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Credit Institutions (Stabilisation) Act 2010: Motion (Continued)

Friday, 14 December 2012

Dáil Éireann Debate
Vol. 786 No. 4

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(Speaker Continuing)

[Deputy Michael Noonan: Information on Michael Noonan Zoom on Michael Noonan] The early indications from this strategy are that a withdrawal of the scheme could occur in the first quarter of 2013. Depositors will be given sufficient notice in advance of the withdrawal of the scheme and changes in that regard will be brought to the attention of the House as part of that process.

  The House will be aware that much work has been carried out on the restructuring of the Irish financial institutions using the various powers provided for under CISA. However, this work is not yet complete and, without retaining CISA, is unlikely to be able to be completed by the Government. In particular, orders may be sought under CISA in a number of transactions, including possible further restructuring of the Irish banks that may require a direction order and-or transfer order to implement. It also continues the protection it affords the people from problems in the financial system while turbulent economic conditions continue internationally.

  The Central Bank and the Credit Institutions (Resolution) Act 2011, known as the resolution Act, contain some comparable powers to those provided for under CISA. However, these resolution powers are vested in the Central Bank, not the Minister for Finance, and designed to be exercised where regulatory intervention is required because a problem appears in an individual bank in an otherwise normally functioning system. It can be referred to as a steady state resolution regime where the problem is in a particular institution in an otherwise fully functional banking system. Resolution Act powers are not designed for the comprehensive restructuring of the banking system and the triggers for the exercise of the powers are very different from those of CISA, which are based on the country's need to restructure out of the ongoing international systemic banking and debt crisis.

  Overall, we have seen that much progress has been made in restructuring the banking system. However, it is not over yet and it is imperative that the Minister for Finance continue to be empowered with the statutory authority to take any remaining necessary step as may be appropriate to ensure this process is completed. We are getting out of the mess. Extending the period of effectiveness of CISA is crucial to our being able to meet that objective. The Governor of the Central Bank is in agreement with me that the provisions of the Act should, therefore, be available for an extended period to the end of 2014. I strongly recommend the motion to the House.

Deputy Michael McGrath: Information on Michael McGrath Zoom on Michael McGrath I thank the Minister for his remarks on the motion and confirm that Fianna Fáil will be supporting it. However, I take the opportunity to make a number of points on the operation of the banking system.

It is true to say there are signs of stability within the banking system. The Minister has highlighted that stability has been brought to the deposit base of the banks. As we all know, there was a massive flight of deposits from the banks in 2010 and 2011. International deposits fell by almost €100 billion, while Irish deposits dropped by approximately €60 billion, but certainly they have stabilised in recent months. The most recent data show that up to September deposits placed by ordinary households and businesses decreased slightly in the State-supported banks - Bank of Ireland, Allied Irish Banks and Permanent TSB.

In a number of respects, we need to ask the fundamental question whether the banking system is working, it is functioning in the way we want it to function and meeting the needs of the economy. On a number of fronts I do not believe we can say with certainty that it is, as the evidence before us is to the contrary. While there is certainly a greater degree of stability in the banking system brought about by the enormous recapitalisation of the banks by the State - ordinary citizens - I do not believe the banks are fulfilling their responsibilities and playing their part in the economic recovery we all want to see. It is true to say the targets for the financial system set out in the memorandum of understanding with the troika are being achieved in the deleveraging of the banks and loan to deposit ratios, which is to be welcomed, but much more needs to be done by the banks to ensure they do what is required in supporting economic recovery. In that regard, I want to highlight a number of issues.

The first which we have discussed many times in the House is the issue of credit. In the budget announced last week I welcomed the inclusion of new initiatives with regard to the National Pensions Reserve Fund. The Minister is proposing that there be a range of support funds available to provide equity finance, for restructuring and recovery investment for the SME sector, ranging in size from between €100 million and €400 million. In a sense, this is a recognition of the failure of the banks to do what they are required to do. What the Minister announced in the budget last week for the National Pensions Reserve Fund was related to what the banks should be doing. Despite all the protestations from the banks that they are providing credit and are open for business, regrettably, my experience of dealing with people involved in business is that they are still finding it incredibly difficult to obtain credit where it is most needed. I understand invariably that the ones that come to us are the cases where problems have occurred, but there is no question that the banks are not providing the level of credit for the economy that is required.

The Minister has said the pillar banks are required to provide €3.5 billion of new credit in the case of AIB and Bank of Ireland. I do not believe we have satisfactorily dealt with the issue of defining what new credit is and how it will be measured. When Mr. David Duffy, chief executive officer of AIB, came before the finance committee recently, he confirmed that of the credit it stated had been extended, the figure for new lending to the SME sector was €600 million so far this year. That is the actual amount of new money provided. Under the definition allowed, the renewal of existing credit arrangements counts towards the figure of €3.5 billion. The bundling and repackaging of existing credit facilities in a term loan, for example, are also reckonable. We should, therefore, cut to the chase and measure the amount going into the economy. I accept that there are difficulties on the demand side also because many businesses are in a weak position and many of them are cautious about drawing down additional credit at this time. Not of all the credit approved is drawn down in the economy, which is also an issue. I, therefore, ask the Minister to be more proactive in dealing with the banks on the issue of credit. He should bring greater clarity to exactly what they are required to achieve because, let us be honest, the €3.5 billion target is a joke. When AIB confirms its actual new lending figure is €600 million, can we nail down exactly how this will be measured and come to some agreement on that issue?

I have received a number of calls from people involved in business in particular, people who have commercial loans and people who invested in properties and who are coming under enormous pressure from the banks and it is not being done in a very nice way. It is not a pleasant business at the best of times, but the pressure on the people concerned is enormous. Unfortunately, I frequently hear of cases of suicide in which financial pressures were to the fore and the role of the banks has been brought to my attention. They are putting individuals and families under incredible pressure and in many cases there is a genuine inability to pay. I call on the banks to be more humane in their approach when dealing with distressed borrowers because behind the loan account on the computer screen is an individual and a family to whom they need to show a little compassion. The people came to the rescue of the banks when they were on their knees and there was a risk they would have to shut their doors. The people supported them and this is the time for them to treat people fairly and with a degree of dignity, which is not happening in all cases. It is regrettable that I have to say this, but some of the cases brought to my attention in recent weeks are very disturbing and sinister. I, therefore, call on the banks to be more humane and compassionate in their approach.

We will return to the issue of mortgage arrears later when we discuss the property tax Bill. Again, this is an area in which the banks have singularly failed to meet their responsibilities. The figures are getting worse every quarter when the Central Bank releases the official figures.

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