Shane Ross (Independent)

I share Senator O'Toole's rather romantic view of a perfect world and how it would be very nice if we could all support each other in buying houses. I was a great believer in mutual societies for a long time because I thought that they were doing that. The evidence now is that this does not happen any more. None of the building societies remaining does this and would not survive in the market if it did so. I welcome the Bill with the same enthusiasm as Senator O'Toole in that I wish we lived in a world where we were all prepared to put money into a society to help other people to buy houses, but we do not. Those people who run building societies are not expected to do that or to run those societies any more for the benefit of the borrowers or for society as a whole. They run them specifically to make profits and are judged on the profits they make. The result is that demutualisation has become the fashion and mutual societies are almost non-existent.

The Government acted wisely in introducing this Bill and I welcome it in that sense. It should be recognised that this Bill is being introduced largely for the benefit of two building societies, and there is nothing wrong with that. There are two large building societies remaining, namely, the Irish Nationwide Building Society and the Educational Building Society. They need the flexibility that is currently demanded of them in the market. This Bill will allow the Irish Nationwide Building Society to take its course, which is for it to be sold, and it will also allow the Educational Building Society the protection, which apparently its board of directors desire, to remain a mutual. Modernising these building societies, which are sort of half banks — they compete with the banks with their hands tied behind their backs to a certain extent — is a sensible and inevitable move. They could not survive without such modernisation.

I am doubtful about the benefits of mutuality. They are an ideal but I am not sure they can happen. One need only reflect on the Educational Building Society and the way it operates to ask oneself whether it is being run as efficiently as other societies and other financial institutions. It makes enormous play of the fact that every year it issues a mutuality dividend, where effectively it says to its borrowers and savers that it gets a better rate because it is a mutual. The evidence for that is fairly doubtful. Sometimes the rates from the Educational Building Society are better but not always. Therefore, it appears that the borrowers are not really benefiting from the mutuality which exists in that particular society. The reality is that the only way borrowers can benefit in this way is if costs are cut rather than the way it is done at present. This building society is operating with — I am open to correction on this — a cost-income ratio of approximately 58%. I do not want to be technical but it is a high cost-income ratio. There is not the pressure on it to keep costs down, whereas its rival, the Irish Nationwide Building Society, is working on a cost-income ratio of under 20%. The mutuality dividend, if there is such a thing, is really largely illusory. The pressure on a building society, a real mutual in the market, to produce dividends is not great enough to force it to bring its costs down. If that were the case, deposit and mortgage rates would be lower than the competing banks, but that is not the case. I do not believe mutuality, in effect, is working.

I am also doubtful about it working in any democratic sense. None of the boards of the building societies has been beaten on any issue that I can remember recently, including the Irish Nationwide Building Society which was involved in some controversies and the Educational Building Society which was not involved in as many controversies. It appears that they always seem to get their own way. The members of the board of the EBS are paid as much, if not more, than the members of the board of Irish Nationwide. Those who control the EBS are extraordinarily well paid for the devotion to the principle of mutuality. They are major beneficiaries of the devotion to mutuality, something about which some people might be slightly sceptical.

I welcome the Bill because it will introduce more competition into the banking sector. If Irish Nationwide is sold to a single buyer, it will, hopefully, introduce a new bank into the Irish market. There is every possibility that due to the extraordinary success of this building society and the incredible profits which it has been able to record, it will be bought by a new entrant to the market. The Irish banking market badly needs new entrants. We witnessed the sale of National Irish Bank and the entrance of the Bank of Scotland into the Irish market. The cartel is being broken up but it would be very welcome if some external bank bought Irish Nationwide because it would introduce more competition and do the job which mutual societies should possibly have done in the first place.