The Cedar Lounge Revolution

Was that ‘Yes’, ‘No’, or ‘No, but I want you to think it’s “Yes”‘ April 22, 2011

Sometimes you would need great patience being a backbench TD. On Wednesday, Robert Dowds asked a parliamentary question on a pet topic of mine, co-op banks and mutually owned financial institutions.

  72. Deputy Robert Dowds asked the Minister for Finance in view of the fact that it is likely that in the near future there will be no building societies operating here, if he will ensure that there is diversity in the newly restructured Irish retail financial service sector by using his golden share to convert one of the two new pillar banks into a building society, co-operative bank or other mutual entity. [8681/11]

I know parliamentary tradition means that ministers don’t answer questions with a bare “yes”, or “no”, or “I have not yet decided”, and pad out their answers with a little bit of fluff or guff. So, Michael Noonan’s officials supplied five sentences that made it to the written reply:

Minister for Finance (Deputy Michael Noonan): As the Deputy is aware, on 31 March 2011, I announced a radical restructuring of the Irish banking system. This new domestic banking system will have two universal full-service banks as its core pillars, serving the Irish economy and the Irish people. This restructuring process will, over time, return the banking system to long-term viability and profitability. Key objectives which I have set for the process are to provide a secure financial system for deposits and ensure the flow of credit to Irish consumers and businesses, to ensure the Irish banks are viable financial institutions which can fund themselves without continued support from the State or the ECB and eventually, to dispose of the State’s shareholdings in these institutions to the benefit of the Exchequer. The future strategic direction of the banking sector – including the legal form of the banks – will be guided by a range of factors including the maximisation of the return to the taxpayer from the necessary intervention by the State in the current banking crisis.

That looks to me like a “no, but I’m going to try to mislead you into thinking that it’s a ‘possibly'”. In the single sentence that addresses the substance of the question — the final sentence — the minister says there are a range of factors that will guide the future of banking. However, only one is identified: maximising the income to the State’s finances (which, incidentally, he equates with ‘the taxpayer’ — but which taxpayers will benefit most from that?).

If there was a genuine possibility of the Department of Finance could countenance a co-op bank — if, say, they were pushed hard by a minister open to mutuality rather than acceptance of greed — I would have expected the final sentence might have said something like the following.

The future strategic direction of the banking sector – including the legal form of the banks – will be guided by a range of factors including the maximisation of the return to the taxpayer from the necessary intervention by the State in the current banking crisis and the desirability or otherwise for a diversity of ownership structures in the financial services sector.

Looks like more work will be needed to get diversity of ownership structures forms onto the agendas of DoF officials.

That co-op bank idea January 22, 2011

At the end of November, I mulled here the idea of getting a co-op bank established in Ireland. Sonofstan had suggested that the ICTU would be a useful organisation to act as the catalyst. This week, I will try to get a motion on the topic on the agenda of my own union’s branch AGM. Others are welcome to copy and adapt for their union.

Establishment of a co-operative bank in Ireland

“(1) This ADC notes the following developments in the not-for-profit financial services sector in Ireland
(a) that the EBS is about to be sold to a private company,
(b) that the INBS is also likely to cease trading as a mutual, and
(c) that some years ago the TSB was “sold” by the government to a for-private-profit company.

(2) This ADC notes that in light of those developments, the only options available individuals in Ireland for large financial tasks such as mortgages or many necessary services like a current account or an ATM account is now to bank with a for-private-profit company.

(3) This ADC notes that credit unions may still continue to exist but that
(a) credit unions are restricted in the range of services they can provide, and
(b) under the recently enacted Credit Institutions (Stabilisation) Act 2010, the position of credit unions as membership-driven could be ended under the powers given to Minister for Finance to transfer the business of a credit union, which do not require that any such transfer must be to another not-for-profit.

(4) This ADC believes
(a) that there is a need for an alternative to be created to enable people in Ireland to have a real choice in ordinary retail financial services like credit cards, ATMs, mortgages, cheque books, motor loans, etc., and
(b) that such an alternative could usefully take the form of a co-operative bank similar to ones available to people in other EU countries, and
(c) that the trade union movement has a large enough membership and has the structures and resources to explore the feasibility and to act as the catalyst for setting up a co-operative bank in Ireland.

(5) Therefore, this ADC instructs
(a) the incoming Executive Committee to request the ICTU to investigate the possibility or options for the establishment of a co-operative bank that would provide retail banking services, such as mortgages, current accounts, ATM accounts, and the full range of other retail financial services for individuals (to members generally in addition to, public servants and trade
union members), and
(b) the incoming Executive Committee to campaign vigorously within ICTU on this matter and to report to ADC 2011 on progress achieved or on any related issues of consequence.”

Can we set up a new co-op bank? November 30, 2010

The other day, sonofstan suggested

One very useful, sane and practical thing ICTU could do, and they’re probably the only organisation in Irish society with the resources to do it, is set up a co-op bank.

I would be interested in trying to pursue that suggestion, and in response to sonofstan’s comment said I would try to turn it into a motion for my union branch AGM in the next few weeks. I turn to you, CLR readers, for help with this.

The first question is feasibility: assuming it had the desire to, could Congress set up a co-op bank? The website howbankingworks.ie sets out some requirements for a bank in Ireland:

To obtain a banking licence, the applicant must:-

Have a significant paid-up share capital. The documents available from IFSRA indicate a requirement for IR£5m paid up share capital – this amount has remained unchanged for more than 20 years. IFSRA has powers to amend this amount, and reflecting the change in the value of money in the intervening period, this author is of the opinion that the amount required now would exceed €10m.

Have a demonstrable capacity to access or subscribe such further capital as may be required from time to time

Ensure that there is no dominant shareholder among the group. Any shareholder holding more than 5% would be subject to exceptional requirements. The dominance rule refers to immediate connections of the shareholder. In practice, the holdings of a husband, wife, and children are considered together for calculation of dominance. In practice, the dominance rule suggests that a minimum of 20 shareholders are required, while conforming with the dominance requirement.

Also, it must ensure that the bank’s deposits are not dominated by a single shareholder, or by the top 10 depositors (who together may not exceed 50% of the banks deposits)

Have objectives and a plan which conform to sound banking principles

Establish a legal entity and corporate structure which is suitable for the business of banking, with appropriate board-level controls, internal controls, including risk controls and audit controls, and reporting systems

Board members must be undoubted, and have suitable experience and skills, and IFSRA reserves the right to approve (or reject) individual members.

Ensure appropriate insurance or other guarantees for the fidelity of its staff.

Conform at all times to a range of financial ratios including specified capital adequacy requirements, liquidity ratios, etc.

Put in place suitable systems for control of lending exposure, including exposure to businesses in which a shareholder has an interest

Conform to a wide range of legislation including money-laundering legislation

Participate in the deposit protection scheme

The above list is far from complete, but indicates the nature of the most significant requirements.

It is clear from this that Congress could not own a bank by itself, but that would not be the purpose of a co-op bank anyway. Getting people with the relevant skills would probably take a bit of work with a new bank, but I would be surprised if it were impossible. It might be difficult for Congress to do that, though.

I think the most sensible approach for the coming union conference season would be trying to get Congress and individual unions to do preparatory work rather than jumping straight in with a set of motions instruction them to set up a new co-op bank.

I can identify things that need to be thought about in preparing motions on preparatory work. First, what should that work consist of? If the Congress leadership isn’t highly enthused about this, how would a motion be framed in such a way as to limit (or even prevent) them from swatting it away with a token “feasibility study” and burying it? [Obviously, if somebody senior was determined to kill the idea, it would be difficult to stop them. For example, suppose a decision is made to commission a team of banking, legal, and other experts to prepare an analysis for the next Congress biennial delegate conference. A key official in Congress could steer the research by asking the experts to assess the level of interest in the idea, or to give greater detail in the report on the barriers and risks.]

Second, what is the best way of getting Congress’s attention and involvement? Is it a request from one or two unions at the Congress executive for the establishment of a working group to explore the idea or is it a motion on the floor of the biennial delegate conference?

And third: am I missing anything essential?

Your thoughts on this, fellow CLRers?