"As a wave of uncertainty sweeps through international financial markets, Ireland’s out-of-date deposit protection scheme must be beefed-up as a matter of urgency.

"Currently, Irish depositors are protected only at the bare minimum level required by the EU: 90 per cent of the first €22,222 at each Irish bank - with a maximum payout of €20,000 per depositor per bank.

"However, Irish savers with deposits at subsidiaries of foreign banks, such as National Irish Bank (subsidiary of Danske) or Rabodirect, can benefit from the superior deposit protection schemes operated in their home countries. There are issues of competitiveness at stake here. Irish banks must be put on an equal footing as these foreign banks so that they don’t lose out when it comes to attracting deposits.

"We are calling for 100 per cent protection on deposits up to €75,000. This would bring the Irish scheme into line with the new £35,000 scheme in the UK and would be superior to the schemes in Denmark and Holland which underpin National Irish Bank and Rabodirect respectively, both of which are important players in the Irish banking deposit market.

"The simple fact of the matter is that €20,000 is not the exorbitant sum it once was. There are many ordinary people whose SSIA has just matured, whose pension lump sum has just been paid or who are trying to put together a deposit for a house. Given recent world headlines about big-name banks, people may start to wonder if their money would be better protected under the mattress – and this can’t be allowed to happen.

"We saw in the recent case of Northern Rock that the UK Government was forced into addressing under-protected deposits only after a bank had already collapsed, having to be nationalised. The Irish Government should be pro-active to ensure that confidence in the Irish banks is not undermined.

"Irish Banks are suffering the effects of both the global credit crunch and the more localised fallout of the property bubble. A strong deposit base is the lifeblood of retail banking. If a bank can’t attract enough deposits, then it can’t lend money. In the wake of the credit crunch, we must avoid a situation where borrowers with strong credit ratings are not able to borrow because savers have lost confidence in.

"It has been reported that the banks themselves are not keen on increasing deposit protection above the EU minimum because the protection scheme is funded by the banks themselves by paying 0.2% of total deposits into a protection fund which now amounts to circa €450m. This is a small price to pay for sustaining confidence in the Irish banking system. Such confidence is priceless.

"This is a matter that we have raised with the Minister in the Dáil several times this year* but we keep getting fobbed off with a ‘wait to see what the EU does first’ attitude. This just isn’t good enough.

"Given the urgency of the matter, the Labour Party would be happy to cooperate with the Government during the early days of the Dáil’s new term to ensure there is time to debate the issue and get this on the statute book before Christmas."


Recent Parliamentary Questions of Relevance:

DÁIL QUESTION

NO 51

To ask the Tánaiste and Minister for Finance when he proposes to bring forward measures to improve the protection mechanism for bank deposit holders here including an increase in the protection ceiling from the current level of €20,000 per person per bank or an increase in the protection ratio from 90%; and if he will make a statement on the matter.

- Eamon Gilmore. (Nominated by: Joan Burton).
* For ORAL answer on Thursday, 24th April, 2008.
Ref No: 15604/08

REPLY

Tánaiste and Minister for Finance ( Mr Cowen ) :

In the wake of dislocation in global financial markets from mid-2007 onwards, the Ecofin Council of 9 October 2007 requested the Commission and the EU Financial Services Committee (FSC) to consider possible enhancements of the EU Deposit Guarantee Scheme (DGS) and to report back to the Council by mid-2008. Since then, discussions on DGS have taken place in the FSC, the EU Economic and Finance Committee (EFC) and at Ecofin. These discussions are ongoing and acknowledge the crucial role that DGS can play in maintaining confidence in the banking system. They also recognise that DGS are but one of the elements of the financial safety net.

Ireland is participating in the EU review of DGS launched by EU Finance Ministers last October. On the basis of the outcome of the EU review, I will, of course, consider any specific changes required in the Irish DGS to ensure that savers in Ireland benefit from safeguards in line with EU best practice.

I would remind the Deputy that, as I have mentioned in response to previous similar questions, the first and most robust line of defence for depositors must be a well-managed system of prudential regulation and supervision so as to try to minimise the risk that a DGS needs to be activated. Recent assessments by bodies such as the IMF have confirmed that the Irish regime for financial regulation complies with best international practice.

Finally, the Deputy may wish to note that consistent with EU requirements, the Irish Deposit Protection Scheme guarantees 90% of deposits up to a limit of €22,222, which means the maximum possible payout is €20,000. The Irish DGS is maintained by the Central Bank and Financial Services Authority of Ireland.

DÁIL QUESTION

NO 119

To ask the Tánaiste and Minister for Finance the number and value of savings accounts; the breakdown of the value and number of saving/deposit accounts of less than €20,000, between €20,000 and €50,000 and over €50,000 on deposit with banks, financial institutions and credit unions here; and if he will make a statement on the matter.

- Joan Burton.
For ORAL answer on Wednesday, 30th January, 2008.
Ref No: 2345/08

REPLY

Tánaiste and Minister for Finance ( Mr Cowen ) :

My Department has been informed by the Central Bank and Financial Services Authority of Ireland (CBFSAI) that the level of deposits, owned by Irish residents, amounts to approximately €178 billion. This is an aggregate figure based on the Central Bank Monthly Statistics up to the end of November 2007. As regards the number of deposits, the CBFSAI surveys banks and financial institutions on a number of items including the number of deposits. The results of the 2007 survey (based on 2006 information) conducted by the CBFSAI indicates that there were approximately 8 million deposits owned by Irish residents. The Registrar of Credit Unions has also advised my Department that 2.85m credit union members held €12.4 billion of savings in Irish credit unions as of 30 June 2007.

As far as the disaggregated data is concerned, as this has not been collected by the CBFSAI or the Registrar of Credit Unions as a matter of routine the information requested by the Deputy is not available at the present time. However, I am informed that as part of the work being undertaken to contribute to the EU review (to be completed by mid-2008) of the framework for deposit protection, the CBFSAI has commenced a process to survey the market. This will yield information on the number of deposits in various ranges.

The work carried out on this review and its conclusions will be important inputs to the process of ensuring that arrangements to safeguard financial stability in Ireland continue to conform to international best practice standards.

DÁIL QUESTION

NO 147

To ask the Tánaiste and Minister for Finance his views on the fact that not all credit unions are covered by the deposit protection scheme, known as the saving protection scheme, operated by the Irish League of Credit Unions; the measures he taking to ensure the deposits of savers with credit unions are protected; and if he will make a statement on the matter.

- Mary Upton. (Nominated by: Joan Burton).
For ORAL answer on Wednesday, 30th January, 2008.
Ref No: 2346/08

REPLY

Tánaiste and Minister for Finance ( Mr Cowen ) :

The Irish League of Credit Unions (ILCU) has since 1989, operated a savings protection scheme (SPS) for credit unions. The SPS aims to protect the individual savings of members by ensuring that credit unions are financially and administratively sound and provides for savings protection for each individual credit union member.
ILCU have stated publicly that the savings protection scheme is open to all credit unions. It is important to note that under the SPS regime no member of a credit union has experienced any loss of shares and deposits and no credit union has become insolvent. The SPS has only been called upon in a very limited number of cases and it has never been necessary to make savings protection payments to individual credit union members. It is also important to note that sound prudential supervision by the Registrar of Credit Unions under the Credit Union Act, 1997 in ensuring the continuing solvency and liquidity of credit unions safeguards the interests of credit union savers.

In line with changes in the regulatory environment for financial services generally the need for modernisation of the credit union SPS has become evident over time. Section 46 of the Credit Union Act 1997 provides for approval of savings protection schemes by the Registrar of Credit Unions as the delegate of the Regulatory Authority. Once an approved scheme is in place under the Act it would be incumbent on all credit unions to participate. This highlights the importance of ensuring that an approved savings protection arrangement is consistent with the requirements of the credit union movement as a whole.

Proposals for reform of the SPS were the subject of discussions in early 2007 between the Registrar and ILCU. In November 2007 detailed proposals for the reform of SPS were submitted for approval. I have written to the Chairman of the Financial Regulator confirming my view that an approved savings protection scheme for all credit unions should be in place as soon as possible. In this respect the Chairman of the Financial Regulator has recently advised me that it is the intention of the Financial Regulator to deal with outstanding issues such as governance and funding arrangements for the scheme and to urgently find a solution to this issue. I will be monitoring progress towards this objective in the coming weeks.