Bernard Durkan (Kildare North, Fine Gael)
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Question 110: To ask the Minister for Finance if he is satisfied that he, the Central Bank and the regulatory authorities have taken adequate steps to stabilise and restore confidence in the banking system in accordance with best practice and good governance; if he plans or expects a return to traditional banking, borrowing, lending and governance practice and principles; if he has sought or received assurances in this regard; when he expects same to be reflected in the markets; if he has quantified the expected economic benefit accruing; and if he will make a statement on the matter. [6202/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The primary concern of both the Central Bank and the Financial Regulator and the Government is the stability of the financial system. Clearly the markets are still very fragile and the authorities continue to monitor this situation very closely.

With respect to the general regulatory framework, the Credit Institutions (Financial Support) Scheme has provided for a more direct engagement with and a heightened oversight of the covered institutions. This will be further developed as required in the light of the various reviews on regulatory reform that are now underway at national and international levels.

In addition, the recent comprehensive recapitalisation of Ireland's two main banks will reinforce the stability of our financial system and increase confidence in our banks' ability to contribute to the economy. The economic benefits of the Government's measures to stabilise the banking system will flow from an increased availability of credit in the economy. As part of the recapitalisation measures, the recapitalised banks have committed to increase lending capacity to small and medium enterprises (SMEs) by 10% and to provide an additional 30% capacity for lending to first time buyers in 2009. If the mortgage lending is not taken up, then the extra capacity will be available to SMEs. Compliance with this commitment will be monitored by the Financial Regulator. The recapitalised banks have also agreed to fund and cooperate with an independent review of credit availability, which will be managed jointly by the banks, Government and business representatives.

The Financial Regulator has also worked closely with my Department to introduce new codes, in particular in relation to lending to small and medium enterprise, in an effort to encourage a return to traditional banking services.

The purpose of the Code on business lending is to facilitate access to credit for SMEs for sustainable and productive business propositions. The Code also aims to promote fairness and transparency in the treatment of SMEs by regulated entities and to ensure that regulated entities endeavour to assist borrowers in arrears to meet their obligations or otherwise deal with the situation in an orderly and appropriate manner. The Code will come into effect from 13 March 2009. Firms are expected to take immediate steps towards implementing the necessary changes to systems, procedures and documents and providing relevant staff training and to have completed these changes by 13 September 2009.

The Financial Regulator has also introduced a Code of Conduct on Mortgage Arrears. This Code is designed to ensure that mortgage lenders take action to assist householders who are in arrears and will apply to all mortgage lenders, including banks, building societies and retail credit firms.

Under the Code, mortgage lenders may only apply to the courts to commence enforcement of legal action for repossession of a customer's primary residence twelve months from the time arrears first arise. A lender may not seek repossession until every reasonable effort has been made to agree an alternative repayment schedule with the borrower. The Code will come into effect on 27 February 2009.