The Irish Times view on the Retail Banking Review: still a road to travel

The Retail Banking Review is an important policy document focusing on a key sector, the performance of which is vital for the wider economy. Much focus is on the removal of pay and bonus restrictions, but the real importance of the report is its wider recommendations for how banking operates and serves its retail and small-business base.

Here the report, published by Minister for Finance, Paschal Donohoe, is a mixture of specific recommendations and general statements of intent, some of which would require implementation by the Central Bank and the Competition and Consumer Protection Commission. Many of the specifics are welcome – such as obliging banks to continue to provide access to cash and increasing obligations to justify branch closures.

It is also welcome that the Central Bank be required to provide clear assessments of the costs and benefits of introducing new regulations. And that it reviews its authorisation process for new entrants with a view to increasing competition. In all likelihood this will come in the form of non-bank lenders and other niche players – mainstream services will continue to be provided by the three main banks, AIB, Bank of Ireland and Permanent TSB. As the report points out, the impact of non-bank lenders is likely to vary with market trends – the increase in interest rates is making life harder for smaller players at the moment.

The likely absence of large new players means it is vital that competition is boosted between the existing ones. A proposed review of the switching code for current accounts after the departure of Ulster Bank and KBC is welcome. There is a big job here for the Central Bank, given the difficulties many have faced switching in recent months. Too often, customer service levels remain poor.

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Elsewhere there are some generalities. Calling on banks to “review” their mortgage offers to ensure the best value to customers seems a largely pointless exercise. It is competition that will achieve this, and in some cases regulation.

The removal of pay and bonus restrictions is more an issue of timing than substance. In the long term the State cannot realistically regulate the pay and bonuses of private sector institutions that it does not own – and with the exception of Permanent TSB it will not be in majority ownership of any bank by the end of next year. Politically, the timing could hardly be worse, though lifting the cap was never going to win votes.

Through the crash and the tracker mortgage scandal the board and executives of the banks were found to be sadly lacking. Now the responsibility is back on the bank boards, who need to ask what level of pay is really required and how best to provide incentives which do not repeat the mistakes of the past. We need a profitable banking sector, but its leaders still have a way to go to regain public trust. Bankers need to earn their pay.