Friday 22 November 2019

Government dropped term 'bank' from SBCI after Honohan concerns

Patrick Honohan,Governor Central Bank Pic Tom Burke 30/4/14
Patrick Honohan,Governor Central Bank Pic Tom Burke 30/4/14

Gordon Deegan

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

Th concerns were revealed in new correspondence between Mr Honohan and Finance Minister Michael Noonan, on the launch of the new banking corporation that the Government initially labelled the 'Strategic Investment Bank'.

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

The correspondence - released in response to an FOI request - shows that in a letter to Minister Noonan on July 14, Mr Honohan expressed his "concern and disappointment that the Central Bank was not sufficiently consulted on the development on the Bill", particularly in light of the fact that the Bill proposes to exempt the SBC from the need to obtain a banking licence.

Mr Honohan said that if the SBC were to be privatised in the future, the consequence of the Bill "could be the creation of a sizeable unlicensed privately controlled banking corporation exempt from the Capital Requirements Directive (CRD)".

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." The Central Bank governor also pointed out 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 - irrespective of its activities or future activities.

In response, Minister Noonan wrote on July 17: "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."

Minister Noonan stated that it was "regrettable that there was limited opportunity for consultation" but pointed out that the Central Bank was first consulted about the specific amendments on June 20 and on June 30. Minister Noonan said that given the tight timelines to establish the SBCI,

"we would propose that the legislation proceed as it is".

However, Minister Noonan said that his Department would undertake to specify in the company's memorandum and articles of association restrictions that activities regulated by the Central Bank may not be undertaken without first receiving a bank licence.

Minister Noonan said that he has no intention of selliing shares in the SBCI.

Irish Independent

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