Seanad debates

Wednesday, 19 October 2011

Central Bank and Credit Institutions (Resolution) (No. 2) Bill 2011: Committee and Remaining Stages

 

11:00 am

Photo of Terry LeydenTerry Leyden (Fianna Fail)
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I welcome the Minister for Finance, Deputy Michael Noonan, to the House.

Section 1 agreed to.

Section 1 agreed to.

Amendment No. 1 not moved.

Sections 2 to 79, inclusive, agreed to.

SECTION 80

Acting Chairman:

Amendments Nos. 2, 3 and 4 are related and may be discussed together.

Photo of Rónán MullenRónán Mullen (Independent)
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I move amendment No. 2:

In page 60, subsection (1), to delete lines 21 to 32 and substitute the following:

"80.—(1) The liquidator of an authorized credit institution has 2 objectives as follows:

(a) Objective 1 — to work in conjunction with the Bank and the Ombudsman to facilitate—

(i) the Bank in ensuring that each eligible depositor receives the prescribed amount payable under Regulation 4 of the Regulations of 1995 from the deposit protection account, or

(ii) the Bank in transferring that amount from the deposit protection account to another authorized credit institution or to a credit institution approved by the Bank, to hold that amount on behalf of each such eligible depositor;".

Ba bhreá liom fáilte a chur roimh an Aire. Tá cuma sláintiúil air. Táimid beirt slán ón uile bhuairt agus ón uile ghalar ar maidin. I welcome the Bill as a step in the right direction in preventing a future collapse of the financial sector, such as we have seen. It is of huge importance that the country finally has a bank resolution scheme that is consistent with international standards set out by the Financial Stability Board and the Bank for International Settlements.

Despite welcoming the broad thrust of the legislation I have concerns regarding the protection of consumer rights in the liquidation process put forward by the committee. My amendments have to do with the role of the Financial Services Ombudsman as a guarantor of consumer rights. At the forefront of the resolution of financial institutions should be the protection of taxpayer interests and consumer-depositor interests, namely, the taxpayer, for two reasons. It is essential that the rights of the deposit guarantee scheme are upheld and important that the resolution process is mindful of the taxpayers' and consumer-depositors' interests in the longer term.

In the years following the onset of the financial crisis, consumers have been suffering from a double hit on their interests. Not only has taxpayers' money been used to prop up financial institutions in Ireland, but these same financial institutions have proceeded to increase bank charges and withdraw viable overdrafts. The situation cannot be allowed to arise again where ordinary consumer-depositors are to face the brunt of the consequences of collapse, which was no fault of their own. It is important that the consumer-depositor has an independent watchdog, in the form of the Financial Services Ombudsman, to guard against this terrible injustice arising again in any future resolution measure taken to protect the financial stability of the banking sector.

The equivalent legislation in the United Kingdom, the Banking Act 2009, provides for an individual to be appointed from the independent financial services compensation scheme which was created to provide a compensation fund of last resort in instances of financial crisis. It is similar to our deposit protection scheme. While I acknowledge that the operation of the deposit protection scheme is the responsibility of the Central Bank and the Financial Regulator, I feel, nonetheless, that the independence of the Financial Services Ombudsman in the process would be of considerable importance and of relief to consumers and depositors.

The role of the Financial Services Ombudsman, according to its website, is as follows:

The Financial Services Ombudsman is a statutory officer who deals independently with complaints from consumers about their individual dealings with all financial service providers that have not been resolved by the providers.

If a financial institution enters a resolution process under this Act consumer-depositors will be confused and worried about their rights and deposits. Consequently, the financial institution in question will be inundated with inquiries relating to the protection of deposits which, given the nature of the situation and strain on resources, may be difficult to respond to rapidly. As a consequence, it is possible that complaints and queries will go unresolved by the financial institution under resolution. Thus, when the resolution occurs the Financial Services Ombudsman should be central to the process to ensure that the rights of the consumer are upheld and that his or her inquiries are rapidly dealt with.

It is with this in mind that I propose this amendment to section 80 of the Bill to bring the Financial Services Ombudsman into the process. The amendment changes the wording of the section so that the liquidator of an authorised credit institution has the two objectives of working in conjunction with the bank and the ombudsman. The effect of the amendment is to bring the ombudsman into the process.

In order to ensure the fulfilment of these objectives I also propose an amendment to section 83 that as soon as practicable after the court makes a winding-up order pursuant to section 216(1) of the Act of 1963 in relation to an authorised credit institution, the bank, ombudsman and Minister shall each nominate one individual who shall comprise a liquidation committee.

These amendments are essential to protect the interests of consumers-depositors at a time when they will feel vulnerable about the safety of their money. It is vital that they know there is an independent individual advocating and upholding their rights in the resolution of a financial institution. The likelihood is that the financial institution under resolution will have its resources stretched to the limit to comply with the resolution process under the Act, so it is important that the ombudsman be kept regularly informed by the liquidator as to the progress of the resolution. By allowing the ombudsman to nominate an individual to the liquidation committee, as proposed in the second amendment, this objective of keeping the ombudsman regularly informed will be achieved. This will enable the ombudsman to keep consumers-depositors updated on the process and help to alleviate their fears that their money is under threat.

The alleviation of consumer-depositor concerns will ultimately serve to reduce the likelihood of a run on the banks and to fulfil the broader aims of the Act in upholding the financial stability of the banking sector. This is an important point. We all want to prevent the scenes that occurred in the United Kingdom after the Northern Rock debacle when worried individuals queued to withdraw money, increasing the danger of financial collapse. It is with the prevention of such a spectacle in mind that I suggest taking advantage of the United Kingdom's experience and thereby ensure the protection of consumers and depositors with an independent watchdog in the shape of the Financial Services Ombudsman.

I hope the Minister will look favourably on this proposal.

12:00 pm

Photo of Michael NoonanMichael Noonan (Minister, Department of Finance; Limerick City, Fine Gael)
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I thank Senator Mullen for his good wishes and for raising these relevant points so that we can discuss them in some detail.

To put matters in context I will, first, set out how the modified liquidation provisions will apply. The insolvency of any body corporate will normally result in that body being wound up in accordance with the Companies Acts. Winding up, or liquidation, will continue to be an important tool available to the Central Bank and in many cases will be the appropriate means of resolving the crisis in a particular distressed institution, liquidating the credit institution, paying off its creditors with available funds and letting losses lie where they fall. The State will not invariably step in to bail out or pump funds into an insolvent body. This is, of course, subject to the existing guarantee that depositors hold to be repaid up to €100,000 of the funds they have on deposit from the deposit guarantee scheme. In that context, it is important that where, for example, a bank is being wound up, the liquidator and law relating to liquidations will work with and not against the deposit guarantee scheme. Therefore, an important aspect of a successful special resolution regime for banks is the facility to allow an institution to be wound up while minimising the impact of the winding up on depositors eligible under the deposit guarantee scheme.

Part 7 of the Bill, accordingly, provides for a modified liquidation procedure which requires a liquidator to prioritise eligible depositors' access to their deposits over the usual objective of insuring the best return to all creditors.

The insured depositors may be paid from the deposit protection scheme or their deposits may be transferred to another institution. In place of the more usual committee of inspection, a liquidation committee, comprising nominees of the Central Bank and the Minister for Finance, will be established to monitor the liquidator's process in achieving this prioritised objective. Once this objective has been achieved, the liquidation proceeds as normal. Where a liquidation committee considers the liquidator's process is not proceeding satisfactorily, it can, under section 280 of the Companies Act, apply to the court to determine any question arising in the winding up.

Section 80 of the Bill sets out the two objectives of the liquidator in the winding up of an authorised credit institution. The first objective is to facilitate the Central Bank in ensuring that each eligible depositor receives the prescribed amount payable from the deposit guarantee scheme. In the event of a conflict, this objective takes precedence over the second objective, which is to achieve the best results for the institution's creditors as a whole. Section 83 provides that the liquidator and the Central Bank shall co-operate in the pursuit of these objectives. It also provides that a liquidation committee should be established as soon as practicable after the making of a winding up order to ensure that the liquidator properly carries out his or her functions under this Part. Such committee will be composed of two persons nominated by the Central Bank and one person nominated by the Minister.

Amendment No. 2 would require the liquidator to work in conjunction with the ombudsman as well as the Central Bank to facilitate first, the Central Bank in ensuring that each eligible depositor receives the prescribed amount payable from the deposit protection scheme and, second, in transferring that amount from the deposit protection account to another authorised credit institution or to a credit institution approved by the Central Bank or to hold that amount on behalf of each such eligible depositor. The role of the Financial Services Ombudsman is to deal independently with complaints from consumers in respect of financial service providers. The ombudsman has no role in the administration by the State or State agencies of the deposit guarantee scheme. The ombudsman has the power to award compensation against financial services providers and his or her decisions are binding on the financial institution, subject to the right of an appeal to the High Court.

Given this appeal role of the ombudsman, it would not be appropriate for him or her to be involved in the liquidation process for a credit institution. The ombudsman has no function, role or power, nor should he or she, in the liquidation of authorised credit institutions. The deposits of eligible depositors are guaranteed up to the prescribed amount. I am satisfied as to the adequacy of the Bill's provisions in this area, which will require the Central Bank and the liquidator to work together to ensure that each eligible depositor receives the prescribed amount payable from the deposit guarantee scheme. Consequently, I am not in a position to accept the amendments.

Photo of Terry LeydenTerry Leyden (Fianna Fail)
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Does Senator Mullen wish to press his amendment?

Photo of Rónán MullenRónán Mullen (Independent)
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Yes, but I will not divide the House on the matter.

Question, "That the words proposed to be deleted stand", put and declared carried.

Amendment declared lost.

Section 80 agreed to.

Sections 81 and 82 agreed to.

SECTION 83

Photo of Terry LeydenTerry Leyden (Fianna Fail)
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Amendment No. 3 has been discussed with amendment No. 1. Is Senator Mullen pressing the amendment?

Photo of Rónán MullenRónán Mullen (Independent)
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Yes. I move amendment No. 3:

In page 61, lines 31 to 35, to delete subsection (1) and substitute the following:

"(1) As soon as practicable after the Court makes a winding up order pursuant to Section 216(1) of the Act of 1963 in relation to an authorised credit institution, the Bank, Ombudsman and Minister shall each nominate one individual, who shall comprise a liquidation committee.".

I do not intend to make any further comments on this amendment.

Question, "That the words proposed to be deleted stand", put and declared carried.

Amendment declared lost.

Photo of Terry LeydenTerry Leyden (Fianna Fail)
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Amendment No. 4 has been discussed with amendment No. 1. Is Senator Mullen pressing that amendment?

Photo of Rónán MullenRónán Mullen (Independent)
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Yes. I move amendment No. 4:

In page 61, lines 36 and 37, to delete subsection (2) and substitute the following:

"(2) The Bank, Ombudsman, and the Minister may each replace their respective nominees at any time.".

Question, "That the words proposed to be deleted stand", put and declared carried.

Amendment declared lost.

Section 83 agreed to.

Sections 84 to 90, inclusive, agreed to.

SECTION 91

Question proposed: "That section 91 stand part of the Bill."

Photo of Tom ShehanTom Shehan (Fine Gael)
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Sections 91 and 92 provide that the Central Bank may direct an institution to prepare a recovery plan setting out actions that could be taken to facilitate its survival and recovery. Some credit unions are already in negotiations in regard to, to use Mr. O'Brien's term, "the mother ship" taking weaker credit unions under its wings. Will the recovery and resolution plans tool be used to address the problems of credit unions? We have been told that currently 27 credit unions require immediate attention. Have recovery plans in respect of these 27 credit institutions be drawn up or will it be a case of slash and burn? Will this facility be used to assist credit unions to survive?

Photo of Michael NoonanMichael Noonan (Minister, Department of Finance; Limerick City, Fine Gael)
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Recovery and resolution plans allow the Central Bank and authorised credit institutions to identify possible actions that could be taken where an institution is experiencing difficulties. Such plans are prepared in advance of any difficulties and facilitate contingency planning by the institution and the Central Bank. The recovery plan is prepared by the institution and submitted to the Central Bank for assessment. It outlines the actions that an institution could take to address possible difficulties. The resolution plan is prepared by the Central Bank on the basis of the information received from the institution and sets out the Central Bank's contingency plans for the resolution of the institution concerned.

The preparation of such plans should facilitate speedy action by the institution and the Central Bank if any difficulties actually arise as a plan of action will already have been prepared. Where a special manager is appointed, he or she may be tasked with implementing a recovery plan for the institution. That is the general position of happens between the bank and institution. The bank and institution as a matter of routine rather than when a storm blows put in place contingency plans.

The Bill, in terms of focus, has implications for credit unions, including credit unions that are failing or are likely to fail. There is a broader but separate question in regard to the structure of the credit union sector in the future. This incorporates issues such as consolidation, hub and spoke arrangements and shared services, on which the Senator touched. The Senator will be aware that the Commission on Credit Unions interim report, published last week, makes recommendations to the Minister on credit union regulations, governance and stabilisation among other things. The next phase of the commission's work will deal with restructuring. I mentioned on the last occasion I was in this House that the commission is continuing its work and that we expect a final report some time around Easter, which report deals with the restructuring of credit unions. The commission will make recommendations on the possibility of voluntary consolidation or restructuring of the credit union sector over time, recognising the need to maintain local presence and taking into account the not-for-profit mandate, the volunteer ethos and community focus of credit unions. The commission will have due regard to the need to protect depositors' savings and financial stability.

The Central Bank's proposals on the possible restructuring of some credit unions will be examined by the commission and recommendations will be made to me. There is no intention to rush. The next step will see the Central Bank putting its restructuring plans before the commission, which will analyse and study them and, as a result of this information, make recommendations in its final report.

The commission will examine the option for groups of credit unions to share services on a formal basis. It will also examine the extent to which this model is appropriate. It will consider which services are most suitable for delivery by a separate entity, for example, purchasing, auditing, compliance, credit control, legal services, marketing, human resources management, administration and training. Progress in the introduction of modern information technology and management information systems in credit unions will also be examined. The process is well under way and we have had the interim report.

The next part of the commission's work is an examination of restructuring. One will not wake up some morning and find that the bank has moved in on credit unions. It is being processed through the commission and there will be a full report that we can discuss in or around Easter. The only exception to this is if a credit union, for reasons about which we are not currently aware, is on the verge of collapse and the bank must move as a matter of emergency. The restructuring of the credit union as a whole will be filtered through the commission and the commission's advice will be taken on board.

Photo of Maurice CumminsMaurice Cummins (Fine Gael)
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The commission will report by Easter. Is it envisaged that legislation will provide for the recommendations or will they be dealt with via regulations from the Central Bank?

Photo of Michael NoonanMichael Noonan (Minister, Department of Finance; Limerick City, Fine Gael)
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The interim report, which was published last Friday, set out the governance of the credit unions. This matter will require legislation. Under our memorandum of understanding with the European authorities, we are committed to publishing the legislation before or just after Christmas. This will be processed in the normal way.

The restructuring of the credit union movement will not require legislation. In effect, this Bill empowers the bank to engage in restructuring. Further legislation will not be required. However, the discussion between the commission and the bank will result in a final report from the commission in or around Easter. It will make recommendations to the Minister and the bank on the methodology of the restructuring. If legislation is required, we will legislate, but I do not envisage a second Bill other than the governance legislation that I mentioned.

Photo of Tom ShehanTom Shehan (Fine Gael)
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Does the Minister envisage that a recovery plan will be an option in respect of any of the 27 credit unions we have been told are at serious risk?

The Minister mentioned special managers. I discussed this matter with the Minister of State, Deputy Brian Hayes, yesterday. Under the Bill, someone appointed as a special manager must, in the opinion of the Central Bank, have "the requisite knowledge, expertise and experience of the financial services sector to be the special manager of that credit institution". Is it possible that former bank managers will be appointed to these roles?

I have a query on the constitutionality of the imposition of special managers. Where a special management has the "effect of suspending the rights and powers of shareholders and members" and general meetings will only be convened at the special manager's direction, is there a question of shareholders' property rights being affected? Will this provision be challenged on constitutional grounds?

Photo of Michael NoonanMichael Noonan (Minister, Department of Finance; Limerick City, Fine Gael)
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Every Bill approved by the Government must be signed off by the Attorney General. By definition, a Bill cannot be published if the opinion of the Office of the Attorney General is that it is unconstitutional. Constitutional proofing of this Bill has been done and the Attorney General has advised that the powers of special managers are constitutional.

As to the special manager's qualifications, it is obvious that he or she would not be someone just in off the street who knew nothing about finance. It is up to the Central Bank to decide on an appropriate person. Such a person would need to know something about the management of a financial institution. A successful manager of a credit union would probably be an appropriate special manager, were such a person available. People's backgrounds would not rule them in or out as long as they had particular skill sets.

Of the 27 credit unions mentioned in the interim report as being impaired in one way or another or having inadequate reserves, the bank rather than the Minister is the regulator of the financial institutions, including the credit unions. It is up to the bank to decide what move it will make and when. In the normal course of events, my Department will be informed of anything that will occur. This time last year, my predecessor got fairly clear signals to the effect that the bank was about to move quickly to assist credit unions, but nothing has happened to date. The situation that emerged in the interim report did not seem to be as bad as suggested by the rumour mill. There is some urgency about some credit unions, but there is no immediate plan for the bank to go into any one in particular. The bank is examining the 27 unions' situations carefully, paying particular regard to the at-risk cases at the bottom of the scale.

Photo of John GilroyJohn Gilroy (Labour)
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I will reserve my comments for later, but will the special manager's salary be subject to the salary cap in banking services?

Photo of Michael NoonanMichael Noonan (Minister, Department of Finance; Limerick City, Fine Gael)
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I would not envisage a special manager of a credit union being anywhere near that cap.

Photo of John GilroyJohn Gilroy (Labour)
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Not in a normal credit union. What of the larger, more complex institutions?

Photo of Michael NoonanMichael Noonan (Minister, Department of Finance; Limerick City, Fine Gael)
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We have not considered that, but the general rule applies and the cap is the cap.

Question put and agreed to.

Sections 92 to 101, inclusive, agreed to.

SECTION 102

Question proposed: "That section 102 stand part of the Bill."

Photo of Tom ShehanTom Shehan (Fine Gael)
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Regarding sections 102 and 103, the limitations on judicial review and the right to appeal are restrictive. Leave to seek judicial review must be made to a court within 14 days of the notification of a decision. However, leave for review may be granted thereafter if the court is satisfied that "there are substantial reasons why the application was not made within that period" and "it is just, in all the circumstances, to grant leave". Additional to the tight deadline in which an applicant must seek judicial review, the court must also be satisfied in every case that the application raises a substantial issue. There is a very narrow window for an appeal or for a judicial review. Does it need to be this tight or can the Minister explain why this provision covering the right to appeal is so heavy-handed?

Photo of Michael NoonanMichael Noonan (Minister, Department of Finance; Limerick City, Fine Gael)
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The right to appeal is contained in this section and it is an important right. It is important to balance the challenge with the need to ensure that the resolution of an institution in difficulty can take place efficiently and effectively. A delay in implementation could undermine the usefulness of the resolution. Therefore, the Bill provides definite lines of challenge within the procedures for the making of orders and allows for judicial review and appeals.

However, the timeframe for all sources of challenge is limited to ensure that resolution measures can be implemented in a timely manner to avoid uncertainty regarding outcome for all shareholders, including depositors. There is a right of appeal but the window to appeal is short because the Central Bank will not be moving in to resolve an institution unless there is a major difficulty. Resolving it is not open-ended from a time point of view; it must be done pretty quickly. If one reflects on the events of the past 12 months, one will find situations where from newspaper reports it appeared the courts were being used to obstruct the authorities in taking action in certain cases. It is a question of balancing the right of appeal with the efficacy of the intervention. The balance here is about right.

Photo of Sean BarrettSean Barrett (Independent)
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I welcome the Minister. I share the concerns Senator Sheahan mentioned concerning the general principle of laws restricting people's right to appeal and the right to a judicial review, but I accept what the Minister said. There were circumstances where the vacation procedures were used rather strangely I think to outsiders. We asked the Minister of State, Deputy Brian Hayes, about it yesterday and raised those concerns about the two sections. There is a certain reluctance to note that people have rights to a judicial review and rights of appeal to the Supreme Court. While appreciating all the Minister is trying to do in this legislation and how important it is, infringing on those rights is something for which I would have less than a wholehearted appetite. In general what the Minister is doing is welcomed.

I am sure the Minister of State, Deputy Hayes, reported to the Minister yesterday that we said we wished we had all this in place five or six years ago and that many of the difficulties that arose since then would not have occurred.

Photo of Michael NoonanMichael Noonan (Minister, Department of Finance; Limerick City, Fine Gael)
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While the restriction is to 14 days for making the appeal, once the appeal is made it is in the hands of the courts. It does not have to be out in 14 days, once the court takes possession of the appeal, then the court owns the process.

Question put and agreed to.

Sections 103 and 104 agreed to.

SECTION 105

Question proposed: "That section 105 stand part of the Bill.

Photo of John GilroyJohn Gilroy (Labour)
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The section states that "The Bank may, after consultation with the Minister, issue a code of practice ...". While that is a good thing I notice that the equivalent Act in the UK, which is self-proclaimed to be ahead of international best practice, does not have a role for the Minister in any of this. The reporting takes place between the Bank of England and the Financial Services Authority.

In the lead up to the crisis the forbearance shown by the banks was a major contribution to the crisis that we are in. Because the act must take place before a financial institution is considered insolvent, with the Minister having a responsibity here, there could be a political danger that he could be seen to have been involved or charged with causing the crisis. That happened in the Washington Mutual case in Seattle in 2007 where the regulatory authorities intervened, as they should do under the American legislation, to act before the bank became insolvent. This was latterly construed to have precipitated the crisis in the first place. I wonder if the role of the Minister here could lead to a secondary act of forbearance. What is the Minister's opinion on that?

Photo of Michael NoonanMichael Noonan (Minister, Department of Finance; Limerick City, Fine Gael)
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It is section 106 that the Senator is addressing. That section states "The Bank may, after consultation with the Minister, issue a code of practice ...". It is the bank that issues the code of practice, not the Minister, but there is consultation with the Minister. Normally I find in legislation such as this when one is dealing with the bank or the regulator that while the policy is being decided there is consultation with the Minister but once the policy is put in place in law the bank or the regulator is independent in the exercise of its functions. Therefore, it is that procedure. It is not the Minister who issues the code of practice, it is the bank.

The section states, "The Bank may, after consultation with the Minister, issue a code of practice relating to the operation of this Act including the exercise of any powers under this Act." It is reasonable that as the Minister is the proposer of this legislation, regarding codes of practice that would run from it that are being put in place by the bank, there would be consultation with the Minister in advance since the Minister is the proposer of all the legislation. It is like the metaphor of the cow and calf - the code of practice is the calf. If the Minister is the proposer of the legislation, then he has a role in subsidiary legislation like codes of practice but once they are established, he is out of the picture and the bank acts independently.

Photo of Sean BarrettSean Barrett (Independent)
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Are codes of practice and guidelines any use to us if they do not have the force of law? On the one hand, we have laws, statutes, ordinances but if there are not strict definitions of a code of practice and the penalties for adhering to them, and the same applies for not being guided by guidelines, do they help? Is this a kind of mangerialism creeping into the law and does the fact that they are in place amount to - to use the methaphor - a hill of beans?

Photo of Michael NoonanMichael Noonan (Minister, Department of Finance; Limerick City, Fine Gael)
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The code of practice, I understand, would have the force of law. We are enacting the section here, so the section has the force of law. It is the section which empowers the bank to issue the code of practice, so the code of practice has the force of law as well. There is legislation which defines that; I am informed it is the 1971 Act that gives the force of law to codes of practice that run from sections of the Bill.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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The issue of mortgage arreas, which we discussed this morning, comes to mind and there is a code of conduct on mortgage arrears. While the codes of conduct are statutory under the Act that the Minister mentioned, I do not believe they are not open to interpretation. If the Central Bank deems that one follows the code of conduct, I do not believe a court can take issue with an aspect within the code of practice other than the Central Bank saying that as far as it is concerned the broad thrust of the code of practice has been followed.

I agree with Senator Barrett's point that we need to be much more prescriptive with banks than we are, including in this instance. The light touch regulation of the past and the promixity of the Central Bank, the banks and credit unions and so on has not served us well. We should look at, as was suggested by the Senator on the other side, making things a little more definite in terms of procedures that need to be followed. I am not sure that the Central Bank should take absolute control. In this instance, I would take a little more comfort if the Minister had a little more input.

Photo of Michael NoonanMichael Noonan (Minister, Department of Finance; Limerick City, Fine Gael)
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Senators will be familiar with legislation going through. The primary legislation sets out the main principles but often matters of detail are dealt with by empowering the Minister to issue statutory regulations or, in this case, codes of practice. The reason is that there are issues of detail not appropriate to primary legislation, but also there are unforeseen circumstances which are better dealt with either by regulation or code of practice. However, because the code of practice has the force of law, the bank could not act in an arbitrary fashion. Once it applied the code of practice in one set of circumstances, it would have to be consistent because precedent in law would take over. As the code of practice is implemented and applied, to use a layman's term, it firms up and the bank would be wrong in law to act in an arbitrary fashion, and in my view, the bank could be challenged in court if it did.

Question put and agreed to.

Sections 106 to 109, inclusive, agreed to.

SECTION 110

Question proposed: "That section 110 stand part of the Bill."

Photo of Tom ShehanTom Shehan (Fine Gael)
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Could I have clarification on the common bond? The Bill states:

Where the engagements of a credit union (in this subsection referred to as the 'transferor credit union') are transferred to another credit union (in this subsection referred to as the 'transferee credit union'), the common bond of the transferee credit union is taken to include the common bond of the transferor credit union and the rules of the transferee credit union are amended accordingly, on and from the date on which the transfer takes ... [place].

Photo of Michael NoonanMichael Noonan (Minister, Department of Finance; Limerick City, Fine Gael)
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Seemingly, the section, to which Senator Sheahan refers, refers to non-residents. It is the common bond between two credit unions and it is an appropriate mechanism for that situation.

In reply to Senator Sheahan, I have been reminded that there is a Bill on Second Stage, the Central Bank (Supervision and Enforcement) Bill 2011, which we will be debating here shortly and which will protect whisleblowers in financial institutions.

Question put and agreed to.

Section 111 agreed to.

SCHEDULE 1

Question proposed: "That the Schedule 1 be Schedule 1 to the Bill."

Photo of John GilroyJohn Gilroy (Labour)
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This relates to the provision of information by the financial institution. I refer to the case of Mr. Eugene McErlean who seemed to run into trouble with the authorities for blowing the whistle on overcharging in a credit institution some years ago. Does the Minister see any role, under Schedule 1 or, for that matter, any other section, for stating explicitly any provisions on protecting whistleblowers?

Photo of Michael NoonanMichael Noonan (Minister, Department of Finance; Limerick City, Fine Gael)
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I do not. There is a commitment in the programme for Government to introduce legislation to deal with the protection of whistleblowers but this would not be an appropriate vehicle for it.

Question put and agreed to.

Schedules 2 and 3 agreed to.

Title agreed to.

Bill reported without amendment and received for final consideration.

Question proposed: "That the Bill do now pass."

Photo of Terry LeydenTerry Leyden (Fianna Fail)
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I thank the Minister and his officials for attending the House.

Photo of Michael NoonanMichael Noonan (Minister, Department of Finance; Limerick City, Fine Gael)
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I thank the Seanad for co-operating so effectively in getting this Bill through all Stages today. In particular, I thank the Acting Chairman, Senator Leyden, and all the Senators who contributed to the short debate. All the salient points were touched on and I appreciate that very much.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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I thank the Minister for taking time from his busy schedule to come here rather than dispatch one of the Ministers of State. It is considerate and shows great respect for the House, and we appreciate it.

Naturally, we on this side of the House supported the Bill. Almost word-for-word, notwithstanding the amendments to do with the credit union, Fianna Fáil had put it forward in February. We are supportive of it and the Government's ongoing efforts.

As the Minister is here and there is a debate ongoing in the other House on the Keane report, and while I am absolutely convinced of the political and personal commitments of all parties in both Houses to do something of a radical nature in the context of mortgage arrears and the personal debt crisis, I would ask that issues contained within the Family Home Bill 2011 and the proposed Debt Settlement and Mortgage Resolution Office Bill 2011 which is being taken in the Dáil on Private Members' time, be taken on board and that, for once, to quote Senator Barrett, the metaphorical backstairs in the Department of Finance and Government Buildings for bankers and developers can finally be removed. We should not fear the reaction from the markets, the troika, the IMF or anybody else in taking radical steps to support the families of Ireland in the same way that we, as a nation, have accepted the support of the IMF and EU in extending our mortgage period in terms of our debts and reducing our rates of interest.

Photo of Michael D'ArcyMichael D'Arcy (Fine Gael)
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I thank the Minister for attending. He attends this Chamber regularly and it is appreciated by all concerned.

The metaphor involving a horse and the stable door was used yesterday. I am of the view that the horse has run over the hill and died of old age at this stage. Unfortunately, the legislation was not in place when it was required. It goes back to that faithful night of 28 September 2008. As I mentioned yesterday, the Minister, Deputy Noonan, was the only person in those nocturnal debates who raised the question of whether this was a liquidity crisis or a capitalisation-solvency crisis. To all our dismay, he was correct in identifying that issue but, unfortunately, the correct information did not come at that stage through Government and the political process. If the correct information had come at that stage, I do not believe the blanket coverage would have occurred in the same manner.

It is a complex piece of legislation. I am glad it is done. Hopefully, nobody in this or the other Chamber will ever have to go through such processes. The vehicles are now there through legislation to ensure that the people of authority use their authority to deal with whatever crises occur.

I want to touch upon one final point. I am minded of a point made by the Murphy commission on confidence in those who are in the office rather than confidence in the office itself. I identify Professor Honohan and Mr. Elderfield as two in whom there is a great deal of confidence but I do not know for certain that the same confidence has yet been regained in the positions that both gentlemen currently hold.

Photo of John GilroyJohn Gilroy (Labour)
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I thank the Minister and his officials for attending the House. This is a very important Bill and as others have commented, if it were not for the crisis that occurred in 2008, we would never have faced this. Whether the Bill is ever used or is ever necessary, it is on the Statute Book and that creates confidence among the financial institutions that we now have a mechanism to deal with distressed institutions. The Labour Party supports this Bill. We had a good, brief debate and I would be grateful if all such debates in this Chamber were as brief and concise.

Photo of Sean BarrettSean Barrett (Independent)
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As a result of the Minister's work and endeavours, we now have a very well capitalised banking system that may indeed become a model for other countries. I say this having met some members of the Troika in Kenmare at the weekend and others in Trinity College on Monday. What we have done may well be a model for others and credit is due to all concerned on that. I thank the Minister and wish him well with this and with his other endeavours to set the country back on the right financial road.

Photo of Tom ShehanTom Shehan (Fine Gael)
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I thank the Minister for this and for all his help throughout this process. In 1980, when auditors were auditing credit unions, the first thing they did was to ask for all the relevant information regarding loans and those who provided them - directors, managers, supervisors, staff and voluntary tellers. In 1980 auditors were seeking that information from credit unions and it is unfortunate we did not have this type of auditing in our banking system. We would not be where we are if we had.

Credit unions lost €50 million with the recapitalisation of the banks and this loss has not been fully resolved. Some credit unions did not accept the 20% proposal and the offer on the table now is €1 per €1,000. Some say the €50 million was lost as a result of bad investments, but some credit unions were sold bonds that were proven not to have trustee status. The issue should have been teased out fully and it is unfortunate it has come to this. I hope it does not cost the amount suggested by the Minister's officials of between €500 million and €1 billion.

The Bill is concerned with the €50 million that was lost in some of the investments and there is also special mention of investment advisors. I hope the advisors appointed will be more prudent than the ones engaged by the credit union movement down the years, who lost a lot of money. I take on board the statement made by the Minister of State, Deputy Brian Hayes, yesterday that the same prudential systems should exist for credit unions as for banks.

Photo of Terry LeydenTerry Leyden (Fianna Fail)
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I thank the Minister and his officials for coming to the House and spending their time here to get this Bill passed by the House. I also thank all Senators for their co-operation.

Question put and agreed to.