Opening statement on the Future of Banking in Ireland

1st July, 2021


Ceann Comhairle, thank you for the opportunity to discuss this very important topic. I am sharing time with the Minister of State, Deputy Fleming.


We are living in uncertain times, and this assessment is particularly applicable to the banking sector. It has been a difficult year with all of the challenges that the pandemic has brought and the number of market announcements already this year.


As Deputies will recall we discussed the issue of banking at length in March. In May I was also invited to address the Seanad and hear the views of Senators on the future of banking.


My fundamental view on the future of banking has been consistent: Ultimately the banking system should serve as the means to help households and firms achieve their financial, economic and social needs. 


I would like to open this afternoon’s discussion by updating Deputies on some forthcoming legislative and regulatory changes before turning to the latest developments in the banking sector.  


Legislative developments

EU level

As Ireland is part of the EU Single Supervisory Mechanism (SSM), supervision of the Irish banking sector is informed by the EU Regulatory framework and our main banks are jointly supervised by the Central Bank of Ireland and the European Central Bank.


The Risk Reduction Measures (RRM), which are a package of prudential banking reforms, agreed by the European Parliament and Commission which amended the Capital Requirements Regulations, Capital Requirements Directives and the Bank Recovery and Resolution Directive, were transposed into Irish law in December 2020. 


Many of these reforms implemented international standards that have been agreed since 2013 by the Basel Committee on Banking Supervision.


The European Commission is expected to bring forward additional legislative proposals in September to bring the European banking regulatory framework further in line with internationally agreed standards set by the Basel Committee.


SEAR – Senior Executive Accountability Regime

On the domestic front, it is important that problems in the banking sector are anticipated and prevented before they impact on the wider public.


This will require cultural change in the banking sector and throughout the financial services industry. The forthcoming Central Bank (Amendment) Bill will make a significant contribution to this.

The Bill will introduce a Senior Executive Accountability Regime (SEAR), which will place obligations on firms and the senior individuals within them to set out clearly where responsibility and decision-making lies.


Among other provisions, the Bill will also introduce Conduct Standards for individuals and firms, imposing binding and enforceable obligations on all Regulated Financial Service Providers (RFSPs) and relevant individuals working within them with respect to expected standards of conduct.


The proposals will seek to enhance the supervisory capabilities of the Central Bank so that individuals are aware of their responsibilities and with the intention that potential problems can be anticipated and prevented.


The additional powers that will be provided to the Central Bank are significant, and it is important that the correct balance is struck between these powers and the protection of individuals’ constitutional rights. It is imperative that the new provisions can withstand legal challenge.


As such, there has been lengthy engagement with both the Attorney General’s Office and the Central Bank, to ensure that the legislation is both effective and constitutionally robust.


Subject to the advice of the Attorney General, I intend to publish the Heads of Bill before the summer recess.


Regulating new types of lending – PCP Bill

To keep up with the new ways in which people borrow money, my officials have also been working on a Bill to bring the providers of Personal Contract Plans (PCP), hire purchase, consumer hire agreements and indirect credit within the regulatory remit of the Central Bank. This will provide consumers with the protection of the Central Bank’s Consumer Protection Code.


I would like to thank the Committee on Finance, Public Expenditure and Reform, and Taoiseach for its cooperation as this enabled the publication of the Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Bill 2021 last week.  Consultation with the ECB is commencing and it is my intention to progress the Bill through the Oireachtas in the autumn.


Central Bank Reviews

Consumer Protection Code Review

A review of the Central Bank’s Consumer Protection Code is also underway.  A public consultation on the Central Bank’s proposals for amendments will take place later in 2021 giving all stakeholders an opportunity to make submissions.


Mortgage measures

BPFI data suggests that the market for new mortgage lending has rebounded quickly from the immediate impact of the pandemic but of course it is important that the necessary prudential and consumer protection measures continue to be applied by lenders as they serve the best long term interests of everyone in the mortgage market.


In addition to the Central Bank’s annual assessment of mortgage measures, it has also recently commenced a broader review of the overall policy framework for the mortgage measures. After a period of seven years in operation, this will be an in-depth review of the mortgage lending measures, taking place over 2021 and 2022.


Recent market announcements

Bank of Ireland share sale

I announced last week my intention to sell part of the State’s 13.9% directed shareholding in Bank of Ireland.


To date €19.2 billion of the €29.4bn invested in AIB, BOI and PTSB over the period 2009 to 2011 has been recovered by way of disposals, investment income and liability guarantee fees. The remaining investments in these three banks are currently valued at c. €5.3bn, leaving a gap of c. €4.9bn.


In the case of Bank of Ireland, the State has already recorded a cash surplus to date with €5.9bn having been generated as against the €4.7bn originally invested in the bank. The State’s remaining equity stake in the bank is valued at close to €700m.


I have decided to transact the sale by way of a trading plan which is an effective, cost efficient method of selling down stakes in public companies, particularly when the stake is relatively small in percentage terms.


I cannot disclose any further details in relation to the plan as it would be detrimental to maximising value for the taxpayer. The number of shares sold, the average price achieved and the cash generated from the plan will be known once it has been completed. At the end of the period, the trading plan can be renewed at my discretion following consultation with officials and our advisors.


Recent announcements from Ulster Bank and KBC

In April, KBC announced that it is has entered a Memorandum of Understanding (MOU) with Bank of Ireland which could lead to a transfer of its performing loan book.  This announcement came quickly after NatWest’s decision to withdraw Ulster Bank from the Irish market.


I welcome the announcement by Ulster Bank on Monday that it has reached a binding agreement with AIB to sell approx. €4.2 billion of its performing loan book and transfer approx. 280 of the staff which work primarily on that loan book. It is also welcome that Ulster Bank’s negotiations with PTSB and other parties are continuing.


Ulster Bank also recently announced that they have reached an agreement with the Financial Services Union (FSU) in relation to a severance package for staff. While this is subject to a ballot of the FSU’s membership it also represents constructive progress in relation to the Ulster Bank’s withdrawal.


Banking review

The banking sector is currently in a state of flux, and the recent announcements, including the closure of bank branches, give us cause to reflect on the sector’s structure and consider its future.


Advances in technology, the proliferation of innovative FinTech players and the expansion of non-bank lending mean we are moving to a more diverse banking sector. The increasing role of Credit Unions and An Post in the provision of banking services in the community must also be part of the conversation.


In this context, it is absolutely necessary that we examine the banking sector, review the current landscape, consider how this has evolved over the last two decades, and assess how the system can best support society and economic activity.


My Department will undertake a broad-ranging review to look in detail at the many relevant issues including: the societal expectations of the sector and possible gaps in terms of competition and consumer choice, including delivery channels, and the key role of the banking sector in the provision of sustainable credit to the economy. The review will need to assess the availability of credit to SMEs from both banks and non-banks and identify market gaps or failures and consider options to further develop the mortgage market.


To assess how the system can better meet our needs, it will be necessary to look at the cost of doing business for the sector, other impacts on its sustainability, and the forces for change at play or foreseen, be they related, for example, to COVID, Brexit, climate change, housing, regulation or technology. 


The many suggestions which have already been put forward will be taken into account in developing the Terms of Reference and I assure Deputies that the review will involve extensive consultation with relevant stakeholders.


I look forward to hearing the views of Deputies this evening.