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Bank 'duopoly' must not stifle competition, says Almunia

THE creation of the two 'pillar' banks may cause competition problems in the future, a top EU official has warned.

EU Competition Commissioner Joaquin Almunia told a banking conference in Dublin that while focusing on Allied Irish Banks and Bank of Ireland had been the "solution" to the problems that engulfed the Irish banking system, it must not prevent other lenders entering the Irish market.

"As a result of the Irish authorities' strategy to build the new banking system on two pillar banks, Bank of Ireland and AIB will work in a de facto duopoly in the Irish market," he warned.

"This prospect will require close surveillance, because duopoly may hamper competition in Ireland's banking market.

"We need to make sure that a competitive fringe of new entrants can take advantage of the improved economic environment when demand picks up again. Ireland needs an open and contested market for financial services and products to finance its growth in the future."

Speaking to reporters after his speech to the Federation of International Banks, Mr Almunia said: "everyone recognises this dual system is the solution [to the current problems] but we need to observe in the coming years if barriers to entry for new competitors will not avoid competition, and [if] a new entrant to the bank system in Ireland comes to us and says 'these barriers are not consistent with treaty rules [on competition]' we will open an investigation."

Mr Almunia declined to comment on Finance Minister Michael Noonan's proposal to impose losses on holders of unsecured senior debt in Anglo Irish Bank and Irish Nationwide (INBS) but warned there would be "consequences" if the Government does decide to "burn" bondholders.

Irish Independent