Oireachtas Joint and Select Committees
Thursday, 12 October 2017
Joint Oireachtas Committee on Finance, Public Expenditure and Reform, and Taoiseach
Banking Sector in Ireland (Resumed): Savings Banks Foundation for International Cooperation, Irish Rural Link and Public Banking Forum of Ireland
We are back in public session. We are dealing with matters relating to the banking sector in Ireland. Our witnesses for this session are Mr. Harald Felzen and Mr. Niclaus Bergmann from the Savings Banks Foundation for International Cooperation and individuals from Irish Rural Link. We will hear statements from both groups. We will hear separately from Mr. Seamus Maye from the Public Banking Forum of Ireland.
I draw the attention of witnesses to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable. I invite Mr. Bergmann to make his opening statement. Perhaps it is the other way around. I invite Mr. Seamus Boland to make his opening statement.
Mr. Seamus Boland:
I thank the committee for inviting us to speak here. Irish Rural Link is a voluntary organisation representing rural community development groups all over the country. Our main motto is sustainable rural communities. In particular, we work with communities and people who are particularly disadvantaged by living in rural Ireland. Over the past number of years, we have been particularly struck by the reality that a large section of employment in rural areas is provided by the SME sector. We have a slide showing 99.8% active enterprises in rural areas and 68.9% of people engaged.
The sector has taken the greatest hit from the banking crisis mainly because people have been unable to get the kind of loans necessary to keep them in business. Mr. John Trethowan of the Credit Review Office clearly stated in his 17th report that this matter was of concern regarding SME and farm lending. The reality is the relationship between the sector and the banking community is so poor at the moment that people do not even seek loans. When one combines that situation and the fact that the number of SMEs has decreased by 8% in rural areas, according to the Central Statistics Office, we get the very clear picture that the sector is not enjoying the kind of recovery that we have been led to believe is in existence. That is mainly because of the banking situation.
Irish Rural Link has combined with our colleagues from Sparkassen in Germany, which happens to be the largest banking sector in this area in Europe. The foundation applies a 200-year old concept. As Mr. Bergmann will explain later, the foundation was spared the worst excesses of the banking crises and, therefore, protected the SME sector. We are particularly happy to bring this model of banking forward for consideration.
I contend that Ireland aspires to having a recovered and healthy economy, and one that is not subject to bumps and crashes on an ongoing basis. Part of that success has to be a healthy banking system. I ask members to look at the slide on the screens in front of them that shows the three pillars of the German banking system. They are the private commercial banks, the credit co-operatives that are the equivalent of our credit unions, and the Sparkassen public savings bank. That seems to us to be a major plank that is needed for a proper economic banking system to exist. The initiative is not new to Ireland. We had a type of public banking system when we had the ACC and ICC banks in place. It is not as if we have not tried this method before. At the moment we have a big gap between private commercial banks and the credit union and in the middle there is a sector that simply does not work.
Irish Rural Link has spent three years working on a business plan that has been submitted to the Department for Finance for consideration. We have considered the concept of locating eight regional banks around Ireland with each one independent of each other and bringing the money back into their communities and region. In effect, each of them would become an economic hub within their region. The idea is nothing new. It is 200 years old in Germany and Ireland has tried it before.
As far as we are concerned, the SME and farming sectors are the sectors that will create jobs and a sustainable rural community. We believe that the Government, which has given a commitment to this idea in its own programme, must work seriously with the stakeholders to make this happen. Irish Rural Link has carried out a lot of work on the legal possibilities of this idea and worked with Trinity College, etc. We believe that the Government must first recognise the need for a third pillar, which we had in the past and exists in Europe. We ask that the Government of the day seriously considers allowing this initiative to happen. Otherwise, we will have turned our backs on what has been successful in Germany and Europe and dismissed a banking system that has served the SME sector and rural communities very well.
Mr. Bergmann will explain the concept and how the model works in Germany.
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.
I thank Mr. Bergmann. Before I call Senator Conway-Walsh, I wish to clarify the relationship between Irish Rural Link and the bank. Is it Irish Rural Link that has made the application to the Central Bank?
Mr. Seamus Boland:
The relationship is simple. We are the national voluntary organisation and have been calling for this for a while. The Sparkassen foundation is effectively working with us as a consultant because we believe it to have the best model for consideration. Irish Rural Link has outlined its position to the Department of Finance and the newly named Department of Rural and Community Development. It is through these two Departments that we are working. We have had talks with the Central Bank, but also with a range of other organisations in the field, for example, farming organisations, builders' groups, etc. We have been talking across political parties and organisations.
Mr. Seamus Maye:
I am the founder and chair of the International Small Business Alliance, ISBA, and the joint chair of the Public Banking Forum of Ireland, PBFI. I have worked at the coalface of Irish business for approximately 40 years, with particular emphasis on SMEs in the area of competition law and enforcement. In recent years, I have carried out studies on various markets from beer, beef and bread to cement and concrete. Together with my colleagues in the PBFI, we have produced a proposal, entitled "Creating Ireland's Alternative Banking Force".
Our island economy has contributed in no small way to the creation of dominant, or jointly dominant, firms across most sectors of our economy, not least banking, where we effectively have 2.5 pillar banks controlling 95% of the market. Without adequate regulation, dominance almost always creates market power, and market power quickly morphs into abuse of market power. This in turn leads to market distortion, elimination of competition and long-term damage to the socio-economy. Our forefathers knew this. That is why they crafted Article 45 of our Constitution. Although it is merely a directive principle of the Constitution, it is nevertheless the duty of the Oireachtas to enshrine these principles in law through legislation.
It is worth giving Article 45.2 a quick look in light of our current banking sector. It states:
ii That the ownership and control of the material resources of the community may be so distributed amongst private individuals and the various classes as best to subserve the common good.
iii That, especially, the operation of free competition shall not be allowed so to develop as to result in the concentration of the ownership or control of essential commodities in a few individuals to the common detriment.
iv That in what pertains to the control of credit the constant and predominant aim shall be the welfare of the people as a whole.
Clearly, we have much work to do. We must examine our pillar banking system and determine what are the alternatives. Article 45 is a cornerstone of how we are supposed to run our country, yet it continues to be ignored by the body politic.
The behaviour of the banking sector led to the wholesale destruction of our country's socio-economic well-being. We allowed our privately owned banks to become "too big to fail" and we granted them a monopoly over the creation of credit. Why did we do this? Worse still, we shackled our credit unions and post offices so that they could not compete fairly, if at all, with the private pillar banks. In so doing, we have driven a coach and horses through competition law. In bailing out our banks, we knowingly and blatantly breached Irish and EU state aid law. The quid pro quowas to be the introduction of real and meaningful competition into the banking market, but this has not happened. We have lost Anglo Irish Bank, the Irish Nationwide Building Society, INBS, Bank of Scotland Ireland, ACC Bank and the EBS.
Over the past eight years, it has become apparent that successive Governments are trapped in a dichotomy between the growth and welfare of the pillar banks and that of the general welfare of citizens and the indigenous economy. With little meaningful progress on rebanking the economy being made in that time, the question of Ireland's compliance with EU competition law surely arises. It is difficult to reconcile the current banking policy and behaviour with the almost daily warnings over the future of credit unions and post offices. Hundreds of post offices are set to close and credit unions are being pressurised into merging. Put simply, promoting Ireland's existing private pillar bank model, which accounts for 95% of the banking sector, is simply incompatible with driving the indigenous economy.
With more than 300 credit unions and 1,100 post offices, the platform is already in place to create a locally and regionally based alternative to the pillar bank model. There is pent-up demand throughout the indigenous economy for a sustainable funding model. As matters stand, the credit unions and post offices are severely restricted in terms of the products and services they can offer and to whom they can offer them. To date, successive Governments have applied discriminatory terms and conditions to credit unions and post offices compared with the pillar banks, which, on the face of it, appears to run counter to Irish and EU competition law.
What funding is finding its way down to the indigenous economy arrives through various circuitous routes, with profit extracted all along the money supply chain. As such, that funding ends up prohibitively expensive to indigenous enterprise. The Irish Strategic Investment Fund, ISIF, and the Strategic Banking Corporation of Ireland, SBCI, are cumbersome creations and, for the most part, act as intermediaries with no local focus. The Irish solution to funding SMEs puts Irish SMEs at a significant disadvantage to their German counterparts, which obtain funds at first cost from their public and community banks.
The Public Banking Forum of Ireland proposes an all-encompassing and full banking service model which will, on the one hand, compete with the commercial pillar banks and, on the other, provide a long-term and sustainable platform for the survival and growth of credit unions, post offices and the indigenous economy. PBFI proposes that credit unions and post offices collaborate in the establishment of a network of ten community or public banks supported by one central service provider. Credit unions and post offices will have the option of providing front of house services on behalf of the community public banks, thus re-establishing a locally-based, full-service banking model to serve communities and the indigenous economy. This new dynamic, created through a spirit of co-operation between the three entities, will massively boost the entire indigenous economy while providing a risk-averse platform for savers. It should be borne in mind that credit unions currently have little choice but to deposit members' surplus savings in risk-taking commercial pillar banks.
The new regionally based community and public banks will present credit unions and post offices with a new and alternative investment opportunity. Credit unions currently have circa €6 billion to €8 billion of under-utilised members' deposits. Currently, the return available on these funds is unsustainably low, on top of which Bank of Ireland is now charging credit unions for holding large deposits. Like the pillar banks, the new community and public banks will leverage these funds using the fractional reserve system but in a constrained manner using a conservative ratio of six to one, in line with the approach of the hugely successful German Sparkassen banking model. This could provide a massive boost to the indigenous economy throughout the regions. The regional community and public banks will recycle profits into making more locally focused loans available while also investing in local community projects, again in line with the German Sparkassen model. Lending will be focused on the productive economy, for example on SMEs, local micro-enterprises, construction, regional infrastructure, tourism, value added chain in both agriculture and marine and voluntary and cooperative enterprises. There will be no lending for speculative purposes.
I thank the witnesses for their presentations. Coming from a party which has long-advocated the merits of a public banking system, the witnesses are pushing an open door and I want to see if we can make some progress today. Reference was made to the model being in the programme for Government. In reply to a parliamentary question last month, the Minister said a report was imminent. Are the witnesses happy that they have had sufficient input into the report?
Mr. Seamus Boland:
We are happy in so far as we know the report is there. We do not know if it has been completed and there are changes in the new Department which means we have to wait and see what happens. In all seriousness, we want to see the report back in the Department of Finance. It is that Department which will lead on this one way or the other. While we do not know what is in it, we are also clear that the report must engage seriously with stakeholders like us to look at the detailed perspective we have put forward for the first of these banks. We are not sure it will, but we would be happy to be surprised if it does. Any report that dismisses the proposal out of hand will, in effect, dismiss a major banking success story in Europe, in particular in Germany. As such, we want the Department of Finance to take it seriously.
Mr. Seamus Boland:
We have met with the Department. We have had two meetings, the last of which, two weeks ago, was an extremely good one. There was a robust debate and challenge on the subject. We have issued two invitations. First, we believe the Department needs to go to Germany to see how this works in practice. Second, the Department needs to sit down for at least a day or two to go through the detailed perspective on which we have spent three years in total and almost one year alone in drawing up the prospectus as to how this would work in practice. Sparkasse representatives need to be there for that detailed exploration.
It would concern me if the Department had not filled that gap by going to see the model working and then issued a report dismissing it. Is that the end of it? Is there room after the report is done for the Department to explore this further? While the Department says the report is imminent, is it expected in a matter of weeks?
Mr. Seamus Boland:
The report was to have been published earlier in the year, but changes occurred on the political scene. We are not sure exactly where the report is now but we are very clear that it must continue to the next stage of exploration. We would be very concerned if it dismissed this concept in any way.
How soon could the pilot project be put in place? The pilot project is the key to this, albeit I disagree with the business case for doing it in the midlands. A very interesting business case would involve doing it in an area like Ballyhaunis were one of the banks closed down. I am not being parochial about it, although I am sure Senator Paddy Burke will agree with me. I am sold on this idea. It really fills the gap.
Decisions are being made in banking now which do not take the local environment and the circumstances of local families into account in using the matrix to assess lending and so on. That has gone away from the main pillar banks. One used to go to one's bank manager who would know how trustworthy one was. He or she would be able to build up a picture and make an assessment. That is gone. Bringing in a bank like this could fill that gap and return trust. What is coming back to us all the time as a committee is the way in which trust is being broken down between the customer and the bank. If one has a model like this to fill the gap, it will benefit not only individuals and SMEs, but society and communities as a whole.
Could the model be tried tomorrow morning in an area where a bank has been closed down if the Department of Finance agreed that it was a good idea and had assessed the risks of a pilot project?
Mr. Seamus Boland:
I will let Mr. Bergmann take some of that question. I note the point about Ballyhaunis. I want to quote Professor Patrick Honohan, who is not exactly the wildest left of centre person in our society. Speaking at an overview of the banking sector in 2014, he said there should be a second tier of banking geared more towards local concerns with local managers and a greater level of local awareness. We proposed the midlands because that was where our resources allowed us to do an exploration. As Mr. Bergmann said, it is quite a disadvantaged area. We argue that the ten areas could be looked at. I might let Mr. Bergmann deal with the question of how quickly this can be done. This is a very detailed prospectus and the documentation can be made available to the committee if it wishes. This is not a back-of-the-cigarette-packet proposal; there are 102 pages of documentation.
Mr. Niclaus Bergmann:
Setting up a new bank is not something one does quickly or over a fortnight. That is not possible, in particular when we are talking about a new type of bank, albeit building on old habits and ways of doing things. Nevertheless, it would be a new system. Setting up one local bank will not be sustainable in the long term. It can only work from an economic point of view when there is a nationwide system in which the costs can be shared with other institutions. That is why the central service provider, which is part of the concept, is so important to making this sustainable in the long term. It will take some time to get the pre-requirements in place. There would have to be a political decision to set up a new public banking model. After all, the word "public" is included there, which is extremely important. As such, it is a political issue.
Moreover, there has to be approval coming from the Department of Finance and the Central Bank has to give its approval as well. This means some time is needed to prepare everything. In good circumstances it may be half a year or a year before the first pilot bank can really start and open its door to the public. That would be moving rather quickly.
Does Mr. Bergmann envisage a number of banks in the pilot project? Will it be possible to do comparisons with different areas? How does Mr. Bergmann envisage that working? Can there be a pilot without a full commitment or political or legislative commitment from Government? Do all the political and legislative arrangements have to be in place prior to the pilot?
Mr. Niclaus Bergmann:
To start with, we have to clearly define the business region, that is, the area that has to be covered. The business plan we have made for Ireland makes it clear that the region should have between 200,000 and 300,000 inhabitants. Setting up a local bank only for a small community would be difficult to run in a sustainable way. We have to find the right region - this is what we did with the midlands. There would be four or five branches in the region so that it would not be too far for everyone to get access to his local bank. Most important, the local bankers will know where their clients are living and what their circumstances are – they need to know their clients. It does not make much sense if a loan application for a small enterprise is being processed somewhere in Dublin, or, even worse, by a computer system.
I wish to ask about the relationship with the credit unions. Obviously, the trust between customers and credit unions is high and they are looking to expand. With regard to addressing the housing crisis and so on, how much conversation has the Savings Banks Foundation for International Cooperation had with credit unions? How does Mr. Bergmann envisage both models fitting together such that there is no conflict or competitive situation?
Mr. Seamus Boland:
We have had many talks with the Irish League of Credit Unions and the credit unions. In fact, we held a successful public conference in the RDS last year that was attended by members of the credit union. We see this as being complementary and our proposal is all around ensuring that it is complementary. For example in Germany – perhaps Mr. Bergmann can deal with this point – what we call the co-operative institutions work hand-in-hand. We are not designing something that will in any way inhibit or prohibit the credit unions' success. In fact, it will be in their interest.
Mr. Niclaus Bergmann:
I think that should be one of the side effects of the new public banking system in Ireland. It helps to strengthen the credit unions. Through the new public banks they could offer services they are unable to offer now. They could use the services of a central services provider to make their own business more efficient. There are some ways in which it is possible to strengthen the credit unions through this new public banking system. It is not a competition issue, but it is a question of how to co-operate.
Mr. Seamus Boland:
I am not aware that they have, but they are talking to us and they are interested in the concept. Many of the individual credit unions see it as a major bonus in their region. However, I do not know that they have come out in a joint way in any way as yet, unless I am mistaken. I do not think they have done so, but individuals have. This is part of the exploration. When we get the next stage of this exploration in process, it is important that what we design in an Irish context, which is not necessarily exactly the same as the German system, does not in any way inhibit the credit union. The post office system could be a beneficiary as well.
I think those two are key: the post offices and the credit unions. Their reaction and agreement or the way they work with this will be integral to the success of it. They are key actors in all of it. I know other people want to ask questions.
I wish to ask about interest rates. If a person from a small or medium-sized business walked into a branch that was open tomorrow, could she be assured competitive interest rates?
Mr. Niclaus Bergmann:
Of course we are talking about competitive interest rates. We have an approach which is not shareholder-value driven. It is not about earning money but fulfilling a task. Also, a public bank has to cover its costs – that is clear. It is a question of how to organise the public bank in an efficient way so that the costs are kept low. However, when the costs are low and there is no shareholder who wants to make a large profit, then this automatically translates into the lower interest rates that we would probably find today in the Irish banking market.
Mr. Niclaus Bergmann:
It is probably not exactly the same. However, in general, we have such competition in the banking sector in Germany that private commercial banks like Deutsche Bank have to offer low interest rates. This is the competition factor. Sparkassen in Germany provide competition in the financial sector. That is one specific topic that you will find written down in the Sparkassen law.
Mr. Niclaus Bergmann:
Yes because we get the funding right now for free from the European Central Bank or from our customers, which is the other side of the coin. The interest rates for savings deposits are approximately 0% right now, but people still bring their deposits to Sparkassen because they know they are safe.
Mr. Niclaus Bergmann:
That is a tricky issue because I have to look back 200 years. Some 200 years ago, Sparkassen were set up in Germany by the local authorities, the municipalities or the counties. At the time, capital was not something people were talking about. It was simply that the municipality opened the door for poor people so that they could bring their deposits and get a savings pass book. That was it. Over time, this business created profits so the local communities earned money and they put that money aside. Technically, we call this retained earnings. All the capital we have today is retained earnings. There was never capital coming from the municipality. However, the municipalities are still the trustees today. One could say the municipalities are kind of owners although with limited ownership rights. The municipality has its representatives in the supervisory body of each sparkasse.
Mr. Niclaus Bergmann:
In a normal company the owners - the shareholders - would select the members of the supervisory board. For the Sparkassen the municipalities are the owners and it is they who sit on the supervisory boards. We also have representative nomination, so all the political parties who have a certain number of seats in the local government can send representatives to the supervisory board. The members of the supervisory board then must be approved by the German Central Bank. This is two thirds of the members of the supervisory board.
Mr. Niclaus Bergmann:
We use the profits in two ways. One way is to strengthen the capital because the only capital we have is retained earnings so we have to put aside some of the profits for that. The rest goes to the owner, the local municipality, which can only use these funds for social purposes. This is written down in Sparkassen law.
Mr. Niclaus Bergmann:
With the corporation, yes. I do not, however, see any capital involvement. As I said earlier in my statement we do not have a financial interest in Ireland. The German Sparkassen are not allowed to do business in neighbouring cities. We are also not allowed to anything in that regard in Ireland.
Mr. Niclaus Bergmann:
Not much. They fall under the same banking legislation. They also realised, like the Sparkassen, that when one has a decentralised system of local banks in order to survive one needs very strong co-operation within the group. The set-up of the co-operative banking sector in Germany and the set-up of the Sparkassen sector is quite similar.
Eight in total. The structure would be the same. They would be established maybe using the local authorities. On the initial funding to establish it, Germany's model would be slightly different. Capital would have to be found because capital ratios need to be met for the Central Bank. How much does Mr. Bergmann anticipate it would take to establish the initial capital input to set up one of these institutions in Ireland?
I will put it in context. Mr. Bergmann probably saw the earlier session of the committee. Under our Chairman this committee currently has a review going on in the Central Bank around tracker mortgages across virtually all the banking institutions in Ireland. Central Bank representatives will appear before this committee next week. The matter concerns the rates that customers were put onto when they were moved from variable rates to fixed rates. They should have been put on to ECB tracker rates. People were charged 3% and 4% above the tracker rate. I have a very pertinent question; if such an institution was allowed to set up and operate in Ireland, and if the fixed rate for example is 1.1% over ten years as in the German Sparkassen, at what rate would it be able to provide mortgages to customers in Ireland and be viable?
Our region would fit that model. We have a thriving industrial base but we have a small to medium enterprise sector, SME, that cannot get access to finance and home mortgages. At what rate does Mr. Bergmann believe the institution could charge for home loans and SME loans and still be viable?
Mr. Niclaus Bergmann:
The margin is more relevant than the absolute amount of the interest rate. When I look at the long-term 30 year average for mortgage loans in Germany, it is somewhere in the region of 7% or 8%. We have extremely low interest rates right now because funding is so cheap. Normally, a bank should be able to work with an interest margin of less than 2%. We would normally expect an efficiently organised bank to charge a rate of between 1% and 2%.
The Sparkassen ten-year fixed rate for home loans is approximately 1.1% at present. What is the rate for a typical SME loan for someone looking to get a working capital or stocking loan of €40,000 or looking to build a plant for €120,000? Typically, a working loan might be a one-year stocking loan or an overdraft facility over a year. Typically here, a building capital loan to an SME is for ten to 15 years.
Mr. Niclaus Bergmann:
An overdraft is expensive because it is a very flexible loan. For an approved overdraft, someone would probably have to pay 7% or 8%. For SMEs we very much look at the risk situation of the individual lender. The riskier this is, depending on our experience and track record with the client, the higher the interest rate will be. When we have the impression of a very good client whom we know for ages, and where we are really convinced what he or she is doing makes a lot of sense, we do not look so much at collateral. It is the business case and our cashflow analysis that are decisive. There can be differences of 1% or 2% between good and not so good clients, so it has to be dealt with individually.
I was just googling Article 45° of the Constitution. Mr. Maye made a very interesting presentation. I welcome everybody here. As my colleague, Senator Conway-Walsh mentioned, we are long supporters of the concept of public banking. Mr. Boland mentioned the comments of the former Governor of the Central Bank. I remember questioning him that day and I was surprised at his comments. I put it to him that he was in support of a Sparkassen model. He volunteered those comments, in fairness to him. I have a number of questions in this regard.
Given that there is a report, it has found its way into the programme for Government, and we have seen it in other documents, for example, with regard to the economic forum that took place, it is important to recognise the small number of people who, in the middle of an economic collapse when our banks were leaving and collapsing and going into liquidation, had a vision and the foresight to look at the gap in banking and come up with this idea, which many people thought was daft, and pursue it to a point where it is in the programme for Government and being taken very seriously by agencies. This is worthwhile and we need to encourage this type of attitude and belief.
Earlier, my colleague discussed the interaction between the Department of Finance and the witnesses. We knew where the previous Governor of the Central Bank stood on this issue. He was open to it and believed a second tier of banking was required. To the knowledge of the witnesses, where does the current Governor stand on this issue?
Mr. Seamus Boland:
To my knowledge the Central Bank is particularly neutral. Its position is that it has a particular job to do under the new banking regulations and it is awaiting a political decision. Once that political decision is made, it will act. It is not against it or for it. It is neutral.
My next question is on the Sparkassen model. This is not unique, and a number of questions were asked about whether it would be the Germans running the bank. Will Mr. Bergmann speak to the committee about the role SBFIC provides in assisting to develop this type of banking model? In particular, has it engaged with any other jurisdiction outside of this one over the past ten years on such a model? Will he also inform us whether this has progressed in any way?
Mr. Niclaus Bergmann:
We had the opportunity to set up a new Sparkassen system in our own country after German reunification. We had to restart the Sparkassen system in the former GDR. In 1990, we really had to establish a new system over there. We had a good starting background with the common political and legal system, but nevertheless, it was a big challenge to establish new Sparkassen banks everywhere in the former east. This worked out pretty well, and after a year or a year and a half they had already broken even, so it was extremely successful. When we look at the former GDR now, we find many regions which have only Sparkassen banks and nothing else, so they are really successful. After that, we helped to restructure the savings bank system in almost all of the countries in eastern Europe. We helped to restructure the Russian Sberbank. We restructured the savings banks everywhere from the Baltic countries through Poland, the Czech Republic, Romania and Bulgaria. We set up a new savings bank in Serbia, for example. We did a lot of work from the mid-1990s to 2010.
Mr. Niclaus Bergmann:
We have different models. We have some Sparkassen savings banks in Russia, where the Russian Government paid for our services. In other countries we had an agreement with the governments. For example, in the Czech Republic and Slovakia we had a contract between the German and Slovakian and Czech Governments regarding the restructuring of their savings banks. In Bulgaria, the European Union gave financial support for the restructuring of the bank as well as for what SBFIC was doing. We are a non-profit organisation, but at the end of the day we must cover our costs. We did all of these tasks in the east on a cost covering basis.
To deal with the more recent issues, we have been dealing with this issue in Greece, and next week my colleague, Mr. Felzen, will be with the central bank in Greece once again to see whether local public banks can be a plan B for the Greek economy. We have been to Wales recently. There are discussions going on in Europe also.
These will be my final questions because many of the other topics have been discussed. The mortgage rate issue is very interesting, but obviously the rates of a new Sparkassen model in Ireland will be unique to the circumstances of this country. I take this as a starter, just in case anybody thinks we will be giving out loans at 1%. We would love to see it, but let us not get carried away with ourselves at the start. We have established a banking corporation company. It is not a bank and does not have a banking licence, although it is called a bank. It is a non-lender and money comes from the KfW in Germany to help it.
It has assisted business and will assist farmers, in particular in respect of the last round. It is a non-lender to banks, however, because I presume it does not want to deal with state aid complications. The pillar banks will claim that they are lending to SMEs and that their books demonstrate this, but if public money goes into a new public banking model and the pillar banks are not delivering to the market in the middle, how do we stave off a challenge under state aid rules on the grounds that we are distorting competition? Is it that all the capital will be raised on the private markets?
Mr. Niclaus Bergmann:
For Ireland, we suggest a similar model to what exists in the EU. I do not know if this will be a big issue in the Competition Directorate General. There is a similar model to the SBCI in Germany, KfW, which is an on-lender and provides funds for specific purposes but does not lend directly to clients. Instead, it goes through a bank, sometimes involving risk-sharing with that bank. This can increase the outreach and capacity of certain lending programmes. KfW is competition neutral in Germany, which means all banks can use the programmes and funds it offers. A total of 89% of the banks which work with KfW and use its funds are Sparkassen and co-operative banks. The commercial banks are not interested in this type of on-lending as it is just not profitable enough for them.
We are waiting for the report and I have been told it is imminent, but God knows what that means. It could be next week, next month or some time next year. For those who believe there needs to be another tier of public banking, what are the concrete steps they should take to move it beyond the hypothetical to the real?
Mr. Seamus Boland:
The report needs to be published. We hope it looks favourably on the concept and we would be extremely disappointed if it does not. Assuming it does, the Department of Finance needs to engage directly with Sparkassen and stakeholders generally to look at the detailed perspective we put forward. It needs to visit the Sparkassen set-up in Germany to see for itself. Alternatively, it would need to come up with a different idea. We have put forward a solution. Irish Rural Link is often criticised for knowing what is wrong but not being able to fix it. We have put forward a real, detailed solution and we want it to get the respect it deserves. We want the Department of Finance to engage at the highest level and in a serious way to explore the concept. It should tell us why it thinks it will or will not work. We also need the committee and Deputies across the House to support it strongly, as various organisations outside this House are doing. We need to give a clear message to the Department that this has to be explored. We want a healthy economy and a healthy banking system but are we satisfied with a system in which there are mainstream banks and credit unions but nothing in the middle? If we are, then we are heading for the next crash.
In the early 2000s, I was speaking in the Seanad when a new bank was opening up. I felt there were too many banks in Ireland at that time. In my home town of Castlebar, with a population of 15,000, there were 14 places one could get money. We had AIB, Ulster Bank, Bank of Ireland, Irish Nationwide, EBS, First Active, credit unions, National Irish Bank, ACC Bank and others, but now we have many fewer. The witnesses are suggesting eight individual banks in the country in various regions. I come from a county with a population of 130,000 and there would be one bank between Mayo and Galway, which has a population of 170,000. How would it work out on the ground? There would probably be an office in Galway city, but parts of Mayo are more than 100 miles away.
Mr. Niclaus Bergmann:
From a technical point of view, there has to be a mixture of physical branches and technology. One has to be close to one's clients and people have to be able to see one's face and vice versa, but one also has to offer mobile banking services and Internet banking. We are not talking about old-fashioned banks but modern banks where everybody has access, physically or technically. The number of branches has to be decided on for each specific region. In the midlands we are talking about four or five physical branches, which would be set up in medium-sized cities.
Mr. Seamus Boland:
We are not saying we know the answer to every single question but we suggest strongly that by exploring the model we will probably find a role for the credit union or post offices. As Mr. Bergmann said, it is possible that we will have to design an Irish Sparkassen. We are talking about relationship banking, so if the bank is far removed from its clients, it is not doing its job. We may have to look at this in the design we are proposing. It may not be in Galway city, by the way. It could be in Ballyhaunis.
The submission states that each regional public bank will be an independent, fully licensed, professionally managed financial institution with its own balance sheet and responsible risk management. The number of smaller branches will depend on the region, but the more smaller branches and mobile banks there are, the more expensive it will be. That is the kernel of the issue. If there are many branches throughout the country, the mortgage rate will be more than 1.1%.
Mr. Niclaus Bergmann:
It is key that costs are kept down because this is what benefits clients. A bank normally needs a margin of between 1% and 2% to work in a sustainable way. A central service provider, where all back office functions of a bank can be outsourced, is extremely important for such a system.
For example, there are 390 Sparkassen in Germany, all independent institutions that use one information technology, IT, system provided by a central service provider. Every bank does not have to buy its own IT system, and instead it is shared by 390 institutions, which reduces costs dramatically.
Mr. Seamus Maye:
We must remember we are a very small country with a little more than 4.5 million people. We cannot go about reinventing the wheel. It is our view in the Public Banking Forum Ireland that the public banking and Sparkassen model is badly needed in Ireland but it will not fly logistically or politically unless the credit unions have a key role to play. Public banking services can be rolled out through credit unions, subject to their agreement, and keep the cost base down. This would make use of the existing credit union movement and its strong association with people on the ground. It is very important. We do not have 10 million, 20 million or 100 million people and we are tiny in comparison, so we must tailor this both politically and logistically to what will work.
The witnesses are saying the credit unions would be key to this because they have up to €10 billion or €12 billion on deposit and they are not getting any reward from the banks for that. This would be a key part of the funding for the 6:1 ratio as well.
Ba mhaith liom fáilte a chur roimh na daoine as Irish Rural Link. Willkommen und guten Tagto the people from Sparkassen. The Chairman might say at some point that I have never shown my face at this committee before but as a spokesperson, for jobs and enterprise, I am very much interested in what the witnesses have said and their model, or at least what I know of it.
The witnesses may correct me if I am wrong but this goes back to old style banking where a person would walk the farm with the borrower or go to see a businessman or owner of a small and medium enterprise in the premises to have a look at what is being discussed. That is to be welcomed. I am sorry I was not here for Mr. Boland's presentation but I read it and he hit on the point I believe, which is there is a major distance between the big pillar banks and customers. Many people have a difficulty with this. I was going to comment on Mr. Boland's plea for support from Deputies as he might want some support from Senators too.
On a more serious note, what is the range of loan size given out? I suppose this applies more to the people from Sparkassen. Is the minimum €20,000, for example, and the maximum €500,000? I am not clear on that. I know Mr. Maye has alluded to it but what would be the relationship with credit unions? Would it be collaborative, complementary or competitive?
Supervision and oversight is a major point so what kind of support would come from Sparkassen in Germany in that regard? I know it has been said the bank with its branches would be an independent entity with its own balance sheet. What would be the relationship with the bank in Germany if it were successfully set up? It has already been indicated the profits would stay with the bank here, with a rule that it could be for social use. I presume that is what we would like to see happen here as in Germany.
It sounds like very good news for small and medium enterprises. I was glad to hear Mr. Boland allude to the post office. If there is an existing branch structure where people can go locally, there is an opportunity for synergy with post offices. In rural Ireland, it would be very important for people who cannot do their banking locally and who are not savvy about IT. One would imagine most people involved with business would be comfortable with it at this stage. What would be the next steps in a working Irish-German group? What legislative change would be required? It is something that will arise from negotiations with the Minister and the Central Bank.
I thank the witnesses for being here and there is certainly much value and opportunity here. We should find a way to make it happen rather than invent ways not to allow it happen.
Mr. Niclaus Bergmann:
I will try to answer those three or four questions. I hope I have not forgotten anything. Loan sizes in Germany for small and medium enterprise are between, say, €5,000 and €50 million. Whoever comes to us, we try to serve them. A small entrepreneur or local plumber will get a small loan and if a large client comes which wants to build a plant, we will also try to serve that customer, as long as it is somebody from that region. Each bank only serves companies from the region.
We have our strengths and one of those is with small enterprises. When I speak of small enterprises, these are places where up to ten people work. We have a market share for lending in the German market of 70%. It is a really big strength. When it comes to lending to large companies, the Volkswagens of this world, our market share is about zero. This is not our pair of shoes. We focus on small and medium companies. For companies with up to 500 employees, which would be typically German Mittelstand, there is a market share of approximately 40%. We are quite strong in that regard.
With regard to the relationship with Ireland's credit unions, they are very valuable partners and we do not want to compete with them. We see them as our natural born partners in this case. I could imagine credit unions working as agents and selling products of the public bank. These would be the kinds of products they do not have right now for their clients. In this way co-operation is possible, and this leads to the question about the next steps.
What is our role? Sparkassen in Germany work on the regional principle so they are not allowed to open branches in other countries. Sparkassenfrom Germany would not have a financial interest here and we will not set up branches. We give advice and that is the task of the Savings Banks Foundation for International Co-operation, SBFIC. We bring our experience. This means we help develop the concept but we also help to start the business and make it sustainable. When we are thinking about a five-year period to get the system running, we would be here in that time to support it. We would have our staff and expertise in doing that. We do not bring capital but we bring a reputation. Not only would we bring a successful model to the country but we could also give our German reputation to it so people in Ireland can trust the system.
I think when it comes to financial matters at least, people tend to trust the Germans. Members do not have to love us. Something I think is even more important is that when we help to set up public banks here in Ireland, we put our reputation at risk because if this does not work here with all our support, this will backfire and it will hurt us in Germany and on the European level, so we are very serious about making this successful, more serious than if we just gave capital.
Talking about the next steps - Mr. Boland mentioned this already - there has to be something concrete that would follow up now. It would be useful to do something like setting up a working group with different stakeholders, with one, two or perhaps three different Departments - those Departments that are involved already. Different stakeholders would also include the credit unions here in Ireland because they are natural partners for this concept and we would also be willing and prepared to join this working group to bring in our expertise. At the end of the day, this working group has to develop the Irish model. We know, for example, that legal form is important. I do not know whether it should be a normal legal form of a bank. Perhaps it should be something different. We talked to people from Trinity College who proposed their own legal framework. It was a strange thing called body corporate. I do not know whether that would work for a public bank here in Ireland but, as we said before, it has to be an Irish model. Many things can be taken from Germany, but not all. The closer to the German model, the easier it is for us of course, but at the end of the day it is a political decision here in Ireland as to how an Irish public banking model should look. We can be involved as technical experts but the decisions are for the Government to make.
I thank the Chairman for facilitating me. I have a significant interest in this issue. I left the meeting of the PAC to attend this meeting because I want to support the process. I have been following the issue, along with my colleague, Deputy Penrose, who has also taken a big interest in this and has written about it and raised it in the Dáil. He expressed his love of the Department of Finance on a few occasions publically. All my questions have more or less been asked so I have a few observations and just one or two questions.
I despise the words "best practice". When I see the words in reports or other documentation, it annoys me because I do not believe in it. There is practice, which one can learn from, and then there are circumstances. I am very pleased it has been outlined here that we cannot pick up what is being done in Germany and put it here in Ireland because our circumstances are very different. There are many different reasons for that - social, legacy, and psychological issues among others - but we can take the practice, which is very good, and a proven model, and bring it into Ireland, mould it, shape it and use it. That is what I want to see happen because I fundamentally believe that it is completely necessary. We have a disparity in this country between the pillar banks and credit unions and there is a big vacuum in the middle which is giving rise to many issues.
A gentleman came into my office recently who owns a shop near it. He applied for a loan and was turned down. His case was reviewed and he did everything he could. He just wants to expand. His small business is a moderate success. The review said the bank should give him his loan and the office found against the bank. The bank made an offer then which was completely unacceptable, on purpose, and he is now going through the end of the process. I believe he will probably write to you, Chairman, as an example. The case is going on for years. It is necessary that we do something about this area and I am pleased it is in the programme for Government.
I have serious issues with the Department of Finance. I had them when I was a Minister and I still have them in terms of pace and decision making. There is serious negativity in some quarters of the Department of Finance about this process. My first question relates to that and the witnesses' interactions with the Department. Could they break them down for us?
My second question relates to the European Investment Bank and how it lends to SMEs. Do the witnesses use that? I agree with what was said about credit unions and their role. Is there a role for the post office network, and how? I apologise if that question has been asked as I was attending another committee meeting. I am trying to avoid repeating the other questions that were asked.
When will this famous report be published? There is no better man than the Chairman to put pressure on to get the report out. If we had utopia, which does not exist and never will, and we got a decision tomorrow morning which was very much in favour of this process, in terms of the witnesses' capacity to help us, are there any issues we should know about? My colleague asked about next steps and, in fairness, they were outlined. Are there any issues we should be aware of in relation to the scale of this project or anything that would impact on it?
My questions are varied as I do not wish to repeat anything that has been said but I do not think anyone asked about timelines. When the report comes out, there will be engagement with the Central Bank and the Department of Finance. We will have to pass legislation and meet the requirements of the Central Bank rules in terms of capital ratios and everything else. The rolling out process will commence then. We will probably take a demonstration area, probably in the midlands but it might dip down into north Tipperary if that is possible. How will the process work and what are the timelines?
I am sorry. I do not wish to be rude but I have another question. I was very much taken by what was said about the impact on other banks - by the way, I love that. Could the witnesses explain it? When the model was rolled out, the foundation wiped the floor with the banks that were in the region and by the sound of things, they left. Did they just get out of the market the foundation was in or what happened? It is just some information I do not have.
Mr. Seamus Boland:
We have put in our submission to the Department of Arts, Heritage, Regional, Rural and Gaeltacht Affairs - I am still calling it that - and it has considered it and is producing a report. We are very happy with the way the Department has worked with us. The exchanges have been particularly intense. However, we do not know what the report is going to say. We know it has been delayed. We believe strongly that we need an indication from the Department of Finance particularly because, while the Department of Arts, Heritage, Regional, Rural and Gaeltacht Affairs has certain strengths, at the end of the day it really is the Department of Finance that will have to make its position clear. That is where we are and that determines the next steps.
As Mr. Bergmann pointed out, it would be strange if a report comes against this because, by implication, it would be criticising a model that has worked well, escaped the banking crisis and has been a major reason that the SME sector in Germany is still very strong. That is what we want to see next. After that, as I outlined earlier, we want to see the putting together of a real working group to consider the detailed proposal we have submitted.
As for the reason we chose the midlands, let us be clear that while I am from the midlands-----
Mr. Seamus Boland:
Sinéad Dooley has just joined us. She is learning a great deal at present. It does not have anything to do with that, in the sense that it is two or three years since we started the proposal.
Part of our thinking would be that even putting a pilot project in one area might not be the wisest thing to do. This could be a finding from the Department of Finance. One is either going to set it up or one is not. One is either sure or one is not. The brave and wisest thing to do would be to approve the concept, look at the investment needed and where the capitalisation is going to happen, set the legislation in place to make it happen and then be wholeheartedly behind it. That is the right thing to do.
Mr. Bergmann can disagree with me on the following, but I do not want to see one area picked because the rest of the members will be giving out hell about it. I want the eight areas to be picked. I want the legislation to be put in place, the regulation, finance and capitalisation sorted, the central services office set up, and to start with the eight because we are either with this or against it.
I remind the committee - Deputy Kelly knows this because I set up a small piggery with the assistance of ACC when no one else would help me - that it is not as if we have not tried this previously. Even though it is popular to say that the banking pillar establishment has made such a hames of things and is still recovering, the reason we had to establish ACC and ICC in the 1970s and 1980s was precisely the same reason as now in that the main banking pillar establishments find it difficult to deal with the thousands of small businesses, companies and farmers. Of farmers who have done well over the years, I guarantee 90% of them started out with a small loan from ACC, not the pillar banks.
It is nothing to do with the recession or with the banking collapse. It is the reality of pillar banks. It is the same in Germany. The pillar banks are not the best supporters. Deputy Kelly asked if they wiped the floor with them. The truth is that they did not really want to be there in the first place.
Mr. Seamus Boland:
At present, we have closures of banks left, right and centre. On one of the days we met the Department of Finance - I will take that question as well - there was a big advertisement in all the newspapers telling Irish Nationwide Building Society customers what it was going to do because it was pulling out. We will not any way inhibit the pillar banks by setting up this model. They were not affected when ACC was here, and, come to think of it, neither was the credit union movement. The credit union movement thrived during the ACC period.
As Senator James Reilly said, it is about finding ways to make this happen. As I said, we are not in a position to answer all the questions because, truthfully, the Department of Finance and the Central Bank have to provide answers also. It is about making it happen. I have no idea why we should even be slightly afraid of it, given that we had ACC which did no harm to either the pillar banks or the credit union movement. I am sorry for going on a bit, but that is just me.
Mr. Niclaus Bergmann:
Perhaps I will add something and then Seamus Maye can speak. I am packed in between two Seamuses.
Deputy Kelly talked about the Department of Finance and timelines. I like his structured approach. I fully agree with the Deputy. After all, I am German and we like structured approaches. Everything has to be in place before this really starts and things have to be sorted. As the Deputy also said, it is not about setting up one bank in one specific region; the whole system can only work if it is a nationwide system. We need the eight banks and we need the central service provider. Only then can we really come to a sustainable business model. I fully agree with what the Deputy said.
The Deputy mentioned the EIB. Der Sparkassen is also working with EIB funding in Germany. It is cheap funding for specific purposes and that is fine. Also, Mr. Harald Felzen and I had a discussion. We were in Luxembourg with the EIB. We talked to them and asked what they would think about such a local banking model for Ireland, and they were very positive about it. It will not be a big issue to have access to funding from the European Investment Bank for specific purposes, such as for loans for lending to clients. This is on our agenda also.
The Deputy asked about the impact on other banks and what impact we, der Sparkassen, have in Germany. We increase competition. When we sometimes hear the German pillar banks, such as Deutsche Bank, complaining that they do not earn enough money on retail banking, I would say that we do something right. One in Germany will probably have the lowest financing costs in all of Europe and this is because there are more choices for consumers. While looking at the number of branches, der Sparkassen has 12,000 branches in Germany. Deutsche Bank has just decided to reduce its number of branches to 500. That bank sometimes leaves the regions because in any specific region it might only have one, two or three clients with whom it wants to deal. It is not that the clients do not want to go to the bank, but that Deutsche Bank and other private commercial banks focus on specific high net-value individual clients and large corporate clients which do international business. We are there and we cover the big market. It is true that it hurts other commercial banks.
Another question the Deputy asked was what restraints we, as the savings banks foundation, have in supporting this. We have been working in Ireland for the past three years, coming here first in 2014 on a pro bonobasis. We are covering all our costs, which includes travel, accommodation, flights, etc. We can do so as long as it is in the design phase. As long as it is about setting up the model, this is the way we can continue. When the support is more intense, and more support is needed for physically setting up banks, we will have to see whether we can continue to do it on a pro bonobasis - probably not. Otherwise, it would be on a cost-covering basis, like we have been doing for the past 25 years in many countries of the world.
Mr. Seamus Maye:
I have a couple of clarifications on the most recent questions. The public banking forum's proposal was put before the Department of Finance in March last. We included in the model the possibility of the credit unions and the post offices taking part in this new system. We should not forget that in Ireland the pillar banks currently have 95% of the market. In Germany, the pillar banks have 12.5%. We should not exclude from the conversation this morning the possibility of the post offices setting up their own model based on the Kiwibank model. The Kiwibank was set up in 2002.
It has 20% of the market in New Zealand. Even if we were to have another entrant into the market, such as the post offices, to take 20%, there would still be a huge gap in the market for what we are talking about here with public banking. The Public Banking Forum would fully endorse the Sparkassen. The credit unions can form a huge part of this but they cannot do it without the input from the Sparkassen people. They do not have the expertise. It is a no-brainer.
In respect of the overall funding model and the housing crisis, the Public Banking Forum believes that a variant on our model could be put in place to fund distressed house and business mortgages. We have all heard that money is available at as little as 0% on the Continent. We believe that by using a special purpose vehicle and the fraction reserved lending system, we can put a very significant fund in place to deal with distressed mortgages and distressed business loans.
On the suggestion made by Deputy Kelly about the report, with the agreement of the committee, we can ask the Department of Finance about the current position on that report and ask it to send us a draft copy. As stakeholders, because the committee will be dealing with it, we could ask where it stands now. We could then debate it and perhaps add some speed to the process and bring it to some sort of formal conclusion.
Ms Sinéad Dooley:
I am delighted that the Chairman wants to bring in some gender balance but I have nothing more than my gender to offer. My learned colleagues have been very eloquent in their presentation. I thank the Chairman and the committee for affording us the opportunity to make a presentation. It is heartening to see the level of support around the table. It is obvious from their knowledge of the concept we are speaking about today that every Deputy and Senator who spoke has done their homework. I hope we can harness that support and put pressure on the Department of Finance, which is the key to all of this, to let it see the merits.
There is a lot of discussion around the national planning framework and our plan for 2020 and Rebuilding Ireland. While we all talk of infrastructure and investment in telecommunications, we believe that investment in our banking sector is equally important in trying to achieve balanced regional development. That is the message today, that if we are serious about balanced regional development we need to consider every aspect. Nobody has remained at a standstill post-crash since 2008. It is unbelievable to think that we would accept that our banking sector would remain in a standstill position. We need to consider every sector. Everybody had to think about how to do business after the crash and it makes perfect sense that the banking sector should do likewise and see how we can build sustainable pillars and not the pillars of salt we had in the past. We need to look seriously to rebuilding Ireland. Our citizens deserve that. I thank the committee and any pressure it can bring to bear to bring forward that report for further debate will be very welcome.
I am grateful to the Members who are not members of the committee but who are here because they add weight to the argument and the case being put forward. I encourage the Government parties, and I say this in a cross-party sense, to encourage the Minister to look favourably on that report and to include this committee in its consideration of the outcome of the report so that we can debate it.
I thank the witnesses for their opening statements and presentations. I had to go to a couple of other things and I was nipping in and out. I apologise if any of my questions have been addressed in my absence.
On Ms Dooley's point about regional development, I am from Dublin but, as a Senator, I went around the country to every local authority from Donegal to Wexford and from Louth to Kerry. Everybody in Dublin wants the regions to do well because if everything happens in Dublin, it puts pressure on housing, schools, open park spaces and football clubs here. People in Dublin would love it if other areas were developing, growing and prospering. If the banks only lend and borrow in a region, how does an area that is deprived, relative to other areas, find the finance in the first place, if there is less money around? Is that a problem for a relatively disadvantaged area? There are parts of the country with loads of money available. How do areas that do not have a lot of money prosper?
Would there be a cost to the Government in setting this up even though it is publicly owned and, if so, how much would be required? Would it be seed capital that would be repaid or would the Government have to put in a certain amount and leave it there?
What impact might the bank have on the credit unions? The commercial banks have not done themselves any favours in recent weeks in their interaction with us on the tracker mortgage scandal. There is a lot of goodwill towards the concept the witnesses are suggesting because people are so annoyed with the discussions and issues they have had with banks about tracker mortgages and lending generally. Could Sparkassen work with the credit unions or would it take a lot of their business from them?
Mr. Niclaus Bergmann:
I think we can support and strengthen the credit unions with our public banking system. The commercial banks will probably feel increased competition, which is bad for an individual institution but good for society.
Asset liability management is the answer to the first question. We have a system in place in Germany such that the regions where there is more funding and more deposits can transfer this inside our system to those Sparkassen which need more funding. This transfer of funds can be done within the family. It is quite easy to organise. The region that gives funds to another is compensated for that. There is an internal mechanism that should work quite well.
The cost to Government is a question of what the model would look like, whether there will be a permanent involvement of the central Government or other providers of capital. I would like to see some of the capital coming directly from the region. There has to be regional ownership. There have been regional institutions which also provide some capital. It does not make much sense when a decentralised system is only funded centrally. From a logical point of view, a mixture has to be found but all of this can be discussed in a working group. We have some ideas for Germany but it has to be an Irish solution. This can be developed in a proper working group.
I thank all the delegates and wish them the best of luck with their endeavours. The fact that not only did we have some additional members in attendance, but also two former Cabinet Ministers, now a Senator and a Deputy, says a lot about the fact that the delegates have got traction. Every member who has spoken wants to tease this out further and see how it goes. We wish the delegates the best of luck with it.
Mr. Seamus Boland:
The region we picked was quite similar to the old Midland Health Board region. That would dictate itself once one had the working group looking at it because there would be other things in question. For example, the region we picked has no major city of population, but some regions would. That would determine how one would set up the region. With the one in question, we took an arbitrary decision based on an old Midland Health Board boundary and went with it.
Mr. Seamus Boland:
No, it would not. One could redesign that region also. My argument at the earlier stage, based on setting up and the belief that we should do the eight regions together, was that the midland region we looked at could well be slightly changed depending on the other regions and the realities surrounding them.
I do not want to delay the meeting but I just wish to point out that the credit unions would be well reassured by what Mr. Boland has said. I would go so far as saying, without putting words in his mouth, that this represents a real opportunity for them. This is because they are cash rich, have an organisation and skill set, and are a natural partner in terms of the main branch and having the branches around it.
I thank the delegates, particularly our guests from Germany, for attending and for their contributions. I wish them well. We will certainly put on pressure from our end to ensure we have the report, debate it and move on the agenda.