Ireland has the least competitive banking environment in Europe
David McWilliams: Politicians and economists differ over way forward for Irish economy - but who is right?It is not only strange, it is profoundly dysfunctional and should be the number one concern of our Central Bank because if the banks are not lending, monetary policy is not working – and monetary policy is the Central Bank’s mandate.
The core of the banking problem in Ireland is a lack of competition. We need more banks competing with each other to finance the growing economy. The reason the banks “cheat” customers out of income interest is because they can. The reason they don’t lend is because they don’t have to lend to make the money which they are robbing from the savers. The chief executive of a bank can suppress lending and take profits by cheating savers. The banking system is broken, yet banks make huge profits.
The economy booms here because of a small number of huge companies in most sectors rather than many smaller companies fighting for market share The Central Bank must make it more attractive for other banks to come into Ireland. This means less not more red tape, regulation and paperwork. Talk to anyone in the retail banking business in Ireland and they will tell you that the Central Bank is strangling competition. They would say that of course but nonetheless we have ended up with the least competitive banking environment in Europe.
As a policymaker, you’d have to try hard to make that counterintuitive outcome a reality but the Department of Finance and Central Bank together have made it happen. Ireland has the credit reality of a third-world country side by side with a financial sector that competes with the world’s best. Is it any wonder the punters are clamouring for change?
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