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11/29/2012 12:00:00 AM


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Fleming, Sean

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Credit Institutions (Eligible Liabilities Guarantee)(Amendment) Scheme 2012: Motion

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Credit Institutions (Eligible Liabilities Guarantee)(Amendment) Scheme 2012: Motion

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Credit Institutions (Eligible Liabilities Guarantee)(Amendment) Scheme 2012: Motion

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Senator


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Deputy Sean Fleming

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Deputy Sean Fleming

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Sean Fleming

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Snippet Contents:

Right. I knew it was an island somewhere, so that was my suggestion. Anglo Irish Bank Corporation International plc and Irish Nationwide are also included in the scheme. The Minister of State might indicate whether some of those subsidiaries are involved. He stated that with the Government's prompting, as well as on their own behalf, the banks are looking to their bottom line and want to reduce their participation in this scheme. This applies particularly to the subsidiaries and deposits in the UK. The Minister of State might provide a note as to how much of the deposits and bonds not based in Ireland are covered by the scheme we are passing today.
The amount of money paid by the financial institutions under the scheme to date has been phenomenal. Total fees received to the end of September were €3.597 billion. It is important to say, in regard to restructuring our banks, that under this heading alone the banks have contributed that amount of almost €4 billion back to the Exchequer already, with the balance to come in by the end of the year. A brief breakdown can be shown under two headings - the current eligible liability guarantee scheme, which replaced the original credit institutions financial support scheme. Combining the two schemes, Irish Life and Permanent has paid €442 million, Bank of Ireland €1.264 billion, AIB €1.254 billion, IBRC €444 million, Irish Nationwide €33 million and EBS €152 million.
We are talking today about the eligible liability guarantee scheme but what intrigues me is that the income received under the original scheme has effectively expired because all the institutions have migrated to the new scheme. I note that in the course of 2011 Anglo Irish Bank was paid €750 million. The Minister of State might inform us whether that has been washed out of the system, or if there is any more to come. That bank still seems to have accounts some under the old scheme, although I accept the figures apply to last year.
The Secretary General of the Department of Finance stated that the banks would eventually be weaned off the scheme but the guarantees would remain in place for deposits and bonds that have not yet matured. Some of these will mature next year or in the coming years. I understand the maximum period involved is five years so in theory it could take up to five years for the scheme to wind down fully. The Minister of State might give us an estimate, based on current levels, of how much is expected to be received each year from 2012 to 2015. We cannot predict how much will come in during 2013, but it is known that €78 billion is in the system so we should be able to calculate how much that will generate in the coming four years.
Is there a system whereby the banks could buy themselves out of the current guarantee? For example, Bank of Ireland, which seems to be our strongest bank, issued €1 billion of three-year unguaranteed cover bonds last week, the first time an Irish bank has tapped into the markets in more than two years. If that bank is in a position to replace some of the guaranteed bonds by its own unguaranteed bonds, raised on the markets as a result of its improving position, and wants to rid itself of this cost affecting its bottom line, can it buy out the guarantee? Is there a mechanism whereby it can exit the guarantee scheme in regard to current deposits, buying out the Exchequer in that way? Mr. John Moran stated it is Government policy to wean the banks from the eligible liability guarantee scheme in the first quarter of next year, so we are very close to that date.
Professor Philip Lane of the international macro-economics department in Trinity College observed that the removal of the guarantee would not impact on Irish deposits because the evidence throughout Europe shows there is no risk to depositors in the event of a bank collapse. That is the underlying assumption at EU level. In the first place, the EU will not allow a bank to collapse so there will be no such collapse in Ireland, given that we have signed up to the ESM and all such arrangements. From that point of view there is no serious threat, and I believe it will be possible for the banks to exit the guarantee scheme very quickly.
It is very important to mention that when the first figures were reported, a total of €375 billion was applied to all the banks covered on the night of the guarantee. The document does not outline the assets of the banks at that time but that was one of the reasons the Government was allowed to provide the guarantee. It was controversial, however, and we could talk about it forever and a day. The Labour Party Members who are now in government opposed the scheme all the way although they made a remarkable somersault when they supported the guarantee last year. I am sure they will do the same this year. We are used to the Labour Party making political somersaults - the people can see that happening. The longer that party stays in government the more the people will understand that Labour will say anything in opposition and then do the exact opposite in Government. It is not good for politics that the Labour Party acts like that but that is its choice. The people will adjudicate on that in due course.
When the guarantee was introduced the assets in the Irish banks were considerably more than €500 billion. Their assets were always over and above the value of their liabilities under the guarantee. Notwithstanding the €64 billion we have had to write off the bank balance sheets since then, there were always more than enough in assets to cover the amount issued under the guarantee on that night several years ago. It was widely criticised and we are all curious to know why it was necessary. The people of Ireland and the Government were not told the truth by the banks. I do not claim the banks deliberately misled anybody; my belief is they did not understand how badly off their institutions were and considered they had a liquidity problem. It has taken a long time for some of them to come to realise the level of the write-downs that were necessary. That realisation was forced upon them. The transfer of their loans to NAMA helped to crystallise it.
In his final remarks, the Minister of State spoke about improvements and the reduction in the guarantee, noting: I do not accept the good faith of the Irish banks but I accept the good faith of the Minister of State and his Department in stating that. I doubt if there is anybody who accepts the good faith of the Irish banks in regard to such claims. They have to be sat on, watched and stamped upon to make them do their business. When the banks mention "normalisation" they refer only to the normalisation of their profits, their capital reserves and their ratios. The function of a bank is to lend money, charge for it and make a profit, but these banks are not lending money to small and medium-sized businesses or to individuals. People with excellent credit ratings cannot get car loans; people in small businesses cannot get loans and those who want to start up a business must make an application to their local enterprise board because they will not get a loan. In spite of all the official statistics that appear, we all know that the local bank manager will regularly tell his customers not to bother putting in a loan application because he knows it will not succeed. The official statistics on loan approval may show one thing but they do not reflect the level of inquiries or the applications people would like to make if they thought they might get a fair hearing. We know about the difference between the figures for loan approvals and those for actual draw-downs. Banks describe loan restructuring as new loans but that is a sham in some cases. Some banks stand by their good customers and will give them additional finance but generally the loan situation is very difficult.
I would like to see normalisation of bank lending, not of the old bank profits or financial ratios. It is good to know, in the last quarter of the current year, that in regard to what we are guaranteeing today, 72% is customer deposits with only 1% being interbank deposits. The balance of 28% is bank debt. The banks have been streamlined, their balance sheets have been made smaller and they are becoming more fit for purpose but they need to be kicked even more than before because they are not lending to the Irish consumer. I would like to have confirmation that at this stage we are not guaranteeing any deposits outside the State or in any bank subsidiaries similarly outside.
My party will support this scheme because it must be put in place. I look forward to the entire scheme being wound down naturally, and as quickly as possible.