I take the opportunity to speak on this Bill. It has been stated by a number of speakers already that the Trustee Savings——
Trustee Savings Banks Bill, 1989: Second Stage (Resumed).
Question again proposed: "That the Bill be now read a Second Time."
I understood I was in possession.
An Leas-Chathaoirleach
My information was that you were not offering. The conventions of the Chair prevent me from saying that I would have been surprised if you had failed to offer. Senator McKenna, I am sure, will concede. Senator O'Toole in possession.
I spent considerable time in dealing with the issues arising from this proposed legislation since the last date on which we discussed it. On that occasion, as I indicated before, I had much more to say on the matter. The House may be pleased to know I have misplaced my notes, which is the reason my head was down. When you were waiting for me to offer I was looking through the Bill trying to recall what I had to say.
However, what I said before is on the record and I will not go back over those areas. I want to reiterate a point of some substance which I was developing on the conclusion of business on the last occasion, that is the affirmative process versus the negative process. I am particularly concerned about the section of the Bill which accommodates the changeover of these new arrangements. Section 5 of the Bill gives the Minister power to bring in new regulations and to do anything which appears to him necessary or expedient to remove difficulties which might arise over the next three years. In the regulations on these matters, which are obviously and can only be quite fundamental, it is only necessary for the Minister to have the regulations drawn up and laid before the Houses. They do not need to be discussed, passed or affirmed by the House. It seems incongruous that something so fundamental could slide through. I want to stress that point.
What, in effect, happens? The Minister has the regulation written and put together in the Department. It is then sent to the Librarian of the House. The Librarian of the House sees that it is presented to the Clerks of both Houses. It then appears once on the Order of Business for the day. It is never discussed again, and it becomes a regulation. To my mind it is not good enough. I do not think it is an effective or efficient way. It is something that I look at and examine in all legislation that comes before us now. I see a growing trend by Government, ably assisted by those excellent people in the Civil Service efficiently carrying out their duty to see that this is a more efficient way. People do not have to listen to a lot of nonsense from people like me who would speak on it if it had to be presented by affirmative proposal, proposed, seconded and discussed in the House. I want to hear the Minister's reply on that. It is something that concerns me. This occurs in a number of places in the Bill which I have referred to earlier.
I want to direct the attention of the Minister to section 5. It deals only with the next three years. It is to cover those issues which have not been anticipated. That is a very wise kind of a section to have in a Bill. It shows good anticipation. It is useful and necessary. I support the idea of the section very firmly. I believe that because it raises fundamental issues it is something which should be approved by the House by affirmative process.
In my first contribution on this matter, I raised a number of very fundamental issues. One issue which I raised the other day is the question of the shifting of control from the Minister for Finance to the Central Bank. I do not have any objection to that: in fact, I welcome it. It is an efficient way of doing business. It is right and correct that the Central Bank should control the banks in the State, particularly when the Central Bank is a State bank. It is the only true nationalised bank we have in the State. However, it raises some fundamental issues for me. One is the position of the Central Bank compared with Europe and the whole European scene.
We know the Minister for Finance is involved in discussions leading to the setting up of a European Central Bank, of a single European currency and of a vast number of other changes in the financial sections. Is it not true to say that what we are, in fact, doing here today is changing the control of the Trustee Savings Banks via discussions in Brussels to the control of a joint Euro-Central Bank, which is the objective of the governments of the Twelve at the moment. I want that addressed very definitely, because it has not been considered in any serious way so far.
That leads to a number of other issues and in particular to section 30. Whereas I agree with the proposal to change control of the Trustee Savings Banks from the Minister for Finance to the Central Bank, I have great difficulty with section 30 which gives separate issues, labelled A to J, where the Minister for Finance will still, or may still, control the decisions of the Central Bank regarding the revocation of licences for the Trustee Savings Banks. Where is the logic in this? Either we give control from the Department to the Central Bank, or we do not. If we are doing it, we should do so fully.
The reason I have difficulty with that is that I do not believe the Trustee Savings Banks should have to serve two masters in this particular one. It does not make any sense. I would like to hear exactly where we stand on that particular issue.
In the last financial year the Trustee Savings Banks made a very substantial profit. I need here to compare and consider the Central Bank and the Trustee Savings Banks, both of which are answerable at the moment, in different ways, to the Minister for Finance. What I am not clear about is how we are going to work through the distribution of funds. Under present arrangements, the Central Bank each year transfer what they call their surplus funds to the Exchequer. "Surplus funds" are polite words for "profit" although it is not quite completely profits because it is profits minus their housekeeping money, their petty cash and their superannuation arrangements with their employees. In effect each year the Central Bank transfer to the Exchequer their surplus funds — by another name their profits — which are worth roughly around £120 million. That was the average per year over the last couple of years. That is precisely the amount of money that our nationalised bank gives to us each year. On the other hand, speaking from memory, the Trustees Savings Banks' annual report for last year indicated that there was £301 million invested with the Minister for Finance. That takes place under the procedures set out by regulation 1940, or 1941, to do with the operations of the Trustee Savings Banks.
The Trustee Savings Banks, as of now, have £301 million invested with the Minister. The first question is: what will happen to that £301 million when this legislation is enacted? Will that money be transferred to the Central Bank? Is there movement from it? I also want to know why it is that the Trustee Savings Banks £301 million invested with the Minister for Finance only realised for them an interest return of £23 million, £24 million or £25 million. Certainly it was far less than ten per cent.
I would like to know how we arrive at these figures? Where is the money invested? What is it used for? Is it simply a notional interest? If it is a notional interest, how is it worked out? How is the £24 million calculated? What is going to happen to the £301 million? What kind of a lien will the Central Bank now have on that £301 million? Equally important is what status will the Trustee Savings Banks have within the Central Bank's arrangements? Will they have the same status as an Associated Bank or as one of the other private banks? Where is it going to stand vis-á-vis the Central Bank's famous Act which was rushed through the House here in a less than a discretionary manner earlier on in the year? What, in fact, are the relations going to be?
At present in the Trustee Savings Banks the equity to risk ratio is approximately 12 per cent. This is an important matter for the small investor, such as the person who goes into the High Street branch of the Trustee Savings Banks and wants to know if his money is safe and secure. When we discussed this last week I outlined what happened one year, around the end of November, when the report of the Trustee Savings Banks was late arriving. A rumour went around that it was in trouble. There was a flow of money from the head office of the Trustee Savings Banks. People lost confidence in the bank. They queued up in order to take their money out and bring it up to a building society at the corner of O'Connell Street, which shall be nameless, but who were very happy with the arrangement.
In order to ensure the confidence of the small investor, depositor, or customer of the Trustee Savings Banks they have a very high equity to risk ratio which, as I say, is in the order of 12 per cent. On the other hand, any quarterly report of the Central Bank will indicate that the primary liquidity ratio would be more like 8, 9 or 10 per cent. What control will the Central Bank have on those ratios under the new arrangements proposed in this Bill? It raises a number of issues. I think 12 per cent is far too high. It is too conservative, too safe and is unnecessarily careful in terms of the equity to risk ratio.
The reason I think it is too careful is because I have never known a bank to take a risk. Certainly in my dealings with banks I have never known a bank manager take a risk with me. I have never known a bank manager to take a risk with anybody. They are not in the risk business. They are in the business of selling money. If they are ever to operate on a 9 per cent primary liquidity ratio — and I think that is the one we need to refer to at this time — I wonder about the Trustee Savings Banks. Are they, in fact, fettered or are they under more pressure to hold some of their money? Also, are they, in effect, compelled to invest all this money with the Minister for Finance? As a taxpayer I would prefer if the bank were allowed do their own thing and pay their profits to the State, like a State bank. I do not want them saying, on the one hand, "Let us organise it for them so that they can become a High Street bank and compete with the big boys," and then say: "O.K. let us tie them down," when it comes to the real money. It looks a bit like that to me. In relation to nationalised and semi-State industry, everywhere I look I find this. The conservative right of Irish politics will say: "Oh yeah, well look, these semi-State are not making money; they are not effective; they are not cost efficient." As soon as they become cost efficient or effective or threatening, whether it is in regard to the ESB selling coal, or Aer Lingus running hotels or doing other things, or the Trustee Savings Banks investing their real money internationally or otherwide, they may well be held down.
I recognise that this Bill facilitates the international movement of cash by the Trustee Savings Banks. I asked a question the other day about that point. It seems to me that under the Treaty of Rome, following the setting up of the Single European Market in 1992, it will not appear necessary to have that section in the legislation. I asked if it is simply in there to make it seem to comply with our commitments under the Treaty of Rome, or is it there because it is necessary? I just want to know why it is there. Is it there in order to enable the bank to operate? If that is the only reason, I do not think it should be there. Banks can move cash, capital, or whatever else they want to, under our Treaty of Rome commitment.
In the development of the particular customer services, the Trustee Savings Banks are now indicating that they will be moving very much into the housing mortgage market, which is a very rough and competitive market at the moment and has been for quite a number of years. The building societies operate under the legislation of the 1989 Building Societies Act — another piece of legislation which was pushed through earlier on in the year. Under that there are very strict controls on the operation of building societies. With the Trustee Savings Banks moving into that particular market, I would like to know where the two pieces of legislation will interface — the Trustee Savings Bank legislation and the 1989 Building Societies Act — where they cut across each other and where they are connected with each other. I am not quite clear about that area.
An issue which I raised the other day, and which I did not get a chance to develop at that time, was the change of regulation in the section which decides the appropriate majority of trustees necessary in order to facilitate an integration, merger or amalgamation of a number of Trustee Savings Banks. I think it is section 55 or 56. I want to say, first of all, that I approve wholeheartedly of the decision to change it from three-quarters of the trustees to three-fifths of the trustees. I would like to know the thinking behind how we arrived at three-fifths. There is a certain element of "think of a number" about it, unless somebody can prove me wrong by pointing to some precedent or reason for it. I am intrigued about how people came up with the figure. Why three-fifths as opposed to a simple majority? Why three-fifths as opposed to a two-thirds majority, which would also be very close. I would like to have that tidied up. Why is it 60 per cent? Why is it three-fifths, in effect? I would like to have that explained in some detail.
The other day, towards the very end of what I had to say, I refered to the "ageism" which was rampant in this Bill, with certain references of people being of full age and, therefore, being entitled to the payment of interest. I was further intrigued to see that on the death of a person his or her dependants, or those who are taking out probate, are entitled to it. I just wondered why it is necessary for that to be there. Surely when a depositor dies, under existing law the entitlements are paid into his or her estate. Then, of course, there is the provision, which I find quite objectionable, the one which says one may no longer be a trustee after reaching the age of 70. What is so special about the age 70? Is this necessary? What is the thinking or the reason behind that?
Between what I have said now and what I said the other day, I think I have more or less covered all aspects of this proposed legislation. However, I do want to raise one point which is slightly peripheral. One of the new customer services being offered by the Trustee Savings Banks, which is offered by all the banks now, is the leasing or lease-back arrangements, which is a huge accumulator of profit. I have grave worries about how that stands in taxation terms. At a later date I will have very hard, harsh things to say about our so-called high flying successful companies based in the Shannon duty free zone. I am certainly going to be asking very harsh questions in the future as to who gets taxation from it. Does any country, or every country, or no country get it?
With the leasing arrangements here, I want to be assured that there is no conflict between what the banks are attempting to do and the spirit of the Finance Acts for the last number of years. I would like to see that matter addressed. I would hate to see a conflict between a State bank, as such, and the best interests of the State, particularly when it is moving into it quite rapidly. There has been a huge development in that area by the Trustee Savings Banks.
I would, therefore, conclude my remarks by asking why the integration and amalgamation, etc., of these banks requires three-fifths of the majority of the trustees? Why not just a simple majority? The reason I ask that is because I think these should be facilitated in every way possible. I would like to see in the legislation — and I recognise this would be a very difficult thing to do — some form by which the State could actually initiate the integration and amalgamation of Trustee Savings Banks. The reason that I would like to see the State being in a position to initiate the integration, merger or amalgamation of Trustee Savings Banks is because of the experience of the Associated Banks. We remember some years back when the Allied Irish Banks and the Bank of Ireland groups were formed. It was felt to be in their best interests then. I do not believe it is in the best interests of the Trustee Savings Banks.
What we are trying to do through this legislation is have a whole range of different banks. I am not sure how many are left in the country now, but they are certainly in Limerick, Cork and Dublin. Why is it that we cannot initiate, or at least encourage, facilitate or prod on the amalgamation of these particular banks? Maybe there are moves in that direction at the moment. If there are, I am not aware of them. I was sepaking to somebody recently who had great difficulty doing business with the Trustee Savings Bank in Limerick, though she was an account holder with the Trustee Savings Bank in Dublin. That does not help its general image. It also puts them at a definite disadvantage compared with the Associated Banks. I would like to hear that matter addressed also.
In conclusion, I welcome the legislation. It is positive legislation and certainly develops and progresses what most of us have in mind. There are aspects of it to which, when it comes to Committee Stage, I will certainly be addressing myself. I will also be putting down amendments. At the moment I welcome the general thrust and initiative taken by this legislation.
What I have to say will be brief and to the point. I would like to take up the previous speaker's last point. I suppose I would have to agree with him in relation to difficulties experienced by people who would be members of one Trustee Savings Bank and trying to get facilities in another. The purpose behind this legislation is to smooth the path in relation to the difficulties that are experienced with the Trustee Savings Banks, as they now exist and to offer them the facilities that are available to all the other banking services.
I would like to welcome the Minister here and to say how delighted I am to have the opportunity to speak on this Bill. As other speakers, including Senator O'Toole, have said, the Trustee Savings Banks have played a tremendous role in the whole area of banking, specifically in relation to the small saver in encouraging thrift. One has to acknowledge that we owe the Trustee Savings Banks a great debt of gratitude for that type of development.
There were originally four, as Senator O'Toole said — in Dublin, Waterford, Cork and Limerick. They have been amalgamated into two — Dublin-Waterford and Cork-Limerick. Credit must be given to the Trustee Savings Banks as they exist at the moment. They have extended their services quite a lot under the restrictions that were placed upon them. They have no small part to play, I suggest, in opening up banking services and facilities, particularly for the smaller saver. They introduced an area of competition. We are all aware, in the not-too-distant past, of the type of structure the commercial or Associated Banks portrayed even in terms of bank managers. The sort of foreboding bank structures they had, produced an aura of fear among people who, in actual fact, used the facilities.
Not so long ago, if you met the bank manager walking down the street you took off your cap and knelt down in front of him, because you were under this distinct impression that he was some sort of a god who decided your future at his whim. When you went to get loans in the associated or commercial banks, you felt it was out of his pocket that the money was coming and that you were under a tremendous obligation and compliment to him for that giving service. The Trustee Savings Banks, to their credit, got away from that type of attitude. They brought into this area a welcome to the people, that they were providing a service like any other financial service or, in fact, any other business. They welcomed the people to come in. They provided facilities where people could avail of those services at convenient times, during lunch hours and late at night. So they brought this type of change in services to the general public.
As I see it, the Associated Banks operate a type of cartel. They are in competition with one another, but they meet at various times and decide what they are going to do, what services they are going to provide, what services they are going to provide free, what services they are going to drop or what they are going to charge for. In that connection there is just one note of disappointment that I would like to mention here in relation to the Trustee Savings Banks and the facilities they offer, that is, the suggestion or intention of the AIB and Bank of Ireland specifically to charge fees and to provide fees for services to local authorities and for the conducting of business of the local authorities. I find it incompatible that, on the one hand, the banks go to great lengths to highlight the fact that they are providing all sorts of facilities and benefits to certain categories of people free of charge and then, on the other hand, they state that it is their intention to charge fees for services to local authorities.
Remember, the services the local authorities provide are for a substantial number of the very people the banks are at pains to suggest they are catering for free of charge. I understand local authorities have had those services free since 1926. What I would suggest to local authorities who find they are in difficulties in relation to having to pay these charges is to shop around. If the Trustee Savings Banks, under the new regulations, can provide the facilities that up to now the associated and commercial banks were providing, then the local authorities should shop around and get the services free of charge. I am sure there are other banking institutions that would readily accept accounts the size of local authorities accounts and the amount of money they put through their hands from time to time.
The Trustee Savings Banks have carved out a niche for themselves in the financial services sector and it is very appropriate at this time that this legislation is being brought forward. It will remove existing restrictions on their activities and allow the Trustee Savings Banks to provide fuller banking services. That is all to be welcomed at this time.
The proposal to reduce the proportion of total funds invested with the Exchequer as the Trustee Savings Banks extend their activities into other areas, and also the proposal to transfer the supervision of the Trustee Savings Banks from the Minister to the Central Bank, are very welcome. It will put them on the same footing as the commercial and associated banks.
As the Minister said the new direction in this Bill reflects the changes in savings banks in Europe. These banks have played a major role in providing services to local communities. That is why I am advocating that local authorities who service local communities should consider strongly doing business with these banks where the opportunity arises.
I welcome, in general, the whole thrust of the Bill. It is very appropriate at this time. In relation to some comments Senator O'Toole made, I find it difficult to understand his argument, particularly in relation to section 5. Section 5, as I read it, merely gives the Minister the power to make regulations concerning difficulties of a technical nature in the implementation of the legislation. It would be absolutely ridiculous that every time a technical problem arose the Minister would have to come back to both Houses of the Oireachtas. In fact, the legislation as passed would not be workable at all, because one can understand the delay that would arise in bringing amendments into both Houses, the availability of time and all that sort of thing. This seems to be a commonsense sort of approach; and, as the Minister stated, it is not without precedent. It is in fact common practice in such legislation that the Minister would be in a position to make regulations in relation to any difficulties and specifically in relation to difficulties of a technical nature.
Again, I want to welcome the Bill. I want to congratulate the Trustee Savings Banks, the trustees and all of the staff— the 800 or so who are there at the moment — for the tremendous work they have done and the tremendous service they have given to this country. I am sure I speak for many a small saver in expressing gratitude to the Trustee Savings Banks for the facilities and the large range of opportunities given to them to save on a small scale and for the welcome given them when others, from whom more might have been more expected, did not do so. They opened up the whole banking service so that other people, who originally might not have thought much of the small saver, now very much appreciate him. That is due in no small measure to the development of the Trustee Savings Banks. I welcome this Bill.
At the outset, let me begin where Senator McKenna finished. I, too, would like to pay my compliments to the Trustee Savings Banks for the way they encouraged small savers, the way they set out to attract business, when in many ways in other banks it would not be considered wise or profitable to do so. They have provided a very good service over the years. They have been progressive, particularly in relation to their attitudes to consumers, the manner in which they conduct their business, the hours during which they are open. It is much more, to use the computer jargon, consumer friendly than the sort of facilities which are provided by the Associated Banks. Generally speaking, the Trustee Savings Banks have provided a very good and reliable service.
To the extent that the Bill proposes to modernise the Trustee Savings Banks to extend their scope and capacity, I certainly welcome that. What I am concerned about, of course, is the capacity contained in the Bill to sell off the Trustee Savings Banks to the private sector. That I would have to respond to with alarm and regret. In the Bill, where it is being proposed that the Trustee Savings Banks be re-organised under State control, the proposals are really quite restrictive; whereas, of course, if they are going to be sold off, all the propositions in the Bill would simply be irrelevant and they will take their chances in the broader banking world.
I, too, would be concerned about the provisions of section 5. It is not so much that one would want to object to the Minister making orders to make minor technical adjustments; what would concern me is the scope of the Minister's capacity as set out in section 5. It is not that I would want to prevent the Minister making minor adjustments; it is the capacity to make various fundamental changes which are catered for in section 5. It is particularly regrettable that those changes are not to be made by way of an affirmative procedure rather than being left to the Houses of the Oireachtas to set about stopping what the Minister is doing rather than have the Minister to obtain approval from the Houses of the Oireachtas for what he is proposing.
If I can look at some matters of broad detail in the Bill, there is a question of the trustees and the responsibilities of the trustees. As far as I can make out, they are not particularly clarified in the Bill. The Bill provides a considerable amount of detail on how these trustees are to be got rid of. They have to go at the age of 70, there are all sorts of disqualifying provisions, if they are out of order on a series of differing items. There is very little, if anything, stated in relation to how they are going to be appointed. It might be no harm if there was clarification there. What type of people are suitable to be trustees? How will they be selected and so on?
There are some other points of general interest. For example, the Bill talks about financial services and so on and it does not define it. It talks about honorariums for the trustees. This may be a polite word for a fee or paying over cash, but perhaps it would be no harm in this kind of business if a spade was called a spade. I generally associate the payment of honoraria to polite people who give nice lectures to polite societies but I think it might be better if we had a bit of old-fashioned straight talking there.
Finally, I am concerned in relation to the possibilities of the privatisation of the Trustee Savings Banks. In the United Kingdom, when the trustee savings banks were sold there were very extensive redundancies; they shed of the order of 20 per cent of their workforce in the United Kingdom. Part of that will arise because of the fact that when people buy banks such as the trustee savings banks they are going to buy them because they are going to have to return a profit on what they put into them. I am worried that that anxiety to generate profit may well militate against the people who have been employed in those banks and against the sort of services they may be prepared to provide for their customers.
One aspect of the Bill which is conspicuous by its absence is any dealing at all with the rights of the consumers— in other words, the customers of those banks. What rights are they going to have? What obligations will the banks have to them because of the fact that they deal with them? Again, it is very sparse on that issue.
In conclusion, I would be in favour of the general principle of modernising the Trustee Savings Banks. I would be quite worried about the notion of privatisation. I would be worried about it even if I was not a socialist. If I was a capitalist, which of course I am not, I would be worried about it because it will remove, as it were, competition from the marketplace in the type of things that these capitalist folk talk about with such gusto. A spot of competition for the cartels might not be out of place if we were looking at things from that type of perspective.
The State has a relatively modest presence in the marketplace. We understand that the lads from Irish Life have been to see the auctioneers; it has not been advertised in the papers yet but we are told that its sale is in the pipeline. Other than that the State has a relatively small presence in the banking sector. There is the ACC, the ICC and there are these banks, but other than that I am not aware of any banking service. In many ways, for the average punter as it were, the Trustee Savings Banks might provide the only State banks they can deal with.
I welcome the opportunity to contribute to the Trustee Savings Banks Bill, 1989. The purpose of the Bill is to extend the range of services provided by the Trustee Savings Banks. This Bill allows the Trustee Savings Banks to provided a full range of banking services provided they obtain the consent of the Central Bank. The Bill also allows the Trustee Savings Banks to convert from trustee to company status. In general, the provisions of the Bill must be welcomed as it is another step towards a level playing field of the Irish financial services industry.
This is an important Bill. It provides for a very comprehensive revision of the legislation governing the status and operations of the Trustee Savings Banks. This legislation goes back to 1863 and there have been some amending provisions during the years in between. The essential requirements of that Bill have largely remained unchanged. This legislation served its purpose well when the Trustee Savings Banks were simply savings institutions. In present conditions, and in particular with the advances in banking in more recent times, the legislation is no longer adequate. It restricts the ability of the Trustee Savings Banks to realise their proper potential and to compete as they should in present-day banking.
The Trustee Savings Banks at the moment are obliged to work under the outdated legislation I have mentioned, which has restricted them in providing a modern banking service and in so doing compete with the tremendous competition which is there today. They have been restricted over the years. The main restriction, of course, is the fact that 80 per cent of all moneys they hold on deposit could not be recycled or reloaned for the normal banking facilities such as mortgage finance, bridging finance or personal loans. This type of business was confined to the 20 per cent of the deposits taken in by the Trustee Savings Banks and it put them at a disadvantage with the commercial banks.
I would like to congratulate the Trustee Savings Banks on the way they have operated. I have seen it in my own home town of Tralee where they have progressed over a period of ten years from a small outlet to a most modern and efficient banking institution, a feature of which are the extended trading hours which greatly facilitate working people. They have a long tradition of excellent service to the people of this country and have encouraged small depositors to become thrifty.
This Bill is long overdue. It will give the Trustee Savings Banks an equal standing with the commercial banks and will assist them to compete with the other banking institutions. In such circumstances they will do well, as they are accepted as being most reliable. As I have said already, the Trustee Savings Banks have extended the working hours, catered for the small investor and they have encouraged them to become thrifty. It is a well known fact that they have been responsible for setting up many saving schemes in various factories throughout this country. I have seen that in Tralee where they have something like 13 factories organised in a savings scheme.
I am satisfied that the Trustee Savings Banks will expand their activities under this Bill. Mention was made earlier on about transferring. Provision is made under the Bill to transfer supervision of the Trustee Savings Banks from the Department of Finance to the Central Bank. There is no doubt that banking facilities are essential today; it is no longer a luxury but is now regarded as a very essential service. It is today a must for many people in all walks of life. Many workers have their salaries paid by way of bank transfers and this is very welcome for security reasons. This puts a lot of pressure on the banks and they are responding to the demand.
The priority at this time is to encourage and enable the Trustee Savings Banks to provide a wider range of services. None of us can say what direction they may take in the longer term, but the concern of all of us should be that they should grow and prosper and the Bill is facilitating that. Whatever direction they may decide to take in the future, the Trustee Savings Banks are guaranteed success.
The Minister for Finance of the day will have the power and responsibility to protect the public interest. That is very important. The financial sector has been going through a period of great change and I am satisfied that the Trustee Savings Banks will continue to prosper and expand. I wish them every success.
I welcome the thrust of the Bill and, as I say, I would like to compliment the staff of the Trustee Savings Banks who have set a headline for the commercial banks throughout this country.
Tá cuid mhaith go bhféadfaí a rá faoin mBille seo, faoi cad tá ann agus nach bhfuil ann agus ba chóir a bheith ann. Ach níor mhaith liomsa an oíche go léir a chaitheamh ag caint faoi sin. Caithfear féachaint taobh thiar den Bhille chun na forálacha atá ann a thuisc-int i ndáiríre: caithfear, cuir i gcás, féachaint ar an chóras baincéireachta agus an tslí in a bhfuil sé eagraithe.
I have made a point in recent months of speaking in this House as frequently as I can in our first language in order to emphasise again and again the fact that that guarantees, for those people who have not had the good fortune that I have had to develop a good competence in the Irish language, that they are excluded from our debates because of the fact that this House does not have the basic provision of a simultaneous translation service. I intend to continue to do so to indicate my continuing disapproval of that fact. It is the only way I know to create an increasing demand for it.
This Bill is interesting for a number of reasons. It is interesting because on the one hand it does something we all know should have been done a long time ago, which is to upgrade the range of services that a very interesting part of our banking services are going to be allowed to provide. We need not go into the precise technical details because nobody, I think, disagrees with that but it is interesting that it took so long to do it. One could wonder why. Is it because of the lobbying of the duopoly we have, which effectively controls Irish banking and which may well become something more complex, if some of the rumours about a takeover are to be believed? The duopoly is not particularly keen on competition and has managed to regulate or exclude most competition out of the Irish banking market. They may not be entirely happy with a new agency coming in. The Trustee Savings Banks, to my knowledge, have complained frequently about not being able to be part of the general clearing house service for cheques, which makes their services a little bit more difficult of access.
What is also regrettable in this legislation is that it fails to address the appalling mess that in terms of the consumer is the Irish banking system. I will explain what I mean and then perhaps come back to what could have been done about it. I am going to quote from a few documents. I will give the source of these documents, because they are interesting. It is a fact that in the period up to July of this year Irish banks had experienced the longest continuous downward trend in interest rates that has taken place over the past 20 years. That was, of course, immensely favourable to the banks. The extraordinary fact is that, even though nominal interest rates were dropping, the bank managed remarkably well to sustain that which is of most benefit to them, which is real interest rates — the difference between the interest they charge and the rate of inflation.
They can go on forever giving their explanations. They can go on forever giving their justifications, but, just to quote, at a period last July when we had the fourth lowest inflation rate in the European Community, the real interbank interest rate is almost double the average of the industrialised world, or was then, and it has probably got worse since, because our inflation rate has increased slightly, not enormously but significantly. Our interest rates have added on 1 per cent or 2 per cent since then. It is hard to keep track of the interest rate. The actual real interest rate the banks claim for themselves has actually got better since then.
The source of that piece of information is The Small Firms Association a branch of the CII and I am quoting from a press release of 29 July — I am sorry, this was 1988 not 1989 they were talking about. Interest rates began to climb since then. Is it not time — not in terms of my position on the left, but in terms of the way the market economy is supposed to function — somebody had a good look at these gargantuan institutions that apparently respond in no way that anybody can see that resembles real competition in the marketplace and who have created positions for themselves where they reward themselves with levels of real interest rates that are out of line with the rest of the developed world.
Why is it that a country like ours, relatively underdeveloped, but with a remarkable achievement in terms of our inflation rate, balance of payments and indeed in terms of the control that has been exercised over the problems of the public finances in recent years, should have real interest rates that are well ahead of most of the developed world? Why is it that our real interest rates should be ahead of those of the United Kingdom, for instance, when our balance of payments position is so much better? Why is it that they should be ahead of those in the United States, which has a massive trade problem and a massive public spending problem? Why is it that our banks are so peculiarly cosseted, protected and carefully minded by themselves at our expense that they can actually impose such an alarming degree of extra cost on those who have the misfortune to borrow money from them?
The truth is that our Irish banks produce a sloppy service. Increasingly, as any customer of a bank will tell you, they are under-staffed with the result that queues are getting longer, delays are getting worse, and yet you are being charged more for every service they offer, while the quality of that service deteriorates. They impose a range of charges that nobody short of a good accountant could keep track of anymore. They are probably the only body dealing in the marketplace that does not actually have to give their customers an itemised list of the prices they pay for individual services. They simply stick a little nought onto the end of your account saying "charges as follows". They do not even have to bill you separately for it; they just take it off you. I find this extraordinary that anybody else selling something in the marketplace actually has to provide you with a detailed specific account of why they want that much money from you but these enormous institutions apparently can throw their weight around to the extent that they can do these things to us.
If this was all left-wing rhetoric it would be of no significance, but there is an enormous amount of evidence to sustain it. There is the extraordinary high cost of real interest rates and indeed, as the Small Firms Association have pointed out, the sustaining and indeed in some cases the extending of the real interest rates for borrowers has not been matched by the maintenance of real interest rates for savers. I quote from the same press release:
The high cost of real interest on borrowings is in stark contrast to the slump in real interest earned on deposit accounts which is, in the main, not more than 1 per cent.
What they have done to us is, they have rewarded themselves because of our achievements, by increasing the return to themselves on the money that we deposit by reducing what they pay to those of us who have money to save, while sustaining an absolutely outrageous gap between that and what they charge to those who borrow from them. I do not know who is at fault. I do not know why there is not real price competition but what I do know is that people with a good deal more experience of trying to deal with the banks in a business relationship find our banks extraordinarily unhelpful.
Again, I will refer to a press release by the Small Firms Association, dated 31 August 1989: — I apologise to the House for using only the press release but the Small Firms Association proposed to charge me £30 for the full report and even for the services of the Houses of the Oireachtas apparently they could not make an exception. The CII is well enough off not to be subsidised by me. I will confine myself to what they identify as being the major points in the report. The Minister should demand from the banks a public, detailed explanation of each of these points not because of any political axe I have to grind but because this is a view of many of the people whom we expect to contribute most to the development of this country.
We will hear endless speeches in this House and in the other House about certain issues that are regarded as deterrents to enterprise. We will hear a great deal about the allegedly deterrent nature of some of our taxation. We will hear a great deal about employers' PRSI. We will hear a great deal about what are regarded sometimes as excessive regulations. Why do we not hear about the fundamental problem that the Small Firms Association have identified, which is the quality and cost of the money that they need to make their businesses run? I will refer to what the Small Firms Association identify as the problem.
The first problem that they describe — and they say it is on page 27 of their report — is the absence of any price competition between banks, a situation which is unique, they say, within the OECD countries. Would those who espouse the market economy in this House, and in the other House, who have lectured us ad nauseam on the value of competition, explain to me how we can ever have a vibrant, dynamic economy if our major banks cannot be induced to enter the marketplace and compete, if they are actually what appears to be a cosy duopoly determined to protect themselves. I, as a consumer, am aware that in terms of the provision of credit cards, with one notable exception, all of the banks charge interest rates to credit card users that are higher than those charged in the United Kingdom, where interest rates are 3 or 4 per cent higher. That is only one example.
The Small Firms Association assert, and it is an assertion made with the full weight of the Confederation of Irish Industry behind it, that there is no price competition between Irish banks. Can you imagine if the banks were State-owned what would be said about the fact that there was no price competition? The fact that they were able to avoid price competition would be identified as a guarantee of inefficiency, of a guarantee of a lack of any concern for the consumer. Whatever sort of regulatory mechanisms we have, it is quite clear that they are working, not to the advantage of any consumer, but to the advantage of the banks and to those who have the good fortune to own large stockholdings in the banks. To see the banks in that sort of position, where they control almost all of the credit available in the country, or a large part of it, and do it without any price competition, then claiming some credit for expanding profits, is in fact the worst of both worlds. What you have is a private sector effective monopoly ripping off our people without any element of competition within it.
It is about time that that particular cudgel was taken up, not by the likes of myself, who has a profound distaste for everything the banks stand for, but by those who believe in the market economy, who believe in competition, who believe in all of that and in particular advocate of competition and the Government who have done a lot because they believe it is a good thing to extend competition. To have a major source of development, the small indigenous firms saying that our banks do not bother to compete on price is, as far as I am concerned, a fundamental obstacle to development and one that needs to be dealt with and disposed of.
Their second criticism — and this is one I know is close to the heart of the Minister for Finance — is an excessive emphasis on collateral as the basis for loan approval. Firms with borrowings of £50,000 or less were eight times more likely to have provided collateral three or more times the size of the loan than larger firms". What does that mean? It means that small firms have to produce collateral three or four times the value of the borrowings and with a frequency eight times greater than that of large firms. What in heaven's name are they at?
The idea of lending money with interest is that you charge interest to recognise the fact that you are sharing a risk. There is supposed to be some risk involved in bank lending. There is supposed to be some skill involved in assessing the risk involved in bank lending. This is what financial whizz-kids get paid enormous salaries for, the skill involved in the assessment of risk that lies behind the judgement of who to lend money to and who not to lend to. We all know, of course, that notwithstanding the "tut-tutting" and the occasional letters, the banks are far happier and are delighted to be lending money to people with substantial salaries, particularly those in the public sector who are unlikely to be made redundant. No matter how much they "tut-tut", that is risk-free lending on which they are allowed to charge the highest level of interest. Who could blame them if they are not regulated and forced into a competitive position where they could not do things like that and where they actually have to do what they are supposed to do, which is to go out into the market-place, look at a variety of possible ventures which are potentially profitable and do an intelligent risk-assessment of which of those is liable to be successful? Other agencies have to do it without anything like the same guarantees. The IDA have to do it in terms of the potential viability of small firms. They cannot look for collateral before they undertake to fund a small firm. They can look for participation by the small firm but they cannot look for collateral of the order that the Small Firms Association quote — three or four times the value of the loan in collateral, three or four times secured in collateral.
How can the country develop if the major sources of funding, the banks, are operating with some sort of pre-19th century idea of what is a reasonable risk? They should either get out of the market-place and let other people in, perhaps even European banks, who perhaps have a better idea of what risk-taking is about and a greater capacity and competence to assess risk, or will they employ people who can actually do what they should be doing, which is, making professional, commercial judgments about a variety of commercial propositions and adjudicating on which ones are real commercial propositions and taking a risk, with the sums of money that are involved? That is what they are supposed to be good at. That is what they get paid for. That is why they earn large profits. That is the theory. The practice is, of course, that they have a cosy duopoly in which they can charge exorbitant rates, devalue their service by getting rid of large numbers of their employees and, in the process, make a fortune at our expense, at the country's expense and, indeed, at the expense of our economic development.
The third question about the banks that the Small Firms Association would like us to address is what they describe as "a heavy cost burden of additional bank charges and increase in unit fees charged". Since 1984, no fewer than 20 additional bank charges have been introduced. No explanation is proffered to the client firm; bank charges arbitrarily appear as a debit on the quarterly bank statement. What other body dealing with customers could get away with extracting money from them without bothering to tell them the reason? What sort of almighty right do these institutions have to treat anybody like that? What almighty right do they have to treat customers like that? They are selling something which is credit to somebody else and they have the same obligations. It seems to me we could do with amendments to the consumer protection legislation to require the banks to provide the same sort of information about the charges they impose and the reason for them as are required in other areas.
The banks have still a long way to go before they regard people as customers to whom they are obliged rather than as clients who are obliged to them. It is about time this was emphasised over and over again to the banks by public figures that the people they deal with are their customers and the line of obligation is from the providing agency to the customer and not the other way around. If I am a small shopkeeper in my area of Cork city, I am obliged to my customers. I am providing a service for my customers and I have reason to be grateful to my customers for coming to me. The banks have managed to create an entirely opposite climate of feeling, where you feel that they are the ones who are doing you a favour and you have reason to be grateful to them. It is about time the relationship was reversed whatever about the private domestic consumer in terms of their alleged contribution to economic development which must be close to zero in terms of what has been said about them by the Small Firms Association.
The Small Firms Association have more to say about the banks. They point up something that has been pointed up before: the short-term nature of most loans. From the evidence in their report "long term" is defined by Irish banks as five to seven years. Are they not great? Are they not really fantastic? We are trying to build up large-scale indigenous enterprises capable of competing in the European market-place and we will as long as they can pay back all their borrowings in five to seven years. Are they not great? This is with large-scale collateral, perhaps four times the value of the loan; this with the highest real interest rates in the EC and with the worst record of non-price competition in the entire OECD and, on top of that, they define "long term" as five to seven years. In the United Kingdom "long term" is defined as eight to 15 years and even this is considered restrictive by UK firms. I have read reports in some of the British newspapers which suggest that the British banks are quite conservative by the standards of many European banks in terms of what they define as "long term".
Who is going to tell these magnificant champions of private enterprise that they have got it all wrong in terms even of their own area of expertise, which is, the market-place? Let us not forget that it was in the middle of the seventies that they had to be dragged, screaming, by the State into the house mortgage business. They said it was not an area they were traditionally involved in and they reluctantly and with great protest agreed to allocate small sums of money into the mortgage business. They now cannot be got out of it because they are making a fortune out of it. There are lots of other areas where it seems to me that somebody is going to have to drag the Irish banking system screaming into the real market-place. If they want the rewards of the market-place they have to put up with the rigours and disciplines of the market-place, which most manifestly they are not doing.
Another criticism by the Small Firms Association, which could be applied to virtually every institution in this country, is centralisation of decision-making within the banks. The Small Firms Association have the same problem the rest of us have with a country that is run in a rigidly Stalinist fashion by the Department of Finance who claim to control everything in this country directly or indirectly. The banks are modelling themselves on our Stalinist system of bureaucracy and controlling everything from the centre as well. I am not sure whether we will have to take the methods of our brothers in Eastern Europe to end the sort of centralisation we have but something is badly needed to end the Stalinist bureaucracy which seems to run every institution and agency in this country from the centre.
The absence of any real difference between the banks in the area of costs, services and financial packages available to their small business clients has a consequence that fewer than 19 per cent of firms have changed their principal banks in the last five years. Where firms have changed, it was usually for negative reasons. In other words, only one in five of small firms has changed banks and most have changed, not because another bank offered them a better deal, but because they got fed up of the bank they were with for one reason or another. What a record. What a record from people who spend a fortune on advertising telling us about how much they are on our side, how much they want to do for us. The one thing they will not do for us is give us a fair deal at a fair price with real competition.
If I had said all that without the evidence in front of me, I would be accused of being a nasty, dangerous lefty, bashing the banks. I am simply, therefore, putting on the record what has been said by the people who, in my view, are closest to real market economics, small firms who do not have any of the strength of a semi-monopoly or a large company, who have to compete very often with other firms doing the same thing in a difficult market-place, who are trying perhaps to establish a niche for themselves outside the country and who are strangled by an Irish banking system which is hopelessly inadequate in terms of competition, price, charges, etc.
One could go on forever: the extraordinary technological ineptitude which has equipped many a small town in Ireland with two automatice teller machines because they could not get around to sorting out their technology before they put them in, so that small towns of 4,000 or 5,000 people now have two machines, when cities the size of Cork perhaps have 20, and all because two banks could not talk to each other about whether they could put together communicating technology so that all the machines can work. Now there is duplication of investment in these machines and other areas hopelessly underserviced by them. One could go on forever about the extraordinary things.
That is the state of banking and there is, unfortunately, not much in this legislation to give one hope for change. We could be talking about turning this into an independent banking system and leaving it like that, perhaps turning it into a co-operative banking system like the system that has been set up by the Mindragon Co-operative in the north of Spain, which is a remarkably successful co-operative bank, and has funded industrial development which has produced 20,000 jobs in worker-owned co-operatives in the Basque country in the north of Spain. We could talk about all that sort of thing but instead, what have we? We have the altogether to be welcomed provisions to let the Trustee Savings Banks do all the things they should have been allowed to do 20 years ago. That is fair enough. We also have section 57, which is designed to, as quickly as possible I suspect, consign the Trustee Savings Banks into an identical position with the other banks. Once they become a plc, one of the major banks or a European bank will surely swallow them up and any element of competition will be gone.
The fundamental problem with Irish banking today is the absence of competition. They can go on forever about competition but I will believe there is competition when I see price competition. There is no other kind of competition. I am by no means an unqualified admirer of competition. There are huge areas of life where the index of competition can be a disaster but one area where it would be most beneficial and most welcome would be in the provision of financial services. In a couple of areas we have seen it work. Those of us who had the misfortune to look for loans from building societies ten years ago, when you almost had to crawl in and genuflect in front of the manager before he would even talk to you, will realise that the banks in entering the mortgage market have stimulated a response of at least quality of customer service in the building societies so that you do not believe you need to say three decades of the Rosary and pray for a miracle before you will get a mortgage any more.
Not interest rates.
But they have managed to do it — as Senator Norris quite rightly said — without the one real index of competition, without price competition. There is a fundamental need in this country not to create yet another private bank, which is what the Trustee Savings Banks are liable to become. That is a great pity as this Bill, without section 57, would have a lot to recommend it because we could allow the Trustee Savings Banks to develop in their own way. They could become a co-operative bank; they could be encouraged to become a co-operative bank. They could even become, God forbid, a State owned bank, and a State-owned bank which might be able to expose many of the extraordinary cartel arrangements that the Associated Banks seem to have or the extraordinary inefficiencies, or the extraordinarily conservative lending policies that they have. Instead, we will have a small, vulnerable bank, privatised, wide open to predatory take-overs by either a foreign bank or one of the major banks at a price which would hardly put a pin-prick in the profits of one of the two big banks, given their monopoly situation and their ability effectively to write their own profit cheques every year and we will get nothing of any benefit from it.
What has been essentially a small person's bank, set up to provide some sort of security for the savings of small people, will become just another little bit of two big, increasingly depersonalised, increasingly anti-customer, increasingly expensive and increasingly inefficient, so-called lending agencies.
It is high time that we had a fundamental reappraisal of the quality of banking in this country. People in certain areas of life have had to carry all sorts of burdens over the last seven or eight years. The workforce have been asked to, and have accepted, extraordinary restraint in wages. The community at large have accepted extraordinary restraint in public expenditure with great difficulty and pain to themselves, but they have accepted it. Our banks have accepted nothing except our money in increasing amounts. Many other areas of Irish life, the public sector, many areas of the private industrial sector, many areas of other private services and so on, have had to adjust to the fact that this is a new and different world and it is about time our banks were made to become part of this new and different world. That could have been done by allowing the Trustee Savings Banks to continue to develop and expand.
I do not believe that section 57 was inserted in this Bill in case at some time in the future the Minister might want to turn them into companies. Nobody drafts legislation like that. The parliamentary draftsmen did not think that up because they thought it was a good idea. They inserted that section because the Minister and the Department of Finance asked them to insert it. They inserted it in the form it is in because the Minister and the Department of Finance asked them to insert it in that form and it is there because somebody somewhere wants to do something with it.
Incidentally, there is a peculiarity about selling off the shares in a bank that the Government arguably do not own and the State reaping the benefits. There was a long dispute about this in Britain but they do not have the benefit of a written Constitution and, essentially, governments can do what they like in the United Kingdom. We have a Constitution and it may turn out to be a problem if the Minister decides to sell of the Trustee Savings Banks when he turns them into a company and claims that he owns the shares. There may be problems about whether that is right, fair or constitutional, or whether it amounts to something close to expropriation. I will be interested to see what will happen.
Senator O'Toole talked, quite rightly, about the sloppiness of the Minister — because the Minister is responsible, the parliamentary draftsman can only do what he tells him to do — and of successive Government Ministers in introducing legislation with catch-all provision for regulations which effectively say that in case they make any mistakes they want to be given a blank cheque for the next three years to re-write anything about the Bill which does not work the way they want it to work. That is what section 5 is about. It is not sinister, it is just sloppy. It is not sinister in the sense that they have any hidden agenda, it is just sloppy thinking, sloppy language, sloppy drafting, sloppy legislation and gross contempt of Parliament and it should not be in legislation. The part which says
If, in any respect, any difficulty arises in bringing any provision of this Act into operation or in relation to the operation of any such provision, the Minister may, by regulations, do anything which appears to him to be necessary or expedient for removing that difficulty, for bringing that provision into operation or for securing or facilitating its operation and any such regulations may modify any provision of the Act in so far as may be necessary or expedient for carrying such provision into effect for the purposes aforesaid. Imagine what would happen if the present government in Czechoslovakia tried to write that into legislation — that anything that did not work the Government could re-write to make it work the way they wanted it to work. It is such incredible, sloppy draftsmanship that it defies adequate description by myself.
There is no point in saying that these regulations can be over-ruled by the Oireachtas. In an Oireachtas where the governing party have a majority in both Houses, that is unlikely to happen unless the Minister decides to nationalise AIB using the provisions of this Bill, which is unlikely. The parliamentary scrutiny, given that the regulations are not regulations which have to be considered, is very limited. It is extraordinary that one can stick into legislation a section such as that which effectively says, "We have done our best but there may be loads of mistakes in it which we did not think about, but we did not get around to working them out. So, we are going to give ourselves the power to change anything that we want to because it does not work the way we want it to work". Each year, before we go through any legislation we should pass a resolution saying that we are passing this legislation but we are going to give every Minister the right to amend any part of it in the next three years in case he may find any mistakes which we did not think about.
What sort of a country are we? We are supposed to be a country of laws, not a country run by people or governments but a country that is ruled by law. We are devaluing the law and increasing the influence of an individual to change the law because he does not like the way it works. In many ways this Bill would nearly deserve to be opposed because of section 5 alone but section 5 and section 57, together, make the Bill extremely unacceptable because we are simply going to prevent from competing the one area of banking which might have tried to compete if it was let, which might have tried to undermine the extraordinary cartel which has crucified many a private borrower and, indeed, most small firms, which might have tried to introduce that awful thing which solicitors, doctors barristers and none of the professions like, which is price competition. It is good for everybody else but not for anybody important in our society and not for the banks, big companies, big professionals but it is good for the small man; it is good for small businesses but big businesses manage to avoid it. The one possible agency which could have done this would have been the Trustee Savings Banks. I am not saying that they would, or that they would be let, because I believe that the Central Bank have a hand in these extraordinarily conservative practices. The Trustee Savings Bank is obviously being set up, as Senator Upton said, the auctioneer is being called in to get a price and it is going to be sold off shortly, along with Irish Life, to the highest bidder.
In conclusion, in relation to privatisation, the best study of privatisation that has been done has been done by a private consultancy firm and they have said that if the State sells off any asset at the proper price it is of no financial benefit to the State because the proper price is the price which reflects profitability if it is going to be profitable. Do not tell me that privatising a bank will make it more efficient, because the record of the two big, entirely privatised Irish banks is the finest evidence one can have that privatising a large institution will not make it one bit more efficient but will probably do quite the opposite. It is a pity that what would otherwise have been a fine piece of legislation has been devalued by the sloppiness of section 5 and the extraordinary promise of a total transformation and elimination of Trustee Savings Banks that is contained in section 57.
Debate adjourned.