As Gaeilge

Dáil Motion on resolution to approve the draft Commission of Investigation (Banking Sector) Order 2010

Speech by Minister for Finance

I move:

“That Dáil Éireann,

-         having regard to the significant public concern about the scope and cost of measures that have been necessary to stabilise the Irish banking sector;

-         noting the recommendations of the reports, ‘The Irish banking crisis: regulatory and financial stability policy 2003-2008,’ by the Governor of the Central Bank, and 'A preliminary report on the sources of Ireland's banking crisis', by Klaus Regling and Max Watson, which were laid before Seanad Éireann on 9 June 2010;

-         noting the Government Decision of 9 June 2010 referring these reports to the Joint Oireachtas Committee on Finance and the Public Service for its consideration and input into the preparation of the Terms of Reference for a Commission of Investigation;

-          noting the acceptance of the Government of the seven key policy lessons outlined in Part IV of the report by Klaus Regling and Max Watson and the proposal to refer for further consideration by the Joint Oireachtas Committee on Finance and the Public Service consideration of the macro-economic policy lessons arising from the reports;

-         noting that it is the opinion of the Minister for Finance that a Commission of Investigation represents the best method of further investigation of specific serious lapses in respect of specified credit institutions;

-         further noting that a draft Order proposed to be made by the Government under the Commissions of Investigation Act 2004 (No. 23 of 2004) has been duly laid before Dáil Éireann in respect of the foregoing matters referred to, together with a statement of reasons for establishing the Commission under the Act;

approves the draft Commission of Investigation (Banking Sector) Order 2010.”

 

Background

Last January, in this chamber I set out a framework of investigation into the problems that arose in the Irish banking sector. I said then that a comprehensive understanding of the events that took place in the banking sector in recent times was an essential component of the recovery. We have a duty as a Government and as Members of the Oireachtas to ensure not only that the origins of the crisis are understood, but that lessons are learnt and that international and domestic confidence in our banking system is restored so that our economy can return to growth and employment creation.

The two preliminary reports

As the first stage of the process of investigation, the two preliminary reports, prepared by Klaus Regling and Max Watson and by the Governor of the Central Bank respectively, provide a comprehensive and authoritative examination of the crisis in the banking sector in Ireland.

The authors have provided us with a detailed and insightful analysis, of the global, European and domestic macro-economic factors at play over the relevant period.  Governor Honohan’s report details the failures in our regulatory and supervisory arrangements and the weaknesses in the evaluation of the stability of our banks.

These reports draw attention to a number of issues which require further analysis and provide a sound basis for the further investigation of these significant issues.  I welcome their direction in this respect.

The reports were laid before the Houses of the Oireachtas on 9 June and were debated. The Finance Committee has had two separate and lengthy engagements with the authors and subsequently with myself to discuss how we should proceed.

These meetings allowed a comprehensive airing of the issues raised in the reports and some necessary rebalancing of the initial interpretation and media commentary by highlighting the complex interplay of factors at work that culminated in the extreme turbulence that impacted on our banking system in September 2008.

In their report, Klaus Regling and Max Watson distinguish between those issues that are amenable to further investigation through a legally orientated process and other issues, which are less concrete and verifiable, and may be more appropriately the subject of policy review.

This distinction formed the basis of the Government’s proposed approach to the next steps in the process.

Terms of reference for Commission of Investigation

Let me draw the attention of the House Committee to a number of points about the findings of the preliminary reports:

First, both reports, but in particular that of Mr Regling and Mr Watson, describe in some detail the nature of the explosion in the availability of credit in the Irish banking sector and characterise the failures in governance and risk management in our banks as ‘disastrous,’ and ultimately leading to systemic difficulties in the financial system. What went on in the banks leading up to the crisis remains a cause of significant public concern. The public interest demands that we investigate the very serious failures in the standards and controls that should have ensured prudent risk management policy and procedures. 

Second, it is clear that there were particularly egregious failures in corporate governance and risk management at Anglo Irish Bank and Irish Nationwide Building Society. Certain matters are already the subject of investigation by the relevant authorities, and I don’t propose to comment on those here.  However there is a clear need to examine more deeply and broadly what went wrong in these two organisations, while taking account of these other investigations.  That is why the draft Terms of Reference prepared by the Government specifically set out the need for a full examination of the business models and strategies adopted by the Boards of these institutions and the implementation by their senior managements, of business and lending practices which resulted in those institutions experiencing such uniquely severe financial distress. This investigation will cover the period from the 1st of January 2003 to 15 January 2009 – the date on which Anglo Irish Bank was nationalised. 

Third, building upon the need to investigate failures in governance and risk management, it is proposed that the Commission also investigate whether the external auditors commented in their audit reports on the standards and controls and risk management policy and procedures or on the business models and strategies and business and lending practices that led to the severe difficulties experienced by our banking system.

Fourth, on foot of the analysis by Governor Honohan of the failures of financial supervision, there is a need for further examination of the nature of supervision and oversight of the banks by the Financial Regulator. For that reason it is proposed that the Commission would examine the failures of the Central Bank and Financial Regulator to regulate and supervise the covered institutions and to maintain financial stability.

These draft Terms of Reference are appropriate in the light of the findings of the preliminary reports. 

Under the Commissions of Investigation Act 2004, a commission of investigation may be established by the Government, with the approval of the Oireachtas, to investigation any matter considered to be of ‘significant public concern.’  There can be no doubt that the banking crisis and its origins fall squarely within that category.  It has had a profound impact on the State and on its financial position and we will live with its consequences for some time to come.  It is essential that we identify what went wrong and why and that we learn the lessons of the past to ensure that we never make the same mistakes again.

I am pleased to inform the House, that Mr Peter Nyberg, former Director General for Financial Services at the Finnish Ministry of Finance, has agreed to lead the Commission. Mr Nyberg has all the necessary experience to undertake this important role. He will be supported by the expertise he requires and I have made provision in my Department’s estimate for this year to cover the costs of Commission. 

I would also remind the House that there are ongoing investigations by the relevant regulatory and other authorities into specific matters of a serious nature in a number of institutions. The Commission of Investigation will not supplant or hinder these investigations. And, in fact, it is open to the relevant authorities to initiate further investigations into additional possible breaches arising out of any findings that the Commission may make.

The motion before the House seeks approval of the draft Government Order, laid before the Houses yesterday, providing for the establishment of a commission of investigation into the banking sector.

Extension of period to be considered by Commission

I would like to draw the attention of the House to the Government’s decision, following the recommendation of the Joint Oireachtas Committee on Finance and the Public Service at our meeting last Monday, to extend period to be covered by the Commission of Investigation from the 1st of January 2003 to the 15th of January 2009.

This means that the Commission will now be in a position to examine all relevant matters relating to corporate governance and risk management in each of the banks covered by the Government’s guarantee up to the date of the Government’s decision to nationalise Anglo Irish Bank.

Further consideration of policy Issues

The second motion before the House seeks to refer certain macro-economic policy lessons to the Joint Oireachtas Committee on Finance and the Public Service arising from recommendations set out in the Regling and Watson report. 

As is clear from that report, these policy issues can be divided into two groups; those that relate to macroeconomic management and those that relate to financial stability and prudential/supervisory matters.  The former are primarily my responsibility in the first instance and the latter fall within the remit of the Central Bank and Financial Regulator. 

I am proposing that the Joint Oireachtas Committee, taking account of the emerging EU proposals on fiscal and economic governance, examine  the following matters highlighted in the Regling and Watson report:

 

¨      the role of macroeconomic management and surveillance in securing the long-term sustainability of Ireland's economic performance and also in responding  on a timely basis to risks and imbalances that may build-up in both the private and the public sectors of the economy, including external imbalances vis-à-vis other euro area members and the funding of any imbalances that might arise;

¨      the role of fiscal policy in securing an appropriate alignment of the national business cycle with monetary conditions in the economy;

¨      the requirement for the design and conduct of budgetary and taxation policies to take account of the cyclical nature of particular revenues as well as their temporary nature in certain circumstances in order to maintain an appropriate and effective tax base; and

¨      the case for the establishment of new institutional structures to provide an independent validation of economic and fiscal projections as well as for the introduction of domestic medium-term fiscal rules.

Following my discussions with the Committee, I understand that the Committee is agreeable to the main elements of the overall proposed scope. It is proposed that its deliberations be concluded by the end of October in order to publish and report back to this House and the Upper House by 4 November 2010. 

In relation to the issues within the remit of the regulatory system, the Committee will be aware that the Central Bank published a report on 21 June setting out its proposed approach to future regulation of the banking sector. This report also addresses how the range of measures it is putting in place will address the issues raised in the Governor’s report and that of Messrs Regling and Watson. This is another step in the road to the recovery of our banking system.

Role of Department of Finance

It is the Government’s view, underpinned by the two preliminary reports, that certain decisions and processes, which are fundamentally political in nature, are not amenable to an investigation whose purpose is to make findings of fact. The Government will not be changing its position on that point and there are no good reasons for it to do so.

Let me also be clear however that my Department will feature in significant ways in both of these of these investigations.

First, the terms of reference for the commission require it to examine whether any advices or directions given by my Department to the Financial Regulator were in any way relevant to failure of the Financial Regulator in the performance of its supervisory functions.

Second, in relation to the proposed policy review by the Committee, I have already indicated my own availability to meet the Committee as the accountable Minister, to assist it in its deliberations as necessary.  At all times, my predecessors and I have been accountable to this House for the decisions taken as Minister and for the actions of my Department. That will continue to be the case.

Review of Department of Finance

In addition, as I have already informed the Committee, I am establishing an independent review by an international expert or experts with relevant international and/or domestic experience, to evaluate the systems, structures and processes used by the Department of Finance in providing advice to the Minister and the Government.  The review will examine the Department’s role and performance in the past 10 years in providing advice to the Minister and the Government. This would include advice in relation to the Government’s management of the current crisis, with a view to ensuring that the lessons of this period of extraordinary stress will inform the development of the Department in the future.  The review will have due regard to the skills, training and staffing mix required by a modern Finance and Economic Ministry in order that it can best fulfil its role.

I want to ensure for the future that the Department of Finance can give the best possible policy advice, can better assess risks and opportunities in the fiscal, economic and financial system, and can manage its own operations with high levels of effectiveness and efficiency.  I know that the Department has good, skilled and capable staff, but I want to be sure they are used to best effect and that the mix of skills is optimised.

Concluding remarks

The matters we are discussing here today are important and will have enduring consequences of future economic and financial policy.  It is appropriate, given the scope and cost of measures that have been necessary to stabilise the Irish banking sector, that it be fully and completely investigated and the lessons learnt in order to put in place the best systems and structures in the future so that this kind of crisis can never happen again. 

I commend the motion to the House.

 

 

 

 

 

 

 

 

 

 

 

                                                                                                    


 
Users who read this document also viewed
07 March 2013Report on Recommendations of Internal and External reviews of GG Debt Statistics
07 March 2013Department of Finance Annual Review
03 January 2013 END-DECEMBER 2012 EXCHEQUER RETURNS Good Exchequer Performance: Taxes Up; Spending on Target  The Minister for Finance,...
27 July 1998Freedom of Information
04 May 2010Department of Finance Progress Report for 2009 and Output Statement for 2010