Emergency Bill safeguards economy, says Lenihan
LEGISLATION:EMERGENCY LEGISLATION introduced in the Dáil last night "is not about protecting the interest of the banks - it is about safeguarding the economy and everyone who lives and works in this country" Minister for Finance Brian Lenihan told the Dáil.
The 17-page Credit Institutions (Protection Bill) 2008, which gives effect to the Government's scheme to underwrite and guarantee the banking system is "intended, in the first instance to underpin the financial standing of the Irish banks and building societies".
He insisted the provisions "are in no way a 'bailout' for the Irish financial system. The granting of guarantees to individual institutions will be subject to specific terms and conditions for each institution".
He also pointed to the estimate that "total assets of the six financial institutions concerned exceed their guaranteed liabilities by approximately €80 billion - half of Ireland's total GNP. By any measure, there is therefore a very significant buffer before there is any question of the guarantee being called upon".
Mr Lenihan introduced the Bill at 10pm last night after repeated delays, but there was a need to redraft the Bill so that it was the "best" possible legislation.
The Minister said the objective of the legislation "is to reinforce the strength of the Irish economy, its financial sector, and in particular to protect the long-term interests of the taxpayer".
The Minister stressed that "the guarantee now provided by the State is not intended to insulate the shareholders of these financial institutions from the risks of the investments they have made".
He said: "This guarantee is not 'free' and the taxpayer who ultimately underwrites this support will be remunerated for the value of the support provided. The terms and conditions on which the guarantee is provided will ensure that the taxpayer gets value for money." The "extended international credit crunch" brought home "the pivotal role of the financial system in the Irish economy and in the day-to-day lives of ordinary people but also the broader social responsibilities of the financial sector to society at large".
He told the packed House that "I will be drawing on the advice of the Central Bank and the NTMA to put a fee mechanism in place to remunerate the guarantee".
One thing was clear in all the uncertainty. "The unprecedented disruption in international financial markets required a strong and decisive response by Government to underpin the commitment of the authorities to Ireland's financial stability."
He insisted "the risk of any potential financial exposure from this decision is significantly mitigated by a very substantial buffer made up of the equity and other risk capital." He said as for "moral hazard", it would be a Government priority "to ensure the highest regulatory standards and standards of governance apply in all of the institutions concerned".
Outlining the main provisions of the Bill, Mr Lenihan said it would not interfere with the functions of the Central Bank or financial regulator. It had scope to address any difficulty which might arise.
He said: "The Minister may subscribe for shares and other securities in a credit institution on such terms as he sees fit." There is a provision for annual reports by the Minister, and for circumstances in which the Minister may approve a merger or acquisition.