THE GOAL of the bank guarantee scheme was to have a banking system “fit for purpose” in a transformed financial environment after two years, Minister for Finance Brian Lenihan told the Dáil.

“In recent times, confidence can be said to be more precious than gold and, on occasion, just as difficult to find,” he said.

“The scheme will build over the next two years from the current circumstances that gave rise to the need for this safety net provided by the State to the entire domestic banking system.”

The Minister was speaking during the debate on the Credit Institutions (Financial Support) Act, which the House passed by 114 votes to 22. Fine Gael supported the Bill, while Sinn Féin, in a reversal of its initial response to the Bill, joined Labour in opposing it.

Mr Lenihan said that work must now begin on forging a new model to govern the conduct and behaviour of the financial sector.

Ireland would play its part internationally, and particularly at EU level, in seeking to ensure that the redesign of the financial system, and in particular of financial regulation, was consistent with the objectives of the scheme, said Mr Lenihan.

“The Government’s guarantee has already helped ensure that credit institutions in Ireland have access to the normal liquidity and funding they require,” he added.

The Government, on behalf of the community at large, had therefore performed a major service for the banking community.

“The onus is now on the boards and senior executives of the banks to meet the legitimate expectation that now exists that they will see as their first priority the goal of ensuring that the flow of finance is channelled appropriately to support and underpin sustainable economic activities on the necessary prudent, responsible basis that is clearly in the interest of both the bank, the borrower and the wider economy,” he added.

Mr Lenihan said it was not the Government’s purpose directly to interfere with the commercial decision-making role of the boards and senior executives of the banks.

“We are putting in place a structure that ensures that the assessment and commercial decision-making of these institutions is at all times shaped by the broader public policy objectives underlying the scheme,” he added.

Fine Gael spokesman Richard Bruton said that there were many positive elements in the scheme.

He welcomed the decision to have an observer on the risk assessment committees and other important committees within the banks.

He also welcomed the powers on dividends and the provision for controls on bonuses, remuneration packages and some of the “toxic approach to risk-taking” that was endemic in the banking system.

However, said Mr Bruton, what needed to be clarified was how the Minister for Finance used those powers and what the guiding principles would be: what he expected from the observers on the risk assessment committees and other boards; and how they reported back to the Minister or the Financial Regulator.

Mr Bruton said he hoped the position of the public interest director would have an important role in protecting the taxpayer.