Seanad Éireann debate -
Tuesday, 10 Jul 1979

Vol. 92 No. 10

Trustee Savings Banks Bill, 1979: Second and Subsequent Stages.

Question proposed: "That the Bill be now read a Second Time."

Minister of State at the Department of Finance (Mr. Wyse)

The trustee savings banks, although they are private bodies, conduct their business and are supervised by the State in accordance with the Trustee Savings Banks Acts. The Trustee Savings Banks Act, 1863, which was a consolidating Act, is, with certain amending Acts, the governing statute. Amending Acts passed in 1958 and 1965 brought the legislation up to date in such respects as then seemed necessary. The question of consolidating the legislation is being examined.

At present there are four trustee savings banks operating in the State — in Dublin, Cork, Waterford and Limerick. A fifth bank — the Monaghan Savings Bank — operated until 1976 when it amalgamated with Dublin.

The purpose of this Bill is to remove a doubt which has arisen in connection with the application of section 3 of the Trustee Savings Banks Act, 1965. That section provides as follows:

The trustees of a trustee savings bank may, with the consent of the Minister for Finance, undertake any business which is, in the opinion of that Minister calculated to encourage thrift and within the financial capacity of the bank.

Under this section the trustee savings banks were authorised to grant short-term personal loans — for periods of up to five years — and bridging loans to depositors.

In connection with a proposal to extend the personal loans service to include long-term housing loans the law officers advised that there was no objection in law to the use of section 3 of the Trustee Savings Banks Act, 1965 for that purpose. As announced in this year's budget the trustee savings banks have been authorised to grant house mortgage loans.

One of the savings banks was advised by counsel that in his view the 1965 Act did not empower the Minister for Finance to sanction loan schemes and that new legislation was required. The matter was referred to the Attorney General who now advises amending legislation.

The Bill amends section 3 of the 1965 Act by providing that any business sanctioned by the Minister for Finance under that section may include the making of loans, including house mortgage loans, and the using of depositors' funds for that purpose. For the protection of the savings banks it is necessary that the amendment should have retrospective effect to cover loan schemes sanctioned to date.

I commend the Bill to the House.

Mr. Staunton

We have no objection to this Bill going through the Seanad as introduced by the Minister. I wonder why it is, in fact, even necessary to introduce it in the Seanad but the legal mind may have another way of looking at it. If the trustees, under section 3, of which we are speaking, with the consent of the Minister, could undertake any business which is, in the opinion of that Minister, calculated to encourage thrift and is within the financial capacity of the bank, and if to date under that section trustee banks were in a position to grant short-term personal loans and bridging loans to depositors within that definition, I wonder whether the Bill is, in fact, necessary and if the question of housing loans, which is a laudable aspect of lending, could not be covered by it. But legal advice is legal advice and presumably we are guided by it. For that reason, we support the Bill as introduced by the Minister. Apart from the matter of the Bill it is obviously encouraging to see the trustee savings banks going into the home loan area because it is an area which has been, at times, starved for finance. Any source of funds which is using its funds for that purpose is performing a very useful national service and I commend the fact that they are lending money for housing at this time.

Professor Hillery

I welcome this Bill providing as it does a valuable supplement to available resources for house mortgage loans. The Bill provides an opening for the trustee savings banks to enter the longer-term end of the lending market which was not heretofore available to them. Customers in these banks tend, I think, to be small depositors. By lending for house purchase to their own customers, especially in these days of very high house prices, the trustee savings banks will be providing a particularly valuable service.

Of course, in order to be able to make loans these banks must be able to attract deposits and there is an increasing consciousness of the level of interest rates prevailing at any particular time among the investing public, be they large or small depositors. This implies that the interest rates offered by the trustee savings banks to their depositors must be competitive which, in turn, means that the consent for changed interest rates must be readily forthcoming from the Department of Finance lest the trustee savings banks be put at a disadvantage in relation to other deposit-taking institutions.

I welcome this amending legislation and view the power now conferred on the trustee savings banks to make house mortgage loans as one more enlightened measure contained in this year's budget.

Mr. Crowley

I also welcome very much this amending legislation and, indeed, I think that we should go even further. I think that the savings banks have shown themselves to be responsible, have shown themselves to be progressive and, indeed, in some cases far more progressive than their counterparts, the commercial banks. We in Cork are fortunate in having a long standing trustee savings bank in the Cork Savings Bank under the general managership of the former county manager, Michael Conlon. I think it is this type of enlightened recruitment of staff that is going to make these institutions a very formidable force in the future and, indeed, a very important part of our whole lending structure. I think also that it is no harm to have a little more competition among the banks. If further legislation was required in order to make, if you like, the market more competitive for the existing banks, I think that would be a good thing generally for the people of the country. Of course, nothing but good can emanate from this incursion into the house loan business because, as we all know, the basis of a successful industrial economy is the building trade. If we have an institution like the savings bank that will further encourage people to purchase their own houses, I think the spin-off from that will be enormous. I welcome this Bill very much and advocate, if necessary going even further to make the savings banks more available to more people.

Mr. Keating

In general, this Bill is to be welcomed but the principal objective of the change is in relation to the availability of funds for people to buy houses. I think that is referred to in the circulated text of the Minister's speech and that is something that warrants comment. We see a circumstance where increasing competition with the existing loan sources is advantageous to those persons who are determined to obtain a loan so that they can purchase a house. But we see a circumstance now in regard to the general purchasing of houses which is extraordinarily unsatisfactory because the rate of escalation in the price of houses far exceeds the rate of general inflation and that rate of general inflation is high and accelerating.

The second point is that interest rates at this time in Ireland, for a variety of reasons, are exceedingly high and it is clear even in the published lists in the newspapers that the banks and other credit institutions are bidding for the moneys that lenders may possess. Simply increasing the availability of home loans by a measure like this will have the result of tying people to buy dear houses, which are initially dear if the purchase itself is a dear purchase, but in addition the interest rate is very high. Therefore, what is happening is that an increasing section of the population are being encouraged, through measures like this, to tie themselves into committing a third or more of their income for the whole of their active lives.

I am certainly not opposing a measure like this, but I ask myself whether, in the absence of other policy it is prudent or satisfactory. It seems that the policy of this Government is to encourage the private sector to make the funds available and to encourage the private sector to provide the houses. That is a movement away from local authority housing which in historical retrospect will be seen as disadvantageous to the people as a whole. It will be seen as a movement which tied up a very large and growing proportion of the total incomes of families in the purchase of accommodation, a liability from which they do not escape during the whole of their working lives. It is very unsatisfactory.

The Labour Party's approval of this Bill should not be seen, in any sense, as approving the policy of the present Government, either in regard to the controlling of houses, or the building cost, or the price of building land, or of approving their policy in shifting towards private satisfaction of people's housing needs through the market place, or, indeed, approval of their policy in regard to interest rates, which are now at absolutely astronomical and immensely burdensome levels. Through the provision of loans by organisations like trustee savings banks, they will bear most heavily on that sector of the community least able to contend with those increased costs.

Dr. Whitaker

The public spirited and progressive work of trustee savings banks deserves our commendation and I am happy to see this Bill confirm that their business may extend to the giving of personal loans of a long-term nature for house purchase finance. I rise, really, to ask the Minister to say something in his reply about the general method of supervision of the finances of trustee savings banks. I do so without implying any doubt whatever about their financial capacity. As I understand it — the Minister said this in his speech — they are private bodies supervised by the State, in accordance with the Trustee Savings Banks Acts. If my memory serves me right, they are not under the supervision or control of the Central Bank. It is the Department of Finance as I understand it, that looks after the question of their financial capacity and their liquidity in particular.

The section of the Trustee Savings Banks Act 1965, which was found by the lawyers to be faulty in relation to long-term finance, says that a trustee savings bank can undertake any business which, in the opinion of the Minister, is within the financial capacity of the bank. The Minister must have some set of guidelines for this purpose and I think they will be needed far more according as the trustee savings banks move out into the field of long-term lending. Hitherto, they have been either investing the depositors' money in Government securities, which are liquid, or in short-term personal loans for periods up to five years and bridging loans to depositors. All these are in the short-term category. Now they are being authorised, rightly, to move into the field of longer-term housing loans, which, presumably, might be for 20 to 30 years. As a matter of simple banking prudence somebody in authority should be having a look, from time to time, at the extent to which they invest the depositors' money in the long-term, as distinct from the shorter-term, and more liquid assets. I should like the Minister to say whether it is the Minister for Finance who will be discharging that supervisory role in the future.

Minister of State at the Department of Finance (Mr. Wyse)

A number of questions have been posed which are not appropriate to this Bill. This Bill is clarifying a Minister's order safeguarding the banks against any legal action that may be taken. The Minister for Finance is directly responsible. The Minister for Posts and Telegraphs is responsible for the money. A question regarding the interest rate was put by Senator Keating. That matter is under consideration at the moment.

This is a Bill to be welcomed. An announcement was made earlier in the year by the Minister that these moneys could be made available for housing purposes. It was welcomed by the banks and by everybody concerned. There is strict supervision at all times of trustee savings banks. Senator Keating went into a number of matters but they do not arise on this Bill, which is reinforcing a Minister's order and eliminating any doubts that may arise from that order. I appreciate the contributions made. One could widen the debate where savings banks are concerned but this Bill is mainly to remove doubts about the Minister's order and to safeguard the savings banks against any legal action that may be taken. I am anxious also that all Stages of the Bill be agreed. I do not have to impress on Senators the urgency of this, in the interests of the Minister and of the savings banks concerned.

Question put and agreed to.

Agreed to take remaining Stages today. Bill put through Committee, received for final consideration and passed.