Professor Patrick Honohan:

It is true that the banks are spending a disproportionate amount of their time relative to any other banking system in mopping up and dealing with legacy issues. It is taking a long time to get there, as we have many times discussed. This is largely the reason that they are not functioning progressively as part of a normal banking system. It is not just the banks themselves but their customers as well. We all agree that banks should be lending to small businesses, but we must consider who are the owners of those businesses. In many instances, they are owned by families whose finances are in disarray because of mortgages and other things. Moving forward involves fixing the backbone. This is why we have not been able to arrive at a situation where we have three, four or five clean, new banks working holistically. We have looked at ways of achieving that, but the bottom line is that yesterday's customers are tomorrow's customers.

The Deputy asked about the medium-term perspective. My dream for a long time has been for a cross-Europe banking system with banks that have a presence right across Europe. Unfortunately, that dream does not seem anywhere near being realised. I can envisage our banks being owned by a large international bank - at one stage, one might have imagined it being the other way around - and in just the same way as we use Microsoft and Google, we would use the services of an international bank. That type of set-up would have separated all the problems of linkages between the Irish Government's issues with debt and would allow us to be on a level playing field with everybody else. However, the appetite of international banks for getting involved in peripheral countries or in any cross-border activities has been dampened by their own problems. The large international banks have been under pressure to raise capital. We think we are the only country that lost money in the banking crisis, but they lost money too. None of this is happening but it is where I would like to see us going. I have no difficulty with Irish-owned banks, but I would like to see a backbone in the Irish system of strong international banks. What we have had, on the contrary, is major international banks retreating. Lloyds is gone, for example, but, fortunately, RBS is still here in the form of Ulster Bank.

All of that is one dimension, but there is another dimension to consider. I have spoken about this before and a copy of a speech I gave a year ago or so was circulated to the committee as a background document. There should be a second tier of banking which is geared more towards local concerns, with local managers and a greater level of local awareness. This would be on a scale larger than the credit unions. They could be the nucleus of it, but the credit unions as they stand are too small individually to be really effective suppliers of services. This is all a long-term vision. The entry of large international banks into the Irish system does not seem to be coming down the tracks, although these things can change. I am sure that when they start to invest in peripheral countries again, Ireland will be among the first they look to because they are impressed by the ability of the Irish economy to adjust and react. They will be impressed that the Irish people, despite all the pressures, have recognised that we all must pull our weight. That is what they have done.