Seanad Éireann - Volume 146 - 06 March, 1996
Competition in Retail Banking: Motion.
Mr. F. Quinn Mr. F. Quinn
Mr. F. Quinn: I move:
That Seanad Éireann, mindful of the wide benefits that could flow from greater competition in retail banking, calls on the Government to facilitate and actively encourage the early  emergence of a third major banking group through the operation of commercial forces in the marketplace.
I welcome the Minister for Finance to the House. He attends this House regularly but I appreciate his attendance here because this motion is important enough to deserve to be considered as opposed to last minute attention.
Essentially, this motion is about competition, so let me begin by saying a little about my views on competition. I believe competition is and should be the main engine of business growth. It is the most effective item in our toolbox to stimulate an efficient business economy which delivers what customers need. These beliefs are not ideological ones; they are purely pragmatic. I attach no mystic significance to the concept of competition as such; I see it purely as a means to a desirable end.
My beliefs are based firmly on my observations on what works and does not work in business. In my experience competition is a powerful motivating force — perhaps the most powerful one. It motivates companies because it gives them the best possible reason to be good at their jobs, put the customer first and have the lowest prices possible.
In my experience competition is also a powerful sanitising force. Without competition, businesses tend to get lazy. They tend to look inward at themselves rather than outward at the real world. They give in to the temptation of suiting themselves, not their customers. They become inefficient and lose their cost-effectiveness.
For companies that suffer in any of these ways a strong dose of competition is a very good thing indeed. Overnight, they have to transform themselves or risk going to the wall. That is why it is good that so many State companies are now being forced out into the competitive world. The EU is a factor in this, of course, as it pushes through the liberalisation of sectors, such as telecommunications and air transport; but I think the Government now acknowledges that full and open competition in  the public sector is a desirable thing in itself, regardless of any pressure from the EU.
This motion before the House tonight springs from the belief that full and open competition is equally desirable in all parts of the private sector too. One part of the private sector which does not have satisfactory competition is retail banking, which in Ireland is dominated by a virtual duopoly of the two biggest banks: Bank of Ireland and AIB. There are other banks, of course, but they lack the critical mass which the two big players have. None of the smaller banks can compete effectively with the two big ones unless they grow considerably beyond their present size and the only way a smaller bank can grow in that way is by acquisition.
Let me demonstrate how the Irish banking customer suffers from the existing situation. If we look at the gross margins achieved by the Irish banks and compare them to the gross margins in other marketplaces, we see an interesting pattern. The gross margin is the difference between what banks pay on average to borrow money and what they earn on average by lending it. Just as in every other business one buys and sells, they borrow and lend. In Ireland that gross margin is higher, much higher, than it is in the UK and it is much higher than it is in the US. I picked those two comparisons because those are the markets in which the Irish banks have themselves been players. When they operate in those countries, they must accept a far lower gross margin than they are able to impose on their Irish customers.
In reality, any comparison one makes between Ireland and any other country will show exactly the same pattern — the gross margin is higher in Ireland. My contention is that this disparity flows directly from the absence of sufficient competition in the Irish retail banking market. It was recognition of facts like this that led to the idea of a third banking force. If there was a third player big enough to compete on equal terms with Bank of Ireland and AIB, the competitive  pressures would be greatly increased to the immediate benefit of the customer, especially the business customer.
Also behind the idea of a third banking force was the notion that Irish businesses were being held back by a less than entrepreneurial approach on the part of the two big banks. Increase the competitive pressure, the argument goes, and banks will compete seriously with each other to lend funds to Irish business; in this way one stimulates economic growth. The present lack of effective competition in banking, many people argue, is holding back our growth.
The key question and the nub of this debate is; how do you bring about a third banking force? You can do it in one of two ways: you can either have the State do it; or you can let market forces do it. Many of the people who originally advocated the third banking force wanted the State to do it. I was one of their number when I was chairman of An Post and I argued the possibilities of doing so — I have now changed my mind. Those who advocate a State-owned third banking force wanted to throw together ACC, ICC, TSB and An Post to create a massive State owned bank to stand up against Bank of Ireland and AIB.
However, when they tried to make that happen, the flaws in the approach showed up right away. Those banks would not have mixed well together. Even if they had, they would not have produced the kind of animal that would compete effectively with the two big players. There were other flaws, which I will come to later, but the important thing is that the idea of creating a third force in banking through State intervention has failed. Whether people want to admit it or not, that is the reality.
Meanwhile, however, the need for a third banking force remains just as strong as ever and market forces are seeking to do what the State has been unable to do. Unfortunately, far from facilitating and encouraging this highly desirable process as I believe it should,  it seems the State is actively seeking to frustrate it. This has come to a head over the issue of the sale of the TSB. There are potential buyers for the TSB and acquiring the TSB could take a buyer a long way down that road to where it could compete effectively with the two big players.
The TSB wants to go along that route. It has done its strategic thinking and knows teaming up with another retail bank makes far more sense than getting into bed with the likes of ACC and ICC. A solution is emerging, therefore, which is based on market forces and market realities. I believe we should be encouraging that way forward, not frustrating it.
The refusal to approve the sale of the TSB appears to be based on ideology rather than practical realities. It is not more competition which some people want; it is a State bank. I believe they are wrong and that the State would be no good at running a bank. There is always a great temptation to bring the State into banking, either by nationalising all the banks or by setting up State banks in competition with the private sector. Either way one would go a long way around the world to find a single example of this working well. When one nationalises banks, all of a sudden they become less efficient and less effective. They often start losing money where previously they made money.
France is a good example of a country where they have nationalised and denationalised banks like the swings of a yo-yo. They have not found that it worked or benefited the customers. It has ended up costing the French taxpayer a packet, as the recent example of Credit Lyonnais demonstrates very well.
What makes us so confident we could create a State banking force that could take on the might of AIB and Bank of Ireland on their own ground overnight? What makes us so confident that we could create a dynamic, thrusting, customer driven organisation from a merger of existing bodies?
 The real danger is that a State bank would end up with all the bad business, leaving the commercial banks to cream off the profitable business. It is a crucial point which has not been made too often or strongly enough. A new State bank could have the effect of increasing the existing banks' profits while at the same time putting a burden of loss on the State and the taxpayer. Is that what we really want to do? Surely not. I can see the arrival of a State bank being welcomed by the two big banks as it would take all the nasty business they do not really want.
We must face up to some hard facts. A fully commercial third banking force would be no soft touch. Of course the State bank could be directed by the Government to have looser lending criteria than the other banks. One could direct it to make riskier loans. The inevitable consequence is not just that a State bank would lose money — perhaps a mountain of money — but that it would attract all the bad risks like flies to a honey pot. The existing banks would be delighted and one would find them refusing people and businesses loans more readily in the knowledge that there is a State bank of last resort which is ready to handle all that rubbishy business. That is why the concept of a third banking force run by the State is fundamentally flawed. It would end up making things worse, not better.
However, the thought behind the idea is sound. The banking sector does need more competition and competition is the customer's best friend. We are still living with the hangover of the old banking cartel which effectively removed choice from the customer and left too much power in the hands of the banks. What the State should be doing is encouraging more competition, not by providing the competition itself but by creating the conditions under which competition can flourish. I suggest that needs immediate action.
Professor Lee Professor Lee
Professor Lee: It is a privilege to second Senator Quinn's motion. I need not point out that I am in no way an  authority, as Senator Quinn is, on this area. Any expertise I have ends at about the 1890s and even there it would be questionable. That is not a joke; I wish it were.
I am taken by the logic of Senator Quinn's presentation. I do not speak as a knocker of banks. Any effective economy needs an efficient banking system and it is the last area to which ideology of any type should be applied. However, we do not have the required level of competition in the retail sector. We have two very big, and in many respects very successful, banking groups. That is a small number even when compared with other small countries.
I am open to correction but I understand that in Finland there are four banks of roughly comparable size — Finnish banks and three smaller ones — in addition to a number of smaller multinational banks. I gather that there are three banks in Denmark. Again I am open to correction because this information was gleaned at high speed recently, given the research facilities available in this institution when one wants to find things out quickly. One of the Danish banks resulted from a merger between a savings bank and a post office bank, so post offices in Denmark are now banking outlets in some respects. I am sure the Minister and his officials know far more about these things than I, but it would be interesting to make comparisons with other countries.
We do lack competition. The margins are very high by the standards of the economies in which our own banks are competing, as Senator Quinn has pointed out. I am not an admirer of the American system. It is a dreadful country in which to try and get cash quickly through the banking system, which is the major role of banking systems as far as I am concerned. There is a question about the need for more competition. It is curious to see the way the banks are sometimes used in debate when issues of competition and enterprise arise.
Ireland was probably unfortunate, historically speaking, in acquiring the  then English system rather than the continental system of banks in the 19th century. The assumption was that the English system was best for us because it was English. The English system was based on the assumption that there was an adequate supply of indigenous entrepreneurs, which we did not have. Our circumstances approximated much more closely to then continental circumstances. That tradition and mind-set has probably continued in a number of ways, even though circumstances have changed in terms of supply of entrepreneurs.
I represent a system which has itself been lambasted for failing to provide support for enterprise culture. The Green Paper on Education contained a famous chapter which criticised the education system as responsible for the lack of indigenous enterprise. When the spurious data on which that was based was exposed as grossly misconceived, to put it politely, I was amused to see that the banks came in as whipping boys for several months for failing to make the advances to small businesses which were deemed to be required. It may be that the small business sector has legitimate gripes against the banks in certain respects, but the question still arises as to how one gets more competition.
Senator Quinn said it can only come from the State or market sector. The proposed ICC, ACC, TSB merger is now generally accepted as ill conceived. It represented an effort to blend identities and mind-sets which are difficult to blend and which would not in any case give the scope which would be required to compete effectively with the two major banks.
I do not speak as an anti-State ideologist, quite the contrary in many respects. The idea of a State bank on this scale seems simply unacceptable for the reasons Senator Quinn detailed from a business perspective. I would look at it from the point of view of political culture. Whatever the success or failure of State banks in other economies and political cultures, the potential for abuse in our political culture, even  though that culture may be changing, is simply too horrendous to contemplate. There is no way the State could allow the State bank to fail. It could not allow AIB to fail when problems arose in that area. There is no way it could allow a State bank, however inadequate or ineffective its management, to fail. That would be a recipe for disaster in terms of the type of activity in which such a bank might engage.
We are therefore thrown back on the market. I too am a great believer in competition. The only qualification I would make to his view that without competition businesses tend to get lazy is that it is not only businesses which tend to get lazy; we all tend to get lazy without competition. Dare I speak for academe, which has enjoyed a certain immunity from the perils of competition? It is quite remarkable how well it has performed in the absence of competition, but I have no doubt there is scope for improving that performance with a little competition. Similarly, I have no doubt there is scope for improving the performance of the banks. One might argue that it is remarkable how well the two main banks have performed in the absence of competition in certain respects. It is not simply that the service to the customer from a new bank would conceivably be better but everybody's performance would improve.
We all know there are suitors for TSB and there are advantages and disadvantages in the case of each potential suitor. However, if it is the case that the proposals are being blocked by ideology, the time should be up on that. We cannot afford the price of ideology in terms of the quality of performance of this economy now or in the foreseeable future.
In many respects we are performing remarkably well. That is partly because everything that could conceivably have gone right in the last couple of years went right. If everything had gone wrong, many of the kudos we have been paying ourselves and the growth rates  we achieved would have plummeted. I do not wish to deprive policy makers of the credit they deserve for having got things right, but we have also been lucky in that a number of contingencies came together in our favour. These could also turn because we do not have control over them. Therefore, the time is ripe to try to introduce a degree of competition — in the retail banking market in particular, as Senator Quinn mentioned — and I urge the Government to give favourable consideration to his proposals. If ideology is blocking these possibilities, it should no longer be allowed to do so.
Minister for Finance (Mr. R. Quinn) Ruairí Quinn
Minister for Finance (Mr. R. Quinn): I wish to respond to the cogent and lucid exposition made by my cousin, Senator Quinn, and by Senator Lee. I know it was not Senator Quinn's intention to suggest, as he seemed to do by inference, that either of the two current State banks were open to political interference and, as a consequence, were unprofitable. The record actually shows the opposite is the case.
When I tried to suggest that members of political parties and local authorities should not be bank directors I had my wings severely and promptly clipped. I admitted that I had perhaps misjudged the situation. However, I still held the view that it was incompatible for elected representatives of any political party to be on a bank board, for precisely that reason.
That was in no way to suggest — and I am referring now to Senator Fahey — that the individuals involved were engaged in any political wrongdoing. It should also be said that both ICI and ACC are making profits. Furthermore, a recent survey undertaken by ISME, the small and medium enterprises association, found that ACC Bank had the lowest range of bank fees and charges for those services normally used by small business customers. In this sense we have State banks that are efficient, effective and make profits. That was not always the case, and the  history of ACC is a sad story of political interference.
As regards Senator Lee's comments on how AIB Bank got into difficulties with ICI, no Government in any open society can afford a major banking crisis. That is why the Bank of England stepped in to ensure that Barings was, in effect, rescued. Of course, private banks fail as well. The lending policies of Hervé Abrer in Credit Lyonnais caused him to lose his shirt in MGM in Hollywood along with some very rich Japanese companies. There are other reasons why banks fail, but I take the point made by Senator Quinn.
Let me return to his central point about competition, which I share. This Government is committed to the creation of vibrant and competitive markets in every sphere of economic activity with the aim of promoting economic development in Ireland. In this context the Government is advancing on a general front while making progress in specific areas.
Certain legislative provisions are important in considering this matter. The competition Act, 1991, confers on the competition Authority power to examine and investigate activities which may have the effect of distorting competition. As the House will know, the Government is now progressing an amendment to the Act by way of the Competition (Amendment) Bill, 1994, which is currently on Committee Stage in the Dáil and will come before this House in due course. This Bill strengthens the role of the Competition Authority by giving it enforcement powers and provides for heavy fines for those found to be engaging in unfair competition.
The Bill also provides for the appointment of a director of competition enforcement who will be empowered to investigate, either on his or her own initiative or as a result of complaints, alleged breaches of competition legislation. This is a significant improvement in the structure of competition regulation and also a necessary one.
 The old system, whereby the enforcement of the Competition Act would fall primarily to private civil actions, has proven to be less than successful. The seriousness of anti-competitive activity in Ireland was underlined in the findings of the Culliton/Moriarty report, which states that: “there should be robust prosecution of policies to eliminate anti-competitive practices”. This policy position was subsequently endorsed unequivocally by the OECD, NESF and NESC, who called for enforcement powers to be granted to the Competition Authority.
The present Bill reflects the Government's commitment to the elimination of anti-competitive practices in all spheres and the pursuit of those who endeavour to engage in such practices. In the specific area of banking some concerns have been expressed in the past at the dominant position of the two major banks in terms of market penetration. Bank of Ireland and Allied Irish Banks together hold approximately 70 per cent of the retail banking market.
For any competitor to participate effectively in this market it is essential that they can generate sufficient presence to secure the type of scale economies which can be realised through significant market share. Achieving the necessary market share through internal growth is a difficult process in any event and is not a realistic option for the smaller banks in the short term.
Also, the changing nature of the banking market and in particular — and this is a very pertinent point — the capital investment necessary to deliver technology based solutions was recognised as a major emerging determinant of the future structure of the banking market.
It is, of course, also essential for the future development of banking and competition in the market that the smaller banks should have the opportunity of gaining access on reasonable terms to the payments systems and network infrastructure which is essential to modern methods of retail banking.
 Major changes were also occurring in the banking market internationally. As in many other areas of industry, the international market is moving at an accelerating rate towards greater globalisation. This has been obvious for some time in the manufacturing sector, and Ireland has experienced both the benefits and the hardships of the globalisation of manufacturing industry.
The banking industry has not been immune to these developments and, indeed, the international dimensions and the implications of developments in international capital markets are all known to Members of this House. It is also essential to consider any proposal for change against the background of the move to economic and monetary union on 1 January 1999.
Therefore, in considering the issue of a third force in banking it was necessary not alone to look at the banks themselves, but also at related developments in the area of consumer protection and regulation of markets via competition legislation, and wider issues concerning international developments in terms of capital markets and the implications of monetary union.
In this context the most obvious solution is not necessarily the most effective or the most expeditious one. Improving competition in a banking market, dominated in both market share and geographical representation by two major recognised players, is a complex business. The Government, therefore, has been concerned with considering all the various options available to it in relation to the banking market in Ireland generally against the background of developments in both the domestic and international markets. To this end a significant amount of work has been completed and other work is ongoing on various elements involved in creating the basis for improved competition. Some of this work has involved the processing of legislation in relation to competition generally, which at the same time contributes significantly to the development of a comprehensive  regulatory framework encompassing the regulation and monitoring of competition in the banking sector.
In relation to the clearing system operated under the auspices of the Dublin bankers clearing committee, the rules relating to the operation of the clearing system have been examined by the Competition Authority, which found that the system is not anti-competitive. The European Commission has also examined the operations of the Dublin bankers clearing committee and found that their operations are not anti-competitive.
Notwithstanding this, the time is now right to upgrade our payments systems to cater for the increasingly sophisticated demands of the markets. An international drive to standardise and co-ordinate national initiatives in relation to the settlement of large value payments has been ongoing for some time.
I understand that the European Commission is at an advanced stage in drafting a directive providing for the legal regulation of payment systems within the EU so as to ensure the smooth functioning of an area wide money market based on the Euro.
The growth of international trade, the size of daily settlements, the increased use of electronic payments, and the volatility of trade flows have caused individual central banks to take steps to address the various risks arising in their own domestic payment systems. From a competitiveness and prudential point of view it is important that the processing of Irish payments is at least equal to that of other EU member states. The Government is particularly concerned to ensure that payment systems in the State remain effective, efficient and open in terms of access, and that the systems themselves do not add to or cause instability in the operation of the financial markets.
Ireland cannot be immune to international developments and, as such, it is proposed to confer powers on the Central Bank in relation to the establishment, supervision and operation of payments  systems in the State. Work on these issues is currently at an advanced stage within my Department in the context of a new Central Bank Bill.
As I have already indicated, the powers of the Competition Authority to investigate abuses of competition law and uncompetitive practices is also being strengthened by the Competition Bill currently at Committee Stage.
I should also make reference to the Consumer Credit Act, 1995. This Act gives power to the Director of Consumer Affairs to investigate the basis of charges levied by credit agencies and finance houses. The Act also provides that banks must get the approval of the Director of Consumer Affairs for any increase in their charges. I am advised by my colleague, the Minister for Enterprise and Employment, that the provisions of this Act are due to come into force on 1 May 1996.
In certain circumstances it has not proved necessary to take action to tighten the regulatory framework and the Government has noted the fact that a number of banks have indicated they no longer require persons setting up in business and seeking capital funding to put up their homes as collateral for loans. This is a welcome development.
The developments I have mentioned thus far relate to the creation of a structural environment which will provide a firm foundation for the regulation of competition and the elimination of any suggestion of overpricing or price fixing in the provision of retail banking services in Ireland. These are essential components in any drive to create greater vibrancy in the market.
In considering the issue of greater commercial competition in the provision of retail banking services, the Government's objective is to foster greater competition both as regards costs and also in relation to the availability of funds. Such a development could contribute significantly to improved competitiveness and greater business activity, which, in turn, will contribute to increasing prosperity and reduced employment. This is the central  thrust of Senator Quinn's thesis and I support and agree with it.
In July 1994 consultants were appointed by my predecessor to identify the various options available to the Government in respect of ACC Bank, ICC Bank and the TSB. The consultants completed their report in October 1994 and presented it to the Department. On the basis of this study, proposals were prepared for the Government which set out a particular view on the way forward.
When I took up office as Minister for Finance in December 1994, I was advised of this position. I examined the papers on the matter and I concluded that the contextual framework for the study was too narrowly based. The sum of the considerations, particularly the role of credit unions, who are now a major player in the financial sector for a large number of people and control funds of approximately £1 billion, and the ongoing role of An Post, which reaches out to an enormous number of people who would otherwise have no connection with the banking sector, was not in any way seriously addressed in the study to which I referred.
The financial sector in general in Ireland is currently going through a period of change. The demarcation line between the services offered by banks and building societies is becoming more blurred. Competition is intense in some sectors and is increasing in others, putting pressure on margins. The competition in the mortgage market is at such a rate that suppliers go on their knees to ask people to take loans whereas previously people had to go on their knees to ask for loans. This demonstrates one of the components of the thesis of the motion.
Mr. Fahey Mr. Fahey
Mr. Fahey: This situation is due to extra competition.
Mr. R. Quinn Mr. R. Quinn
Mr. R. Quinn: Together with advancing technology, this will require the sector to commit large sums to investment. In recent times An Post has made strong advances in retail services. It has  also invested heavily in information technology and the automation of its counter services. The credit unions have also made huge strides in the past few years, including the extensive introduction of information technology systems and major expansion of its community based branch network. A Credit Union Bill is currently being drafted — I regret the long delay of this drafting — which will have the effect of significantly expanding the range of services which credit unions can offer, subject to the approval of the Registrar of Friendly Societies. The Bill will also consolidate and update the credit union legislation, reflecting the role of the modern credit union movement as a major player in the provision of personal financial services.
These significant and ongoing changes in the nature of the market in personal banking services were given insufficient weight in the proposals presented to me when I took over the portfolio. For the most part, consideration was limited solely to the commercial banks within the State sector. I was, therefore, disappointed that matters had not proceeded further and that the broader framework had not been sufficiently addressed.
When I took over the portfolio, a major amount of work remained to be completed before any serious consideration of the available options could commence. To this end I met a wide range of interested parties, including representatives of the boards and staff of all the State banks and senior management in those banks which have expressed an interest in participating in any proposed restructuring of the various institutions.
Throughout the life of this Government the issue of the future structure of the State banking sector, including the TSB, has been under continuous consideration, because the Government wishes to facilitate the State banks so that they can maximise their impact on Irish economic development as well as their own business success. The wider  role of An Post and the credit unions was also considered in this context. The options for restructuring the State banks continue to be examined by me and a number of my Government colleagues with a view to identifying the most effective solution having regard to the nature of the individual institutions, their particular customer markets, the needs of the whole community in its broadest sense and developments in the EU.
I appreciate this matter has been under consideration for some time, but if the matters I referred to earlier had been taken on board when the initial consideration was ongoing we might be further down the road at this stage. The issue of how one might best restructure the banks in order to achieve our objectives in relation to the creation of a vibrant and competitive banking market is complex. I know the need for detailed consideration is understood and appreciated by all those involved and I am assured they are continuing to compete profitably in their chosen marketplace, taking full advantage of the opportunities presented by the current economic climate.
It would be wrong of me at this stage to make detailed statements about what may or may not happen until the matter has been resolved by the Government. Having said that, I must add that I recognise the matter has been under consideration for some time. I am keenly aware of the need to ensure that employees and management in the institutions concerned should not be adversely affected by uncertainty regarding the eventual outcome. This is why I have been at all times available to those most closely involved and have had numerous meetings with all the participants.
This Government would, rightly, be attacked as irresponsible if it abused its position in the financial sector in any way. I have therefore approached this issue in a careful and constructive way. It would be remiss of me not to take into account all the possible scenarios before arriving at a recommendation  which can be put to the Government. However, the Government is at one on the overall objective, which is to arrive at the solution which best addresses the interests of all, in particular customers of the credit unions and An Post.
As I indicated earlier, most of the legislative requirements relating to the market at a general level have been clearly identified and the process of putting the appropriate regulatory framework in place is proceeding satisfactorily. The more complex aspect of the configuration of any restructuring within the market which would have sufficient market impact to be a major force, increasing competition and consumer choice, and which is oriented towards the promotion of enterprise and a socially inclusive agenda, is under serious consideration by me and my colleagues in Government.
I thank the House for the opportunity to put on record my concerns in this area. I share the view that what is behind the concept of a third banking force is to improve competition in the market sector, which everybody recognises is absent at present.
Mr. Fahey Mr. Fahey
Mr. Fahey: I compliment Senator Quinn for introducing this motion on a timely occasion. It is interesting that his cousin, the Minister for Finance, is here to respond to the debate. While both of them favour competition, I align myself with Senator Quinn's concept of competition rather than the one outlined by the Minister.
I support the motion, which calls on the Government to specify if the promise contained in the programme, A Government of Renewal, to establish a third banking force is now officially abandoned. The Minister's speech is part of a series of speeches made by him which have tried to consign the concept to the trash bin. A Government of Renewal states that:
The Government is committed to the promotion of a vigorous Third Force in Banking. Policy will be directed towards ensuring a major  role for the existing State Banks and the TSB in any future restructuring.
We would all agree with this. However, the commitment seems to have disappeared into the rainbow of oblivion. Each week media reports state that the proposal for a third banking force is on or is off. The only Government decision following these stories was to initiate leaks investigations. The Garda have been despatched to interrogate journalists, officials and politicians. Two weekends ago the latest instalment in this long running saga took place when the Tánaiste was reported to have scuppered the plans of the Government's subcommittee. This report has been denied by the Tánaiste and he has claimed that the person who leaked the report, who could only have been a member of the subcommittee, was being mischievous about him. I wonder who the leaker could be.
It appears that a three way ideological tug about the third banking force is taking place at Government level. Fine Gael wishes to sell off a majority stake in TSB while Labour is pressing for a new State led third banking force. Democratic Left does not wish to upset Fine Gael but also does not want an outright sell off of a stake in TSB. This chaos and confusion, which has gone on for 14 months, cannot continue. The “hurry slowly” mode must end. The Government should announce its position, even if that position is that the Cabinet is unable to take a decision and the status quo will apply for the duration of this Administration. That, at least, would be a decision.
There is no indication in the Minister's comments that our situation now is any different from what it was 12 months ago. There was a Dáil debate on this matter in February 1995 and following that debate the Minister for Finance briefed journalists that it was imminent and that work would be carried out during the following two weeks. Nothing happened. The matter was raised again in the Dáil in October 1995 and the Minister said that it would be put to  Government for decision. He said it would be wrong of him to make detailed statements about what might happen until the matter was resolved by Government. It is clear that there is no agreement at Government level. With due respect to the institutions involved, particularly State institutions such as ACC and ICC, the Government should come clean and at least indicate that there is a problem and that no decision is imminent.
I have great regard for Deputy Ruairí Quinn in his capacity as Minister for Finance; he has been most effective. However, I am seriously disappointed with his speech this evening. I agree with Senator Quinn's desire for a more competitive banking market. At present two major banks control 70 per cent of the market, so there is an urgent need for more competition. I disagree with the Minister's belief that the way to introduce competition into the banking sector is through legislation or regulation. Citing the Competition Act, other legislation and the development of a single currency as being effective mechanisms for introducing competition in the banking sector is simply making excuses. I do not accept the examples the Minister offered.
There is only one way to bring more competition into the banking market and that is to have more effective players who can compete with the two main banks. We have seen many examples which show that the two main banks are not interested in competition for as long as they have a monopoly. As the Minister rightly pointed out, we have seen situations where they have been challenged and where competition has been introduced into the market.
Home loans and mortgages are a good example. As a result of good legislation which was introduced to make building societies more competitive, there has been a remarkable improvement in the provision of mortgages and home loans. Instead of having to go cap in hand to the banks for mortgages, the banks are competing with each other to  give them to us. In addition, they are offering much lower interest rates and, in particular, lower administrative costs. It is interesting to see that Bank of Ireland or AIB will cover all administrative costs which 15 to 18 months ago would have cost the consumer up to £1,500. That is how to introduce competition in banking. It will not arise as a result of regulation and legislation but as a result of politicians creating a third banking force which will be able to provide the type of competition that is necessary.
I support Senator Quinn's motion. The uncertainty has inflicted immense damage on TSB, ACC and ICC, three State banks which we are anxious to see develop and go from strength to strength. I am concerned that this paralysis is damaging Ireland's banking reputation both at home and abroad.
Mr. Burke Mr. Burke
Mr. Burke: I wish to share my time with Senator Cregan.
An Cathaoirleach An Cathaoirleach
An Cathaoirleach: Is that agreed? Agreed.
Mr. Burke Mr. Burke
Mr. Burke: I welcome the Minister for Finance; he is a diligent visitor to the House. I compliment Senator Quinn on the motion, although I must agree with the Minister that this issue requires more debate. The subcommittee set up by the Minister should consider every aspect of this matter before a final decision is made.
There are three areas where we can make the banking sector more competitive. Some areas of the market are well catered for while others are not. The mortgage market is very well catered for at present. There is a large number of building societies in addition to banks in that market and it is extremely competitive. In the last two years we have seen a constant reduction in mortgage interest rates, particularly for first time buyers. We need not worry about the mortgage market because there is sufficient competition in that area.
The Minister pointed out that a commitment was given by the main banks  regarding clearing houses. The smaller banks have to pay considerable amounts of money to enter the clearing house system. In the recent past the main banks promised they would reduce charges for clearing houses. Since they have made such promises they should honour them, and if they do so small players in the market such as smaller building societies, banks and credit unions will benefit.
The third area I wish to mention is banking for business. There are two aspects to this and one of them relates to larger business. Larger business is well catered for. A check on the double A rate and the triple A rate will reveal that over the last year or two the band between the triple A rate for big business and the double A rate for small business has widened considerably. These rates should be brought more into line. Big business people are well looked after by the two main banks and they control 70 per cent of the market.
The area that concerns me is small business. As a small business person, I believe small business is getting a bad deal from the banks. The Minister should call on the banking institutions to reduce interest rates to small businesses. About 90 per cent of all businesses in Ireland are small — ten employees or less — and they are the real breadwinners for the economy. If we are to build indigenous industries we have to concentrate more on small business. The small businesses tend to operate with the small banks. Mortgages and big business are well catered for but we have to look after small businesses.
Mr. Cregan Mr. Cregan
Mr. Cregan: I agree with the substance of the motion but I do not agree with what Senator Quinn has said about how a third banking force should be operated. We must be careful. The Minister's contribution considered ways forward and the Government is at one on the objective of arriving at a solution which best addresses the interests of all.
I do not want the creation of a cartel of three banks. We have a cartel of two already, which has not been good,  particularly for the small business sector. Within a three to four year period the two main banks will make £1 billion out of the Irish people and I do not agree with that. We should not now be in a hurry to allow a cartel of three to make perhaps £1.5 billion in a ten year period. Is that the right way to proceed?
As Lord Mayor of Cork in 1991-92, I was involved in the buying of the Dublin Savings Bank by the Cork and Limerick Savings Bank and the subsequent creation of the TSB. That change did not appeal to all of the savers who had put money into the Cork Savings Bank since the early 1940s. We should not give the impression that the banks did not build fast enough. Where did the Munster and Leinster Bank come from? The Leinster Bank joined with the Munster Bank and they created the AIB. All the banks started small.
A third of the people bank with the two major banks and each of them makes about £100 a year for every person in the country. How does that come back to us? Why should we not try to get the best out of what we already have? If we have silver in ICC, ACC and the TSB it is worth gold and I do not want to give that up easily. Ireland is the best place in the world for banking because there is nowhere else with higher margins — I do not think Senator Quinn would disagree. I will not allow our silver, so to speak, to be taken away so that the people no longer have it.
Let us be careful to get the best for all, our young people in particular. That has been done with the building societies and mortgage provision. The credit unions are working well; An Post is also working well and making profits. I am in no hurry to create a cartel of three and there is a danger that could be the result. However, I am in a hurry to create a third banking force, but we should put it in competition with those who want to earn £1 billion from the people over the next three to four years. I remember the banks were making profits of £14 million a year not so long ago, yet this year the AIB will report a profit  of £365 million. That is a large amount for a small State. Should we not do the same for ourselves?
If we want a third banking force why not give the managing director a large amount of money to run it properly? We should not refuse that simply because it may be a State operation. Do we say that of ESB or Telecom Éireann because they are now being rationalised and make money?
I do not want an impression to be given that we are in a hurry. We should not be. We have silver and it is worth gold and we should look for gold in return for that silver. I am aware of how individuals can suffer at the hands of the banks. I am also aware of the motivation that credit unions can give people to better themselves.
Mr. Mooney Mr. Mooney
Mr. Mooney: I support the concept of a third banking force and I am in sympathy with the motion put forward by the Independent Senators. Like many of my colleagues, I am a private consumer of banking services, unlike Senator Quinn, who is a business consumer. There are complex issues to be decided before a third banking force could become a reality. The questions raised are valid and will require much deliberation by the Government and the proponents of the third banking force.
Who will it benefit in the end? The groundswell of support for a third banking force developed as a result of what were perceived by the ordinary five eighths of the population as enormous profits being generated by two banking groups. They seemed to have been in an anti-competitive, cartel situation which made life difficult for the individual consumer and small businesses.
Somebody once said of their philosophy that they were very left on some issues and very right on others. I come down on the side of the right in this case because I am a subscriber to the concept of the free market, particularly in areas that impact on the consumer. I would never suggest that Bank of Ireland or AIB are in the business of actively discouraging  business. They make enormous profits by Irish standards, but in the European context they are small players. The international record of AIB and Bank of Ireland, particularly in the US, has not been covered in glory. They do not have a monopoly on corporate wisdom other than their obvious success in Ireland.
If the two main banks are successful in Ireland and in an increasingly global market where rationalisation is the order of the day and where, although small may be beautiful it is not very effective, they should not be penalised for generating profits for their shareholders. Much of this debate may be about whether the two main banks are carrying out best practice in their business methods and not necessarily just about creating a third banking force. As Senator Cregan rightly mentioned, a third banking force may become a possible addition to the existing cartel rather than a panacea for the real or perceived difficulties consumers face because of the existence of two banks.
Are these banks operating in the public interest, despite their profit motive and the fact that they are public companies owned by their shareholders rather than the State? Are they operating in a competitive environment? Are they breaking the law? Statistics and research seem to suggest they are making as much money as they can for their shareholders while, at the same time, being conscious of their responsibilities to their customers.
It may seem I am against the idea of a third banking force but I am not. Fianna Fáil policy is strongly in favour of it; it is part of our party's manifesto and it was part of A Programme for a Partnership Government. I have little difficulty with the wording of the motion which includes the phrase “mindful of the wide benefits that could flow from greater competition in retail banking”. However, I remain unconvinced that the type of bank, a third State owned bank, is in the long-term interests of the consumer. I am not anti-State;  we have some excellent semi-State bodies which could hold their own in any competitive environment.
Would a third State banking force, which is not mentioned in the motion but which seems to be the thinking in certain Government circles, be beneficial? The main difficulty is that there are three parties in the Government which have different philosophical approaches to a third banking force. This idea has been around for some years but it does not seem to have progressed very far. References have been made to the Competition Authority and the Minister mentioned the complexities of a third banking force. It would help if the Government outlined its thinking in this regard rather than referring to global views and nebulous attitudes.
What advantages will a third banking force have for consumers? I understand that approximately £10 billion is currently held on deposit in banks, which is generating 0.05 per cent interest. If banks are concerned about being responsible, why do they not advise their customers that they could get a better rate of interest elsewhere? We do not need a third banking force to do that. Would a third banking force become part of the existing system where profit motive is its only raison d'être or would it help to reduce the high charges imposed on businesses in the private sector? Would the recent move by building societies, such as the Irish Permanent, into a public company and the rumoured flotation of Irish Nationwide and First National have any impact on the creation of a third banking force? What role would the post office network play? It has been suggested that the banking facilities in post offices should be extended to respond to customers' needs. It has also been suggested that the post office system is under-used. This might help to allay the fears of people in rural areas where post offices are being closed.
There are a variety of aspects to this complex question. I agree with a third banking force if it will benefit this country  in the long term. We should publish a discussion document and then draw up proposals in this regard.
Mr. Calnan Mr. Calnan
Mr. Calnan: I am pleased to have the opportunity to speak on this motion and I compliment the Independent group for tabling it. The motion includes the phrase “mindful of the wide benefits that could flow from greater competition in retail banking”. This is an important note of caution. The Minister concluded in the same vein by stating: “It is a complex and difficult issue, but it is more important that we get it right than that we proceed with undue haste”.
The idea of a third banking force was put forward by the Labour Party prior to the last general election and every party in the last two Governments included it in their Government programmes. That would not be the case if the idea did not have merit. All Members are aware of the need for a third banking force. There is considerable dissatisfaction among the public about the current state of affairs in the banking system. People believe they are not getting a fair deal from the major banks. They resent the high charges and their slowness in passing on interest rates when they benefit the customer. They want changes in this regard. Groups representing employers, particularly small businesses, also feel that the banking system is not playing its role in providing financial capital for enterprise. Small businesses have the potential to deliver much needed employment growth. If we have a third banking force and competition in this area, the problem of unemployment could be dealt with more effectively.
Despite not having achieved our objective in relation to the establishment of a third banking force, there has been some progress in this area. I refer to the Consumer Credit Act which comes into effect in May. This legislation should buttress consumers when dealing with credit institutions and it should help to alleviate concern about banking operations.
 There seems to be cross-party support for some from of increased competition in the banking sector. I presume this has been delayed for so long because of disagreements over how to implement it. Assuming there is widespread support for increased competition in the banking sector, it should be State led. In response to the argument that all we need is further competition in this sector, the banks stated there is increased competition in the sector. The recent floating of the Irish Permanent and the proposed expansion of the services supplied by the credit unions are cases in point. Individual customers are likely to benefit from this increased activity. Nevertheless, to ensure this is carried through with or without a third banking force, there is a case to be made for a bank clearing system.
I compliment the credit unions on the work they have done over the years. Circumstances often cause great difficulty for people who would never go to banks but credit unions come to their assistance and they have done tremendous work. Everyone involved in that movement deserves our thanks for what they have done for the less well-off in our community and for enabling people to escape the trap of moneylenders when dealing with common expenditure such as First Holy Communion or Confirmation — they can borrow a small amount and pay it back at a reasonable rate.
Better and cheaper services for personal customers is only one part of the argument for a third banking force. Another aspect is support for small and medium sized enterprises. I reject the conspiracy theories which abound in this area; experience in my constituency indicates that banks are prepared to lend to some businesses but not to others. Some find it easy to get start up capital: others, with ideas which are risky but more likely to be of long-term benefit to the community, do not fare as well. Those starting up businesses under the enterprise boards sometimes find difficulty with banking services.
 The existing State sector plays a useful role in this regard. The ICC has managed the Government small business fund very well. Take-up of this special fund was rapid, confirming the suspicion of Members of both Houses that there is employment generating potential which has not been tapped. The problem is that private institutions are solely interested in profit. They have responsibility not only to the community but also to their shareholders. The advantage of a State-led third force is that it could take a longer-term view.
The State sector also has the ability to deliver in a way that the other possibilities under discussion do not. If we believe competition is necessary, particularly against the two larger banks, the size of the competing force must attain the appropriate critical mass. The State has at its disposal the ACC, the ICC, TSB and An Post. From these, and possibly only from these, can a bank of sufficient size be created. An Post, for instance, has in recent years greatly expanded the level of retail services it supplies and, if anything, it is now a better potential partner in a State-led bank than it was previously. It is difficult to see how the privatisation of any one or two of these banks could have the desired effect.
Another reason the State should lead the challenge to the existing banks is its requirement, for reasons of general economic policy, to keep abreast of development in global banking. If we proceed with economic and monetary union in a few years' time, the Central Bank of Ireland will become a subsidiary of the European Central Bank and at that stage a third banking sector could play a useful role for the State.
Similarly, a State bank would at least ensure the provision of Irish banking. Given the imminent changes in the banking system, we cannot be certain that all the existing banks in the private sector will remain in Irish hands. Already the possibility has arisen of the Irish Permanent falling out of Irish ownership. If we had a State owned banking force, we would be assured of  at least one bank with its focus singularly on Ireland.
In a contribution on the Adjournment in the Dáil last month, the Minister for Finance reported on the current position of this issue. I understand the difficulty for him; in particular, the concerns of employees must be paramount. I reject the idea that this is simply an issue of privatisation versus State control. If we draw an analogy between this matter and the problems facing Telecom, the results are instructive. A decision has been taken for Telecom to have a strategic partner. This view has been adopted to enable the company to expand and diversify its level of services. It is a strategic decision based on the future development of the telecommunications market. What applies to that sector should also apply to banking. We must re-examine why this proposal was made in the first place, whether that problem continues to exist, and address our response accordingly. A third banking force, properly developed, would give us increasing prosperity and provide the back-up needed for the enterprise boards to create jobs so that people can get working again.
Mr. Sherlock Mr. Sherlock
Mr. Sherlock: A third banking force is vital to the development of a social agenda in banking but I am afraid Senator Quinn and other Senators of like mind approach this topic from a totally different perspective. They want the Government to facilitate the emergence of a third banking group from existing market forces. I, on the other hand, remain committed to the concept outlined in the Programme for Government, which states:
The Government is committed to the promotion of a vigorous Third force in Banking. Policy will be directed towards ensuring a major role for the existing State Banks and the TSB in any future re-structuring.
I find it disappointing that the debate on the creation of a third force appears to have lost momentum in recent months, although there have been other pressing  issues, ranging from budget preparations to Northern Ireland. However, society and the citizens who comprise it cannot be left to the not-so-tender mercies of an unfettered market, free of all social control or duties. At a time when national economies find themselves increasingly subservient to the imperatives of the global market, the need for a State policy on banking is perhaps greater than at any time since the emergence of mercantile banking in the middle ages. Any State framework for banking must reassert the wider social and economic role of banking. In this regard, developments such as the Consumer Credit Bill, the forthcoming credit union legislation and the promised Central Bank Bill, to name just a few, will help create a climate favourable to the development of a State policy on banking. The creation of a so-called third banking force, which I favour, is only one aspect of such a policy, albeit an important one.
Institutions such as the TSB, the ICC and the ACC have in the past performed valuable service. We now have an unprecedented opportunity to build on the achievements of these institutions and to prepare them for competition while, at the same time, ensuring there is an effective counterweight to established retail banks. I do not believe the decision can or should be postponed any longer. Apart from other considerations, both the ICC and the ACC are in need of early capital injections if they are to compete effectively.
Last year, Democratic Left examined a number of relevant issues and brought together several proposals in a discussion document called Putting Competition into Banking. That document set out an agenda for change which would put the social and wider economic role of banks on a par with their narrow, purely for profit remit. If that agenda was implemented, it would enable the creation of a third banking force which would place consumers, whether private or business, above profit. The document also sets out a risk taking vision of banking, with bankers  engaged in the business of investing in business for the long run rather than lending to companies in the short-term and running away at the first fall of snow, as it were.
A broad view of the third force idea would include consumer rights, liberalisation of credit unions and capitalisation of State banks. We have an unprecedented opportunity to create a comprehensive banking policy and it should be grasped.
Mr. Dardis Mr. Dardis
Mr. Dardis: I have been caught slightly unawares as I had to prise myself away from the post-match hospitality — and hostility — at Lansdowne Road.
Mr. Lanigan Mr. Lanigan
Mr. Lanigan: Who won the match?
Mr. Dardis Mr. Dardis
Mr. Dardis: Newbridge College; I am sure Senator Quinn shares my satisfaction at that.
Mr. F. Quinn Mr. F. Quinn
Mr. F. Quinn: I am delighted to hear it.
Mr. Dardis Mr. Dardis
Mr. Dardis: I support the motion. It is important that we ensure we know what we are talking about and that we draw the distinction between the word “group”, as used in the motion, and the other word, “force”, which is frequently used in this context. There is all the difference in the world between a third banking group and a third banking force.
There is nothing to recommend the proposals regarding a third banking force. Banking is not the business of the State, unlike the regulation of banking, which is. The Government refers to the Competition (Amendment) Bill and the need for increased competition within the sector, sentiments which I endorse. However, this is achieved by way of legislation. To introduce a third banking force run by the State will not provide the degree of competition and the edge required to ensure that the existing  banks perform the functions required of them by the economy as a whole and by those borrowing from them.
Given that we are living in a time of political correctness, we had to declare our interests in the past week. In this respect I declare an interest in that I am a shareholder in one of the banking groups within the State. However, banking is not the business of the State. When it gets involved in this sector it frequently makes a mess of it with the result that, as with Aer Lingus, it eventually has to find money to bail out the bank involved, which is a very curious way of running a banking operation.
While there is an onus on the State to regulate the way banking works and to ensure there is competition within the sector, it is not the business of the State to be involved in banking. An exception can be made, because there are certain circumstances where the State may involve itself. For example, after a period of economic depression in this country there was a great need for investment in agriculture to improve buildings, machinery and farming in general. In this regard, the Agricultural Credit Corporation played a useful and important role, and in doing so assisted the economy. When it was established it could not have been described as a bank. It is now ACC Bank; at that time it was the Agricultural Credit Corporation. There is an important distinction to be made here.
Some Senators referred to banks not supporting community effort or small businesses. I have a degree of sympathy with this point of view, but it is more appropriately dealt with by way of grants or some kind of State subvention, rather——
Acting Chairman (Mr. Sherlock) Acting Chairman (Mr. Sherlock)
Acting Chairman (Mr. Sherlock): Senator, your time has expired.
Mr. Dardis Mr. Dardis
Mr. Dardis: When one is enjoying oneself time flies. The banks are somewhat risk averse. They should take the  risk at times, because those who should be assisted are not always assisted. In addition, there is no competition. For example, on any high street in Ireland the banks offer the same kinds of rates and conditions, whereas on any high street in Europe different rates and conditions will be offered. This is what we need here, which is why I support the idea of a third banking group.
Mr. Wall Mr. Wall
Mr. Wall: I welcome the opportunity to contribute to this important debate about establishing a third banking force. I also thank Senator Quinn for raising the issue. Over the years, banks have played an increasingly dominant role in our lives and the face of banking has changed dramatically. It is now possible to bank over the telephone and to do business with a bank in a faceless fashion. Banks as we have known them have undergone a revolution.
The new charges they levy are very high and undoubtedly contribute to their level of profits. According to its latest annual report, AIB Group now earns profits of £360 million per year, which is more than £1 million per day. What percentage of these profits is made from customer charges? This high level of charges is a major bone of contention to many, both inside and outside the House. Customers have suffered and have been penalised. They deserve better treatment from the banks. Competition will reduce charges and improve services.
The cartel operated by the big banks does not benefit customers. It should not be forgotten that, between them, AIB Group and Bank of Ireland Group, the two big banks, control over 70 per cent of the retail banking market, which is crying out for competition. Irish bank customers will relish the opportunity to conduct business with a bank that does not charge such high rates. This is why a third banking force, as advocated by the Labour Party in the 1992 Programme for a Partnership Government  and in the programme, A Government of Renewal, is needed.
Ireland had a short lived State bank in the period 1919-26. The National Land Bank was established to provide loans for the purchase and subdivision of estates and for those setting up farms. It is regrettable that this bank was not nurtured and allowed to develop. Had this happened, there may have been no need for this debate.
The Labour Party believes a third banking force is required for three reasons. In the first instance it would improve banking services for small and medium sized enterprises; second, it would enhance competition in banking; and, third, it would maintain a State presence in Irish banking. I urge my colleague, the Minister for Finance, Deputy Quinn, to ensure that Government presses ahead with the proposals contained in the present and previous programmes for Government.
We need a third banking force to cater for a wide range of customers, from business to regular non commercial customers. I have met many small business people who have had problems in dealings with their bank. While there are banks who say “yes”, we too often hear of those who say “no”. A third banking force would be more responsive to the needs of business people, especially to those who run small businesses. Small businesses offer huge potential growth in employment. However, they need adequate financial capital, on suitable terms, for their investment requirements. A third banking force would fulfil this role.
An Post and the credit unions, located in many villages and towns throughout the country, could play a major role in a third banking force. As a lifelong member of the credit union, I advocate that they be included in such a force. I hope both of these options will be considered in the context of the establishment of any third banking force.
 I thank the Minister for attending the House and updating us on this issue. Let us not make the mistake that was made when the first State bank was opened and then closed. I urge the Minister to ensure that all the necessary work is done before such a bank is again established. It is an issue of vital importance and one which we cannot get wrong.
Mr. Lanigan Mr. Lanigan
Mr. Lanigan: I agree with the general thrust of the arguments put forward on the motion. A third banking force is emerging in Ireland. It is taking from the increasing role of the Trustee Savings Bank and the banking facilities emerging from former loan companies for houses, such as Irish Permanent and First National Building Society. Competition is growing from this force, which is not connected with the main banking groups, whether it be AIB Group, Bank of Ireland Group or National Irish Bank.
As a business customer of a bank for many years, I have had more than my share of problems with banks. Problems were always resolved on the basis of face to face confrontation, based on figures which were or were not produced and the delivery by me on the one side and by the bank on the other side. They were also based on the trust built up between individuals and between the institutions through individuals.
Retail banking is going through a phase at present where individuals do not count anymore. In most of the banking groups, the customer does not know who is responsible for approving the loan. Those working in the banks will suggest that the customer gets on to headquarters and say that once the customer gets on to headquarters, things will start to happen. I am talking about smaller businesses, not about the major international or national businesses, which have their own way of doing business.
 Retail banking for the smaller customer is changing and the personal content is being left out. When the personal content goes out of retail banking the customer suffers. Customer services in banks are being reduced. The banks would like us to use plastic cards, the telephone or the Internet — anything rather than deal with them face to face. In the major banking groups at present personnel are changed around at the whim of the regional manager or somebody above regional manager level. Someone working in a particular branch of a bank today might be in another branch tomorrow. There is no branch manager in certain AIB offices, only subsidiary managers; the personal contact is not there. Without personal contact, trust cannot be built up and banking becomes depersonalised.
The lad with the big hands has been forgotten about. The man who can dig a ditch, who can make money out of muck, as they used to say long ago, is gone. Many senior people have been released by banks. When a customer tries to borrow money to buy six JCBs, the computer does not know what a JCB is; neither does the young lad behind the counter who has his MBS. He wants a computer printout of the prospects for the particular business; he would not know a JCB from a pen. Older bankers are now being brought back in as consultants. Many banks have no employees over 50 and they would not know what a quarry or what a JCB is, but they know what a computer is.
The banks advertise new products all the time. When I was in the bank — I was in the Provincial Bank, which was one of the old established banks years ago — business was done through personal contact, the same way as deals were done at cattle fairs. People got to know how to deal with each other through relationships. There were people one could trust and people one could not trust and these things emerged through personal relationships.  Most of the people who set up businesses in the 1950s in Ireland would not get a loan to start a business today, because the young people who are in banking today would not know the difference between a shovel and a pencil, but they know about computers. They know about the Internet and the worldwide web but they do not have a clue about people.
The third banking force I would like to see created is an extension of the credit union system. Everybody in the credit union is a shareholder; everybody is involved. The credit unions are multimillion pound businesses. Smaller banks, such as the TSB, are expanding at present. They are competing very strongly in the marketplace because they realise that relationships and businesses are built through face to face contact. The third banking force should not be a State imposed system. This kind of system cannot work. I would not deal with a State imposed banking system; neither would most people.
If a survey was carried out of the results from investment in Ireland other than personal investment in one's own business, the biggest results gained by any investors in any shares in this country in the past 50 years were gained by those who invested in the Post Office. This is proven by analysis of pound for pound investment in various kinds of shares. An post has given the highest return and still gives the highest return on money invested. The State should raise the limit any one person can invest in An Post savings schemes; then we would have the basis for the third banking force.
The third banking force is not the fight I will have with my bank manager in the morning. It is a system of genuine competition in the market, not the present artificially generated competition, which is being eaten into at the retail end. I sincerely hope that there is a third force and that it heralds the repersonalisation of the banking system. I  hope that people become important again in banking and that banking and profit become things we can live with.
Mr. O'Kennedy Mr. O'Kennedy
Mr. O'Kennedy: I support this motion and I thank our Independent colleagues for bringing this issue up for discussion, albeit briefly. The third banking force is already underway in the reaction of the community to the current banking system. I am thinking in particular of the credit union movement. The growth in participation in the credit union movement and the confidence which people feel in the credit union movement is in itself a clear indication that even if we were never to suggest the introduction of a third banking force, it is already underway throughout the country.
Every single community in my constituency, and I am sure it is no different in others, has its own credit union. The level of responsibility and sharing and caring, which is a very essential part of any properly enlightened banking system, is demonstrated in the huge growth, not only of the assets but of the business of these movements. It is significant that one person, Mr. John Hume, who has done more than any other person in the interest of his community, was very involved in the development of the credit union movement many years ago in his own local area. For that and other reasons, we should support that movement as vigorously as possible.
We should remove any unnecessary restrictions, some of which were not intentional, on the credit union movement, and actively encourage the growth and development of that movement, which can be channelled both for business development and necessary social purposes. This debate allows me to commend that movement. I hope the Minister, in looking at whatever amendments need to be made to the statutory regulations in respect of the credit union movement, will do so in a spirit of support for this excellent movement which  is growing apace throughout the country.
For historical reasons which I do not have time to go into, the existing banking structure in Ireland differs greatly from the banking system throughout Europe and in the epicentre of growth in the world economy at the moment, that is, in the ASEAN and Far East region, including countries such as Japan and China. The banks there do not see themselves as being set apart from the entrepreneur or the risk taker. They consider themselves part of the entrepreneurial and risk-taking spirit and they take shares in risk. They are involved in success when it occurs but they also accept losses. Irish banks have not learned to play a dynamic part, as is demonstrated throughout Europe and particularly in the Far East, which, let us face it, will become a driving, dynamic world economy. They see their role as being involved in promoting and supporting risk-taking and taking losses wherever they occur.
Irish banks have developed on the basis that they operate in an environment where they have an almost statutory protection. I welcome this motion because it is time that secure and protective atmosphere changed. I have no inherent objection to profit. However, when I consider that Allied Irish Banks made profits of the order of £360 million — to which I made my own measly contribution — I ask if this is the function we wish to see our banks discharge in order to pay their shareholders? What contribution are those shareholders making socially and economically to the development of the economy?
When I served as Minister for Agriculture, I had some experience in determining national priorities. On taking office in 1987 it was clear that the country was faced with a situation where the national beef herd had decreased to the point that we risked  the decline of the entire industry. For that reason I decided to introduce special incentives for the promotion of the suckler herd within the agricultural economy. I invited the banks to take part in that venture and pointed out that they would be the main beneficiaries if it proved successful. Most of the banks were prepared to participate but one — I will not finger the guilty party — refused to become involved. As a result, a necessary national venture never got off the ground. That was a terrible indictment of a bank which likes to be associated, in name and otherwise, with Ireland. In my view, that is not indicative of the kind of response one should receive.
As Minister for Agriculture, I was involved in encouraging the promotion of change within the ACC Bank. The manner in which that bank adjusted toward a vigorous participation in the banking system is one of the most encouraging developments I have recently experienced. I pay tribute to the bank's chairman, Mr. Dan McGinn, who has vigorously adopted the position that development takes priority but that the customer relationship must also be given priority. One sometimes meets people who, because of circumstances outside of their control, have fallen on hard times and the ACC Bank has discharged a great responsibility in dealing with them. I pay tribute to the chairman and those responsible for that major contribution.
Mr. F. Quinn Mr. F. Quinn
Mr. F. Quinn: I welcome the opportunity to reply to the debate.
Acting Chairman Acting Chairman
Acting Chairman: In the normal course of events, the Senator would be called to reply at 7.55 p.m. He is replying earlier but is still confined to speaking for five minutes.
Mr. F. Quinn Mr. F. Quinn
Mr. F. Quinn: The motion calls on the Government to facilitate and actively encourage the early emergence of a  third banking group through the operation of commercial forces in the marketplace. I thank the Minister for Finance, Deputy Quinn, and the other Ministers who attended this debate. I also thank Members for their contributions.
I am now of the opinion that I should have tabled a motion which called for the active emergence of a third, fourth, fifth and sixth banking force.
Mr. O'Kennedy Mr. O'Kennedy
Mr. O'Kennedy: Hear, hear.
Mr. F. Quinn Mr. F. Quinn
Mr. F. Quinn: Having listened to those who spoke about the benefits of the credit union movement, An Post savings scheme, the ICC, ACC and other banks and building societies which have entered the business of banking, I am now more than ever convinced that competition represents the way forward and we must find a way to encourage this. This was a very healthy debate because contributors concentrated on the area of competition.
I tabled this motion because I am concerned that we do not stifle competition. I am still not convinced that we recognise the importance of competition. If we can generate competition and ensure that it is present we will have a healthier banking force which will benefit the entire community — small and large business and individual citizens. The reason for my concern is the existence of the pitfalls that await us. The Minister for Finance referred to the advent of European Monetary Union on 1 January 1999 and the fact that competition will become increasingly fierce as a result. If we have not established a spirit of competition in the Irish marketplace which is capable of competing, we will be faced with a serious situation. The market is changing constantly and dramatically.
The business of banking is a fluid one and is, therefore, very difficult to control centrally. This brings me to a crucial  point to which a number of Members referred. During his contribution the Minister referred to the Competition Authority, the powers of the Central Bank and controls. I fear these will not cater for the fierce and rapidly changing competition that is required. As the market changes, we must also change.
In the 1970s I entered business by borrowing money from the bank. I returned to seek further loans when required. At a Banker's Institute dinner, the chairman of the bank made my day when he asked me to sit beside him and informed me that good borrowers are scarce. I had never heard that before and had assumed for some time that the banks were doing us a favour by providing loans. I was stunned to discover that bankers needed us because they made money from us. I had never realised this and enjoyed my meal as a result.
Mr. O'Kennedy Mr. O'Kennedy
Mr. O'Kennedy: He referred to “good borrowers”, he was not taking a risk.
Mr. F. Quinn Mr. F. Quinn
Mr. F. Quinn: Perhaps he was taking risk enough.
The Minister stated that the Government's objective is to foster competition. I say to him “By their works shall ye know them.”. Senator Sherlock stated that the movement toward competition has lost momentum. However, the Minister also stated “this is under continuous consideration”, “it will continue to be examined” and “it has been under consideration for some time”. I am glad to hear that it is being considered by Government. I accept this but I am not sure we should accept it in six months. Senator Cregan stated that we should not be in a hurry but I believe that we have no time to wait. Our patience will be tested if the Government does not provide an answer to this problem within six months. This debate has been useful because it has focused our attention on the importance of not only  considering this matter but making sure that action is taken.
Question put and agreed to.
Acting Chairman Acting Chairman
Acting Chairman: When is it proposed to sit again?
Mr. Wall Mr. Wall
Mr. Wall: At 10.30 a.m. tomorrow.
Seanad Éireann 146 Competition in Retail Banking: Motion.