Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach debate -
Wednesday, 21 Sep 2022

Banking Issues: Discussion (Resumed)

Chairman

At our private session earlier today, we approved the minutes of our meeting of 14 September. We are now joined by the Minister, Deputy Donohoe, and his officials, who are very welcome. The purpose of today's meeting is to discuss banking issues, following on from the meeting we had last week with representatives of the main banks.

I remind attendees that the evidence of persons physically present at the meeting or who give evidence from within the parliamentary precincts is, pursuant to the Constitution and statute, protected by absolute privilege. Members are reminded of the long-standing parliamentary practice that they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable or otherwise engage in speech that might be regarded as damaging to the good name of the person or entity.

I invite the Minister to give his opening statement.

Minister for Finance (Deputy Paschal Donohoe)

I thank the Chairman for the opportunity to be here today to discuss matters relating to the banking sector in Ireland. The committee is aware of the many changes to our banking sector in recent years, driven by factors including advances in technology and changing consumer demand. We have also seen the exit of two key banks from the sector in Ireland, which has had and will continue to have very wide-reaching consequences. The changes under way in the banking sector are a reflection of the wider challenges the sector is facing across the world. It is because of these national and global developments that my Department is undertaking a broad-ranging review of retail banking in our country to address how the sector can be best positioned to meet current and future needs. I look forward to completing this work later in the year.

In the midst of this change, it is crucial that we recognise the interest of citizens and their priorities as we make policy. With this in mind, the Government intends to further enhance the Central Bank's existing powers through provisions to be introduced in the Central Bank (Individual Accountability Framework) Bill 2022. The centrepiece of this new legislation, in accordance with a commitment in the programme for Government, is the senior executive accountability regime, SEAR, which seeks to improve the culture of the financial sector and restore public trust in it. It is apparent that as the sector undergoes significant change, the credit union sector has the potential to play a more significant role in the provision of financial services to households and businesses. That is why my Department has conducted a policy review of the credit union sector and is developing legislation to support credit unions further.

We are doing this in awareness of the significant change that is taking place in terms of digital technology and access to cash. We have seen a shift in the way consumers and businesses are using banking services and making payments. While Ireland has historically been a relatively cash-intensive economy, significant changes have occurred, with a rapid increase in the move towards more digital technologies and new ways of banking. New players have entered the financial services sector and are offering new and innovative services to consumers. The Covid-19 pandemic has acted as a catalyst for this move towards digital payments.

By the end of the year, the European Commission will have published legislation making instant payments mandatory for participants within the EU. This means Irish consumers will soon be able to benefit from instant payments between individuals and companies. Notwithstanding the significant increase in the take-up of electronic payments, cash remains a vital part of the Irish banking system. Banks have a key role in the maintenance of the flow of cash through the economy and in ensuring appropriate access to retail banking services for all in society, including the vulnerable. In this context, I note the significant public reaction to AIB's announcement in July regarding branch changes. I welcomed the bank's decision at that time not to proceed with the proposed changes to customer services in certain branches.

In February 2021, NatWest began the process of winding down its Ulster Bank business in the Republic of Ireland. Shortly after, on 16 April, KBC Bank announced its withdrawal from the Irish market. All of this will be done in accordance with Irish legislation, including the Central Bank's codes of conduct. The Central Bank has clear requirements that apply when firms cease operations or transfer operations to another entity. Last week, it published an update showing an encouraging downward trend of accounts in the withdrawing banks. The banking sector must continue to ensure adequate resources and training. My officials and the Central Bank are engaging with all stakeholders to ensure they receive the best possible customer experience. Customer protection is at the forefront of our engagement and consumers must be certain the entity they are banking with is trustworthy, efficient and accountable.

This leads me to the SEAR. The Central Bank (Individual Accountability Framework) Bill 2022 was published on 28 July this year and will progress in the coming months. It will drive greater accountability in the financial sector and raise the standards of expected behaviour for individuals and firms to achieve better outcomes for consumers and improve the sustainability of the financial system. I believe it will drive positive change in the culture of the financial services industry, including enhanced accountability, and provide for clearer sanctions against individuals who fail in their role.

The Central Bank will hold public consultations on the implementation of the Bill.

As I mentioned at the start, last November my Department began a review of the retail banking sector. Stakeholders were invited to make submissions and we launched a public consultation on 16 May at the retail banking review dialogue. We have now received 90 submissions and I expect to receive the report of the retail banking review in November. Part of our consideration refers to the credit union movement. It is a cornerstone of community banking and provides a wide range of services. The Minister of State, Deputy Fleming, and my Department have carried out extensive stakeholder engagement and we have received input from a wide range of stakeholders to develop a comprehensive set of policy proposals. The Government announced and approved these proposals in July and drafting of the Bill is under way. Department officials are engaging with the sector through the quarterly stakeholder round table and with the Credit Union Advisory Committee.

I turn to the State’s role in the Irish banking sector. It is important to remember that the aim is to strike a balance between intervention and allowing the sector to operate with commercial independence, such that competition and innovation are not stunted. The Bank of Ireland share trading plan has continued in recent months and I expect to be able to announce shortly that the State’s directed shareholding has reduced to zero. This will be an important milestone in delivering on the Government’s policy of returning the banks to private ownership. Proceeds generated from the share trading plan since its launch will be well over €800 million. In June of this year the State sold a 5% stake in AIB, which reduced our shareholding to 63.5% while generating €305 million for the Exchequer. Prior to this transaction, a share trading plan was in operation which provided for a low-key and low-cost resumption of share sales after a gap of more than four years. It will resume operating at the end of this month and the Department of Finance will continue to monitor markets for future opportunities to sell down more of our shareholding through larger transactions. In the past year we have made great progress in strengthening the position of Permanent TSB in the market and in protecting citizens’ investment in the bank. Permanent TSB now has greater scale and has a more important role than ever in providing meaningful competition in Ireland. Although Permanent TSB will primarily fund the transaction from internal resources, the bank is expected to issue shares to NatWest also. As a result, NatWest will hold 16.66% of the issued share capital of Permanent TSB while the State’s shareholding in Permanent TSB will reduce from 74.9% to 62.4%. However, we will then have a smaller stake in a much larger and more attractive bank in the years ahead. I look forward to seeing Permanent TSB playing its role as a supporter of growth and jobs in Ireland.

The banking sector in Ireland is going through considerable change. My officials and I are working to ensure that amid this change consumers are fully protected and the banking sector, which is integral to the economy and to society, is strengthened for the future.

Deputy Neale Richmond

I thank the Minister for his lengthy introduction. I appreciate that this is a particularly busy week for him and it is always appreciated when he has the opportunity to engage with the committee. There is one area of the banking sector I would like to pick up on that the Minister did not quite go into in his remarks. It came up in quite a bit of detail last week during our engagements with the three banks when Deputy Barry asked a number of questions on mortgages and interest rates. We all know that compared with its EU counterparts, Ireland has traditionally had much higher interest rates on mortgages in recent years. While it is welcome that these rates have come down in recent years, I was wondering if the Minister could elaborate, either in his position as Minister for Finance or as president of the Eurogroup, on what impact he would expect the recent rise and surge in inflation, particularly at a European level, to have on this. Are we looking at a convergence between Irish and EU rates in the near future? What other actions might need to be taken in this regard?

Deputy Paschal Donohoe

I thank the Deputy. As he has acknowledged, a significant degree of change is under way with regard to interest rate policy in the future. The European Central Bank, ECB, through its president and the chief economist, has indicated the kind of action it will consider in the future. If inflation in Ireland becomes a core part of our economy for years to come, it will make us even poorer for longer. I accept that a change in interest rates can bring difficulty for those who are borrowing and who want to borrow in the future, but any changes that are made are made with the aim of avoiding inflation and ensuring we are not poorer for longer.

On where we stand in Ireland, we have seen considerable change in interest rates over many years. In 2014 we started off with an average level of fixed interest rates for new lending of 4.1% and in July of this year it moved to 2.5%. A key feature that has developed alongside this is that over 80% - in July the figure reached 88% - of new mortgages being issued are fixed-rate mortgages. That is one of the reasons we have seen a decline in the interest rate in new mortgages, which has moved from 4% in 2014 to 2.6% in July of this year. We are now at a point where the gap between the Irish rate for new borrowing and the average of the eurozone is 0.5%, which is a significant decrease on where we have been for so long. I would expect to see change in the years to come. The Deputy knows what the powers of the Central Bank are when it comes to variable-rate mortgage holders as changes are made to their rates of interest. We have also strengthened consumer protection for those consumers who require certain issues to be considered. We are seeing a narrowing between ourselves and the rest of the eurozone, but we are at a moment of change in these things and the public indications are that just as inflation is staying higher for longer, banks will take that into account in the interest rate decisions they make.

Deputy Neale Richmond

When the Minister says "we are at a moment of change", that leads into my next question and they are all related. No different from any of us as Deputies with constituencies, people continuously contacted my office throughout the summer because they are worried about the pricing on their borrowings - a mortgage, a car loan or anything else - especially in the context of wider concerns about rising energy costs and the entire cost-of-living area. When we engage with the banks and when individuals have engaged with banks, one issue that has come up is the high rate of capital levels that Irish banks have been required to maintain in recent years, compared with European counterparts. Is that an area where we might also be at a point of change?

Deputy Paschal Donohoe

This is a decision that is made by central banks and regulators. The Central Bank of Ireland decides how much capital our banks hold and I will not give an indication on how an independent regulatory decision could be made. I know Deputy Richmond will understand why that is the case and why I have to take that course of comment. I am aware of all the commentary that has taken place on the difference between capital levels for Irish banks, the amount and kind of capital they are required to hold and how that stacks up versus other countries. That then has an impact on the interest rates that are made available to new borrowers. I am aware of all of that but I would make two points alongside it. First, if we ever needed a reminder of the importance of banks being well capitalised and being resilient, it was when we got hit by a pandemic in Ireland.

Our financial sector here did not become an amplifier of the economic shock that was the closure of our economy for prolonged periods. That demonstrated the value of our banking sector having a high degree of capital because that was one of the reasons, alongside the economic support the Government made available, that the financial sector avoided becoming part of the problem.

The second reason is that the high level of capital our banks have is directly driven by the scale of the banking crisis we endured in Ireland for a number of years. That period is part of the overall period which the regulators use to calculate the level of capital banks should hold now. This is an illustration of the many costs and consequences of our banking system running into such extraordinary difficulty and the costs that were borne from that. It reminds me of the need never to get to that point again. Of course, as that crisis recedes into the rearview mirror, its role in influencing the level of capital that our banks must hold will also recede.

Deputy Neale Richmond

The Minister alluded to the area of bank departures, particularly when it comes to both Ulster Bank and KBC Bank Ireland. Something that remains of concern, about which a number of people have contacted me, is with regard to switching. I am not talking about the switching of accounts, which the Minister mentioned, but everything that goes with it in terms of standing orders and perhaps direct debits to cover utility bills. Is the Minister satisfied that the banks and also the utility companies are doing enough to encourage and facilitate switching to make sure there is not a cliff edge for customers of those banks, particularly elderly customers who perhaps are not as savvy with digital banking? Is there anything else the Government could or potentially should be doing to support this?

Deputy Paschal Donohoe

We are seeing a larger amount of account closure and shifting in the aftermath of the decision by KBC Bank Ireland and the imminent exit of Ulster Bank. There are many encouraging signs now regarding the right level of switching activity taking place. In Bank of Ireland, AIB and Ulster Bank, in the first eight months of this year, we have now seen more than 600,000 new accounts being opened. All that being said, however, there is no reason to derive early satisfaction regarding this huge consumer project being complete. We have a long way to go in that regard, and there are many different consumer issues we need to monitor.

What are we going to do about it through our regulator and what are the banks doing in that regard? There are a number of different things on the way. First, as the committee will be aware, the Central Bank of Ireland is engaging regularly with the five banks involved in this and is publishing information about what is happening with bank changes and account changes. Second, a really big advertising campaign is under way. I, for one, cannot turn on the radio now without hearing this. It is much needed and it is clear. Third, Banking and Payments Federation Ireland, BPFI, is now engaging directly with utility providers with regard to making this as clean, clear and simple as possible. At the same time, the regulator is engaged with the three remaining banks to ensure the right levels of staff and resources are in place to be able to open up the new accounts that will be needed for those who currently bank with KBC Bank Ireland and Ulster Bank.

There are, therefore, some signs of progress. It is far too early to be able to say that we are there on it yet. In particular, the exit of Ulster Bank and what that means for its existing consumers and customers is one of the biggest things ever to happen in Irish banking from the point of view of the consumer. My Department now is regularly involved in meetings with the Central Bank of Ireland, BPFI and all of the banks to monitor this situation.

Deputy Pearse Doherty

Before we go into some of the specific areas regarding banking in the Minister's opening statement, I mentioned at the banking forum that one of the areas the State needs to get a grip of is the issue of financial fraud, which has absolutely exploded in recent times. If the trend continues, it poses a real issue for the State and for banking services. In the Minister's view, does the Government have a strategy in relation to financial fraud? If it has a strategy, does the Minister believe it is working?

Deputy Paschal Donohoe

We have an extensive amount of work under way regarding issues such as financial fraud and money laundering. We have a unit inside the Department of Justice that is involved in overseeing activity with regard to this issue. A unit within my own Department also looks at activity that is under way and monitors our progress in it. We have such a strategy in place. I am confident from the briefing I received regarding the work being done by the Revenue Commissioners and An Garda Síochána that much activity is taking place and many interventions are being made. This is an area in which I must be ever cautious, however. I am always aware that the sophistication and scale of financial fraud is growing. We take it as seriously as we can. I am sure that if the Deputy is concerned about a specific issue he will raise it with me, and I will do my best to provide him with a briefing on the matter.

Deputy Pearse Doherty

I do not have a specific issue because this is not just happening to one individual; it is happening to thousands of individuals. Tens of millions of euro are being conned from customers every single year. There was no financial fraud strategy here until last year. The Hamilton report made it very clear that there was no strategy in place. The Department of Finance is now a part of that since that recommendation last year.

The point I will make to the Minister is that it is clearly not working. It is clearly failing. I say that not to score points because this affects all of us. It is failing because we can see from the Central Statistics Office, CSO, that levels of fraud in the last year have more than doubled. We can see from details regarding banking fraud that two out of three people in this State are reporting that they have been the subject of an attempted fraud. We know that different types of fraud that are taking place are also increasing. There has been an 80% increase in the number of fraudulent scams with people being conned out of €15.6 million. We have information about unauthorised payment fraud rising by 20% in the last year to more than €41.5 million. Some 2,375 individuals were the subject of a form of fraud known as authorised push payments where they were tricked into making credit transfers to accounts controlled by fraudsters up to the value of €9.2 million. These numbers are skyrocketing and it is only going in one direction. Banks in Britain have called this an issue of national security because it has become so prolific. Are we fighting a losing battle? Can the Minister convince me, for example, on what legislation his Department is preparing with regard to any of this?

Deputy Paschal Donohoe

Of course what statistics like that do not contain, because by their nature they cannot, is the amount of financial fraud and financial crime that is prevented due to the work of banks highlighting to their customers what they need to watch out for and be careful of. I am confident, based on the engagement I have had directly with the banks and the Central Bank of Ireland, that the banks we have in Ireland, which I hope will remain and continue to be active, take the issue of financial fraud and financial crime very seriously. I know from the engagement I have regularly with the Central Bank of Ireland that the work it does with regard to cybersecurity and cyber resilience is a big area of focus for the bank. Although this does not fall into my area of direct responsibility, it is an issue of which I am clearly aware. I will, therefore, furnish to the committee the progress that is being made by the Garda and relevant Garda sections in dealing with this matter.

I can get for the Deputy any information they have regarding the number of prosecutions and the amount of activity they carry out in this area.

On legislation we are working on, the next change we aim to deliver is the smooth implementation of the third payment services directive. That will aim to improve the security measures in place in Ireland as part of a Europe-wide move to try to reduce the ability of criminals to gain access to customer accounts.

While the Deputy has the information in relation to the number of crimes committed, I will happily get for the committee and the Deputy information on the level of activity the guards and other State bodies are carrying out in relation to this and the success they have had in prosecutions. From issues brought to my attention through constituency work, not to mention my work as Minister for Finance. I am aware, unfortunately, of successful criminal activity but also of attempts to defraud, phishing and other such activities that were brought to banks and the banks were successful in having the money returned to the person or preventing the crime.

Deputy Pearse Doherty

I am sure there are few people in this House who have not got a notification from their bank on their phone to say that an attempt was made to pay for a holiday or product that they were not involved in and that it has stopped it. The banks are working on this, but I am talking about figures about where fraudsters have been successful. The success rate of fraudsters has increased 51% year on year in relation to tricking customers into making credit transfers. As I have said, some 2,375 individuals lost €9.2 million in one particular area of fraud. There has been an 80% increase in fraud-linked scams, with €15.6 million conned out of individuals. These numbers are all going in the wrong direction and there is a tipping point.

There are shared fraud databases in other European jurisdictions. Is the Government looking at that? Is it looking at recommendations coming from other jurisdictions? Does the Minister have a view on whether amendments should be made to the Online Safety and Media Regulation Bill, given that some online platforms host these fraudulent scams? Many of these scams happen in texts and phone calls, but some are on online platforms where an individual is tricked into clicking a button and there is phishing going on at the other end of that. What is the Department doing about the fact that online fraud has increased dramatically in the past year and there is a huge threat it will increase dramatically in the last part of this year, given that 1 million customers have to move accounts, 1 million direct debits will move and so on? There is concern that online fraud may be exaggerated because of the movement we are seeing in the banking industry. What, if anything, has the Department done, knowing that this movement has happened out there and that the fraudsters are often organised crime gangs?

Deputy Paschal Donohoe

I have just briefed the Deputy on what we have done. Regardless of the level of change happening, where accounts are held and in which banks they are held, we are bringing forward the payment services directive, which we played a part in negotiating within the European Union. We will implement it at the start of next year, in January 2023. This is all about improving the security of customer information to prevent the crime the Deputy refers to. That is the focus of our efforts.

Deputy Pearse Doherty

I ask the Minister to give me an example of what is being done to allay the fears of a customer who is getting messages on his or her phone asking him or her to click into something and put in PIN details. What will this directive do in relation to these thousands of successful instances and tens of thousands of attempted instances on a monthly basis?

Deputy Paschal Donohoe

I understand the directive, by requiring customers to provide more information about themselves when they are involved in setting up or maintaining accounts, should make it harder for this criminal activity to happen. This will be coming in. While the Deputy is correct to point to the statistics of successful criminal activity going up by 50%, the scale of such activity has gone up by far more than 50%. Due to the innate common sense of Irish people and their awareness of these issues, they are more and more aware of the risks posed to them by such activity. The lead agency and State body involved in dealing with criminal activity in this area is An Garda Síochána. After this meeting, I will be able to provide information to the Deputy on its success in that area.

Deputy Pearse Doherty

How would the Minister assess the Government's success or failure in combating financial crime and fraud?

Deputy Paschal Donohoe

We are about the same as other European countries. We all see the scale of this activity grow. Three different kinds of activity are taking place. First, we are strengthening the legislative framework for dealing with these issues. This is happening EU-wide because this criminal activity does not know any borders. We are involved in implementing change in that area. Second, when I and my officials engage directly with the banks, the issue of IT investment in stability and security of banking systems is always discussed. Finally, this is a matter of focus for the Central Bank, one which it assesses and monitors regularly. Those are the three different areas of focus in relation to it.

I do not have recommendations to myself as Minister for Finance from the Garda or any other State body making the case for further legislative change beyond what I am doing. I met with the unit in my Department that deals with issues relating to money laundering a number of weeks ago to get an update on its work and on what more I can do.

Deputy Pearse Doherty

A recommendation which came out of the plan was that there should be a multi-annual strategy to combat economic crime and corruption and an accompanying action plan. Was that published?

Deputy Paschal Donohoe

Is the Deputy referring to our strategy in relation to financial crime?

Deputy Pearse Doherty

Yes, combating economic crime and corruption. It came out of the Hamilton report recommendations.

Deputy Paschal Donohoe

I am not aware that it was published. At times, if the Department is involved in activity to deter criminal behaviour, it is not in our interests to publish all of the work that is under way. I am not aware if it was published and can think of good reasons it was not, but if I am wrong in that assessment I will let the committee know.

Deputy Pearse Doherty

I ask the Minister to follow up with the committee on that because public consultation was supposed to happen. It was not a secret document or anything. We need a cross-governmental multi-annual financial crime strategy and the Department of Finance should be at the heart of it. It needs to include our online agencies, banking representatives, the Garda and the Department of Justice, but I suggest the Department of Finance needs to step up to this big issue. We may all be failing together but we are failing and other jurisdictions are before us. They have shared fraud databases, plans and reports, and recommendations are being received in relation to online activity. For example, the British Government is looking at the fact that the likes of Google and Facebook should not be charging the central bank for warnings to be put on their platforms because some of the fraudsters are paying these companies, unbeknown to the companies, to carry out the frauds. These platforms should carry the advertisements for free. There are other recommendations we need to look at.

I move to the issue of AIB. Will the Minister outline when he and his officials were informed of the proposal by AIB to withdraw cash services from 70 of its branches?

Deputy Paschal Donohoe

As I indicated to the Deputy and to the Dáil in an answer on this matter some weeks ago, my Department had papers regarding an AIB board meeting shared with us on 29 June. On 1 July, an official in my Department was made aware of this. Officials met AIB in relation to the normal engagement that we have with them. I became aware of this matter on Tuesday, 19 July.

Deputy Pearse Doherty

For what reason are the board papers of AIB sent to the Minister and his Department?

Deputy Paschal Donohoe

As part of the relationship framework that we have with AIB and with other banks; to make us aware of the work that the board is doing. These are very extensive papers that are furnished to us.

Deputy Pearse Doherty

Is the Minister saying that when the official was made aware that AIB proposed to withdraw cash services from 70 branches, he or she kept that information to himself or herself?

Deputy Paschal Donohoe

No, it was not apparent to the official or to the Department through the papers that were shared with us what the public impact would be or what the reaction to it would be. We only became aware of the full scale of what was proposed at official level the Friday before the announcement was made. As I said, I was informed of it the following Tuesday.

Deputy Pearse Doherty

The Minister says that the official was not aware of the public impact of this at the time. Obviously, the public across the State, nearly to a man and to a child, was against this proposal. It caused deep outrage and anger. Was the official aware from the board pack that there was a proposal before the board meeting to withdraw cash services from 70 branches in AIB?

Deputy Paschal Donohoe

The Department was aware at that point from the papers that were shared that the board was going to be reviewing, assessing and making a decision about that. As I have said to the Deputy, in the papers supplied to us it was not clear what level of community engagement or consultation had taken place on the matter. It was only on the Friday before the announcement was made that my officials in my Department became fully aware of what was proposed and that an announcement was due to be made.

Deputy Pearse Doherty

Hang on. Let me get this right. The Minister has said that the Department was not aware of the impact that this would have on the public because the official did not read that at that time. However, the CEO of the bank told us that the papers sent to the Minister and the Department included the board papers which proposed to withdraw cash services from 70 branches of AIB. Is the CEO accurate in that assessment? Did the official read those papers and therefore become aware of that proposal at that time?

Deputy Paschal Donohoe

The CEO, as I told the Deputy, is accurate in what he said there. It was contained in the board papers but it is one matter among many hundreds-----

Deputy Pearse Doherty

Okay so-----

Deputy Paschal Donohoe

Hold on. It is important to put context on this. It was one matter amid hundreds of pages that were shared with us on that board meeting. From the way the matter was described and the information in it, it was indicated that it was going to be considered at board level amid many other matters that were discussed at board level-----

Deputy Pearse Doherty

That is fine. I appreciate that it was not a one-item board.

Deputy Paschal Donohoe

Hold on. In the aftermath of that, a communication was made to the Department on the Friday beforehand, after the board meeting papers had been circulated, to communicate to us at that point that this was happening. So, yes, we were aware at those two different points. I publicly indicated when we became fully aware of the matter on the Friday-----

Deputy Pearse Doherty

Hang on a second. I am just pulling the Minister up on this here. The Department was made aware of this before the board met. Let us deal with accuracy here. I have done the freedom of information request. I know the communication that the Department received on the Friday; it was the press release that was issuing. Let us be fair. The CEO came in here and told us that the board pack went to the Department. The official either did not read that or did not understand its significance. However, the Department was informed of this issue at that point in time along with many other issues that were coming before the board. If that is not the case - if the Department was not informed and that was not contained in the board pack - the Minister may dispute that but he should not say that it was "the Friday beforehand" because that is not the case. The board pack is sent to the Minister because he is the majority shareholder in the bank. It is part of the relationship framework. It is for him to exercise the right under that framework to raise issues if that is deemed necessary. The official was made aware of it. Is the Minister telling me that his official failed to inform him of this issue at the time?

Deputy Paschal Donohoe

I know all the Deputy is trying to do here is establish-----

Deputy Pearse Doherty

Facts.

Deputy Paschal Donohoe

-----some kind of narrative-----

Deputy Pearse Doherty

Facts.

Deputy Paschal Donohoe

----- that I was aware of this all along, and that I could have done-----

Deputy Pearse Doherty

No.

Deputy Paschal Donohoe

No, let me finish. He is trying to establish a narrative that I was aware of this all along and that I am in some way concealing information from the Deputy or from the committee.

Deputy Pearse Doherty

I am not.

Deputy Paschal Donohoe

Nothing could be further from the truth.

Deputy Pearse Doherty

Just to help the Minister, I am not suggesting that.

Deputy Paschal Donohoe

The Deputy will allow me to be clear again on the facts, which are roughly consistent with what he said and absolutely consistent with what Colin Hunt, the chief executive of AIB, said. Yes, the board papers did contain it. In considering those board papers, my officials and the Department were aware of what was happening but perhaps did not anticipate the scale of change that was happening here and the consumer behaviour-----

Deputy Pearse Doherty

That was meant for-----

Deputy Paschal Donohoe

Second, as I said before, it was on the Friday before the announcement was made that the second contact happened and then I became aware of it on the Tuesday. They are the three different facts in relation to it.

Deputy Pearse Doherty

I am not disputing that. That is what I was trying to get to in the first instance.

Deputy Paschal Donohoe

It is what I have said from the very start since I came in here.

Deputy Pearse Doherty

No, it is not but let me make the point-----

Deputy Paschal Donohoe

Of course it is, but what the Deputy is trying to do here, as always, is create the sense that I was aware of something and that I am being less than clear-----

Deputy Pearse Doherty

I am not trying to do that. With respect, the Minister should let me ask the question. The question I asked the Minister in the first instance was whether his official was made aware of this plan before the board meeting and, if so, whether it is the case that he or she did not inform the Minister of it. If I were in the Minister's position as Minister for Finance, and I discovered that an official had been told by AIB before the meeting that it was going to withdraw cash services from 70 branches but he or she did not tell me, I would have an issue with how the Department is being run. That is the question. I am not suggesting that the Minister knew. I want to know whether he has any concern that his official did not inform him of something that caused so much outrage in the State. That is the first question. I was not trying to give the impression, as the Minister suggests, that he knew all along. He should have known; his official should have informed him because it was of such a significant nature. Does the Minister believe it has caused reputational damage to the bank?

Deputy Paschal Donohoe

That is a matter for the bank to assess, rather than-----

Deputy Pearse Doherty

Does the Minister believe that?

Deputy Paschal Donohoe

No, I am not getting into forming a view on how this has impacted, or not impacted, on the reputation of a bank. It is very clear that this led to and provoked a really significant response on behalf of the public that should have been anticipated. In any reckoning of what the bank did and how it handled it, it must be acknowledged that it reversed the decision within a number of days of it becoming clear what an issue it was.

Deputy Pearse Doherty

The Government's junior Ministers have been on the radio saying that this has caused reputational issues for the bank. Does the Minister for Finance believe that proceeding with that move caused reputational issues for the bank?

Deputy Paschal Donohoe

It undoubtedly caused a very significant reaction to the bank that may over time impact on its reputation among its customers. I also hope that in the fullness of time, we will take into account that the decision was reversed. I think it is a key point as well that the decision was reversed. It did not go ahead. Colin Hunt, the chief executive of AIB, has been in here acknowledging the impact it had on customers and on communities. That happened. I return to the point I made earlier in case there is any confusion about this matter. I have been very clear in identifying the two different points at which my Department was aware of this matter and when I became aware of it myself.

Deputy Pearse Doherty

I am sure the Minister knows the reason I am asking him this question. The issue of reputational impact to the bank is a significant one, is it not? If the Minister believed it would have a reputational impact on the bank, it is significant. Is that not the case? The junior Ministers are right that it caused reputational damage to the bank.

The Taoiseach called on the bank to reverse the decision. It was carried internationally on news bulletins. It did not just cause reputational issues here but internationally. If the Minister came to the conclusion that it would cause significant reputational issues for the bank, then it falls under the relationship framework that he would have to be consulted. Is that not the case?

Deputy Paschal Donohoe

That is why I have been very clear because I exactly anticipated the Deputy's line of questioning on the matter. It is a matter for the bank to cast its views regarding its reputation-----

Deputy Pearse Doherty

No, it is not.

Deputy Paschal Donohoe

I am saying to the Deputy that the decision being reversed is material to me in assessing the impact it has had on the reputation of the bank.

Deputy Pearse Doherty

It is not for the bank to decide. The relationship framework is between the State and the bank. It is for both parties. The relationship framework is very clear. A matter is material, and therefore triggers the Minister's involvement, if "it is likely to create clear and significant reputational issues for ... the Bank". This decision caused such issues. The Minister could and should have stepped in because under the relationship framework he had the ability to do so.

Deputy Paschal Donohoe

I will read the rest of the section in the relationship framework document the Deputy has referred to. It states that "it is likely to create clear and significant reputational issues" - which is why I have been careful in my language regarding assessing the reputational impact of the decision - "for ... the Bank, the Minister or the State and it is outside of the ordinary course of business." That is the rest of the sentence, as the Deputy well knows.

Deputy Pearse Doherty

I know.

Deputy Paschal Donohoe

The Deputy knows that is the case.

Deputy Pearse Doherty

Let me-----

Deputy Paschal Donohoe

I want to finish my answer to the Deputy's question. It is important that the committee is aware of the broader assessment that is there regarding the relationship framework and whether I have a role in it. Even though I am very glad the decision was reversed, it is clearly the case that a bank's assessment of whether a cash service should be made available in different branches is firmly inside the ordinary course of business of the bank. It is firmly inside it, as the Deputy knows.

Deputy Pearse Doherty

I would expect nothing less from the Minister than for him to make that comment. If I got notification that a branch was withdrawing cash services from approximately a third of its footprint in the State, 70 branches, I would say to the bank that it is not within the ordinary course of business to withdraw the cash services of a bank across vast areas throughout the State. Is the Minister aware, for example, that different jurisdictions are bringing forward legislation to ensure banks' cash services are protected? He sat back, however, and thought it was a normal part of banking business.

After he became aware, following the public outrage and all the rest, what communication, if any, did he have with the CEO of the bank during that period? I have already divulged that I was in contact with the bank to ask it to reverse the decision, as I am sure other members were. As Minister for Finance and the majority shareholder, what involvement and communication did he have with the bank regarding this decision?

Deputy Paschal Donohoe

There the Deputy goes again.

Deputy Pearse Doherty

I want to know. He could have been on the phone-----

Deputy Paschal Donohoe

Deputy-----

Deputy Pearse Doherty

-----on the hour every hour.

Deputy Paschal Donohoe

I will answer the Deputy's question but I want to note that he is busy using phrases alleging that I sat back - he carefully comes in to ask me questions about the reputation of the bank and what my assessment of it is - and trying to pin me down on what I knew and when and how I knew it. He is disappointed with the answers I gave him not only because they are the truth, as would be expected of me, but also because it is the case that the relationship framework of the bank does not indicate I should become involved in commercial decisions for the reasons I read out. I have been very clear in giving the Deputy an answer that has the merit of being the truth and completely consistent with everything else I said to the Oireachtas regarding when I knew. To fully answer the Deputy's next question on whether I called Mr. Colin Hunt as the situation was developing, I did not. Did my Department contact him? Yes, it did.

Deputy Pearse Doherty

Did the Minister instruct his Department to contact him?

Deputy Paschal Donohoe

Yes, I did.

Deputy Pearse Doherty

What did the Minister instruct his Department to relay to the bank?

Deputy Paschal Donohoe

I acknowledged that this was a commercial decision made by the bank, which it was. The Deputy asked us all to imagine a moment in which he could be Minister for Finance. In imagining that moment, he would also be aware of the need to have an absolute line of separation between the Department and the commercial independence of the bank, which has to underpin much of the engagement that happens with it. My Department made sure that the chief executive and the bank were fully aware of the public reaction that was under way regarding this, which at that point they were.

Deputy Pearse Doherty

Okay. I have those documents. I have that correspondence through freedom of information requests. Was that a different conversation from the correspondence I have, which is basically an email to the bank that states the Department is starting to get some - I am paraphrasing - issues being raised by the public, and the bank then giving the Department speaking notes to answer that, including references to this being a commercial decision, the relationship framework, An Post and all the other points that were in the document? I have that correspondence. Was there other communication relating to concern about the decision outside of that?

Deputy Paschal Donohoe

I do not have the Deputy's freedom of information request, and nor should I. I do not have the material that was released to him but phone conversations happened regarding the matter where, as I said, my Department respected the independence of the bank because we do and we must, but also made it clear to the bank in those conversations that it was fully aware of the reaction to this matter, which at that point it clearly was.

Deputy Pearse Doherty

That was basically when the bank gave the Department the briefing points to address some of the public anger.

Deputy Paschal Donohoe

I do not know the answer to that because I do not know when the information the Deputy referred to was released back to my Department and came through. I do not know how that is sequenced with the conversations that happened.

Deputy Pearse Doherty

Was there any time that the Department asked the bank to reconsider its position?

Deputy Paschal Donohoe

We cannot do that. It was a commercial decision of the bank-----

Deputy Pearse Doherty

Okay.

Deputy Paschal Donohoe

----- which is why I have made very clear to the Deputy, and I will do so again, that a fundamental element of the relationship the State has with banks is that we have to respect their commercial independence. Two banks have already left our country. We hope the three banks we have will be sustainable and will meet the needs of our economy in the years to come. Any sense at all that I can direct those banks to be involved in commercial decisions, and that I am involved in them, is a danger to the ability of the banks to get the investment I want them to have in order to lend and support jobs in our country. This goes back to the point that we made it very clear that this was a commercial decision by the bank. We just made it clear that it was aware of the reaction that was under way.

Deputy Pearse Doherty

In the Minister's view, is it appropriate for the Taoiseach, who is the head of the Government, to ask the bank to reconsider the decision, to look for a meeting with its officials, to reflect the anger there was for the two to three days before that-----

Deputy Paschal Donohoe

The comments the Taoiseach made were entirely appropriate. He was commenting publicly on the matter. He was asking the banks to be aware of this decision and the consequences of it, but he was not directing them to do it.

Deputy Pearse Doherty

I did not ask the Minister to direct the decision. I would not suggest that but I would expect him, on behalf of the taxpayer for whom he holds the shares, to ask the bank to reconsider the decision, which is exactly what the Taoiseach said in addition to seeking a meeting with the bank. During that period, the Minister did neither.

Deputy Paschal Donohoe

Contact was happening across this period.

Deputy Pearse Doherty

It involved looking for speaking points-----

Deputy Paschal Donohoe

No.

Deputy Pearse Doherty

-----to answer the public outrage. I have the documents.

Deputy Paschal Donohoe

I am sorry to disappoint the Deputy again because I have made clear to him that conversations were happening. I understand that Mr. Colin Hunt acknowledged this in his testimony to the committee. He made it clear that contact had happened.

Deputy Pearse Doherty

We know contact happened. We have the documents.

Deputy Paschal Donohoe

That contact happened. The decision was reversed.

Deputy Pearse Doherty

The Department asked for speaking points to combat the public outrage. Meanwhile, the Taoiseach said that he wanted a meeting with the bank and that he wanted it to reconsider the decision. The reason I point that out is not because I am a great fan of the Taoiseach, but to suggest that the Minister could and should have done more.

Deputy Paschal Donohoe

Whatever I did, or never do, it will never be enough for the Deputy. The key point is-----

Deputy Pearse Doherty

Someday the Minister might surprise me.

Deputy Paschal Donohoe

If I am ever in a position where I surprise the Deputy with the extent of the decision I have made, I will have to consider whether I have made the right decision. As I said, the key thing is that the decision was reversed. I have been very clear in acknowledging that contact happened between my Department and the bank to make sure it was aware of the public reaction that was under way. The bank, in exercising its judgment independent of the Government, decided to reverse the decision. That is the key point.

Deputy Pearse Doherty

Big applause is due to the public because it was the public that forced that to happen, not the majority shareholder in the bank. That is the problem.

Deputy Paschal Donohoe

The Deputy is clear-----

Deputy Pearse Doherty

I want to ask a final question.

Deputy Paschal Donohoe

-----or maybe he is not; I have to keep reminding him of this. An unfortunate truth for Deputy Doherty and Sinn Féin is that as the majority shareholder in a bank, we are still not involved in making commercial decisions.

Deputy Pearse Doherty

Absolutely.

Deputy Paschal Donohoe

The Deputy knows that.

Deputy Pearse Doherty

I completely understand that, but that is the case unless the Government believes it causes reputational damage to the bank, the State or the Minister and it is not within the ordinary course of business. Therefore, the Minister does have a say at that point, but he does not want to hear that.

Deputy Paschal Donohoe

Deputy Doherty might allow me to conclude the different points we have made here. First, I was very clear in being very careful to say it is up to the banks themselves to assess the impact on their reputations. As the Deputy well knows, the decision here has been reversed.

If I was sitting in front of Deputy Doherty and my Department had not made contact with the bank-----

Deputy Pearse Doherty

The Department asked for speaking points.

Deputy Paschal Donohoe

The Deputy keeps on saying that but I keep saying back to him that I know this is-----

Deputy Pearse Doherty

The Minister has not told me. He should tell me what the conversation was if that is the case.

Deputy Paschal Donohoe

I know Deputy Doherty is just looking for content-----

Deputy Pearse Doherty

I am not.

Deputy Paschal Donohoe

-----for social media videos.

Deputy Pearse Doherty

Can I ask a separate question, Chairman?

Deputy Paschal Donohoe

Let me be clear in repeating for the final and umpteenth time to the Deputy that while some discussions may have been happening with regard to speaking points in order that we were fully aware of what was happening and what the bank was saying, equally, at the same time, my officials contacted the bank to first acknowledge its independence but also make sure it was fully aware of the public reaction to this. The sequence of events of what happened-----

Deputy Pearse Doherty

Okay. At the end of last month, only 24% of Ulster Bank accounts were closed. I do not know what the latest figure is; if the Minister has it he might give it to us. However, the six-month deadline for the first tranche of letters that went out is up next month. Is it now time for this deadline to be extended given the fact that so many people will not make it?

Deputy Paschal Donohoe

There Deputy Doherty goes again. On one hand, he deliberately confuses the role that I have as the shareholder and on the other hand, surely, he knows-----

Deputy Pearse Doherty

I am sorry; the Minister does not have any shares in Ulster Bank.

Deputy Paschal Donohoe

The Deputy might let me finish answering his question. Surely, he knows that is a decision for the regulator. Does he not know that? It is a decision for the Central Bank of Ireland to determine that, not me.

Deputy Pearse Doherty

Okay.

Deputy Paschal Donohoe

I am sorry to have to inform the Deputy of this. I would have thought, as a long-standing and distinguished member of the committee, that he would be aware of that fact. It is the Central Bank of Ireland that determines it. The Central Bank is intensively engaging with Ulster Bank with regard to its withdrawal.

Deputy Pearse Doherty

Okay. In order that there is no confusion, the Minister is not a shareholder in Ulster Bank, he does not have a relationship framework with Ulster Bank and he was not prevented from engaging with issues in respect of AIB and Bank of Ireland up until now. What I am asking the Minister to do is actually express his opinion on whether Ulster Bank should extend the deadline for the closure of accounts. There is a role for the regulator. There is also a role for Ulster Bank. Any single person in this committee, of which the Minister is a member, can express his or her opinion. The Minister may not want to express an opinion and just let the bank do what it is doing, but is he concerned?

Deputy Paschal Donohoe

Of course-----

Deputy Pearse Doherty

Let me rephrase that. Is the Minister concerned that so many people have not closed their accounts? The deadline is coming up very shortly and Ulster Bank is going to close their accounts. It will write them a cheque. There will be defaults in relation to loans. There is a serious issue here.

Deputy Paschal Donohoe

Of course, the difference between me as a member of this committee and other members of this committee, all of whom I hold in very high standing, is that I am the Minister for Finance and I have policy responsibility in these areas. I have to be cognisant of the role of an independent regulator.

At the moment, I believe there are some signs of progress under way with regard to the orderly transferral of accounts, the closure of accounts in Ulster Bank and the opening up of new accounts elsewhere. I may have mentioned in response to Deputy Richmond that more than 600,000 new accounts have been opened, which is a good sign. I have not been informed by the Central Bank of Ireland yet of any reason the period of time within which Ulster Bank is staying in the market should be extended.

Chairman

I thank Deputy Pearse Doherty. The technology is failing Senator Maria Byrne; we cannot hear her. We will take Deputy Durkan while the Senator tries to rectify things at her end.

Deputy Bernard J. Durkan

I thank the Chairman. I welcome the Minister and his officials to the meeting. I thank him for the information he gave us in continuation of the previous meeting.

A couple of issues arise. First of all, at the time the bank proposed to downscale the availability of cash at a number of branches throughout the country, would it have been better if it had postponed whatever the announcement was going to be to a later date to give distance between that announcement and the fact that a major fine was imposed on the bank by the Central Bank of Ireland regarding tracker mortgages?

Deputy Paschal Donohoe

It would have been much better if the bank had given far more time in between its announcement and the actual implementation of the decision in order to allow proper community engagement and engagement with stakeholders on the matter. I do not believe there was any link or relationship between the decision that it made, how it was communicated and the levying of that fine.

Deputy Bernard J. Durkan

Of course, that may well be the case but, unfortunately, the public may draw their own conclusions and come to the conclusion that it was in retaliation. I questioned the chief executive on that and he also said it did not happen. I believe that from the point of view of a customer, the conclusion will inevitably be reached that there was some correlation. I know the Minister said that there was not but I would have to say the customers will come to that conclusion.

Two events occurred in the same seven days, one of which was the fine and then what some people call the retaliation. In future, could it be understood that in the event of any major changes being made, whether the shares held by the Department of Finance change or dissipate entirely or whatever the case may be, it would be advisable for any bank to make such an announcement well in advance of what it proposes to do given the impact it might have on the customer base, and with particular reference to customers needing some kind of security and reassurance that they were working in safe hands?

Deputy Paschal Donohoe

Absolutely. I am sure that even the bank would acknowledge that the communication of the decision and engagement with those who will be affected by it could have been done in a completely different way.

Deputy Bernard J. Durkan

I thank the Minister. I wish to ask about another issue in respect of shareholding by NatWest in Permanent TSB. Is that shareholding likely to have any influence on banking policy in this jurisdiction given that NatWest is pulling out of the market here in the form of Ulster Bank? It is not, therefore, retaining an executive position or anything.

Deputy Paschal Donohoe

No. It is an investment by that banking group in Permanent TSB, which I really welcome. It has enabled Permanent TSB to be involved in a number of transactions that have made the bank, and will make the bank, a larger financial service provider and larger domestic bank. It is only an investment. Any influence or any view that Permanent TSB will have on the development of banking policy will be through Permanent TSB itself as opposed to through its investors.

Deputy Bernard J. Durkan

Is there no possibility that Permanent TSB might have to look over its shoulder in the event of it doing something that might not meet with approval? Is it purely an investment from the point of view of NatWest?

Deputy Paschal Donohoe

As I understand it, it is purely an investment. The relationship between the management and the board of Permanent TSB and that investor will not be any different from the relationship that a board would have with any one large investor within its company.

Deputy Bernard J. Durkan

I thank the Minister. Given that banks generally are reducing their staff numbers right across the board and there is very considerable reduction, is that a factor in the determination of the ability of the banking system to avert fraud? For example, there was a time when the banks would telephone a customer in the event of there being something unusual, a large transaction or whatever the case may be because they had numbers of staff to do that. They do not do that anymore because they do not have sufficient staff to do it. The question is, will that in any way affect the stability of the banking system as numbers of staff go down?

Deputy Paschal Donohoe

I do not think so. The reason is, if one has a look at the staffing plans and investment plans that banks have here in Ireland, such a large share of it is in information technology, IT, investment. So many of the staffing decisions that our banks are now making are about how they hire the people who have the right level of expertise in IT and in cybersecurity. While it is undoubtedly the case, as the Deputy said, that if one looks at any of our three big banks the total head count that they have now versus where it would have been a decade ago is much smaller, I would suspect, if one looks at the amount of people that they have working in IT and in IT security as a share of the overall company, and maybe even in overall terms anyway, it is a great deal higher than the historical norm. When I meet the three different CEOs, a key issue they always bring up with me is how they are investing in IT, how they are recruiting in IT and, indeed, even the difficulty they have in recruiting in that area because it is so competitive in our economy.

Deputy Bernard J. Durkan

When before the committee, the banks were suggesting that the reserves they are forced to hold at present were in some ways a deterrent in regard to the extent to which they could lend to their customers. Is there a possibility of there being a reduction in the amount of reserves they are required to hold? The reason the reserves are there now is because of the financial collapse but we cannot be punished forever for the financial collapse. We must at some stage establish our credibility as a banking system. The public needs to have full confidence in the banking system being capable of recovering and doing the job that the banking system always did.

Deputy Paschal Donohoe

With the passage of time, the amount of capital that our banks are required to hold due to the impact of the global financial crisis will diminish. That will happen over time because the reference period will include less and less of the crisis and post-crisis years. All that being said, even though I am aware of the perspective and analysis regarding how much capital our banks hold and how it is different to that of their peers within the European Union, that capital was a great source of insurance to us all that when we had to deal with the closure of so many different parts of our economy, we could always be reasonably confident that the financial sector was strong enough to withstand that economic shock.

If one looks at the recent trends that have happened within our banking system, we are now seeing the loan books of our banks begin to grow again after the pandemic and some healthy indicators regarding the volume of loans and the interest rates at which those loans are being made available. I am confident that over time one will see our banks able to contribute more to a recovery that was on the way before the war hit us.

Deputy Bernard J. Durkan

I have two final questions. Can we be assured that the pillar banks here are adequately funding the small business sector, the construction sector, etc.? Are they taking up their full responsibility there in order to ensure the ongoing growth, development and improvement of the sectors?

Deputy Paschal Donohoe

The sectors or the customers of banks will always want more credit and want that credit available at lower interest rates. I am always conscious here of the critique of our banks regarding them not lending enough and the lending they are doing being available at too high an interest rate. All that being said, if I look at the credit demand surveys that my Department regularly publishes, all those surveys point to Irish companies and employers having a relatively low demand for credit now for many years and being quite risk averse to taking on new amounts of lending.

By and large, our banks are meeting much of the need from the Irish business sector but they are not meeting all of it. That, for example, is why we have organisations such as Ireland Strategic Investment Fund, which has a mandate to invest in more long-term and higher risk investment decisions. It is why we have the Strategic Banking Corporation of Ireland. It is also why we have a number of State-backed lending schemes, for example, with regard to Brexit and also during the Covid pandemic, to underpin and provide assurance to our banking system so that it is able to meet some forms of credit demand that it otherwise would not feel comfortable meeting.

Deputy Bernard J. Durkan

The credit unions require a greater reserve. Is it possible that might change in the near future in order to address issues in terms of credit that might be necessary given that it has always been the tradition of banks to offer less than the customer required? The logic of that has always escaped me because if business persons are making applications for funding, they obviously have done their accounts properly, they have done their forward planning and they have decided that it requires X amount to do the job that they want. To give them less than that is merely putting a greater strain on them and increasing the possibility of them going under.

Deputy Paschal Donohoe

If I look at the credit union movement, and I had the opportunity to meet my local credit union on Friday, I see increasing signs of it trying to move into providing new forms of lending to meet both commercial and, increasingly, mortgage needs. The loan book for the overall Irish credit union movement now stands at €5.4 billion. It has grown by 6% versus the previous year. Their mortgage lending stood in June 2022 at €301 million, which is a 22% increase versus where they were the previous year.

We are now involved in making some legislative changes, which are being led by the Minister of State at the Department of Finance, Deputy Fleming, who will be bringing the legislation to the Oireachtas later in the year. It will look at how we can give a little more flexibility to the credit union movement and to allow credit unions to collaborate more with other credit unions to provide more products and more effective products. Therefore, there are some positive signs of change on the way.

I recognise the great leadership and ownership that exists in so many of our credit unions at present. We are in a situation where we have 22 credit unions now providing Strategic Banking Corporation of Ireland loan products. A number of years ago, that was not happening at all. We now have 47 of them involved in lending to the agricultural sector. No doubt more can be done. They want to do more but there are positive signs on the way regarding the kind of lending that they are doing.

Deputy Bernard J. Durkan

I will finish up in a second. It has been represented to me that the investment funds have been forced to fund the house-building industry, for instance, in areas where the pillar banks refused to enter. Is that true?

Deputy Paschal Donohoe

We cannot force investment funds to be involved in anything. To develop the Deputy's point a little more, it could well be the case that the pillar banks are deciding not to be involved in certain forms of construction activity. Indeed, it could also be the case that the interest rates and the commercial terms that banks are offering are not attractive enough for those who are involved in construction projects and because of that they look elsewhere, but it is absolutely not the case that they are being forced to do something.

Deputy Bernard J. Durkan

It was also suggested to me that the interest rates chargeable were considerably higher than would apply to the commercial banks, the pillar banks. My conclusion would be that this, in turn, would cause house prices to increase.

Deputy Paschal Donohoe

I am not aware of that. I am sure the Deputy would have concrete evidence of this, or is getting this judgment from a trusted source in order for him to raise it here. The matter of interest rates and who is offering what is not an issue I am involved in. In my experience, what might be happening is that those involved in delivering the projects that the Deputy is referring to might be getting better terms than our pillar banks are able to offer and might be going to those offering such terms. If our pillar banks are able to offer interest rates, in my experience most people involved in delivering the projects that they want to deliver go to them for the loans that are needed.

Senator Maria Byrne

I have been contacted by a number of small businesses. They were customers of the two banks leaving Ireland. They have changed over to one of the pillar banks and are trying to get access to credit. The three pillar banks are all saying that they must have 12 months trading. They will not accept bank statements from the banks that the businesses were with previously. Can anything be done on that? It has been raised with me in relation to all three banks. I do not know if it has been brought up with the Minister.

Deputy Paschal Donohoe

In short, it has not been brought up with me. Many of the issues that I am aware of are more around the migration of consumer accounts rather than business accounts at the moment. If the Senator would furnish me with some of the examples she is referring to I would happily raise the issue in general terms with our banks. I would be surprised if continuous bank records being provided from KBC or Ulster Bank were not accepted with veracity by the banks that are hoping to host the business in the future. She might share that with me after the committee.

Senator Maria Byrne

I thank the Minister. I believe the SEAR legislation is due to come into law shortly. I wonder when that will happen. What impact it will have on the banks?

Deputy Paschal Donohoe

With the co-operation of the Oireachtas, I hope to introduce the legislation on Second Stage in October. It will make for a very busy October, November and December because we will have the Finance Bill and the SEAR legislation all together. I hope to present Second Stage in some weeks. With the co-operation of the committee and the Oireachtas, I hope to be in a position to have it passed through both Houses by the end of the year. It will make a pretty fundamental difference because it will outline a number of different regulatory requirements that will be implemented at an individual level and at a company level. For the first time, it will break the participation link between a company and an individual. Up to now, for an issue to be pursued with an individual you need to be able to prove corporate wrongdoing and the wrongdoing of the overall company. That link will be broken through the passage of this legislation. I hope we can get that passed in some months time.

Senator Maria Byrne

Would it avoid issues such as the tracker scandal? Would it help to alleviate those kinds of issues into the future?

Deputy Paschal Donohoe

That is exactly the reason we are bringing it in - to do all we can to prevent things like that happening in the future.

Senator Maria Byrne

The State has shareholdings in the three pillar banks. It was said that those shareholdings would be reduced. Will the Minister give an update on the State's plans to pull out or to reduce its shareholdings?

Deputy Paschal Donohoe

We are still a significant shareholder in both AIB and Permanent TSB. We are approaching being able to exit Bank of Ireland entirely. We are not at that point yet. Obviously, a public announcement will be made if and when we got to that point.

Senator Maria Byrne

That is great. I thank the Minister.

Chairman

I have some questions I want to ask. Before I do, I want to remind everyone of what was said by the Central Bank in its headings regarding its key findings. It said that AIB:

Failed to consider the entitlements of customers when it withdrew the tracker mortgage product ...

Breached customers' mortgage contracts, delayed in rectifying the breach, and failed to take immediate and conclusive action to determine for these customers the financial implications of its wrongdoing ...

Wrongfully excluded customers' mortgage accounts ...

Failed to handle customer complaints in a fair and consistent manner ...

Failed to properly manage its mortgage services to customers, resulting in breaches of customers' consumer protection rights [etc.] ... [and]

Failed to properly implement the ... Stop the Harm principles.

That is what the Central Bank said about the tracker mortgage issue and the fine it was imposing on AIB. It failed its customers. The Central Bank said that these "failings caused unacceptable harm and loss ... over the course of nearly 18 years" and that AIB's actions had "devastating consequences for its customers". If that was said about another company, there would probably be a clear-out of the directors. Certainly, whoever was left would ask that senior managers would consider their positions at least. None of that happened. There were 57 regulatory breaches. They were fined €119 million but they got a discount of 30%. I do not know anyone who gets a discount like that when they have done so much damage. A number of houses were repossessed and a number of families were destroyed - the litany of errors goes on and on.

Now we are asking that same bank with that record to treat fairly the EBS tied agents. I am not making little of the customers that were affected or any other issues relating to the bank, but that is the backdrop. That is the EBS. Through parliamentary questions, I think it was the Minister's Department that informed those who asked that the Irish Auditing and Accounting Supervisory Authority, IAASA, would examine the issues they had. However, IAASA would not do it. It did not refuse to do it, but it did not actively pursue it. When it was pushed, it said that it would deal with it but that it would deal with the complaint from the EBS-AIB behind closed doors.

That is what has the country the way it is. Then the EBS tied agents went to the Central Bank. The Central Bank will not investigate, even though under section 37 of the Building Societies Act 1989, the Central Bank has to ensure the EBS is financially sound, which brings us back to the root of this problem. The Office of the Director of Corporate Enforcement, ODCE, has refused to examine instances where banks have refused to disclose, or disclose correctly, their true financial position. It goes back to the definition of "capital losses" used by the Irish Banking Resolution Corporation as well. It is not compatible with that of the EU. Regardless of whether we believe all of what is being said in that, against the backdrop of the activities of AIB it begins to emerge that all of these entities that are supposed to be in charge and have the powers do very little. They pretend, and people go on suffering. When I asked AIB about the EBS, it was reluctant to give any real update, because it is in mediation or the process is ongoing. I consider that response from AIB to be absolutely shambolic. In the light of all of that, I ask the Minister to tell AIB to stop the carry-on with the EBS tied agents and to bring about a resolution of some sort to the matter, in view of what the Central Bank said about AIB. I do not know how it can be trusted. Can the Minister ask AIB to do that?

Deputy Paschal Donohoe

I thank the Chairman for raising this issue, as he regularly does. I know it has been an issue that has caused a lot of difficulty for the people on whose behalf the Chairman has raised it. He is aware that I cannot tell AIB to act in a certain way in relation to this matter. It goes back to the issue of commercial independence that I have to respect and I have already covered with the committee. However, as I always do when the Chairman raises the issue with me, I will ask for a report on the matter and I will share it with the committee, but I cannot tell AIB what to do.

Chairman

I hope the Minister knows that it is this type of carry-on, and the carry-on of the respective bodies that I have mentioned which have failed to do what they should be doing, that actually gives the whole political system a bad name. I heard the Minister's reply in relation to EBS. I will continue to pursue the matter. The committee decided earlier that we will invite in some EBS tied agents again to continue to keep the pressure on them. Just like those involved in the tracker mortgage issue, these people and their families are being hung out to dry by AIB. I am sure that when they read the findings of the Central Bank, they must be utterly disgusted that they are dealing with that type of organisation. I do not paint all of the employees in AIB with the one brush, but I certainly question the culture of its board and the management. Any reasonable person would do that.

I have a second question for the Minister. Is he surprised that there was no clear-out of directors, no sanction of managers at a higher level or anything like that? Is the Minister surprised that the Central Bank imposed a fine of €119 million and gave a reduction of 30%, and then would not disclose anything after that? We are not being served well, are we?

Deputy Paschal Donohoe

I believe our regulator, in the Central Bank, has put a huge amount of effort into this investigation, and has been instrumental in dealing with what is a scandal. I also believe that we, as a political class, do not serve ourselves well if we do not recognise the work that has been done by regulators that are now strengthened with new powers. It is also the case that when the representatives of the regulator from the Central Bank appear before the committee, the members and the Chairman raise issues with them that are of concern. The Chairman does that well.

On what the Central Bank has done, the overall fine that has been imposed is €96.7 million. My understanding is the reason a discount was made available was that alongside that, AIB accepted liability and did not look to dispute the penalty. The current CEO of AIB was not CEO at the time when this issue occurred in relation to tracker mortgages. From engaging with him, I believe he is committed to trying to bring the tracker mortgage issue to a resolution. I believe that overall, our regulator has used new and extensive powers that we have made available to it extensively. I have not always been happy with the engagement between the regulator and our banks, which is why I became involved in this issue a number of years ago.

Chairman

I have not commented on the work of the Central Bank or, indeed, the man in charge of AIB. I am talking about the general culture, and the fact that at the end of the day, someone is responsible for it. It has to be asked why no individual has been held to account, in spite of all of the destruction that all of the banks involved brought on the people of this country, who are supposed to be protected by the Government that they elect. When representatives of the Central Bank first appeared before the committee, way back at the beginning of this, we were told that there were 3,000 to 4,000 cases, but the regulator was not sure. In AIB alone, there were over 10,000 cases. There are still some unresolved cases. The banks are as difficult now, in bringing about a resolution to those outstanding accounts, as they were at the very beginning of this. I find that totally unacceptable. This House, the Minister and the Department are pushed to one side as we leave everything to the regulator. The Minister is bringing in a new Central Bank Bill. Will he, in that Bill, give authority to the regulator to say much more about fines that will be imposed in the future? It is currently restricted, as I understand it, in certain ways. I believe the public has a right to know what skullduggery was going on in the banks. The regulator needs to have a freer hand to deal with a greedy industry that seems to have no rules or regulations in-house for itself. The Minister said that AIB co-operated. Why would it not co-operate? We had witnesses all round this room who explained what happened to their homes and their families when AIB stripped them of their tracker mortgages and deprived them of the opportunity to have the matter dealt with. It ignored its customers' rights. That is outlined in the statement from the Central Bank. Will the Minister include, in the new Bill he is bringing forward, far greater powers for the regulator to name and shame any of the banking institutions or anyone else it deals with in relation to this?

Deputy Paschal Donohoe

I must have misheard the Chairman earlier, because I did comment on the regulator and AIB and the current CEO of AIB. The Chairman said a moment ago that he was not commenting on them. However, I think he said earlier that he felt we were not well served by our regulator. He made a point to me on why there has not been change in AIB. I think it is important to say a few things. Maybe I will repeat quickly what I said a few moments ago. Firstly, what happened is a scandal.

I am as aware as the Chairman is of all of the suffering that took place with regard to it. Second, the current chief executive of AIB was not chief executive when this happened. Furthermore, my understanding is that there has been very significant change at a senior and personnel level within all of our banks since the behaviour we are referring to occurred and the tracker mortgage decisions were made.

As much as I agree with the Chairman on the scandal and harm that has been done, I could not agree with him regarding his description of our banks there in his saying that there are no rules or regulations.

Chairman

There was not.

Deputy Paschal Donohoe

That is, in his saying there are no rules or regulations now.

Chairman

I am speaking about what was there then.

Deputy Paschal Donohoe

I must have misunderstood what the Chairman said and my apologies.

Chairman

I may not be representing myself properly but I have to say to the Minister that what was going on then was unacceptable but it would be still going on if it were not for the courageous efforts of those who had tracker mortgages to put their personal lives out into the public domain, and to explain what was going on.

Deputy Paschal Donohoe

It is important to be crystal clear about the change that has happened now versus then. It is also important to refer to the further changes we are bringing in. We have significantly strengthened the powers of our regulator and the resources that are available to that office’s staff to ensure that our banks are better regulated, that the behaviour that the Chairman played his role in bringing to light is not repeated again, or that the chances of it ever happening again are very significantly reduced.

In the legislation I am bringing forward, and I thank the committee for its role in allowing me to get to this point with the legislation, we are bringing in significant change at individual level to do all we can so that if something like this happens again, that sanction is possible at an individual level. That is why we are bringing this legislation forward. It has taken some time to do that but we are bringing it forward.

I also believe that cultural change has taken place in our banks. I accept that they need to do and explain more in respect of their awareness of the needs of customers and their obligation to them. Overall, if one looks at the legislative change that has happened and the legislation I am bringing forward, we are in a very different place from where we were in 2009 and 2010.

Chairman

I would still go back and say that during the peak of this, people lost their homes but no one lost their job. It is astonishing, with time, when one can read and look at this-----

Deputy Paschal Donohoe

Sure.

Chairman

-----and digest what happened to people. Alongside that, when one reads the Central Bank commentary, one understands that actually nothing happened in the bank. Nobody within the bank who was of a senior position decided that this happened on his or her watch and that he or she should go, or decided that a particular person did something wrong and that person should go. Nothing like that happened. I just think that is incredible.

Deputy Paschal Donohoe

I met the representatives of the group who have been affected by this. I have met constituents who have gone through the very kind of misery the Chairman is referring to and which he and the committee has highlighted, and am well aware of the hurt that was caused. I would make the case that surely the language of the regulator in condemning what had happened, and the magnitude of the fine that it has imposed, does matter. The fact that it has done that tells us that this is the kind of thing that was not happening in the regulation of our banks many years ago and is happening now.

I accept the Chairman’s point regarding what has happened to the individuals who are involved in decisions that were made. This is the reason we are bringing forward further improvements in this area through the SEAR legislation. I am not aware of there being a type of legislative constraint upon the ability of the regulator to comment on decisions it has made. When I am bringing forward the legislation, if there are improvements that can be made to further and build the confidence people have in our regulator and make its operation, perhaps, a bit more transparent and easy to understand, and if the Chairman has suggestions in that area that will improve the Bill, I will be happy to consider them. If I can further improve the legislation also as it moves through the Oireachtas, of course I will do so.

Chairman

I am going to engage with that Bill because we will probably do pre-legislative scrutiny on it, with all that entails.

Deputy Paschal Donohoe

I believe pre-legislative scrutiny has already happened.

Chairman

My apologies, Second Stage.

Deputy Paschal Donohoe

We will do Second Stage and I will be bringing the Bill back here then on Committee Stage.

Chairman

Yes and therefore the Bill will be back with us on Committee Stage.

Deputy Paschal Donohoe

There will be ample opportunity then.

Chairman

Touching on vulture funds then again, there may be a need within that Bill to reach out to make them more accountable, to this House at least, so we can question them because they refuse to come in. I ask that the Minister might look at the various digital platforms that are there for people to take up these accounts, as some of the companies offering the accounts are not regulated here in this country. We need to look at that.

On credit unions, we have held them back for way too long. They have a great deal more to offer. Whatever the Minister does in this Bill, we need to deal with how they are regulated and, indeed, to lessen the load of regulation on them, without damaging the need to have control through a regulator, but to allow them to loan more. I am thinking, in particular, of what used to be known as the penny bank, where one brought one’s savings to the community centre and it was lodged then. Since the removal of that, I have had numerous people telling me how that way of saving for them was critical for their family, and it kept the door closed to moneylenders. The small little things like this in people’s lives make a very significant difference.

Deputy Paschal Donohoe

The Minister of State, Deputy Fleming, has done a great job. I have been happy to support and help him in this work and to engage with the credit union movement on bringing forward some very practical changes which are being well received by our credit unions. As I said to Deputy Durkan a moment ago, there is clearly a great deal of change happening organically in our credit union movement, for example in the new loans they are providing and the new sectors they are engaging with.

On the point that the Chairman has made on the SEAR legislation and the breadth of who it will cover, it is of course open to the Central Bank to determine who it brings into the breadth of this in the time ahead. In fairness, a great number of institutions will be coming under the coverage of this legislation when it is brought in. There is a case to be made for getting that right first before we bring in new organisations or institutions into that.

Chairman

My last question relates to Revenue and to a particular case that was heard here at the Committee on Finance, Public Expenditure and Reform, and Taoiseach perhaps during the previous Dáil term. That is to do with a complaint made by an man named Alo Mohan and a meeting with the Revenue present, where two principal officers were apparently in attendance on 25 August 2017. I understand there has been extensive correspondence with the Minister’s Department on the matter. I do not expect the Minister to have an update on it now. I ask, however, that the committee be given some form of update on the discussion that we had here with Mr. Mohan, on his efforts from 2005 up to 2017 when he met with some colleagues and with two Revenue officials, and on what action might or has been taken as a result of that, if we cannot obtain the full report. Perhaps the Minister might arrange to give us an indicative position, please, on where the complaint went to because it had to do with a loss of revenue for the State. That is the interest I have in the matter, together with the fact that the treatment of taxpayers generally should be the same. Mr. Mohan believes that he has the evidence to prove that it was not the same, not only in his case, but right across particular agri-sectors. That is my final question there.

Deputy Bernard J. Durkan

The Chairman mentioned that vulture funds do not and refuse to appear before the committee. It is possible, however, to discuss issues relative to them, and their activities, in their absence if they decide not to appear before the committee.

If I were them, I would much rather be present to answer questions, but I think they should be reminded of that.

I intend to return to my favourite topic here, namely, the seizure of the ATM from Leinster House during the lockdown, when it was deemed that it had no customers. How could there have been customers? The lockdown was in place. I expect that sometime in the near future, some bank, perhaps the same bank, will recover the ATM from wherever it is and return it for the convenience of customers to this institution, the national Parliament, where hundreds of customers are available weekly. Incidentally, it was said that the ATM was not being used, yet on several occasions I saw a queue at it. It is a matter I will pursue again.

Chairman

The Minister referred to two sections, one in the Department of Justice and another in the Department of Finance, that deal with fraud, money laundering and so on. I picked up on it because we are carrying out a review or analysis of the politically exposed persons, PEP, legislation. Is there a section that deals with that?

Deputy Paschal Donohoe

The PEP programme is a matter for the Department of Justice, not the Department of Finance. It relates to anti-money laundering legislation.

Chairman

The next issue relates to insolvency. We had a number of complaints from people and I have put this question to the banks, so I will put it to the Minister now. In the context of insolvency, people are finding it difficult to open accounts with banks on behalf of the clients of a practitioner. Both AIB and Bank of Ireland indicated they would investigate why that is the case. Perhaps in the Minister's discussions with the banks, this is an issue. It is set out in legislation how these people should behave and one of the requirements is that they must open a bank account for their client. There was an issue with some of the banks and we want to get to the bottom of it. The Minister might send us a note on the matter.

Deputy Paschal Donohoe

Sure. I will do that.

Deputy Bernard J. Durkan

I have a final question relating to taxation, if I may, which the Minister might or might not choose to answer. If the head of a household decides to move away from his or her home and relocate in another, distant area, whether for home protection reasons or whatever, and lets the home property to a tenant, I would have thought the income from the home property could be set out as revenue contra to the cost of renting another house, but apparently that is not allowed. The person in such a position, therefore, has to bear the brunt of the relocation and the cost of the tenancy and gets no corresponding allowance, which there should be, in my opinion, for his or her home. Rather, the person is penalised.

Chairman

That will save the Deputy from raising the matter at the parliamentary party meeting this evening.

Deputy Paschal Donohoe

I will have to brief myself on that matter.

Chairman

As always, we thank the Minister and his officials for their engagement.

The joint committee adjourned at 3.24 p.m. until 1.30 p.m. on Wednesday, 5 October 2022.