Seanad Éireann debate -
Friday, 16 May 1997

Vol. 151 No. 13

ICC Bank (Amendment) Bill, 1997: Second Stage.

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

Minister for Finance (Mr. R. Quinn)

I thank Senators for agreeing at short notice to consider this Bill today. Although the Bill is a short and technical one, it is very important to ICC Bank because it will ensure that the current phase of very rapid growth in the bank's activities will not be halted by the existing limits on its borrowings and authorised share capital. The Bill is a reflection on how far the bank has developed since it was first established in 1933 as the Industrial Credit Corporation. However, it is also a testimony to how faithful the bank has remained over all those years to its original mandate.

The ICC was set up with the task of promoting the development of industry in Ireland. This was a daunting task in the under-developed Ireland of the time and it was made doubly difficult by the great depression which was ravaging the world economy. Despite this background, the ICC persevered and made a valuable contribution to the economy, while turning in a consistently profitable performance since its inception. It is a measure of this performance that, despite an injection of less than £12 million in State equity in 64 years, the ICC has today a balance sheet amounting to more than £1,300 million. Moreover, in the past five years alone, it contributed nearly £12 million to the Exchequer in dividends and more than £14 million in tax. Last year operating profits came to £13 million. The Exchequer received £4.5 million of this, roughly divided between tax and dividend payments. Retained profits will strengthen the balance sheet and enhance the value of the State's interest in the company.

In recognition of the ICC's crucial role, successive Ministers for Finance have ensured the legislation governing the ICC has been amended to meet its evolving needs in light of the changing circumstances of the economy. The last such legislation was in 1992 when the name of the company was changed to ICC Bank to underline its commercial nature. That legislation also raised the bank's borrowing limit to £1,300 million, which is one of the subjects of the Bill before this House today.

This Bill is a simple technical one intended to raise the present statutory limits on the bank's borrowing and authorised share capital. It has nothing to do with, nor any implications for, any decision which may be taken in future on the structure of the State banking sector. The Bill is needed now because the bank's rapid growth over the past two years or so is pushing it perilously close to the limit on its borrowing and also to the minimum of subscribed share capital which the Central Bank requires it to have for prudential purposes. On the basis of recent trends, the borrowing limit could be reached around the middle of the year. At that stage, the bank would have to call a halt to new lending and investment if its borrowing limit was not raised. Such a development would hurt the bank and deprive its customers, particularly small and medium-sized enterprises, of its support. In such circumstances, it would be remiss of the Government not to provide for the future expansion of the bank pending a decision on the restructuring of the State banking sector.

I will elaborate on the bank's borrowing and capital needs. As Senators will be aware, borrowing is a vital part of a bank's business. As it applies to banks, the term "borrowing" means the sum total of deposits placed with it, as well as all other forms of borrowing. Thus, when a bank accepts a deposit, it increases its borrowing and its capital base at the same time. It is this which gives the bank the capacity to on-lend to its customers. The more a bank borrows for on-lending, the greater will be the size of its business.

We all know what can happen if a bank develops its business on the basis of risky loans. It is here that the questions of prudence and the quality of loans as assets comes in. Experience has shown that a certain level of bad debts may arise on any loan portfolio. For that reason, bank supervisors and regulators have determined that credit institutions must have a minimum capital to be able to absorb these bad debts. The minimum is set as a percentage of risk-weighted assets. For banks such as ICC Bank, the Central Bank has set a limit of 10 per cent. Shareholders' funds, which consist mainly of subscribed capital and retained earnings, are the basis for determining the capital adequacy of a bank.

In the case of ICC Bank, borrowing at present is just £70 million short of the limit of £1,300 million set out in the 1992 Act. Moreover, the authorised share capital of £12 million is already fully subscribed and other shareholders' funds are almost fully committed. These limits will have to be raised if the bank is to continue to grow and support small and medium-sized enterprises, a sector whose contribution to output and employment in recent years has been crucial.

Lest there be any misunderstanding, I will make two specific points about what the Bill does not provide for. There will not be an increase in the limit on the amount of the bank's borrowing which is guaranteed by the Minister for Finance. The limit on the borrowing so guaranteed stands at £1,000 million, which is the same as it was before the overall borrowing limit was last increased in 1992. This was a deliberate policy at the time to reduce the proportion of the bank's borrowing which carried a State guarantee and it is the firm intention to reduce the absolute amount so guaranteed in the future. The bank's management fully agree with this intention which is in keeping with the bank's commercial mandate.

My second point is that the Bill does not provide for an increase in subscribed share capital. The proposed increase in the authorised share capital is an enabling provision and is completely in line with practice in the private sector where it is common for even small companies to have a large authorised share capital. Consequently, the proposal does not commit the Minister for Finance to any additional subscription of capital. Any such decision will be taken on the basis of a rigorous assessment of the bank's evolving capital needs and of the prospective return it will yield to the Exchequer.

While the proposed increases in the limits on borrowing and authorised share capital may seem sizeable, they are not in reality. In the first place, the increase of £1,000 million to £2,300 million in the borrowing limit will, on the basis of recent trends, only provide for the bank's expansion for the next four to five years. In this context, Senators will note that the last increase in the limit was five years ago in 1992. Four to five years seems to be a reasonable period for which to make provision now for the bank's borrowing needs. I should also mention that, last year, this House agreed to a similar increase from a similar base in the borrowing limit of ACC Bank.

Secondly, the increase in authorised share capital to £40 million has to be judged in the light of the fact that the existing limit of £12 million has been in place since 1971, over 25 years ago. Since then, there have been fundamental changes in the market for financial services, including the intensification of competition, the unprecedented development in the number and variety of financial instruments and services, and tighter capital adequacy requirements. Against that background, and given the particular requirements of a niche bank such as ICC Bank, it is reasonable to provide for an adequate increase in its authorised share capital. However, as I have already stated, and emphasise again, this is an enabling provision and not a commitment to subscribe such capital.

Before addressing details of the Bill, I would like to outline for the House the salient features of the bank's development since the Act of 1992 was passed. As I indicated already, the 1992 Act underlined the bank's commercial nature by changing its name and raising the limit on its borrowing. The Act confirmed that orientation further by enabling the bank to provide all modern banking and financial services, and by making it subject to regulation and supervision by the Central Bank, a provision which also enhanced the international reputation of the bank as a sound, well run financial institution.

Since 1992, the bank has expanded the services it offers while remaining focused on the development of small and medium sized enterprises, a vital sector of our economy. In this, I would mention in particular the bank's venture capital activities. The venture capital market in Ireland has grown rapidly in recent years as successful entrepreneurs became increasingly aware of the benefits which venture capital can bestow on their enterprises. The bank responded to this by establishing a subsidiary, ICC Venture Capital, which manages a number of specialist venture capital funds. Through this, the bank has become the prime venture capital institution in Ireland. It has been particularly successful in attracting investors through the BES scheme. The bank's portfolio of venture capital investments now amounts to £65 million and it has funds of over £42 million available to invest in suitable projects.

In 1993, the bank set up a special deposit taking facility, ICC Investment Bank — ICCIB — to attract deposits without the benefit of a State guarantee. The ICCIB has been very successful in this endeavour, so much so that today its funds account for about 30 per cent of the bank group's overall financing. While the fact that ICCIB is supervised by the Central Bank has contributed to this success, the major factor has been the reputation which the bank has built for itself and its strong balance sheet. Along with the bank's management, I very much welcome the diminishing reliance of the bank on State guarantees, and the continued success of ICCIB in attracting unguaranteed funds will sustain this positive development.

Since last January, the bank also has an operation in the IFSC which provides full asset financing and treasury management for corporate customers with overseas undertakings. In that short time, it has developed a balance sheet of the equivalent of nearly £50 million in a number of foreign currencies.

The bank has been involved in international consulting and training for over ten years through its involvement with, and shareholding in, International Development Ireland Ltd., IDI. To this end, it has built up a core staff with broad expertise in providing management and technical assistance to institutions in developing countries and transitional economies. Following the successful and lucrative sale of IDI earlier this year, the bank made a strategic decision to continue providing international consultancy and training services directly through a subsidiary, ICC Consulting. The expertise of the bank in this area and the reputation it has already made should ensure the continued success of its consultancy arm. The bank has also enlarged its branch network and in 1996 it opened a branch in Belfast, its first outside the State. Excluding head office, the bank now has five branches.

The achievements I have listed are considerable, especially in a context of increasing competition and eroding margins. They have resulted in the bank being a broadly based financial institution providing a wide range of essential services to Irish business. Much of its success in this area can be attributed to its tight control of costs. In this context it is appropriate to mention the exceptional provision of almost £4 million which the bank made in its 1996 accounts to fund a voluntary early retirement and severance packet, internal restructuring and the development of new systems. This is in keeping with the bank's relentless efforts to improve performance and profitability. On the basis of its past performance, I have every confidence the bank will continue on its course of solid, well based development.

I now turn to the main provisions. Section 1 covers definitions and is self explanatory. Section 2 amends section 5 of the ICC Bank Act, 1992, by providing for an increase in the statutory limit on the bank's borrowings from the current level of £1,300 million to £2,300 million. The last increase was in 1992. The increase now proposed is intended to accommodate projected growth in the bank's activities in the coming years.

Section 3 amends section 2 of the Industrial Credit (Amendment) Act, 1971, by providing an increase in the limit on the authorised share capital from the current level of £12 million to £40 million. The last such increase was in 1971 when the limit was increased from £10 million. As indicated earlier, the proposed increase relates to the authorised share capital of the bank and does not commit the Minister for Finance to subscribe all or any of this capital.

Section 4 is a standard provision in Bills of this kind. It requires ICC Bank plc to alter its memorandum and articles of association to make them consistent with the provisions of the Bill.

Section 5 gives the short title, collective citation and construction. I commend this Bill to the House.

Mr. Lanigan

I welcome the Bill. It gives us an opportunity to discuss the banking system and the anomalies within it. Banks exist to make money and I have no problem with that but the manner in which bankers in general treat customers is disgraceful. The personalities have gone out of banking. The plastic card has replaced the customer orientation and I hope ICC will not pursue the same direction as the major banks.

No bank can be commended for the manner in which it deals with customers. Their attitude is, the less they see of customers or have to deal with them the better. The Minister suggested ICC is downsizing in terms of staff. This will result in reducing customer satisfaction and relationships which is something to be deplored.

It is vital for those starting in business that they develop proper banking structures. Unfortunately, there is no such thing as customer relationships anymore. Banks work with reams of paper. They do not want to know the person with the big hands and the big shovel who knows how to make a few bob. Computers do not relate to people and banks no longer relate to people either.

In my relationship with ICC through certain companies, I have found it honourable and decent. Its objectives have been positive. This Bill gives the extra capital it requires to compete in the world of banking. Banks are making inordinate profits on the sweat and blood of ordinary people and those profits are growing daily. I sincerely hope ICC will remember where it came from and what it is supposed to do. I would like to see ICC as an alternative to the major banks. Giving it a statutory increase in borrowings from £1,300 million to £2,300 million should not encourage it to join the rat race in the banking world. I hope that by increasing its size and borrowing limit it will not become another major player in the banking market. I hope ICC will have a role to play in servicing the borrowing requirements of small entrepreneurs who will grow with the bank and not allow it to take over their businesses as has happened with many of the major banks.

The Bill is a technical one but it provides an opportunity for ICC to become more competitive in the market. If that happens through the increase in its borrowing limit I hope it will not cease to be customer oriented. Even though ICC can grow, the Minister should ensure it does not become totally non-customer oriented as other banks have done.

Mr. Burke

I welcome the Bill. It is only right that ICC should receive the borrowing requirements it needs. I have some knowledge of working with the ICC in relation to loans. Since ICC's borrowing requirement is to be increased, I hope it will stay with the small and medium sized businesses. It has operated well in the past and it is crucial that such businesses should have a bank they can rely on.

I compliment the ICC. In recent years we have seen big changes in its attitude. It is much more customer friendly now than in the past. It has taken on a number of big projects including a joint venture with the Urban District Council in Castlebar. It has acquired expertise in this field which will not be lost in future.

The Minister has presided over the lowest interests rates this country has ever experienced. That is because of the prudent way he has managed the economy. However, there are too many banking institutions. While I appreciate the point that the more such institutions one has, the more competition there is and, thus, more pressure to lower interest rates, the banking institutions still get their pound of flesh. That means the customer must pay. The more pressure the Minister for Finance can keep on the banks the better because it will be to the benefit of customers and ordinary people generally. We have seen nothing but luxurious bank buildings in prime town sites, which all cost money. In every town with a population of 7,000 upwards one finds these banking institutions.

I compliment the Minister on the way he is managing the economy and I hope interest rates will be kept at their present levels. It is only right that ICC, which is providing a great service to small and medium sized businesses, should have its borrowing limits increased by £1,000 million to £2,300 million.

Mr. Ross

I do not share the unanimity which is anticipated by the House on this Bill. The Minister described it tersely as a short technical Bill, which it is not. It is technical in the sense that it moves the figures around a bit, but it is an important Bill because it tells us something about the attitude of both Government and Opposition to the ICC — that is that it should continue to limp along from year to year until the Government decides what to do with it.

As the Minister rightly said, the last Bill was introduced here in 1992 to increase the ICC's borrowing and it has survived until now. This Bill is being introduced to increase the ICC's borrowing in case it cannot legally borrow any more during the general election campaign. We can expect that some years down the road we will get another Bill with identical terms, apart from the figures.

The Bill is significant and important but not technical because it is a cop out. On the last sitting day of this Seanad the Bill is saying, in effect, that the Government failed in its policy towards the State banks. The Government could not make up its mind what it was going to do about them and so it will postpone a decision, as it has done on many matters. Unfortunately, the Government has been caught on the hop and, in postponing that decision, it has had to take this measure to keep the bank afloat or, as it would put it, to expand and operate as a normal bank.

The significance is that both this Government and the last announced that a third banking force would be formed comprising the ICC, ACC and TSB. Had that taken place there would be no necessity for this Bill. It is necessary, however, because of the complete failure and disagreement between the parties in Government about a third banking force.

I agree with the Government that the ICC is a Mickey Mouse bank. Let us be honest about it; it is a pretty small bank operating in a very large market. I agree with the Minister that if it is to compete with the major banks it should be a great deal larger because in its present form it has no future whatsoever. We are now giving a lame duck a lease of life for a few more years until we either decide what to do with it or postpone a decision once more.

It is a pity the Government parties could not reach agree on merging the TSB, ICC and ACC Banks. It is obvious what the Government should have done with these three banks. It will happen but not until the Minister, for whom I have a great deal of admiration in certain ways, is out of office. It is sticking out a mile that the ICC Bank needs to be privatised.

One of the problems about privatising this bank for many years was that there was a for sale notice outside. While it is true nobody wanted to buy it, that was in a different climate. The ICC should again be put up for sale to see if anyone wishes to purchase it. I am sure the Government would obtain some money if it was floated on the Stock Exchange.

Last year the ICC's profits decreased. I am tired of people stating that account must be taken of an exceptional item of £4 million in this regard. Exceptional items, such as those involving voluntary severance packages, are merely accounting tricks. The ICC's profits rose by a minute amount, even when the exceptional item is taken into account. These items can be used each year to reduce profits. The ICC's exceptional item involved severance packages and voluntary redundancies and its profits were reduced. No one can provide a guarantee that other items of that sort will not be introduced in the future. The bank's profits have fallen to £8 million and it pays a negligible dividend of £2 million to the Government, which is of no use to it.

The ICC is a prime candidate for sale, merger, entry to the private sector in a larger form or euthanasia. I hope the first item on the agenda of the new Government will be the privatisation of the State banks. The current Administration has an ideological block to taking such action because the Labour Party opposes the privatisation of State assets. That is the Government's mantra and it is the root of the problem.

One of the symptoms of this problem and of the bank's non-commercial nature, is its board. I accept that the members of the board of the ICC are good people and I have no intention of referring to particular personalities. However, the members of the boards of State banks are political appointees. The majority of them are chosen not on the basis of talent but on their loyalty and service to political parties. If the members of the board of a bank are chosen on the basis of past service to political parties, that institution will not be taken as seriously in the marketplace as other banks which do not appoint board members on the basis of political loyalty.

I have experienced difficulties with the boards of other banks, none of which had any direct connection to the Minister.

Mr. R. Quinn

Is the Senator making a distinction between political loyalties and party political loyalties?

Mr. Ross

Yes. I have experienced difficulties with the boards of other banks because a large number of their members form a clique and are not appointed on merit. That would not exclude criticism of the boards of the ACC and ICC on the basis that it is Buggins' turn. When Fianna Fáil returns to office, its friends will be appointed and the current board members will lose their jobs. That is not a commercial decision and it robs the boards of credibility.

Mr. Lanigan

That is not a "daddy" syndrome, it is a "mammy" syndrome.

Mr. Ross

According to Senator Lanigan banks should be charities but, if they were, they would not remain in business for long.

Let us put my theory to the test. When they are sacked by a Minister because they belong to the wrong party, how often are political appointees approached by other banks because of the great work they did on the boards of the ICC or the ACC? The answer is that they are not approached. I defy the Minister to produce a political appointee to whom such an approach was made. Perhaps he can do so because they might have been appointed to the board of an equally Mickey Mouse operation.

Mr. Burke

Does the Senator want to be the first such appointee?

Mr. Ross

I am not leaving office. As a general rule, these people are not approached because their talents are not given serious consideration in banking circles. They are appointed because they are political heavyweights or because they have been of service to a political party. That is a big credibility problem for the ICC. The bank's profits and EPS were down last year — its figures were not good compared to the profit increases for other banks. The ICC is not expanding at the same rate, nor is it likely to do so.

In the past I have drawn attention to another matter connected with the ICC. It has a non-commercial mandate and outlook in certain spheres but it has contradicted this in the most extraordinary way in the area in which it is the market leader, that is, business expansion schemes. In this activity the ICC is guilty of the most obnoxious profiteering I have encountered from any Irish bank. All the banks have cases to answer in terms of non-transparency and their unequal relationship with most of their customers, particularly personal customers. However, the attitude of ICC to small businesses in the BES is utterly indefensible.

The first problem is non-transparency. This Government, which is so keen on transparency, should have instructed the ICC to inform people investing in BES of the charges to the companies in which they are investing. It is an unequal relationship. A person who invests in a BES scheme pays the ICC or another BES promoter 3 per cent commission, so if one invests £10,000 the commission is £300. That is upfront and no one complains about it. The ICC does not tell the investor to which company the money goes. Last year the ICC collected £8 million for the BES. The bank informs the company that it is considering investing in it through the BES but, in many cases, the ICC charges these companies which desperately need funds, up to 10 per cent commission. If the bank invests £8 million and charges the company 8 per cent the ICC will make £720,000 from the companies it is supposed to help.

The Minister would describe these companies as short of capital and unable to find it anywhere else. The BES may be the cheapest way for them to get capital but they are still being charged perhaps 10 per cent commission, a sum the ICC continually refuses to stand over or reveal. The bank does not inform investors that of the £10,000 they put in, £300 is commission from the investor and another £1,000 is commission from the company, so that a total of £1,300 goes to the ICC.

The problem is not only the lack of transparency — the figure is never revealed and the ICC refuses to do so — but that the ICC is taking no risk. The bank collects 3 per cent on one side and 9 per cent on the other while all the risk is taken by the investor. The worst aspect of the BES is that there is a very dangerous and distasteful tendency on behalf of all banks, and particularly the ICC, to hold on to this money until the last minute and as a result the schemes have become six year investments. The ICC was one of those which did not have all its investments collected up until the end of April 1996 or invested by February or March 1997. I hope it had done so by April 1997. It sits on the money, invests it late and then collects vast amounts of interest on top of the 9 or 10 per cent and the 3 per cent on the client's money. This is profiteering. It is no risk banking and no bank, including the ICC, should engage in that. They should take risks, lend and invest money but should not take a bit here and a bit there and rip clients off by taking no risk. It is the Minister's responsibility to ensure that the State bank does not do this.

The ICC, which finds this such an extraordinarily profitable business, knows that small companies, starved and desperate for capital, will accept virtually any terms dictated to them when they need money. Last October money was collected for what was called a BES software fund. The terms except for one were the same. It introduced a nice little clause, which most people would not notice, that gave it the right to take options on up to 10 per cent of the shares of these companies. It did not say what the cost of these would be but it can be taken that they did not cost the ICC very much. It now has commission from the investor, huge commission from the investee company, interest on the loans and on the money which it holds for as long as possible and shares in the investee company as well, all for absolutely nothing. This is indefensible profiteering by the State bank and it should be the Minister's duty or the job of those he appoints to say "That is not what banking is about. This is a State bank with special responsibilities, until it is privatised. There is transparency; let us see what you are charging and do not screw small companies the way you are at present and refuse to tell investors".

I have been involved in BES schemes as a stockbroker and have looked at them as a journalist. Investors are not aware of what is happening to their money or the fact that so much of their money is being taken on the other side. When they invest £10,000 they are really putting in £8,800 or a sum equivalent to that. They are not told that. I suggest the Minister does not just look at the scandalous profiteering by the ICC, but at the entire BES scheme because the terms in all the prospectuses are almost identical. It is a lovely little cartel. It sounds very interesting but in the small print it states it has a right to extract a fee from the investee company. That is where the money comes from and it is damaging the investee company. The ICC is damaging those it was set up to help. Where it is putatively putting in a million pounds, it is actually contributing £900,000. I ask the Minister to look at this before he leaves office. I hope he is back, perhaps as leader of one of the Opposition parties but not as a socialist Minister for Finance. He should instruct the State bank to keep to one of the great tenets and mantras of the Labour Party — transparency in relation to fees. Once people know they are being ripped off they will not pay their fees. They do not know this at present.

Mr. R. Quinn

Is that a reflection on financial journalism?

Mr. Ross

No it is not. Financial journalism is a matter I would prefer to keep out of this House. I have some hot air left if the Minister wants me to discuss that but I gather the House does not want to be delayed.

I am glad this Bill has been introduced because it gives some of us an opportunity to say it is a cop-out. The Bill challenges the Government to privatise ICC and ACC, which it has not done. It admits the total failure of the Government's banking policy which was to introduce a third banking force. It could not agree on this. The Bill highlights the fact that the ICC is a Mickey Mouse bank which will not be able to limp on in the jungle of the banking sector. I oppose this Bill because it fails to tackle this lame duck bank.

Mr. F. Quinn

I rise in fear of being criticised that since Senator Ross has joined this side of the House, I have been tainted by some of his views and beliefs. I listened carefully to Senator Lanigan and Senator Burke. However, I agree more with Senator Ross. The Minister said yesterday in the Dáil that this Bill was not earthshaking. It is not. It would be earthshaking if he said he would abolish the ICC bank or sell it off. Perhaps that is where I have been tainted by the views of Senator Ross. This will not happen. One can always be sure that semi-State bodies will be self-perpetuating. That seems to be the attitude of every Government, no matter what political hue. Does it ever occur to someone to ask whether we need the ICC Bank anymore?

Sir Thomas Cork was the principal liquidator in Britain about ten or 15 years ago. He wrote a book on what he discovered about companies that went into receivership. He discovered that most companies had just moved head office. Putting a fountain in the foyer was a sure sign they were going out of business. The older the organisation, the more it got into the habit of doing the same things which had a value and use in a previous generation. This is one of the reasons new companies that start lean and clean are often smarter, better, more productive and profitable and have lower costs than older ones. It is the fundamental principle which is at issue, not whether we give authority to the ICC to borrow more but whether we should allow it to continue in existence when the need for it has gone.

I studied in UCD under Professor George O'Brien and in those days it was considered that there was a need for State involvement because nobody else was doing the job that needed to be done. There was a chronic shortage of funds for Irish business in those days and business had a great need for funds. The State stepped in to fill a gap in the market which it was in the national interest to fill. It was legitimate for the State to take that course of action and would be today if the same circumstances prevailed.

At that time it was not envisaged that there would come a day when the gap in the market no longer existed, yet that is now the case. I defy the Minister to give one example of ICC business that would not be provided by the market if ICC did not exist — perhaps the BES schemes to which Senator Ross referred is an exception. ICC is just another commercial bank scrambling around to get whatever business it can. It has done well and it has a good name for providing money for people who wish to buy pubs. I am told that is one of its more important business areas——

Mr. R. Quinn

Not any more. Not for about five years.

Mr. F. Quinn

It was the case some years ago. It does not matter for what purpose it lends money, the important point is that the money would be lent by a commercial bank if ICC did not exist.

Senator Lanigan welcomed the Bill because he is favour of competitiveness and banking alternatives. I understand what he seeks but a State bank is the wrong way to achieve it. We want competitiveness and alternatives. Ten or 15 years ago the State was involved in the airline sector and we thought it was doing a good job until others came into the market. The sector has been revolutionised by competitiveness, as is evidenced by the Dublin-London route. State involvement in the market is not necessary unless there is a gap which is not filled otherwise. In the case of ICC the gap no longer exists. Whatever the bank or the Minister may say there is no justification nowadays for the State to be involved in running a bank. It was justified in the past but that is no longer the case.

People will go to any lengths to avoid closing or selling off organisations. This applies particularly to semi-State bodies. That is one of the reasons behind the crazy idea to create a State-owned third banking force, combining three incompatible institutions, one of which the State does not own. It would solve the problem in that the raison d'être of ICC has disappeared, just as ACC's raison d'être has disappeared. It was only last year the Minister sought a similar increase in ACC's allowances.

I am sure ICC is doing a good commercial job and that its management and staff are excellent and dedicated. My quarrel is not with them but with the ownership of the bank. The State should stick to its remit and focus on that which it has a clear justification for doing. Nowadays one would not argue that there is an inherent value in State ownership as such. One cannot expect an institution to commit hara-kiri because the first instinct of an institution is to remain alive. It is up to us to decide that the institution is not needed any longer.

Senator Ross referred to the Minister as a socialist. I do not have any problem with that because socialism seems to have changed. We only have to look at——

Mr. Ross

It would want to.

Mr. F. Quinn

——what the British Labour Party is talking about doing. It seems to be questioning the need for a state owned post office and is talking about selling off half of it. We can look at what has happened to the state run institutions in Eastern Europe. We can look at what happened in Germany and France when the pressure of reaching economic and monetary union criteria arose and they suddenly decided to sell off state assets in contravention of fundamental socialist principles.

I recently met the Mayor of Indianapolis who said that when he took over as mayor he questioned whether any of the city's activities could be done better. They put the bin collection out for tender, for example. The bin collectors' union successfully tendered for the contract and they immediately became much more efficient at the job than had been the case when the city was doing it.

We must ask whether we are continuing with something because it was the policy one or two generations ago, although it is no longer the right course of action. I urge the Minister to question these tenets which used to be the basis of Government thinking. They may have been correct in the past but I am not sure they are correct now. We, in this House, should say the time has come to sell off this entity for whatever we can get for it in the open marketplace. That is what the Minister should have said today instead of bringing in this housekeeping Bill which perpetuates a nonsense.

It is highly symbolic that this was the last Bill to go through the Dáil before it was dissolved and the second last to go through the Seanad. It symbolises this refusal of this nation to grasp nettles which we have seen over and over again, particularly in the last few years. I challenge our ability to face up to the fact that something which was right in the past is no longer right. We should say enough is enough, sell it off and let somebody else do a much more efficient job.

Minister for Finance (Mr. R. Quinn)

I wish to respond to the constructive points which were made, even by Senator Ross.

Mr. Ross

Thank you.

Mr. R. Quinn

I will deal with the points seriatim. Senator Lanigan expressed concern about the changes in the nature of the relationship between customers and banks. I presume he was talking about the traditional relationship where the local bank manager understood the reality with which the customer was dealing and the ability of that customer to make sense of their business, without the necessity of hiring expensive accountants to produce gobbledygook business plans, simply because head office wants sheaves of paper to cover managerial decisions.

The ICC Bank has been criticised for many years as being over-staffed, particularly in back office operations. Most of the focus in streamlining and addressing costs in many financial institutions has been on investing a great deal of money, reducing numbers as a consequence of investing in machinery, minimising the cost of the back office operation with which the customer has no connection and putting most of the resources into front of house customer interface. That is the sense in which the ICC Bank has been delivering its cost reduction capability. I do not see that reducing the staff costs, among other costs, of this bank — and banks historically tend to have high staff costs — will necessarily be at a cost to the customer. That is not a sine qua non.

Senator Burke referred to the contribution made by the bank over time. It is interesting that this bank was set up in 1933 largely because of the failure of private enterprise. This is not, nor has it ever been, a poor country. There has always been substantial amounts of capital, but it was held in private ownership and was not available for the kind of risk ventures with which Senator Ross is so enamoured. Given our single currency union with the UK up to 1979, it was much safer and easier to put money into deposite in UK securities of one kind or another. In view of this, the State had to step in. At the time there were closed and highly protected national markets world wide. This State was an example, but it was impoverished because of the civil war, the difficulties of the 1920s and the economic war of the 1930s. Without making a value judgment as to whether those events should or should not have happened, that was the reality in which the State operated.

Large and successful Irish owned multinational companies, for example CRH, would not have got off the ground had it not been for ICC. That is not to say that its role has not changed. For example, Senator Burke raised questions about the costs of banking, head offices, etc. Banking institutions say they are attempting to address those issues including whether, for example, a town with a population of serveral thousand or more needs seven or eight bank branches. Ultimately, the banks must decide on how to maintain and deliver their services. However, even in the electronic age and with talk of plastic banking, etc., some banks attempt to grow market share by opening branches and a number of new privately owned financial institutions have opened in towns around the country. Notwithstanding the observations made by Senator Ross, they consider it desirable from a marketing strategy point of view.

Senator Ross is inconsistent. This bank was for sale for four or five years but nobody wanted to buy it because its internal operational costs were not attractive. It was not considered to be very efficient and buying it as a going concern with all of the continued liabilities associated with it proved to be unattractive. It was for sale, albeit perhaps against a fire sale background in 1989-90, but there were no takers. Many of its staff received a good training and went on to other financial institutions, which is a testament to the skill base within the bank.

However, perhaps because it was a semi-State company it was more lax in the way it addressed its cost issues compared to others. I am happy to say that has been, and continues to be, addressed in a very satisfactory manner. If one capitalises the cost of a voluntary early retirement scheme of the scale and size it implemented and brings forward in one year a saving that has an extended impact over a number of years it is reasonable for accountancy practices to insert a special note in the accounts to advices a saving will be made that will recur over five, ten or 15 years but that the cost is up front and must take a hit in one accounting year. ICC Bank is not the first nor the last financial institution that will utilise that device as an explanatory note, not an excuse, to explain why profits were so low in that year.

Senator Ross made an unfair comment about political appointees to State organisations and semi-State bodies. I have been involved in many appointments to banks and State boards, especially with regard to finding people to sit de novo on boards. Examples include the Great Southern Hotels Group in 1984 and the restructuring of IDA into IDA Ireland, Forfás and Forbairt. These were new institutions.

The Senator's remarks were not only unfair but potentially damaging and will make the task more difficult. Perhaps the problem will not arise if his ultimate solution is to abolish State boards. By and large, in my experience, we set out to compose a team. What kind of team is needed for the board of the Great Southern or the IDA? We do not need 11 goalkeepers or strikers but a complementary, balanced team. I sought to design the skills that would fit this team and then sought people who would have those skills and who would give their time to this. It is frequently difficult, because of streamlining in companies, to get people such as middle managers who are not owners of their companies onto boards. They are not free to do so because they are employees and the owner or managing director will take umbrage at not being approached to serve on the board when a sales executive, who may be 15 years younger, has been asked to do so. The recent controversy surrounding various boards has given personal membership of boards a problematic profile. People do not want the intrusion and perceived hassle that those on boards suffer. That is the inference of the Senator's criticism.

I refer to the job done by my cousin, Senator Quinn, with An Post while chief executive of his own company. I do not know what his party political allegiances are but he was kept on that board by several Administrations. The same applied to Dr. Michael Smurifit at Telecom Éireann. When those companies were set up, we were privileged to have the expertise and time of those people. The Senator does no service to say that people are on boards because they are politically appointed.

Mr. Ross

I accept what the Minister says. It would be unfair to refer to people who cannot defend themselves, but I could give the Minister a long list of people who would prove the opposite point.

Mr. R. Quinn

I could give the Senator a list that would prove the opposite again. If we were to move from party political appointees to "political" appointees to the boards of publicly quoted companies, the selection of a director has more to do with association with a particular clique, to use the Senator's phrase, than the best interests of the shareholders who own the company. The Senator must be constitent as there is a contradiction in his argument. We will have State companies in key areas where the private sector is not capable of delivering a competitive service and we will have to make it possible to get the assistance of citizens who will give their time. They are not really getting remunerated; the level of pay such directors get is a pittance relative to the fee if one hired them on a consultancy basis.

ICC was referred to as a Mickey Mouse and lame duck bank. It is small. The total market share, if measured against the total banking assets, would be approximately 2.5 per cent. Senator Quinn asked why we need a State owned bank when the private sector should be doing this. We know why there was State ownership in the past and until recently, parties of the Left across Europe and elsewhere instisted on State ownership in protected national markets. State companies could be used as instruments in the marketplace to distort, influence or bend policy in a way that the marketplace could not do. This could be done for social reasons, for regional development or other reasons that market forces would not accommodate.

With the globalisation of the world's economy and the introduction of competition in the European Union, those kinds of possibilities and requirements of State companies have disappeared or are in the process of doing so. Telecom Éireann must face competition, which is proper. The same process applies to the ESB, though in a different manner. That process takes account of a new and growing market.

In terms of right and left attitudes to economics, the question is whether the State should retain the right to intervene in the economy or should it stand back, regulate the market and ensure the rules are adhered to. This assumes that every social need will be met with a market response in a reasonable time.

There are people who sincerely hold the view that all the State should do in those circumstances is to stand back and deny any form of direct intervention in the economy on the grounds that the economy will self-correct itself and will move in the direction which is most efficient and effective and, therefore, we will get the benign end result. I am trying not to parody or caricature that view which is sincerely held by many people on the right in economy thinking.

The counter view which I hold on the left is that the State should retain the ability to intelligently and creatively intervence in the marketplace at all times because markets are not perfect. There is collusion among suppliers in the market, and Senator Ross referred to cartels in a different context. I do not have a naive belief in the sanctity of the marketplace and its permanent orientation to do good at all times — it is not my experiences from what I have learned and seen of the operation of markets. I retain for the State the ability to intervene in the economy through direct and indirect instruments. The State can intervene indirectly by regulation and directly by specific action on the floor of the market.

The Senator asked me for a good reason which would justify keeping ICC Bank in public ownership since it is not doing anything different from other institutions. When I was Minister for Enterprise and Employment we received money from the EU Structural Funds to try to assist small and medium sized business. When I set up the task force on small business which was chaired by Deputy Séamus Brennan, who was Minister of State at the time, one of the recurring demands of small and medium sized business was access to capital on reasonable terms over an extended period and at reasonable interest rates and not the A or AA rate. It wanted terms which did not require it to throw in the family home and the wife's engagement ring as collateral and security.

In the first small business expansion loan scheme over which I had control I deliberately asked ICC Bank alone to take the entire benefit of the subsidy. It produced a loan scheme which was quickly imitated by the other large players. The total sum available was £200 million and the prevailing commercial interest rate at the time was of the order of 10 per cent. The rate was guaranteed at 6.75 per cent for ten years with out collateral-type undertakings and guarantees which were the norm. As a result of competitive pressure from one bank, the ICC Bank, the other banks had to follow, and they did so to varying degrees. The second small business expansion loan scheme was of a higher order and a wider scale and the banks had already moved in that directrion.

If we had not taken that action and if there were no ICC Bank which I could ask to take this subsidy, I would have taken the EU funds to the existing banks, which ran a cartel for many years but no longer do so. The banks would have taken the money and run the same type of scheme keeping their own margind. In that instance, the ability to use a small instrument in the marketplace gave me the opportunity to address a market failure which was reported to me by market participants, small and medium sized industries, and to respond to it with a mixture of EU and Irish taxpayers' money and to bring a correcting distortion into the marketplace by using a player which we owned and, therefore, could direct. As a consequence, we forced competition to respond in a manner with which we are familiar.

Debate adjourned.