Last weekend I spoke to Brian Hayes chief executive of the Banking and Payments Federation Ireland on RTÉ Radio One.
s he outlined the industry’s reaction to the imminent departure of yet another bank from here, I couldn’t help but wonder if things kept going like this would the lobby group have any members left?
Ulster Bank and KBC are heading for the exit door. In the last twenty odd years the banking sector has lost Anglo Irish Bank, Irish Nationwide Building Society, Rabobank, Danske Bank and Bank of Scotland (Ireland).
Their departures from the Irish banking sector meant that we also lost the banks they had acquired. This includes ACC Bank (set up by the state in the 1920s and bought by Rabo), ICC Bank (set up by the state in the 1930s and bought by Bank of Scotland), First Active (bought by Ulster Bank).
The list is enormous. It doesn’t include the last surviving mutual lender, EBS, which also booby trapped itself in the boom and is now owned by AIB.
As for the Banking and Payments Federation, they have 19 members listed on their website, of which two are leaving, so I’m sure the group will be around for a long time to come.
Normally we like to give out about banks. As consumers we feel we aren’t getting a good enough deal. We look at their super profits and question how they can make so much money.
But this time it is different. These banks, Ulster and KBC, are leaving the Irish market because they cannot make a decent return on their investment here.
Some of it is due to the legacy bad loans they foolishly issued during the boom years. Some of it is due to the high level of capital the Central Bank makes them hold because of those legacy issues.
It isn’t clear whether banks can be trusted not to cut loose on lending if given half a chance. The tracker mortgage scandal set trust back another decade.
The mortgage caps are a good example of this. Who would need tough mortgaging lending caps if banks were trusted to lend responsibly?
The banking industry will argue that in order to lend €100,000 a bank in Ireland must keep €5,500 of real money in Ireland, compared to Germany where the figure is €2,000.
Another factor highlighted by the industry is the fact that if you don’t pay your mortgage in Britain for example, your home will be repossessed within 10 months. Here the comparative figure is 44 months according to the industry.
The argument goes that the Irish banking public in general is paying a high price for all of this.
These are specific factors affecting the banking landscape in Ireland. Throw into the mix the Europe-wide trend towards consolidation, and the global trend away from retail branch banking and towards technology.
Another major factor is the continued period of low interest rates which makes it harder for banks to make money.
Real changes are taking place and what we are seeing in Ireland is part of that wider process.
Yet, there is still something about all of this, which doesn’t add up. We have a growing economy, an increasing demand for housing and mortgages. We have some of the wealthiest multinationals in the world with sizeable operations here. We have one of the lowest rates of corporation tax in Europe.
Banks are even carrying tax losses from the crash which would help reduce tax bills further.
The danger is that we end up with too few banking options and a carte blanche for the big players to milk it.
The industry will want to lay some of the blame at the feet of the regulator. It is the regulator’s job to make sure banks in Ireland don’t go bust – again. It is not the regulator’s job to develop the industry.
It would be a brave politician who would start advocating that banks should be allowed to take higher risks in their lending policies or to carry lower reserves on their balance sheets for a rainy day after what happened here in 2009.
Especially given that so much of the money put into saving the banks during the crash has not yet been returned.
The fintechs, or newer financing entrants to the Irish market, are in a position to cherry-pick customer segments they want. That is not a bad thing if it brings competition and gives consumers and small businesses a better deal.
Solutions here are hard to find. If we let the market take care of itself, we may find a plethora of specialist players and just two dominant full service profiteering banks.
But how can the State intervene? As I said, pressurising the regulator to ease up is a risky political business. One suggestion is for the State to set up a new bank.
The idea is that it would not have the same profit growth goals, but it would have the financial resources to compete and offer an alternative. How would the State finance that bank? Why would the European Commission allow the state to do that?
And of course, the State already owns over 70pc of two of the remaining three players in the market. The idea won’t work.
There is a temptation here for the State to intervene in running AIB and PTSB in particular. This wouldn’t work in anybody’s long term interest.
We need very strong consumer enforcement regulation from the Central Bank and other consumer protection agencies. Politicians should grant whatever new powers are needed on the consumer protection side along with developing a powerful consumer advocacy culture within the regulator.
The regulator must be just as strong on preventing rip-offs as it is ensuring the banks don’t go bust again.
