Dáil debates

Thursday, 1 July 2021

Future of Banking in Ireland: Statements

 

5:40 pm

Photo of Kieran O'DonnellKieran O'Donnell (Limerick City, Fine Gael) | Oireachtas source

This is a most important debate. As a newly-elected Deputy, I was in the House on the night the bank guarantee was put in place. I recall the alarm it raised and the shock it caused among all of us. That night, no one actually knew what the real implications were. We were looking at the balance sheets of the banks. There were loans, but we had no idea of the underlying value of the loans. I sat on the banking inquiry. Ultimately, we found that the banks at the time had lent in a reckless fashion.

We can never go back to that situation again. There are elements present at that time which are relevant to the current period. I wish to reflect upon the fact that the Department is about to carry out a banking review. The Minister of State will appreciate that terms of reference are everything. I hear that many reports will be produced. The Minister of State can give the reports as many titles as he wishes. I am only interested in one thing. I want to know what the terms of reference are. There have been many such banking reviews. Following the latest review, I would like to see a report that is small in size, rich in content, action-driven and complete with timeframes. I do not want to see a 400-page or a 500-page report. I know that the Minister of State will appreciate that, given his background. We know what the issues are. I want to see a report that explores how we tackle them.

I will put my point into context. Deputies referred to housing and the banks only lending for property and residential homes. One of the issues currently is that there is not enough supply. Back in 2005 and 2006 we were building nearly 90,000 units in Ireland. If we are to believe what the building trade is telling us, we only have capacity to build one fifth of that figure now? How has that situation arisen? Building 90,000 houses was not sustainable. Banks should not have given out the money for that. It amounted to throwing paraffin on a fire. Currently, many small builders cannot get finance from banks to build houses. Many of those houses are not becoming available for first-time buyers to purchase, as I would like them to be.

In everything, we need balance. We need social housing in abundance, we need first-time buyers, and we need the rental market. That balance is needed at all times.

I want to focus on the areas of the banking system the Minister wants to consider. He spoke about the gaps in the market. Others have said the banks are only lending in respect of property. We need to build homes so it is a question of what the capacity constraints are. Is it a matter of tradesmen and tradeswomen? Is it a matter of materials, whose costs are increasing exponentially, as Members know? Is it a matter of a lack of access to credit for the builder building 20 or 30 houses? Are those in that category unable to get funding from any institutions? Are we suddenly finding that, in many cases, some properties and apartments are being bought in bulk rather than by the first-time buyer, which is a group we need to look after? One reason house prices are increasing is a lack of supply in this sector. I feel strongly about that.

Terms of reference are vital. They would have to be very tight and action driven. The current state of play will be the first matter. We must examine what we have in the sector. The Minister referred to the sectoral expectations. I assume he is talking about the banks and financial institutions themselves. I am more interested in what the economy requires from the banks.

The Minister referred to gaps in terms of competition and consumer choice. We are undergoing enormous change and the fintech companies are coming in. Investment funds are also involved. There are three other components, one comprising the commercial banks themselves, namely, the pillar banks and other banks. Ulster Bank is pulling out of the Irish market. KBC is going. Another component comprises the credit unions and post offices. Bearing in mind the actions of Ulster Bank and the requirement for a third force in banking, one concludes that that force must involve Permanent TSB. Permanent TSB and Ulster Bank are a perfect fit in many ways because their branch networks are almost identical. It is quite extraordinary. I sat down to examine them. If Ulster Bank closes a branch in a town, it is likely that there is a Permanent TSB branch in the locality. That is a positive. What does it require to ensure Permanent TSB can become a genuinely competitive force among the other banks? Those hard questions need to be asked. We cannot have circumstances in which it is perceived that there is a lack of competition. That is important. Therefore, we need a third force. That third force has to be built around Permanent TSB. The beauty or benefit of Ulster Bank going is that Permanent TSB is more or less in the same locations.

The second component involves the credit units. Credit unions have a major role to play. We have examined various financial models for the credit union movement. The movement gives a network, a solid deposit base and local knowledge. I was in practice for many years. In many cases, many of my clients survived not because of support from the pillar banks but because of support from the local credit union. The credit union helped in a small way by giving them a draft at the start of the month after the bank had refused an overdraft facility. The credit union became the banker of last resort for many small businesses, many of which are surviving today. Therefore, we must seriously consider the incremental role the credit unions can play in personal banking. They are doing elements of mortgages. They can become another force. I see no reason there could not be a fourth force involving the credit unions because competition is very much the lifeblood of the sector.

The Minister, in his speech, spoke about the roll-out but I did not hear timeframes for the establishment and completion of the banking review. I did not get an indication as to who will be appointed to carry out the review. They will need to be top consultants. I would like the review to entail public consultation with stakeholders throughout the country because, ultimately, the Irish taxpayer saved the Irish banks. There is no doubt about it. On the night of the guarantee, the Irish taxpayer, including those who pay VAT and not exclusively those who pay income tax, underwrote the banking sector to save the banks, which they had to do. We would have to question whether Anglo Irish Bank was systemic at the time but we are where we are.

What I want to know are the terms of reference, timeframe and conclusion date of the broad-ranging review. Will the report be action-based? Will it take into account all aspects of the banking system? The fintech companies have a role to play also. It is critical that there be a public consultation element to the review. We need to see top-class consultants involved. It will result in a document that the Department and Minister should take possession of. It must be action based and have timescales. What we want at the end are four banking forces - commercial banks, the two pillar banks, Permanent TSB and the credit union system - competing with one another in the best interest of the consumers in Ireland.

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