Seán Fleming (Laois-Offaly, Fianna Fail) | Oireachtas source

I will pose a few observations as questions. I will not get all of them done in ten minutes so I may have to come back a second time, depending on how many people wish to contribute. Professor Honohan is saying we need competition as the main protection for the economy. The idea is it is the best way to bring down rates and ensure we have a proper and satisfactory banking system to service the economy. He is essentially saying that the banks we have in Ireland will not be adequate for a growing domestic economy. Several times, he spoke about the need to get new competition and new banks into the system. Implicit in that kind of remark, which he made on several occasions, must be his belief that the current banks will not be adequate. Will Professor Honohan comment on that?

Part of what led to the financial crisis in Ireland was the very type of competition that Professor Honohan is now espousing. Bank of Scotland came here to open as the Ryanair of banking, and other banks followed; the herd chased those banks. If that is what Professor Honohan is espousing here as a solution - foreign banks coming in to bring more competition in the market - has he learned nothing? I am surprised at the tone of some of his comments. We have learned but I do not think others have learned. I am concerned about that.

Professor Honohan spoke about several issues but I will try to keep on the same topic at the beginning. He mentioned how profitability in the banks is modest and profitability in future will depend on the provision of write-backs. Representatives of the banks mentioned this when they were here in the past few weeks. They have all stated how bad were the loan books.

In fact, much of the profit the banks reported in the past year has comprised a write-back of money previously provided.

What Professor Honohan is actually saying is extraordinary. He is saying a key component of the profitability of banks in the future will be an acknowledgement that they overstated how bad circumstances were in the past and over-provided. By definition, by over-providing they had a bigger hole in their balance sheets which the taxpayer had to fill. If Professor Honohan is now saying that the banks sold the taxpayer a pup in some regard and circumstances were not as bad as the banks informed him and this committee, why did he not challenge the banks on what he is now saying involves write-backs of over-provisions? Professor Honohan presided over the over-provision. I know he will say that this was a prudent approach at the time, but he is now acknowledging the write-backs that he probably insisted upon in general across the banking sector were too severe. He is now saying a key element of profitability in the future will be writing back his over-provision. I am just concerned about this area and the point to which Professor Honohan referred.

I have a question for the Governor on the new legislation he mentioned. We dealt with it on Committee Stage last night. Does the Governor agree that, when mortgages are sold off, the new owner should be regulated by the Central Bank? There will be an intermediary or the service debt agreement, or whatever, and the intermediary will serve as the local agent interfacing with the customer and taking him to court, but the owner of the mortgage is the one with which I am concerned. As the Governor knows, the legislation does not require the owner to be regulated by the Central Bank. Does he believe it is satisfactory at this stage that the banks can still sell off bundles of mortgages, or thousands of mortgages, to institutions that do not have to be regulated, while the Central Bank just regulates the gormless, harmless agent that the institutions operate through in Ireland? What are Professor Honohan's views on that?

Professor Honohan is very strongly against legislation to deal with rates because he believes the god of competition who caused the problem the last time will solve it for him. He is saying the real answer to reducing rates in the longer term is to have more competition in Ireland. We acknowledge competition brings an inherent risk, but Professor Honohan has not addressed this inherent risk in anything he has said. He outlined in his statement that administrative controls of interest rates would not be readily compatible with the principle of having an open-market economy with free competition. We do not have an open-market economy in the banks; we nationalised them all. How could Professor Honohan even talk about our having open-market free competition in the banking sector? He said somewhere else in his script that we own most of the banks. We still own AIB and Permanent TSB and have a share in Bank of Ireland. The list goes on. Professor Honohan would throw out competition in every other sentence as a panacea, but he is not acknowledging it is not relevant in the market we are in. The two main banks are controlling the market we are in. Perhaps because of the level of control, there is a stronger case. I agree that when we have five or six banks acting responsibly in the Irish mortgage market, there might be a case for some of what Professor Honohan says.

The last point on which I want the Governor to comment, and on which he might have commented the last day, is the issue of quantitative easing. What led to the crisis here was over-lending and over-borrowing. That is the essence of what quantitative easing is. It concerns the banks that were making and lost all the money, and who want to get back to the old way of lending money right, left and centre. How much money will quantitative easing provide in terms of additional borrowing on the backs of businesses and households? Given that our economy is picking up and growing well, as everybody tells us and as every official report states, do we need a massive influx of extra lending in the system, with businesses and households taking on a massive amount of extra debt?