Concerns raised over ‘banking duopoly’

CONCERNS about the long-term viability of a two-pillar model for the Irish banking system have been expressed by European competition commissioner Joaquin Almunia, who believes it might not represent a stable competitive proposition.

Speaking at the annual lunch of the Federation of International Banks in Ireland (FIBI) in Dublin, yesterday, Mr Almunia said the prospect of a de-facto duopoly of AIB and Bank of Ireland-led banking groups is understandable in the short-term, but “will require close surveillance, because duopoly may hamper competition in Ireland’s banking market”.

“Looking forward, to the medium-term, this can’t be a stable position. I will react if the two pillar system is seen to increase barriers of entry to the Irish banking market and to cause problems for competitiveness,” Mr Almunia added.

“In the new landscape that is emerging from the crisis, de-leveraging will be key to right-size the banks. The Irish economy needs smaller, more robust and more prudent institutions. We’ll support the Government’s plans to bring the banking sector back to private ownership and to market discipline as soon as possible,” he went on to say, but added that rebuilding Ireland’s banking sector is a complex exercise that will take “quite some time” to complete.

But Mr Almunia also said that he has “nothing but admiration” for the efforts and discipline of the Irish Government and people in their belt-tightening efforts, and is confident that those efforts will pay off.

He was less vocal about the 2008 State banking guarantee scheme — after news reports had quoted him as openly branding it as having been a mistake. Yesterday, he said the guarantee scheme had been “a bold decision“, but that it was also the kind of decision that has “certain consequences”.

Mr Almunia was also subdued on the issue of Ireland’s interest rate onreceived EU aid, sayinghe could understand therequest for rate lowering, but that it wouldn’t be the Commission that decides.

However, on a separate visit to Dublin, yesterday, European Council President, Herman Van Rompuy said policy makers “need to reach a deal” on lowering the interest rate.

Meanwhile, FIBI chairman, Tom Young said there exist plenty of new growth opportunities in the Irish banking market — both for existing activities and new areas such as ‘green’ finance, Islamic finance, intellectual property and payments.