Speech on the Future of Banking in Ireland to Seanad Eireann

10th May, 2021

Thank you Cathoirleach for the opportunity to discuss the future of banking this afternoon.


I will open today’s discussion by updating you on what I see as some of the key issues: the impact of COVID-19 and our response; the changing retail financial sector environment and the challenge for banks to secure an appropriate return; as well as the continuing effort to improve regulation and rebuild trust in the banking system in this country through measures such as the Senior Executive Accountability Regime (SEAR).  



The pandemic has posed significant challenges for our society and economy, and many households and small businesses have been especially affected. The Government recognises the difficulties the pandemic has caused, and it has put in place a range of important and necessary supports for households and businesses. 


However, it was also important that the banking industry acted, and indeed that it was in a position to act, to provide necessary support and assistance to their customers at the outset of the pandemic. In March 2020, I engaged with the Banking and Payments Federation of Ireland (BPFI) to ensure that these supports would be put in place.


In response, the BPFI announced a coordinated approach by members to support customers. The range of supports included payment breaks of three, and later six, months. The implementation of this voluntary moratorium by the banking industry in Ireland was an immediate and flexible response to the fast evolving COVID-19 crisis.


Since then, payment breaks have been approved on over 172,000 Irish accounts, meaning a very large number of borrowers received important liquidity and cash flow supports during an evolving public health crisis which helped them deal with the immediate onset of the crisis.


It is welcome that, as these system wide COVID-19 payment breaks came to an end, the vast majority of borrowers have been able to resume full loan repayments.  Of course, many borrowers are still impacted by the pandemic and they will continue to need, and will be expected to obtain, support and assistance from their lenders.  This point has been strongly made to the main lenders and the BPFI has indicated that its members have been working with their customers throughout COVID-19 and will remain with them to the end of the pandemic.


It is also important that lenders support and assist new borrowers and they continue to lend into the economy.  While the pandemic had an immediate impact on the scale of new lending, and there was a significant decline in mortgage approvals and lending during the middle of last year – since then, the number of approvals and lending has picked up significantly. This is encouraging and I will get into more detail on the level of lending later on.


For the banking system, COVID-19 is the most significant shock it has faced since the financial crash. We can see now that the banking reforms introduced since then have helped maintain financial stability and allowed the banking sector to provide financial support to customers and continue to lend during this time. 


It has helped that banks are more focused on the Irish market and have more stable sources of finance, and that they have engaged in more prudent lending in recent times, including mortgage lending, due to influence of the Central Bank.


At an EU level, the regulatory and supervisory framework for banks has changed significantly since the financial crisis. Banks are now subject to more intrusive supervisory regimes, must hold more and better quality capital, and have enhanced reporting requirements. These reforms were aimed at strengthening the resilience of the banking sector in order to build capacity to absorb economic shocks while ensuring that banks continue to finance economic activity and growth, while also weakening the link between sovereign and banks to reduce the need for future state bailouts of banks.


Of course, other factors have also significantly helped maintain stability at this difficult time, including the exceptional levels of business and income supports provided by Government and the monetary policy approach adopted by the European Central Bank.



While the banking sector has undergone a huge transformation in the years since the financial crash, unfortunately, during those years we have seen evidence of unacceptable behaviour by banks and people working within them, particularly in the context of the tracker mortgage scandal.


There has been a much-needed robust regulatory response to these scandals. However, this is not enough as it is important that problems in the banking sector are anticipated and prevented before they impact on the wider public. A key challenge in relation to the future of banking will be the rebuilding of trust in the sector.


The rebuilding of trust 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 legislation is intended to drive greater accountability in the financial sector, raising the standards of expected behaviour for individuals and firms, in order to achieve better outcomes for consumers and improve the sustainability of the financial system.


The Bill will introduce a Senior Executive Accountability Regime (SEAR) which will place obligations on firms and 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, 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 between these powers and the protection of individuals’ constitutional rights is struck. 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.


It is my intention to publish the Heads of this Bill before the summer recess subject to any engagement with the Attorney General on the detail of the Bill.



I would also note that to keep up with developments in the lending market and the new ways in which people borrow money, my officials have been working on a Bill to bring the providers of PCP, hire purchase and consumer hire agreements within the regulatory remit of the Central Bank.


I have been in contact with the Finance Committee who are currently undertaking Pre-legislative scrutiny on the Heads of the Bill and I hope to be in a position to publish the legislation soon after the Committee completes its report.



In relation to the general operating conditions of the banking sector, this spring we have seen a number of announcements which give us cause to reflect on the sector’s structure and consider its future beyond the pandemic.


Last month 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, and Bank of Ireland’s decision to close branches across the country.


These announcements illustrate that the operating environment for banks in Ireland is very difficult. 



The announcement by Bank of Ireland to close branches is evidence of the impact technology is having on banking and the way the public interacts with banks. 


Increasingly, banks are competing with new technology driven firms regarding services that were previously the preserve of traditional banks. There is considerable public demand for the wider roll-out of broadband so people can more easily and conveniently transact their business, and banking is only one of the many businesses that is now conducting a greater proportion of their business online. 


While there is a demand for banks to develop their online services and a cost associated with this development, many people will still need or want to carry out their banking activities in person. It is a welcome development that Bank of Ireland is now entering into a new partnership with An Post that will allow personal and business customers to use their local Post Office for a range of banking services, including cash withdrawal and lodgements.


The landscape is changing and partnerships like this are important. There are new services, new ways of banking and greater mobility between services. When we look to improve the retail financial sector, it is important that we view the banking system as a means to help households and firms achieve their financial, economic and social needs. 



While non-interest income revenue is facing challenges due to technological changes and greater competition from non-banks, low interest rates have also depressed banks’ interest revenues, their cost base is high and overall this puts pressure on banks’ profits, and in turn the attractiveness of the market. 


However, the same can be said for banks in many other countries. The impact of COVID-19, coming on top of weak enough economic growth in Europe and America, has already been seen in European banking with consolidation and mergers in other European markets.

In the European context there is a view that the banking sector has too many participants and that there is a need for it to consolidate so that it can more efficiently provide services to its customers in a sustainable way, and in particular there will be a need for banks to further improve the level of investment in technology.  This is likely to be a particular challenge for small to medium-sized banks in various national markets as they attempt to manage the cost efficiencies and IT investment that are crucial in the new banking environment.


It is easy to say there is a problem with the banking market, but it is more difficulty to say where the appropriate balance between competition and consolidation lies in the best long term interests of the economy. While the Government would like to see a more robust level of competition in the Irish banking market, it must be borne in mind that in the early years of this century the Irish banking market was a very competitive one but not sustainably so and I think it is also fair to say that ultimately it did not serve the best long-term needs of the economy or society. 


Sustainable and responsible competition in the retail financial sector is vital to ensuring that businesses and consumers have a range of banking options available when using financial services and accessing credit. 



Looking to the future, the Government wants to ensure that the banking and financial system is one which will effectively contribute and support economic growth and employment.  Ultimately the banking industry should not be regarded as an end in itself, but rather as a system that will serve as the means to help households and firms achieve their financial, economic and social needs.


This must be our starting point.


To that end, the Programme for Government sets out a number of banking areas that will be considered for the benefit of consumers and the real economy. This includes measures to help ensure a smooth transition of ECB monetary policy, to look at ways to increase the availability of long-term fixed rate finance and to continue to work with the banking industry and non-bank lenders to support customers during and after the COVID-19 crisis. 


I look forward to hearing the views of Senators on this important topic and the proposals they have to improve the banking market in the overall interests of the economy and our people.


Thank you.