Dáil Éireann díospóireacht -
Tuesday, 23 Feb 1971

Vol. 251 No. 12

Private Members' Business. - Central Bank Bill, 1969: Second Stage (Resumed).

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

Sir Anthony Esmonde

When we adjourned last week I was encouraging the Minister to tell us when he replies what plans he has to ensure we will not have a further bank stoppage in this country. I want to refer perhaps at some length to bank closures here generally. It is only now we are beginning to realise how extremely detrimental this has been to our economy. I should like, in relation to the banks, to go back over the history of bank operations for a few years.

The first retrograde step which happened in bank circles here was the disposal of the external assets belonging to the National Bank. That in itself limited the sphere of the activities of that bank. It broke the link of banking facilities which were available outside this country for those who were dealing with that particular bank. I remember at the time opposing it here and saying that I did not think it was good policy then, that in fact it was a restrictive policy. I can remember the time when their assets were disposed of. The total assets available to the National Bank, then in existence on their own, were considerable, but they were disposed of for £1 million. One of the assets held by the bank — external assets are always very useful in banking circles — was a branch right in the heart of London in Trafalgar Square which in itself, in my opinion, was worth £1 million; yet those assets were disposed of for that sum. That meant that the National Bank, which formerly had considerable holdings throughout the United Kingdom, became an Irish bank situated only in this country.

We progressed from that on to the question of the amalgamation of the banks here. A very healthy financial situation existed in this country in that we had seven or eight individual operating banks. The beginning of it was that the National Bank, going still further, amalgamated with the Bank of Ireland and I think there was another bank in that group as well. Very shortly after that, the example having been set by the Bank of Ireland group, the other banks, headed by the Munster and Leinster Bank, amalgamated as well. So, instead of having seven or eight separately operating financial houses in this country, we are now relegated to two — the Associated Banks and the Bank of Ireland Group.

That in itself is a retrograde step. I shall try to show the House why I believe it is a retrograde step. In a town close to where I live we used to have two banks — the National Bank and the Bank of Ireland; there was a healthy rivalry between the two. If a customer asked credit in one bank and was refused he had the alternative of going to the other bank. That situation no longer exists. For a time the banks pretended to be a separate identity but they are now one and the same; they are known as the "Upper Bank" and the "Lower Bank" and the people in Gorey say that if you cannot get credit in the "Lower Bank", it is no good going to the "Upper Bank" because they are all one. That is quite true. That is a retrograde step. Competition is the breath of life. It no longer exists in banking. That situation exists throughout the country. I think this is a bad arrangement.

It is nothing more or less than an amalgamation of directors and I should like now to say a few words on the subject of directors. Thirty or 40 years ago the kind of people who were bank directors were people who inspired confidence; they were big names and they were regarded as people of integrity. There has been a change in the type of bank director. The bank director today is a rich business tycoon. He is a man of financial standing. The man of financial standing is not always the person who has communication with the general public and therein lies all the trouble in the Irish banks today.

Over a period of three or four years we have had two bank closures. I believe these were due to a total lack of communication between the directors and the staff. Prior to the last closure there was no real discussion because, on the one hand, the directors insisted on one point before they would even meet the staff and, on the other hand, the staff said they would not meet the directors unless they conceded their point. They would not sit down around a table to talk things over without prior conditions. That is fatal in any dispute. I do not know what the rights or wrongs were, but I presume it was largely a question of remuneration. The staff decided to go slow and work was getting into arrear. That was the time obviously when discussions should have taken place. That was the time when the Government should have intervened. There is not a shred of evidence to show that any member of the Government intervened.

The banks closed and for eight months the country was left without banking facilities. All during the closure people expected the Government would intervene and do something. I understand from the Minister that should this kind of situation evolve in the future he has some plan whereby to keep financial business going. As I say, the banks closed for eight months. When they reopened we were told, presumably by the directors, on radio and television that the banks would remain closed for a further period and close again for Decimal Day. In the meantime it would not be possible to produce statements until the 15th January or the 20th January. I know for a fact that there are literally hundreds who have not yet had statements. I listened to answers to questions here, questions asking the Minister to clarify the position as to what is going on between the banks and their clients. It is immoral for a bank to hold the money of a client, to close for eight months, open in November, nearly four months ago, and deny clients statements of account. The banks are interested in producing statements only for those who are overdrawn. They are interested only in getting in the money they are owed.

There is no such thing as credit. The banks are not interested in giving credit. They can carry on perfectly well by lending all the money they have to the Government and the Government is very predatory in looking for money from the banks. I am informed that most of the banks have control over the finance houses. Even the finance houses which were independent of the banks are now auxiliaries of the banks. It is much easier to get money from the finance houses than it is from the banks. All businesses run on credit and they have to go to the finance houses for that credit and pay a high rate of interest. The banks refuse to give loans and the finance houses, which are controlled by the banks, give the loans and the banks, therefore, gain on the double, because they finance the finance houses.

The only function of the banks at the moment is to get people to pay off their overdrafts. I do not think the Minister is "with it" with regard to what is happening. People who never wrote a dud cheque are now finding their cheques bouncing. I came across a case of that the other day. He is a man in a small way of business. He never had a cheque that bounced. He is a man of the highest integrity. During the strike he wrote cheques in order to carry on his business. When the banks re-opened he got no statement of account. A week or so ago he was told a number of his cheques had been returned marked RD. He was faced with a situation that there was a bankruptcy of people who owed him money. This man was in a small way of business but the bankruptcy cost him about £800 or £900. Also, he was owed money from people in the locality. In rural Ireland you cannot compel people to pay bills as quickly as in Dublin. Conditions are more personal in the country. He was down to the extent of about £1,800 of money that he should have been able to pay. The bank bounced all his cheques. He asked me to see the manager which I did. The manager said he would not discuss the business with me unless I came back two or three days later and brought the man with me. I said: "I will do nothing of the sort. I shall go and see your directors and tell them exactly what I think of you and what I think of the attitude of the banks as a whole. I may then be able to find out the extraordinary secret that nobody can extract: who is responsible for the relations that are being created at the moment between the bank staffs and the public."

I did not have to go because he gave in. The man got his overdraft and had his cheques honoured. He was able to convince the people to whom he told his story as he had told it before. They did not accept it before I went in but they accepted it afterwards. I think it is the duty of the Minister to summon the bank directors before him or whoever is responsible for the administration of the business of the banks and find out what the actual position is. Until such time as the banks are able to give everybody a statement of account — I cannot understand why they have not done so to date — it is immoral for them to bounce cheques particularly on people who have always been of the highest integrity as this individual was. That is only one case; there are dozens of similar cases. The Minister says when we ask questions we should bring specific cases forward but you cannot bring confidential information that you get to the Minister. The questions being asked here are general questions aimed at bringing home to the Minister the things I have been telling him now.

In regard to the Central Bank Bill itself there are one or two things that puzzle me. All banks must be licensed in future. I suppose that is necessary but it rather suggests that the Minister does not, perhaps, repose the trust in the banks that one would expect. I am unaware that we have any banks likely to go into liquidation as happened in the US and other places. The Minister said: "Every licence holder will have to keep a deposit in the Central Bank equal to 5 per cent of his customers' deposits, subject to a maximum of £500,000 and a minimum of £200,000." Is a licence holder the Associated Banks as one bloc or the Bank of Ireland group as one bloc or is he every individual bank? If it is every individual bank it seems that the Central Bank will do pretty well out of it. The Central Bank will have a deposit paid to them by each individual bank and they will be sitting pretty. I do not know if they will just hold the money or whether they will be in a position to invest it as banks normally do. Banks exist by investing money at a better rate of interest than they allow themselves. They also exist by lending money which they do very conveniently to the finance houses. We have some 70 banks in the country and we have a very high deposit rate, perhaps a higher rate of deposit accounts in Ireland than in most other countries because it has been the habit, over the last century practically, for the majority of people with money to put it on deposit. It, therefore, seems that the Central Bank will get quite a lot of money. I think an explanation from the Minister on that subject would be helpful in indicating what the position is generally.

Before this the Central Bank was just a clearing house or, shall we say, a stabilising influence in regard to foreign exchange and so on. It is now going to enter into business as a commercial bank. The Minister mentioned the Exchequer Account. I think taxation at the moment for current accounts is running at approximately £500 million. This account has previously been held by the Bank of Ireland and the Minister in his speech said it was being transferred from the Bank of Ireland to the Central Bank by mutual agreement. It must be very easy to agree with the Bank of Ireland when they are dealing with the Government if they are prepared to lose a £500 million account without a word. Surely that would be a considerable blow to the bank concerned. The Bank of Ireland, as the Minister knows, is a trustee security in which there is a considerable investment largely of Irish origin. Would the Minister not consider in fairness to the Bank of Ireland that any bank losing a £500 million account sustains a serious blow? Does he not realise that he may be upsetting the profits and dividends which the Bank of Ireland was able to pay to shareholders to a very great extent? Is it, perhaps, the thin end of the wedge? Shall we find the Central Bank going into general banking business and competing with the other banks?

I am not very sympathetic to the banks, nor do I think anybody is at the moment, in view of their treatment of the public as a whole but if you have a controlling body such as the Central Bank controlling the finances of the country and licensing bankers — they can practically decide what the expenditure is, what the banks may do with the money available — it seems out of place that in those circumstances the Central Bank should compete as an ordinary bank, which is what I understand from the Minister.

Further, I understood from his speech that if we have a further closure or trouble in banks that the Central Bank has, or is formulating some plan to go into banking business. Are we to take from that the possibility that the Central Bank may open a new group of branches throughout the country and that you may have a State-sponsored organisation competing with private enterprise? I should not be surprised; it would mean another nail in the coffin of private enterprise. It would mean more or less complete bureaucratic control over our finances. Some people would be glad to know that there was such control but I think people are still entitled, in spite of a tendency to socialise everywhere, to do as they wish with their own money. If they entrust that money to the banks at least the banks should be allowed free and open competition. They have closed themselves to competition by amalgamating into two main groups. Is this the thin edge of the wedge? Is the Central Bank going to compete in open banking business? During the course of his speech the Minister said:

At present the Bank of Ireland, by reason of the charter and the special legislation under which it operates, suffers from some disabilities as compared with the other banks to which the Companies Act applies. Provision is made in the Bill to remedy this so that, in future, shareholders of the Bank of Ireland may be in the same position as shareholders of the other banks in regard to the management of the business.

I do not know what that means, but when the Minister is replying perhaps he will tell me.

Mr. E. Collins

This Bill has been on the Order Paper since 1969, it was a substitute for the 1968 Bill, and the fact that it was not taken until February, 1971, is a reflection of the lack of business that has been done by this House. This is a great pity because I think much can be done by having this Bill enacted. I favour the enactment of the Bill in principle, but I have a number of criticisms to make and I shall make them on the Committee Stage. I shall confine myself now to matters of policy.

Our currency system has evolved more or less in line with the British system. This is a good thing in many respects because we have a well developed and acceptable system of currency operating within our economy. It is taken for granted that the changeover to a decimal system will upset the circulation of money for a while, but I do not think this is of basic significance.

Part IV of the Bill deals with currency. I am in favour of an official break in the link with sterling. This suggestion was embodied in the Just Society policy put forward in 1965. It is pleasing to note that the Government have taken the bull by the horns, so to speak, and got away from the strict link with sterling. Of course, there is provision for the issuing of Irish money against English money and vice versa in Dublin and London by mutual agreement. I wonder if this is necessary and I should like to hear from the Minister the reasons for it.

The first practical criticism I want to make is a simple one. I was travelling through London Airport last week and I tendered an Irish coin to purchase a bottle of Guinness. The barman refused to take the Irish coin. When I asked why I was told that they had accepted Irish coins up to the time of the bank strike but when they presented Irish coins in bulk the Irish banks charged them for handling the coins. It is a disgrace that Irish coins are refused in Britain because the Irish banks have decided to charge for handling them. The Government should take immediate steps to ensure that the commercial banks will not charge English banks for handling Irish coins.

The issue of legal tender is a very important point. I am against the system whereby Irish currency is issued ad lib against acceptable securities or acceptable negotiable instruments. This immediately weakens one of the monetary weapons which the Central Bank can use to control the economy. There has been a fantastic increase in the amount of currency in circulation during the last few years. In the 1969-70 annual report of the Central Bank it states that the amount of Irish notes and coins outstanding in March, 1954, was over £71 million and in 1969 it was over £140 million. This means that the amount of notes and coins outstanding in the economy doubled between 1954 and 1970.

The Minister might be cynical and say that this is a reflection of the affluence of the community. However, I look at it in a different way and I am backed by a number of authoritative books on the subject. It is a fact that a surplus amount of notes and coins in the economy can cause inflation. I attribute some of the inflation we have suffered in the past ten years to the amount of notes and coins outstanding in the economy. Irish notes should not be issued ad lib in exchange for acceptable securities. Section 44 of this Bill weakens that monetary weapon. I am backed up to some extent by a number of comments in the Report of the Committee on the Working of the Monetary System, which is published by Her Majesty's Stationery Office.

The Central Bank should ensure that the integrity of our currency is maintained. It should be the institution through which the Government act. It should have autonomy in certain respects of action in relation to such matters as inflation. This, unfortunately, has not been the case. The reasons are numerous and I should like to discuss some of them. The link with sterling has caused our currency to be an open currency and money flowed freely through cash and negotiable instruments between Ireland and Britain. This weakens the effect the Central Bank can have, especially when it does not control such flows. The link with sterling is, of course, the main cause of this. We have not got a sophisticated system of monetary institutions here in Ireland. If we had, surplus moneys within the banking system and within the monetary institutional system in Ireland would naturally flow to and from such institutions. Such a position was commented upon in the report of the Central Bank Committee on the Functions, Operations and Development of a Money Market in Ireland. This was quite a good report and pointed out the weaknesses of the Irish institutional system in this respect. I wonder if we can ever, within the present system, evolve an efficient system within our country. I doubt it, even assuming that this legislation goes through because we lack a number of things. We lack a money market, a market in short-term securities, indeed, to a certain extent, we lack a free market in medium-term security. How we are going to come around this I do not know, but we will not be able to do so even working under this Central Bank Bill when it becomes an Act.

One of the reasons why our economy is so open is that our foreign transactions are too free-flowing. It is the practice on the Continent to centralise all such transactions to a large extent. The Central Bank should be far more active in controlling the outflow of Irish payments abroad and, of course, in controlling the inflow of foreign payments into Ireland. The banks should be encouraged to agree voluntarily or forced to work through a foreign department of the Central Bank. This would lead to greater control, possibly, of the economy. I am sure this is what the Government would prefer.

In relation to one of the most important functions of a central bank, the control and administration of the level of the rates of interest within the economy, the Central Bank and, indeed, the Government are open to genuine criticism. Again, I would refer to the Central Bank Report, 1969-70. Table 9 relating to interest rates shows that the rediscount rate of the Central Bank of Ireland at the end of August, 1968, was 7¼ per cent and in June, 1970, it was 7? per cent, practically 7¼ per cent. The ordinary overdraft rate on 2nd October, 1968 was 8 per cent and on 20th September, 1969 it was 9½ per cent. This means in effect, that the relative association between the ordinary overdraft rate and the rediscount rate of the Central Bank has widened by approximately 1½ per cent. I do not know why this should be allowed to happen. I do not know why the Central Bank allowed it to happen and I do not know why the Government allowed it to happen. It is very poor form.

One of the great weapons of expansion within a community is the availability and the cost of money. At least our exporting industries require the cheapest possible rate in respect of the money they borrow and the absurd floating of the ordinary overdraft rates compared with the rediscount rates is shocking. I do not know why this is allowed to happen. I can only conclude that the Minister and the Government are in collusion with the commercial banks in allowing this to happen, this system which allows the profits of commercial banks to be jacked up unnecessarily.

We must, in this respect, look at the functions of the commercial banks. As far as I am concerned, the commercial banks serve the community. I am convinced that at present they do not serve the community to the best of their ability. By this I mean that there is collusion among the banks themselves to destroy the competitive element of banking. The evolution of two large groupings among the commercial banks has led definitely to a quasi-monopolistic situation to which I for one object. The banks do not really compete in the matter of deposits. They have fixed their deposit rates and, worse still, they have fixed at a very low level the interest which they will pay on small deposits. They surely will discourage ordinary people from saving. I am satisfied, too, that the other monetary institutions, merchant banks, for instance, are drawing towards them the available money in the community. If the banks were forced into a proper competitive situation the deposit rates would certainly be higher.

Again, in relation to the lending position there is very little competition among the banks. Of course, as Deputy Coughlan pointed out, there was quite an amount of severe political canvassing among certain health boards in the western part of the country for accounts of the new regional health boards.

Mr. Tully

In the eastern region we did not have any trouble like that at all.

Mr. Donegan

No.

Mr. E. Collins

Maybe they did it more quietly.

Mr. Tully

No.

Mr. E. Collins

This is not the kind of competition of which I am speaking. I am speaking of genuine competition in the matter of interest rates payable by the customers of the banks. I would like the Minister to give his reasons for this disequilibrium in the matter of the rediscount rates and overdraft rates. As far as I can see, the Government have become so dependent on the commercial banks for money that they now are unable or unwilling to force the commercial banks into a truly competitive position. My view of this is quite simple. The banks are there to serve the people and I am satisfied they are not serving the people to the best of their ability and the Government who should be able to control such margins as I have mentioned have not done so and I want to know why. There are many exporters, genuine business people, who are paying an inordinately high rate for the moneys which they need to carry on their businesses and for the moneys which are needed to expand Irish exports. This is very important. Perhaps it is overlooked by the Minister. There should be a system whereby cheap moneys would be available to exporting firms. The Minister will agree with me when I say that the balance of payments position is serious. In 1970 there was a deficit of £66 million approximately. In 1971, it is calculated that we will do well if we reduce that to £55 million or £60 million. We will not be doing well if we reduce it to that figure. I remember that in 1950 when the Coalition Government had a balance of payments deficit of £35.5 million the Fianna Fáil Party created a furore. At that time they were prepared to bring down the Government for purely political reasons. They did not worry that such action might upset the confidence of the people in the monetary system. If today anyone in the Fine Gael Party mentions the balance of payments deficit or devaluation the Minister for Finance is the first man to refute this in a very determined fashion.

Minister for Finance (Mr. Colley)

Have I ever done that about balance of payments references?

Mr. E. Collins

Yes, the Minister has, during a Question Time.

Mr. Colley

On a balance of payment deficit question? I would like the Deputy to refer to that question.

Mr. E. Collins

I brought it in on a question on devaluation. It was on a question based on balance of payments and the Minister jumped down my throat.

Mr. Colley

The Deputy agrees that this was in relation to devaluation?

Mr. E. Collins

It was in relation to the balance of payments. The Minister must understand that where the balance of payments is continuously going into a deficit position our external reserves will be run down and the Minister will be forced to devalue if that position continues over a time.

Mr. Colley

The Deputy knows that our external reserves are increasing.

Mr. E. Collins

Our reserves are increasing, and I ask why? What type of money is coming in? The reasons we are expanding — and I would say that I am quite right on this — is that our interest rates are kept higher than those of England and they are forced to be kept high. We are, in effect, therefore attracting what is commonly known as "funk money" or "hot money". I will bore the Minister on this subject by saying that if any crack appears in our external account this money will disappear as quickly as it came. I am satisfied that if we consider having a balance of payments deficit in the region of £60 million, that day is not far away — and I do not think the Minister can argue with me on this.

Mr. Colley

I heard the former Deputy Dillon making that speech ten years ago.

Mr. E. Collins

Far be it from me to compare myself to Mr. Dillon. I have a high regard for whatever Mr. Dillon said. I respect anything he said. We are in an unfortunate position in regard to the balance of payments. I do not know what the Government are doing about it. The rate of inflation continues unchecked. In 1970, we had a rate of inflation of 10 per cent. I understand that the average rate of inflation was around 5 per cent in 1970 in the European Community countries. Whither go our exports in that type of situation? I have noted the unfortunate demise of the Hibernian Transport Group. Our rate of inflation will force some, if not many, of our exporting firms to close down. I do not know when this will happen or if we can continue having a rate of increase in our prices of 10 per cent. That day is not too far away either. The Government are completely lacking in their responsibility to control the flow of money and the rate of increase in prices. When are the Government going to come to terms with these problems? In the last seven months the Government were involved in internal disputes which came to a head to a certain extent over the weekend. It was a very poor performance to see Ministers on a platform behaving the way they did. It was a poor reflection on the Government as a whole. The Fianna Fáil Government have done very little in the past two years with regard to the problems facing our economy and our country. We had the speech of the then Minister for Finance on television in March, 1969, when he told us that the economy was facing trouble and that there were terrible times ahead. Then the Government decided to have an election in June and the same Minister changed his tactics and off we went on another round of inflation. The Fianna Fáil Party won the election. Did the Fianna Fáil Government do the country any good by winning the general election in that fashion? I do not think they did. The quality and the quantity of legislation which has come through this House in the past two years is not very good. The quality has been poor and the quantity has been very small.

To come now to the monopolistic position of the commercial banks in this country, I must say that I certainly think that the banks should be far more competitive than they are at present. The Government should take immediate action in this regard. The establishment of a number of American-based banks in the country is something to be welcomed. They brought a breath of fresh air into the general commercial banking area. While I accept what the Minister said about being cautious in respect of banks, I think that at this point of time there are neither too many of them nor have they too many branches. The Irish commercial banks have much to learn about competing for accounts and about understanding the way business works. Many bankers do not understand the real nature of business. One example of this is the position among firms since the bank strike. Normally, if a firm issue a cheque to a customer that customer leaves it for two or three days before cashing it. People in rural communities might leave a cheque for three weeks before presenting it at a bank. Now there is a tremendous crisis of confidence among business people and people dealing with firms. They have no confidence in a firm no matter what standing the firm has. Nowadays when a firm issues a cheque that cheque is deposited in the customer's bank on the same day. This will cause a tremendous squeeze on most firms. This is an ordinary credit facility which is denied to them, apart from bank overdrafts. I think there was genuinely a dispute between two sides in the banks, and it should never have been allowed to drag on. I remember asking the Minister for Labour some time ago to accept a 60-day cooling off period in relation to strikes and his reply was: "Oh, this would have to be agreed to by our party. I could not do anything." As far as I am concerned the Minister for Labour has done nothing since he went into that office. I never see him doing anything. The Government should never have allowed that strike in this most vital field of our economy. It was not as if the bankers would have been unable to continue. Anyone who has held bank shares for the past few years will certainly accept that they are doing quite well. My view is that they are doing far too well and giving the country very little service in return. I have said that before and I do not mind emphasising it.

There must have been some way in which the Government could have influenced both sides in that dispute. This was not done and the Government stand condemned for not doing something. The people were very annoyed that the Government stood idly by. This must never be allowed happen again. It is dreadful to find that ordinary innocent traders who accepted cheques from reputable firms had these cheques returned marked RD. The number of cheques so returned and the amount of money involved is very great. I should like the Minister to say how much money was involved in those cheques which were returned since the banks opened, say, from October to the end of January. How many cheques marked RD were returned? I am satisfied that the amount runs into millions. The House is entitled to know because those people were genuine traders who kept the country's economy going during that dispute and they now find themselves in a most unfortunate situation. The banks must be very, very careful to ensure that no genuine trader is put out of business on this account.

The Minister has denied that any firms went out of business because of the bank dispute but I would argue with him about that. I accept that no one cause can be advanced for any firm closing down; there are always a multitude of causes. It may be because of bad management, a bad period of trading, a market might have fallen, or it may be just due to plain economic reasons, but I am satisfied that the dispute precipitated an unnecessarily large number of closures. The Government must bear the brunt of the responsibility for allowing that to happen. The Minister may say what he likes but there is no question about that. For the future some system must be drawn up whereby the banks will not close. If they ever close again no cheques will be accepted within the community; no cheques will be cashed by any trader; commerce will come to a stop and you will have lay-offs over a very wide field and on a very large scale. The reason for this will be that the Government stood idly by during the last dispute. It is one of the great failures of this Government that they did this.

I wonder if the special and privileged position enjoyed by the Associated Banks, that is, the nine banks who have the status of being associated, should be allowed to continue. I am satisfied that it should not. I am satisfied that if that special position was denied to them those banks would become more competitive. There must be no doubt about it that the Government and the Central Bank must ensure that the commercial banks are competitive, and very competitive, and then and only then will they be serving the community in the capacity for which they were first envisaged. They must be the servants of industry but instead of that the banks are the kings of industry, the blue chips of industrial investment. I do not think that this position was ever envisaged.

People must have confidence in the commercial banks and that can be ensured by such provisions as are contained in this Bill. First of all, the licensed banks will be required to deposit 5 per cent of their deposits with the Central Bank. This is a good idea and it is on the same lines as the American federal reserve system. It will ensure confidence in the commercial banks. Secondly, there is the provision under which the Central Bank may, in certain circumstances in which the banks' liabilities in the State reach a certain proportion, as compared to their assets in the State, require them to deposit certain moneys with the Central Bank. These are good provisions and they will lead to confidence among the people. The banks have been allowed by the Government and the Central Bank to develop into a monopolistic position which is bad for the economy and bad for the expansion of trade. It is costing the country too much in terms of the capital available and the cost of capital.

One of the privileges which the Associated Banks have been accorded is a cheaper rate in the matter of clearing cheques. I understand that there is a tremendous and very profitable advantage being given to these Associated Banks in this sphere and that the American banks have had to suffer an unnecessarily high charge in the matter of clearing cheques. This is wrong and unnecessary. Why should any few banks in the community have this privilege over other banks? Certainly I do not see any reason why they should. Under one section cheque clearance will be co-ordinated, so to speak, by the Central Bank. This, too, is important and I would ask the Minister — perhaps my party will table an amendment for Committee Stage in this regard — to ensure that cheque clearing will be done on a competitive basis and a basis which will not favour any one bank or banking group against another commercial bank. This is rather important and I do not see why they should be granted a privileged position. I am satisfied that the whole concept of commercial banks being associated to form a monopolistic group is wrong and detrimental to the community. I would like the Minister to justify the existence of this. I think this goes back to the Central Bank Act of 1942. I am not sure if it goes back as far as the 1927 Act.

A sanction against the non-associated banks is that there is a restriction on the deposit gathering ability of the non-associated banks in respect of deposits of less than £25,000. Why should the associated banks be granted this sanction against American banks? There is no valid reason for it; it is completely undemocratic and is an anti-trade measure. I do not know why the Central Bank or the Government allowed this situation to develop. I understand there are restrictions on the American banks regarding the opening of branches throughout the country. The American banks have been pioneers in the matter of term loans. It is an excellent idea and is completely acceptable to commercial firms throughout the country.

In the Central Bank Bill I noticed that the banking directors have been reduced by one and that the Government directors have been increased by the same number. I do not know why the Government should have greater control of the Central Bank. I consider that there should be only two experts representing the Government on the board of directors of the Bank. The directors of the Bank could be drawn from the academic or commercial field. I do not know why the associated banks should have a monopoly in the appointment of directors. However, to a certain extent they are losing this monopoly because the Minister appoints the banking directors from a panel. I do not regard this as the proper procedure as I consider the banks should be allowed to nominate the members of the board.

The position in regard to the trustee status of non-associated banks needs review because it is important that all banks should have the same privileges and standing in the community. It may be said that it is important to guarantee that control of the banking system, or deposits and ownership, should be in Irish hands. I accept this principle but the cost could be unnecessarily high in restricting outside banks. This would be unfortunate from the long-term point of view of development of the banking system in this country.

The question arises as to what will happen under the constitution of the EEC, especially in regard to the right of establishment. I am sure we will be obliged to throw open the entire field of banking. I am subject to correction on this matter and perhaps the Minister would clarify the point when he replies to the debate. I should not like to see the situation whereby European banking dynasties would come in here and take over. This could be detrimental and I should like the Minister to give the House an assurance that this will not happen. Can he state what is being done in regard to this matter in the negotiations now proceeding?

I welcome the transfer of Government accounts from the Bank of Ireland to the Central Bank. I should like the Minister to state if any compensation will be paid to the Bank of Ireland in regard to this transfer. Section 50 of the Bill is in regard to provisions relating to the Bank of Ireland. I should like the Minister to state in greater detail the purpose of this section. We have a legal tender note fund, a general fund and a reserve fund. Another fund must be opened for the Government accounts. It is important that all these aspects be totally separated so that at any one time we can find out the correct financial position in regard to each account.

In regard to the assets held in the legal tender note fund, they should be balanced over a wide field. There should be a certain amount of gold, a certain amount of sterling securities and, in view of our application to join the Common Market, there should be wider availability of European currency, especially a strong currency such as the Deutschmark. I consider it would be wise to hold a considerable amount of this currency.

The Central Bank has been strengthened, especially in the matter of enforcing banks to deposit money with the Central Bank in certain circumstances. This is laid down in sections 23 and 24 but I wonder if these sections will be brought into practice from the point of view of monetary application? I do not think that the present Government are strong enough to tell the Central Bank to take in a certain amount of money or to reduce the base of credit. The Government should be able to use this weapon when necessary and I consider in certain circumstances it would be a valuable weapon to control inflation.

The position of the Central Bank as a lender of last resort is not strong because it does not really exist for practical purposes. What action will be taken to develop a proper money market in this country? Some steps have been taken such as the clearing of cheques through the Central Bank and the transfer of deposits of commercial banks to the Central Bank. I wonder if any action will be taken on the committee's report which I have already mentioned? I should like the Minister to tell the House what he intends to do to develop a money market here and to ensure that the Irish monetary system is isolated from the British system. This is important from the point of view of control and of practical central banking application. The approach should not be one of establishing another monopolistic institution whereby rich people will get richer.

Whatever institutions are established, whatever procedures are laid down, must be competitive. The institutions should not be in existence to make the rich man richer but to serve the community, and to ensure that money flows freely within the community. Proper control of the commercial banks in such matters as inflation can be exercised by the Central Bank in conjunction with the Minister for Finance and the Government.

The recommendations of this committee on the functions, operation and development of a money market in Ireland are interesting. There are certainly some weaknesses but they have been historical rather than functional. They can be corrected if we can protect our economy better than we have done. For instance, English currency should not be allowed to circulate in the country. It should certainly be allowed to circulate, in the first instance, at hotels, shops and so on. Foreign currency is welcome to that extent but once it gets into the banking system it should be withdrawn, because it thwarts the implementation of the monetary policy of the Central Bank.

Could the Minister indicate the amount of English money flowing freely in our community at any one time? I suspect it would be £1 million or £2 million. The quantity of this money plus the velocity of its circulation would weaken the effect of any monetary policy laid down in respect of general commercial banking if this money is not withdrawn from the system. I would like the Minister to comment on that observation.

Again if we develop a money market or a short-term security market a Government broker will have to be appointed. I know there is one at the moment and possibly he would be efficient enough to control also the short-term market. I do not see any problems in this respect.

I do not believe the Central Bank has been an effective weapon in controlling inflation. Its operation since 1942 has had a relatively small effect on controlling inflation and on controlling the commercial banks. In general the commercial banks go their own merry way in the matter of credit. The Minister may issue directives through the Central Bank but I do not think it has any effect. I should like the Minister to assure the House that it will now be allowed to become more effective in controlling inflation. In his speech the Minister did not give the impression that the Central Bank would be allowed independent action. At column 1470, volume 251, of the Official Report of Tuesday, 16th February, 1971, the Minister stated:

In our case the relationship between the Government and the Central Bank rests as much on mutual confidence as on statute.

I believe this is forced upon the Government not because of its relationship with the Central Bank but because of its peculiar dependence on the commercial banks from the point of view of getting capital. This should not be so. Further on the Minister says:

I do not regard the provisions of the present Bill as calling for any change in the basis of the present relationship.

Certainly from the point of view of appointing directors the relationship has not been changed in favour of the Central Bank. Rather is it being changed in favour of the Government, and I think this is wrong. The pre-ponderance of the directorships should rest with the banking system; indeed it should not even rest with the banking system but directors should be drawn not only from the academic field but from other fields as well. I intend to put down an amendment to this effect because it must be admitted by everyone that there are excellent financial brains working within the commercial and industrial fields.

According to section 47, Part V of the Bill, the Central Bank is now being allowed, if desirable, to engage in activities more associated with commercial banks. I wonder what is the purpose of allowing this. Apart from the relationship with Government accounts, I do not see any good reason for allowing it. The Minister said at column 1471 of the same volume:

Meantime, the powers proposed in the Bill will put the Central Bank in a strong position in various ways to deal with banking problems, whether arising from a bank closure or otherwise. The bank will, for example, be able to engage in any necessary banking activity, including clearing activities. It will also, as I have already indicated, hold the Exchequer Account.

I accept the position in regard to the Exchequer Account. I do not think it is wise to allow the bank to enter into other commercial banking activities, that is, of course, apart from its ordinary control of the commercial banks or the matter of clearing cheques. If there was another strike and if the banks did attempt to engage in the activities which were previously the prerogative of the commercial banks I have no doubt that there would be a picket placed on the Central Bank within 24 hours. This is an unwise provision and I certainly hope that, if the provision is in, it will never be used. I would ask the Minister to reconsider this at the Committee Stage. If, for instance, the Central Bank attempted to cash cheques or to allow credit to firms during a strike affecting the commercial banks there would undoubtedly be a picket on the Central Bank, and the employees would not pass that picket and, in my opinion, it would be quite wrong for them to pass that picket.

If we are going to have a Central Bank let us have a proper Central Bank, a Central Bank with powers and functions and a certain amount of autonomy. Let us not ruin that approach. Let us not try to achieve something which it would be impossible to achieve. The Central Bank should never become a commercial bank in any sphere except that of servicing the Government account. This is important. I certainly should not like a situation to evolve in which the Central Bank itself would force a close down. That would be very dangerous from the point of view of our external trading position. The Central Bank should be above reproach and it should be independent. I should like to hear the Minister's comments on that aspect of the Central Bank Bill.

The whole relationship between the Central Bank and the Government is very important. It is important not so much per se but because of the effect that relationship will have on the control of the commercial banking system by the Central Bank and, so far as I am concerned, on the other financial institutions working within the State. The rate of inflation of 10 per cent is wrong. It is unnecessarily high. Because of the nature of politics, and because of the nature of our electoral system, the Central Bank should have quite an amount of independence in the matter of controlling inflation. As a politician I think that politians would welcome this. It is unwise to place the burden of taking an unfavourable decision — such as reducing credit — on a politician. I know the Minister has his duties and his responsibilities to the State. He must be above reproach. I accept that. I also accept that the governing party must take account of their responsibilities to society, but I think that a decision to deflate or a decision to stop inflation should rest with the Central Bank, acting in an independent capacity.

Mr. Colley

Is the Deputy suggesting that the Central Bank should control fiscal and economic policy as well as monetary policy?

Mr. E. Collins

No, I cannot go that far.

Mr. Colley

The Deputy realises that they are all necessary in order to control inflation?

Mr. E. Collins

I accept that, and I am not acting in a political fashion.

Mr. Colley

I am trying to understand what exactly the Deputy has in mind.

Mr. E. Collins

I accept that fiscal policy must be decided in the House. That is essential and it has a great contribution to make in controlling inflation. The fiscal aspect of the control of the economy is well brought out in the Radcliffe Committee Report, as no doubt the Minister is aware. It is admitted that a marginal contraction of credit can lead to a desirable halt in an inflationary spiral in a properly developed monetary economy. We have not got such an economy. We have not got a sophisticated monetary economy. The fiscal end of controlling the economy arises at Budget time mostly as, for example, the HP restrictions which were brought in, in 1969, I think. That was an excellent fiscal restraint in an effort to combat inflation. I do not think it was as successful as the Minister would have liked it to be.

Essentially what I am talking about is the monetary action which can be taken to control inflation. That would include unfavourable decisions to control credit within the commercial banking sphere. It is at this point that I feel the Central Bank should have a fair amount of independence. I do not think we can give it full autonomy. We should give it the next best thing. It should be able to work without reference to the Minister in this matter. The very life of this country depends on our exports. There is no question or doubt about that. Exports are the lifeline of this country. If we are to expand our exports, it is absolutely vital that we control inflation, and that out rate of inflation is not above that of the countries to which we export. At the moment it is. It was allowed to be so, and one of the reasons for that was the election of June, 1969. There was a complete reversal of policy as stated in the television speech in March, 1969, by the former Minister, Deputy Haughey. A month later, because of the election, monetary wisdom was thrown overboard. They had to win the election. That is the point I am making.

Mr. Colley

The Deputy has made that point before.

Mr. E. Collins

I want to emphasise it. I am not doing so in a political fashion. I want to emphasise an example where the Central Bank could work independently of any Government. Any Government will react to an election in the same fashion. A Fine Gael Government or a Labour Goveernment will possibly react to an impending election in the same manner. That is a fact of political life. That is why I am giving the example.

The Central Bank should have quite an amount of autonomy in the control of the monetary weapons in the fight against inflation. The Bank of England, for instance, has more control of the economy in respect of monetary weapons. I do not think the Minister will deny that. The governor of the Bank of England has more power and a wider discretion in the use of monetary weapons than the governor of the Central Bank. Perhaps this is because we are a small nation. Perhaps it is because we have not got a fully developed economy. We have a developing economy, and a developing economy in the context of Europe. I should like the Minister to think about giving the Central Bank more autonomous powers in respect of the monetary weapons in the fight against inflation.

The Report of the Central Bank was like a cry in the wilderness every year for the past ten years. Inflation was getting out of hand. Since I went to the university in 1959, there was not one Central Bank Report I read which did not plead for a reduction in the rate of inflation. It was the most dismal report I read every year calling for restraint. I do not mind bringing it to the notice of this House and the people of Ireland that this year the Central Bank is pleading for a reduction in the rate of inflation. The causes of inflation are set out in a general way in the Central Bank Report for 1969-70. At page 7 it is stated:

In this Report the causes of the excessive rise in prices——

The words used are "excessive rise in prices".

——and in the external payments deficit over the past two years are analysed. Some influence is to be assigned to external factors. The major direct influences, however, are domestic and proceed from three principal sources: inordinate money income increases; too high a rate of increase in public expenditure and borrowing; and, at least until the latter part of 1969, excessive credit, particularly for consumer purposes. The cost and price inflation is being supported and accelerated by demand (or expenditure) inflation.

The crux of our inflatiton in the past few years is indicated in this paragraph.

An Leas-Cheann Comhairle

The Deputy will agree that this would be applicable to an economic debate.

Mr. E. Collins

I am discussing it in the context of the control which the Central Bank has or should have or how the controls given under this Bill can be used. It is a fair comment to make. Because income increases have been inordinate — I apply this to a wide field, to workers, employers and very big farmers — this has led to increased inflation although the real cause has been too high an increase in public expenditure and borrowing. I do not want to enter into the political field again. The Minister no doubt will say that public expenditure and borrowing are for social and economic purposes which are necessary for natitonal progress. Perhaps it can be fairly said that this progress costs more in terms of loss of purchasing power than is achieved. It is possible to say, and the statement can possibly be justified, that as a result of the Government's refusal or inhibition in the matter of controlling their own level of expenditure we have had increased inflation. The Central Bank should be able to control the quantity and quality of the credit given by the commercial banks. Page 20 of the same report states:

Total expenditure in the year ended 31st March, 1969 was £460.2 million. In 1971, it was £597 million, an increase of 30 per cent.

It is an inordinate increase in relation to the expansion of the economy and it could be said it is an increase which denied industry and commerce a certain amount of capital which it needed for expansion. If the Central Bank were given adequate autonomous or near autonomous powers it could manage the economy better than the Government.

It is a pity that this Bill is not a consolidated Bill. There have been a number of Acts passed since 1927 and if I am not mistaken some of the provisions of an 1854 Act were included in the 1927 Act. If this were a consolidated Bill everything would be made clear. There was enough time to make it a consolidated Bill. I will have more to say on the Committee Stage. I welcome this Bill in principle. It falls short in a number of respects and I will deal with what I think are valid criticisms of the Bill on Committee Stage.

Mr. Donegan

My remarks will be brief at this Stage because I will have something more to say on the Committee Stage. One thing I would like to refer to is the increase in the number of financial institutions and financial houses in this country in recent times. I can see the difficulty of the ordinary commercial bank which sees for instance a hire purchase company or a financial house charging larger rates of interest, skimming the cream, and leaving the licenced commercial banks to provide at a fixed interest rate overdraft accommodation for businesses in the country.

We have got, as Deputy Collins pointed out, two groups largely and those groups have formed finance houses. It seems to me extraordinary that at times businessmen cannot get for their businesses money from the commercial banks but can be sent to the finance houses where interest rates are much higher and there can get the money. I wonder what is the licence which the Central Bank will issue worth in this context? Will the licence of finance houses produce money at higher rates of interest and lessen the power of the ordinary commercial banks to lend money for the ordinary legitimate purposes of overdraft accommodation for trade? Seven or eight years ago if a bank having a hire purchase company, did not lend money to a customer for a project but sent him to the hire purchase company where he would pay perhaps twice as much for the money that would have been a cause of howls in this House. There would have been questions and supplementary questions asked of the Minister for Finance at the time that would have been difficult to answer. In fact, politicians would not have been very ready to accept the answers. Now, we seem to have gone completely the other way and nobody passes any remarks at all about what finance houses do, what the rate of interest is and what are the real profits. The banks here have done a pretty good job — in this regard I would not agree with Deputy Collins completely —bearing in mind that out of the money pool there must come substantial amounts for housing, roads and the infrastructure that must be provided in a developing country. Whether we like it or not the banks hold a good deal in deposits from our people and, not only deposits, but moneys that arrive in various ways in the banking system and the Government must take some of it away.

I never agreed with the statement of the then Deputy Seán Lemass, as Minister for Industry and Commerce, in 1956, that it was better for the people that the Government should spend more for them and that they should spend less themselves. The fact is that it would be better if the Government were able to raise directly from the people, through national loans or other saving device, whatever capital moneys were required and left the commercial banks to advance money to those who desired to engage in capital expenditure in their business or who needed money for liquidity in an expanding business. Normally, no business can expand and maintain liquidity properly on the basis of profits because profits in this country are not high enough in an expanding business and recourse must be had to the banking institutions either by way of ordinary overdraft or by term loans which were mentioned by Deputy Collins and which seem to be on the point of becoming available.

I do not want to go into a general economic debate on this Bill but it seems that in England, on the Continent and here rates of interest for ordinary overdraft or banking accommodation have equated themselves. Who began this and where it will lead I do not know, but I remember, although I am not so long in business, when the overdraft rate was 6½ per cent. It is now 9¼ per cent. It might seem to somebody who did not look at business in this way that this was an increase of three per cent In fact, it is an increase as far as payment on overdrafts is concerned, of 50 per cent. The rate of overdraft interest here, in England and in Europe is the same and therefore there is no criticism of the Minister or the Government in the statement that it is crippling so far as expansion of a developing country is concerned. That is one of our problems. Highly industrialised economies where people operate highly expensive machines which can produce a large quantity of goods in a week and can therefore provide very large wages, can afford to pay the high prices caused by these high interest rates. This puts these developed countries in a very advantageous position.

The Government should ensure that the maximum amount of money from the commercial banking system is made available at the ordinary overdraft rate and that any of the artifices seen to be employed by the creation of other companies or the invitation to firms to place their vehicles or something else on lease or to have their vehicles or other items on hire purchase instead of being carried by ordinary overdraft rate or by a term loan through the normal commercial banks, should be discouraged.

I agree that hire purchase has its place. Indeed, the many millions that people are paying for hire purchase as disclosed by replies to Parliamentary Questions and the many millions involved in the production of these hire purchase facilities prove that they have their place. But when it comes to the employment of a man at a fair wage on which he must keep his wife and family the introduction of an extremely high interest rate into the liquidity situation of a company puts a high price on the goods produced and is one of the factors that make it extremely difficult for that man to live. That is why I feel that we have been perhaps a little bit too easy in our approach to commercial banks and to the matter of whether or not we should have other financial institutions.

The Minister saw fit some time ago to issue a statement through the Government Information Bureau in reply to a speech in which I said there was a provision in this Bill for the devaluation of the Irish £ as distinct from British or other devaluation. At the time I did not see, through my own fault, the statement reported in the papers but I understand that Deputy O'Donovan of the Labour Party saw it and replied to it. I do no more now than draw the attention of the House to the Explanatory Memorandum issued with the Bill in which paragraph 3 of the introduction states:

to remove the anomaly between the existing statutory provisions requiring parity between Irish currency and sterling and this country's obligations as a member of the International Monetary Fund.

The Minister will have the opportunity of dealing with that matter when replying but it appears to me that I am correct and that in fact, even though I know the Minister would not desire it, it would be most injurious to the economy of the country that nobody with responsibility would desire it. It is not something which should be voiced abroad. It appears possible to devalue the Irish currency as distinct from the British currency.

Mr. Colley

I have no quarrel at all with what the Deputy has just said.

Mr. Donegan

The Deputy measured his words very, very carefully.

Mr. Colley

On this occasion.

Mr. Donegan

I certainly had a quarrel with what the Minister said. I am much indebted to my good friend Deputy O'Donovan for clarifying the matter because I had overlooked it in the national press, and I bet my bottom dollar that Deputy O'Donovan and I are right.

Mr. Colley

I wish the Deputy had quoted now the statement to which I replied because he would find it was quite different from the statement he has just made. The emphasis was completely different.

Mr. Donegan

I am not interested in the question of emphasis, I am interested in the question of fact. I think what I have just said is in fact the truth——

Mr. Colley

Agreed.

Mr. Donegan

——and this could be done. I should be horrified if it had to be done, but if the Government go on the way they are going I can see it being done.

A great deal of what is contained in this Bill was the subject of Fine Gael policy at the time of the 1965 general election. I sometimes wonder whether policies do a party any good. It is interesting to see that it is necessary to bring in legislation which was suggested by the Opposition six years earlier. When I pointed out the same situation to the Minister's predecessor in relation to another matter where Fine Gael suggested something which was eventually taken up by the Government, I said that we were governing from this side of the House and the impertinent remarks of the Minister's predecessor was that he was delighted that such was the case and that as long as we were governing from this side of the House that suited him very well. Things have changed somewhat since, but I shall leave that matter aside, because the sordid difficulties of the Fianna Fáil Party at the present time do not require discussion by me. They are so sordid as to be below the thinking of any decent member of the public.

We have the situation now where section 11 permits the Central Bank, with the consent of the Minister for Finance, to revoke a licence:

(1) if the holder so requests or ceases to carry on business;

(2) if he becomes unable to meet his obligations, is adjudicated bankrupt or, if being a company, is being wound up;

(3) if he fails to maintain the required deposit with the Bank;

(4) if he is convicted on indictment of an offence under any provision of the legislation or if he is convicted summarily of an offence involving fraud, dishonesty or breach of trust;

(5) if, since the grant of the licence, the circumstances have changed to such an extent that if the licence holder currently applied for a licence he would not be granted one.

As far as I can see paragraph (5) is the only case in which the Minister might decide; in the other it should be automatic. It is a good provision. A pool should be established so that anybody who invests in a licensed financial institution will be compensated at the full par value of his shares and investments if that financial institution goes bankrupt. This would attract money into this country and people might even be prepared to take a lesser rate of interest. I see this as a perfectly proper provision. After all, the Minister is taking the right to license somebody. As far as I can see a person can be licensed for £1. Provided I do not use the word "bank", "banker" or "banking" I can turn up with £1, say I am going to start taking deposits, and if I am of good standing, which is highly questionable, I should get a licence. Having got my licence I might start taking deposits of £1 or £5 from people like Deputy Tully.

Mr. Tully

Not from me.

Mr. Donegan

It would depend on the interest rate I offered. If one of my objects was to further the interests of the Federation of Rural Workers it is quite possible I would get a large deposit from Deputy Tully. Having done this who would I be? I would be an individual who was taking deposits and either investing or lending the money on either my own decision or the decision of a board that I appointed. Boards of companies have made mistakes and companies have gone bankrupt; boards of banks have made mistakes but for a long time banks have not gone bankrupt.

In the last five years we have seen an enormous increase in the number of financial institutions and there is a danger that one of them might go bankrupt. For this reason provision should be made in the Bill for a pool. In the insurance world at the present time in relation to a serious claim where a man with a family to support suffers a back injury and has to spend the rest of his life in a wheelchair, if his insurance company goes bankrupt this man will be paid out of the pool of insurance companies. This of course would not happen in the case of a claim for loss of small items such as jewellery or personal effects.

Mr. Colley

The Deputy appreciates that the point he has made relates to the law as it stands and not to the law as it will be when this Bill is passed.

Mr. Donegan

I stand corrected; I thought this was the law as it was going to be.

Mr. Colley

I specified that to explain why we wanted to provide this licensing system. The law at the moment is rather loose.

Mr. Donegan

Are the commercial banks going to declare their real profits?

Mr. Colley

Yes.

Mr. Donegan

At what stage will this occur?

Mr. Colley

Next year. It would have occurred this year but for the closure.

Mr. Donegan

Will this be retrospective? Will we be told how much money was not declared in the past?

Mr. Colley

Offhand I think the answer to that is no.

Mr. Donegan

There is a serious situation here in relation to tax. I should like to know what will happen.

Mr. Colley

May I interrupt the Deputy once more? If he has in mind that the banks pay tax only on, what one might call, the unreal figures, this, I understand, is not so. They pay tax on their real figures even though they were not publicly disclosed.

Mr. P. Belton

They pay tax on their total profits?

Mr. Colley

So I understand. Not those published.

Mr. P. Belton

And corporation profits tax, too?

Mr. Colley

In the ordinary way, like any other company. So I understand.

Mr. Donegan

The question then arises of currency. Deputy Collins made the point that a charge was being made by the Irish commercial banks for the taking back of coins which people pass in England. This was a most irritating thing in respect of Scottish notes some years ago. If one accepted a Scottish bank note here ten or 12 years ago in one's shop it cost one about 3d. This has been got rid of. I should like to hear, when the Minister is replying, whether we can get rid of this business in relation to the coins too. I know it must cost some money to send bags full of coins back on the mail boat but these are little irritations which do our tourist industry no good at all. We want to get rid of these little irritations. I should like to know whether or not there will be a charge on Irish coins that have been used abroad and then have to be — for want of a better word —repatriated.

Mr. Tully

One great way of repatriating them is when one goes into a hotel and changes a note if one does not look at one's change half of it is in Irish coins.

Mr. Donegan

That is one way of repatriating it.

The restriction on advertising for deposits contained in section 27 is something I just do not understand. Why should a bank not advertise and solicit deposits? The building societies have several advertisements on television. Banks need deposits. We are all encouraged to save. We have a National Savings Committee and other things to try to encourage us to save. What is the reason behind this prohibition on banks seeking deposits? Why should they not solicit deposits? I think they should, and I do not see the reason, therefore, for section 27.

The question of the ratio of liabilities to assets is, of course, part of the answer to my suggestion that there should be a pool from which a customer of a defaulting bank could get money which he was owed. The Central Bank may require a bank to preserve this ratio. The question arises of whether or not the Central Bank will then send in accountants or inspectors or officers of one kind or another to see if this ratio is being preserved at all times. I do not know whether this is sufficient safeguard or not but it is a good thing that there is a ratio preserved between assets and liabilities. It means that, unless the directors of the bank act incorrectly and lend too much money and therefore have too much money on risk, there should be a great degree of safety in the deposit of money with the bank.

The question of what should be the deposit rate does not seem to me to be dealt with in the Bill. I am aware that one of the sources from which the Government get money from the banks is from their excellent profits and this means that the Government can probably get more money from them than if they had lesser profits. But one must immediately call to mind the difference between the deposit rate with one of the ordinary commercial banks in this country and the lending rate and then look at the deposit rate of some of the merchant bankers who have opened in this country and their lending rate. While the lending rate in respect of hire purchase and so on is extremely high, in respect of discount bills, for instance, where people buy goods and discount a bill for 90 days — to be produced in their bank at 90 days — the discount bill rate of the merchant bank is very often as little as about one quarter per cent. At the same time, that merchant bank might be extending to its depositers as high a figure as seven per cent and might be working on a differential between the deposit figure and the lending figure of three per cent whereas the ordinary commercial bank might be operating on a differential between the deposit figure and the lending figure of as high as five and six per cent depending, of course, on the size of the deposit but taking the average. This seems to be a great discrepancy and the Minister for Finance and the Central Bank should keep an eye on the situation and should see to it that both depositor and borrower get a fair run for their money. There is this wide discrepancy. If we are now, under this Bill, to deal with the ratio of deposits to lendings and, therefore, create some great degree of safety all over the banking system, including the merchant banking system, we should, perhaps, look at the question of whether there should be a higher deposit rate for the ordinary commercial banks. It seems to me to be quite wrong that one bank can work for half as much gross profit as another bank seems to need.

The restriction on the carrying on of banking business seems to be a rather extraordinary section. It seems to me that if a body corporate does not use the word "bank", "banker" or "banking" or any word which is a variant of the word "bank"— I do not like to name firms but "Lombank" would be an example — if one has the licence one may proceed and carry on banking even though one has not got permission under the Act to call oneself a banker. I do not know what that means. Is one allowed to call oneself: "Hire Purchase, Leeson Street, Ltd." or "Bicycle Hire, Ltd." or "Car Hire Ltd." while at the same time one is not entitled to call oneself: "Car Hire Bank Ltd." or "Cycles, Leeson Street, Banking Ltd." or any of these words that seem to carry this connotation of being a bank? I just do not know why this situation is created whereby there will be great value in being a bank. This must have been a request made to the Minister to have this distinction and difference and this must be something the Minister acceded to. The question of the deposits of the banks for the purposes of licences was represented to me as being prejudicial to the interests of the smaller banks. The very large bank would lodge £500,000 with the Central Bank and to a very large bank this might not be proportionately as much as £20,000, the minimum figure, to a very small bank. It was suggested to me that the figure of £20,000 was too large for a very small bank. I do not know whether that is right or wrong. I have not had the opportunity of examining the position. I would think that this is something that might be looked at on the Committee Stage.

The restriction on certain words comes in at section 14 where the person who is a building society, an industrial or provident society, a credit union or a trust company may not call himself a bank or may not use the word "banking" and is, therefore, in the position that he must call himself "a building society" or any of these different descriptions allowed to him. I do not want to hold up the House any longer. This is a very detailed Bill which will be discussed at length during the Committee Stage. It is a Bill which must be examined line by line and section by section. There seem to be quite a lot of things in it which were put in at the request of various people and institutions. While that might be good, one must look at the community as a whole. On further examination it may be found that some of these things should be deleted. I always found the Minister most co-operative when he was Minister for Industry and Commerce and I was spokesman for industry and commerce on this side of the House. We have often co-operated before. I look forward to a non-political approach to this Bill.

Mr. P. Belton

I welcome this Bill in principle. I really want to speak on the bank strike. I was looking at what the Minister said about appointing three bank directors to the board of the Central Bank. The Minister may have said two such directors. Two bank directors might suffice and the Minister could pick another non-bank director. Most directors of banks are in a business or profession. Some directors may be appointed because of their academic qualifications. Most bank directors I have met are people who are well-known in business. They might be well-known in the commercial life of the country as accountants. They know this business. Perhaps we should have four such men as directors, even if the Minister increases the number on the other side. It would be better to have more control over the banks.

We had a bank strike for seven months. I really believe that nobody in the Government did anything about the strike because it suited the Government. Nobody could see the state of the economy at the time. The Government could not care less about the situation. This was allowed to happen by the Government to the detriment of a tremendous number of businesses, particularly small businesses. There were many people who wrote cheques during the bank strike to pay their accounts and they collected all the money they could in cash or cheques and moved across the Border or went to England or put the money into the American Bank here on a short-term basis. They knew that it would take three or four months from the date the banks opened to clear up the accounts and such people had another month before drawing the money out. They made 6 or 7 per cent on this money and then they paid their accounts. Against that, there were many retailers in Dublin who kept the economy of the country going by giving money and cashing cheques for various people. The Minister made a very clearcut statement here to the effect that the banks do not return a cheque unless one overdraws his permission. We all agree on that. Some people got dud cheques which were returned to them and these cheques were the cause of bank accounts being overdrawn.

Mr. Colley

Could I interrupt? The particular kind of case the Deputy has just described was mentioned by me and all I have said about that was that I have known of no such case in which the man concerned was put out of business and in which the bank did not facilitate him.

Mr. P Belton

I am saying that such a man is not as of now out of business, but he is on his way out unless he can get his money. He cannot get his money if the person is gone to England or if he has cashed cheques for the Hibernian Transport, for instance. In that case the man might get 18s in the £1 or 2s in the £. Whether such man is given bank facilities or not, his income from his business would not be able to pay the interest on a large overdraft from the bank, and therefore he has to go out of business. The people with accounts which were reasonably all right are only now being called in to look at their accounts. The whole picture will not be seen until March. It is not sufficient to say in an offhand manner that nothing will happen. If a man cannot repay the bank and has cashed useless cheques he will be put out of business. A sum of £6,000 could put a man over his limit and into a category where he would not be able to meet his bank account. The bank will put such a man out of business. I know of some people who are going into liquidation because they got dud cheques. This will happen from now on, over the next two or three months. In the city of Dublin the big drapery shops and the licensed traders like grocers kept the economy going by giving all their money for cheques to reputable people but some of the so-called reputable people played on them and they overdid it in the hope that the strike would last a couple of years and they would make a killing. This has happened all over the place. In addition, anybody who cashed any sizeable amounts of money had to keep a person to keep a note of the cheques and it cost him so much a week to pay that person. He also had to keep the cheques in one place and a note of them in another place and he had to be insured against fire and there were other costs. Another thing is that if you had an overdraft you were charged on it which was fair enough and if you sold a house or a premises they accepted the date on which the solicitor acting for you made out the cheque as the date on which the money would have been lodged in the normal way, or within two or three days. However, in the case of a business which would be working on an overdraft and which would lodge say £1,000 a week that cannot come off the overdraft because out of that you will pay a certain percentage and all you are left with eventually is your net profit but there would be a certain period of weeks or months when some of that would be used out of your overdraft before you paid some of your overheads. Wages would be out of it already but there would be other overheads.

There are some businesses which make a profit in summer like hotels, and make nothing in the winter. This strike went on through the summer and hotels, licensed premises and to a small extent drapery shops who, if they lodged £1,000, might in that period make 20, 30 or 40 per cent which should have been allowed. That would have been net profit for that period before overheads. A hotel in a tourist area could make up to 40 per cent but they would have to pay overhead bills and keep a nucleus of a staff going for winter and it would come down quite a bit. Therefore the bank should look at the business and say, "For this period of the year you should make 40 per cent" and they should allow that 40 per cent, which would be £400, off the overdraft per week or per month or whatever way the lodgment was made.

The banks are still gaining but I do not think they should gain at all because they made a tremendous amount of money on this. They should also look at the end of the year and work out the net profit of that firm and allow the average per week, or per day, off the interest. One thing that must be remembered is that while the banks made their money on overdrafts — you had to pay your overdraft regardless — they did not pay any wages during that period. You might say that the banks paid afterwards, which they did and it cost them quite an amount but they had everybody working without a break whereas normally there would be slack periods and busy periods but for this period they were just working hammer and tongs.

As I mentioned before, during this strike the economy was kept going by retailers at risk to themselves. Many of them lost money; some of them a lot of money. We had the example of the Hibernian Transport and how much people lost there but in the last strike one man was caught for £4,500. He brought the person to court and the man was convicted and sent to jail but the other man was that amount of money out of pocket but the Revenue Commissioners came along and charged him income tax on it so that he was down in the region of £6,000. He appealed to the Circuit Court and lost and was advised that he would win if he went to a higher court but he had lost so much that if he went to a higher court he would be broke. I know that on a legal point the Revenue Commissioners were right but surely there must be some moral law as well as the ordinary laws. I would not mind if the culprit had not been charged in which case the commissioners could have said "Charge him and we will think about it" but he was charged and sentenced to jail and still the Revenue Commissioners taxed the man. If the Revenue Commissioners do that to a person I cannot see why the person does not in a barefaced way rob the Revenue Commissioners. If you get that sort of thing from the Revenue Commissioners, why should the people not do the same in return? This man was ill at the time and it nearly killed him.

In the last strike I cashed a tremendous amount of money for one very big firm and they are still very big but who would not have thought the same of Hibernian Transport? Cheques were cashed for £120,000, £14,000 and I know of one case of £6,500. A lot of these were cheques cashed for wages. To my knowledge the person involved can either go to Hibernian Transport from whom he will get nothing or, if he is lucky, he might get 19s in the £ if he is in the right section but if he does not he can go against the worker but nobody is going to go against the worker for something like this. We saw what happened in the case of Hibernian Transport. We lost our shipping to a Dutch firm and lost money that we would have saved in our balance of payments but no Irish company moved in to take over, nor did the Government go to Hibernian Transport and say, "We will cover for a certain amount. It may not pay us, but at least we can get another Irish company to do the work".

Some time ago the former Minister for Finance and a couple of top men in the banks decided that the days of the overdraft were finished, the days when a customer would get a loan for five, six or eight years were over and instead they would get a short term loan for six months, a year or a year and a half, but the people were told to knock next door where there was a merchant bankers where they would pay 2 per cent or 3 per cent extra. This 2 per cent or 3 per cent extra is basically going into the same kitty. Straightaway this is putting up costs and is inflationary.

Debate adjourned.