A new public banking system in Ireland? The Government is being asked to revisit the idea

PUBLIC BANKS ARE the norm in Europe, so why not here? 

That is the question posed by the Green Party’s finance spokesperson Neasa Hourigan in  a new Green Party position paper on community banking.

There was extensive debate in the Dáil this week about the impact of the Bank of Ireland branch closures and what it means for rural Ireland, as well as the pulling out of Ulster Bank from the Irish market.

The Green Party says a review of under-served community access to banking services with a view to establishing a public banking system supported by credit unions and An Post is needed now. 

“The time has come for some action on public banking from the government,” said Hourigan. 

Public banking falls between the private commercial banking model and the credit union sector. These banks are regional and customer-focused rather than profit-focused. 

They would offer the same kinds of loans as commercial banks currently offer, but with more favourable terms.

Business loans would include leasing contracts and export financing. Mortgage customers could get a fixed rate for five, ten or 15 years.

Public banking

This argument for a public banking system has been made before. 

Under the 32nd Dáil, when Fine Gael were very much calling the shots, the issue was looked at, and ultimately dismissed.

However, with Fianna Fáil and the Greens in government, many TDs believe there is an appetite and the will to get a community banking system over the line. 

Hourigan has called on the Finance Minister Paschal Donohoe to set aside the 2019 Indecon report on Public Banking, calling for a new, fresh review of how credit unions and post office services could support a public banking system. 

The report was commissioned by government after a debate spanning two years took place about whether Ireland should roll out a public banking system.

In 2017, representatives from Germany’s Sparkasse public banking sector presented the model to Irish politicians in an Oireachtas Finance Committee.

They were told that is a local Sparkassen in every part of Germany, with 12,000 branches and 250,000 employees. It is the largest banking group – and therefore market leader – in Germany.

At the time, the proposal for Ireland, put forward by representatives from Sparkassen, as well as the non-profit organisation Irish Rural Link, was to have eight independent regional banks, which would feed back into a central service provider owned by these eight banks.

A pilot would be launched in the midlands.

In 2018, the matter was discussed by Cabinet, after Central Bank officials met with the above groups to hear about their proposal.

But nothing materialised.

Indecon report

In the end, the government commissioned the Indecon report, which reported back in 2019.

It found that there was no business case to be made to establish a public banking system in Ireland. 

The report said there was no economic case for a State-owned banking network, despite some areas of market failure.

It noted that there was an extensive offering to customers with credit unions, An Post, as well as a number of commercial banking providers in the market.

However, two years on, the Irish market landscape has changed somewhat. 

Calls for a fresh look 

It is not just the Greens looking for the Indecon report to be side-stepped. The matter was raised in the Fianna Fáil parliamentary party this week. 

TD John McGuinness told the Taoiseach that some government spokespeople were out defending the banks this week, and doing it “so strongly that the only thing they didn’t do was recommend a few bankers for sainthood.”

He called on Micheál Martin to set up a public banking system with An Post and the credit unions.

A number of TDs rounded on Finance Minister Paschal Donohoe in the Dáil this week, calling on the government to give customers more options when it comes to who they bank with. 

Independent TD Denis Naughten said Bank of Ireland branches in Elphin, Strokestown, Ballygar and Dunmore are about to close in his constituency, which is seen as “a significant blow to those communities”.

In some instances, Bank of Ireland does not even provide an ATM in the towns on a 24-7 basis, he added.

“I believe that the Government needs to urgently revisit the establishment of a State bank for SMEs and personal customers… A new State bank offering low interest rates without personal guarantees is now required to support both businesses and communities as they begin to reopen and emerge from this lockdown,” he said.

Fianna Fáil’s Marc MacSharry said in the Dáil on Wednesdy that it used to be Fine Gael policy and indeed a Fianna Fáil policy that Ireland would have a State bank, “that we would establish one with the needs of the people in mind, one with interest rates that are not extortionate”.

“However, we have not done that. Once people go into Government in this country we go native. We are told we cannot spook the markets. We are told we cannot spook the horses, we have to keep things stable,” said MacSharry.

He agreed with McGuinness that the country must move towards community banking.

“We no longer have mutuals in this country, there is no Irish Permanent Building Society, no Educational Building Society and no Irish Nationwide Building Society. Some may celebrate that fact but the reality is we only have what is driven by cold profitability.

“This week we see Bank of Ireland throwing its staff under the bus in the interests of technology. Ulster Bank did it before Bank of Ireland, as did AIB to an extent. Believe me, AIB is coming like a train to do the same, when it sees the reaction,” he said.

Limerick Fianna Fáil TD Willie O’Dea also rallied behind the idea, stating that community banking or some ”sort of realistic competition” is needed.

Vulture funds 

“One potential consequence is that the duopoly of AIB and Bank of Ireland, which controls, for example, 60% of the mortgage market will tighten its grip on that market. The result of the power they have over the mortgage market at present means this country is paying the highest mortgage rates in the civilised world. Any further diminution of competition arising from the departure of Ulster Bank will only further exacerbate that situation,” he said. 

He said another potential consequence is that NatWest, in order to release its capital from this country, may sell to a third party, commonly known as a vulture fund.

Giving a vivid account of one such vulture fund, O’Dea said:

“I notice one particular vulture, Cerberus Capital Management, is reportedly circling ominously at present. It is very appropriately named because in Greek mythology, Cerberus was the monstrous creature that guarded the gates of hell and prevented its inmates from escaping.

“It was supposed to have had three dog’s heads, snakes growing from its body and a serpent’s tail. The vulture funds, including the latter-day Cerberus, have a long and distinguished record of consigning people to a living hell from which they could never hope to escape.”

O’Dea said he had been listening to the finance minister tell the Dáil what powers he has and does not have.

“Whatever about the powers he has or does not have, he certainly has a duty and a responsibility to do all in his power to ensure the small businesses and homeowners of the country do not fall into the clutches of such a rapacious monster or any others of its ilk.”

With such colourful contributions being made to the minister in the Dáil this week, there is no doubt that pressure is ratcheting up on Donohoe, and indeed the Taoiseach, to shake up the Irish banking system. 

But will they?

One Fianna Fáil source said significant pressure needed to be piled on the powers that be to make it a runner in Ireland, stating that currently, it is about one thing, and one thing only: “It’s about protecting the duopoly.”