# Varadkar favours a third banking force



## Brendan Burgess (19 Feb 2021)

In response to a suggestion from Pearse Doherty in the Dáil yesterday.

Paschal's comments on Morning Ireland

Paschal: This is a long term objective of Irish government policy.

There are many bridges to cross in the aftermath of today.


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## joe sod (19 Feb 2021)

But the governmental and financial regime is responsible for Ulster Bank effectively the third banking force pulling out. Irish banks are the least profitable in Europe due to the onerous capital requirements and being unable to force repossessions in a timely fashion.  Again its our legal system that is not fit for purpose


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## NoRegretsCoyote (19 Feb 2021)

The government cannot directly shape the banking market, or indeed any market like this.

Anyway, I am not sure how 3 big is more competitive than 2 big and 2 small.


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## joe sod (19 Feb 2021)

@NoRegretsCoyote the fact that Ulster bank was governed from outside the country meant that it was outside the incestuous relationships that happen here. During the financial crisis Anglo, AIB and BOI were all in cahoots , Ulster bank was outside that loop they were ultimately bailed out by the British government which saved the irish government a small fortune at the time


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## NoRegretsCoyote (19 Feb 2021)

joe sod said:


> Anglo, AIB and BOI were all in cahoots



Not really. Anglo competed hard and successfully to lend more to developers than AIB and BoI.

This wasn't a good thing.


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## tomdublin (19 Feb 2021)

One solution here is more Europeanisation of the banking sector beyond just current accounts.  There's no logical reason why Irish consumers and businesses should not be able to get loans and mortgages from banks elsewhere in Europe.  Largely due to lobbying by some governments and various vested interests banking and insurance have not been fully subjected single market rules.   If the Irish government is serious about more competition that's the area it should focus on.


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## nest egg (19 Feb 2021)

Whatever happened with Sparkasse, does anyone know?


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## NoRegretsCoyote (19 Feb 2021)

tomdublin said:


> Largely due to lobbying by some governments and various vested interests banking and insurance have not been fully subjected single market rules.


Not at all. EU firms are completely free to enter the Irish market.

Revolut (not a bank) has seen explosive growth in market share of some of the services that Irish banks offer.


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## MrEarl (20 Feb 2021)

Various governments have touted the concept of a "third banking force", going back about 30 years. It sounds good, and gets a bit of positive press for the politicans involved. 

There's been suggestion of merging ICC, ACC, PTSB and An Post, in times past... More recently, Permo, KBC and UB. All pie in the sky.

The closest that Ireland has ever got, to ever having a third banking force, was while Ulster Bank was committed to Ireland - and that wasn't anything to do with the Irish Government. 

Going forward, we'll see the Permo try to press for equal recognition with the two pillar banks, and get some uplift as a result of Ulster Bank exiting the market. That's more to do with the Permo's own struggle to justify its existence, than it being a true force in Banking though. Its still going to be a a very small player, compared with AIB and BoI.

When all is said and done, the reason that Ireland doesn't have a more competitive banking market is simple - Irish people don't move away from AIB and BoI, in significant numbers.


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## Bronte (20 Feb 2021)

Why is Ulster bank pulling out?


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## tomdublin (20 Feb 2021)

NoRegretsCoyote said:


> Not at all. EU firms are completely free to enter the Irish market.
> 
> Revolut (not a bank) has seen explosive growth in market share of some of the services that Irish banks offer.


Banks and other financial service providers can enter and exit national markets within the EEA but they are subject to diverging national regulatory regimes which pose significant entry cost.  This could be mitigated by replacing national central banks with a single EU regulator, akin to what exists in other parts of the economy.


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## joe sod (20 Feb 2021)

Bronte said:


> Why is Ulster bank pulling out?


The higher capital requirements of irish banks versus their european counterparts a legacy of the financial crash but now with negative interest rates is causing big problems. The inability to enforce effective repossessions in a timely fashion , therefore many people have been sitting in assets effectively owned by the bank for which they cannot regain possession. If there was an effective repossession penalty then many more mortgages would be performing, they are not all hardship cases


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## NoRegretsCoyote (20 Feb 2021)

tomdublin said:


> This could be mitigated by replacing national central banks with a single EU regulator,


Banking is literally the industry with the most direct EU supervision.

BoI, AIB and Ulster are all supervised by the ECB in Frankfurt.


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## Merowig (20 Feb 2021)

tomdublin said:


> One solution here is more Europeanisation of the banking sector beyond just current accounts.  There's no logical reason why Irish consumers and businesses should not be able to get loans and mortgages from banks elsewhere in Europe.  Largely due to lobbying by some governments and various vested interests banking and insurance have not been fully subjected single market rules.   If the Irish government is serious about more competition that's the area it should focus on.


I was looking to get a mortgage in Germany for property here - it is possible but just very difficult and I gave up quickly as I didn't want to go through the hassle.
Most banks only accept it if the mortgage is used against e.g. a house in Germany which is already paid off. I will look into that again in a couple of years time - an interest rate of 0.97% is very tempting
Colleagues of mine got their mortgage in France for buying here but again against a property in France.

The issue of non Irish banks to issue mortgages for Ireland is valuation and security.


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## skrooge (20 Feb 2021)

NoRegretsCoyote said:


> Banking is literally the industry with the most direct EU supervision.
> 
> BoI, AIB and Ulster are all supervised by the ECB in Frankfurt.


Agreed, I don't think it's bank supervision is the issue.

The seeds for Ulster leaving were sowed a decade a go when we as a varies agencies (the government, the CBI through its mortgage code and the legal profession) placed the emphasis on keeping people in their homes over having people face to to their contractual committments.  In other countries a mortgage is a safe form of lending for a bank. Defaults are low and their is an underlying asset you can reclaim. 
Not Ireland in afraid. CBI mortgage measures might help with defaults but foreclosure and repossession laws don't favour "secured lending" at rates comparable to Europe. 

Yes the approach taken  helped some people in the short term but big picture Ireland is seen as a country where if things go bad you'll be in a legal quagmire for years. We will all suffer for our now.

The long drawn out saga that has been the response to the last crises will hardly encourage any back executive to put their job on the line and target Ireland as a market to grow in.


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## skrooge (20 Feb 2021)

Merowig said:


> I was looking to get a mortgage in Germany for property here - it is possible but just very difficult and I gave up quickly as I didn't want to go through the hassle.
> Most banks only accept it if the mortgage is used against e.g. a house in Germany which is already paid off. I will look into that again in a couple of years time
> Colleagues of mine got their mortgage in France but again against a property in France,



Logistically any issues a foreign bank would run into in this situation would have to go through the Irish legal system. Unless they're doing it on scale it's just not worth their while setting up that infrastructure. That on top of the lender having to assess the odds of getting it's money back under Irish law.


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## tomdublin (20 Feb 2021)

NoRegretsCoyote said:


> Banking is literally the industry with the most direct EU supervision.
> 
> BoI, AIB and Ulster are all supervised by the ECB in Frankfurt.


They are subject to divergent national rules and regulatory regimes much more so than most other industries.  That's why they generally cannot offer services in a member states without being authorized by that member state's central bank.  If you are a German retailer you can just open branches in Ireland or serve Irish customers online, but if you are a bank you can't.  That's a major impediment to competition especially in small markets such as Ireland.


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## WolfeTone (21 Feb 2021)

tomdublin said:


> One solution here is more Europeanisation of the banking sector beyond just current accounts.  There's no logical reason why Irish consumers and businesses should not be able to get loans and mortgages from banks elsewhere in Europe.  Largely due to lobbying by some governments and various vested interests banking and insurance have not been fully subjected single market rules.   If the Irish government is serious about more competition that's the area it should focus on.



I would go one further, and wonder about the need for a retail banking sector at all. Instead, everyone should be allowed borrow direct from ECB at their prevailing rates, same as banks do - which elimates the need for commercial and retail banks.
I don't say that lightly, the careers and livelihoods of thousands of banking workers are under threat as a consequence of emerging technology, 5G, 6G , AI etc and Ulster Banks withdrawal, to me, is just another death knell of the banking sector.
Before this health crisis, I found it rare to go into a bank and when I do it is mostly automated. As an Ulster Bank customer, it is somewhat sad, as I found their customer service over the years to be excellent.


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## Gordon Gekko (21 Feb 2021)

tomdublin said:


> They are subject to divergent national rules and regulatory regimes much more so than most other industries.  That's why they generally cannot offer services in a member states without being authorized by that member state's central bank.  If you are a German retailer you can just open branches in Ireland or serve Irish customers online, but if you are a bank you can't.  That's a major impediment to competition especially in small markets such as Ireland.



You’re not comparing like with like. Selling groceries isn’t regulated and isn’t intrinsically linked to the country’s legal system. We have a common law system, whereas Europe is mostly civil/Napoleanic Code based. Why would any foreign bank be bothered dealing cross border into Ireland? It’s a tiny country and the system is designed to stop you making money!


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## skrooge (21 Feb 2021)

tomdublin said:


> They are subject to divergent national rules and regulatory regimes much more so than most other industries.  That's why they generally cannot offer services in a member states without being authorized by that member state's central bank.  If you are a German retailer you can just open branches in Ireland or serve Irish customers online, but if you are a bank you can't.  That's a major impediment to competition especially in small markets such as Ireland.



The single market means a bank from anywhere else in the EU can open a branch here. There's very little supervision if any of that branch carried out here, it would all be done from the county is headquartered in. Once you're licensed somewhere in the EU it' s pretty much an open door in terms of banking regulation.


It's our approach to the legal enforceability of a loan contract, plus our small size that count against us.

Using your German retail analogy I doubt you'd get a Lidl or an Aldi opening in Ireland if 10% of shoppers wheeled their trollies past the til and told them they'd pay later   All while the local  security guard just shrugged.


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## Merowig (21 Feb 2021)

WolfeTone said:


> I would go one further, and wonder about the need for a retail banking sector at all. Instead, everyone should be allowed borrow direct from ECB at their prevailing rates, same as banks do - which elimates the need for commercial and retail banks.
> I don't say that lightly, the careers and livelihoods of thousands of banking workers are under threat as a consequence of emerging technology, 5G, 6G , AI etc and Ulster Banks withdrawal, to me, is just another death knell of the banking sector.
> Before this health crisis, I found it rare to go into a bank and when I do it is mostly automated. As an Ulster Bank customer, it is somewhat sad, as I found their customer service over the years to be excellent.



The ECB will definitely not become here a retail and commercial bank - there is no need to nor a will to go that route.
Banking and Banking functions like money lending are around since the Assyrians and will survive all of us.
5G/6G/AI  are not a death knell to banks - you make here wild claims. Banking develops obviously with technology and regulations but is not going away.


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## WolfeTone (21 Feb 2021)

Merowig said:


> Banking and Banking functions like money lending are around since the Assyrians and will survive all of us.
> 5G/6G/AI are not a death knell to banks - you make here wild claims. Banking develops obviously with technology and regulations but is not going away.



I appreciate that and accept of course I could be wrong. I'm not suggesting banking is going away, but rather banking the way we know is on its knees. It will still exist, in some form, but my guess is it will be near unrecognisable to what we are used to.


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## skrooge (21 Feb 2021)

WolfeTone said:


> I appreciate that and accept of course I could be wrong. I'm not suggesting banking is going away, but rather banking the way we know is on its knees. It will still exist, in some form, but my guess is it will be near unrecognisable to what we are used to.


Technological advancements and changing consumer habits look like they're spelling the end of the traditional branch network. 

Almost everyone has pointed out that they use branches a lot less. For those that have been in how many have actually taken out a loan or some other product that made the bank even the smallest sum of money? My guess is very few. I'd say lodging a cheque is about it. Now consider that building has to be heated, insured, rates paid and people in it paid....

Right now banks are swimming in (relatively)  expressive deposits. They don't want any more. It's costing them in 2 ways. Deposit interest and regulatory expenses. Negative interest rates might be around the corner. On the regulation side of things taking deposits really hits you if you want to be a lender. It does seem to be a trend that is leading to smaller niche operations at the minute.


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## skrooge (21 Feb 2021)

Talk of a third force in the form of a beefed up PTSB  isn't presenting anything new - if anything it is the definition of madness, doing the same thing over again and expecting a different result. Even if you scaled PTSB to to the size of AIB or a BOI they're not exactly best in class internationally. That's in the contexts of a European banking system that is struggling. 

Is the future more a collection a specialised financial institutions rather than one universal bank? 

For example:
A current account through the like of n26 i.e., a low cost virtual bank built in decent IT - probably with a small fee to make it sustainable. 
+
Loans mainly provided by the likes of a non-bank i.e., an Avant. Again mainly online presences (cc card) or broker based (mortgages). Possibly  a larger fee based element then what we're use to.
+ 
Deposit taker like a credit union. Tight limits on deposit balances and low risk lending to fund any interest.


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## NoRegretsCoyote (21 Feb 2021)

tomdublin said:


> Largely due to lobbying by some governments and various vested interests banking and insurance have not been fully subjected single market rules.


Most of what banks have to do is governed by single market rules: from customer due diligence, to early repayment of loans, to deposit guarantee insurance, and so on. What is *not *governed by EU law is the level of claims (insurance) and the mortgage foreclosure process (lending). You might want to start there and ask why there aren't more foreign players in either market.


tomdublin said:


> This could be mitigated by replacing national central banks with a single EU regulator, akin to what exists in other parts of the economy.


There is a single EU supervisor, the ECB. Standards for banks are set by the European Banking Authority. There is no industry (to my knowledge) with _more_ direct EU-level supervision than banking. An there is regulation for nearly everything a bank does now, a huge amount of its activity is compliance. Nearly all industries face EU regulation of course. But this is generally by way of minimum harmonisation directive. The EU agrees a directive, member states implement it via national law and regulatory bodies (something like product safety for example).


tomdublin said:


> They are subject to divergent national rules and regulatory regimes much more so than most other industries.



This is just not true, see above.


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## NoRegretsCoyote (21 Feb 2021)

skrooge said:


> The seeds for Ulster leaving were sowed a decade a go when we as a varies agencies (the government, the CBI through its mortgage code and the legal profession) placed the emphasis on keeping people in their homes over having people face to to their contractual committments.



This approach made sense between maybe 2009 and 2014. Some of the distressed mortgages had >200% LTVs and the market was illiquid. Many borrowers were kept where they were, eventually found jobs again and re-engaged. A get-tough policy would have meant tens of thousands of disposessed households which would have had to be housed by the state, which couldn't afford it.

The big policy error was allowing this to go on after about 2015. By that point the market had recovered. Bank losses were limited, and employment was growing by 3% a year. By then it was pretty clear at loan level what was sustainable and what wasn't, but delinquents were allowed to struggle on, and still are.

Part of this seems to be huge latitude given to delinquent borrowers by county registrars and judges too. AFAIK this is very hard to fix by legislation.


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## skrooge (21 Feb 2021)

I wasn't trying to suggest we should have gone full eviction. But we are paying the price for where, as a country, we put the emphasis last time.  Part of why we landed where we did was due to the fact our bankruptcy regime was in the dark ages. That's thankfully been updated.

As terrible as the current covid-19 crisis is it could also be an opportunity for Ireland to show how it can deal with arrears and foreclosure in a slightly more balanced way. Again not saying turfing everyone out on the street but at some point a line in the sand will have to be drawn. 

The closer aligned we are to the rest of Europe on where that line is the more likely we are to coax a few of those European banks back in.


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## NoRegretsCoyote (21 Feb 2021)

skrooge said:


> The closer aligned we are to the rest of Europe on where that line is the more likely we are to coax a few of those European banks back in.


The EBA did a long report on the cost of loan enforcement across Europe last November.

On a range of variables: judicial cost, recovery rate, time to recovery; Ireland compares really, really badly.

For example Table 49 shows Ireland sees a recovery of just 30% of the value of re-possessed real estate. For Germany the average is 89%.


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## skrooge (21 Feb 2021)

NoRegretsCoyote said:


> For example Table 49 shows Ireland sees a recovery of just 30% of the value of re-possessed real estate. For Germany the average is 89%.


A great find. I don't pretend to have read it but skimming through

Table 11 - 11% gross recovery on Irish mortgages, EU average 46%.  More or less the same on a net basis.

Table 21 - 3.7 years to recover that value. EU avarage closer to 3 with a lot of other counties significantly shorter.

Also looking at the footnotes it looks  like we're overly reliant on personal insolvency arrangements. 

Based on those figures we have money pit written all over us


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## Freelance (21 Feb 2021)

Sunday Business Post and Irish Times quoting a figure of €500m additional Government capital for PTSB to take over the small business loans and most of the mortgages from Ulster Bank









						Finance Ireland may challenge Permanent TSB for Ulster Bank loans
					

Seen & Heard: Private equity drives pub sales, Aviva Stadium firm sells house to offset losses




					www.irishtimes.com


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## joe sod (21 Feb 2021)

WolfeTone said:


> I would go one further, and wonder about the need for a retail banking sector at all. Instead, everyone should be allowed borrow direct from ECB at their prevailing rates, same as banks do - which elimates the need for commercial and retail banks.


Most of the borrowing that governments get is from these financial instititions banks, insurance companies and pension providers. Governments need banks aswell. yes the ECB provides the backdrop for negative interest rates but the financial institutions are the means by which they do it. Tying up capital in "secure" assets essentially means banks are now forced to lend more to governments, its called "financial repression" and is the means by which governments are paying for the pandemic.


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## john luc (22 Feb 2021)

Seems to me we have not learned much from the banking crisis. In that we found ourselves held hostage to failed businesses that we could allow to fail because we ourselves would suffer. What I believe is we need to get as much of our money back from this old carcass and then serve up what's best for our needs. That means means we look to see a possible full integration with financial services in the EU or any other method. The approach should Be, what's best for us.


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## NoRegretsCoyote (22 Feb 2021)

joe sod said:


> Governments need banks aswell. yes the ECB provides the backdrop for negative interest rates but the financial institutions are the means by which they do it.


Not any more. The ECB just holds the government bonds directly now 


 It's a while since I checked, but Irish banks used to keep an unusually _low_ share of their assets in domestic government bonds.


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## Merowig (22 Feb 2021)

john luc said:


> Seems to me we have not learned much from the banking crisis. In that we found ourselves held hostage to failed businesses that we could allow to fail because we ourselves would suffer. What I believe is we need to get as much of our money back from this old carcass and then serve up what's best for our needs. That means means we look to see a possible full integration with financial services in the EU or any other method. The approach should Be, what's best for us.


Ireland is already integrated financially in the EU - we already have a Banking Union - a wider integration (EU wide deposit guarantee) is not in the interest of several other EU countries (Germany, Finland, Netherlands,...) as as they do not want if necessary to bail out savers in countries with subpar governments like Greece or Ireland.

The reasons why foreign banks do not want to operate here was already stated - difficult to repossess homes, high capital requirement with negative interest rates, high costs and low profit.
In Romania 16 foreign retail banks and 6 domestic owned retail banks are operating btw. - you just can't force foreign banks to operate here in Ireland. The conditions are not right and I do not see anything to be changed in the foreseeable future.


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## TinyChamp (24 Feb 2021)

I think we definitely need a third big bank for some basic competition.  Fees are already on the way up in BOI and UB haven't even left the markey yet.

It's a sign of things to come.


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## skrooge (24 Feb 2021)

TinyChamp said:


> I think we definitely need a third big bank for some basic competition.  Fees are already on the way up in BOI and UB haven't even left the markey yet.
> 
> It's a sign of things to come.



NatWest with assets of £800 billion could be considered a big bank but yet it didn't like the looks of Ireland. 

A third Bank like the 2 we have won't solve our problems. It'll just mean a smaller share of the pie for 3 banks with outdated business models.

What we need is something different. 

We're unlikely to get much of that while Ireland remains as toxic to lenders as it currently appears to be.


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## Brendan Burgess (24 Feb 2021)

skrooge said:


> Using your German retail analogy I doubt you'd get a Lidl or an Aldi opening in Ireland if 10% of shoppers wheeled their trollies past the til and told them they'd pay later  All while the local security guard just shrugged.



Skrooge

That is brilliant. 

Expect to see it plagiarised the next time I am talking to a journalist about why we need more possessions.

Brendan


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