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

Thursday, 29 November 2012

Dáil Éireann Debate
Vol. 784 No. 4

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(Speaker Continuing)

[Deputy Shane Ross: Information on Shane P.N. Ross Zoom on Shane P.N. Ross] The only reason the Minister of State appears to have given is that the banks need breathing space. They have had a very long time to breathe owing to a series of extensions, yet they are still nowhere near out of the woods and not nearly credible.

I worry when I hear Ministers state in the House that they have taken the advice of the NTMA. It is about time we took a proper and critical look at the NTMA. It is a prop for Governments. Always, when they are in trouble regarding the finances or the banks, they take the NTMA's advice. The NTMA is in the banking loop. As I believe people are beginning to realise, staff in the NTMA receive vast salaries and are joined at the hip to the banks. I am sure the Minister of State is aware that Mr. Michael Somers, former head of the NTMA, was the only public servant ever to walk away with €1 million in one year. That is a formidable achievement, but it is very difficult to understand how it happened. What is more interesting – this is why I worry about taking advice from the NTMA – is that Mr. Somers retired on a pension of €265,000. As if that were not enough for him, he was then compensated by being made deputy chairman of Allied Irish Banks, on a salary of €150,000 a year. The NTMA, therefore, is used to the banking culture and springs therefrom. Before the current chief executive of the NTMA, Mr. Corrigan, entered office, he was in AIB. Ms Eileen Fitzpatrick who was appointed as chief executive of NewERA was in AIB beforehand. Therefore, taking advice from the NTMA is like taking advice from the banks' country cousins. It is deeply involved in the banking culture and will look after the banks before the nation.

I also worry when a Minister tells us not to worry on the grounds that we and the banks are back in the bond markets. Our presence in the bond markets is fragile. While it is welcome and represents an achievement, the Minister of State will know that if one pays interest at a high enough rate, one will always get back into the bond markets. We are paying very high interest rates, as is evident from the fact that one fund, Franklin Templeton, owns 10% of the Irish bond market. This is a precarious place to be because Franklin Templeton is showing a massive profit – I believe 12% - on its investment in the Irish bond market. The fund is hanging over the market and if it decides to sell, yields will rise, bond prices will fall overnight and we will not be able to present such a cheery picture of Ireland's position in the bond markets. Our position depends on the future agreement on the link between bank debt and sovereign debt. That agreement has been promised for a long time, but it has not been reached. There is a great deal of doubt about legacy debt and not everybody believes an agreement will be reached. I would not rely on it.

The guarantee is dangerous because I worry about banking policy for the future. The Government has cleverly spun the term "pillar banks" into banking language as if these banks were in some way secure. The dependence on the so-called pillar banks is worrying. We had a duopoly in the past and are heading for it again. If we have another, involving Bank of Ireland and Allied Irish Banks, we will have a new cartel as sure as night follows day. The Minister of State will remember the unhealthy dominance of the two big banks in the 1980s and 1990s. The entry of Bank of Scotland into the market initially was good news. When it established here, the cartel on mortgages was broken. Apparently, this will not happen anymore because the Government's banking policy is now to build up the two pillar banks such that they will be virtually unassailable. This territory will not be welcome to foreign banks anymore and the two pillar banks will be able to run a new cartel. One should remember the way in which the banks overcharged, what they did in respect of DIRT and foreign exchange and how they treated whistleblowers. The banks reigned supreme and one should remember the way in which the Central Bank co-operated in this regard.

Minister of State at the Department of Public Expenditure and Reform (Deputy Brian Hayes): Information on Brian Hayes Zoom on Brian Hayes I thank my colleagues for their contributions to the debate. In the five minutes allowed to me I will reply on some of the issues raised.

I recognise the appalling circumstances in which the country has found itself because of the reckless lending policies and arrogance of the banking sector over a generation. Many in the House today were, in their own way, cheerleaders for that arrogance and some of the well known personalities who fronted that arrogance over a generation. Of course, they have changed their position because the popularity stakes have changed.

The task of the Government on entering office had two dimensions, the first of which was to correct the appalling deficit of fiscal mismanagement by the previous Administration having been in power for 14 years. The second was to create the conditions in which the economy could grow again. In this regard, it is essential to have a banking system that is trusted by the people. Since we cannot say the banking system is trusted by the people, owing to the collapse brought about by the banks, we must take incremental steps to get the country into a better position. The Government stands over the decisions it has taken. The first decision it took on entering office was on further bank recapitalisation, built on the pillar banks. This is evident from a statement issued to the House in March 2011 by the Minister for Finance. There has since been a significant improvement in respect of the banks and the new banking culture we want to have instigated in the State. In the first instance, we have seen money coming back into the banks. I am not over-egging the pudding or suggesting there has been a radical inflow of money from international markets into the Irish banking system because that has not happened. However, there has been a slow, consistent inflow of moneys into the banking system to stabilise the banks. Deposits have stabilised. News on AIB this week indicates that, independent of the guarantee, €500 million was raised in three year bonds and that they were four times oversubscribed. The announcement on Bank of Ireland two weeks ago showed that, independent of the guarantee, the bank was able to obtain money in the international market. There was no chance that this could have happened two years ago or last year.

Our ambition in asking the House to accept the extension of the ELG scheme is to ensure it is brought to a swift conclusion next year. Will those who are criticising the two Government parties today support the Government when the scheme comes to an end? The bringing to an end of the guarantee, more than anything else, will be an example to the country, the banking sector and the international markets of our putting our house in order and changing the dynamics of the Irish banking sector. In asking colleagues to support the motion our objective is to exit the ELG scheme at some point next year. This would be an example of normalisation and Ireland making further progress in rebuilding the tattered banking system the Government was left to clear up. If we are to make progress, we must have a totally new banking system. That is why we put our store in the pillar banks. We got rid of the directors. It is also why the new banking unit in the Department of Finance is leading bilateral discussions with the banks and the Central Bank on a daily basis.

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