The long-awaited Department of Finance’s Irish Banking Review, published on Tuesday, may have paved the way for Minister for Finance Paschal Donohoe to grant an early Christmas gift to bailed-out banks by moving to ease pay restrictions in the sector.
The wish list of other recommendations compiled by the Minister’s officials in the document will also keep these folks in gainful employment for years to come.
The Minister reluctantly conceded last year to carrying out a review, following calls for a forum on the future of Irish banking in the wake of Ulster Bank and KBC Bank Ireland deciding to quit the market.
But he has given the 34 recommendations contained in the final report his full backing — and enlisted the same from his Cabinet colleagues — as he prepares to swap jobs within the next three weeks with Minister for Public Expenditure Michael McGrath.
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Most of these require more work. A lot more work. First up, the issue of access to cash, which was thrown into sharp relief by AIB’s short-lived plan during the summer to turn 70 branches into cashless outlets that caused customer and political uproar.
While the review team, led by department principal officer John Palmer, noted that Irish ATM transactions have fallen by almost 50 per cent since 2015 and use of debit cards at point of sale have soared almost 300 per cent over the same period, only 11 per cent of consumers do not use cash.
“Government policy should support the development and maintenance of a sustainable and resilient cash system for as long as cash is needed,” the report said, even if it should also back the ongoing “digitalisation transformation” of the economy.
The report recommended that department officials draw up heads of a Bill next year to require the banking industry to provide “reasonable access to cash” — the definition of which will require input from all kinds of parties.
The Government has also backed calls in the report that mandarins prepare an outline of legislation next year to require that ATM operators — who now control three-quarters of all such machines in the State — and cash-in-transit firms be authorised by the Central Bank.
Officials have also been given the nod to proceed with a review proposal that they lead on the preparation of a national payments strategy, to be completed in 2024. “The strategy should set out a roadmap for the future evolution of the entire payments system, taking account of developments in digital payments, the use of cheques and other issues,” the report said. It will keep civil servants busy for a while yet.
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The report also called for the department to commission an annual survey of “consumer experiences and perceptions of the retail banking market” and write up another set of heads of a Bill next year to place a requirement on the Central Bank to carry out and publish assessments on the costs and benefits of any regulations it proposes in future. These, too, have been backed by the Government.
The aim here is to ensure that new rules are “proportionate” and do not “inappropriately impact the proper and efficient functioning of the market, including its impact on competition”.
This is to be welcomed since there is a clear view in some quarters — including the banks that are exiting the market — that the regulatory pendulum has swung too far from the days of lax supervision before the financial crisis.
Correctly, the review team rejected a suggestion by the Competition and Consumer Protection Commission in a submission that the Central Bank be given a role in promoting competition in financial services, alongside its current regulatory focus on prudential and conduct supervision and consumer protection. That would have been a step too far and created all kinds of potential conflicts.
Change the law
Meanwhile, Donohoe’s decision to back a proposal that spells a return of bonuses in bailed-out banks — of up to €20,000 — and a gradual lifting of €500,000 executive pay caps as the State sells down stakes in the lenders, is the limit that the Minister has discretion to go to without trying to change the law.
There is little political appetite to legislate to repeal an 89 per cent super tax that was imposed on taxpayer-rescued banks in the Finance Act 2011 — covering any variable pay awards to bankers for in excess of €20,000.
The move is unpalatable for many households across the country as they grapple with the cost-of-living crisis and banks raising the cost of mortgages in reaction to recent hikes in official European Central Bank rates.
Donohoe acknowledged as much on Tuesday when he said he “absolutely understand[s]” the sensitivity of the decision, especially given how people have been negatively affected by the actions of banks in the past.
However, he said: “The responsibility that I have had to grapple with, and I have spent some time considering this matter, is that the three banks we are now discussing employ around 20,000 in our economy and are responsible now for just over €220 billion of deposits in the Irish economy. I want good people working in those banks that can look after this money and grow the banks in the years ahead.”
