Noonan rules out early moves on creditors

ANY PRE-EMPTIVE action by Ireland on burdensharing with senior creditors in advance of an EU agreement could have “significant negative consequences”, Minister for Finance Michael Noonan has told the Dáil.

He said the issue was “under discussion internationally but as yet no clear consensus has emerged”. If Ireland took pre-emptive action, he said, it could lead to rating downgrades for international banks.

“It would also be expected to generate negative sentiment among market participants towards Ireland owing to the perceived uncertainty” about the State’s commitment to an internationally agreed “bail-in” mechanism.

Mr Noonan was speaking as he wound up the second stage or introductory debate on the Central Bank and Credit Institutions (Resolution) (No 2) Bill, which introduces a framework for the “resolution of distressed credit institutions”.

The Bill is a Government commitment under the IMF-EU deal and gives the Central Bank powers to deal with failing institutions Anglo Irish Bank and Irish Nationwide Building Society, with the aim of protecting the exchequer and the stability of the financial system and economy.

Mr Noonan reiterated that in the autumn he would raise with the EU and IMF the issue of imposing losses on unguaranteed and unsecured senior bondholders at these two financial agencies.

The Bill provides for the imposition of a banking levy on financial institutions by establishing a resolution fund. Mr Noonan said the fund would provide capital for a bridge bank and reimbursing the exchequer for any financial incentives. But he stressed that ultimately “it will be the industry rather than taxpayers that will bear the cost of resolutions in the future”. He also said that the timing of this levy was important and had to be “considered carefully and not rushed into, particularly given the difficulties still facing the sector overall”.

Acknowledging the importance of credit unions as a volunteer movement and their traditional role, the State still has to pay “due regard to the need to fully protect depositors’ savings and financial stability”.

The Minister will introduce legislation by the end of the year creating a “strengthened regulatory framework” for credit unions and including a strategy to underpin the solvency and viability of any undercapitalised credit unions.

Stephen Donnelly (Ind, Wicklow) expressed concern that the independence of the Central Bank was not explicitly dealt with in the Bill, an issue raised by the European Central Bank. He was also disappointed that an “in-depth parliamentary investigation” was not included in the legislation. Mr Donnelly also expressed concern about the political culture of the banks, and that many of the “senior teams” were still in place.

He warned that “much of the cultural legacy will remain” until senior executive teams were “refreshed”. He highlighted reports of a dinner hosted by banks in 2008 for the retired regulator and new regulator. This was only a few weeks after the banks “hoodwinked the Government into providing a guarantee bigger than our GDP”. Mr Donnelly said that were this to have happened in the US or UK “the regulator would be fired immediately if he or she were to have dinner with senior bankers”. He hoped “we will not see this again”.

Maureen O’Sullivan (Ind, Dublin Central) referred to comments by the Taoiseach in his comments on the Vatican. She said he spoke about “dysfunction, disconnection, elitism and narcissism about the church. Those words could equally be applied to our banks.” She said that, “at least apologies are coming from certain quarters in the church but there has been a lack of similar apologies from the banking authorities.”

Mick Wallace (Ind, Wexford) said the culture of bank bonuses was fully back in Britain where bankers represented 14 per cent of the population but got 40 per cent of the bonuses last year. He said the State should adopt the strict control measures and “tighter hold” that the Canadian authorities have on their banks.