FINANCE MINISTER PASCHAL Donohoe has defended his proposal to reintroduce bankers bonuses of up to €20,000, saying that it is needed to allow Irish banks to compete with larger, international banks.

Under the plan, which was agreed at Cabinet on Tuesday, the pay cap of €500,000 and  prohibition of bonuses has been lifted at Bank of Ireland.

AIB and Permanent TSB will also see the caps lifted as the State sells more of its stake in those retail banks.

The plan was raised during Leaders’ Questions this afternoon, with Social Democrats co-leader Róisín Shortall telling the Dáil that people have a sense of “deja-vu” over the proposal and that they were “sickened”.

Shortall also criticised the plan following the fining of both AIB and Bank of Ireland for their role in the tracker mortgage scandal, which saw “the loss of hundreds of homes”.

She added that removing the pay restrictions now was “galling” due to the current cost-of-living crisis which was hitting working families hardest.

In response, Donohoe says that his plan only applies to banks that the State does not have shares in.

He says he understands the sensitivity of the decision given the hurt caused by banks during the financial crisis pic.twitter.com/PHqTockN2c

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“As if all of that were not bad enough, lifting these restrictions on bonanza pay and bonuses is especially galling given the cost of living crisis that is decimating the incomes of so many working families and workers generally all over the country,” Shortall said.

“This decision is an insult to those working families.”

Donohoe responded by saying that the Irish banking sector is now in a “fundamentally different regulatory environment” compared to the years leading up to both the financial crisis and banking crisis respectively.

“We are now in an environment, with regard to our banking sector, with a fundamentally different regulatory environment to where we were in those years that lead up to the financial crisis and the banking crisis that afflicted our country.

However, Donohoe acknowledged that there would be risks and that he hoped to bring legislation around individual accountability for bankers to the report stage before the Dáil rises on 14 December.

He added that he hoped to add amendments allowing for sanctions for individuals who break existing rules.

Although he defended the decision, Donohoe acknowledged that removing pay caps and restoring bonuses was a sensitive issue.

“Of course I appreciate the sensitivity of this decision, given the public hurt and the public emotion that was caused and has been caused by all the issues you referred to,” Donohoe told Shortall.

He said that Ireland currently only had three retail banks left in Ireland, while there were over 30 banks active in the economy.

“I also have a duty to allow our banks to be able to compete appropriately with large international banks that are in this country that don’t hold our deposits and don’t employ 20,000 people,” Donohoe added.

“That is the balance that the Government is seeking to obtain.”

Donohoe had previously told reporters that there was no decisions made on what level of shareholding the State has in either AIB or Permanent TSB would need to have before pay caps are lifted on the two banks.

He added that the three remaining retail banks were facing a serious issue with staff retention.