Fine Gael´s position on the banks is fully explained in the Fine Gael Manifesto and I attach the relevant section from the Manifesto for your information.
Senator Fidelma Healy Eames
3. Banking and Debt Distress
Banking is built on trust. But reckless lending by – and to – Irish banks during the property boom, encouraged by an irresponsible Government that put its election prospects over the stability of the Irish economy, means that Irish banks have lost the trust of depositors, investors and society at large.
And the response of the banks and the Government to the crisis has made matters worse. Committing €100 billion of taxpayers’ money to the banks so that they can repay their foreign debts while starving the Irish economy of credit has made the recession far deeper than it needed to be.
The current IMF-EU bail-out plan signed has not – and will not – restore confidence in Ireland, because at its heart is a commitment to continue the failed banking policies of the present Government.
A Fine Gael Government will make our banking system an engine of economic recovery by restoring public and market confidence in its financial health, management competence and ethical integrity.
3.1 A Fairer Sharing of the Cost of Restructuring and Funding Irish Banks
Re-negotiating the EU-IMF Programme of Support: Borrowing up to €25 billion in additional funds from the EU / IMF at 5.8% to cover additional bank losses from fire-sales of loans and other bank assets at rock-bottom prices, as this Government has agreed, will push Irish Government debt towards unsustainable levels and hinder economic recovery, threatening the stability of the entire euro area.
A Fine Gael Government will seek a mandate from the Irish people to renegotiate a more credible, fairer package that is better for Ireland and Europe.
A Transparent Assessment of the Capital Needs of Irish Banks: We will defer further recapitalisations of Irish banks until the completion of the Prudential Capital Assessment Review, which is expected to be available within weeks of the formation of a new Government. It makes sense to know the size of the hole in the banks before committing further taxpayer resources. This might also make it possible for the stronger banks to reduce the taxpayers’ exposure by raising private capital.
European Support for Bank Recapitalisation: We will seek to re-negotiate the terms of reference of the European Financial Stability Fund (EFSF) and / or European Financial Stability Mechanism (EFSM) to allow them to take equity stakes in systemically important European banks, such as AIB and Bank of Ireland. A similar option is that Ireland could buy "insurance” from the EU against the risk that losses in Irish banks will be significantly greater than projected under the PCAR exercise.
Agreed Procedures for Restructuring the Debts of Troubled Banks: Fine Gael in Government will force certain classes of bond-holders to share in the cost of recapitalising troubled financial institutions. This will be done unilaterally for the most junior bondholders (owners of preference shares, sub-ordinated debt and similar instruments), but could be extended – as part of a European-wide framework – for senior debt, focusing on insolvent institutions like Anglo Irish and Irish Nationwide that have no systemic importance.
A More Sustainable Funding Solution for Irish Banks: Irish banks need to shrink their balance sheets to reduce their dependence on volatile non-deposit funding sources. We will seek to collaborate with U.S. regulatory authorities to collate the dollar assets of Irish banks (up to $50 billion) that could be used as security to secure funding from the U.S. Federal Reserve.
Long-Term EU Funding for Irish Banks: Rather than selling assets at fire-sale prices with the losses covered by already over-stretched Irish taxpayers, we will negotiate with the EU/ECB to fund – on a longer-term basis – the transfer at par value of relatively-secure Irish bank loan books – such as tracker mortgages – into a "warehouse” or Special Purpose Vehicle. This might involve the EU funds buying long-term bonds to fund such entities. This would shrink the Irish banks to a size where they can fund most of their remaining loan books through deposits, helping to address market concerns about their long-term liquidity position.
3.2 Re-Building a Competitive, Well-Managed, Privately-Owned Banking System
Putting the Government Back in Charge of Restructuring the Banking Sector: We will establish and staff with the necessary expertise a new banking policy division in the Department of Finance to manage, from one central point, the efforts of the Central Bank, the NTMA and the banks’ management themselves to repair the Irish banking system.
Promoting New Leadership and Management in the Banks: A Fine Gael Government will accelerate the replacement of directors and senior managers in the Irish banks. To expedite this change-over we will openly construct a pool of globally experienced, turn-around managers and directors to be inserted into key executive and non-executive positions in banks receiving taxpayer support.
Banks Should Squeeze Their Costs before Their Customers: The cost-income ratios of AIB and Bank of Ireland are still out of line with comparable European banks. A Fine Gael Government will direct any mortgage provider in receipt of State support to present it with a plan within 100 days of coming into Office of how it intends to cut its wage bill and other costs – over and above existing plans – in a fair manner by a sufficient amount to forego a 25 basis point increase on their variable rate mortgages. This plan should include a new, lower pay cap for senior staff and a verifiable commitment to suspend all bonus payments until the banks are no longer in receipt of State support.
Returning Viable Banks to Private Ownership: Fine Gael will complete the sale of EBS to a new, private owner, and will support the new institution as a lynchpin for building a third force in Irish banking to compete against AIB and Bank of Ireland in the business and personal banking markets. We will consider selling AIB to a large, foreign bank in order to bring access to new funding and capital for Irish enterprises, and to address market concerns about the threat to the national finances from the banking system. We will seek to retain Bank of Ireland under domestic ownership and control, and will give individual Irish citizens an option to buy the State’s shares at a strike price that, at the very least, recovers the investment made by taxpayers.
Shutting Down Dead Banks: Anglo Irish Bank and Irish Nationwide have no further role to play in the Irish economy. A Fine Gael Government will wind up both institutions by the end of 2011, by transferring their remaining assets and deposits to other financial institutions or other asset recovery vehicles as appropriate. Further losses incurred in this process will be shared with remaining bondholders.
A Healthy Credit Union Movement: Fine Gael recognises the important role of credit unions as a volunteer co-operative movement and the distinction between them and other types of financial institutions. In Government, we will establish a Commission to review the future of the credit union movement and make recommendations in relation to the most effective regulatory structure for Credit Unions, taking into account their not-for-profit mandate, their volunteer ethos and community focus, while paying due regard to the need to fully protect depositors savings and financial stability.
3.3 Supporting New Lending to Firms and Households
Mortgage Lending to First Time Buyers: The housing market will not be recover unless First Time Buyers have access to mortgage credit to enter the market. Working with the regulatory authorities and the industry, a Fine Gael Government will encourage new funding for Irish mortgage lending again by drawing a line under past practices and creating a new brand or status around the Irish mortgage market that puts the quality of Irish mortgages beyond any question in international markets. With this aim in mind, and drawing from best international practice, we will introduce new universal Mortgage Indemnity Insurance (‘negative equity insurance’) that provides security for prudent lenders and borrowers against future risks of negative equity.
Making Sure Banks Deliver on their Lending Promises: We will direct the new Credit Review Office to publish a delivery audit of the commitments by AIB and Bank of Ireland to make available a total of €12 billion in additional lending to small and medium enterprises in 2010 and 2011.
A Partial Business Loan Guarantee to Support Job Creation: To get banks lending again to industry and entrepreneurs, a Fine Gael Government will implement a temporary, partial credit guarantee scheme that will provide a level of insurance to the banks against losses on qualifying loans to job-creating firms.
Micro Finance Start-Up Fund: Drawing from funding from the NPRF and private institutional funds, we will construct a €100 million Microfinance Start-Up Fund which will provide start-up loans and equity to new businesses. Private not-for-profit organisations like First Step, Chambers of Commerce or Local Business Units in the City and County Councils could apply for capital from the Fund for investment in local start-ups, as part of a necessary move away from non-repayable grants.
Financing for High-Tech, High-Potential Firms: We also support the development of a more dynamic, venture capital industry in Ireland by attracting top-tier venture financing and investment companies to Ireland, as recommended by the Report of the Innovation Taskforce. To begin, we will seek negotiations with Silicon Valley Bank to entice it to establish offices in Ireland. We will also fix the regulatory problems to allow private pension funds to invest more in Irish business.
3.4 Supporting Families and Businesses in Debt Distress
Debt Responsibility: A Fine Gael Government will expect every family and every business to do everything possible to service their debts, and will not ask others to pay the debts of the reckless and dishonest. A mass Government-imposed mortgage debt forgiveness scheme would close down new lending for First Time Buyers and further raise interest rates for families on variable rate mortgages. Where, however, families and businesses have made best efforts and find themselves unable to service their debts, we will support them through the recession and help re-integrate them back into the economy.
Helping Families in Mortgage Arrears: We will ensure that funding for the means-tested Mortgage Interest Supplement scheme can adequately cover families in need by capping the interest charged by lenders benefitting from this scheme at the ECB base rate plus 1%, or the contracted mortgage rate, whichever is lower. To improve uniformity of access and speed of processing applications, we will centralise its administration under our proposed single Payments and Entitlements Service.
Banning Penalty Interest on Re-Structured Mortgages: We will legislate, if necessary, to stop mortgage lenders charging penalty interest rates (or forcing families to give up their low-cost tracker mortgage rates) on mortgages that have been rescheduled (i.e. the payment term lengthened) where the borrower has co-operated with the lender in agreeing a new, sustainable re-payment plan.
Mortgage Interest Relief: We will increase mortgage interest relief to 30% for First Time Buyers in 2004-08 (from the current sliding scale of 20% to 25% depending on the year the mortgage was taken out), financed in part by bringing forward the abolition of relief for new buyers from June 2011.
Deferred Interest: We will require banks in receipt of State support to give homeowners every chance to renegotiate the terms of their mortgage to avoid repossession during difficult times. For example, as recommended by the Mortgage Arrears and Personal Debt Group (November 2010), we will require all mortgage lenders to offer distressed home-owners a Deferred Interest Scheme (DIS) that enables borrowers who can pay at least 66% of their mortgage interest (but less than the full interest) to defer payment of the unpaid interest for up to five years.
Trading Down: For some mortgage holders that are in negative equity, trading down would produce a reduction in mortgage debt and more affordable monthly payments. We will work with the Financial Regulator and the industry to facilitate trading down and "negative equity mortgages” by borrowers in this situation. Such options would have to be in the customers’ best interest.
Using Pension Savings to Ease Debt Distress: Many middle-aged home-owners and / or owners of small businesses have generally-funded personal pension schemes, but are facing difficulties in servicing mortgages or other current financial obligations. A Fine Gael Government will amend pensions legislation to allowing defined contribution pension savers to access funds early, subject to reasonable limits, to meet their current business and personal responsibilities (while taxing the draw-downs).
A New Insolvency Regime for the Financially Responsible: Bar the most extreme cases, bankruptcy reflects the failure of the system. Where common sense is applied to most debtors’ circumstances, there is no need or point to making someone a bankrupt. The sale of non-essential assets should be a part of any arrangement made between a debtor and their creditors. Once the ability to provide for creditors from the income of the debtor through a Debt Settlement Agreement is taken into account and the proceeds from the sale non-essential assets are distributed there should be no need to go any further in most cases.
But where this is not possible, Irish bankruptcy laws must be updated. They currently are unpractical, unused, excessively costly and overly penal. A Fine Gael Government will fast-track the reforms needed to bring us into line with best international standards, focusing on the following elements:
• Reducing the time to discharge from bankruptcy from six years to one for "honest bankrupts”, defined as one that has materially complied with the Tax, NAMA and Companies Acts among others;
• A Non-Judicial Debt Settlement System that will change bankruptcy from a judicial to an administrative process, with filings being made with a new Debt Settlement Office within the Courts Service without the need for legal representation;
• New Commercial Voluntary Arrangements (CVAs), which are legally binding arrangements between the directors of a company and their creditors (at least 75%) that would protect the debtor from interest charges and the threat of enforcement during the period of the life of the CVA;
• A Limited Residence and Personal Assets Safe Harbour that will permit a bankrupt to ring fence from the bankruptcy process ownership of a principal private residence (within limits based on size, value and family numbers) and specified personal assets not to exceed €40,000 in value; and
• A Prohibition against Discrimination against Discharged Bankrupts to ensure that former bankrupts are treated fairly in their applications for credit or other services.
3.5 Making NAMA a Credible Vehicle for Recovery
A new Fine Gael Government will make a number of changes to the way NAMA works to help reduce taxpayer exposures and to kick-start the economy.
Stopping Further Asset Transfers to NAMA: We do not believe that transferring the land and development loans of Irish banks of less than €20 million to NAMA is in the best interests of the Irish economy, and will seek a mandate from the Irish people to renegotiate this element of the Programme of Support from the IMF and EU. As an alternative, we will force Irish banks to take loss provisions against these loans similar to the haircuts that would have been applied by NAMA. This offers the advantage of forcing the banks to recognise their potential losses, as well as significant upside potential for new investors in Irish banks. It also provides a more manageable administrative system for loans of this relatively small scale.
Kick-Starting the Property Market: Getting the property market functioning properly again is a condition of strong economic recovery. This will require NAMA to dispose of property assets secured from developers in default of their loans into the private sector as quickly as possible. We are open to considering new types of investment vehicles – such as U.S. style Real Estate Investment Trusts – that can help create a new, liquid investment market in commercial property for Irish pension funds and smaller investors.
Reintroducing Diversity and Competition into the Property Market: We will force NAMA to outsource management of at least 70% of its assets to 3-4 competing private asset management companies.
Exposing NAMA to Public Scrutiny: A Fine Gael Government will strengthen the transparency of NAMA’s operations and its management of the assets paid for by the taxpayer. The details of all non-performing loans acquired by NAMA will be available for scrutiny on a Public Register, including the names of the creditors, the price paid by the taxpayer for the loans and the actions taken by NAMA to recover the loans. Persons that have defaulted on loans acquired by NAMA will be banned from ever purchasing any asset from NAMA.
3.6 Never Again Will Banks Be Allowed to Ransom the Irish State
Punishment for Financial crimes: Fine Gael will ensure that rogue bankers are pursued for their crimes and that the full rigours of the law will apply to them, and the courts will have the powers necessary to impose appropriate fines and jail sentences. We will enact a new consolidated and reformed anti-corruption law to punish white collar crime and end the impunity from consequences for corporate behaviour that has threatened the economy. We will ensure that the Office of the Director of Corporate Enforcement has sufficient resources to tackle White Collar Crime
Stronger Regulation of Financial Institutions: We will strengthen the financial regulatory regime by funding the planned increase in staffing levels. We will, before the end of 2011, commission an independent benchmarking of the quality of Ireland’s reformed banking supervision regime as against best global practice.
Higher, Loss Absorbing Bank Capital to Protect Taxpayers and Depositors: We will raise core equity capital requirements for systemically important banks on a permanent basis. This will provide a greater buffer against banking losses before external intervention is required. To be counted as capital, "hybrid” debt instruments issued by Irish banks, such as sub-ordinated bonds, must include clear mechanisms for taking losses, either through write-downs or conversions into equity, without winding down the entire bank.
Structural Reforms to Make Banking Safer: We will legislate, consistent with emerging EU frameworks in this area, to give the Financial Regulator additional "bank resolution powers” to take over and wind down banks that threaten financial stability, with losses being absorbed by investors and bond-holders before the taxpayer. Fine Gael will consider new legislation to separate more risky, speculative financial activities from the traditional banking activities of taking deposits and lending to enterprise. Fine Gael will also intervene directly to stop banks from encouraging risky lending in the way they pay senior executives.
Bank Levy / Dividends: As banks return to profitability and private ownership, we will target additional contributions from the sector to repay the Irish taxpayer for the cost of the bank bail-outs. Initially, these contributions will be in the form of dividends, but will over time be restructured into an additional bank levy on the types of transient funding sources of the Irish banks that have caused so much instability.
3.7 Strengthening Confidence in Independent Audit of Banks
Public Scrutiny of Audit Firms: To give the Oireachtas and the public confidence that auditors are doing their job properly, a Fine Gael Government will mandate the Irish Auditing and Accounting Supervisory Authority (the independent regulator of the audit profession in Ireland) to publish their conclusions from their annual inspections of individual audit firms in respect of public interest entities.
Shareholder Approval of Auditors: To emphasise the primacy of shareholders, in particular over management, in the appointment of auditors to financial institutions in receipts of State support, that audit committee chairpersons be required to propose at each AGM the appointment of the auditor and to set out their reasons for doing so. We will also make it a standard practice that auditors should answer questions to shareholders at the Annual General Meeting of public companies. We will also require the audit committee of banks and other Public Interest Entities to evaluate the effectiveness and competence of the auditor every three years and set out for shareholders how they have done so.
Regulator Veto over Audit Appointments: For systemically important institutions (e.g. the banks) we will legislate to give the Financial Regulator a right of veto over the banks’ choice as auditor. We also commit to implementing other proposals that are finalised at EU level on strengthening the future role of auditors.