Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

11. To ask the Minister for Finance his plans to promote diversity in the banking sector; and when a strategic investment bank will be created. [49200/13]

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

This question pertains to diversity in the banking sector in this State. There was a good discussion on this subject during a recent Private Members' debate. I ask the Minister to clarify whether the Government intends to establish a strategic investment bank in its lifetime, as committed to in the programme for Government, and when it is planned to establish one. I also ask the Minister his plans for diversity.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

This Government has been working hard to create an environment conducive to new entrants through a number of initiatives and has been leading the debate at EU level on the mechanisms to promote alternatives to bank financing. While it is disappointing that ACC and Danske Bank have taken the decision to withdraw from the Irish market, one of the key features of banking strategy in the financial crisis has been the retrenchment to national borders. One of our expectations from the financial crisis is that market shares in traditional banking services will become more fluid during the recovery as the banking landscape continues to adjust to the withdrawal of foreign players, the restructuring of our incumbent banks and the increasing price transparency of financial services. The withdrawal of particular services and the closure of certain aspects of the business of some banks is a realisation of this expectation.

We expect that over time this will present opportunities for the entry of new market participants that are well positioned to be confident in the future profitability of an Irish branch or subsidiary. While the current market may not be attractive to a fully diversified bank challenger in the short term, I expect new financial services providers to enter the market on a more targeted basis - for example, as specialist lenders and non-bank finance providers.

The Government has decided to establish the Ireland strategic investment fund, ISIF, which will absorb the National Pensions Reserve Fund, NPRF. Using the ISIF, we will maximise our resources to enhance growth in the Irish economy and improve key infrastructure to maintain Ireland's attractiveness as a place to do business and to create employment. Officials of my Department are currently preparing the necessary legislation, which I anticipate will be enacted early next year. Already in the lifetime of this Government, the NPRF has established funds that support strategic projects and a number that support SME financing. Further assessment of the need to create a strategic investment bank over and above the contribution expected from the ISIF will be informed by the requirements of the economy once the Government’s key immediate objectives for the repair of the banking system have been completed.

The Taoiseach mentioned in this House last week that he had discussions with the German Chancellor, Angela Merkel. Germany is keen to help and, specifically, to find ways to reinforce Ireland’s economic recovery by improving funding mechanisms for the real economy, including access to finance for Irish SMEs. The German Government has asked KfW, the German development bank, to work with the German and Irish authorities to swiftly deliver on this initiative at the earliest possible date. Officials of my Department have already exchanged working papers on this subject with KfW and the German Ministry of Finance. We held a consultation with the German embassy in Dublin which helped pave the way for discussions with the German Ministry in Berlin yesterday, and further discussions will be held with KfW and other key stakeholders over the coming weeks both here and in Germany. I am keen to see the establishment of a healthy and balanced relationship. As we are trying to ensure that any initiative that comes out of this process is as effective as it can be, we will be discussing approaches that meet the strategic objectives of both States.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

I thank the Minister for his comprehensive reply. What he said was quite interesting. I am aware that things move on, but prior to the election it was a major plank of the Labour Party's manifesto in particular that a strategic investment bank would be established, and this was negotiated into the programme for Government. The Minister is now telling us there is no guarantee that it will be established and that he will examine the issue when the fund is up and running.

There is a need for investment in the real economy. We can talk about the fund all we want, but it was promised more than two years ago and we still have not seen its establishment.

We have not seen any programme or direction to lead us towards a strategic investment bank. Has the Minister examined the role of the existing State banks in lending into the real economy, particularly Permanent TSB and AIB? What role do they have in the long term? Will the legislation committed to by the Government in terms of the bail-in and the burning of senior bondholders required before the stress tests take place next year have any impact in attracting foreign banks to the State? Could the confusion and lack of clarity as to what the legislation will contain have led to banks taking the decision to move back within their national borders?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

The strategic investment fund which will be underpinned by statute early next year is operational under letters of comfort I have provided. The fund is providing moneys and supporting, on a joint partnership basis, various funds for SMEs. It is involved in investment in the economy. The big difference between a strategic investment fund and a strategic investment bank is that if it is formulated under licence as a bank, it will be able to raise money on the markets, whereas a strategic investment fund deals with funds available to it at present. We are not ruling it out by any means and will see how it works. The best known and most effective strategic investment bank is the German bank to which I referred.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

The European Investment Bank has a good record of success. The second part of the question refers to the bail-in. The ECOFIN communiqué issued last week stated, "As the still to be adopted BRRD bail-in tool will not yet be applicable at the time of the conduct of the [...] stress test, burden sharing will apply, in full". It goes on to say state "Member States will ensure that the necessary tools are in place enabling them to proceed with such burden sharing, including changes to national legislation as appropriate". Is the Minister preparing legislation to allow for the bail-in tools which include the burning of senior bondholders and also the other steps entailed in it? When will we see the legislation before the House?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Two issues are running in parallel on the ECOFIN agenda. One is having a hierarchy of measures to resolve capital discrepancies that appear in banks across Europe as a result of the stress testing in the autumn. That is one distinct item of work and was agreed to. The papers are available and Members can see the agreement. The second piece is a more permanent bail-in resolution mechanism which will be a constituent part of banking union. It is separate and has not yet been agreed to, but the Lithuanian Presidency is ambitious that it will be agreed to before Christmas. What took place the last day was not a debate to reach agreement but a discussion to establish positions. We will be back in December and there are rumours of a special ECOFIN meeting in December, as well as a normal meeting. I will keep Members informed.