Ms Mary-Elizabeth McMunn:

There were a couple of points linked to credit unions before I touch on interest rates. I will be brief. The Deputy will be aware that the Department is leading work on credit unions from a policy framework perspective. We are providing feedback to that process. That is the first point on policy.

The Deputy referred to the Sparkassenmodel for public banking. We note that the 2018 and 2019 report both concluded that there was not a case for the establishment of a public banking in Ireland. As Mr. Cross said, our disposition regarding new entrants is linked to our disposition regarding authorisation. We are very open to new entrants coming here.

One final point on credit unions, which is linked to the like-for-like services, is that we permitted credit unions to provide additional services, including member, personal and current account services, MPCAS. That allows credit unions to offer current accounts with debit cards, overdrafts and other payment services. Some 68 credit unions currently provide that. Those additional services have been permitted under legislation since 2016. That relates to balancing assets and liability.

The Deputy asked when we will see benefits of better lending as a result of the macroprudential measures feeding into reduced capital requirements, if I understand him correctly. That is a complex question. It will take time, as Mr. Cross said. We have had higher defaults here than in other EU countries. We have a higher stock of non-performing loans on the books of the banks than in other EU countries. It takes longer to work out collateral here than in other EU countries. Comparison between countries is often tricky, because other things happen to risk-weighted assets in European jurisdictions that elevate the capital requirements in those jurisdictions. Our recently published paper provides a good handle on where there are additions to risk weights in other jurisdictions, so they can be compared with us.

Capital is just one element of interest rates. There are five aspects, including operational expenses, cost of funding, cost of risk, capital, which we have mentioned, and the competitive environment for banks. We have higher levels for the first four in Ireland. I will address operational expenses. The cost-to-income ratios for banks in Ireland are approximately 20% to 30% higher than for European peers. Irish banks generate their income much more from net interest income rather than the more diversified income of other European banks, which might include fees and commissions or more diverse business models. One can see through the transactional activity here that some banks are trying to improve the diversification of income, which would improve their cost-income ratios.

Regarding expenses, banks seek to be cost efficient. That may mean changing the number of branches or staff that they have. It also includes being more efficient through digitalisation. Banks are seeking to gain traction on both income and expenses to address interest rates.