The announcement of Ulster Bank and KBC’s departure from the Irish market coupled with the closure of 88 Bank of Ireland branches has sparked many Parliamentary Questions, a Seanad debate, and two Dáil debates.
alls for establishing a forum or commission on the future of banking in Ireland, though initially not supported by the Finance Minister, now seem to be gaining traction, albeit rebranded by the minister as a “review process”.
One common theme of speakers on the subject was various calls for the re-examination of proposals for a public bank or community bank. Some politicians favour turning the credit unions into community banks or feel that they are somehow being thwarted by over-regulation from properly fulfilling their role as community banks.
I have long supported the idea of a regionally based public banking system but am dismayed by the lack of understanding about what this is and what it could achieve for our society.
The concept of a public bank is not a new one and many EU member states have them, most notably the German Sparkassen banks. What would they look like?
1) They are municipally owned – not a nationalised bank.
2) Not profit oriented and be restricted to lending within its regional economy for its business.
3) Profits retained within their communities, creating a virtuous cycle.
4) Fill the gap left by the demise of building societies and enterprises formerly served by the ACC.
5) Both the post office and credit unions could earn additional income from selling public bank services across the counter in their branches.
6) Provide a suitable vehicle for European Investment Bank to lend funds to SMEs.
This is a model that, on foot of the 2016 Programme for Government, was investigated by the Department of Finance.
The resulting Local Public Banking report in 2018 recognised many of the positive aspects of a regionally focused public bank but failed to recognise the economic case for the government to support it.
Reluctantly the department agreed to a follow up with an independent evaluation whose stated aim was to examine “other possible ways in which the local public banking concept could possibly be promoted in Ireland”.
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What we got instead was the Indecon report which, despite best efforts of other stakeholders, had terms of reference designed to conflate local public banks with community banks and counted all bank branches, credit unions and post offices as sources of financial services thus painting a rosy picture of the provision of such services across the country.
Finance Minister Paschal Donohoe is always keen to promote credit unions as de facto community banks and a cursory glance through recent Oireachtas debates confirm that he is not alone in this.
However, the ability of credit unions to adequately rise to the challenge is called into question. Charlie Weston of this newspaper recently in discussion with the Cork Credit Union Marketing Group outlined the challenges and opportunities facing the movement.
Clearly the total savings of €19bn shows the appetite that exists for local community-based banks. However, only a little over one quarter of this is currently lent out productively in the community which is not a sustainable situation.
Credit unions have consistently claimed they are willing and able to step into the breach and become the equivalent of a public bank. However, despite a widening of some services such as current accounts and lifting of some restrictions around mortgages and SME lending, the pace of change is slow. Ultimately credit unions are not and do not want to become banks.
Their money all belongs to their members and all deposits are demand deposits.
The sustainability of the credit union movement needs to be addressed, but they should be careful not to lose their essential characteristics that mean they are the most trusted brand in Ireland.
Public banking services need to be viewed as a public utility for communities, like broadband, public transport, and roads, not to mention public housing. Mr Donohoe recognised this in his speech in the Seanad in May when he said “it is important that we view the banking system as a means to help households and firms achieve their financial, economic and social needs”.
Unfortunately, he seems oblivious to how a public bank network would do this by filling the gap between the big banks and credit unions. The government cannot continue to stand back and let the market take its course.
While a banking forum may yet happen, Fine Gael’s own leader in the Seanad, former minister Regina Doherty, observed: “While discussion in a banking forum could be useful, now is the time for action, not talk.”
Clearly Ms Doherty recognises that while the urgency of this issue may not be as apparent as the housing crisis is at present, it will really bite when Ulster Bank and KBC finally depart.
Perhaps as secretary of Trinity College’s Philosophical Society, Mr Donohoe will have come across the Irish philosopher, and fellow Trinity alumnus George Berkeley. Berkeley was a strong advocate for a public bank in the 18th century, recognising the potential benefit to the state. His book The Querist used questions to prompt people to think about the Irish economy and how better it could operate.
Some of these questions still resonate today. “Whether it may not now be hoped that our patriots will be as forward to examine and consider the proposal of a Public Bank calculated only for the public good?” Maybe the minister should consider adding The Querist to his reading list.
Willie Penrose was TD for Westmeath from 1992 to 2020 and is a former minister of state