Michael D'Arcy (Wexford, Fine Gael) | Oireachtas source

The Department of Finance and the Department of Rural and Community Development were tasked with fulfilling a programme for Government commitment to thoroughly investigate the German Sparkassen model for the development of local public banks that operate in well defined regions. Both Departments prepared a report on the findings of their investigation which involved an analysis of the Sparkassen model.

As the Deputy is aware, the report on local public banking in Ireland was published yesterday. It outlines the current banking environment in Ireland, particularly in respect of access to finance by SMEs and the mortgage market. It then summarises the Sparkassen model of local public banking as it operates in Germany. A considerable analysis was undertaken and there was careful consideration of a proposal for how the German Sparkassen model of local public banking might be implemented in Ireland. The proposal was put forward by Irish Rural Link and the Savings Banks Foundation for International Cooperation, the international development wing of the Sparkassen group. The report also contains a summary of the responses to a public consultation exercise that was carried out to seek the view of stakeholders and other interested parties on local public banking and its potential in Ireland.

Ultimately, the report has found that there is no compelling case for the State to establish a new local public banking system in Ireland in the proposed form. There are a number of reasons for this. The cost to the Exchequer of the proposed new model is estimated at a minimum of €170 million. Furthermore, the Government currently has shareholdings in AIB, Bank of Ireland and Permanent TSB and its priority is reducing its shareholdings in a manner that will recover the taxpayers' investment over time. Local public banking, as proposed and considered in the report, would involve further State ownership in the banking sector.

The Government is committed to supporting greater competition in the banking sector. There is, of course, no impediment to interested parties separately pursuing the establishment of a system of local public banks in a manner that does not involve Exchequer funding. The Government would encourage any potential new market entrant to engage with the Central Bank of Ireland and the Department of Finance on the matter.

Additionally, there are a number of challenges related to the assumptions underlying the business model for a local public banking system that is proposed and considered in the report. They include assumptions regarding the proposed cost, interest rates and loan attrition rates. Similarly, the suggested locations in the proposed pilot scheme in the midlands would overlap with existing banks, credit unions and post offices.

The Government recognises there are a number of positive aspects underlying the concept of local public banking in general. They include increasing access to finance for SMEs and supporting local communities and economies. The Government is fully committed to supporting SMEs and regional and rural development. It has already put in place a number of policy measures to support these goals, including the Strategic Banking Corporation of Ireland, the Supporting SMEs online tool, the microenterprise loan fund scheme, local enterprise offices, the Credit Review Office and the credit and counter guarantee schemes. The report also highlights the positive contribution of An Post and the credit unions to the Irish banking environment, particularly in rural and regional areas. We will continue to support the increasing role both organisations can play in the Irish retail financial landscape into the future.

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