The time to act to avoid a run on the bank is after a bank has lost market confidence but before it becomes insolvent. Company law deals with most situations but normally corporate insolvency procedures are inadequate for banks and other financial institutions and we must explain the reasons for that. One may ask if this could not be done under existing company law. The main reforms, including those in this legislation, will involve the strengthening of regulation, adopting internationally accepted accounting auditing and financial reporting standards and practices and toughening compliance and regulation. It is, however, necessary to have this new resolution scheme in place.
The money that goes into a bank is not just the cost of the money but the many purposes that the money could be used for, which is very important. The first involves the funds that are required from the taxpayer to fund or eliminate the losses of depositors and creditors while the second, which is far more important for the public, involves the costs that will have been incurred by the taxpayer and which will ensure there are fewer resources as a result of putting the money into an insolvent bank for the economy's medium and long-term growth potential. There are major costs involved in having a reconstruction system in place. Emergency measures like that should only be taken as a last resort because if given time, the banks could work their way through the system. Putting such a solvent bank, even though it might have a liquidity problem, into bankruptcy is unnecessary and will involve an unnecessary cost on the taxpayer. We have a situation where banks can be solvent in the long term but cannot access funds in the immediate or short term to pay their liabilities that are falling due in the short term. One can speak of a bank being solvent, in the sense that in time when its assets mature it will provide more than enough money to repay those who have lent money to it, while at the same time a bank can be illiquid in the sense that the bank is unable to pay its borrowings immediately and cannot find other lenders who will tide it over. Access for banks around the world to short-term borrowing became very constrained due to the failure in confidence in the banking system and in the ability of banks to repay. In the Irish banking system and the worldwide banking system, there was no liquidity problem until the events of mid-September 2008, when Lehman Brothers collapsed. Be that as it may, we have a responsibility to deal with these issues. This is a heavy duty Bill, and I think there is general fatigue among the public when they hear about bank resolutions, financial crises, Greeks, bailouts, subordinated bonds, unsecured creditors and so on. The most recent test was carried out by an American organisation known as BlackRock, which took a very pessimistic view, put perhaps it is right to get to the end of it. We have also had a number of stress tests of the assets and liabilities of the various banks. We have had several reports, including the Honohan report, the Regling-Watson report and the recent Nyberg report.
The banking crisis has been examined to the nth degree. Some of that confidence has been restored by the appointment of new people in those key positions, but those people will not always be there, and there is a strategic weakness in terms of the size of the Irish banks relative to the size of the Irish Central Bank. It is unusual for someone in here to call for more powers for Europe, but everybody in Ireland lost confidence in the Irish Central Bank, the financial regulatory system and the banking system. If we have learned anything in the last two years, we now know that this banking problem is a European issue that needs European resolution, and not just piecemeal resolution in each state. Most banks in those jurisdictions are too big for the local central bank to regulate and oversee. I finished up by questioning the continued existence of the Irish Central Bank and the other 26 central banks in the EU. Many of the points I made yesterday were in connection with the role of the European Central Bank. We hope that we will not have to rely on this legislation, because we have had enough banking crises in the past, but we must pass this Bill because it could be necessary in dealing with some of the existing banks at the moment.
The Bill is designed to have a legislative system in place to deal with banks in difficulty in any future banking crisis. I was speaking here yesterday evening on this Bill, before we went on to Private Members' business. Nuair a bhíonn tionchar tromchúiseach ag aithrisí.
0 kommentar(er)
