‘No compelling case’ for State to establish local banking system

Scheme would cost exchequer a minimum of €170m

Minister for Finance Paschal Donohoe said further work has been commissioned on the prospects of local banking. Photograph: Dara Mac Donaill/The Irish Times

Minister for Finance Paschal Donohoe said further work has been commissioned on the prospects of local banking. Photograph: Dara Mac Donaill/The Irish Times

 

There’s no compelling case for the State to establish a local banking system, something that would cost the exchequer a minimum of €170 million, a report has found.

Although not compelling, alternative means of establishing local public banks may have potential to bring additional competition to the financial services market and the government will examine this, the report on local public banking in Ireland suggested.

The report fulfils a commitment in the programme for a partnership government whereby it would investigate a system of local banking in Ireland.

It copies the German Sparkassen model whereby the State has ownership of a bank as opposed to private ownership.

Sparkassen are only allowed operated in specific regions and their lending activities confined to particular areas. They aim is to encourage regional economic development rather than just profit maximization.

In a press statement issued Wednesday evening the government said it recognises the positives of local public banking in terms of increasing access to finance for small and medium business. It is therefore commissioning an independent external evaluation of other possible ways in which the concept could be promoted in Ireland.

Plans

“There is of course also no impediment to any interested parties separately pursuing the establishment of a system of local public banks in a manner that does not involve exchequer funding,” the government statement said.

Minister for Finance, Paschal Donohoe, said: “Following considerable analysis and careful consideration of the proposal on local public banking, the decision has been taken not to pursue this option. However, given the positive aspects of the concept of public banking, I have decided to commission further work in this area by means of an external, independent evaluation looking at how this concept could be promoted in Ireland.”

Credit Union representative organisations welcomed the report which acknowledged their plans to play an increasing role in the Irish retail financial landscape.

While the government is a significant player indirectly in the banking market, through its shareholding in AIB, Bank of Ireland and Permanent TSB, it said its priority is “facilitating a functioning and competitive private market and reducing its shareholding in a manner that recovers the taxpayers investment over time”.

Nonetheless, it said its “fully supportive of increased competition in the banking sector”, but that given the current demand for supply of credit, there’s no compelling business case for the State to intervene.