 50% out. I do not know, so I am seeking clarification on those points.

Cecilia Keaveney (Fianna Fail)
Link to this: Individually | In context

I am not an expert in economics or finance.

Eugene Regan (Fine Gael)
Link to this: Individually | In context

Neither is the Minister for Finance.

Cecilia Keaveney (Fianna Fail)
Link to this: Individually | In context

I do not regularly speak on such matters but as others have said, we are all bankers now, so I suppose we have a vested interest. From that perspective, we should declare our interest if that is the appropriate thing to do at this point. It is a classic example of saying, if we were going where we wanted to go, we would not start from here at all. Nobody wants to be in a situation where legislation is going through the House to support banks. On the other hand, I have met people trying to get a car loan who are subjected to all sorts of hoops and hurdles.

Children attending the Oireachtas schools project will ask why we are bailing out the banks. We explain to them that if the banks cannot lend money and an entrepreneur cannot fund a business, there is a problem. Unfortunately, therefore, the State has had to come to the aid of the banks.

All I have heard from the Opposition is about share options and statements that we are not doing the right thing. Its Members cannot complain that we are not giving enough money and are giving too much all in the one sentence, which seems to be what I am hearing from across the floor. The idea of dumping everything into a toxic bank begs the question as to who will pay for that bank. We own Anglo-Irish Bank but if the only suggestion is that all bad debts should be put into it, surely it will create a massive hole for the taxpayer. I would prefer people who are more expert in such matters to explain how that would work and why it is as good a proposal as some people seem to think. If it were that easy, why are we not doing it?

There is a national problem because people are not spending money and neither are they getting money from the banks. There is also an international problem concerning whether people choose to invest here. Funds must be made available for sound business entrepreneurs to enable them to provide employment. Such funds should be used to start the country's economic recovery.

I recently attended a plenary session of the Council of Europe in Strasbourg where we spent a full day discussing the global crisis. Sometimes people think this is just an Irish phenomenon, but it is far from that. The Icelandic people were able to stand up and have a right go, as it were, at the United Kingdom because Iceland was placed on a website that put it among al-Qaeda and other terrorist groups. When one sees countries such as France, Germany, Spain, Italy, Russia and Poland having to deal with this matter, one realises that it is a very big issue and is not particular to Ireland.

Given the shocking facts that have emerged in recent weeks and months, the question of confidence arises. The goal of this recapitalisation is important to reinforce the stability of the financial system and increase confidence in the banking system in Ireland. We must facilitate the banks to get them lending. I would be as strong a critic of what has gone on as anyone else in either Chamber. It is one thing to say we would not start from here, but we must find a mechanism to examine and evaluate what did happen. We must see why it happened, who was involved and who oversaw it, including the Financial Regulator and bank board members. They should be made to pay. We will be going nowhere until the public sees that we are dealing with those at the helm who did this.

Various issues have arisen in my constituency over the years, including people with Northern bank accounts who did not realise they were supposed to tell the tax man about them. They paid back their entitlements and more on top. They feel they were pursued and were victims of lack of information or that they were cajoled into things that were, technically, not above board, while the people at the helm were able to walk away from most of this. I found it difficult to listen to the 1 o'clock news today and hear a chief executive of one of the banks say he was finally going to be subjected to a huge reduction in his salary. When pushed as to what this reduction would mean for him, he said it was being reduced from €2.9 million to €2 million this year.

I will not compare us with America because like apples and oranges, we cannot compare the issues here with what is happening in other countries. Many people have listened to the media pounding on about earnings of people in one country versus those in others. No matter what scale we use, it is hard for average citizens to comprehend the earnings of our bank executives. In the current economic climate, or any other, it is difficult for citizens who see the disaster that is our banking system currently and who are watching the attempts to move forward to understand the "me" culture of no rainy day and still plenty to spend. With regard to the words relating to salary reductions of "at least 33%" or "at least 25%", I think there is scope to move beyond the words "at least" and push for more realistic salaries.

When we were trying to implement our cancer strategy, we went outside of Ireland to find an independent expert, Professor Keane, to come and spend two years here and make the difficult decisions that people within the area could not make, perhaps because of professional friendships. It is time to look beyond Ireland for someone who can evaluate what has been going on in our banking system and suggest what can be done. As we have seen from the issues that have arisen, Ireland is too small a place to be able to clean up the system properly.

My final point concerns mortgages, particularly loans or mortgages of farmers who borrowed to complete jobs in the waste management area. Some people have genuine issues, but will be able to pay back their loans when they receive their guaranteed grants. I would expect banks not to call in those loans or not to issue high-interest bridging loans to those borrowers. Instead, they should absorb the losses until such time as the Government presents the cheques due. We need a balance between calls for payment and the ability to pay. If people are avoiding paying because they think the banks can absorb their losses, that is unacceptable, but if they cannot afford to pay back their loan, there are legitimate reasons the issue should be addressed.

Eugene Regan (Fine Gael)
Link to this: Individually | In context

We are learning more each day about the banks and their nefarious activities, such as directors' loans and how transfers are classified in accounts. We are also learning more about how the financial system is regulated and the failures in the system. In particular, we are learning about the failures of Government and the Cabinet, of which the Minister here present, Deputy O'Dea, is a member.

We have a situation where the Minister for Finance has endeavoured to explain not having read a fundamental report on the banking system commissioned by him from PricewaterhouseCoopers. He said his officials did not bring it to his attention, dumping on them. On the radio this morning he said he did not believe his officials should be scapegoated on the matter, but that is what he did. I do not know whether the Minister needs to be spoon fed on financial matters, but he also made another extraordinary statement this morning. He said he was not convinced that if he had read the passage, its significance would have jumped out at him at that stage.

I do not know if we have a competent Minister for Finance, but that statement tells us a lot. His statement that if he read the report and the sections of it relating to the transfer between Anglo Irish Bank and Irish Life & Permanent, he would not have recognised its significance says much for our Minister. This is worrying when we are taking decisions on the basis of his advice and recommendations.

With regard to the proposed recapitalisation of the banks, this is something the Minister rejected some months ago when the Opposition pointed out that the State guarantee introduced by the Government was insufficient. The Opposition argued the guarantee only helped to resolve the liquidity problem, but the issue of recapitalisation should be addressed. The Minister and the Government went into denial on the issue, ultimately leading to the nationalisation of one bank.

In making his announcement on the recapitalisation of AIB and Bank of Ireland, the Minister stated the plan is based on the best information available. Apart from the fact that when information becomes available to the Minister he does not necessarily read it, there is a qualification in that remark. He is only acting on the information that is currently available and does not say the information is sufficient to know the true financial position of the banks in which he is investing so much money.

There is something contradictory in the Minister's statement. He says the Government examined the loan books of Bank of Ireland and AIB before deciding that each required €3.5 billion. He says it looked to where the exposures are and applied to those exposures the negative trends that apply to the economy and had come to a conclusion relating to how much capital was required. However, in the same breath he says that one of the conditions of the recapitalisation was that the Bank of Ireland and AIB should come clean about their future losses. Does the Minister know the true position or not?

The issue of recapitalisation has been a feature of international banking in the US and Europe for the past six months, but it was only towards the end of last year that the Minister indicated it might be required in the Irish banking system. We were assured by the regulator and the banks it was not required. All involved in the banking structure, particularly the Minister, denied recapitalisation was necessary. Now we have the proposal before us, but none of the legislation required is before the Houses. All we have in this proposal is an elaboration on the thinking the Minister outlined in December on what was required in terms of recapitalisation.

The position of Deputy Richard Bruton, the Fine Gael spokesperson on finance, is that the Minister has gone in the wrong direction. Let us hope the Minister succeeds with his recapitalisation project, but it is his scheme and he is putting the finances of the country at risk in terms of the manner in which he has gone about it.

There was an acknowledgment in the presentation made earlier by the Minister of State, Deputy Mansergh, with regard to the State guarantee system. He said this is being reviewed in terms of supporting longer-term bond issuance by the banks. This points to a defect in the scheme originally introduced because, clearly, a guarantee for only two years on borrowings and transfers to the Irish banks is inadequate.

The speech of the Minister of State, Deputy Mansergh, also contains the suggestion that greater certainty and transparency needs to be brought to the operations of systemically important financial institutions. With regard to regulation, we have had a sequence of events and disclosures over recent months. It is only today that the Minister is suggesting that badly needed reform of the regulation of the financial system is required. The Government is in power. The Minister is in a position to introduce legislation on regulation. Now, he is stating, as if he has no responsibility for the matter, that reform of the regulatory system is required. He should just get on and do it.

Frances Fitzgerald (Fine Gael)
Link to this: Individually | In context

I welcome the Minister of Defence, Deputy Willie O'Dea. I am glad to have an opportunity to make a short statement on this matter because it is an historic day for the economy of the country when we underpin the banks from the pension fund to the degree that we are doing. It certainly is an historic day for this country's banking.

Potentially, it should also be an historic day in terms of the culture of banking in this country. However, the question that arises is whether it will be an historic day for the good of the country. Will it be historic economically? While Fine Gael does not agree with the approach taken by Government, and I want to read into the record of the House what we believe should be done, we hope the economy of the country will be stabilised and that our international reputation will be enhanced.

It is critical for the future of every citizen and every worker in the country that this works. It is critical for the 1,000 men and women who lost their jobs in north Dublin this morning. It is critical for our young people who are hoping there will be a future in this country for them and that they will not have to emigrate like the generation of the 1980s had to do. It is critical for everyone who hopes to create a job in the country and who hopes to seek employment. Let us hope that it is historic in the sense of bringing stability to the economy even though we believe a different approach should be taken.

Will there be a change in the culture of banking? This is critical question which I would like the Minister to address. Having read the detail of the agreement, which was printed in The Irish Times today, I have questions about this. Does it guarantee a change in the culture because it is very clear that a cultural change is needed? Senator Boyle spoke about this, as did a number of other Senators. I am concerned to hear Senator Ross, who did so much in this area over many years prior to it being as clear as it is today that there are serious problems in the culture of banks, state that his view of the agreement is that it is a sell-out to the banks and a complete surrender. I hope this is not true but I have concerns about the detail of the agreement that has been reached.

I hope that when the legislation comes to the House some of the concerns expressed on all sides today will be addressed and we will be able to build into it corrections and more detail so we can ensure a cultural shift. It is very clear that the predominant culture has been an insider culture. It has not been accountable or transparent enough. With the bird's eye view we have now of Celtic tiger Ireland we can see how much insider trading was done and it is very shocking. It raises questions about some of the wealth creation we have seen over recent years. Who got loans from whom? What sort of insider information and knowledge was passed between the key players? What chance did the citizen have?

It also brings into relief our failure in many front-line services in terms of health and education. Why was more money not available for these? At the end of this extraordinary period of growth we have come out with a complete failure in terms of front-line services. This is of great concern to everyone in this House and to the people trying to access these front-line services. Very serious questions still arise after this Government agreement.

Fine Gael is concerned that the recapitalisation proposal of the Government will be insufficient to restore a strong banking system able to maintain the flow of credit to the economy. We are concerned that even though this is what is written in the agreement, it will not happen. We call on the Government to consider other options which would put taxpayers' money for recapitalisation into new banks with clean balance sheets. This is a recommendation about which Deputy Richard Bruton has been speaking out strongly. It is being considered in other countries. Will the Minister respond to this suggestion? Why has this not been considered?

We called on the Government to defer the decision on recapitalisation until a full set of proposals that addresses the management of impaired loans has been developed. We also called on the Government to introduce a flat cap on remuneration of senior executives at no more than €250,000 until the Government's capital is repaid. Let us consider the salary scales which have been current in banking, and I know they are in line with international banking. I read recently about the situation in the United States. We consider the bonuses here excessive. They are excessive worldwide and there is no doubt about that. There was a culture that rewarded risk taking and the more risk taking there was, the higher the bonuses were. We can see that led to poor decision making, risk taking to an extraordinary degree and the sort of banking culture we saw in the lending between Anglo Irish Bank and Irish Life & Permanent.

It is extraordinary that the Minister did not read this in the report. I find it more extraordinary that the Taoiseach did not know about it or read the report. We were all waiting with bated breath to see what PricewaterhouseCoopers would state. We were told that for reasons of stabilising the banks, avoiding uncertainty and not damaging the international reputation, this could not be put on the public record. I am beginning to wonder about the protection of vested interests in the withholding of some of the information as opposed to being concerned about the stability of the banks. Was what happened really about protecting vested interests rather than maintaining the stability of the banks?

Last week, National Irish Bank gave a different re-evaluation of its loans and assets and this changed the situation somewhat. This morning, we heard Bank of Ireland has bad debts of up to €6 billion. It is extraordinary that the Government agreed the recapitalisation last night and Bank of Ireland came out with this information today. This drip feed of information is a real problem. It raises the very legitimate question which every citizen has, which is whether we know the full extent of the bad debts and what more information still has to emerge. I would like to state much more but I will conclude on these points.

Paul Coghlan (Fine Gael)
Link to this: Individually | In context

Senator John Paul Phelan has one minute.

John Paul Phelan (Fine Gael)
Link to this: Individually | In context

The Acting Chairman might allow me 30 seconds more.

John Paul Phelan (Fine Gael)
Link to this: Individually | In context

I do not want to eat into the Minister's time either.

Willie O'Dea (Limerick East, Fianna Fail)
Link to this: Individually | In context

That is all right.

John Paul Phelan (Fine Gael)
Link to this: Individually | In context

I thank the Minister. I wish to make a couple of points and perhaps in his comments the Minister will outline to the House some of the pledges or items contained within the recapitalisation programme. I am in favour of bank recapitalisation. The lessons of history show that it must happen in this situation in an Irish context. However, there are serious shortcomings in what the Government proposes with the current scheme.

Will the Minister outline the moratorium on repossession of houses? How will it operate in practice in terms of people having difficulties meeting their mortgages? Once the 12-month period is up, will they be back to square one? Banks are to increase lending capacity for first-time buyers by 30%, yet the lending capacity for small and medium businesses is to be increased by only 10%. Most of those who have spoken about the need for recapitalisation have focused on the difficulties small and medium enterprises are experiencing obtaining cash to pay bills and keep staff employed. The balance seems to be a bit skewed.

There is to be a fig leaf for the Green Party in the order of €100 million for a green energy and innovation fund. There is also to be a €15 million seed capital fund, to be controlled by Enterprise Ireland. Perhaps the Minister will outline how this will work.

We are living in unprecedented times and there is a great sense of anger and outrage among the general public. We are near social unrest in Ireland - I never believed I would say that in the Chamber. If circumstances become much worse and we have many more days like the Government, especially the Minister for Finance, experienced yesterday, we will end up with social unrest.

There has been a betrayal of trust by the banks and the Government. There seems to be a golden circle at the top level of the management structure of the banking system. The recent revelation about the €7 billion floated in and out of Anglo Irish Bank really beggars belief. This Minister, although he represents Limerick city, is familiar with rural Ireland and will know that a farmer could not move two cows in County Limerick without the Department of Agriculture, Fisheries and Food knowing what is going on, yet these boys can move €7 billion around as if it were confetti. Nobody knows about it and the Minister for Finance did not even read the bloody report. If it were not so serious, it would be comical. Will the Minister for Defence respond to this? I thank him and the Acting Chairman for their indulgence.

Willie O'Dea (Limerick East, Fianna Fail)
Link to this: Individually | In context

As the Acting Chairman will know, it is sometimes easier to move billions of euro than to move cows.

I thank Senators for their comments on the Government's recapitalisation plans for Allied Irish Banks and Bank of Ireland. I reiterate the comments of my colleagues when I say the measures announced today are intended to reinforce the stability of our financial system, increase confidence in the banking system and facilitate the banks involved in lending to the economy.

There has been some comment regarding the sufficiency of the Government's investment. The investment will significantly strengthen the core tier 1 capital of these banks, well in excess of regulatory limits. It is estimated that it brings the core capital to €12 billion for AIB and to almost €11 billion for Bank of Ireland. These figures are very high by international standards. The structured process undertaken to arrive at the current proposals gives the Government confidence that the investment will succeed in building market confidence and kick-starting lending to the economy.

As mentioned, the amount to be invested was determined following consideration of likely trends in property values and various stress scenarios for the economy. Assurance can now be offered to markets on the levels of capital in the two largest banks, and the fundamental strength of their position in the coming years.

I want to reiterate that this is not simply money being given to banks but rather an investment by the State generating a strong return in the current environment with various other conditions attached, including warrants that provide the State with access to the upside when bank shares recover. The recapitalisation also provides a tool for the Government to address many of the credit-supply issues in the economy. The measures announced by Government include a review of credit supply, a clearing group to review credit supply issues and specific credit initiatives, such as the environmental and clean energy innovation fund.

Statutory codes for mortgage holders and business lending have been finalised. The codes will ensure all banks operating here deal in an even-handed way with customers. In particular, the codes will ensure consumers are treated in a reputable and respectable fashion, for example, when facing mortgage arrears. Taken together, these initiatives will serve to stimulate credit supply and, consequently, economic recovery.

The recapitalisation proposals also include restrictions on remuneration in the banks. The reduction of at least one third of overall remuneration for senior executives is a strong signal in this regard. Moreover, the reduction indicates the commitment of the banks and Government to wage restraint in the economy. The Government will not stop here, however. The Minister for Finance has indicated he will write to the covered institutions remuneration oversight committee to suggest an overall cap on remuneration for executives.

In discussions with AIB and Bank of Ireland, the question of the management of the banks was discussed. As the Minister for Finance has mentioned, the proper forum and method for effecting any management changes deemed necessary in the banks is through the annual general meetings of the banks, with the State exercising the voting rights it holds. If the State intervened arbitrarily in the management structures of the banks, it would send a very unhelpful signal internationally on the State's approach to our financial institutions. It is important to note that the terms of the recapitalisation provide that the Minister for Finance can appoint 25% of the directors, in total, in both banks. This representation at board level will ensure an appropriate State role in the oversight of the running of the banks.

Various options for addressing the pressures on the asset side of our banks' balance sheets, including the idea of a bad bank, a good bank, and the option of a form of insurance of bank assets, were raised and debated by Senators today. For its part, the Government has made clear that it is conscious that, in current market circumstances, there is a need to bring greater certainty and transparency to the operations of systemically important financial institutions, in particular in regard to specific asset classes currently perceived as carrying a higher than average risk. For Irish banks, in current economic circumstances, these higher risk classes relate to lending for land and development.

The Government will examine proposals for the management and reduction of risks within banks with respect to these particular exposures, having regard to international developments and work at ECB and EU level. I reiterate to Senators that the Minister for Finance will be carrying forward this work to produce proposals as a matter of priority.

There has been comment here today and in the media regarding our regulatory system and I agree the nature and thrust of Ireland's regulatory system needs to adjust to the new realities. Lessons must be learned from mistakes made and from the international experience of the recent period of worldwide financial disruption. We need a regulatory regime that fosters probity. I welcome the review now being undertaken by the regulatory authority to that end. We are not alone, however, in this process. Work has begun on forging a new model to govern the conduct and behaviour of the financial sector both here and internationally. I assure the House that Ireland will play its part internationally, particularly at EU level, in seeking to ensure the re-design of the financial system and in particular of financial regulation is consistent with the objectives that underlie a strong, stable and functioning national banking system.

Senators will agree it is disappointing that questions over corporate governance practices at Anglo Irish Bank and Irish Life & Permanent are overshadowing what is a crucial step in ensuring the financial stability and future success of the Irish banking system. The transaction in question is the subject of a number of investigations, including by the Financial Regulator and the Office of the Director of Corporate Enforcement.

The matter is, in the first instance, a prudential matter and was brought to the attention of the Financial Regulator by the Department of Finance. It was also one of the corporate governance concerns that resulted in the Government's decision to nationalise Anglo Irish Bank. At this stage, it would not have been appropriate for the Minister for Finance to disclose publicly confidential information which was and remains the subject of an investigation by the responsible statutory authority, the Financial Regulator, and also by the Office of the Director of Corporate Enforcement. The new board is also reviewing all the corporate governance practices of the bank and will put arrangements in place to guide the bank in future. The bank's annual accounts, to be published in the coming weeks, will provide appropriate details on this transaction.

All parties agree that underpinning the stability of the financial system of the State, given its importance to the economy, is vital. The Government is committed to protecting depositors, creditors and taxpayers in its interventions in the banking system. We are committed to ensuring our two main banks, in addition to the other covered institutions, can discharge effectively their essential role in the economy.

John Paul Phelan (Fine Gael)
Link to this: Individually | In context

When is it proposed to sit again?

Martin Brady (Fianna Fail)
Link to this: Individually | In context

Next Tuesday at 2.30 p.m.