Thursday, August 06, 2009

Strategic need to preserve independence of AIB & BOI

One aspect of the current banking crisis, which appears, to date, to have gone un-remarked, is the strategic imperative of maintaining the “independence” of our two main banks, at least insofar as it relates to ownership by foreign banks.

It now seems clear that the subsidiaries of foreign banks currently operating in Ireland e.g. Ulster, NIB, BoSI/Halifax and ACC, have effectively withdrawn from the new lending market, particularly in the mortgage market and the vitally important SME sector.

If AIB and Bank of Ireland were subsidiaries of foreign banks, there is little doubt that a similar retrenchment policy would be in operation and the ability of the Irish government to influence such a policy would be severely circumscribed.

If AIB was owned by a major UK bank, one can imagine that the discussion in the London boardroom would not be about whether they should dispose of AIB’s US or Polish interests in order to bolster the balance sheet of the Irish subsidiary, it would be about how to downsize or dispose of the Irish unit!

There is understandable public anger at banks and bankers, a “to hell with the lot of them” attitude is commonplace.

This anger is routinely stoked by populist politicians, academics and media commentators who make no distinction between the banks, despite the evidence that some have been considerably less irresponsible than others e.g. IL&P and BoI.
Those commentators might usefully, in future, reflect on the long-term national importance to the Irish economy of maintaining a strong indigenous banking sector.

The current economic crisis will, hopefully, pass within a couple of years, but the national strategic need to maintain local control over key elements of our banking system will persist. At some point in the future, hopefully distant, we will inevitably have another international economic/banking crisis which will test the ability of the Irish economy to survive/revive.

Given the open nature of the Irish economy, we will always feel the pain when our major markets suffer an economic setback. In such circumstances, the Government’s ability to influence events is very limited e.g. our exchange rate is fixed by the ECB, reflecting the perceived need of the larger community rather than Ireland, and our interest rates are largely dictated by our membership of the Eurozone.

The banking system remains one of the key levers of economic power that the Government can influence and we must maintain control of it. Perhaps there is a case for the Government to maintain a long-term minority stake in the two major banks.

No comments:

Blog Archive