Honohan concerned state bank did not need licence

The Government dropped the term ‘bank’ from its Strategic Banking Corporation of Ireland (SBCI) after concerns were expressed by Central Bank governor, Patrick Honohan.

This is revealed in correspondence between Mr Honohan and Minister for Finance Michael Noonan on the launch of the corporation, which the Government initially labelled the ‘Strategic Investment Bank’.

The Government last year established the SBCI with an initial €800m of funding to be made available in loans for the SME sector.

The correspondence — released in response to a Freedom of Information request — shows that in a letter to Mr Noonan on July 14 last, Mr Honohan expressed “concern and disappointment that the Central Bank was not sufficiently consulted on the development of the bill, particularly in light of the fact that the bill proposes to exempt the Strategic Banking Corporation (SBC) from the obligation under the Central Bank Act 1971 to obtain a banking licence.

He noted in particular that, “if the entity were to be privatised at some stage in the future, the consequence of the bill, if enacted in its present form, could be the creation of a sizeable, unlicensed, privately-controlled banking corporation exempt from the Capital Requirements Directive”.

Mr Honohan said that “this would be a most unfortunate consequence, which I feel cannot be the intention of the Government or the Oireachtas. A small amendment to the bill could be proposed even at this stage to remove what I see as a technical defect”. He also noted that the bill “allows the minister to sell shares in the SBC. It is a matter of serious concern for the Central Bank that the SBC could ultimately transfer to private ownership, but continue to benefit from the exemption from having to obtain a banking licence”.

In response, Mr Noonan wrote on July 17 that, “as it is not intended that the SBCI will take deposits, it would therefore not require a banking licence, aside from the requirement deriving from the use of the term ‘banking’ in its name. Should the SBCI propose to accept deposits in the future, it is my intention that it would not do so without first being granted a banking licence”.