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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 McGrath: Information on Michael McGrath Zoom on Michael McGrath] We now have a situation in which almost one in four family home mortgages is in some sort of distress. They are either in arrears or have already been restructured. We cannot ignore the fact that up to 24% of family home mortgages are in trouble. The insolvency regime will, hopefully, help many of those people to deal with their other personal debts on credit cards and unsecured loans. There is no doubt the mortgage arrears crisis is getting worse. When a director of the Central Bank publicly condemns the banks for failing to deal with the issue adequately, we must sit up and take notice. Much more work needs to be done in this area.

I also want to highlight the plight of variable-rate mortgage holders. Many of them are typically being charged 4% to 4.5% while someone on a tracker mortgage only pays 1.5% to 1.75%. That makes an enormous difference to level of monthly repayments. The banks cannot keep going back to the same well of variable-rate mortgage holders to cover losses made elsewhere in the banking system. When the banks appeared before the finance committee, one chief executive made the point that in the medium term variable rates could be heading towards 5% and 6%. That is a frightening prospect for families already struggling with mortgage repayments. There was much talk about negotiations being under way to move tracker mortgages out of the main banks and to warehouse them in IBRC, Irish Bank Resolution Corporation, where they would be underpinned by a funding stream from the European Central Bank, ECB. This would improve the funding position of the main banks and allow them not to have to penalise variable-rate customers as has been done heretofore. When wrapping up, the Minister might take the opportunity to inform the House whether there are any moves on this issue.

The Minister referred to the liability management exercises the banks have undertaken over the past several years under this legislation. Up to €15 billion has been saved by way of the imposition of losses on junior bondholders. The Minister made the point that any CISA, Credit Institutions (Stabilisation) Act, liability exercise that has been brought before the Irish courts has been upheld. However, it is not the case in the UK where a case was taken against IBRC and the UK court found in favour of the litigant. I accept this case is under appeal and will be heard in the new year. However, there is a potential risk to the banks, and by extension to taxpayers, that some of these savings could be unravelled. It has been reported that groups of bondholders in Bank of Ireland and AIB have lodged letters with the Department of Finance. These junior bondholders are seeking to unwind the liability management orders issued under this legislation. Will the Minister address that issue when wrapping up?

The Minister has commissioned Mercer to conduct a review of pay levels in the covered institutions, which it is hoped will be completed by Christmas. If the Minister is not satisfied with the report or does not get the co-operation from the banks to reduce pay levels in the way he wants, does he believe he has adequate powers under legislation to intervene and bring top-end banking pay to a more realistic level.

Ordinary staff members of the banks have borne the brunt of what has happened in the banking system. Thousands of them have lost their jobs and thousands more are to be made redundant in the next number of months and years. The Irish Bank Officials' Association, IBOA, has expressed concern about the lack of an overall plan for the banking sector, as well as for those who have lost and will lose their jobs. A specific plan needs to be tailored for staff who are exiting the banking sector to ensure they have the necessary training and skills to take up opportunities elsewhere in the workforce. It is unlikely, given the way the banking system is shrinking, that they will be in a position to find work opportunities in banking. There should be a plan for the model of banking we will have in the future. Most banks are closing branches, particularly in rural areas, with services being moved online or joined with the post office network. People want to know the vision for our banking system model. Are we trying to attract new banks into Ireland to provide a further retail presence, as well as competition on the high street?

Fianna Fáil will support this motion. Will the Minister address the issues I raised when wrapping up? We must ensure the banking system meets its responsibilities. It is fine to meet the troika commitments, which must be done. The banking system, however, is not meeting the needs of the economy.

Deputy Pearse Doherty: Information on Pearse Doherty Zoom on Pearse Doherty In his statement, the Minister pointed out how successful the banks have been in deleveraging, attracting and retaining deposits, as well as how well recapitalised they are and how they have been able to access moneys in the international funding markets without the guarantee. All of this is true and some of it is to be welcomed. The Minister, however, did not address how those who fund the banks - the customers, taxpayers and citizens - have fared since the introduction of this legislation two years ago. Customers of the banks are paying interest rates on mortgages that are way above the ECB rate. Even when the ECB has reduced its rate, several banks here have increased theirs. Two years since this legislation was introduced, where are the taxpayers and citizens regarding the money they have pumped into the banks? Have we seen any measures to claw back these moneys? The answer is simply "No". The bill still remains in the region of €64 billion and there is no concrete sign this will be reduced in the immediate future.

This motion proposes to extend the Credit Institutions (Stabilisation) Act by two years. When the former Minister for Finance, the late Brian Lenihan, proposed this legislation, the Minister, Deputy Noonan, and his government colleagues voted against it. They were joined in their opposition by the then finance spokesperson of the Labour Party, Deputy Burton, and the rest of the Labour Party. Both Fine Gael and the Labour Party were scathing of this proposal and Fianna Fáil's banking policy. Yet, here we are two years on into this Administration and the same failed banking policy of Fianna Fáil is not only alive and well but is set to continue for another two years. I remind the Minister that Fine Gael and the Labour Party opposed Fianna Fáil when it introduced the ELG, eligible liabilities guarantee, scheme in 2009 and when it was further extended in 2010. However, once these parties got into office, they extended the very scheme they opposed not once, not twice but three times.

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