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 Header Item Written Answers Nos. 14-22
 Header Item Central Bank of Ireland IT Operations
 Header Item Mortgage Resolution Processes
 Header Item VAT Rate Reductions
 Header Item Banks Recapitalisation
 Header Item Banks Recapitalisation
 Header Item European Stability Mechanism
 Header Item Consumer Spending
 Header Item Bank Stress Tests

Thursday, 3 October 2013

Dáil Éireann Debate
Vol. 815 No. 3

First Page Previous Page Page of 76 Next Page Last Page

Written Answers Nos. 14-22

Central Bank of Ireland IT Operations

 14. Deputy Dessie Ellis Information on Dessie Ellis Zoom on Dessie Ellis asked the Minister for Finance Information on Michael Noonan Zoom on Michael Noonan if he will confirm that in relation to the Central Bank’s IT system an engineer (details supplied) making a change to the application server which was not approved by the Central Bank caused a short outage as the server crashed. [41517/13]

 24. Deputy Martin Ferris Information on Martin Ferris Zoom on Martin Ferris asked the Minister for Finance Information on Michael Noonan Zoom on Michael Noonan if he will provide update of the outsourcing of the Central Bank’s IT system; and what steps are being taken to minimise the security risk. [41518/13]

Minister for Finance (Deputy Michael Noonan): Information on Michael Noonan Zoom on Michael Noonan I propose to take Questions Nos. 14 and 24 together.

The Central Bank of Ireland has entered into a contract with HP to provide the physical data centre environment to host the Central Bank’s IT systems and to manage the technical infrastructure aspects of these systems. HP will also provide hosting facilities at a backup data centre for the purposes of business continuity. Both of these data centres are located in Dublin. The Central Bank will remain in control and manage all sensitive systems and data. This new data centre will negate the requirement for the Central bank to build two new data centre environments to replace existing facilities which are at ‘end of life’. It will also enable supplier consolidation for a range of services currently being provided by a diverse group of up to seventeen external suppliers. This is a complex technical project and is made up of a number of phases, sequenced to mitigate risk and to move the key infrastructure as seamlessly as possible. I have been informed by the Central Bank that the project is progressing well and is scheduled for completion by end year.

The incident to which the Deputy refers occurred on 17th September when one of the servers which had recently been migrated to the HP Data Centres became unavailable for a short period. The incident in question was the result of a process failure which has since been identified and rectified as part of the standard transition arrangements. The incident lasted for 15 minutes. The impact was minor and did not impact any business service of the Central Bank.

I have been informed by the Central Bank that its IT systems are operating within expected norms and service levels. Incidents can arise in the normal course of events and these are all investigated for root cause and any necessary remediation taken. This includes root cause that may be attributed to hardware, software, process compliance or human error irrespective of whether internally or externally generated.

The responsibility for operational and security policies at the Central Bank continues to be a matter for the Central Bank Commission and the Governor of the Bank. The security of the technical aspects of the systems will be achieved through a combination of physical and logical protections, procedural and process protections, security features including encryption where necessary and on-going monitoring and reporting features. The steps taken comply with the Central Bank’s internal security policies and those of the ECB and are underpinned by the contractual and legal arrangements with the IT provider.

Mortgage Resolution Processes

 15. Deputy Mary Lou McDonald Information on Mary Lou McDonald Zoom on Mary Lou McDonald asked the Minister for Finance Information on Michael Noonan Zoom on Michael Noonan the reason banks relied 62% on legal letters to meet the Central Bank’s MARTs; and if he will review the targets and the definition of a sustainable arrangement. [41506/13]

 19. Deputy John Halligan Information on John Halligan Zoom on John Halligan asked the Minister for Finance Information on Michael Noonan Zoom on Michael Noonan his plans to put pressure on banks to arrive at more permanent and sustainable solutions for distressed mortgage holders; and if he will make a statement on the matter. [41473/13]

 34. Deputy Pádraig Mac Lochlainn Information on Pádraig MacLochlainn Zoom on Pádraig MacLochlainn asked the Minister for Finance Information on Michael Noonan Zoom on Michael Noonan if he will make it clear to the Central Bank of Ireland that letters threatening repossession do not constitute sustainable offers of sustainable conclusions under the mortgage arrears resolution targets.  [41505/13]

 53. Deputy Aengus Ó Snodaigh Information on Aengus Ó Snodaigh Zoom on Aengus Ó Snodaigh asked the Minister for Finance Information on Michael Noonan Zoom on Michael Noonan if he will confirm target of 25% of concluded mortgage solutions under the MARTs for Q1 2014 can include repossessions; and at what point of the repossessions or legal process would be considered concluded. [41509/13]

Minister for Finance (Deputy Michael Noonan): Information on Michael Noonan Zoom on Michael Noonan I propose to take Questions Nos. 15, 19, 34 and 53 together.

The Central Bank has advised that its Mortgage Arrears Resolution Targets (MART) publication of March 2013 clearly defines the criteria by which a sustainable solution can be reported. Where a borrower relies on legal action to address an arrears situation it must be able to demonstrate that “an arrangement could not be reached or is not appropriate” and therefore it is pursuing legal action as a restructure of the mortgage is either not possible or not an adequate solution.

It is a key responsibility of financial institutions to do more to assist those in severe financial difficulty. Letters threatening repossession or legal action could not in my opinion be considered a sustainable solution under the mortgage arrears targets, and should only ever be considered after every possible avenue for solution has been exhausted. This is consistent with the Central Bank’s MART document. It should be noted that the Code of Conduct on Mortgage Arrears (CCMA) provides that lenders may only commence legal proceedings for repossession where they have already made every reasonable effort to agree an alternative arrangement with a cooperating borrower.

The MART document sets out three modes of generating a sustainable solution. The first and most preferred type of solution is an arrangement where payments are re-established on the original, or an agreed revised schedule. The second mode is where the borrower opts for a Personal Insolvency Arrangement and the third mode is where an arrangement could not be reached or is not appropriate and ultimately involves surrender or repossession of the property.

In his appearance at the Joint Committee on Finance, Public Expenditure and Reform, the Governor of the Central Bank acknowledged that more than sixty per cent of the end June proposals by the relevant banks were in the third mode. The Governor also informed the Committee that the Central Bank has commenced the audit of the banks’ returns on the end of June target and the Central Bank will have initial results of the audit in November (and will publish data in December). This will ensure that the mortgage modifications proposed by the lenders are in fact sustainable. The MART document also outlines the Central Bank’s position and powers in this regard. The two specific measures the Central Bank can take relate to imposing additional provisioning and capital requirements on firms. From 2014 the present value of future mortgage cashflows will be set at zero for the purpose of calculating impairment provisions where loans that are in arrears for greater than 90 days have not been subject to a sustainable solution.

In the targets set by the Central Bank, repossession of a property can be counted as a conclusion once the case has progressed to the lodgement of the Civil Bill with the Circuit Court. The Central Bank has also informed me, however, that to count as a conclusion, the institution must be able to demonstrate that all regulatory requirements have been adhered to, in particular the CCMA obligation to ensure that repossession is a last resort.

The Central Bank does not expect that repossession will be the lender’s preferred solution to mortgage difficulties and in most cases engagement by the borrower will make the legal course unnecessary. However in circumstances where the borrower does not engage with a lender to address a mortgage difficulty and, subject to fully complying with the Code of Conduct on Mortgage Arrears, then there may be no other option for the lender but to commence legal proceedings.

VAT Rate Reductions

 16. Deputy Mary Mitchell O'Connor Information on Mary Mitchell O'Connor Zoom on Mary Mitchell O'Connor asked the Minister for Finance Information on Michael Noonan Zoom on Michael Noonan if consideration will be given to extending the 9% tourism VAT rate beyond 2013 in order to continue to boost tourism figures and create and retain jobs in the tourism sector; and if he will make a statement on the matter. [41303/13]

 51. Deputy Terence Flanagan Information on Terence Flanagan Zoom on Terence Flanagan asked the Minister for Finance Information on Michael Noonan Zoom on Michael Noonan if he will re-think his plans to increase the VAT rate from 9% to 13.5% in view of the negative effect this will have on employment in the hospitality sector; and if he will make a statement on the matter.  [41482/13]

Minister for Finance (Deputy Michael Noonan): Information on Michael Noonan Zoom on Michael Noonan I propose to take Questions Nos. 16 and 51 together.

The 9% reduced VAT rate for tourism related services was introduced in July 2011 as part of the Government Jobs Initiative. The measure was designed to boost tourism and create additional jobs in that sector. In line with best international practice it was introduced as a temporary measure and is due to expire at end December 2013, at which point it will revert to 13.5%. Retaining the 9% rate would be very costly to the Exchequer and would require an increase in taxation or reduction in expenditure elsewhere. Any proposal to maintain the 9% VAT rate will be considered in the context of the Budget.

Banks Recapitalisation

 17. Deputy John Browne Information on John Browne Zoom on John Browne asked the Minister for Finance Information on Michael Noonan Zoom on Michael Noonan if he has presented to the ESM a formal case for retroactive recapitalisation of the continuing Irish banks; the timetable for the conclusion of efforts in this regard; and if he will make a statement on the matter. [41442/13]

Minister for Finance (Deputy Michael Noonan): Information on Michael Noonan Zoom on Michael Noonan The Deputy will be aware that the Euro-Area Heads of State or Government agreed on 29th June 2012 to break the vicious circle between banks and sovereigns, and that when a Single Supervisory Mechanism is in place involving the ECB, the European Stability Mechanism (ESM) could recapitalize banks directly. The Eurogroup meeting of 20th June 2013 agreed on the main features of the ESM’s Direct Bank Recapitalisation instrument (DBR). The instrument will come into effect when the Single Supervisory Mechanism is in place. This is not expected to take place until at least mid-to-late 2014.

There is a specific provision for retrospective recapitalisation which states that “The potential retroactive application of the instrument should be decided on a case-by-case basis and by mutual agreement.” The agreement, that we were active in negotiating, keeps open the possibility to apply to the ESM for a retrospective direct recapitalisation of the Irish banks, should we wish to avail of it. The Eurogroup has agreed that there will be strict eligibility criteria as well as a clear pecking order for the ESM DBR instrument.

Finally, it is a matter for the ESM Board of Governors (i.e. Euro area Finance Ministers) to decide on any application made for its facilities, including the DBR facility and its retrospective recapitalisation element. However, it will not be possible to make any application in respect of retroactive recapitalisation until the instrument is declared operational, which as I have said is expected to be in the second half of next year.

Banks Recapitalisation

 18. Deputy Michael Colreavy Information on Michael Colreavy Zoom on Michael Colreavy asked the Minister for Finance Information on Michael Noonan Zoom on Michael Noonan the progress that has been made on separating banking and sovereign debt. [41496/13]

Minister for Finance (Deputy Michael Noonan): Information on Michael Noonan Zoom on Michael Noonan The Deputy will be aware that the Euro-Area Heads of State or Government agreed on 29th June 2012 to break the vicious circle between banks and sovereigns, and that when a Single Supervisory Mechanism is in place involving the ECB, the European Stability Mechanism (ESM) could recapitalize banks directly. The Eurogroup meeting of 20th June 2013 agreed on the main features of the ESM’s Direct Bank Recapitalisation instrument (DBR). The DBR instrument will come into effect when the Single Supervisory Mechanism is in place. This is not expected to take place until the second half of 2014.

There is a specific provision included in the instrument. This provision states that “The potential retroactive application of the instrument should be decided on a case-by-case basis and by mutual agreement.” Therefore, the agreement, that we were active in negotiating, keeps open the possibility to apply to the ESM for a retrospective direct recapitalisation of the Irish banks, should we wish to avail of it. The Eurogroup has agreed that there will be strict eligibility criteria as well as a clear pecking order for the ESM DBR instrument, so any possible application for DBR (retroactive or not) will be determined on its own merits within the rules laid down by the ESM’s DBR instrument. This overall framework agreed this summer builds upon the earlier Euro area Heads of State and Government agreement secured on the 29th of June 2012, and is an important step in the Eurozone’s efforts in this regard.

The objective of the ESM Direct Bank Recapitalisation instrument is to help preserve the stability of the euro area and help remove the risk of contagion from the financial sector to the sovereign, thus weakening the vicious circle between banks and sovereigns as called for by the Euro Summit last year. However, it will not be possible to make any application in respect of retroactive recapitalisation until the instrument is declared operational, which as I have said is expected to be in the second half of next year.

  Question No. 19 answered with Question No. 15.

European Stability Mechanism

 20. Deputy Caoimhghín Ó Caoláin Information on Caoimhghín Ó Caoláin Zoom on Caoimhghín Ó Caoláin asked the Minister for Finance Information on Michael Noonan Zoom on Michael Noonan if all 17 euro zone member states have indicated a willingness to use the ESM to retrospectively recapitalise Ireland’s banking system.  [41499/13]

Minister for Finance (Deputy Michael Noonan): Information on Michael Noonan Zoom on Michael Noonan The Deputy will be aware that the Euro-Area Heads of State or Government agreed on 29th June 2012 to break the vicious circle between banks and sovereigns, and that when a Single Supervisory Mechanism is in place involving the ECB, the European Stability Mechanism (ESM) could recapitalize banks directly. The Euro-Area Heads of State or Government confirmed this position and mandated EU Finance Ministers to prepare an operational framework by mid-2013. The Eurogroup meeting of 20th June 2013 agreed on the main features of the ESM’s Direct Bank Recapitalisation instrument (DBR). The instrument will come into effect when the Single Supervisory Mechanism is in place. The Eurogroup has agreed that there will be strict eligibility criteria as well as a clear pecking order for the ESM DBR instrument. There is a specific provision for retrospective recapitalisation included in the instrument. This states that “The potential retroactive application of the instrument should be decided on a case-by-case basis and by mutual agreement.” Therefore, the agreement, that we were active in negotiating, keeps open the possibility to apply to the ESM for a retrospective direct recapitalisation of the Irish banks for us, should we decide to seek it.

This overall framework agreed this summer builds upon the earlier Euro area Heads of State and Government agreement secured on the 29th of June 2012, and is an important step in the Eurozone’s efforts in this regard. The objective of the ESM Direct Bank Recapitalisation instrument is to help preserve the stability of the euro area and help remove the risk of contagion from the financial sector to the sovereign, thus weakening the vicious circle between banks and sovereigns as called for by the Euro Summit last year.

Finally, it is a matter for the ESM Board of Governors (i.e. Euro area Finance Ministers) to decide on any application made for any of its facilities, including the DBR facility and its retrospective recapitalisation element. However, it will not be possible to make any application without the instrument being in place, and this is currently expected to be in the second half of 2014.

Consumer Spending

 21. Deputy Seamus Kirk Information on Seamus Kirk Zoom on Seamus Kirk asked the Minister for Finance Information on Michael Noonan Zoom on Michael Noonan if he agrees with the ESRI that action is required to boost weak consumer demand; and if he will make a statement on the matter. [41459/13]

Minister for Finance (Deputy Michael Noonan): Information on Michael Noonan Zoom on Michael Noonan The Government’s primary macroeconomic policy objective is to put the economy back on a sustainable growth path in order to move to a point where sustained job creation is taking place. All of the Government’s economic policies are designed with this objective in mind - repairing the banking sector, repairing the fiscal deficit and improving competitiveness will all contribute to economic recovery. The latest data are reasonably encouraging. Domestic demand is showing signs of stabilisation. In particular, consumer spending is up 0.7 per cent quarter-on-quarter in the second quarter this year and retail sales were reasonably strong over the summer period.

In addition, developments in the labour market have been positive with employment up by 1.8 per cent in the second quarter this year which represents over 33,000 addition jobs. We have now seen employment growth for four consecutive quarters. Unemployment is down from its peak of 15.1 per cent in February last year to 13.3 per cent in September. This improvement in the labour market will help support consumer demand by boosting disposable incomes and by enhancing confidence. So, while I am not getting carried away, I am cautiously optimistic that a modest recovery is underway on the consumer spending front.

Bank Stress Tests

 22. Deputy Aengus Ó Snodaigh Information on Aengus Ó Snodaigh Zoom on Aengus Ó Snodaigh asked the Minister for Finance Information on Michael Noonan Zoom on Michael Noonan the reason Irish banks are facing earlier stress tests than other EU banks; and his views on what the results of those tests might reveal. [41501/13]

Minister for Finance (Deputy Michael Noonan): Information on Michael Noonan Zoom on Michael Noonan Originally our programme of support envisaged another stress test, or PCAR, that was to take place in tandem with similar exercises across Europe. When these tests were postponed a new position was agreed with the Troika. Hence, in preparation for the timely introduction of the Single Supervisory Mechanism (SSM), the Central Bank of Ireland (CBI), in consultation with staff of the EC, ECB and IMF, will now conduct a stress test in accordance with the new EU methodology ahead of, and in close proximity to, the upcoming SSM exercise. The intention is to ensure that appropriate preparations are made early so that the Irish banks are in the strongest possible position to achieve the key goal for Ireland of a smooth entry into the SSM in 2014.

Consequently the Irish authorities have agreed with the Troika that detailed preparatory work required for the stress test will be completed in 2013. The Central Bank of Ireland, in consultation with the Troika, will conduct a series of diagnostics to provide greater clarity regarding the underlying quality of banks’ balance sheets. A key element will be a comprehensive Balance Sheet Assessment to be finalised by end-November 2013. It would not be appropriate to prejudge the outcome of this assessment and it should be noted that Irish banks remain well capitalised.


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