Full text of Lenihan statement on banks
The following is the full text of Minister for Finance Brian Lenihan's statement in the Dáil today on the establishment of an inquiry into the banking system:
A Cheann Comhairle, it goes without saying that the worst financial crisis this country has ever experienced requires an inquiry. The Government fully recognises that the public is entitled to a full examination of what went wrong in our banking system. More than that, we need an inquiry in order to restore international and domestic confidence in our banks. We need, as a country, to understand the origins of this crisis so that we can ensure that we do not make the same mistakes again.
Those mistakes required us to introduce the Bank Guarantee Scheme in September 2008 and to make some very significant interventions since then to ensure financial stability. These measures include the recapitalisation of our two biggest banks, Allied Irish Banks and Bank of Ireland, the nationalisation and recapitalisation of Anglo Irish Bank; the establishment of the National Asset Management Agency and the recent introduction of the Eligible Liabilities Guarantee Scheme.
The State has been required to pour very significant, scarce recourses into our banks. As I have said in this House before, the banks owe a large debt of gratitude to the taxpayers of this country. Therefore, it is essential that we learn the lessons of our recent experiences as we set about the task of refashioning our banking system to meet the needs of the economy and perform its proper duty to the citizens of this country.
I welcomed the comments of the Governor of the Central Bank, Professor Honohan, when he was before the Joint Oireachtas Committee on Economic Regulatory Affairs just over a month ago. The governor said he expected the Oireachtas would authorise some form of inquiry to try to understand the deeper underlying causes of this crisis so that wider lessons could be learned for the future. The Government agrees with the views of Professor Honahan on the benefit and value of such an approach.
The Government also fully agrees with the Governor on the need to engage a broad set of expertise to examine the events of recent years and to design and implement an investigation in such a way that we arrive at a deeper understanding of the root causes of the systemic failures that led to the need for extraordinary support from the State to the domestic banking system.
At its meeting today, the Government approved a framework for an inquiry and for its subsequent consideration by the Dáil. The inquiry will have two stages.
First, the Government will immediately commission two separate reports - one from the Governor of the Central Bank on the performance of the functions of the Central Bank and the Financial Regulator and the second from an independent 'wise' man or woman with relevant expertise to conduct a preliminary investigation into the recent crisis in our banking system and to inform the future management and regulation of the sector. These reports will also consider the international, social and macro-economic policy environment which provided the context for the recent crisis. I expect both reports to be completed by the end of May this year and laid before the Houses shortly thereafter.
The second stage of the inquiry will be the establishment of a statutory Commission of Investigation which will be chaired by a recognised expert or experts of high standing and reputation. The terms of reference for this commission will be informed by the conclusions of the two preliminary reports. The aim will be for the commission to complete its work by the end of this year. Its report will then be laid before the Oireachtas for further consideration and action by an appropriate Oireachtas committee.
Let's remind ourselves why we arrived here.
We are all aware that the global international crisis has created extreme stress for the financial system worldwide. The drying-up of funding in international credit markets and the huge write-downs of securitised assets has generated a financial shock which has resulted in the most negative economic conditions since World War II.
Ireland's exposure to the sharp deterioration in international financial conditions has been significantly exacerbated by practices which failed to address unrestricted credit growth in the Irish banking system. We know that this credit growth was facilitated by access to wholesale financial markets with no exchange rate risk and low interest rates and was both driven by and facilitated an unprecedented property boom and an unsustainable increase property development lending.
What was the Government response?
The proper functioning of the banking system is critical to the economy and therefore must be protected by the Government. We are not alone in this. Governments all over the world have had to make very substantial interventions to protect their banking systems. These interventions have been difficult for all governments: they are not popular; they are not easy to explain or understand; but they are necessary. In all the steps we have taken as a Government, our overriding objective has been to maintain a functioning banking system that will ensure a flow of credit to viable businesses and households in this economy.
The decision of the Government today to commission two preliminary reports to be followed by the establishment of the statutory Commission of Investigation into banking matters will form another important step in the continuing reform of our regulatory systems and structures, as well as the internal governance of our financial institutions.
These reviews will not take place in a vacuum. They will build on important work being done at international level. Over recent months substantial analysis of the failures of the banking sector has been undertaken elsewhere. The analysis which the Government will commission will complement and build upon, for example, the European Commission's High Level Group on Cross-Border Financial Supervision (the de Larosière report) and the UK Financial Services Authority's Turner report. These reports have recommended an extensive programme of reform of financial regulation at EU and international level which is now being put in place. These reforms will make a major contribution to underpinning the stability of the financial system both in Ireland and the EU in the future.
The Commission of Investigation will examine and report on the causes of the systemic failures such as corporate strategy, governance and risk management in the Irish banking sector. The terms of reference for the statutory inquiry will be shaped by the conclusions of the two preliminary investigations and in consultation with the Oireachtas. But there are clearly a number of broad themes that ought to be examined thoroughly. These include:
* the performance of individual banks and bank directors where wrongdoing and lax practices have contributed considerably to the crisis;
* the performance and structure of the banking system generally;
* the performance of the regulatory and Central Bank systems; and
* the response of the relevant Government Departments and agencies, including the linkage between the banking crisis and overall economic management.
The two preliminary reviews will prepare the ground for the formal inquiry and ensure that it is effective and efficient.
Over the next number of months, a significant amount of work needs to be completed in order to return our banking system to health.
* We need to complete the first stage of the critical 'transfer of assets' to NAMA
* We need to agree the banks' restructuring plans and their future capital requirements; and
* We need to progress the consolidation to the building Society sector.
I would remind the House that the banking system is still fragile. We are not out of the woods yet. It is important that the work I have outlined is completed before we turn our attention to the formal inquiry we all agree must take place. That is why the Government is proposing the multi-stage investigation. That investigation will be completed by the end of the year.
Role of the Oireachtas
The Oireachtas will be involved at each stage of the planned inquiry process:
* an appropriate Oireachtas Committee -the Finance and Public Service Committee would seem the most relevant - will meet both the Governor and the independent expert at the outset of their work to be briefed on the members' priorities for investigation;
* the two preliminary reports, when completed, will be laid before the Houses of the Oireachtas and the Oireachtas Committee will be invited to consider the findings of the reports;
* the terms of reference and draft Government Order to establish the statutory Commission of Investigation will be laid before the Oireachtas; and
* the report of the Commission of Investigation will, when completed, be laid before the Oireachtas for further consideration by the Committee. It is open to the Committee to hold public hearings on the Report.
There has been some reference to the Dirt Inquiry as a possible model for the inquiry into the financial crisis. But the fact is that the investigative work in that inquiry was done by the C&AG. An Oireachtas Committee cannot be a Court of Judgement on private individuals and cannot find on matters of fact. That is why the Government has decided to adopt the Commission of Inquiry mechanism.
It could be argued that an inquiry should ideally await the conclusion of existing criminal and regulatory investigations into wrongdoings at certain financial institutions. These investigations may take a significant period of time. However the Government is firmly of the view that the approach that I am setting out to the House here this evening will allow these criminal and regulatory investigations to proceed without the possibility of prejudice.
A Cheann Comhairle, the Government's agreed approach will allow for the timely completion of expert, authoritative and structured examinations of the financial crisis. It will provide a comprehensive analysis which will enable us to understand the origins of the crisis and help us to learn lessons which will inform our future management of the banking sector. The framework I have outlined will be transparent and constructive. It will involve the Oireachtas at each stage. It will be efficient and cost-effective. Most of all, it will restore confidence in our banks so that they can play their full and proper role in promoting economic recovery.