Donie Cassidy (Fianna Fail)
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I move:

That Seanad Éireann approve the terms of the draft scheme entitled Credit Institutions (Eligible Liabilities Guarantee) (Amendment) Scheme 2010, a copy of which draft scheme was laid before Seanad Éireann on 23 September 2010.

Pat Moylan (Fianna Fail)
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I welcome the Minister of State, Deputy Mansergh.

Martin Mansergh (Tipperary South, Fianna Fail)
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This is a motion for a resolution to approve the draft statutory instrument entitled Credit Institutions (Eligible Liabilities Guarantee) (Amendment) Scheme 2010.

I emphasise to the House that this is not a new scheme. Rather, this draft statutory instrument amends the bank guarantee scheme introduced in December 2009, which is known as the eligible liabilities guarantee, ELG, scheme. The ELG scheme is different from the original bank guarantee scheme, the credit institutions financial support, CIFS, scheme, which was introduced in 2008 in order to maintain financial stability and which provided for a blanket guarantee of the deposits and liabilities of Irish institutions by the Government.

The ELG scheme is a more targeted and focused scheme than the CIFS scheme. It is more in line with the mainstream European model of bank guarantees and no longer covers dated subordinated debt or asset covered liabilities. Considerably higher fees are charged for the benefit of a State guarantee of participating institutions' liabilities. According to the latest data available to my Department, at the end of June, bank liabilities covered under the ELG scheme stood at €153 billion and the remaining liabilities covered under CIFS at the end of June were €103 billion.

The serious challenges faced by the Irish banking system and being addressed by this Government have shown the need for the State to underpin the funding position of our domestic institutions through guarantee mechanisms. The introduction of the 2008 CIFS guarantee scheme succeeded in stabilising a challenging liquidity situation for the Irish banks against a background of severe international financial turbulence which gave rise to a need for emergency interventions across the developed world. More importantly, it provided a necessary and vital support to the banking system as other measures to repair and renew the system were introduced. Measures such as NAMA, recapitalisation, stress-testing of the banks' ability to meet emerging international capital requirements by the Financial Regulator, reform of the institutional framework for financial services, and ongoing engagement with the European Commission on restructuring plans for individual institutions have been undertaken with the support provided to the banking system by the guarantee. The purpose of this has been to ensure that this country has a working banking system to serve the economy as it moves towards recovery.

The Government remains committed to planning for the gradual phasing out of the bank guarantee, as evidenced by the introduction of the ELG scheme late last year and the expiry of the broader CIFS scheme at 12 midnight tonight. However, in order to continue to support the stability of the banking system, this phasing-out process must be measured, incremental and responsible.

The ELG scheme introduced last December applies to newly issued or rolled-over debt or deposits. It enabled the banks to issue longer-term debt in an effort to improve their liquidity profile and, in return for continued taxpayer support, it imposed a higher fee structure on the institutions. I emphasise that, in contrast to some commentary about the guarantees provided by the State, the banks have contributed over €1 billion in fees in respect of the guarantee since September 2008. In order to provide an incentive for the banks to increase the term of their funding and issue un-guaranteed debt in line with European Commission guidelines in due course, today's proposed extension to the ELG will result in a further increase in fees for the institutions involved.

In response to the current crisis similar actions have been taken by other member states in the European Union. Countries such as Austria, Denmark, Germany, Poland, Spain and Sweden have all recently extended their guarantee schemes to the end of December. The European Commission recently estimated that crisis measures brought forward by member states had been approved to an overall maximum volume of €4.1 trillion, of which guarantees accounted for over 75%.

I now turn to the draft statutory instrument before the House. It proposes to amend the eligible liabilities guarantee, ELG, scheme. Under the Credit Institutions (Financial Support) Act 2008, the approval of both Houses is required for such an amendment. The scheme allows the banks and building societies which joined to accept all deposits and issue short-term and long-term debt on either a guaranteed or unguaranteed basis. Institutions are able to issue debt and take deposits guaranteed under the scheme with a maturity of up to five years. However, these liabilities must be incurred within a limited issuance period that currently runs to midnight tonight, 29 September. The draft amending statutory instrument before the House proposes to extend the issuance period under the ELG scheme in order that it will now run from tomorrow, 30 September, to 31 December. While the opportunity has also been taken to rationalise and update the drafting of some provisions of the scheme, the only substantive amendment made by the statutory instrument is the extension of the issuance period to 31 December.

Senators may recall that EU state aid approval was granted on 28 June for the extension of the issuance period for most liabilities under the ELG scheme. At the time the Minister for Finance noted that he would continue to monitor market developments in the coming months. Given the challenging market conditions in recent months for banks internationally and following advice from the Governor of the Central Bank, the Financial Regulator and the NTMA, the Minister sought a similar extension to 31 December of the issuance window for the remaining set of liabilities under the scheme. The extension for these short-term liabilities was approved by the European Commission on Tuesday, 21 September.

The effect of these state aid approvals is that the end date of the issuance period is approved for 31 December for all eligible liabilities under the ELG scheme. The European Central Bank has also endorsed the extension of the scheme, the full extension of which will help to underpin financial stability and should assist the institutions to continue to access funding which should, in turn, support lending to the economy. The statutory instrument which I am presenting to the House gives legal effect to this time extension of the guarantee.

I reiterate the key terms of the ELG scheme and provide further detail on the terms of the amending draft statutory instrument. Following the commencement of the scheme on 9 December 2009, the six participating institutions and their subsidiaries joined the scheme on various dates in January and February this year. Any new debt or deposits incurred or rolled over after the date the institution joined the scheme are guaranteed under the scheme. The institutions which joined and are thus "participating institutions" under the scheme are AIB, Anglo Irish Bank, Bank of Ireland, the EBS Building Society, Irish Life & Permanent plc and the Irish Nationwide Building Society. Their relevant subsidiaries also joined and a complete list is available on the Department of Finance's website.

The ELG scheme guarantees specific issuances of debt or deposits of up to five years incurred during the issuance period. Item 9 of the draft amending statutory instrument proposes to extend the issuance window end-date from 29 September to 31 December, by substituting a new paragraph 11.1 (c). The draft amending statutory instrument inserts the new issuance period end-date of 31 December in a number of places. For example, item 7 - paragraph 3.1 of the Schedule to the scheme - provides that new eligible institutions have until 31 December to join the scheme, if they have not already done so. Under item 18 of the draft amending statutory instrument, the maximum end-date for the guarantee is now 31 December 2015 in respect of five-year debt issued before the end of the issuance period. The draft amending statutory instrument also updates the drafting of the scheme. The term "commencement date" has been replaced with the actual commencement date of 9 December 2009, wherever it occurred for the sake of clarity.

Liabilities that may be guaranteed under the ELG scheme or "eligible liabilities" are deposits; senior unsecured certificates of deposit; senior unsecured commercial paper; other senior unsecured bonds and notes; and other forms of senior unsecured debt specified by the Minister for Finance and approved by the European Commission. I remind the House that the scheme provided that newly issued dated subordinated debt and asset covered securities were not guaranteed from 9 December 2009. This means that from tonight there will be no continuation of the guarantee for dated subordinated debt or asset covered securities. There is no change in the draft amending statutory instrument to the range of eligible liabilities. Item 9 of the draft amending statutory instrument simply rationalises the wording of the original scheme.

With regard to deposits, in particular, all on-demand deposits over €100,000 are guaranteed under the proposed amendments to the ELG scheme to 31 December. Furthermore, term deposits in excess of €100,000 can be guaranteed for a fixed term of up to five years, as long as the deposit is made before 31 December and the institution is a participating institution under the scheme on the date the deposit is made. The scheme provides that, if a deposit of up to €100,000 is covered under the EC deposit guarantee scheme, it is not also covered under the ELG scheme. The ELG scheme covers the excess over €100,000 or any deposit that does not qualify for protection under the 1995 deposit guarantee scheme. Furthermore, for the avoidance of doubt, the existing separate coverage of deposits up to €100,000 under the EC deposit guarantee scheme regulations is not subject to any end-date and continues indefinitely.

The participating institution must pay a significant fee to the Exchequer for the benefit of this guarantee. This fee is in line with and in certain circumstances surpasses the fees applicable generally for guarantee schemes approved by the European Commission. While the original fees associated with the ELG scheme were based on the pricing recommendations published by the European Central Bank in respect of guarantees of this nature and were consistent with the fees applicable to similar guarantees provided by other EU member states for their credit institutions, the fees that institutions are required to pay under the scheme increased for guaranteed liabilities incurred from 1 July, in line with the pricing structure outlined in the Commission's staff working document on the application of state aid rules to government guarantee schemes covering bank debt. The additional pricing, in line with the Commission guidelines, ranges between 20 and 40 basis points, depending on the rating of the institutions concerned. The pricing is set out in the rules for the scheme at Annex 7. The July increase was in addition to the ECB pricing recommendations which provide that the fee for debt and deposits with a maturity of one year or less will be 50 basis points per annum. The corresponding fee for maturities exceeding one year is based on the median value of the banks' five-year CDS spreads for a sample period, plus 50 basis points.

In addition to this significant cost for participating institutions, additional pricing will apply from 30 September for very short-term debt and short-term corporate and interbank deposits, that is, debt and deposits of 90 days or less, excluding retail deposits. The fees on these liabilities will be increased as follows: 20 basis points for liabilities incurred from 30 September; a further 20 basis points for liabilities incurred from 1 Novemberd, and a further 30 basis points for liabilities incurred from 1 December. The real effect of these changes to the pricing regime is that the average fee now paid by institutions under the ELG scheme is approximately ten times higher than the average fee paid by institutions under the original bank guarantee scheme when it was introduced in September 2008. The position at the end of August was that €730 million had been collected from the institutions in respect of fees for the CIFS scheme, while €296 million was collected in respect of fees from the ELG scheme. Thus, in less than two years, the Government has already reached the €1 billion target for guarantee fees. The yield to the Exchequer in future will depend on a range of factors such as the maturity profile of the liabilities issued by the institutions and the extent to which institutions choose to make unguaranteed issuances, all of which depend on market conditions at a given time.

The ELG scheme provides for the same reporting and information requirements and restrictions on commercial conduct which are set out under the CIFS scheme, which are important in preventing any abuse of the scheme. Institutions under the ELG scheme are required to submit any reports or information which the Minister, the regulatory authority or the scheme operator believe are necessary to monitor compliance of the institutions with the scheme. In addition to the power to issue directions, the scheme contains enforcement provisions. The operation of the ELG scheme continues to be delegated to the NTMA, given its market expertise.

In summary, the extension of the issuance period of the ELG scheme to 31 December 2010 will continue to allow institutions to access funding, both short-term and longer-term debt, with the objective of helping to maintain the overall stability of the banking sector. It complements the broad Government strategy to restore fully the banking system and maximise its contribution to overall economic recovery. The relevant State authorities will continue to monitor the funding situation of Irish banks and the requirement for the guarantee going forward. We will revisit the requirement for the ELG scheme in consultation with the European Commission and the ECB, in advance of the current deadline of 31 December, and judge the need for an extension on the basis of market conditions at that time and the specific funding position of the Irish institutions, having full regard to financial stability matters generally.

I commend this scheme to the House.

Liam Twomey (Fine Gael)
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The first question everybody in the House would like to have answered is what the Minister intends to do in 13 weeks if he intends to extend the scheme six days after Christmas. Will that be done around budget time or will there be another emergency session of both Houses after Christmas to extend the guarantee? Why was that date picked since it is during the holiday period?

Our party spokesperson on finance, Deputy Noonan, has moved an amendment in the Lower House, which calls on the Government to introduce legislation to provide for a bank resolution system that gives the Central Bank the power to wind up a failed bank and to negotiate with subordinate bondholders. Fine Gael cannot support an extension to the bank guarantee scheme as outlined by the Minister of State unless this amendment is accepted because it would strengthen the legislation underpinning the statutory instrument. I would appreciate the Minister's comments on that when he responds.

Fine Gael also has serious reservations about the quality of information provided by the Minister for Finance in the past to gain support for such legislation from the party. We know the guarantee was necessary two years ago and we know we need a functioning bank system because it is vital to the economy but, at the same time, we must also protect the interest of taxpayers. We have witnessed how they have been hammered over the past few years because of poor policy decisions on the part of the Government.

We do not know whether the Minister is giving us the full facts on this occasion. The Minister made persuasive arguments on the night the original guarantee in 2008 was introduced and stated the banks only had a liquidity problem. It transpires he was bluffing because he did not know the full facts. The problem was not only liquidity but also solvency. Many people have lost trust in the Minister because of what has happened during the banking crisis and the way he has presented himself at times. He bluffed his way through that night in 2008. He has continued to state that he did not know everything, that it was not his intention to mislead the House and that the banks misled him. There has not been much clarity about these issues in the intervening period in the context of people taking responsibility and taking the consequences for that lack of honesty. I have always given the Minister credit for being a first class communicator. The jury is still out on whether he is a first class Minister for Finance given the way these issues have been dealt with. His failure to obtain the full facts and his self-assured presentation of facts on that night masqueraded as fiction because he did not know them and that has cost the country billions of euro. We need to be certain that what we are standing over now is the truth.

The Government has lost credibility with the people but that does not compare with the loss of credibility the country has experienced abroad. While I acknowledge this has been painted differently, when the Central Bank Governor returned from a visit to Asia he was seriously worried because the further he moved away from Ireland and Europe, investors had more serious concerns about our economy. That concern also exists within the European Community. Ireland is a small, open economy but it only comprises 1% of the European economy and 2% of the eurozone economy. Sometimes living in our own little bubble in Ireland, we overinflate our own importance and what we are doing. We do not matter that much. International journalists have printed negative remarks and international investors have rapidly lost confidence in us. That is why the State is paying such a wide spread for borrowings in comparison to German Government bonds. One of the ways to prevent this happening is to ensure there is a sense we are telling the truth all the time and when we have been misled to ensure that is dealt with ruthlessly by the Government. The Director of Public Prosecutions has not brought charges against anybody and nobody has paid a harsh price for what has happened to our economy over the past few years. That needs to be cleared up by the Minister.

It is now known that Anglo Irish Bank was insolvent days before the blanket guarantee was passed in both Houses of the Oireachtas. The bank's managers offered the keys to the bank to Bank of Ireland, which refused them. In the close knit world of banking and politics, we are told no one felt the need to tell the Financial Regulator, the Governor of the Central Bank or the Department of Finance about this. Is it credible that when one bank approached another bank with its keys and asked to be taken on and the latter bank refused, nobody outside the circle in the small banking world in Dublin would have gotten wind of this? That is unbelievable. Patrick Neary, the former Regulator, who seems to have taken most of the flak for what happened regarding the regulation of banks has not spoken much publicly about his position but he has been undermined as a credible regulator and he has been shown up to have been incompetent and weak in his role. Was the environment in which he was asked to work made to not work in the first place? The Holy Grail of economics at the time was light touch regulation and perhaps this was part of it. There is a need for Mr. Neary to give his side of the story.

What was the role of the Central Bank Governor at the time? He was not from outside with the excuse that he did not know much about what was happening. He was a former Secretary General of the Department of Finance when the Taoiseach was Minister for Finance and he was appointed Governor by Deputy Cowen. It was a small group of people who were also politically connected yet we are supposed to believe that the Minister for Finance did not know that Anglo Irish Bank was insolvent when he asked us to vote for this. These are some of the facts that have emerged since the bank guarantee was passed by both Houses of the Oireachtas.

It also transpires from the report produced by the Governor of the Central Bank, Professor Honohan, that lower ranking officials within many of these organisations appear to have highlighted concerns but these seem to have got lost the further up the chain they went. These are matters that must be answered clearly by the Minister if we are to do what we say repeatedly in this House, that is, restore our international credibility and prove to the rest of the world that we take financial regulation seriously, both in the present and in the past, and that we intend to ensure it is the case for the future.

The Minister, Deputy Brian Lenihan, was asked specifically by Deputy Michael Noonan in the Lower House if he believed there was an issue of solvency involved. The Minister replied: "I have made it clear throughout discussions on this subject that the central issue confronting the Government last Monday evening was the liquidity of Irish banks, not the question of solvency." There is plenty of evidence that two years ago that the Minister was of the belief that this issue was not as big as it later grew to be. On Committee Stage of the legislation in this House the Minister was complimented on spending so much time in the House discussing the legislation. I tabled an amendment to provide that any loan or other moneys provided directly to a credit institution under the legislation should not exceed €10 billion. I corrected the amendment by saying that I did not mean €10 billion for any individual institution but that no more than €10 billion in total should be given to banks to bail them out. It is interesting that the Minister responded that it was not his intention or that of the Government to spend €10 billion on the Irish banking system.

There is a sense that perhaps the wool was pulled over the Minister's eyes. We did not get the full truth at the time. The Irish taxpayer is paying a big price for the hubris of many of the people, including Ministers, who were responsible for this disaster. It is time to get straight answers to the questions from the past so we can be absolutely positive the Government is fully committed to sorting out this problem. We must also ensure the people who were responsible and who did not do their job in the past pay the price for that.

Marc MacSharry (Fianna Fail)
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I formally move the suspension of the House for ten minutes.

Paschal Mooney (Fianna Fail)
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Is that agreed?

Liam Twomey (Fine Gael)
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I thought there was a provision whereby if the Minister is in this House-----

Martin Mansergh (Tipperary South, Fianna Fail)
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The Deputy's party is not according a pairing arrangement so that does not apply, unfortunately.

Marc MacSharry (Fianna Fail)
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I join Members in welcoming the Minister of State. I am pleased to have the opportunity to make some brief points on the Credit Institutions (Eligible Liabilities Guarantee)(Amendment) Scheme 2010. Recent years have been difficult for Ireland and the House will have substantial time tomorrow to debate various aspects of the performance of the economy, the future, what we think has been done wrong or right and what else needs to be done. The Minister of State has dwelt in some detail on the technical aspects of the motion. We are aware that the blanket guarantee ends tonight. The new amended scheme will guarantee all deposits until the end of December. It does not cover bonds. Longer-term bonds are already part of an extended liability guarantee scheme. The European Commission has approved this scheme, stating it is an adequate means to remedy a serious disturbance in the economy and, as such, is compatible with the special state aid rules put in place at the beginning of the global financial crisis. This has been borne out by Professor Honohan's report. Many people have been quoting from his report and the fact there was an obvious substantial need for a blanket guarantee at the time. According to the report, had we not done this, our banks would have run out of money within a matter of days and would have been forced to close their doors. The closure of all or a large part of the banking system would have entailed a catastrophic, immediate and sustained economic disruption.

Professor Honohan gave his opinion on the extent of the guarantee and other academic economists would have said it was too vast at that time. It is easy for academic economists with the benefit of hindsight to say we could have allowed a potential default to have taken place but I am pleased to echo the sentiments of the Minister for Finance, Deputy Brian Lenihan, the Minister of State, Deputy Mansergh, and others in recent days that default is effectively unthinkable and would do nothing to enhance our reputation abroad.

I refer to the recent comments by an eminent former European Commissioner, Peter Sutherland. He commented on the Financial Times article which sparked much debate by saying that its comments were flawed in theory and very dangerous. He said that the amount that could be saved by a default would be very limited, perhaps in the region of €5 billion. He suggested that such a move by a country as small as Ireland and with such an open economy would surely precipitate a funding crisis for both the sovereign and the banking system as a whole.

While there has been much debate about why a blanket guarantee was issued two years ago, the main reason for doing so was to ensure the banks had access to funding in the world markets. The Minister, Deputy Brian Lenihan, was asked specifically by Deputy Michael Noonan in the Lower House whether he believed an issue of solvency was involved and this point was made by Senator Twomey. The Minister was focused very much on the fact that it was an issue of liquidity. All of the debate on 29 September was on the fact there were serious difficulties with liquidity in Anglo Irish Bank. It did not become clear there were major flaws in the capitalisation of the bank until further investigations and reports examined the situation in more detail, such as that by PricewaterhouseCoopers. At the time the Minister and the Government were not appraised that the issue was primarily one of solvency or capital. Deputy Noonan may have said there was anecdotal evidence to the contrary but we can echo the Minister's comments in the Lower House that if anyone has information suggesting there was a deliberate attempt to provide incorrect information at that time, the information should be brought to the Garda Síochána as a matter of the utmost urgency.

Default is not an option. I attended a meeting of the Joint Committee on Finance and the Public Service last week. One would presume the Opposition wishes Ireland to be a test case for default. I do not know if Senator Twomey was in attendance at the committee meeting. The Minister said there seems to be a school of thought among some academic economists and elements of the media that defaulting is a good thing to do and that we should see how it will pan out for Ireland. Quite rightly, the Minister made crystal clear that Ireland is not prepared to be the test case so the world can assess whether default can happen without a detrimental impact. Peter Sutherland highlighted the impact would be detrimental.

In response to the amendment proposed by Senator Twomey, the Minister made it clear that, while the amendment will not be accepted, a statement will be made on this issue tomorrow. While one cannot default, one can negotiate. I expect there will be some movement possible on the €2.4 billion of dated subordinated debt.

I support this extension of a net three or four months. In response to Senator Twomey's point, we are hopeful that the banks will then be in the position that they do not require this guarantee to secure funding. We must deal with issues over the next two days, including Anglo Irish Bank. Perhaps there will be some indication on AIB because once the Anglo Irish Bank situation is finalised, in terms of the unacceptable, intolerable, maddening overall cost of Anglo Irish Bank, we must focus on AIB. While we had encouraging signs in terms of raising capital through the sale of its Polish interest, perhaps there is some disappointment at the breakdown in talks with Banco Santander and other interested parties in its US operations. As soon as we have more clarity on Anglo Irish Bank, tomorrow afternoon, we must consider AIB.

With two senior bidders for the EBS - Irish Life & Permanent and a consortium of private equity players, including Cardinal Asset Management, there are grounds for some optimism in the endorsement by international equity players in the banking strategy here. It displays confidence in the future. Over the next number of weeks, it is of vital importance that we display this to the world, which had expressed such confidence through the markets in the measures taken here in terms of fiscal rectitude, trying to rehabilitate the banking system, facing up to the difficult mistakes made in the past and capitalising the banks with the establishment of NAMA. We need to reassure the markets of our determination to deal with these problems in an authoritative and definitive manner. Following the work of the next couple of days, we must ensure various personnel from the NTMA, the Central Bank, the Minister for Finance, Deputy Lenihan, and the Minister of State at the Department of Finance, Deputy Mansergh, engage in an international roadshow to assure the markets we are capable and determined to deal with these difficulties in a decisive manner.

Senator Twomey mentioned that no one has been arrested or prosecuted with regard to the mess we are in. We have due process in this country and I am confident due process will provide us with the pound of flesh we require to satisfy the justifiable anger we saw when a man tried to drive through the gates of Leinster House this morning. I do not condone it but I understand it because we must provide the public with some peace of mind in that regard. That may involve a change in legislation and some change in the law. It is unacceptable that frightened old age pensioners are watching television in the evenings and hearing that if they do not pay their television licences they could face a jail sentence or a substantial fine while in the next news bulletin we see major players in this mess arriving back in Dublin Airport from a family holiday. I agree with Senator Twomey that it must be addressed.

I fully support the guarantee. It continues to be another step in the right direction. Tomorrow will be a big day in the context of the banking situation, bringing closure and certainty to the Anglo Irish Bank situation. There is more to be dealt with in AIB. I am confident that, with the Minister ably assisted by Deputy Mansergh and others, we can achieve that.

Shane Ross (Independent)
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I find this motion very difficult. When we deal with these issues in a piecemeal fashion, this type of motion and debate leads to a further loss of confidence by the global markets. I do not mean that the debate should be suppressed. The fact that it is temporary, that we do not know how long it will last and that we do not know what will happen tomorrow leaves us in an odd situation when debating. I always felt, and I feel more strongly now, that the better route would be to nationalise all the relevant banks initially. I still feel this would be a better solution because this proposal is presented, rightly or wrongly, as a temporary carryover of the problem that is Anglo Irish Bank. Anglo Irish Bank is the lead problem in the world markets and something bondholders see as threatening the economy, the Government and the solvency of the State. That may or may not be true. To ask us to vote for this in a vacuum is unreasonable. Had matters been addressed in a different order and we were given the detail yesterday that we will be given tomorrow, it may have been a reasonable request. When the nation, experts, politicians and commentators are in the dark about whether the figure will be €25 billion, €35 billion or higher, asking us to guarantee the bank in question is absurd and insulting. It will be passed but we should be armed with the information necessary so we can decide, perhaps not in an informed or educated way but in a way that is reasonable, whether it is worth the price. There is at some stage a point at which one says "To hell with it, let's default." There is at some stage a point at which it is too expensive and at which the credibility of the nation is not worth it. I would have thought that if we were to nationalise all of the banks, it would remove the extraordinary market uncertainty. The question being asked is whether the Government is going to let Anglo Irish Bank go. The Government continually states it is not going to let it go in order to reassure the markets, but I suspect the proof would be if it was to state every bank in Ireland would be nationalised.

The bondholders have a point. They look at the behaviour of the Government and make cold judgments. They are not sentimental or patriotic judgments. They are saying the situation is dire and that perhaps one of the banks will default or be allowed to do so by the Government. The problem being signalled by the dogs in the street and in the markets is not that Anglo Irish Bank is a basket case and beyond redemption, as now acknowledged by the Government because it is going to wind it down, and not just the price of Anglo Irish Bank - if that was our only problem, that would be okay - but that the next pillar to wobble will be AIB. The Minister knows perfectly well that AIB has sold its Polish subsidiary. It has a problem, as Senator MacSharry said, with Santander. I did not know that, but if it is true, it may sell it for a good price. It may also sell its British branches and a few other bits and pieces for a good price, but that will still not solve the problem of AIB. The next thing it will have to do is expose itself to the market, after which it will have to have a rights issue. No one in his or her right mind would subscribe to a rights issue in AIB. There is not a hope in hell of it getting a rights issue away. Bank of Ireland did and all credit to it, but its rights issue occurred in very different circumstances when things were not looking nearly as bad and market sentiment was very positive. It brilliantly exploited a window of confidence in the economy, but that is now lost. It has disappeared. The next thing that will happen is that AIB will fall short of what is required of it in terms of recapitalisation and when that happens, there is only one place from where the money is going to come from, namely, the taxpayer. As sure as night follows day, that is going to happen. The Government is going to bail out AIB next. There will then be all sorts of questions, perhaps not identical to those relating to Anglo Irish Bank, as it is not as bad and there are not as many colourful peripheral stories attached to it, but AIB will next be under threat. It will be majority owned by the State and identified with it. Would it not be far simpler if the State had moved in and taken the lot? If the speculators want to take on anybody, they will have to take us all on and take out the sovereign nation. There is no uncertainty. None of the banks is going to be allowed to float on its own, abandoned. That way we might have some chance of rescuing not just the banks but also the State.

It will depend to some extent on how the State has managed the nationalisation of Anglo Irish Bank. This raises serious questions. On many occasions I have asked what on earth the Government has been doing in appointing various directors with political pedigrees which stand out a mile or flawed banking pedigrees in a way anyone could have pointed to in advance. There have been some rather strange appointments already this week, with the appointment of Mr. Jim O'Leary, a "respected" economist, to advise the Department of Finance. I know and like Mr. O'Leary, as do many others in the House, but he was a director in Allied Irish Banks at the exact time the property frenzy was taking off. He and Mr. Gary Kennedy, recent key appointments by the Government to very delicate positions, were both members of the board of AIB when it was lending money hand over fist to property speculators. Why on earth has the Government chosen as one of the chief advisers to the Minister at this crucial time someone with that record to advise him? I cannot understand it. He may have wonderful ideas about many things, but a host of independent economists with equally good qualifications would undoubtedly have taken the job who do not carry the albatross of having been at the coalface at the time.

I read of another appointment in today's newspapers. Mr. Pat O'Mahony is one of the advisers to Mr. Nyberg who is investigating the banks. Most will not remember him, but he was head of the branch network in AIB at a very delicate time. If the Government is going to nationalise the banks, it will have to look at the pedigree of those whom it appoints. I worry about one thing above all else, namely, that the bankers are not reforming and that they are retrenching. They are retrenching with the co-operation of the Department of Finance. That is not a serious charge, but there is anecdotal evidence to back it up. It seems to be unreasonable, therefore, to ask us to give a guarantee to Anglo Irish Bank and the rest of the banks at a time when the Government is not taking the confidence measures necessary to help and that might make the guarantee unnecessary.

Dan Boyle (Green Party)
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Given that the Minister of State is to speak ten minutes before the end of the debate, there may not be two full speaking slots. I suggest-----

Marc MacSharry (Fianna Fail)
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We will extend the time available for the debate.

Martin Mansergh (Tipperary South, Fianna Fail)
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I will hear Senators out.

Dan Boyle (Green Party)
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I thank the Minister of State for his co-operation in that regard.

The installation of the bank guarantee two years ago was accompanied by much political comment about the certainty that it would cost the State €400 billion. While that might pass for normal politics, it has helped to inform much of the misuse of figures we have seen since. It is also true that the report of the Governor of the Central Bank on the banking crisis pointed out that while the bank guarantee was the correct instrument to introduce for the right reasons, the way it had been introduced was probably too broad in its application. I do not believe he imputed any political charge in that regard. The situation two years ago was so serious that the Government was required to take immediate action. For the most part, the guarantee has been a successful instrument.

Members might remember that the reaction from other jurisdictions was violent towards it in the opening weeks until many of those same governments decided to replicate the measure in their own systems. The Minister of State has pointed out that many of them have since renewed their bank guarantee schemes, which puts an onus on us to extend the time period in which ours should be considered. The amendment has also been informed by the observation made by Professor Honohan in his most recent report that it must be a different type of guarantee. The necessary measures have been taken.

That said, it is fair to say about the unacceptable spiralling costs of Anglo Irish Bank and its debts that the existence of the bank guarantee and the way in which NAMA as an organisation worked very well within its remit in properly costing the loan book of Anglo Irish Bank has led us to the situation where the figure we will see tomorrow, while it might not surprise at this stage, is well in advance of the figures that many of us had been anticipating two years ago. It is an unacceptable figure. It is a period of Irish history on which we will look back with no great fondness and a great deal of horror in terms of the individuals and institutions whose reckless behaviour brought us to this situation.

Government policy has been founded on the basis that if this situation is not sorted out, the access to borrowing which we need because of our public expenditure crisis and the long-term cost at which that money is borrowed would spiral out of control. While some might look at current rates and argue that this might not seem on the surface a particularly successful policy, it is fair to say also that the current spiralling of the interest rates has much to do with an expectation within the markets that the bondholders in institutions such as Anglo Irish Bank may not get the money they put into those institutions in the first instance. The Minister has gone to great lengths to ensure the debts this country has incurred will be met. In putting in place a new guarantee, the question of people who provided bonds on an unsecured basis - the subordinated bonds - and the ability of even the senior bondholders to work towards the resolution of institutions such as Anglo Irish Bank is something we must now consider. I am confident that through institutions such as the European Central Bank, this is something that will be actively considered.

We must take on board the key lesson of Professor Honohan's observation that we cannot have an open-ended approach to this problem. The cost we have been asked to bear as a State has been too large and cannot be open ended. The difficulty with the use of this instrument and others is that within weeks, this action deciding what will happen with the debts that have been incurred and which were covered by the previous guarantee, the announcement of the total cost of Anglo Irish Bank and how that cost is likely to be met, and the budget in early December will probably constitute the most crucial economic period this country has faced in decades. I ask all Members when considering the approval of this motion to bear in mind that there is a shared political responsibility among all in political life to ensure instruments such as this have their desired policy goal because if we move offside in reaching the targets that are hoped to be gained under this policy while at the same time trying to cover our public expenditure crisis, the situation which is causing further doubt may become an impossible situation.

Like Senator MacSharry, I believe this is a situation that can be and will be overcome. It will not be overcome by sugar-coating the seriousness of the situation, nor will it be helped by people who want to play pure politics with it. This is a situation that will require resolution over a long period and will require a degree of political consensus that, sadly, has been lacking to date. We must give a qualified welcome to extending this guarantee. I look forward to a time when the benefit of having such a guarantee in place will at last see us with a more stable economy and a banking system in which we can begin to believe again.

Alex White (Labour)
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It is not irresponsible to oppose, to test government policy or to seek to amend it. The opposition at any period of a country's history performs a major task for the body politic, to which Senator Boyle refers, precisely by being in a position to test, criticise, query and, if it judges it to be appropriate or necessary, oppose. It is for a government to ensure its policies are sufficiently well argued in public and in parliament and that it has sufficient support among the members of a parliament to get those policies through. Opposition parties must exercise a sense of responsibility and, especially at moments such as this, restraint in how they present their arguments, marshal their arguments and participate in the debate. I do not disagree with that for one minute.

I do not believe we have time at this point to rehearse all the arguments that were gone through in the days and weeks after 29 September 2008. I assure the House, including Senator Boyle and others, that at all times the position taken by my party, then and since, has been motivated by no other objective than the interest and common good of the country. The fact we took a different view and opposed a proposal brought forward by the Government does not and should not in anyone's eyes lessen in any way or suggest to anyone, either in this House or outside, that a political party that takes an opposite view is somehow offside, cannot be relied upon or is in some way undermining the common good. The opposite is the case.

We do not have time to deal with or go back through all the arguments we had then. Some of them have been touched on because they are still live and relevant. That is the basis upon which the guarantee was presented at the time and the basis of the claims that were made for the guarantee. Senator Boyle says it has been very successful. I do not know how it is possible for anyone to say it has been successful. While it would be difficult for me to say definitively that it will historically be proven to be unsuccessful, I do not know how Senator Boyle can say it has been successful because it will not be possible to pass that judgment for many a long year from today. I can understand him defending it but to suggest it has been a success seems contingent on many different things that lie in the future such that it is not possible to make the point.

At the time of the original guarantee legislation in regard to which this proposal is an amendment, the Minister, Deputy Brian Lenihan, stated:

There is understandable concern that the Exchequer is potentially significantly exposed by this measure. This is not the case. The risk of any potential financial exposure from this decision is significantly mitigated by a very substantial buffer made up of the equity and other risk capital in the relevant institutions. It is estimated [he does not say by whom] that the total assets of the six financial institutions concerned exceed their guaranteed liabilities by approximately €80 billion, which is half of Ireland's total GNP. By any measure there is, therefore, a very significant buffer before there is any question of the guarantee being called upon.

I note the narrative has moved in recent days and weeks in the view of Ministers and certainly former Ministers, such as Deputy O'Dea, and I saw the Minister of State, Deputy Curran, nod his head when someone made the point that the banks had lied to the Government. It may well suit the Government that the narrative now becomes "the lies the banks told the Government". It may be that lies were told and that the Government can somehow seek to portray itself as being blameless in that regard and being the hopeless victim which has been misled.

However, this cannot be the end of the story for any responsible government that has the experience of managing government for as many years as this Government does. As to the level of supervision of banks and financial institutions in which it was engaged, what information flow did it insist on having? To turn around and claim the banks told it lies is ludicrous. What level of monitoring was there? Surely any government in any situation-----