Leading economist calls for not-for-profit bank

ONE of the country’s most senior economists has called for the setting up of not-for-profit state bank as part of a radical transformation of the failed Irish banking sector.

In a new book published today Professor Ray Kinsella calls for the establishment of a state-capitalised, not-for-profit, “plain vanilla” bank as a key step in reforming the banks.

In Rebuilding Trust in Banking (Vonier Press), Prof Kinsella calls for far reaching changes to be made in the Irish banking sector, now heavily reliant on the state for their very survival.

Prof Kinsella in the book argues it is unjust that the catastrophic losses incurred by credit institutions should be mopped up by the taxpayer while at the same they proceed to rebuild their balance sheets “at an enormous social cost” without making any real impact on their failed business model.

On the controversial issue of NAMA, Kinsella argues the costs are so enormous and the consequences so great for us all that “the proposals should have been put to the public for endorsement before implementation”.

In his book he endorses the Government’s decision to establish a Central Bank Commission, which gives back to the Central Bank responsibility for maintaining the stability of the banking system.

The new commission should be modelled on the German supervisory system, he said.

It should have the necessary expertise required to do the job while being broadly representative of the society it is there to protect.

He also regards mergers within the sector as a necessary part of the reform.

In the case of the new bank he said “the establishment of a state-capitalised/guaranteed Narrow Bank would support medium-term policies aimed at growing the economy”.

The key theme of Kinsella’s book is that a sustainable recovery requires aligning the goals of politics and of business – including credit institutions supported by the state to advance the lot of everyone.

He argues that the overriding interest of the new financial system will have to put a major focus on: “individuals’ families and the wider society instead of the kind of pressure-driven financial targets which have precipitated this ethical catharsis in Western corporate capitalism”, he said.

This economy cannot “cut” its way out of the problems that confront us as we seek solutions to the dilemmas facing our economy, he said.

Spending cuts on a large scale would od serious long-term damage

Such cuts would be a disaster and will lead to an “emaciated economy incapable of generating domestic growth or catching the tide in the recovery in our main export markets”, he warned.