Bank deregulation could save €1.2bn

GREATER competition among banks would save the economy €1.2 billion annually, according to a new report.

Both personal customers and the small firms sector stand to save €524m in interest payments annually.

The economic impact of the lower charges would add €700m to the country's annual GDP figures.

Commissioned by Bank of Scotland Ireland (BoSI) from Compecon Economic Consultants, the report is part of the bank's campaign to generate reform in Irish banking.

Other key findings include:

Real competition would lower personal overdraft interest rates by up to 2.5%.

Similar reductions in SME borrowing rates.

Competition seriously lacking in money transmission services, unsecured lending, personal banking and SME banking.

The report concluded the following reforms were needed to bring about the €1bn-plus savings:

The setting up of an independent process to reform the money transmission system.

A revised voluntary bank code to allow greater account switching by personal and SME customers.

The removal of regulation of bank charges.

Increased price transparency to facilitate shopping around.

Allowing banks access to the An Post network.

Such radical changes should result in better rates paid on deposits for personal and SME customers and lower borrowing costs, said the report.

Other benefits would include a reduction in the time to clear payment transactions and the payment of interest on current accounts.

Commenting on the findings, Pat Massey, managing director of Compecon, said: "Restrictions of competition, such as those identified in the banking industry, increase the share of the cake that goes to producers at the expense of consumers while simultaneously reducing the overall size of the cake."

"Increased competition in banking services would thus provide significant benefit to bank customers by lowering prices and would also yield wide benefits to the economy."

Commenting on the report's conclusions Mark Duffy, chief executive BoSI said: "The report confirms what we have consistently maintained competition pays. The current lack of genuine competition in Irish banking is putting the country at a competitive disadvantage and costing consumers dearly."

This report, penned by the former chairman of the Competition Authority, makes clear that more than €1bn per year will remain in the pockets of consumers if the changes are implemented, said Mr Duffy.

The Irish Payment Services Organisation (IPSO) has condemned the report.

In particular Stewart MacKinnon, chief executive IPSO said allegations membership was refused to other banks wishing to join the money transmission system were without foundation.

In 1995, the Competition Authority concluded no such evidence of deliberate exclusion existed.

Ironically that report was signed off by the same Patrick Massey, he said.