Jerry Buttimer (Fine Gael)
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I thank the Cathaoirleach for allowing me to raise this matter on the banking sector. I welcome the Minister of State, whom I have not met before but whose reputation proceeds him. I congratulate him on his appointment to the Department of Finance.

The Minister of State will be well aware that we need a major debate on the role of the banking sector. I say that in the context of two issues, the first of which relates to the credit squeeze affecting regular customers of banks and business people. Banks seem to put profit before people. They are only interested in making profits and in cutting cost margins to do so. The Minister of State will agree this comes after a period of time in which banks were like lobbyists trying to give away money. They wrote to people offering different types of credit and incentives to buy cars, to go on holidays and to extend their homes but now they have changed their cant from, "We want to give you money" to "We need to get money from you". In many ways it is like "Charlie and the Chocolate Factory" in that there is a chocolate bar for everybody but it is then taken away.

Why is pressure being put on people when not long ago banks were writing to them to give them money? Banks need customers but they have raised interest rates and restricted access to overdrafts and other types of credit. As the Minister of State will know, this is having a profound impact on consumers. How does the Minister for Finance propose to involve the Financial Regulator in this crisis in the banking sector, which is affecting people?

The decision by Bank of Ireland to cut its staff share allocation from 6% to 3% is unjustified and driven by greed. The staff of Bank of Ireland have been treated very badly and unfairly. I say this as a customer of the bank with an account. The staff have made significant sacrifices in the past decade. Almost 2,100 jobs have been lost through its voluntary severance plan, along with outsourcing, relocation and the closure of branches. It has reached the stage in some banks where when one walks in, there is a queue out the door because of a lack of staff. I pay tribute to the staff of the Bank of Ireland. They are its most valued ambassadors and the company does not realise this. I very much like going to the bank in Wilton or University College Cork because the staff there are friendly, welcoming and provide a great service.

Why do the banks treat staff and customers badly? I look forward to the Minister of State's reply. We must have confidence in our banking sector. We need to generate money in the economy to sustain it. I do not blame the Irish Bank Officials Association for serving strike notice on Bank of Ireland in July. The staff have been treated shabbily. The banks need customers and staff and they need to improve morale. What plans does the Government have to engage with the banking sector and especially with the Financial Regulator?

Martin Mansergh (Tipperary South, Fianna Fail)
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I thank the Senator for raising very legitimate issues. Like him, I am also a customer of the Bank of Ireland and I, too, pay tribute to the staff there who deal with me. By way of declaration of interest, I have a daughter who works for the other main banking group.

At the outset the Senator will, I am sure, accept that Ireland's full integration into the global economy and financial system has brought us significant benefits in trade and investment and has helped underpin the most sustained period of economic and social progress we have ever experienced. However, we must recognise that as a small, open economy with a financial system that has achieved an international standing and profile, it is inevitable that the uncertainty and disruption of global financial markets that has emerged over the past year and has had a significant adverse effect on world economic performance will also impact adversely on our own financial system.

Internationally, wholesale credit markets, where banks access money for onward lending to business and individuals, have tightened considerably. Liquidity has become more expensive and less available. While Irish banks have insignificant exposure to the sub-prime products that initiated the change in financial market conditions, they cannot be immune from its broader effects any more than the insurance industry was some years back in the aftermath of the tragedy of 11 September 2001.

Within this overall changed financial environment, it is important that banks and other lending institutions adopt a prudent approach which focuses on long term interests, taking account of the increased cost of money and the more challenging international economic circumstances. Notwithstanding several authoritative assessments of the robustness of the Irish banking sector based on our economic success of recent years, it is vital that banks and other lenders adapt their lending criteria to meet these changed circumstances. It is also important that lending proposals meet the twin tests of being economically sustainable in the current circumstances and borrowers being able to meet their repayments. I note that in the first quarter of 2008, banks extended 28,500 new mortgages with a value of €6.3 billion, 75% of which went on new purchases. While the level of mortgage lending is down compared with 2007, it still represents a very significant level of credit provision at a time when the residential property sector is undergoing an adjustment that is widely recognised as being necessary and appropriate.

We should recognise also that there has been significant growth in competition in the banking sector in recent years, with new entrants to the sector and the introduction of new and innovative products. While we all have to seek out the best deal to meet our needs, I expect neither the Senator nor borrowers would proffer thanks for lending that did not have regard to present realities.

I am well aware that access to credit is an essential requirement for large and small businesses, especially in the start-up phase. Although important, it is not the only requirement or the most important one. Details of a recent survey for the Small Firms Association, which ranked concerns of small businesses for 2008, listed finding finance to grow as No. 8, coming after concerns such as economic uncertainty, managing costs, and increased competition. Overall credit growth since the beginning of the year has amounted to €9.5 billion, underlining the fact that credit continues to be made available where sound business cases are advanced. One senior banker recently remarked that banks are not in the business of closing down profitable companies for short-term gain.

The Senator will be aware from the appearance of the Central Bank and Financial Services Authority of Ireland at a meeting of the Oireachtas Joint Committee on Finance and the Public Service that the Central Bank and the Financial Regulator are actively engaging with banks to make certain they act quickly and prudently to ensure the effective functioning of the financial system through the current period of uncertainty. The Senator will note that the banks are themselves to appear before the Oireachtas in the coming days. I hope that dialogue will be a positive one where the important and sensitive issues in question can be discussed, recognising the importance of maintaining financial stability and responding to the credit needs of the country.

We are in a period of almost unprecedented international financial dislocation. However, by keeping up a shared commitment to maintaining economic and financial stability and responsible management of credit, we can ensure our long-term economic prospects are maintained and assured.