Jim O'Keeffe (Cork South West, Fine Gael)
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Question 164: To ask the Minister for Finance the proposals he has to increase the compensation limit for investors arising from the failure of investment of stockbroking firms; and if he will make a statement on the matter. [14122/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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Under the Investor Compensation Act 1998, the Investor Compensation Company Ltd., ICCL, is required to establish or maintain a fund or funds out of which payments are made in accordance with the Act. The industry is responsible for funding the compensation scheme. The scheme provides that compensation paid to eligible investors is the lesser of €20,000 or 90% of the net losses suffered through the default of the investment entity in question. This is the minimum level of compensation required by the investor compensation directive, Directive 97/9/EC of 3 March 1997, and is in line with the compensation levels which apply in the majority of other member states.

Although the European Commission is reviewing investor compensation schemes throughout the Union, I am not aware of any plans it may have to increase compensation levels.

I am conscious of the fact that many of the contributing firms are small scale undertakings and one must strike a fair balance between the interests of investor protection on the one hand and those of the well managed and compliant firms which are being called upon to meet the cost of failed entities on the other hand. In the circumstances I have no plans at present to raise the existing compensation limit.

Joan Burton (Dublin West, Labour)
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Question 165: To ask the Minister for Finance his plans to address the issue of private debt borrowing, which now stands at €268 billion according to the Central Bank, half of it accounted for by households; and if he will make a statement on the matter. [14154/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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I refer the Deputy to my earlier reply to a question from Deputies Higgins and Deenihan on the issue of private sector debt taken on 23 February 2006.

Within the implementation of the overall legislative framework, private sector credit growth and debt levels are, in the first instance, a matter for the Central Bank and Financial Services Authority of Ireland. This follows from its role as part of the European System of Central Banks and its functions, as the Financial Regulator, in relation to the prudential supervision of financial institutions and the protection of the consumers of those firms.

The Financial Regulator has already drawn attention to the need for lenders to act prudently in extending credit, especially for house purchase, and for borrowers to carefully consider their ability to service borrowings. The Financial Regulator, with its statutory consumer mandate, has developed a number of specific initiatives to help consumers make informed choices in terms of the financial products they choose, the amount of risk they take on and the cost of financial products. These initiatives have been developed through the framework of the Financial Regulator's It's Your Money campaign and have involved publishing consumer guides on credit products, fact sheets, cost surveys on personal loans, all of which are intended to assist borrowers in making the most appropriate credit decisions given their circumstances.

While the level of indebtedness of Irish households has been increasing, the Central Bank's most recently published financial stability report concludes that a range of fundamental factors such as growing employment, rising real incomes, falling inflation and low interest rates have supported the pattern of mortgage growth and associated debt levels in the economy. The report does, however, emphasise the importance of responsible behaviour by both borrowers and lenders, and the need to factor into their financial decision-making the prospective impact of potential changes in the future economic environment.

In evaluating the financial position of the private sector, it is too narrow an approach to consider the level of indebtedness in isolation from the asset side of the private sector's balance sheet. A high proportion of household indebtedness in Ireland, which accounts for approximately 46% of private sector indebtedness overall, relates to borrowing for house-purchase which, in turn, involves the acquisition of an asset for the households. In the same way, borrowing by the business sector generally underpins investment and the creation of business assets yielding future income. It therefore reflects the strong performance of the economy and confidence in Ireland's economic prospects.

As far as looking after the interests of the individual borrower and the individual investor is concerned, the function of Government is to provide an appropriate legislative framework for regulation of the financial services sector — one that is both comprehensive and robust. On foot of the progress made over recent years, especially in establishing the Financial Regulator with a particular focus on the interests of the consumer, we have such a framework in place.

As far as overall economic and financial stability is concerned, an overall measure of credit encompasses both public and private sector credit and debt levels. The Minister for Finance has a key role in this regard in ensuring prudent management of the budget and overall sustainability in the public finances. In this context, Ireland's fiscal performance is among the best in the developed world with Government indebtedness the second-lowest in the euro area. Responsible budgetary policy has made a significant contribution to economic performance overall and to the achievement of record employment levels.

Joan Burton (Dublin West, Labour)
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Question 166: To ask the Minister for Finance if he has had discussions with the Financial Regulator about the new regulations requiring banks to set aside additional capital in respect of mortgages which exceed 80% of the value of the property; if he welcomes the new regulations; and if he will make a statement on the matter. [14155/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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The Financial Regulator is responsible for the prudential supervision of Irish-licensed financial institutions and the Minister for Finance does not get involved in matters of day-to-day supervision. I do, however, welcome the supervisory attention which mortgage lending is receiving from our Financial Regulator.

This technical prudential measure reinforces the message consistently conveyed to lending institutions by the Financial Regulator that mortgage lending policies and practices should be prudent and responsible. It is a targeted and proportionate measure signalling the need for responsible lending by requiring financial institutions to put more capital aside for higher loan to value, LTV, loans. Part of the context for the action is, I note, changes in accounting and provisioning practices brought about by new accounting standards.

This action is fully consistent with the Financial Regulator's functions in relation to the effective supervision of financial institutions. The Financial Regulator is best placed to make the assessment that the measure is necessary in view of its expertise in prudential supervision.

The measure accords with best regulatory practice internationally. It also reflects the recommendations of international commentators such as the OECD which recommended increased loan provisioning in its recent report on the Irish economy. When economic and financial conditions are quite favourable, it is sensible for the Financial Regulator to require mortgage lenders to make increased provision for loans that are riskier.