Tuesday, 13 February 2018
I welcome the Minister of State and thank him for taking this matter, which relates directly to the Department of Finance. In the programme for Government, there is a commitment to develop a public community banking system. There is a well-worn and well-articulated narrative as to what has happened in the banking sector in this country.There are many examples of misbehaviour by the banks in the past. When they got a bailout, they continued to misbehave. Unfortunately, many of them are continuing to misbehave. In Germany, where public and community banking was initiated, up to 70% of banking is done through community and public banks.
When I was in Ennis on Saturday, I spoke to a man who is promoting the concept of public banking along with a number of his colleagues. They have seen at first hand what has happened in the banking sector in this country. As this country enters what we hope will be a period of prosperity, I dread and fear that history will repeat itself. The one thing we should do as a society is learn from the mistakes of the past. There is no doubt that mistakes were made within the banking sector and with the regulation of the banking sector. Serious mistakes were made in the past by the Department of Finance, where the Minister of State, Deputy D'Arcy, is based, and by the Central Bank, which was governing the operation and regulation of the banking sector. We had light-touch regulation in this country for far too long. It did not work. We need to move forward in a spirit of positivity and in an engaging way to do things differently and to avail of the best of what Ireland has to offer. We have the best ICT skills in the world. We have the best financial services brains and they are indigenous and organic to this country. We can be the best in the world at community and public banking. We have the skill set. The Government should make this a cornerstone of its financial policy as it goes forward. I hope the Minister of State agrees with me.
As Senator Conway is aware, the Departments of Finance and Rural and Community Development are responsible for fulfilling the commitment in A Programme for a Partnership Government to "thoroughly investigate the German Sparkassen model for the development of local public banks that operate within well-defined regions".
Under the local public banking model, a state or another public body has ownership of a financial institution. Local public banks in Germany, which are called Sparkassen, are not permitted to operate outside specific geographic regions. Their aim is not to maximise profits but to promote economic development and financial inclusion in the regional areas in which they operate. Additionally, the business model of Sparkasseninvolves building close relationships with local small and medium-sized enterprises, SMEs.
Officials in the Department of Finance have been working closely with their colleagues in the Department of Community and Rural Development. Their investigation of local public banking has consisted of a consultation process with stakeholders and interested parties, including the credit union movement and An Post. They have analysed a detailed proposal on the Sparkassenmodel and its possible implementation in Ireland that was put forward by Irish Rural Link and the Savings Banks Foundation for International Cooperation, SBFIC, which is the international development wing of the Sparkassengroup. Officials in the Department of Finance have had a number of meetings with representatives of Irish Rural Link and the SBFIC. Officials from both Departments have prepared a report on the findings of their investigation. The report is being reviewed and considered by the Ministers, Deputies Donohoe and Ring. When the two Ministers have approved the report, it will be brought to the Government for consideration and approval. If and when the report has been approved by the Government, I anticipate that it will be published immediately.
The Senator should be aware that the Government is fully supportive of increased competition in the banking sector. It encourages any potential new market entrants to engage further with the Central Bank of Ireland on this matter. The Senator may wish to note that significant Government measures are already in place to support access to finance by Irish SMEs, including the Strategic Banking Corporation of Ireland, the supporting SMEs online tool, the microenterprise loan fund, the local enterprise offices, the Credit Review Office and the credit and counter guarantee schemes. I will give two examples of how Government supports are helping SMEs to access finance and supporting employment.The Strategic Banking Corporation of Ireland began lending in March 2015, providing funds thorough bank and non-bank on-lending partners. To the end of December 2017, some €925 million of SBCI supported lending has been approved for almost 23,000 Irish SMEs, operating across all sectors of the economy, including agriculture, food, retail, health care, transport and manufacturing. The Credit Review Office, CRO, is a Government initiative that helps SMEs who had an application for credit of up to €3 million declined or reduced by the main banks and feel that they have a viable business proposition. This is a strictly confidential process between the business, the Credit Review Office and the bank. The CRO has received almost 900 applications, with almost 700 cases concluded to date. It has successfully overturned more than 50% of the decisions made by banks. Over €48 million has been advanced on foot of the CRO’s recommendations and 3,750 jobs have been created or protected as a result.
In addition to these supports, the Department of Finance is working with other Departments to develop tailored and innovative schemes to meet the evolving needs of Irish SMEs, such as the €150 million agricultural cashflow support loan scheme and the €300 million Brexit loan scheme announced by then Minister for Finance, Deputy Noonan, in budget 2017 and the Minister for Finance, Deputy Donohoe, in budget 2018. Rural and regional development and supporting Irish SMEs to create employment and economic growth are important Government priorities and significant overall policy considerations. The Department of Rural and Community Development will continue to focus on rural Ireland and rural and regional development generally and will provide a co-ordinating role across Government on this priority area. The Senator can be assured that facilitating a functioning and competitive banking and mortgage lending system, in addition to supporting economic growth and employment in rural areas and regional Irish SMEs, remains a crucial priority for the Government.
I thank the Minister of State for his comprehensive outline of Government initiatives. I acknowledge that much has been done but there is still a way to go in terms of creating a fair equilibrium in banking because, unfortunately, the community and public banking model has been thwarted in favour of traditional commercial banks. The initiative that has been tried, tested and worked wonderfully in parts of Germany is getting serious consideration and I hope that the Minister of State and his Cabinet colleagues will, with their Departments, make a decision on this report as soon as possible because people would be happy to see progress on this matter. I acknowledge that the rate of progress is slow but I would rather it be slow and done right than rushed and not done right.
My strongly held view is that the more competition in the market, the better, but it has to be the right type of competition. Members are aware of the result of having the wrong type of competition 12, 14 or 15 years ago. It completely skewed the pitch. I discussed insurance earlier. The wrong type of competition can have a hugely detrimental impact in many different areas. The model in place did not have the correct balance between equity and lending. Whether small, big or other lending, it is important to have a different model. The model in Europe is 80:20 lending versus equity, while in the United States it is closer to 70% equity to 30% lending. The best model is probably somewhere in between and that is where we would like to be.
I am very encouraged by the credit union aspect with An Post and possibly supported by Government funding. We will consider the report when it is concluded and it will be analysed by both Departments and then go to the Government for consideration. There will be no delay on behalf of the Department of Finance in trying to implement a new model and structure and better competition in the market.