Mr. Niclaus Bergmann:

I thank the Chairman and the committee for the invitation to attend. As managing director of the German Sparkassenstiftung für Internationale Kooperation - I apologise for the very long name - I am very happy, together with Irish Rural Link and my colleague, Mr. Harald Felzen, to present the essential elements for a new Irish public banking model.

First, I wish to emphasise the following. The German Sparkassen will not open branches in Ireland and nor do we have any financial interests here. Rather, the mission for the German Sparkassen Foundation is to make our experience and expertise available to other countries. When we built up Sparkassen in the former German Democratic Republic, GDR, back in 1990 and made the institutions sustainable after a very short period, we gained a lot of experience in how to set up new public banking models. We then transferred this model to other countries in Europe and, therefore, we have a lot of experience to offer Ireland.

I will briefly explain the German Sparkassen model and then I will discuss developing the idea with Irish Rural Link. The German Sparkassen is a 200-year old value-based banking model that links the real economy and society with sustainable regional development. That is the objective of Sparkassen. At present there are 390 local Sparkassen in Germany so there is a local Sparkassen everywhere in the country. There are 12,000 branches in total and there are 250,000 employees in Sparkassen. Therefore, Sparkassen is the largest banking group in Germany and probably in Europe. We are also the market leader in Germany. Sparkassen only works in Germany, and Sparkassen laws in Germany clearly state that we are local banks.

We have a local or a public legal form. We have municipal trusteeship. and we have a public mandate. That means we not only have to earn our money, but give back something to society, including the profits that we earn. We also work on a regional principle. That means that each of the 390 Sparkassen Germany has their own clearly defined business area in which to work. The model is extremely beneficial to regional economic development. It means that not all business activities move to the capital and something happens economically in each region in the country.

Two hundred years ago when Sparkassen was founded there was a philanthropic aim to fight poverty. That was the starting point. That aim very quickly developed to include support for local tradesmen and businesses, including mortgages. Nowadays, Sparkassen involve financial institutions that operate under public law but they also fall under the remit of general banking legislation. Therefore, all of the rules and laws that apply to commercial banks also apply to us. We think this is extremely helpful because it makes us very professional and stabilises the financial system in the country.

I will explain what a similar model in Ireland would look like. Sparkassen, together with Irish Rural Link, has developed a new public banking model that should add to the existing players in the market. We do not want to crowd out anybody. However, we think there is a gap in the market, as Mr. Boland has said. The Irish model that we have developed includes eight independent regional public banks and the outsourcing of back office functions to a central service provider that is owned by the eight new public banks.

In terms of the business model that we developed, we considered locating one flagship or pilot bank in the midlands region.

We chose the midlands in the belief that, if a public bank worked there, it would work everywhere in the country. Starting with a pilot in Cork, for example, would not have made much sense.

We developed the business plan for the midlands. Under it, break-even point will be reached after two or three years. There is considerable business opportunity for such a public bank in the midlands. It would offer the full range of financial services for all people living in the region, including SMEs.

Mr. Boland mentioned the gap that is to be filled. There is a sector of the economy that is not being served by the credit unions because they do not have the capacity and face legal limitations, and the pillar banks are not interested in certain parts of the economy. There is a gap in which public banks could be useful for strengthening local economies everywhere.

Apart from any technical discussion, it is most important that a political consensus be built on the necessity of establishing public banks. At the end of the day, it is a political decision because it affects the stability of the entire financial system. In fact, it would increase that stability. We can offer a proven and sustainable concept, but it has to be adjusted to meet the requirements of the Irish market, be those legal requirements or market conditions, but also the country's culture. An Irish concept will have to be developed.

This can be based on the German experience. We invite Irish decision makers and stakeholders to Germany to look at the German model, although not just the Sparkassen. That the Sparkassen people like their own model is obvious, but we can arrange meetings with regional governments, supervisors, Ministries, local business people and so on so that people can have different perspectives on what Sparkassen really is.