At present there is no Irish guarantee
I support and agree with concerns about the delay in bringing forward the scheme which the Minister for Finance said would come before both Houses. We have seen what happened this morning in the UK. I do not believe it is accurate to say that the UK Government has copied the Irish Government. That is not true. The UK Government has taken preference shares in the banks it has proposed to assist and it has included a requirement that any bank wishing to participate in the scheme must sign up to an agreement on executive pay and dividends. There are many other differences between the UK Government’s proposal and what has been done here.
The Financial Regulator has said there is no difficulty with the capitalisation of the Irish banks. However, we have been asked to accept other statements from and about the banks in recent months which have proven not to be true. I note a nuance in the comments of the Minister for Finance this morning. He says he does not believe there is a difficulty with under-capitalisation. However, the Minister for Finance rather ominously stated that things are changing by the day. Therefore, it is not at all clear that there is not a difficulty with under-capitalisation in the Irish banks. What is the current position in Ireland with respect to the guarantee?
There is no guarantee is the answer.
The Minister for Finance and the Government announced an intention to provide a guarantee, which was a plan for the future, but there is no guarantee for today. This is a serious situation of which I do not make light as a topic for debate. However, the seriousness of the situation is increased with a further delay in the presentation of the scheme.
The delay also raised the question of what we were doing here last week in the overnight session. What was the point of it? We passed enabling legislation which has not been acted upon. Therefore, apart from the amendments to the competition legislation which, although important are marginal, the content of the legislation, the scheme and the guarantee are meaningless because nothing has been carried out. What were we doing here overnight last week? I do not have any difficulty with making myself available, nor do my colleagues. However, the sum total of our efforts add to nothing as nothing has changed. Our job is not to provide an overnight supporters’ rally for the work of the Government or the Minister for Finance. We are legislators and we are constitutionally required to scrutinise proposed legislation. The scheme was supposed to be brought before the Houses. Unless and until this happens there is no Irish guarantee; it simply does not exist yet. This is a reflection of the seriousness of the matter.
The Government’s intentions are becoming less, rather than more, clear with each day. The Minister for Finance has now indicated, perhaps correctly - I do not claim he has no basis for the comments, but it shows how unclear the position is - the possibility of a limit on the amount of deposits banks can take on. The developments in the UK this morning will have implications for foreign owned banks operating in Ireland. That may have implications for our scheme and there is the wider EU context. The situation is sliding by the day. All of the talk and congratulation we indulged in last week for being first into the breech now rings hollow. It looks like we are now one of the last into the breech in completing a proper scheme to put before the Houses and implement a guarantee. At present there is no Irish guarantee.
More :: I raised these issues in the Seanad and they were featured on RTE’s Oireachtas Report. Click here to view the programme (from 6min 10secs onwards).
I am continually dismayed by the tendency of our press to cast items deserving public attention and scrutiny in such a light and to inject these with such wildly inflammatory rhetoric as to lead its audience to the belief that our imminent demise before the publication of the next edition is a foregone conclusion. The past week has been no exception.
Whilst wading through the headlines announcing an emergency bailout of Irish banks costing €400 BILLION, I managed to piece together an approximate timeline of notable events and comments:
“I want it to be known that the government is confident about the strength and resilience of the Irish financial system…The Central Bank and Financial Regulator have stressed the soundness and stability of the Irish financial system.”
~ Minister Brian Lenihan, 20 September 2023
“We are in an eye of the storm here and it’s not a time to have expensive arguments about the nature of regulation. It is time for action – swift and decisive.”
~ Minister Brian Lenihan, 30 September 2023
The Irish banking system would have “totally collapsed” this week if the Government had not introduced legislation to underwrite it.
~ attributed to Tánaiste Mary Coughlan, 04 October 2023
Here we sit, early Thursday evening, well past the time when we should have felt the first warm gusts of our financial system “totally melting down”. At last count, by my reckoning, all of the banks in Ireland without exception were still open for business today as usual. Most had announced they would pass on the most recent cut in interest rates by the ECB to their consumers (hardly behaviour consistent with businesses on the brink of failure). None had announced it would close by tomorrow.
Simon Carswell recently explained the situation in the Irish Times using a simplistic “cars on the road” analogy. While the tone of the article is so condescending as to be potentially offensive, particularly if one is inclined to be offended easily, Mr. Carswell nevertheless makes several good points: The four public banks among those Government proposed to provide with a guarantee have some €30 billion presently in reserve to protect themselves against the risks proposed to be guaranteed. These risks are suggested by “some commentators” - though precisely who these commentators are remains undisclosed - to amount to €22 billion. This figure is presented as the worst case scenario, still leaving €8 billion in reserve. Such figures hardly conjure up the typical images of businesses on the verge of collapse. Mr. Carswell also cited Anglo Irish Bank chairman Sean Fitzpatrick’s words over the weekend to the effect that Irish banks were going to fall if they didn’t get money and that the Government was the only place that banks could turn to in a bid to have their “tanks filled to keep them on the road”. What Chairman Fitzpatrick meant was that he and other bank chiefs were finding it difficult to buy their “petrol” as cheaply as they were once able to do, resulting in a temporary inability to stock their own coffers with the truly hallucinogenic generosity to which they have become accustomed without resorting to more than the usual ingenuity. That is certainly a rough road.
Reading the Irish Times’ description of the dead of night events in the Taoiseach’s chambers involving Ireland’s leading bankers, one cannot help but be reminded of a collection of junkies jigging during a visit to their dealer of last resort.
Unfortunately for Government, the EU stepped in to prevent our salvation, leaving everyone to wonder just what we were being saved from, and generally making the banks appear somewhat less than credible and Government appear foolish.
Most disturbing is the decision of Government not to disclose the details of its plans to the public. While no referendum is required, one could certainly argue that an issue which, in the short, near, and long terms could have a far greater impact on Ireland than the Irish Lisbon Treaty decision ever could have had should be subjected to public scrutiny.
An appeal by bankers to make their business both extraordinarily lucrative and entirely risk-free through Government guarantees amounting to twice Ireland’s annual GDP is frankly ludicrous. If Ireland’s banks ever were in as much trouble as claimed - and there is now a great deal of doubt about that - then such a circumstance is not one for which the banks themselves bear no responsibility. All else being equal, Government guarantees will encourage rather than discourage future imprudence.
Professor Morgan Kelly of UCD has articulated the consequences with typical eloquence and brevity: “Suppose that you are a bank that has lent €100 million each to 10 developers who are having problems meeting their repayments. What you do is bundle the loans into one asset and sell it, with Brian Lenihan’s signature on the bottom, on financial markets for €1 billion. When the borrowers default, the taxpayer will be left taking up the tab.”
If indeed the Irish citizenry is to be placed in the role of guarantor to the banking industry in the present and for generations to come, may we not be trusted to know precisely what brought us here and, most importantly, may we not know the extent of our exposure and potential burden?