Professor Patrick Honohan:

In the electricity sector, we created more competition. In some circumstances, technology is such that there are only one or two players, and therefore there has to be regulation on pricing. That is understood. If we were satisfied with the current circumstances and said it would be satisfactory to have two banks, two and a half banks or three banks here, all largely State-controlled, into the indefinite future, we could start to design a system around that. I do not believe that will work well, and I do not know of other countries where it has worked well. I want us to return to circumstances where there are five or six players - the Deputy will probably not like the word "players" because of what it suggests - that are competing but not over-competing.

We all know finance is not like selling groceries; it actually involves making commitments for a period of time and taking decisions whose consequences will evolve only over time. That is why there can be too much competition as well as too little. I fully acknowledge that, and that it is part of the story. At least some of the bankers of the past say, "Oh, well, somebody was eating my breakfast so I had to do something else". It is only part of the story, and to some extent that is why one needs to have boards of directors and scrutiny of rating agencies, auditors and regulators. We need to have a lot more competition than there is now, but that competition will be tempered by checking the prudence of what is being done. By reducing the thinking to the slogan that competition is bad, one must ask what is good. Monopoly is obviously not, so it is a question of having much more competition than we have now and of having that competition tempered by prudence.

We have a number of banks here, not just two. Permanent TSB is not really a full-service bank. We have foreign-owned banks here but some of them are more competitive than others. There is not much competition; nobody is going to deny that. I am not saying it is particular banks that are insufficient but that we need to be open to entry. When we are open to entry, perhaps a new bank will not come in. Perhaps it will shake up local banks against the threat of entry. Owing to European and international weaknesses in the banking system, there has not been much consolidation of banking worldwide. Not many European or international banks are wondering where they will open next and considering Ireland in this regard. This has not been happening. One reason, which is pretty important for this committee to bear in mind and which members would hear on talking to any of the bankers here or abroad, concerns the mortgage arrears rate, the very high number of non-performing loans. Bankers will say they are not sure they want to get involved in a banking market in which it seems very difficult to recover on a "delinquent loan", as they would call it. This is one significant reason we are not getting as much competition as we would have got had we had managed to sort out the arrears. We need to keep paying attention to this. There are all sorts of reasons to have the mortgage arrears problem fixed.