Eamon Ryan (Dublin Bay South, Green Party)
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7. To ask the Minister for Finance the status of the investigation of the German Sparkassen model for the development of local public banks that operate regionally, as outlined on page 48 of the programme for a partnership Government. [34056/16]

Eamon Ryan (Dublin Bay South, Green Party)
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I am aware that the Department of Arts, Heritage, Regional, Rural and Gaeltacht Affairs has the lead responsibility for investigating how a public banking model, the Sparkassen model, might be set out here but am keen to hear if the Department of Finance has played any role in this so far. What will be the Department of Finance's input into the roll-out of such a model? The Sparkassen model concentrates on SME lending, particularly at a regional level, where deposits are kept within a regional area. I am keen to know what, if any, role the Department of Finance will play in this investigation.

Michael Noonan (Limerick City, Fine Gael)
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I thank the Deputy for his question.

The programme for Government contains a commitment to investigate the German Sparkassen model for the development of local public banks that operate within well-defined regions. The Department of Arts, Heritage, Regional, Rural and Gaeltacht Affairs is the lead Department in respect of this commitment and my Department will support it. Previously in 2015, the Savings Banks Foundation for International Cooperation, SBFIC, with the support of the Public Banking Forum of Ireland, submitted a proposal to the Department of Finance regarding the development of a local public banking system in Ireland. The proposal was considered in detail by officials in my Department and there was engagement with the SBFIC, the Public Banking Forum of Ireland and Irish Rural Link on the issue.

It was not clear, at that time, how the local public banks proposal could create a distinct product offering and avoid replicating the significant regional and national supports that had already been put in place by the Government. Government initiatives to support the financing needs of SMEs include the Strategic Banking Corporation of Ireland, SBCI, the supporting SMEs online tool, the Credit Guarantee Scheme, the Microenterprise Loan Fund scheme, Local Enterprise Offices and the Credit Review Office.  The success of these policies can be seen in increases in new lending from bank and non-bank sources, the number of new credit providers active in the market and the reduction in average interest rates for SMEs.  

Regarding the current programme for Government commitment, I understand that the Department of Arts, Heritage, Regional, Rural and Gaeltacht Affairs has been in contact with relevant stakeholders and has now received details of a proposal on local public banking. I understand that the Department now intends to work with other Departments and stakeholders to examine the feasibility of developing this further. My Department is, of course, available to assist the Department of Arts, Heritage, Regional, Rural and Gaeltacht Affairs as it investigates this matter.

Eamon Ryan (Dublin Bay South, Green Party)
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I thank the Minister for his response. Most people in small businesses around the country might dispute the argument that we have enough banking capacity and lending effectiveness in the small and medium-sized business sector. There is a wider strategic issue, namely, that we have contracted our main clearing banks. We do not want to go back and expand their size because one of the difficulties in the banking crisis was the fact that the key banks were over-sized. From the Minister's response, it seems that the Department of Finance thinks that "as is" is a sufficient amount of public banking.

We heard Deputy Pearse Doherty talk about credit unions and how they might fit in. I believe they could have a role working with a regional public banking model because we need banks with real expertise in business lending, which is what this German public banking model brings. The Department of Arts, Heritage, Regional, Rural and Gaeltacht Affairs is going off in one direction but it seems from the Minister's response that the Department of Finance does not see the potential for such a model. Does this investigation have real depth or possibilities or is it being done as an exercise without the potential to become a reality?

Michael Noonan (Limerick City, Fine Gael)
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The Department of Arts, Heritage, Regional, Rural and Gaeltacht Affairs is taking the lead role in this in accordance with the commitment in the programme for Government. What I was saying was that it is not apparent to the Department of Finance what particular niche is being addressed that is not already covered by one of the other lending initiatives I have described. It has gone from a situation in 2011 and 2012 when it was very difficult for SMEs to get loans or refinancing of any sort to one where there is quite a large choice tailored to meet individual needs for SMEs. The level of contact I have with SMEs recently does not indicate that there is a shortage of credit available on the market but I do accept that certain products must be tailored to meet particular needs and the products for small businesses in rural communities are probably different from those for medium-sized industries in cities. We are open to that but it is the Department of Arts, Heritage, Regional, Rural and Gaeltacht Affairs that is taking the lead role.

Eamon Ryan (Dublin Bay South, Green Party)
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Credit unions are very well placed and should be supported in lending small residential, retail and commercial loans while the commercial banks, from my experience, are looking for larger loan facilities in the business sector and are not well tailored or equipped for SME business loans. Yes, we have the strategic investment mechanisms the Minister put in place but they are not working on a local level. The advantage of the public banking model is that it provides a mechanism whereby local deposits are recycled in the local economy which we badly need in rural Ireland so that not all development takes place in our cities. As is the case in Germany, the public banking model brings that real experience in business lending into that gap between what the commercial banks are good at in commercial lending and what the credit unions or other local facilities are not skilled enough to do. There is a gap. Only the study will bring that out but my concern is that at the outset, the Department of Finance, having looked at it, do not see the same gap in the market. That is a concern I have.

Joan Burton (Dublin West, Labour)
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I have pretty much the exact same question - Question No. 14 - which is why I wanted to take the opportunity to comment. I do not really understand why the Department of Finance is dragging its feet so much. I know that under the programme for Government, it has been transferred from the Department of Finance to the Department of Arts, Heritage, Regional, Rural and Gaeltacht Affairs. The Sparkasse Institute for International Cooperation and Development has a long record in this respect and Germany in particular, as the Minister referenced, has a large volume of SME development that is very much aided by this kind of local banking. The credit unions have already been referenced. We also have a number of regional development agencies as well as the post offices. In the context of providing a banking service in rural areas where the banks are no longer as visible or plentiful as they once were, I suggest a pilot in an area like the midlands where this could be tested. I know it has been discussed in the meetings I have had with the Minister from time to time. Oversight of the pilot could be carried out by the Minister's officials but, as with the credit unions, there seems to be an extreme reluctance to be involved in banking services in rural or disadvantaged urban areas.

Michael Noonan (Limerick City, Fine Gael)
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The only reluctance is to protect the assets of depositors in any banking system. We must be prudential. If we are to learn anything from the experience of the past eight years, it is that you do not take risks with other people's money. That is why the Central Bank is so rigorous in its regulator regime. I outlined six different initiatives that have been put in place over the past five years or so. The strongest one is probably the Strategic Banking Corporation of Ireland, which is specifically designed for SMEs. Some of the money provided there is coming from the German bank KfW, which has a lot of experience in funding SMEs. To the end of June 2016, the initiative lent €347 million and has provided funds to 8,619 SMEs, 5% of which are based outside Dublin so it is not true to say it is not reaching into the regions. At the other side of the scale, the microenterprise loan fund is administered by Microfinance Ireland and provides support in the form of loans of up to €25,000 and is available to start ups and newly established or growing micro-enterprises employing less than ten people. The point I am making is that I would encourage the Department of Arts, Heritage, Regional, Rural and Gaeltacht Affairs to continue with the good work it is doing. I will pass on the Deputy's suggestion that in order to speed up the initiative, a pilot scheme might be a reasonably good idea in some region of the country and we will see how it goes. However, it must be for a new niche and there has to be a new service being provided. There is no point in replicating what I have spoken about already.