This Bill provides for a comprehensive updating of the legislation governing the Trustee Savings Banks. The main governing legislation dates back to the year 1863 and, while there have been a number of amending provisions down through the years, the basic rules have remained largely unchanged. This legislation served its purposes well when the Trustee Savings Banks were simply savings institutions but much of it is now outdated and has no place in today's financial environment. The Trustee Savings Banks are now subject to some archaic regulations which severely restrict their ability to realise their proper potential and to cope as effectively as they should with intense competition.
The Trustee Savings Banks have a long tradition of service to the community in this country. The trustee movement was founded in the early years of the last century to encourage thrift and to provide safe repositories for small savings. From the beginning the emphasis was on tight regulation to protect these savings. The movement gradually developed a banking service which became identified with the smaller depositor, and only in very recent years the smaller borrower, and which had a special local character.
As financial activities became more varied and complex and competition increased, many of the local units did not have the capacity to survive on an independent basis and so the process of amalgamation gathered momentum.
They are now grouped into two banks, the Cork and Limerick Savings Bank and the Trustee Savings Bank Dublin. Between them these two banks have a total of 64 branches throughout the country and both have plans for further extensions of their branch networks. At the end of the last financial year the total of balances due to depositors was in excess of £760 million and the number of employees was 800.
The Trustee Savings Banks are a substantial retail banking operation. Their retail outlets have strong potential for expansion but it is necessary in the first instance to remove existing restrictions on their activities and to allow them to provide a full retail banking service. While they now provide many of the services of a commercial bank including current accounts, loans and foreign exchange, a full service cannot be provided under the existing legislation.
The range of Trustee Savings Banks activities is legally restricted at present to deposit taking, making of secured loans and such activities as, in the opinion of the Minister for Finance, contribute to thrift. They are confined to taking deposits from and making loans to individuals only and not companies and this is a very severe handicap as it excludes them from a large area of the business world. In addition to the restrictions relating to deposits and loans, they cannot invest in new areas of financial activity such as fund management and corporate finance.
The scale of activities is also influenced by the proportion of depositors' funds which the Minister for Finance allows the Trustee Savings Banks to retain. Under present arrangements it is required that after allowing for working balances some 80 per cent of depositors' funds must be lodged with the Exchequer and the Trustee Savings Banks are paid a margin over the cost to them of these funds to meet their overheads. The balance of 20 per cent is available for lending to individuals. At the end of the last financial year the total amount on deposit with the Exchequer was in excess of £600 million.
The main purpose of this Bill is to facilitate the Trustee Savings Banks in providing a competitive banking service in equal competition with other banking institutions. We all accept the principle of the level playing field between the different financial institutions and this Bill is a step in this direction. While they are not big in banking terms, the Trustee Savings Banks have developed a wide retail network over the years and they have a record of reliability and good service which should enable them to grow significantly once they are given the freedom to do so. This Bill will allow for an extension of their activities and will allow them to respond more flexibly to the requirements of the market.
The proportion of total funds invested with the Exchequer will be reduced gradually as they extend their business in new directions. The provision in this Bill transferring the supervision of the Trustee Savings Banks from the Department of Finance to the Central Bank, the appropriate supervisory authority for a banking operation, will facilitate those changes.
The new directions for the Trustee Savings Banks envisaged in this Bill reflect changes taking place in relation to the savings banks in other European countries. The savings banks have a great tradition and a great reputation in Europe of service to local communities. There is a general realisation, however, of the need for some fundamental changes and, in particular, there is great emphasis on amalgamation and on change to company status.
The amalgamation process in the savings bank sector has been most strongly in evidence in France and Denmark. The Savings banks in France now have a completely new structure and during 1985 and 1986 their number dropped by 70 to 395 institutions as a result of mergers. Savings banks are up-to-date with regard to the level of new technology they are utilising in their day-to-day banking and have, in fact, pioneered innovative areas such as card technology and data banks. German savings banks have been particularly active in the technical field with increased computerisation and automation to increase co-operation throughout the savings bank organisation.
Another direction in which European savings banks are heading is towards changing their system of organisation to that of company status. Denmark has legislation underway which would allow individual savings banks to become joint stock companies. In the Netherlands two of the large savings banks are about to set up a limited holding company, thus enabling them to raise funds on the capital market directly. In Britain the Trustee Savings Banks Act, 1985 enacted the framework for restructuring the Trustee Savings Banks and transferring them into private ownership.
Before I turn to the individual sections of the Bill, there is one issue in particular which I would like to clarify and this is the question of ownership. The Trustee Savings Banks have been established and run under trusteeships and, because of the voluntary role of the trustees and the community service aspect of the banks' activities, ownership has never been an issue. The broad assumption has been that they are voluntary bodies providing a community service. The question of ownership must be considered, however, if the Trustee Savings Banks are to provide a much wider banking service and if there is a likelihood that they may be reconstituted as companies. The legal advice to me is that the Oireachtas has the power to dispose of the assets of the Trustee Savings Banks or to alter their status as it sees fit. This power is, of course, subject to the condition that the rights of depositors are fully protected in relation to their deposits and interest thereon under any amending legislation, in accordance with accepted practice.
I will not go through the sections of the Bill item by item as much of it is self-explanatory and is broadly consolidating and updating the existing legislation. I propose, therefore, to focus on the more significant items which will affect the status of the Trustee Savings Banks.
Part I of the Bill, which brings us up to section 8, deals with standard procedures including the laying of regulations before the Oireachtas.
I would like to make special mention of sections 5 and 6 at this stage. Section 5 allows for regulations to remove difficulties in the implementation of the provisions of this Bill when it is enacted.
This power to make regulations which could modify the terms of the legislation was criticised in the Dáil on the grounds that it assigns to the Minister an authority which properly belongs to the Oireachtas. First of all, let me make it quite clear that there is nothing novel in this approach. There are several precedents, the most recent being the building societies legislation and the sole purpose is to facilitate unforeseen adjustments of a technical nature without the need for further legislation. Any regulations that might be introduced under the terms of this section could only be of a minor nature and would be introduced simply to facilitate the implementation of this legislation.
The existing Trustee Savings Bank legislation is complex and is in many respects seriously outdated in today's environment and the present Bill is the first major reform of that legislation in this State. There is, therefore, a strong possibility of unforeseen technical difficulties arising in giving effect to the terms of the present Bill and this provision is to enable the Minister to deal with them. This power can effectively be exercised only within the context and intentions of the present Bill. There is no question of the possibility of the thrust of the legislation, or of any of its provisions, being undermined by the use of this section. Despite the apparent breadth of its drafting, my advice is that it can only be exercised in a very limited way. I would draw your attention to the time limit of three years on this section, and to the fact that, as provided in section 4 of this Bill, any regulation made under this section would be placed before both Houses of the Oireachtas who would have the power to annual the regulation within 21 days if they so wished.
Section 6 empowers the Minister to modify provisions of this Bill by regulation to take account of relevant changes in company, banking and building society legislation. This provision is necessary because many of the provisions contained in the Bill have originated in company, banking or building society legislation and Trustee Savings Bank legislation will almost inevitably require amendment should any further changes be made in these areas. Instead of having to return to the House to amend the present legislation, this provision allows the Minister to make such amendments by regulation. This in no way undermines the authority of the Oireachtas as it will only apply to legislation which has already been adopted by both Houses. It will not involve making any new legislation. These regulations will also be subject to section 4 where they will be placed before both Houses of the Oireachtas which have the power to annul any regulation within 21 days after it has been placed before them. There is a similar provision in the current building societies legislation as many of its provisions have drawn on company and banking legislation.
Part II deals with the establishment and licensing of Trustee Savings Banks. While the establishment of new Trustee Savings Banks is highly unlikely in view of recent trends in the financial sector, we cannot rule out this possibility in the longer term.
The requirements for establishment are specified in section 9. The fundamental condition here is the supervisory role of the trustees. This section also removes the outdated restrictions on the activities of the Trustee Savings Banks. In effect, they will now be empowered to carry on, in addition to their existing activities, any other financial service which the Central Bank considers prudent. This should open the way for them to provide a truly modern banking service and encourage them to exploit other market opportunities. The safeguard here for the Trustee Savings Banks, and the banking and financial sector generally, is the requirement for Central Bank approval. Provision is also made in the section to enable the Trustee Savings Banks to carry on business outside the State. In modern banking, with the increasing emphasis on freedom of capital movements and globalisation of services, it makes no sense to prohibit an institution from doing business outside the State and the provision in this legislation will ensure that this does not arise.
Another key change is contained in section 10. Up to now the Trustee Savings Banks have been supervised by the Department of Finance. This is unsatisfactory because the Department are not the best equipped agency for this purpose; the appropriate supervisory authority for all banking operations is the Central Bank and the Trustee Savings Banks should be no exceptions. Accordingly, the supervisory function is now being transferred to the bank. This will be a much more satisfactory situation where a range of financial institutions, including banks and building societies, will come under the one supervisory authority. It will facilitate a consistent approach to supervision and is vital at a time when competition in this sector is increasing.
Part III of the Bill deals with the trustees themselves. The most significant point here is in sections 17 and 18 which both limit the numbers of trustees and impose an age limit. A maximum of ten trustees and an age limit of 70 years are proposed. Because of amalgamations over the years there has been a tendency to add to the numbers of trustees to the point where numbers were excessive and a maximum of ten is considered reasonable. I would like to avail of this opportunity to acknowledge the contribution made by trustees over so many years in promoting the Trustee Savings Banks as a community service.
Part IV of the Bill deals with supervision. Most of the sections in this part are based on the Central Bank Acts of 1971 and 1989. Perhaps the most significant provision under this heading is the power of the Central Bank to intervenue and protect the depositors where it has reason to conclude that a Trustee Savings Bank will not fulfil its obligations.
Part V of the Bill deals with the management and administration of the Trustee Savings Banks and draws heavily on the current building societies and Central Bank Acts. It provides for the keeping of proper accounts and for the development of superannuation schemes subject to the approval of the Central Bank.
Part VI of the Bill is concerned with the amalgamation of the Trustee Savings Banks and the procedures to be followed. In earlier years the local Trustee Savings Banks were generally independent units but mergers became inevitable as greater efficiency of operation and greater economies of scale were required. The new provisions relax the existing requirements for amalgamation. Previously amalgamation took place by special resolution passed by three-fourths of the trustees which is too high a proportion. This is now being changed to three-fifths.
There are no proposals at this time to amalgamate the Cork and Limerick Savings Bank and the Trustee Savings Bank, Dublin. While they share some facilities and maintain close contacts, they are entirely separate and independent organisations. The pressures for amalgamation into one unit may well increase as competition intensifies and there are some obvious advantages in a pooling of resources. The two banks have discussed previously the potential for amalgamation and I would expect that they will look at this again in the light of their position following the enactment of this legislation. Amalgamation will require the prior approval of the Minister for Finance and the Central Bank. I would certainly not stand in the way of amalgamation if both banks were satisfied that this was in their best interests.
The most significant feature of part VII of the Bill is section 57 which provides for the reorganisation of the Trustee Savings Banks into companies. There are no plans at present for any such reorganisation and the intention is to continue with the trusteeship arrangement. As the Trustee Savings Banks extend their activities, however, it may be necessary to introduce a company structure to allow them greater flexibility in trading and in raising capital and to open the way for more direct links with other financial organisations. However, in an increasingly competitive environment, we must recognise the possibility that the Trustee Savings Banks may find it necessary to become associated with larger financial groupings and some level of joint venture or even close relationship may be desirable in due course. In this kind of situation it would in all probability be necessary in the first instance to change the trustee status.
Section 57 empowers the Minister for Finance to do this by ministerial order. There was some criticism of this procedure when the Bill was being debated in Dáil Éireann, on the argument that it was conferring undue authority on the Minister. The reality is quite different; this order will have to be approved by the Oireachtas before it can take effect. In the event, therefore, of proposals for a fundamental change in the structure of the Trustee Savings Banks at a future date, the Oireachtas will have the opportunity in advance to debate this change and the reasons for it.
Let me emphasise that in providing for company status two distinct options are provided for. Conversion can be to a company controlled by the Minister or, where this is not the case, there are adequate provisions for the financial interest of the State to be safeguarded. The decision as to whether the Minister for Finance should retain this control would be taken at a later date and would be subject to prior Oireachtas approval. Contrary to the impression given by some people who spoke on this Bill in Dáil Éireann, the Bill does not determine that the Trustee Savings Banks shall be in private ownership. It provides that for now they will continue as trusteeships and they may convert to company status at a later date under either of the options provided for and only with the prior approval of the Oireachtas.
The present legislation served its purposes well as long as the Trustee Savings Banks simply fulfilled the role of local savings institutions. In order to survive and prosper in the modern environment, they must have a much wider brief. By comparison with the major banking institutions operating in this country the Trustee Savings Banks are small. As the internal market of the European Community evolves and free movement of capital becomes the norm, there will be increasing competition for market share and the Trustee Savings Banks must have the necessary freedom and flexibility to compete effectively.
The Trustee Savings Banks have a great tradition. Even with the limiting conditions imposed on them, they have made great progress in modernising their activities and extending their range of services to the community. The present legislation opens up new possibilities for them. They will now extend their range of services and become banking institutions in the full sense of the term while maintaining their distinctive characteristic of special service for the smaller depositor. They will now be in a position to provide a wide range of services and to expand their facilities in the confidence that they can be fully competitive.
I commend the Bill to the House.