Thoughts on the Credit Institutions Stabilisation Bill 2010

19th December, 2010

This is the Bill designed to give the Government additional and strong powers in relation to banks that pose a threat to the financial stability of our entire banking system.

I spent most of Thursday on this bill as the Government pushed it through all stages in the Seanad. This is after it went through the Dail at breakneck speed. Does this matter?

Well, yes – if it’s important enough for the President to convene a Council of State meeting over it surely it was important enough for the Oireachtas to discuss it properly? Yet it only made proper Committee stage in the Seanad (this is the stage where the detail of the bill is discussed) and this was ended half way through the Bill.

Yes, again – this is because this is the final piece of a trilogy of legislation that will define modern economic life in Ireland. The first was the Bank Guarantee Legislation, the second was the NAMA bill and the final one is this. Despite this the detailed scrutiny of the Bill by the Dail consisted of a few hours.

A word on the parliamentary approach taken by Government to this bill. Not a single Fianna Fail senator spoke on it. The only Government speaker was Fiona O’Malley, who, to her credit continued to show her independence of mind.

This is an extraordinarily powerful piece of legislation. The ECB – IMF programme commits Ireland to implementation of such a bill by Feb ’11. My first question is why the speed? The Minister for Finance answered that it was to allow for further capitalisation. Don’t buy that. We have already injected billions into the banks under the current legislative regime. He then answered that it was to strengthen state powers vs shareholders. So why is this needed now? There must clearly be a banking event pending that requires the use of these powers.

Some huge questions remain about the Bill.

  1. First the role of Special Managers – these are individuals who will have the ability to literally take over a bank. They can over-ride shareholders, employees or directors. What have we learnt from public interest directors to make sure this works?
  2. Second- the ability of the Government to over-ride the rules of a stock exchange. I can understand their ability to do so for an Irish stock exchange but a foreign exchange too? How will this work?
  3. Third – the capacity to impose write downs on subordinated debt holders. For all of the debate in relation to this it is worth noting that the section allowing this to happen was never debated in either house of the Oireachtas.

Overall there is a fine balance here. The rights of private agents (share holders, bond holders, directors) vs the interests of the state. In the interests of the state we now have the ability to suppress these rights. This appears right to me. However given the rushing of this bill I’m just not sure that we have done it correctly.

This will matter. Every time these powers are triggered elsewhere they led to massive resistance from those impacted. It will be no different here.