Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

There are two images that stick with me across a varied and interesting sharing of views in the Seanad this afternoon. The first was hearing Senator Burke talk about the changes in competition in Castlebar over many years, going from an environment in which there were many banks competing for the business of local residents to where it is now, where there are very few. The second image was hearing Senator Malcolm Byrne paint a picture of how, when he goes in to buy a shirt in his local shop at some point in the future, it will be done via robot and he will pay for it with a digital currency. One is an image of where we have come from and the other is an image of what the future could look like, although I am not sure that the prospect of robots serving any of us shirts or indeed blouses is imminent.Nonetheless, there were really valuable contributions reminding us of what banking was like. It is a very good image for reminding us of the pressure that banking is under due to changes in technology and the regulatory requirements they are required to meet, on the one hand, and, on the other, the demands on banks coming from consumers who see the world changing around them and are using technology in ways which only a few years ago would have been very unlikely.

I have notes on the points which all Senators made and will respond back to the themes raised rather than responding to each Senator in detail as time does not allow me. The first common theme was the need for a public bank in Ireland. I remind Members that, as it stands, of the three large retail banks present in Ireland, the State has majority shareholdings in two and a minority shareholding in the third. To say the banking sector is ill served due to the underparticipation of the State within it does not sit with the fact we have strong State shareholdings in two of three banks. What is more, a decade ago we learned a very painful lesson of what happens when the balance sheet of the State and that of our banking sector become intimately involved with each other.

For that reason, those who were pressing the case for a public bank should be aware, first, that it is very easy for the risk in any public bank to travel back over to the risk of the taxpayer. Second, any such bank would have to be regulated in the way existing banks are. Third, any lending decisions from that bank would be subject to the same kind of scrutiny and regulatory power as our existing banks are. How the set-up of a public bank would coexist with our credit unions and with An Post is something those who are advocating the setting up of a public bank would need to explain. Finally, there would remain the very thorny matter of how a public bank would get its capital, who would pay for it and how that would sit with the lessons of a decade ago.

That leads to the question of the future of the banking sector in Ireland. The variety of views from Senators reflect how our economy is changing and the impact technology is having on it. I wish to address in particular the point made by Senator Keogan on the impact of technology on currency and what that means for banking. She and some others raised the development of cryptocurrencies, bitcoin, and what that can mean for the future of traditional and retail banks. This is an area in which Ireland and the Department of Finance is already active. We have a blockchain day coming up. We have a blockchain unity in the Department of Finance that looks at the future of decentralised finance and what that could mean for the Irish economy.

There are two very important caveats. First, how people decide to determine their store of value is their right in a market economy. However, the development of a store of value has to be reconciled with the needs we all have for financial stability. Second, the development of that store of value should not be at the expense of the other ways in which we look to store value, such as through the use of a currency and how we store and bank that currency in retail banks. These are the kinds of issues that are being considered by the European Central Bank which will make decisions before the summer on the future of further exploratory work on an e-euro.I strongly believe that the maintenance of monetary sovereignty is a really important aspect of national economies but in our case, in this part of the world, it is the eurozone and its interests and that is why the work of the ECB in this area is really important. The development of something like that, as demonstrated in this week's edition of The Economist, is something that has really fundamental issues for retail banking, which is why advancing this cautiously I believe is appropriate.

That leads on to the next point that was made regarding why banks will not come to Ireland and why is it we are in a situation where we are seeing additional banks leaving. Of course, we need to reconsider what we mean by banks. Many Senators made the point regarding why banks are leaving and why more banks will not come here but at the same time acknowledge that new ways are being found to provide financial services to consumers and to those we represent. It is not for me to name the ways in which that is being done. It is up to others to make the case for that. It is the case for all of us, and we know this, that financial services are now being provided in ways that are about clicks rather than bricks, and it is done through our phone rather than through our purse. This is all happening and the question is what is the policy environment and the regulatory environment, which is what central banks and regulators all over the world are working on, that enables this development in technology. It still meets the financial stability needs that we all have as governments and as parliaments and also can meet the wider array of needs that we have as societies - the ability to get a loan to buy a home and the ability for an SME to get a loan to help it develop its business. If one looks at what it means for a small open economy like Ireland, there are challenges with regard to this but there are also opportunities.

That leads on to the next theme, the question that was put to me, including by Senator Ardagh, regarding the issues that banks consider when they are deciding, as happened recently, to leave Ireland or if banks are evaluating whether they want to come to other economies. There are a number of factors and the key ones are the size of the economy they are in or moving to; their ability to acquire the asset that is underpinning the loan; and technically -we all know what it refers to - if a mortgage, for example, or a loan cannot be paid the ability of the bank to respond to that. We have made a choice as a society to afford a high level of protection to those who find themselves in financial difficulty and I believe that is the right decision to make. I believe that is right given the pressures that many are under, particularly at a time of a pandemic. It does affect, in turn, the decisions that banks make regarding the rate of interest at which loans are made available in those circumstances, and it is a factor.

That leads on to the biggest factor that is affecting many of us. We are a country that had a financial crisis and from a regulatory point of view our regulator, and the European regulator behind it, then requires our banks to hold a level of capital in recognition of what happened in the banking sector in our past and to make sure that if such a challenge faces us again that we can respond to it. That is a really important point. While we may raise issues regarding the level of capital that our banks are required to hold, it is also the case that the very level of capital our banks are required to hold at the moment is vital in allowing our country to deal with the consequences of a pandemic. It allowed our banks to respond in the way that Senators Eugene Murphy and Kyne raised. It allowed our banks to, for example, deploy payment breaks to deal with issues SMEs were facing without the kind of additional problems arising that we all faced a decade ago.

A variety of different issues were raised with me and I have tried to touch on each of them in turn. I will conclude by addressing the request made by the Financial Services Union, with the support of some parties represented in the House this afternoon, to set up a banking forum. Our interests would not be served well by a process designed to preserve banking as it is. We have to recognise that a lot of change is under way. We have had a difficult few months here in Ireland with regard to that change. If we want a process that will deliver competition, recognise that people are seeking banking services through their phones as much as through cards and that while there are a variety of needs we want to meet, we may have to meet them in a different way in the future, we need an open process that invites genuine debate rather than one that seeks to preserve the present situation in its entirety. If there is one thing of which I wish to assure the Seanad this afternoon, it is that change is relentless. If we do not have an honest view of the needs of our economy and our society in the future, we will not be well served by such a process with regard to banking. I am giving consideration to an alternative. I look forward to updating the Seanad on that in the future.