Michael McGrath (Cork South Central, Fianna Fail)
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Question 81: To ask the Minister for Finance when he intends to introduce legislation to deal with the issue of subordinated debt in Anglo Irish Bank and Irish Nationwide Building Society [38308/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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As the Deputy will recall in my 30th September statement on Banking I addressed the issue of burden sharing by holders of subordinated debt in Anglo Irish Bank and Irish Nationwide Building Society.

I indicated that my Department in conjunction with the Attorney General is working on the reorganisation and resolution legislation to address the issue of burden-sharing with Anglo and INBS subordinated bondholders. The legislation will be consistent with the requirements for the measures to be recognised as a re-organisation under the relevant EU Directive in other EU Member States.

The process to provide the necessary legislation is being actively pursued.

For the information of the Deputy Anglo Irish Bank have taken steps to pursue a voluntary burden sharing arrangement with its subordinated bondholders. The bank has announced a liability management exercise to exchange and redeem subordinated bonds at a sharp discount. This exercise is a necessary step for Anglo in light of their EU-required restructuring and ensures that Anglo's subordinated bondholders have an immediate share in Anglo's losses. This is entirely consistent with the Government's intention that subordinated bondholders shall make a significant contribution to the costs of Anglo Irish.

Michael McGrath (Cork South Central, Fianna Fail)
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Question 82: To ask the Minister for Finance the position regarding the equal standing, in Irish and EU law between senior debt and deposits in Irish financial institutions [38309/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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As the Deputy is aware I indicated in my statement of 30th September 2010 that the position is that senior debt obligations of financial institutions rank equally with deposits and other creditors under Irish law. I indicated that I have no plans to change this position. I confirmed this position in a statement on 7th October 2010 a week later. In the absence of a subordination agreement, where a financial institution is being wound up the principle that applies is pari passu, meaning all unsecured creditors have equal ranking to be repaid by the financial institution. So, where there is a shortfall in assets all unsecured creditors are entitled to an equal dividend of X cent in the euro. This is subject to the contractual terms of the senior debt, not providing otherwise i.e. subordinating their liability to depositors. The principle of creditor equality is also enshrined in the Credit Institutions Winding Up Directive 2001/17/EC.

In the context of a company that is continuing in business as a going concern the principle of pari passu does not apply although the effect is similar. Where a company has debts, they are liable to pay those debts and each debtor has an equal right to be repaid whether that person's debt arises on foot of a bond or a deposit. In either case the terms of the repayment will obviously be determined by the instrument creating or evidencing the debt - repayable on demand or at a certain future time. I would add that the principle of equal entitlement to be repaid their debts as among unsecured creditors is subject to the absence of one of them being obliged by contract to be postponed in favour of another.

It must also be remembered that depositors who suffer a loss in the event of a financial institution being wound up insolvent are entitled to compensation up to a certain amount under the Deposit Guarantee Scheme and/or the Eligible Liability Scheme.