Paddy Burke (Fine Gael)
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I welcome the Minister of State at the Department of Finance, Deputy Brian Hayes, to the Chamber.

Michael D'Arcy (Fine Gael)
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I move:

That Seanad Éireann resolves for the purposes of section 69 of the Credit Institutions (Stabilisation) Act 2010, that with effect as on and from the date of this Resolution, in subsection (1) of the said section 69 for the words ?31 December 2012? there shall be substituted the words ?31 December 2014?.??

Brian Hayes (Dublin South West, Fine Gael)
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I thank the Cathaoirleach for the opportunity to come before the House to debate this motion. This motion seeks to extend the period of effectiveness of the Credit Institutions (Stabilisation ) Act 2010, or CISA, as it is known, by a period of 24 months up to 31 December 2014. Scope for such an extension is provided for in section 69(1) of the Act, which states: "This Act (other than sections 51 and 67), ceases to have effect on 31 December 2012 or a later date substituted by resolution of both Houses of the Oireachtas." The motion seeks to substitute "31 December 2014" for "31 December 2012".

The motivation for the CISA legislation is expressed in the recitals set out at the beginning of the Act. These underscore the adverse impact of the banking crisis on our economy and the need, in the public interest, for strong powers to resolve the threat to the stability of the financial system generally. The preamble to the Act also highlights the necessity for the functions and powers provided under the Act to reorganise the guaranteed domestic credit institutions in the context of the National Recovery Plan 2011-2014 and the EU-IMF programme of support for Ireland.

The House is of course aware of the extraordinary and exceptional challenges that have confronted and still face our banking system and the economy. There is therefore a strong public interest in the continued availability of the extensive ministerial powers provided for in CISA to act on financial stability grounds to effect swift restructuring actions and recapitalisation measures. The purpose of the bank restructuring measures set out in the joint programme is to ensure that the sector is proportionate to the size and the credit needs of the economy. The aim was to capitalise the banks to the highest international standards, thereby rebuilding investor confidence in the Irish banking system and in due course restoring their access to normal market funding. The objective was to facilitate a significant reduction in the domestic Irish banking system's reliance on funding from the Eurosystem and the Central Bank of Ireland and put the Irish banking system on a more sustainable funding platform.

Under CISA, the Minister may, having consulted with the Governor of the Central Bank and formed certain opinions, make four types of proposed order addressed to relevant institutions - namely, direction orders, special management orders, subordinated liabilities orders and transfer orders - after which the Minister then applies to the High Court for an order in those terms. The Minister may also issue a number of binding requirements under section 50.

The Minister for Finance may make a proposed direction order, after which he must apply to the court for an order in those terms, directing a relevant institution to do or refrain from doing any act or thing, including directions to issue shares to the Minister or his or her nominee and increase the share capital of the institution to facilitate this. The Minister may also apply for the delisting of the relevant institution's shares, alter the institution's memorandum and articles or equivalent, or dispose of a specified asset, liability or part of the institution's undertaking.

The Minister for Finance may also make a proposed special management order, after which he must apply to the court for an order appointing a special manager to take over the management of the business of a relevant institution to carry on the business as a going concern with a view to preserving and restoring the financial position of the relevant institution. A special manager will have all necessary powers to discharge his functions, including having the sole authority over the directors and employees of the institution.

The Minister for Finance can, having formed certain opinions, make a proposed subordinated liabilities order in respect of certain relevant institutions and then apply to the Court for an order in those terms. A subordinated liabilities order operates to impose burden sharing on subordinated creditors in that institution. In taking this action, the Minister may have regard to a number of specified matters, including the extent and nature of financial support provided to the relevant institution and the amount of the relevant institution's indebtedness to its subordinated creditors. Furthermore, the Minister must be of the opinion, having consulted with the Central Bank, that the making of the subordinated liabilities order is necessary to secure achievement of the purpose of CISA or for the preservation or restoration of the financial position of the relevant institution.

The Minister for Finance can make a proposed transfer order in respect of the transfer of assets or liabilities of a relevant institution and then apply to the court for an order in those terms. Transfers can only be made to a willing transferee, and to facilitate such a transfer the Minister can provide financial incentives, including payments, loans and guarantees to the transferee. CISA addresses the transfer of foreign assets and liabilities, including those situated outside the EU.

CISA provides the possibility of recognition of the domestic measures to which I have just referred by other EU member states through the mechanism available in the European Communities (Reorganisation and Winding-up of Credit Institutions) Regulations 2011, which implement the credit institutions winding up directive in Ireland. This is particularly important given that many measures entered into by Irish credit institutions are governed by the laws of other EU member states.

CISA also contains provisions to ensure there is appropriate judicial supervision of the exercise of the Minister's powers after the making of proposed orders. These include a formal requirement to obtain, in all but exceptional circumstances, a written submission from an institution prior to the exercise by the Minister of any particular power. The Act also contains provisions for court involvement in the process on an ex-parte basis as part of the exercise of these powers by the Minister in order to ensure that the legislation offers appropriate legal and constitutional safeguards in light of the strong powers it confers on the Minister. Certain parties can apply to the court for the setting aside of orders made under the Act, which the court can direct in certain circumstances.

CISA powers have been exercised on 12 occasions, particularly in the first six months of 2011, during which the banking system was fundamentally restructured to meet the 31 July 2011 troika targets for the system. Members will recall the announcement made by the Minister for Finance in March 2011 on subordinated debt and the range of measures he introduced on that occasion concerning the pillar banks, including the application he made before the courts in respect of junior bondholders' taking a substantial reduction on their holdings in some of the banks as part of that restructuring process. It is fair to say that the overall cost of the exercise was substantially less than the cost we had anticipated at the time, given the subordinated debt reduction and the substantial sale of the majority holding in Bank of Ireland, which most investors would not have considered conceivable at the time of the March 2011 announcement. On ten of these occasions, the use of the powers was assessed and sanctioned by the High Court as required by the Act.

The most recent exercise of the powers was to enable the transfer of Irish Life to the Minister for Finance in March this year.

CISA enabled the Minister for Finance to take these essential actions quickly, efficiently and with legal clarity. The degree of restructuring of the banking sector achieved would not have been possible without the all-encompassing powers contained within CISA. Moreover, CISA was uniquely structured to prevent events of default on banks' financial instruments where restructuring intervention was necessary to achieve the Government's goals for the sector as a whole. This allowed the restructuring to take place without triggering a right for the holders of senior bonds and derivatives to demand immediate repayment or termination. I also note that the subordinated liability order mechanism under CISA was at the core of the State's ability to recover significant sums through the haircutting of subordinated or junior bondholders in the relevant institutions to which I referred. To date, every application to the Irish courts made by the Minister for an order pursuant to CISA has been successful.

A great deal has happened in the Irish banking sector since the passing of CISA in December 2010. The covered banks have continued to make overall progress under the financial measures programme, which was a rigorous analysis of the capital and liquidity requirements of the domestic banks presented in March 2011. I have made the point to the House repeatedly that the Irish banking system is now more heavily capitalised than, say, the Swiss banking sector in terms of funds following the prudential capital assessment review, PCAR, process put in place by the State. It has been hugely significant in terms of the ability of the Irish banks to do two things, the first of which is to stop the haemorrhaging of the outflows of deposits which was such a feature up to that time. Thankfully, we have now begun to see money coming back into the Irish banks, although not in a hugely significant way - I do not want to over-egg the pudding - but certainly that trend has stopped. The second aspect is the ability of the Irish banks, particularly the Irish pillar banks, to obtain funds on the inter-bank lending markets, something that was not conceivable or possible and did not happen for a very long period. These banks have progressed in regard to their recapitalisation, asset deleveraging, that is, the selling of significant assets they have around the world, deposit inflows and restructuring plans. The recapitalisation of the PCAR banks, that is, AIB, Bank of Ireland and Permanent TSB, and the IBRC has been successfully completed.
In regard to deleveraging,this has been progressed well and total covered bank deleveraging of about ¤63 billion had been achieved up to the end of September this year. Further significant disposals have also been targeted for completion by the end of the current quarter of 2012 as part of the pillar banks' planned rundown of non-core balances.

As regards funding,the banks' positions have improved significantly. Deposits in AIB, Bank of Ireland and PTSB have stabilised, with a gain in net inflows achieved since last year; international debt markets have opened up to the Irish banks, as we have seen recently. Both Bank of Ireland and AIB have managed to raise significant funds independent of any guarantee, which, again, would not have been thought possible a year and a half ago, but that has happened and is a very positive step. As part of the EU-IMF programme, the Irish authorities submitted revised restructuring plansfor all participating institutions by the end of September this year.

In regard to the eligible liabilities guarantee, ELG, scheme which was before the House recently, a working group chaired by the Department of Finance and involving both the Central Bank and the NTMA has developed a strategy to exit the scheme in a way that is consistent with preserving financial stability. The initial indications from the strategy are that a withdrawal of the ELG scheme could occur in the first quarter of 2013. When I was before the House recently, I made the point to Senators that the withdrawal of the ELG scheme would be a significant development and I hope that will occur in the early part of next year. It would be a strong signal to the banking sector that it could then return to some profitability based on its ability to obtain funds independent of any guarantee into the future. That would be part of the normal process of transformation one would expect for the pillar banks and I hope that will happen early in the new year. Depositors will be given sufficient notice in advance of the withdrawal of the scheme and any change in thatregard will be brought to the attention of the Houses of the Oireachtas as part of that process. The guarantee will remain for funds that have been guaranteed until the endpoint of the time for which they were taken out. I understand a five year time limit has been set; therefore, the clock started at the beginning and will stop at the endpoint, independent of any guarantee in place.

The work carried out on the restructuring of Irish financial institutions using the various powers provided for under CISA is not yet complete. Without retaining CISA powers for another period, it is unlikely the Government would be able to be complete the process. In particular, it is expected that orders may be sought under CISA in a number of transactions, including possible further restructuring of the Irish banks that may require a direction order and-or transfer order to implement. We have seen how a great deal of progress has been made in restructuring. However, the process is not yet concluded and it is vital that the Minister for Finance continue to be empowered with the statutory authority and have very clear powers to take any remaining necessary step as may be appropriate to ensure the process is completed.

The failures in the banking sector almost brought the country to its knees. We need decisive powers to tackle the mess out of which we are getting. Extending the period of effectiveness of CISA is imperative to being able to fully meet that objective. The Governor of the Central Bank is in agreement with the Minister for Finance that the provisions of the Act should, therefore, be available for an extended period to the end of 2014. I commend the motion to the House.

Darragh O'Brien (Fianna Fail)
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I thank the Minister of State for bringing the motion before the House. Irrespective of whether we like it, it is necessary. The Minister of State has outlined the progress made on the stabilisation of the banks which started some time ago and which all of us welcome. My only comment is that when we note the passing of this important motion, the progress being made in the banks raising funds and that their capitalisation levels are greater than those of the Swiss banks, as the Minister of State mentioned, what is forgotten - I am not saying by the Minister of State specifically - is that we must ask ourselves what are the banks doing for the punter, the customer and the taxpayer who bailed them out. I spoke at length last year on a similar motion and nothing much has changed in that regard. Businesses still have difficulties in accessing credit. We still do not have mortgage resolution measures that we were promised would be forwarded to the Central Bank by 30 September. The banks have still not come up with cohesive policies on how to deal with that issue. In this respect, there is one nut for the Government to crack and it is not just the game changer of the Personal Insolvency Bill the Minister of State mentioned but also provision for those who are struggling to pay their mortgages. This needs to be done. Unfortunately, we are in situation where we have to do whatever is required by the banks. Thing are improving, which is great, but are things improving for the punter? No, they are not. We will support the motion, but let us move to deal with the real issues affecting people. I am not diminishing the importance of the motion which we have supported since the inception of the measure. We brought it forward in the first instance and there was no question of not supporting it. However, early in the new year I would very much welcome - I ask the Minister of State directly for this - a decent and open discussion on what the banks are doing not only for mortgage holders with totally unsustainable debt but also for those who are just clinging on.

Michael D'Arcy (Fine Gael)
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As Senator Darragh O'Brien said, this is a necessary evil, as I would describe it. The Minister for Finance has huge powers and is extending the period of these powers by a further two years. The question that must be asked is what has he done with these powers.

It is often passed over in the narrative that, under the Act, junior bondholders with investments worth ¤10 billion were burned. People choose to ignore that this happened. This effectively gives the Minister acarte blancheto do with the banks as he sees fit.

I am concerned about the ¤7 billion in recapitalisation funds for the banks, primarily for the mortgage loan book. The period the funding was to cover was not specified. I presume it will apply to the entire life of the mortgage loan book. However, as we can see from the statistics of the Central Bank and other bodies, there has been practically no writing down to date. I appreciate that the banks may be waiting to see how the personal insolvency legislation will work. There is concern because, although ¤7 billion was invested, there was no definition in regard to buy-to-let properties, on the one hand, and the family home, on the other.

I note there is no sympathy for those who took a punt on buy-to-let properties. There will be repossessions by the banks. Perhaps there will be more sympathy over the course of next year. I contend the personal insolvency provisions apply primarily to the family home, and I made this point when considering the personal insolvency legislation.

With the new powers, will the Minister be required to sanction further recapitalisation if the mortgage loan book goes in one direction, as is our concern? While there is evidence that the rate is decreasing, we do not know for certain whether this trend will continue. Will the burden of picking up the slack fall back on the shoulders of the taxpayer again? The taxpayer would certainly not be pleased with this.

Consider the position if funds are needed to recapitalise the Bank of Ireland mortgage loan book, bearing in mind that the State owns 15% of the bank and that Mr. Wilbur Ross came with private equity to take it over.

We saw the belligerent attitude of the bank towards its mortgage holders. It was not very pleasant. We also saw its belligerent attitude towards the State when it was mooted that the Parliament building on College Green be taken over in the national interest close to the centenary celebrations of 2016. As always, the banks operate in the interest of themselves, not their clients. The Government should and may act only in the interest of its citizens.

Darragh O'Brien (Fianna Fail)
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The Senator never disowned them before the budget.

Michael D'Arcy (Fine Gael)
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Those of us in the Legislature should do so also.

This is a necessary evil. What can I say?

Sean Barrett (Independent)
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I welcome the Minister of State. Towards the end of his speech, the Minister of State said the failures of the banking sector almost brought the country to its knees. The word "almost" might be deleted as the banks did a pretty good job in that regard. With regard to the pillar banks, are we creating a future duopoly? Might we have decided to break up the pillar banks? "Too big to fail" can mean "too expensive to save".

When the legislation was first introduced on 15 December 2010, it was to give the Minister the powers necessary to ensure restructuring would occur as quickly as possible. That has not happened, as is evident from our having to renew the legislation. There is cause for complaint about the Irish banking system. It is still property based. Some of the banks are still lending at a rate of 70% in this regard. They do not know the small and medium enterprises but are pretending they do.

No. 24 on the Order Paper is an attempt to change our mortgage credit model to the Danish model. I hope the Minister of State's officials will brief him on it. It is a question of having Irish banks take a real interest in small and medium enterprises because they have not been doing so. Since the turn of the millennium, the banks went on a property binge and engaged in personal lending. Hardly any of the money they borrowed abroad went into industry or agriculture.

The Minister originally wanted substantial and immediate recapitalisation of banks. It is disappointing that we must renew the legislation in that case.

Part 3 of the Bill gave the Minister the power to appoint a special manager in banks. There has been dissatisfaction over the rate of attrition of managers in banks. The rate has increased somewhat but it is felt that the managers got off fairly lightly.

Part 6 provides that the overriding duty of the directors of the relevant institutions will be to the Minister for Finance on behalf of the State. Previously, the directors had a primary duty to the company. This week, the Joint Committee on Finance, Public Expenditure and Reform is to question the public interest directors. They have all signed up to appear. As far as the public is concerned, they have disappeared. Although they are very eminent, do they talk to the public or say anything at all? We will know better after the coming two days. I am delighted the public interest directors have accepted the invitation to appear before the committee. The committee was disappointed that they appeared to go native after their appointment to the boards rather than serve the public interest. We asked the managers of the banks about the function of public interest directors. The managers regard them very much as part of their team rather than representatives of Members in this House or the other House.

Part 7 states the Minister can impose terms and conditions that relate to the non-payment of bonuses, and that the institutions concerned must comply with this. Bankers' bonuses still cause concern. I hope the renewal of Part 7 of the Bill will allow the Minister to address that.

Other provisions to be renewed give rise to concern. Sections 63 and 64 provide for the limitation of the judicial review and of certain rights of appeal to the Supreme Court. One should not interfere with the powers of judicial review or the Supreme Court on behalf of any bankers. Is it necessary to renew these provisions? I presume we would not wish to have to enforce them.

Section 75 states the right of appeal pertaining to the points which the High Court certifies for appeal to the Supreme Court is limited. Perhaps some of these measures were introduced in a hurry two years ago. People are disappointed in the banks.

The Minister of State concluded by saying the goals were to demonstrate to external parties what we were trying to do and to have profound restructuring of the banking system. How profound is it? Is the system still based on property? Does the sector have the expertise to perform the tasks the Minister of State and I would wish it to perform in regard to small and medium enterprises?

The last requirement was that we should be in conformity with the regulatory capital requirements set by the Central Bank. People see in publications that Permanent TSB may need another ¤4 billion. Anglo Irish Bank, irrespective of its new title, is still a highly unpopular institution. I do not know its value to the country at all.

We still have not dealt with the legacy of the Irish banking system. With regard to ghost estates, there are 82,000 empty houses. The activities of NAMA continue to annoy many Members on all sides of the House. Consider also the price of property being held up by forbearance.

Senator Michael D'Arcy referred to it. He wondered why we should defend buy-to-lets and he has little sympathy for them. It means that banking may be worse than we feel that it is if those three artificial props were removed.

The late Deputy Brian Lenihan junior - and we remember him fondly - thought the crisis would be all over in two years. Instead the legislation has had to be renewed. There is still a lot of work to be done before the banking system serves the economy in the way in which every Senator wishes. Some questions need to be asked. How much of the legislation needs to be renewed? When will we have a banking system that will help the economy to grow?

John Gilroy (Labour)
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I welcome the Minister of State to the Chamber. Last year we discussed the legislation but I had a lot of concerns then and reluctantly lent it my support. Senator Darragh O'Brien said, in his contribution a few moments ago, that it is necessary. Of course it is necessary. The way the legislation has worked over the past year has changed my concerns a little. Hindsight is great and it is a pity that we do not have the same gift of foresight. It is a pity that the legislation was not in place when the banks ran into trouble, not so much at the time of the guarantee but from St. Patrick's Day when there was a massacre over the Anglo Irish Bank shares. It was blindingly obvious then that something was seriously wrong with our banking system, particularly at Anglo Irish Bank which suffered a collapse of 15% in shares over that weekend. The regulator responded by putting a halt to short selling but that was the extent of his intervention at the time. Perhaps if legislation like this had been on the Statute Book at the time we might have been able to act more decisively.

It has been said that the legislation has given the Minister for Finance wide-ranging and extensive powers. He could be seen as a benign dictator if he used those powers as they are laid out in the Act. It would do no harm if he acted in a less benign manner when dealing with banks. We can all see the outrageous behaviour that the banks are indulging in now with regard to their lending practices, etc. Perhaps if he bared his teeth a little more in this regard we would be better off and he would have the support of some Opposition Members.

The motion seeks to extend the legislation for another two years. Does the Minister of State think that is enough time? Will the Government be back here in two years' time seeking another extension? What will happen at the end of two years? The Government does not have the gift of foresight. Does he anticipate that the worst of the banking crisis will have passed within 24 months? I hope that his answer is "Yes". If not, does the Government intend to extend the legislation again? Will it be reviewed at the end of two years? If there are indications that it has not succeeded will the Government introduce a different type of legislation? This legislation is so wide-ranging that its effect can be anything or nothing so I would like to see more tightly focussed legislation.

It is self-evident that we need to appoint a special manager but it is a double-edged sword. Is there a concern that confidence in an institution will be undermined if it is known in advance that the Government is considering appointing a special manager?

Senator Darragh O'Brien said that it is time to see real banking measures. I contend that the legislation is a real measure. We know what would have happened if we had not introduced it. The aim was to restore stabilisation in the banks and at last deposits are being made in banks again as well as new overseas deposit accounts. We have seen a substantial reduction in our tier 2 liabilities which is welcome and the banks have resumed acting as clearing houses. They can find money on the private markets again but a year ago such a suggestion would have been laughed at.

Senator Barrett made a good point about the public interest directors and said that they have become feral. Like the Minister, they should be less benign and should be feral. The Senator said that they had been domesticated but had now gone native. Perhaps it is time that the Government made a statement on the role of public interest directors because the general public misunderstands their role and I am not clear about it myself. Perhaps the Minister of State would take two minutes to outline what the Government expects the directors to do.

I shall finish even though I have more to say. I welcome the evident success of the legislation which has led to the imminent withdrawal from the eligible liabilities guarantee scheme. That is very important. It indicates the fragility of the banks. Every time that we talk about banking and withdrawing or implementing something it is important that we reassure the public. We must ensure that the House sends out a message that we are not withdrawing the deposit guarantee scheme. It is important that we do that.

Trevor Ó Clochartaigh (Sinn Fein)
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D'airigh muid go leor leithscéalta ó Sheanadóirí an Rialtais. B'fhéidir gur cheart dóibh leithscéalta a ghabháil arís mar gheall go bhfuil siad ag tacú leis an rún seo, mar ní amhlaidh a rinne siad nuair a bhí siad sa bhFreasúra. Is léiriú eile é seo ar na U-casachaí breátha atá Seanadóirí an Rialtais ag déanamh inniu sa Seanad.

Two years ago Fianna Fáil, at the height of the last Government's unpopularity, pushed the Act through the Houses of the Oireachtas at break neck speed. The Act, alongside the banking guarantee, was a key pillar of Fianna Fáil's disastrous banking policy for which we are all still paying the price. Sinn Féin rejected it then and pointed out how dangerous the Act was. It contained a sunset clause which shows how controversial it was. The Act gave sweeping powers to the then Minister for Finance, the late Deputy Brian Lenihan. As Deputy Michael Noonan, then in opposition, correctly pointed out:

I am concerned about the role of the Governor of the Central Bank under this legislation. I would have expected resolution legislation to have conferred the special powers on the Governor of the Central Bank, rather than on the Minister. In this Bill the special powers are conferred on the Minister on all occasions. There is a section which states that the independence of the Governor of the Central Bank is not affected, but the powers taken by the Minister and the lack of additional powers being given to the Governor of the Central Bank are quite noticeable.

It does not contain any provision for the restructuring of the debts of senior bondholders, particularly those who are not under the guarantee. There is perhaps up to ¤16 billion of taxpayers' money that could be saved by imposing and losses and haircuts on those bondholders. That is the key change of policy that needs to happen when we have a change of government in this country because the people are not responsible for the debts of those banks and should not be held liable for them. That is the big lacuna in this Bill.

In 2010 Fine Gael and the Labour Party did the right thing and rejected the legislation as being bad and rushed. Deputy Joan Burton, then the Labour Party's finance spokesperson, echoed the sentiments by stating:

Today's stopgap Bill is too little, too late. It is too late because the horse has bolted since the expiry of the original bank guarantee, and too little because it does nothing to address the treatment of liabilities other than subordinated bondholders. It fails to address the issue of senior bondholders now out of the guarantee, the debts for whom amount up to ¤20 billion.

John Gilroy (Labour)
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What did Sinn Féin do in September 2008?

Trevor Ó Clochartaigh (Sinn Fein)
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The last Government's banking policy landed us in this mess. Why does the Government that came to power on a so-called democratic revolution continue the same policy? Ba chóir don Seanad cur i gcoinne na reachtaíochta seo. Mar a fheicimid, níl an chreidiúint ag dul go dtí na gnóthaí agus níl an Rialtas ag déanamh aon rud le sin a chur ina cheart. Droch reachtaíocht atá ann agus a bhí ann. Ba chóir dúinn cur ina coinne.

Brian Ó Domhnaill (Fianna Fail)
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Our finance spokesperson, Senator Darragh O'Brien, indicated at the outset that we will support the motion; that is our consistent approach. When anyone speaks about banking they say that the major issue affecting people is the pressure banks are putting people under and the lack of lending in the economy. The Government has provided support to the banking sector in this State but that support is not being replicated through lending to the citizens. The banks are not making money available in cases where it should be made available. The only people lending money at the moment, whether in the small and medium enterprise sector or to individuals trying to upgrade their homes, for example, is the credit union institution.

The banks have questions to answer, and I agree with Senator Gilroy who asked about the public interest directors who sit on the boards of these banks. The irony of the role of the public interest directors is that they have a fiduciary requirement to the bank but they are supposed to represent the taxpayer, and I am not sure how they can balance both responsibilities effectively and efficiently on behalf of the taxpayer. I do not believe it can be done and therefore the State, and the Department of Finance in particular, has an enforcement role that is not being expedited as effectively as should be the case.

The issue of bankers' pay arises but that is only one part of the problem. There are 27 bankers in the State in receipt of remuneration of at least ¤500,000. One hundred and sixty seven former bankers employed at a senior level are in receipt of pensions of over ¤100,000. At the same time those banks were providing loans to individuals based on available valuations but if a bank provided a loan on a property of, say, ¤200,000 and that person is now in negative equity and mortgage arrears, the bank has at least some responsibility to help cover the cost associated with the repayments of that loan if the individual concerned cannot meet the repayment.

One in four mortgage holders in the State is struggling and nothing is being done to support those mortgage holders. While we are happy to support this motion the Government must take cognisance of the fact that 25% of mortgage holders are struggling. The banks will put additional pressure on them in the new year, as we heard last week, and that will exacerbate the problem.

On the issue of the payment caps and the ongoing review, I understand Mercer's have been commissioned by the Minister for Finance to undertake a review of the salaries being paid in financial institutions and that that report was due back before Christmas. What steps, if any, will the Minister of State or the Minister for Finance take to implement any recommendations in the report? If he finds that the report is weak, would he be willing to consider bringing forward legislative proposals to legislate for bankers' pay in the State in the new year because it is an issue that must be addressed?

The current chairman of AIB was directly involved in the HSBC scandal which rocked America in recent months where over $2 billion was paid back by that institution to the American Government after a report which was commissioned by the United States Senate. The individual who is now the chairman of AIB was named and damned in that 330 page report. I have read some of the report and my question is whether the Minister, following that report which I am sure his Department has read, has full confidence in the current chairman of AIB Bank.

Brian Hayes (Dublin South West, Fine Gael)
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I thank all Members for their contributions which we very much welcome. It is fair to say that the task facing this Government is to get the banks out of the accident and emergency ward and into the real economy where they can become profitable and start lending again and, most important, we get our money back from them. I was before a finance committee meeting last week where I made the point that more than ¤20 billion has been taken from the National Pensions Reserve Fund. That is our money and we want to get it back because that money has gone directly into the pillar banks in the first phase of recapitalisation, with other money, and therefore it is in all our interests that we get that money back over a period.

I very much agree with the comments made by a colleague of Senator Barrett, Mr. Colm McCarthy, in University College Dublin who has said repeatedly that if we have a single currency there must be within that single currency a means through which we can resolve banks that go bust in a collective way. America has a federal system where effectively banks that go bust because of bad lending policies are propped up and reserved by the totality of the lending that goes on within that federal system. Europe has gone through this contortion of recent years because we have not had in place a single supervisory system, a proper means of resolution on an EU-wide basis, and a deposit guarantee scheme in place.

In the next six months Ireland, as President of the European Union, will play a pivotal role in the way we bring forward the next two steps towards banking union. The agreement to have in place the European Central Bank as the single supervisory system is a crucial decision taken last week but now we must go on in terms of agreeing a resolution system and a deposit interest guarantee system which will underlay and retrofit the essence of having a single currency, about which the Minister for Finance has spoken. I agree with Mr. Colm McCarthy who has spoken about that. We must have within a single currency a single means of resolution, a guarantee and supervision. We have not had that in Europe and we are now retrofitting the entire system to put that in place.

I agree with Senator Michael D'Arcy who spoke about a necessary evil, and Senator Gilroy said it was a pity we did not have this in place when the collapse occurred but we did not because we all believed that the banks would continue on their merry way. Extraordinary lessons have been learned from that and that is the reason it is important that this necessary evil remains in place.

Senator Gilroy asked when I envisaged this coming to an end. As I said to the House recently, the Government is confident that the eligible liabilities guarantee, ELG, scheme will be brought to an end in the first part of next year. That will be a substantial shot in the arm for the pillar banks in terms of returning them to profitability but we would still need to have this power in place to ensure that if things were to go wrong again the Minister for Finance would have the powers to take the steps required in terms of guaranteeing the public interest. In the long term, however, one would hope to see an over-arching European Union scheme in place which would give this country, and other countries within the eurozone in particular, a guarantee in that respect.

My old friend, Senator Ó Clochartaigh, referred to the commitments made before the last election. I want to inform him of what we committed to at that time. We committed to restructuring the Irish banking system, and the first announcement made by the new Government in coming into office in March 2011 was exactly that following the results of the prudential capital assessment review, PCAR, test. The second commitment we gave was that junior bondholders would take a bath, so to speak, and they have taken a substantial bath in that between ¤7 billion and ¤8 billion has been successfully transacted in terms of that announcement in March 2011.

The third commitment we gave, while wanting to deal with the issue of senior bondholders and attempting to negotiate it, in our election manifesto, was that we would not take any unilateral action in this regard. I remember it well because I was beside the Minister for Finance, Deputy Michael Noonan, as the deputy finance spokesperson in opposition. Why did we say that? We said it because the very funders who are keeping the country afloat, the ECB system which is continuing to fund emergency liquidity into the Irish banking system, and the view of those countries and, in particular the majority of the ECB, is that it should not happen. I agree with the Senator that there remains a legacy issue. That is what the Government is attempting to negotiate with our EU partners, the unique legacy issue that Chancellor Merkel and President Hollande have accepted needs to be resolved for Ireland. This is a work in progress. We have attempted to work this out since coming to office and both parties have shown a strong determination to get the country to a better place by renegotiating the debt position as a result of the legacy debts lefts by Anglo and other institutions. We are determined to get a result for the country by diplomacy and clever political actions but not by throwing the baby out of the pram and certainly not in the circumstances where the national funding required for the country and the funding required for our broken banking system is coming from third parties who do not want us to do such a thing. We remain hopeful that we can get the deal required.

Everything we have done since coming into office has been in terms of the solid commitments we gave before the election as can be judged against that background. I refer the Senator to our banking policy paper published in the manifesto a month before the last election and he will not point out one difference between what we said we would do in opposition and what we have done in government. That is a test I put to him during the Christmas period if he is sitting in front of the fire. He should take out our banking policy before the election and test it against what we have done. We said we would introduce massive restructuring and we have done that. We now have pillar banks. We have a very substantial Department of Finance which has broken away with a new Department and has a strongly focused banking unit within it which deals on a bilateral basis with all of these banks on a daily basis. All the old directors are gone. We have had significant deleveraging of the banks, significant bank assets have been sold off and we have a much smaller banking system, as set out in our banking policy announced before the last election. The objective is to move the banking system from intensive care into a more normal arrangement where we can get funds back into our banks on a consistent basis.

Points have been raised about the review issue. A review of bankers' pay and bonuses is under way by Mercer which I understand has yet to come to the Department of Finance; the objective was by the end of this month. Obviously it will be a matter for the Minister for Finance in the first instance to reflect on that review and to bring it to Government in due course. We also said we would do that in March 2011 - we have done it. It is a matter for Government as to when it will be published but I hope the review will meet the time in terms of what is required for bankers' pay and bonuses into the future.

I have noted comments made by colleagues on all sides concerning the public interest directors. As Senator Ó Domhnaill mentioned, they have a fiduciary requirement in that under company law they are responsible for the interest of the bank or the company but equally they have responsibilities on behalf of the public interest. It is that balance they have got to strike in a circumstance where they do not report to the Minister for Finance on an annual or daily basis. That is not their task; their task is to get the balance right between bringing the banks, of which they are members of the board, to a healthier position and representing the public interest. I look forward to their engagement tomorrow at the Joint Committee on Finance, Public Expenditure and Reform. Since coming to office, the Government has not appointed any new public interest directors. It is fair to say there is an open debate between the Department, the Minister and the Government about the role of the public interest directors and about their ambition and what they are at on a constant basis. The Minister for Finance is open to hearing the views of the committee and Members of the House on the future role and objective of the public interest directors in a context where we have not appointed any of them. This is not a diminution of the people in question who are of high standing and the role they play but there is an open debate on this question. We would appreciate the views of colleagues on all sides in coming to a considered view as to the future role of public interest directors within the pillar banks.

I have answered the question on the review. I agree with colleagues that the job of the banks is to go back to their traditional task which is to lend with prudential risk, to get money into the real economy. We have given them a mandate of investing ¤21 billion over three years for each of the pillar banks into the real Irish economy. We have given them the task of getting their mortgage books into a better state, about which we are all ambitious. We will begin to see more progress next year once the insolvency Bill is through and the agency is working.

I have taken a great interest in what the banks have said in their submission to the Central Bank concerning the new schemes which will be put in place. They need to get on with the task in 2013. I agree with the Governor of the Central Bank who spoke about the need for the banks to get on with the task of writing down some of the debt on a case-by-case basis where they believe that is appropriate. The tools are in place through the insolvency legislation, therefore, there can be no more excuses. It is worth saying that the banks have met their target so far. Much of that lending is for the purpose of restructuring existing businesses. Colleagues appear to think that is not new lending. It is new lending, because without that restructuring many of the jobs within those businesses would go belly up. We have got to get the balance between absolute new lending when it comes to SMEs and restructuring existing debt to ensure those businesses can remain viable. The Government has also put in place the micro loan financing scheme and the loan guarantee scheme as a means of helping those businesses that cannot get credit from the banks.

As to the future of the CISA we will have to wait and see. This is a long process. The progress made so far is leading to a more normalised banking system. I note that according to the Financial TimesMr. Draghi of the ECB is the man of the year, I do not disagree with that selection. He gave the banks across Europe three year funding at 1% and has consistently argued that one of the roles of the ECB is to buy up national bonds and debts. Both policies appear to be working well. When comparing the situation in December this year to December last year, are we in a better place? Yes, we are. Is Europe in a better place? Yes, it is. Have we seen progress in the past 12 months? The six pack, the two pack, the fiscal treaty are in place and now there is agreement on a supervisory system and much more detail to come. Enormous progress has been made during the year.

In December 2011 people asked how many weeks Greece had got to go before it was out of the euro. That question no longer applies. The Greek issue has been resolved somewhat in terms of the new funds that have been put in place. We are in a better place across the eurozone because of the actions taken by the political leadership across the euro area. We are definitely in a better position because our banks have been well capitalised and have the funds and the means through which to get lending going again. It is that nebulous confidence trick that is required not only to get lending going again but for lending to be drawn down. There is little point in banks making funds available to businesses if they do not draw it down. The Credit Review Office has consistently made the point that it is one thing for the banks to make moneys available, it is another for businesses to draw it down.

We saw the figures published today by the Department of Finance showing growth in GDP and GNP. Our projections for this year have come in on target in terms of growth. We are hopeful that next year we will see a significant improvement in GDP figures which will have an impact on the domestic economy. The big task is to get people back to work as a result of the shock of some years ago where effectively 12.5% to 13% of GDP was knocked out over three years. That is the task the Government faces in working with the banks to achieve what we want. This motion is an essential pre-requisite to that in terms of giving significant powers to the Minister for Finance to take the measures he has to take. These are the big stick powers required if a situation like this re-emerged.

Senators:

Vótáil.

Paddy Burke (Fine Gael)
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Will the Senators claiming a division please rise?

Paddy Burke (Fine Gael)
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As fewer than five Members have risen I declare the question carried. In accordance with Standing Order 59, the names of the Senators dissenting will be recorded in the Journal of the Proceedings of the Seanad.

Paddy Burke (Fine Gael)
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When is it proposed to sit again?

Maurice Cummins (Fine Gael)
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Ar 10.30 a.m. maidin amárach.

Paddy Burke (Fine Gael)
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Is that agreed? Agreed.