Written answers

Thursday, 11 December 2008

Department of Finance

Financial Institutions Support Scheme

8:00 pm

Photo of Martin FerrisMartin Ferris (Kerry North, Sinn Fein)
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Question 74: To ask the Minister for Finance the way he is monitoring and the actions he is taking to ensure that section 44 of the credit institutions (financial support) scheme which states that a covered institution shall not pass on the costs of the guarantee to its customers in an unwarranted manner is being adhered to by financial institutions; and if he will make a statement on the matter. [45328/08]

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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The Scheme is a major benefit not only to the banks but also to their customers and, of course, the economy as a whole. Of course, the Scheme includes the application of strict terms and conditions on covered institutions to ensure that the public interest, which includes the taxpayer, the general consumer and small business sector, is paramount.

As I have stated previously, the cost of the charge to institutions should not be passed on to ordinary customers under the Scheme and that is the meaning and purpose to paragraph 44.

Of course the Scheme itself is only about two months old and I will be monitoring its effects over time. My Department and the Financial Regulator are setting up mechanisms for monitoring the financial institutions in relation to the Guarantee and this issue will form part of the work programme.

The Deputy will also be aware that the Financial Regulator has the power to monitor, review, and approve bank charges pursuant to section 149 of the Consumer Credit Act.

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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Question 75: To ask the Minister for Finance if he is satisfied that the return to traditional banking practices and principles in respect of lending and borrowing is achievable in the current or predicted climate; if there has been an identification of bad borrowing or lending practices which can or will be addressed; and if he will make a statement on the matter. [45294/08]

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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The Guarantee Scheme for financial institutions put in place by the Government has been successful in safeguarding the stability of the Irish banking sector and in restoring its liquidity position in order to support its normal lending activities. The Scheme is intended to provide a detailed framework for the positive and constructive changes that must flow from this to restore and uphold for the future the traditional banking values of responsible and balanced risk-taking lending in order to underpin the long-term sustainability of the banking system.

Financial institutions particularly those participating in the guarantee Scheme have a key role to play in supporting both individuals and businesses in the current challenging economic and financial environment. As I made clear when presenting the Guarantee Scheme to the Oireachtas in mid-October the boards and senior executives of the participating institutions have a key role to play in ensuring that finance is channelled appropriately to support and underpin sustainable economic activities on a prudent and responsible basis which is clearly in the interest of both the bank, the borrower and wider economy.

The Deputy will be aware at recent meetings with certain financial institutions I asked them to consider the contribution that they can make to the economy through appropriate credit initiatives in relation to small and medium sized businesses and otherwise. Subsequently certain institutions have announced new initiatives to help the SME sectors. I welcome these important announcements and look forward to further dialogue on this important issue in the coming days and weeks.

The regulation of lending practices of Irish financial institutions is the statutory responsibility of the Financial Regulator. In addition to what is contained in the Guarantee Scheme, and building on revised capital and liquidity measures which it introduced during 2006 and 2007, the Regulator has instigated a series of new regulatory measures to take account of the changed financial environment, including an increased focus on the management of credit and liquidity risks of the banks. Among the actions the Financial Regulator is taking are the following:- the immediate recruitment of an additional 20 senior supervisory staff with banking experience to be placed on-site in key banks to monitor developments; requiring banks to set out new business plans focusing on the need to reduce their risk profile and how their models of banking are sustainable in the new environment; and enhanced reporting obligations in relation to capital, asset quality and individual large loans to supplement daily liquidity reporting requirements.

In conclusion, many aspects of our regulatory systems have proved themselves to be robust and sound in the recent turmoil. But it is also clear that regulators in Ireland as elsewhere need to learn the lessons of recent events. I am relying on the Financial Regulator to do just that, and to adapt its regulatory systems to new conditions, to take on new skills and to ensure that Ireland has a top class regulatory system.

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Labour)
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Question 76: To ask the Minister for Finance the current additional cost of public borrowing in the aftermath of the bank guarantee of covered institutions; the way this compares to the costing of the guarantee in the scheme presented by him to Dáil Éireann; and if he will make a statement on the matter. [45343/08]

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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The thinking behind the Charging Model is set out in some detail in the Annexe to the Scheme. However, the main principle is that the Minister for Finance estimates an aggregate cost that the State will bear as a consequence of the guarantee and each covered institution will pay its share in accordance with its risk profile and the guarantee charging model, subject to the estimated cost to the Exchequer being fully recouped. In case the actual cost for the State is higher, the charge will be adapted accordingly.

The Deputy will be aware that a cost of €1 billion over two years was the original estimate for recouping the cost to the State of extra borrowing. Nothing has yet arisen to suggest that this estimate was inaccurate. The cost of public borrowing constantly changes in the financial markets in response to many different influences, and there is no reason to suggest that these changes are all driven by the guarantee scheme.

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