There will be 20 minutes per speaker.
Banking Industry: Statements.
Once again we have an opportunity to discuss the banking system and related matters. I hope that this debate will be a sharing of ideas and a useful vehicle for providing personal and constituency insights and commenting on various aspects of the banking system. I hope the debate will be constructive.
I am sure that banks, no more than any other institution, are not beyond criticism and I hope that such criticism will be accepted. When the Minister replies I hope he will refer to the points raised and I am sure the banks will take note of them also.
There is no doubt that banks are an important element in the economy because of the employment they generate and the central part they play in the economic life of the country. They have gone through change in recent times. There has been a shake up in the position of banks in relation to building societies and this has resulted in competition. One area where the banks have done a lot of good is in making faster decisions on mortgages. I remember a time when one would have to put money on deposit with a building society for a period before they would even consider sanctioning a loan. Now, however, after stating one's financial position a swift decision will be made.
But how consumer friendly are the banks and what improvements can be made? We are all aware that there have been complaints by small and medium sized businesses trying to secure finance to set up or expand. Some directors have to put everything — from their house to the children's toys — up as security for a loan. Such decisions could be handled in a better way.
Part of the problem is that the old style manager system is no longer there. Now a bank manger will interview someone who is seeking a loan and after discussing the idea he will refer the final decision to a higher authority. Unfortunately, in many cases the decision makers do not get to talk to the loan applicant and, unlike the local manager, do not know them personally. Thus applicants may not be able to put their case adequately, even though the manager may have been sympathetic. Therefore, when the figures come up, the lending institution will suddenly say: "No thanks, we do not want you."
The business and recruitment supplement in today's Irish Independent carries a headline “Banks still fob off small firms” referring to a claim by ISME, the Irish Small and Medium Enterprises Association. The article states:
"Clearly, the differential is unjustifiable as the banks are secured against risk," ISME said. The survey, which was sent out to 563 firms and had a 33 per cent response rate, showed that the bulk of respondents rated loan negotiations as either "difficult" or "very complicated".
Small or medium sized firms do not necessarily have financial managers and depend on their accountants and lawyers to back up a claim, so the best case may not have been put forward. There seems to be quite a difference between lending rates charged to small businesses and those charged to larger ones, who sometimes seem able to write their own rules when it comes to dealing with the banks. While banks should not for one minute begin throwing out money, one does hear about the great difficulty and inconvenience people encounter when trying to obtain finance, even with having to pledge their houses or other possessions. This is an area that the Minister and the banks should examine.
The Government has responded by providing extra money aimed at young entrepreneurs wishing to start up their own businesses. They may have good ideas. We should be backing them to create small enterprises, employing up to 15 people, rather than putting State money into conglomerates in an attempt to create hundreds of jobs, because we have seen the unfortunate consequences of that in some cases.
Interest rate fluctuations must also be investigated, along with how the banks deal with them. Banks are quite slow in passing on the benefits, but they are ultra quick in passing on the bad news. While banks operate in the commercial world, greater competition has been noticeable. Recently, when there was a half per cent rise in interest rates, some banks said they would wait and see before rushing to pass the rise on to their customers immediately. They must be commended for that.
Banks have changed their modus operandi and that is a welcome move. The outdated system whereby banks closed for an hour at lunchtime and closed for the day at 3 o'clock is a thing of the past. Today banks have to tailor services to their customers' needs. When people are available for work, why should banks not work the same hours as the rest of us? Starting at 10 o'clock in the morning is not that early, but at least the later closing times mean that people can get to see bank staff.
We must also examine how banks deal with their competitors. Competition between banks and building societies is increasing, with banks providing mortgage services and the building societies, in turn, providing cheque books and other banking services.
Some banks must be complimented for their charge policy on credit cards — the "plastic money", as we call it. No one really knows what the charges are, because while some people pay their credit card bills in full, others pay off some now and the rest later. At times, however, bank customers pay through the nose.
The banks must become more competitive, instead of trying to cream off vast profits all the time. In recent times the banks have done very well, making large profits and paying high salaries to some of their top people, some of whom may have very great ability. For most of us, though, some of these salaries could be compared to a Lotto win. Without begrudging the salaries to those involved, one has to say that if they are receiving such sums while other aspects of the banking business are not right, then something must be wrong.
Are banks trying to cut down too much on staff numbers? There seems to be evidence that banks want to shed people from the system. I would hope that at the end of the day there will still be enough people working there to make customers feel that they count for something instead of having to talk to a hole in the wall all the time. A bank often tries to sell you more than a banking service. Most of them are moving into the competitive and lucrative sectors of life and mortgage protection, pensions, etc. Banks want to tie up all one's money so they can dictate how to manage it.
It is important that we are still able to get independent advice from other quarters rather than allowing the bank to sign us up for various other services. This is not to say their products are not good but people are sometimes put under pressure, for example, a customer may only be approved for a loan if he also takes life cover or a pension, which may not suit him. This area must be examined.
The State banks have often done good work. The ACC has branched out into new areas. It is active in the mortgage market and is getting away from its image as the traditional agricultural bank.
I hope this debate proves useful. Many points can be made and if we are critical of some aspects we should not be seen as bank-bashing. Undoubtedly the banks have a pivotal role to play but in certain areas they can do more. They must look after their investors but there is scope for improvement in their operations. Accounts are being closed because a person owes £30; if people run into slight difficulties they should be properly dealt with and informed about decisions. Banks love a customer when things are going well but as soon as a problem arises the person is only a number, the bank calls in the account and protects its investment. A happy medium can be found in these cases.
I hope we have a balanced debate and look at the issues involved. Perhaps ideas will emerge which the banks or the Minister may take on board. Bank charges must also be examined. How are they arrived at and why is there a charge for certain items? This is another area where a balance can be struck. We have a good banking system but there is room for improvement and I hope this debate will contribute to that. I thank the Leader for arranging the debate. We had a debate on the same topic a number of years ago and some things have changed since.
Like Senator Cosgrave I thank the Leader for arranging this debate. It is some years since we dealt with this topic and on that occasion the banks took on board a number of the points raised. We were given information as a result of that debate which saved me 1 per cent on my borrowings at that time. If on this occasion a similar accommodation can be made, this debate will have been not alone essential but opportune.
The banking system in Ireland, like many other institutions, has changed dramatically over the last number of years. When I was growing up the Bank of Ireland did not have managers but agents. The people in charge of branches of the Provincial Bank, the Ulster Bank and the Munster and Leinster Bank were called managers. The Munster and Leinster Bank was known as the farmers' bank; the Provincial was the Protestant bank; the Bank of Ireland was a catch-all bank; the Hibernian, having been founded by Daniel O'Connell, was considered a national bank and the business of the Ulster Bank was mixed between Protestant and business clients.
Amalgamations took place during the 1970s when AIB and the Bank of Ireland became the dominant forces. Many of the smaller banks were drawn into their area of influence and the human touch disappeared. The agent of the Bank of Ireland or the manager of the Provincial Bank or the Hibernian Bank was a man of influence in his town, just as the parish priest or the minister was. Now no one knows the bank manager.
As Senator Cosgrave said, one deals with faceless people. The customer is told there has been a communication from the head or regional office but is never told who is the regional manager or who is dealing with his account. If a person asks he is told it is not his business but that the bank has had a communication about his account.
Every business or person in Ireland has a second partner in the shape of a bank. In many cases the partnership is like a marriage, with ups and downs but, unfortunately, there is no way the bank will be sympathetic to the problems in a business arrangement.
We may have a good or a bad banking system but banks take more from individuals and businesses in Ireland than in any other country. Their profit margins per pound invested are the highest in the world. The banks claim they need these profit margins to operate, and perhaps they do. As the managing director of Packard Electric said this morning, a company is in business to make money and if it does not it closes. However Irish banks make money at a higher level than anywhere else.
Senator Cosgrave mentioned the salaries and remuneration of the governors and directors of banks. Undoubtedly these are too high by comparison with salary levels in Ireland. The only difficulty I have with banks paying these people huge salaries is that they dictate the salaries they receive. When that is the case, and when the salaries are many times higher than the salaries of the highest paid in other sectors, it is sinful and wrong, especially when one considers people working for the banks who are put to the pin of their collar to pay their interest or monthly repayments.
In essence there is no competition in the sector. The banks are beginning to react to the needs of the marketplace. I am glad Bank of Ireland has begun a programme of a 12 months charge-free capital service to new customers and that an officer will deal with new customers on a one to one basis. I hope the other banks follow that lead because, in the past, banks have given too much money to people who cannot afford to repay. They allow businesses to operate for a short time and then withdraw their support. It would have been better if the bank had initially turned down the offer of new business unless it offered support from the beginning, as the Bank of Ireland is now doing. Support is what many businesses need in the beginning.
There is no reason interest rates should be the same in all the banks, especially for borrowers, as is the case at present. If a change in rates is needed due to international circumstances or a decision of the Central Bank, one bank might change its rates before the others. However, within a week or ten days of a recommendation from the Central Bank all the banks' interest rates will be at the same level. That is not competition.
There is competition in the financial services sector. Bank of Ireland offers building society services, life assurance and other insurance services; AIB has the Ark Life company. In the old days bank managers could sell insurance policies to customers and the income from this insurance business was part of a bank manager's incentives. The banks have now taken that over. They will not allow their staff to sell insurance unless it is the bank's insurance. If a person seeks a loan from a bank in a marginal case, taking out an insurance policy with the bank may swing the decision in their favour. One has no choice: if one seeks a loan and it is offered with a proviso one has to take it. Banks play an important role in society. There should be more competition in the banking system — real competition where banks would have to fight for business.
At present AIB is closing down its managerial structure around the country. The outlying branches have people with responsibility for lending and deposits up to a limit, but the system is geared to a centralised manager. The manager-customer relationship has disappeared entirely. There are now branches of the AIB which have no managers: they have people in charge of certain sectors — staff managers, computer managers or technical managers of accounts. Technical managers of accounts simply look at the accounts under their aegis every day and report to the central computer, which does not know Mick Lanigan from a hole in the head.
In the old days the manager knew the customer. If someone looked for a loan for a JCB, for example, the manager would know what a JCB was or would go to the quarry to see for himself. Nowadays we get computer profiles which do not know a JCB or a Hino from a hole in the head. In many cases people who retired from the banks at 50 years of age are being brought back as consultants because they know how to develop personal relationships with the customers.
This point has been proved in Great Britain where, over a five year period, one of the bigger banks let go 50,000 older people from senior and middle management positions. The bank's profits started to decline because the younger people had the expertise and technical knowledge but did not have a personal relationship with the customers. The people who were let go are now being brought back because banking is a person to person business.
In selling money, or any other service, it is important to know the person to whom one is selling. The computer model will indicate whether a business is likely to work but unless there is a personal relationship between the lender and the borrower or the investor and the institution, the relationship cannot be strong. Like other businesses, banks must be customer friendly. They must realise they have customers.
Computer print outs can be produced at will and it seems that banks will deal with people on a stronger basis if they are good at computers. In the past if a person had a business idea they had assessed and considered viable they went to the bank seeking support and partnership. The partnerships worked and the banks increased their profits year after year. Over the past few years they have decreased their profits and maximised their tax provisions by allowing for bad debt requirements. In many cases what they consider to be bad debts are not because the people who owe most to the banks pay most.
If a person's account is overdrawn beyond an agreed limit the banks charge a fee for each cheque written. However, not only do they charge the fee but, they charge interest on it. If I decided to put a fee on late payments in any business and I started to charge interest on the fee, I am sure it would not be paid and it could possibly be challenged in the courts.
The bank charges are not transparent enough. In business a person gets a list of charges. Charges are supposed to be displayed in the bank and the customers should know what they are. If one went into any bank today it would be hard to find a chart with the charges displayed. In public houses the prices have to be listed and displayed. The Central Bank should examine the question of interest on charges which militate against those in debt. The banking system has done a good job generally but there is no point suggesting it could not be bettered. I understand the need for profit. Anybody who tries to work without profit cannot stay in business. However, the partnership that existed between banks and their customers is disappearing.
The banks could not care less for anybody other than big businesses with large cash flow. Why should a person with a small business be charged more interest than someone with a large business? The logic escapes me. Someone with good cash flow can go into a bank and dictate that they get a triple A rating while someone else might only get a double A rating. Similarly someone with a reasonably big business can get a double A rating rather than a single A rating. People with small businesses do not have the resources to fight the bank to get a better rate of interest.
People with a cash flow surplus which they invest with the bank in the short term benefit from the bank while ordinary customers are milked for charges on overdraft or term loan facilities. Small businesses contribute more to bank profits than anybody else. Generally, Irish businesses are small but they are milked by the banks. Smaller businesses are those with 50 people or fewer working for them and they have contributed more to the banking system in Ireland than those which employ more than 50 people.
I am glad we have had the opportunity to discuss the role of banks in Ireland in a non-confrontational way. They play a vital role in any enterprise and do a reasonably good job. However, they could do a better job if they were more customer oriented and returned to the face to face relationships which existed in the past where customers and their problems were examined before decisions were made. At present the computers dictate what happens and bank officials do not know and sometimes have never met their customers. The computer, the regional manager or the regional sub-director dictates what will happen. This would not be tolerated in any other business. If one does not know one's customers, one does not know whether they should be given credit or where business is going. Unfortunately, at present many of the banks do not know their customers. They have never met them and depend on the regional manager when something goes wrong.
I hope this debate will continue and that somebody in the banking system will listen to it. They listened the last time and set up an interbank information group from which we received literature for about 12 months. As a result of this debate, they might start telling their customers or the legislators what they are doing.
I welcome the opportunity to speak on banking, an important part of our economy and society. When we talk about banking, we often think of the AIB or the Bank of Ireland but there are many other banks including the TSB and Ulster Bank. It is a bad idea to start listing them because one is bound to leave out someone. We could also include the building societies, the State banks, the credit unions and An Post.
Banks are and always have been an integral part of society. They have helped people involved in housing, agriculture, industry, fishing and tourism and provided a wide range of services over the years. Banking has changed quite a lot over a short period. In the 1940s through to the 1960s many people did not bother with banks but kept their money at home and the necessity of getting a loan was often regarded as a sign of failure. People now know that if they have a vibrant business which can be improved through a loan, it is a positive thing.
Banking is about money and profit. I am often dismayed that during a recession those with mortgages or loans are asked to pay more, but at the end of the year we hear of the million pound profits made by the banks. We should examine this carefully and ask that when things are bad for the house buyer and others, the bank should also take a slice of the loss. After all, the banks are surviving on the goodwill of the public.
Banks have always been major employers and this is important in rural areas. However, people in senior positions in the banks are earning salaries which, as one investor commented, are not proper in any banking business. We know of people who are trying to survive on social welfare payments, yet others are earning as much as £190,000 per year. This is offensive.
Senator Lanigan spoke about the role of the bank manager. In years gone by, one was all right if one was friendly with the bank manager but that does not apply today because the manager has to consult the computer to see how the customer rates and how many stars are after his name. Computers and technology have resulted in a serious drop in the number of people employed in the banks but we have to accept this. I remember, as a young boy, watching an assistant bank manager in my own town adding figures on a foolscap page in the evening. He was nearly as fast as the computer, double checked the total and rarely made a mistake. On top of that, he had very neat writing.
Changes in the banking business have resulted in many jobs being lost. Newly recruited employees in that sector should have the same employment conditions as the people who are already there. An increasingly common trend among businesses is to employ new employees on a temporary or trial basis for a few years. Lack of security is not good for jobs in any walk of life, particularly in the banking sector.
In the past, a town might have had three, four or even five branches of different banks. However, rationalisation has led to the same towns now having branches of only the two main banking groups. There has also been a degree of amalgamation in this development. I welcome the idea of a third banking force which would encourage competition in the banking sector.
The banks must play an important role in advising their customers. Often a person who has money to invest is not given the wisest advice by the bank when he or she wishes to open an account. When giving people loans it is extremely important that the bank should act as advisers and tell people about the pitfalls. A young man or woman in employment might figure that they can afford to pay a certain sum of money per week so they decide to buy a car. A car might be important to them as a social symbol as well as being useful for their work. It is only right and proper that the bank official should advise the person that repayments must be made in respect of both principal and interest. The official should also explain that buying a car involves paying for insurance, which is often costly for young people, car tax, petrol and repairs and that account must also be taken of depreciation. It should be explained that these expenses must be paid each year — one cannot simply buy the car and have no other expenses. It is important to get that across to young people so that they do not find themselves having problems with repayments after a year or two. It is also most important that hidden charges associated with loans are explained before people take out such loans. After all, the person is committing a number of years of his or her life to repaying the loan and that will result in a change in their lifestyle.
I realise that the banks must keep up certain standards and that they must keep pace with competition from abroad. If foreign banks can provide more favourable rates or services Irish banks will suffer. We are an island geographically but not economically.
Charges and the variability of charges are important. Senator Lanigan mentioned the display of such charges since there are variations between banks. I have difficulty with the policy of not paying interest on a credit balance in a current account while interest is charged on an overdraft in the same account. That policy should be examined by the major banks. I understand that some of the smaller banks and perhaps one of the building societies pay interest on a credit balance.
Foreign exchange is a serious issue. If a person comes into the country with £100 he or she might lose £5 when changing it while a person leaving the country might also lose £5 on the exchange. That is a gap of £10 when exchanging £100. In view of the present situation of the punt we will lose out when people come from Britain. If we achieve monetary union we will be rid of this problem because there will be a common European currency. That would be a welcome development. It is not right that such profit should be made from people travelling from one country to another, especially people from within the EU who have the right to free travel. There is a high rate for buying the money and a low rate for selling it. A commission is charged on top of that. All of those factors are discouraging to people who wish to travel. It is a means of profiteering from people moving between countries.
The services provided by the banks are very useful. The credit card has got rid of much hassle. It is particularly useful if one is abroad and short of money because one can go to a financial institution or pay one's bills with it. However, people should be warned that if the credit balance is allowed to build up over a period of time they will pay dearly for it.
Insurance is another of the banks' services and one must ask if this is good or bad development. In the past the local insurance agent plied his trade in the locality. At present, if somebody gets a loan from a bank the insurance on the loan is also provided by the bank. Is it wise to monopolise a service in this way and not to give the opportunity to a person who has been selling insurance for many years?
I cannot talk about banking today without mentioning the tremendous work being done in that sector by the credit unions. Forty years ago credit unions were unknown in rural Ireland. Now there is a credit union in most urban centres. The work of credit unions is done by volunteers. The people who man the telephones, who keep and write up the accounts, the manager, the supervisory committees and the credit committees work endless hours to help their local community. Great credit is due to these people. They are of tremendous benefit to the small saver and borrower.
The credit union has done great work in getting people out of the grip of moneylenders. In towns and cities throughout the country moneylenders have profited from people's misfortune. People might need a little money for a First Communion, a Confirmation or an emergency and colossal interest is charged by unscrupulous moneylenders. The moneylenders have been curbed by legislation in recent years and the credit union has also affected them by providing credit at "1 per cent per month on the unpaid balance", as their slogan declares. They have done tremendous work. Many people who have been involved with moneylenders and who have availed of the services of voluntary groups such as the Society of St. Vincent de Paul have been referred to credit unions, who have rescued them from their difficulties.
I must also mention the work of An Post, the local postmaster and his assistants. An Post provides various banking services. The money is readily available to customers, while the handiness of the post office book over the years is well known.
I welcome the opportunity to speak today on banking in Ireland. I hope the points I have made have been listened to and will be put into effect. Banking is an integral part of our society and our economy, as it affects agriculture, industry, fishing, tourism and so on.
The debate today is interesting. Senator Lanigan spoke about the need for more competition and Senator Calnan spoke about the possibility of a third banking force. While there is a vital need for more competition in the banking world, a third banking force created and run by the State is not the way to proceed. The State would be no good at running a bank.
There is always a temptation to bring the State into banking either by nationalising existing banks or by establishing State banks in competition with the private sector. It would be hard to find a single example of either arrangement working well. When banks are nationalised they become less efficient, less effective and begin to lose money. We all criticise the banks for making too much money but none of us want to see the banks lose money. Some years ago when one of our banks was threatened following the failure of ICI, in a panic, the Oireachtas was recalled in the middle of the summer to ensure the banking system was protected.
France is a good example of a country which has nationalised and denationalised banks. The day after President Mitterand has handed over to President Chirac perhaps we are in for more of this activity. However, France has not found that it worked, nor has it benefited the customer. It has ended up costing the French tax payer a packet as the recent example of Credit Lyonnais well demonstrates. We do not want to go down this road.
Establishing a State bank to compete with the commercial banks in a mainly private sector industry, which is what the third banking force is about, is even more problematic. We have all too many examples of how difficult State companies find the task of competing in the open market. We have also had our work cut out dragging companies such as Telecom Éireann, An Post, CIE and Aer Lingus into the real world to compete with the private sector, and we know that the difficulties of achieving this are daunting and in some cases insurmountable.
What is it, therefore, that makes us so confident we could create a State banking force that, overnight, would take on companies such as AIB, the Bank of Ireland, National Irish Bank, Ulster Bank and others on their own ground? What makes us so confident that we could create a dynamic, thrusting, customer driven organisation from a merger of existing State bodies, given that our experience of merging State bodies in the past has, to put it mildly, been mixed?
The real danger inherent in the third banking force idea is that it would end up with all the bad business. This is a crucial point. It would leave the commercial banks to cream off all the profitable business, so a third banking force could have the effect of increasing the profits of the existing banks while at the same time probably putting a burden of losses onto the State and the taxpayer. Surely this cannot be what we want to do?
We must face up to some hard facts. A third banking force would have to be a fully commercial bank, competing for business on equal terms with the existing banks. However, if it was fully commercial it would have to exercise the same credit criteria as operated by the existing banks. Indeed, given its lack of experience it would probably need more stringent criteria than the existing banks, so a fully commercial State owned third banking force would be no soft touch — certainly not for the customers.
By contrast, a third banking force could be established on the basis that it was not fully commercial. This means that the bank would be directed to have looser lending criteria than the other banks. It would be directed to make riskier loans, because this appears to be the consequence of our wish that the other banks be willing to undertake loans which they have rejected up to now. The inevitable consequence of this is that the third banking force would loose money — possibly a mountain of money. However, more importantly, it would attract all the bad risks like flies to a honey pot, and the existing banks, such as AIB and Bank of Ireland, would be delighted because they would now refuse people and business loans all the more readily knowing that there was a State bank of last resort to handle all the rubbish business.
The whole concept of a third banking force run by the State is fundamentally flawed and we should steer clear of it under all conditions. It would end up making things worse, not better. The thought behind the idea is sound, and I compliment Senator Calnan on this. The banking system requires more competition. It is the customer's friend and we should find a way of encouraging it. We are still living with the hangover of the old banking cartel which effectively removed choice from the customers and left too much power in the hands of the banking system and the individual banks. The State should encourage more competition, not by providing competition but by creating the conditions under which it can flourish. The State should, therefore, regulate the banking sector with a broader set of objectives.
At present, regulation is overwhelmingly concerned with ensuring that the banks survive. This is vital, but it is no longer enough. As a banking regulator, the State now needs to keep the balance between the banks and the customers. The State should insist on a set of rules that encourages competition between the banks and discourages and even outlaws practices that covertly stifle competition or make it more difficult.
To cite an example of this, one of the reasons why banks get away with murder is that very few customers exercise their right of choice to leave their bank and go somewhere else because it is extremely messy and troublesome to move an account from one bank to another. A State regulator could set down rules for moving accounts, to which all the banks would be forced to comply by law. These rules would make it very simple to move an account, as they would allow for the automatic transfer of standing orders and so on.
Simple measures such as this are at the heart of creating more competition in the banking system. We do not need a monstrous State edifice that might, and probably would, lose a lot of money and do more harm than good.
We should concentrate our efforts on goading, encouraging and pushing the existing banks — and any new entrants to the banking scene — to behave in a way that is customer driven and at the same time truly competitive.
I thank the Leader of the House for bringing this debate forward because it is badly needed.
There is a great need for another large bank to compete with those who I consider have a monopoly on the financial dealings and runnings of this country. Many banks are now taking a heavy-handed attitude with their customers because they know there are few real competitors in the market.
I can quote a few incidents from my dealings with banks over the last number of years. I know of two people who borrowed £100,000 for their business which was successful for seven years, they paid the bank back £130,000, in monthly repayments of £1,700. However, their business got into financial difficulties and they tried to negotiate with the bank, who had no sympathy for them. They only had three years of their mortgage to pay, but the bank forced them out of business. It did this by getting an order for possession from the High Court. When only £70,000 was left to pay after £130,000 had been paid on an original loan of £100,000, the bank brought in a new figure of £150,000 because of the enormous rate of interest. The bank now claims that these persons owe £280,000 from this original loan, which is unfair and unjust. The bank manager-businessman relationship has vanished from the banking world.
I am quoting this example from my own experience because, with my brother, I was one of the people involved in that deal. However, the bank did not stop there. When the Bank of Ireland reached an overall settlement of £220,000 with me for the entire properties two years ago, it sold one of my premises for £172,000 and then told me that I owed it a further £260,000. Only last week, I was in the Office of the Examiner of the High Court with the Bank of Ireland and it took out an order against me to sell all my properties. It was offered 90 per cent of what it felt it was owed but totally ignored it. This practice is unfair and I am not the only person with whom the banks are taking a high-handed attitude. I know of many people who had to be saved by the credit unions after being ignored by the banks.
I have made many settlements with banks for some of my constituents over the past few years. They made these settlements in good faith but at the same time their names were left in the bad credit list of the bank's computer. When these people sought loans from other institutions, their names came up in red lights. If customers make an overall settlement with a bank or any financial institution in good faith and honour it, they should not be jeopardised or inhibited from starting a new business because they cannot get a loan because they got into financial difficulties a few years ago. At the same time, these banks are writing off enormous debts, often consisting of millions of pounds, for big companies. I know of a bank that wrote off a debt of £40 million for one Irish company.
A great effort is being made by our banks to see which will outshine the other in terms of profit-making. These banks boast about making a 16 per cent increase on last year's profits, but these profits come from the people trying to start a business who are penalised by unfair and unjust interest rates.
Our interest rates, compared to what they were up to 20 years ago, have greatly improved and a businessman might now have some chance of survival. However, only a few years ago banks were charging interest rates of up to 20 per cent. When these banks thought they had a debtor by the collar and would not give them any more money because they thought that business was in trouble, they would advise them to go to one of their subsidiary financial institutions who would charge interest rates of up to 27 per cent. They did this because they wanted to bolster up their subsidiaries and profits, which is neither fair nor honest.
Another Senator mentioned the practices of bank executives. They are directors of many boards, earn up to £500,000 a year and have company cars, but if the man on the street wants to get a loan from these people to start a business or if a person gets into difficulty, these executives will write them off. Their profits come from the people who had to borrow money from, and pay it back to, the banks. Some people survived while others did not.
Things change and matters like shifts in population and areas depleted of business with high unemployment levels should be taken into account by the banks. Somebody may have started a business during the good times, but there could be an economic crash and emigration means that many skilled people are lost to us. Banks never take those matters into account but put customers' accounts into a computer. A person is now just a number. If a person cannot pay, the bank will take their property, put a for sale sign on it and leave the person and their families high and dry.
One cannot even get an opportunity to speak to these people any more. The banks now communicate through a solicitor, the day of bargaining with a bank manager and agreeing to pay back an agreed figure that might be up to three times the amount of the original principal is gone. Now they only want to take the principal and all the interest accumulated and will take everything from the person if it is not paid.
I never borrowed a penny from a bank. A company in which I was involved borrowed the money. They fooled me by making me sign a personal guarantee, a copy of which I have in my possession. I did not realise what I was signing. Then, when they thought they had control of the properties, they got orders for their possession and sale. This is totally unfair, perhaps even unconstitutional. People should be informed of all the pitfalls involved in dealing with banking institutions here. They should be told exactly the implications of what they are doing or signing. If a person is asked to give a personal guarantee, the bank should explain to that person what a personal guarantee means. Does a personal guarantee mean that the bank can take possession of all that person's property and put it up for sale, even if that person tries to reorganise his or her loans and tries to make repayments in good faith?
I am very disappointed with the attitude of the banking institutions. I would understand their position if they had any compassion or if they were not making such large profits. Their one aim is to make a large profit; £1 million a day is a lovely round figure. I have no problem with that, the best of luck to them, but they are making that money from the ordinary person in the street. If a person gets into difficulty the bank should have some compassion. They should speak to these people, compromise and do a deal rather than foreclosing on those in difficulty and ruining them for the rest of their lives.
I know several people who have lost businesses, who want to start again but are unable to do so because the bank will not lend them money. The bank keeps records of people's bad debts and even though these may have been paid off those people are still unfairly precluded from obtaining other loans. A friend of mine, who is a big businessman today got a car loan from a bank many years ago. He found himself in difficulty with it and made a settlement with the bank. When that man applied to another institution for another car loan he was refused because the bank had a record of his previous difficulty. That man went abroad and borrowed money again. He is one of the wealthiest men here today, but he was not given a loan because he defaulted and made a settlement on a small loan for a car which he got 25 years previously.
The day of a person putting a business proposition to the bank and having it examined on its merits has gone. The banks want all sorts of guarantees, they want the deeds of properties lodged with them for "safekeeping". They want the borrower to buy life insurance in case he or she drops dead going out the door, to ensure they are safeguarded. At the same time the banks have in the region of 37 different charges and they should be looked at. The method the banks use to calculate interest should also be examined.
If a mistake is made with a person's account that person can point this out to the manager or the assistant manager and rectified immediately. I wonder how many people go to the trouble of examining their bank statements. It would be interesting to see how the interest rates change when a customer goes one penny beyond the limit of his or her overdraft accommodation and where the extra charges and penalties which are added to the account come from. At the same time the banks want to reduce the number of their staff and close small branches around the country.
The banks are supposed to be concerned about the citizens of this country, yet their workers are paid extremely low wages. They seem to lock their workers into a system. They are given work placing money, bonds and shares around the world at the best interest rates and the banks' new policy seems to be to pay these people very small salaries. This policy should be examined by the State and by the banks. The banks look for many concessions from the State, but the State should examine the banks' financial dealings and exercise more control over them.
I listened with interest to Senator Quinn's speech about State run banks. He felt State run banks would be a bad idea. Everybody cannot agree on everything; a third banking force is badly needed. The State will have to be involved so as to ensure that people who are refused financial assistance by the two big banking forces here are given another chance. While I would not rule out a State input into the bank, a third banking force would have to be viable and make a profit. Profit is the name of the game.
As I said, there is nothing wrong with making a profit, provided customers are not simply ripped off. At the moment the banks are like legalised moneylenders. The interest rates they have charged over the years to people trying to set up small businesses should be compared with the interest rates they pay to those who have money on deposit with them. The banks also start up subsidiaries themselves. They refuse people loans at 10 per cent or 12 per cent and then advise them to apply to other institutions, which they control, where the same loans are approved at 24 per cent or 25 per cent interest. The businessman is expected to run a business, pay taxes and VAT and so on, make a profit and pay the banks these high rates of interest. If a customer defaults in any way, if he or she has a bad run for six or eight months and tries to renegotiate terms with the bank to make the survival of the business easier, he or she will be told that the bank does not want to negotiate, they want to foreclose. I am very disappointed with our banking institutions, particularly with the Bank of Ireland.
I welcome the opportunity to address this issue of banking. Nobody, businessman or private citizen, can survive without having a bank account. Banks are a necessary evil. They have spelt total disaster in some cases but the banking institutions in this State are run as businesses. We can take that as a starting point. A business has to make money if it is to survive. If any of the banking institutions in the State were not making sufficient profit it would not have funds to advance loans. Over the last number of years, especially in the last 12 months, the main banking institutions made a phenomenal amount of money. The large increase in profits comes from ordinary business people using bank accounts on a daily basis. Bank charges are now one of the main income earners for the banking institutions. All the reports from these institutions indicate that the income from charges on the transactions which business people carry out on a daily basis has, over a few years, gone from a very small percentage to almost a third of total income.
They tell us that Ireland has the second lowest banking charges in Europe. However, those charges may be contrasted with the salaries of the heads of banking institutions, the boards of directors, who recently awarded themselves astronomical increases. The ordinary people and business people of County Meath, whom I represent, are very annoyed at this line of action and the salary increases. A similar situation will arise with the building societies going public, where the heads of these institutions will also pay themselves twice, three, four and five times more than the Taoiseach is paid. One must ask if any individual in the State is entitled to those moneys.
The argument will be put forward that the banking institutions provide a very good service for the majority of people and that the only complaints come from those who find themselves in difficulties because a business runs into problems. As a politician, many people have come to me with those problems over the last 20 years and I know of the problems which one faces if a business collapses.
Another aspect of the huge increase in the banks' profits, which is very unfair to their employees, is the new phenomenon of full-time temporary staff who work for nine months and are off for the other three months of the year. As a result, if they bring their P60 to a financial institution it is almost impossible for them to get a mortgage because they do not have a full-time job. As a politician, I have had the job of trying to help people who work under those conditions and agreements to secure loans from the local authority. That is part of the major change which has taken place. Is it any wonder that the banking institutions are making such profits when they have so many full-time temporary workers?
One is no longer known by name in most financial institutions but just as a number, and the computer sends out the letters. Many individuals would have built up a personal relationship with their financial institution and that has gone by the wayside, which is regrettable.
I agree with the previous speaker in regard to personal guarantees, which have caused many ordinary people enormous difficulties. Is it any wonder that, following a discussion on banking on "The Late Late Show" a few weeks ago, a new organisation has been formed to represent those who get into difficulties with financial institutions? Nobody is asking for all bad debts to be written off. However, financial institutions look at people in difficulty in two different ways — God help those who owe £3,000, £5,000 or £15,000 — but those who owe £3 million, £50 million or £300 million will get away with it. At least, that is the perception.
An Leas-Chathaoirleach
The Dáil could even be recalled.
There is no doubt there are double standards in the way in which people are dealt with. That is the biggest, single, annoying aspect of how financial institutions deal with individuals, whether they own a company, a small business, started up on their own or are millionaires five times over. Unfortunately, consistency is not the name of the game — I have dealt with many people over a 20 year period and if there was consistency, salary increases of the magnitude which certain people have awarded themselves could be justified. It is amazing that this is how life has gone in Ireland, and that those who owe millions of pounds are in a far better position to deal with the people at the far side of the table than ordinary individuals who owe a small amount of money.
We all believe that employment and the successful creation of extra jobs will come about only through the small business network. The county enterprise boards and the developments in many of those areas will help to ensure that many people who are currently unemployed, but who have a good idea, can get off the ground. That will only happen and will only be successful in the event of the financial institutions being prepared to take some of the risk which has not been the case up to now.
I hope the Government make a positive decision or produce a White Paper on banking. I would love to have a further discussion on the issue before the Government makes a decision on whether ICC and ACC should be amalgamated, whether An Post's network should be upgraded and used as a banking service or whether the Credit Union organisation should extend its role. The latter provides hundreds of thousands of people with loans and many people would be worse off were it not for the service it provides. There is scope to ensure that when a decision is to be made, all the areas I mentioned will be taken into consideration. The knowledge and experience of individuals, of politicians and institutions who provide services at different levels should be included in a discussion paper so the best decision for the long term banking strategy in the State will be made. That is not too much to ask. If we open up discussion in that way, we will come up with the right decision as to which merger should take place and whether the State should be involved at all in a banking force. I am delighted to have the opportunity to make those few comments.
In any walk of life there is a need for financial institutions. The criteria can be changed somewhat to deal with people in the areas I mentioned. Discussions should have taken place when the banking institutions decided to dispense with many full-time employees and replace them with temporary staff. Temporary staff are ineligible for loans to provide homes for themselves. The financial institutions avoided the responsibility to make funds available to employees by providing only full-time temporary positions. When it happens to be the flavour of the month to employ full-time temporaries, it should not be the practice within organisations that make so much money and are increasing profits on a daily and yearly basis. There is not an institution in the State in which I, on my own or on someone else's behalf, have not sat across the table trying to forward proposals to get a business off the ground or to help a business that may have failed, so I speak with some little authority on these issues.
Outrage was felt in every town and village about the remuneration increases for heads of banking institutions this year. I wonder what effect it had on the morale of the ordinary staff who are full-time temporaries in these institutions but who are not in a position to make their views on it known.
If an organisation, a business or an individual finds itself in difficulty, the first line of action should be to inform the lending institution. They should enter into negotiations with them so that it is not let get out of hand. All those avenues should be followed through. Failure by the banks and lending institutions to respond to correspondence has created quite a substantial number of problems and it would be wrong not to make that point here. The banks have a job to do and in a substantial number of cases — but not in all cases — if the correspondence is kept up and responses and proposals are put forward, some progress can be made. If there is no response, no progress can be made.
I welcome this debate here today. The Minister for Finance should produce a discussion paper on a third banking force so that we can discuss some of the proposals on the table on the TSB, ICC and the ACC, the credit unions and An Post. Many post offices throughout the length and breadth of the country are not being fully utilised. Not doubt there are proposals to close post offices in rural Ireland because they are not being used. They still provide a service and nobody has came up with proposals to increase the number of services post offices can provide in order to make them more viable.
We do not want to see the continuing closure of facilities in rural areas. I would like to see an amalgamation of the facilities there. I could address other areas. We could look at Garda stations and what has happened over the last number of years. According to the powers that be, a better service can be provided by having everyone in one building but the gardaí would be still 20 miles from the action. That never made sense to me. It never will. They can have all the cars and equipment in the world but having gardaí on the ground who know people living in the areas is the only way to ensure we get the type of service required. This is where the State has the opportunity to have an input because it owns, or is involved in leases, in quite a substantial number of premises around the country. However, I have digressed from the subject of banking.
We need to emphasise to the Minister the importance of producing a discussion document so that when we make a decision in this area we do so in the best interest of the people. We should let the financial institutions know that we, as public representatives, are not happy with the number of full-time temporary employees. Those employees are not happy either, but they dare not say anything because they will no longer be members of the organisation concerned. That is how things work. I look forward to what may develop into an interesting debate on banking in the State over the next 12 months.
I decided to speak on this issue because there are a number of matters I would like to highlight. They would not be regarded as high finance but affect working people, old age pensioners and social welfare recipients. In the past week I received complaints from people who get social security payments from Great Britain and who must pay the exorbitant rates banks charge to change their cheques. A social welfare recipient told me he went to the bank last week with a cheque for £98.60 and received £94.26 — the bank charged £4.34 for that transaction. Another person with a cheque for £141 received £135.50 — the bank charged £5.42 for that transaction. A person with a monthly cheque for £394.40 received £377.06 — the bank charged £17.34 to cash that cheque. It is outrageous that people who receive social security pensions from England are treated in this manner by the banks. The Minister of State at the Enterprise and Employment, Deputy Rabbitte, or whichever Minister is responsible for banks, should take up this matter.
We often hear about banks writing off bad debts for large borrowers who are in trouble. I presume they work on the principle that half or perhaps a quarter of a loaf is better than no bread. In the case of small borrowers who are not able to meet their deadlines, banks add on surcharges and other charges. They are not slow about repossessing houses, taking machinery from small business people or taking goods from shops. While banks write off money not repaid by large borrowers, of whom some are chancers and even criminals, they expect others to pay for this in the shape of increased bank charges. If banks did not have to write off such large sums of money, people could get money at more reasonable terms and pay lower charges.
Old age pensioners and others who have money invested in the banks for a rainy day get little interest. The Department of Social Welfare can calculate that investment and this discriminates against these people. They are caught both ways. Although the banks claim to write off bad debts, they are increasing their profits by transferring the cost of doing so to social welfare recipients, small borrowers and others. Credit unions play an important role here and I welcome moves to allow them to engage in more financial activities and to strengthen their position.
Senator Farrelly spoke about banks employing full-time temporary people, but he missed an important point. Banks worked out a system where the Department of Social Welfare would subsidise the wages of employees, which resulted in the last Government regarding unemployment benefit as earned income for tax purposes. If the banks, which are making millions of pounds in profit, could get a direct subsidy from the Department of Social Welfare to subsidise their employees, other companies could do so also. This is getting out of hand and I have no doubt that the banks are to blame.
Those canvassing and knocking on doors in November 1992 will remember people telling them about their mortgage interest rates which increased to more than 20 per cent. I saw bank statements of people who had borrowed money on a short term basis in May at a rate of 15 per cent but which had increased to 21 per cent in November. Since then interest rates have been reduced to below 10 per cent. Although I am not well up in high finance, perhaps the combination of a threat of a third banking force or the fact that the Labour Party in Government would not allow them ride roughshod over the people caused this.
I welcome this topical debate on banks. I have had a great relationship with and I have no complaints about banks. However, I have seen a change in the banking system over the years. I remember an occasion when I went to a bank manager to borrow money. He asked me when the auction was and then told me to bid to a certain price. I have always said that was the deal which made me. I am not afraid to admit that I started off on £1 4s 8d per day in my first job sitting on the side of the road breaking stones. Were it not for banks I would not have gone into business. Those were the days when it was all right to telephone the bank manger to request an overdraft for a week. One established trust and a line of communication with the bank manager.
Computerisation and amalgamation have been the curse of this country and caused the unemployment level we have today. Amalgamation made everything more impersonal. When one goes into a bank today one does not know the bank manager. I pity bank managers because they are being watched by Big Brother — the computer. I know a decent bank manager who gave a short term loan which was repaid, but he was sacked because he did not go through the proper channels.
The human touch is gone and this is not the fault of the staff or the bank manager, who are decent people. They are now controlled by whizz kids at the top who are more interested in profit and big salaries. We usually blame those we deal with in the banks, those at the coalface — to use a hackneyed phrase. These are decent people, but their hands are tied; they do not have the control they used to have.
People are now employed on a temporary and part-time basis. A county council in my part of the country employed full-time temporary and permanent people. At a meeting of that council the county manager was asked why the full-time temporary staff could not be made permanent. During his explanation, a councillor, who was drunk, told the county manager that he was failing in his efforts and that he would give the explanation. He said he was drunk, which was a temporary condition, but that the councillor who had asked the question was stupid and that was permanent.
Such employment has got out of hand because we introduced EU regulations. If a person is in a job for a specific length of time, for example six or nine months, they must be made permanent. However, employers have got around this. For example, no one is being kept in the health boards and county councils; they are being let go after a few months. The Government should examine this. At one time people who started in part-time work eventually became permanent; this option is no longer available and that should be remedied.
We should have included the insurance industry in this debate because most banks are agents for insurance companies. Many insurance companies are unjust. For example, if a young person in rural Ireland gets a job and wants to insure their car because they cannot go to work without one, they will be unable to accept the job because the price quoted for insurance will be too high. One must have insurance. The Minister should introduce legislation so that people can get insurance at a reasonable price until such time as they cost the insurance company.
The same applies to drunken driving. If someone who has never been involved in an accident or cost an insurance company a penny, is stopped at a checkpoint for drunken driving and tries to reinsure their car after 12 months, they will be charged a 200 per cent loading fee. That is unfair and unjust. That person may have been driving for 20 years and never had a claim, but because they were slightly over the limit when driving home from a function they will not only be penalised by the State but also by private insurance companies. It is time to introduce legislation in this regard. Private companies should not have a right to use law in this way. If someone cannot get insurance he will not be allowed drive. I reiterate that we should include the insurance industry in this discussion.
We may have a discussion on the insurance industry at a later date.
I want a debate on this subject and the Minister must be present.
That will be done.
A law must be passed in this regard. If someone pays the State's penalty, private companies should not also penalise them. One can appeal a case to the Circuit Court, but if someone is stopped for drunken driving——
Acting Chairman
We are discussing banking.
Banks are agents for insurance companies.
I am glad I no longer have to borrow from the banks, although I thank them for keeping me in business for many years until I was able to stand on my own feet. Banking has changed completely. Mar adeir an sean fhocal: "Is deacar damhsa nua a mhúineadh do shean-madra"; "it is hard to teach an old dog new tricks". I do not understand the present banking system or how one becomes involved in business with our banks and State laws.
Going into business today does not depend on what a person knows but on what a consultant or accountant puts on paper. Now a person must make applications and have projections, unlike many good businessmen and those who climbed the ladder of success. Projections are great if, for example, one wants to sell petrol. One can count the number of cars which pass and then estimate that 10 or 15 per cent will want to buy petrol. All one needs to know is how to attract people in.
We should return to reality and rebel against the present banking system with its high powered executives dictating law from ivory towers. Bank managers and their staff are in a difficult situation. Many people want to retire from the banks because of the pressure from the top to get more business or, if that does not work, to get their money back. The banks give umbrellas when the sun is shining but they want them back when the first shower comes.
I was amazed to see on television recently that the banks are employing men in balaclavas to collect accounts. This has not been disputed or denied. If the banks have come to the stage of employing subversives to collect accounts and if what we have heard on television the other night is true, it is time for a major review of the banking system. This is serious.
I ask Senator Farrell to allow me to interject. We had agreed to adjourn at 1 p.m. There are only two other Senator offering to speak and both will make relatively brief contributions. With the agreement of the House we will adjourn at 1.15 p.m. and resume at 2 p.m. to take the Adjournment Matters.
Acting Chairman
Is that agreed? Agreed.
It was not my intention to speak on banking. I do not have any great love for or interest in it. My view of the banks is they make massive profits, maintain fantastic looking buildings in every town and city and are extremely impersonal when one deals with them. This is unlike the situation in post offices and credit unions.
I have been a member of a credit union almost all my life and it is the system I would recommend to any working person. We can all associate with it because it provides a personal kind of service. People who are finding it difficult to manage, particularly people living in working class areas or who are unemployed, find it much easier to deal with credit unions than with banks, whose main concern seems to be profits. I have always failed to understand how impersonal they can be.
I am concerned about two matters in relation to banking. One is the exchange rates of the currencies in the North and South of Ireland. The other matter is the bank officials' strike a few years ago.
It was very sad that bank officials, who were not well paid, had to go on strike to obtain something which was due to them. These were the people providing a hands-on service for customers and generating profits for the banks at the time. What they were looking for was not massive by any means but the banks allowed them to go on strike and left them out on the streets for a number of weeks, which was completely wrong. The workers put up a terrific struggle and proved their point. Unfortunately, the whole banking system has changed. There are now a large number of yellow pack workers in that service rather than well paid cashiers who are mainly concerned with the public with whom they deal. The banks let themselves down badly by allowing their workers to go on strike. I strongly supported that strike.
I am concerned about exchange rates at present. I live in Letterkenny, which is close to the Border and Derry. Whenever the Irish pound was much weaker than the British one, banks charged money to change our currency into sterling. When our pound was worth £0.90 sterling, it cost 10p to convert it to sterling. The banks usually charge a handling charge of about 4p and seem to do well by doing so.
The shoe is now on the other foot in that our pound is worth about the same as sterling. Sometimes it is much stronger. However, we still have to pay because when the bank takes its cut there is very little left and we get less than £1 sterling even though our pound is stronger than it.
I was in Belfast recently and could not believe that when I tried to change Irish pounds for British ones, hotels and banks were charging on our pound. This is wrong and is bad for business. I was at a function recently in Letterkenny which was attended by people from Northern Ireland. I could not believe that hotels were charging them 5p on the pound sterling. Business people on this side should look seriously at this as the tourist season moves on. We will not encourage tourists if we impose major charges on sterling. We welcome people from Northern Ireland and even though some of them did not treat us well during the time of our currency problems, we should not do the same to them.
I am glad of the opportunity to say a few words on banking. I have listened to the debate so far with great interest. It is, to say the least, an emotive subject and always has been.
Banking is a simple enough process in that it is about borrowing and lending but it leads to a great deal of conflict, into which public representatives are regularly drawn on behalf of clients. I recall hearing on many occasions the old saying "neither a borrower nor a lender be". This used to be a cant phrase years ago. It was very sensible because there was always the danger of getting into conflict once a person became a borrower or a lender.
The banking process is fairly simple. Banks take money from people and pay them interest on it. They lend money to people and expect it to be repaid. In most cases people borrow money with the intention of repaying it. There is often conflict when things do not go right. We tend to bash the banks a great deal and much of the criticism is probably unjustified. In fairness, if an institution or an individual lends money to somebody else on a bona fide basis, they expect it to be repaid. If borrowers have difficulties, lenders expect every effort to be made by borrowers to repay and this might mean handing in securities. Conflict occurs and we tend to bash the banks on a regular basis.
Banks and politicians have a common interest. We are very interested in creating thousands of jobs because we have a shortage of employment. The banking system surely also has an interest in this. It wants a better climate for banking and there is no better climate than having many more small companies operating and generating profits and, thereby, improving the banking milieu. We have a common interest and should work on this.
The banks have a very narrow focus with regard to the development of the economy. They do not see themselves as proactive in that sense. Discussion is, I think, under way on how the banks can make a bigger contribution to the development of the economy rather than the passive interest they currently have by providing, for example, venture capital. They should take on a full partnership role in the development of the economy.
There are some shortcomings in the way they treat clients. When people approach banks with proposals for the development of small businesses, the banks, if they judge the proposals to be worthy of support, will lend money but they tend to leave it at that. Contact between borrowers and banks tends to happen only when there are subsequent difficulties.
Because banks make relatively huge profits, they should be required to put something back into the economy. They should have a mentor approach to lending, particularly to new enterprises. They should be interested in assisting with the management of these companies in the early stages. It is in their own interests to do so. We should almost require them to be involved at that level. If they lend money to a new enterprise it is in their interest to ensure that it is successful but they are not taking steps to ensure that is the case.
The banks have a very narrow focus: they lend money and they want it repaid. However, that attitude should be substantially broadened with the banks playing a full partnership role in the development of the economy. There is no reason the banks should not examine the economy from time to time to see if there are gaps for successful enterprises which could be filled with enterprising people. Since that is not the case now, we should try to change the system by having the banks more involved in trying to develop the economy with the rest of us.
Competition within the banks is minimal. When things are stable all the banks tend to charge the same interest rates. When inflation is 2.5 per cent why does a bank never go out on a limb to charge very low interest rates and set the whole thing buzzing? That does not happen. Occasionally one of the banks leads the way and drops interest rates by half a per cent to be followed later by everybody else. Alternatively, a bank will increase interest rates by half a per cent and is again followed by everybody. There is no visible element of competition.
No bank is prepared to say that because inflation is at 2.5 per cent they will take 2 per cent profit and charge a 4.5 per cent interest rate. That is not happening because there is a cosy relationship between the banking institutions which tend to follow one another and settle into the same interest rate track every time there is a change. That is one of the reasons I would be interested in another banking force. The American experience is that five competitors are required in any one area to ensure real competition. Obviously, if there was more competition we would get more competitive rates and would not be complaining about the cost of banking and the level of interest rates. The business community is crying out for more competition to provide better rates. Business people want venture capital at the lowest possible rates but the Irish banking institutions are not responding to that requirement.
Competition seems to be on the surface only and we need to improve things in that area. I could go on for another hour talking about specific conflicts that have evolved between individuals, companies and banks. The important thing, however, is for the banks to become full partners in the development of the economy, and to take on a role commensurate with that goal. More competition within the banking system would be better for the client.
When is it proposed to sit again?
At 2.30 p.m. on Wednesday, 24 May 1995.
Sitting suspended at 1.15 p.m. and resumed at 2 p.m.