The State’s long withdrawal from the banking sector after the post-crash bail-outs has reached another milestone, with the sale of its remaining shareholding in AIB. Warrants, which give the State the right to buy some shares, are now likely to be effectively bought out by the bank. AIB will finally return completely to private hands.
The direct financial cost to the State of the AIB bail-out was €20.8 billion and – including the cash for the warrants – the total amount returned over the years to the exchequer is likely to fall around €700 million short of this.
While the return of the bulk of the funds is welcome, the total costs of the banking collapse to the State were, of course, much greater than the cash cost of bailing out these institutions. The banks were not solely responsible for the financial crash, but they were an important part of it. The tighter regulation, restructurings and restrictions on executive pay that followed were entirely appropriate. So was the bank levy, which should remain.
With the pay cap in Bank of Ireland now lifted after its return to private ownership – even if a limit on bonuses remains in place – it was inevitable that the same would happen at AIB. In this context, there seemed little point in maintaining the pay cap at Permanent TSB, where the State still holds a 67 per cent stake.
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With the two main banks now in private hands, State policy needs to focus not only on regulation but also on encouraging competition. As well as the financial and economic costs, the crash also led to the departure of a number of banks from Ireland – most notably Ulster Bank – severely limiting competition in many parts of the market, to the disadvantage of consumers.
New entrants have provided competition in some areas, but often on a limited scale. The soaring profitability of the banks reflects not only the strength of the economy, but also their large market share. Their large deposit books remain a competitive asset. The more recent entrants to the market are welcome, but more is needed.
