Terence Flanagan (Dublin North East, Independent)
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65. To ask the Minister for Finance the position regarding a future bank bailout (details supplied); and if he will make a statement on the matter. [26752/15]

Michael Noonan (Limerick City, Fine Gael)
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In recent years taxpayer funded bail outs of banks occurred all over Europe and indeed the world. A major problem facing governments was that authorities simply did not have the tools to manage their failure in an orderly manner.

To address this problem the European Commission proposed a common EU-wide framework for the recovery and resolution of banks facing difficulties. This piece of legislation, known as the Bank Recovery and Resolution Directive (BRRD) is currently being transposed by Member States. A key priority of the BRRD is to separate banks from the sovereign and ensure they are allowed to fail with minimal disruption to the financial system and without reliance on taxpayer funds.

There are three pillars to the BRRD framework to facilitate a range of appropriate actions by authorities:

- Preparatory and preventative measures including reinforced supervision and robust recovery and resolution planning for major institutions;

- Early intervention measures which would include supervisory powers and implementing recovery plans;

- Resolution tools including appointing a special manager, sale of business, bridge bank, asset separation tools and the use of bail-in mechanisms.

The bail-in provisions are key as they will enable resolution authorities to write down or convert into equity the claims of shareholders and creditors of institutions that are failing or likely to fail. This is an important means of ensuring that a bank s losses are absorbed by those who fund its activities and not taxpayers. Where bail-in is not sufficient to cover a bank's losses additional funding can be accessed via a resolution fund. Resolution funds are financed by means of contributions from a Member State's banking sector, and will be built up over a number of years.

For Member States such as Ireland that are part of the banking union a Single Resolution Mechanism (SRM) will become operational from 1 January 2016 and will be backed by a Single Resolution Fund (SRF). This fund will replace the national BRRD resolution fund, and  has  a target level of 1% of covered deposits of all participating Member States to be reached within eight years (approx.€55 billion).  

It is acknowledged however that in the early years of the SRM, situations may arise where the SRF is not sufficiently funded by the banking sector to face a particular resolution action. Consequently it was agreed by Eurogroup and Ecofin Ministers in December 2013 that there was a need to put in place a system by which bridge financing would be available as a last resort. It was agreed that  during the transition period, bridge financing will be available from national resources, backed by bank levies or from the ESM in line with agreed procedures. It should be noted that bridge financing is still the subject of negotiation at EU level.

In conclusion, resolution tools such as bail-in were not available at the time of the Irish banking crisis and thus taxpayer funds were used to bail out bondholders. The fact that we now have the legal basis to apply losses directly to the creditors of the bank should go a long way to reducing the likelihood of taxpayers contributing to future bank resolutions.