Investment bank to fund small firms urged

The Government has been urged to establish, as a matter of urgency, the strategic investment bank which was promised in the Programme for Government.

Under the coalition deal, agreed by Government in 2011, Labour proposed a strategic investment bank to be set up, borrowing money from the European Investment Bank and other sources, to fund businesses being turned away from high-street banks.

Fianna Fáil's finance spokesman Michael McGrath said yesterday he believed there was a need for a bank which could focus on investing in capital projects and small and medium enterprises.

'Dysfunctional'

Mr MrGrath, speaking on RTÉ's This Week, said Ireland's banking system remained "dysfunctional a full five years after the banking crisis".

He said consolidation and closures of banks needed to be addressed and the Government needed to publish a comprehensive banking strategy to address all the issues. “There have been very dramatic changes and a shrinking banking sector is bad news for consumers, SMEs and for the economy,” he said.

Mr McGrath said the Goverment needed to provide a full explanation as to why it had not moved to establish the strategic investment bank, which was a key policy of Labour's manifesto. He said such a bank could be funded by equity capital from the State, from markets and from the taking of deposits. It could focus, he said, on lending to small and medium sized businesses.

Ulster Bank

Mr McGrath said there was a need for more than two large banks – Bank of Ireland and AIB – in the Irish market.

The Government has not proceeded with an investment bank but rather with a strategic invesment fund along with the establishment of New Era.

While welcoming the news that Ulster Bank is to remain in the Irish market, he said the language which had been used suggested the Ulster Bank which would emerge in a year or two might be a very different kind of bank.

He agreed there were possibilities in relation to KBC and Permanent TSB but said the restructuring plan for the latter, submitted to the European Commission in June 2012, has still to be implemented.

Business groups Isme and the Small Firms Association have also previously called on the Government to develop an investment bank to open sources of finance to small and medium-sized businesses.