Monday 27 January 2020

Mixing banking and politics is a recipe for disaster

NEXT Wednesday, National Irish Bank will close all 27 branches and then re-open a handful of business centres under the Danske brand.

More than 100 employees have lost their jobs as the bank shrinks the range of services on offer and its branch network.

The fate of NIB's workers underlines once again the contrasting fortunes of those in the state-owned banking sector and those in the private sector.

The lavish pensions and salaries for some bankers working in state-owned banks have renewed public anger about a system that often appears to allow the banks to adopt the most advantageous elements of private and public sector work practices.

In truth, it is time for the Government to decide once and for all on the status of the state-owned banking sector. Either the banks are independent institutions that just happen to be owned by the State, or they are instruments of the State and must bend to the will of their masters.

The present hybrid system where ministers order the banks to lend the guts of €3.5bn a year but cannot make changes to mortgage rates or bankers' salaries simply does not make sense.

There are powerful arguments to be made on both sides. The arguments for state intervention include the fact that Irish bankers don't really know much about banking.

Most of them have specialised in property lending for years and are not even very good at this. The banks have shown themselves to be greedy, deceitful and foolish again and again over the past few years.

Governments are also responsive to the public's suffering in a way that most bankers will never be.

There is undoubtedly a role for state intervention to prevent banks from crucifying borrowers who were conned into taking out loans or forcing banks to act fairly and stop hiking mortgages for those unfortunate enough to have variable mortgages.

And yet, I firmly believe it would be better for the Government to keep out of the banking sector entirely and build a huge firewall between the banking and the political system.

BANKING and politics is a toxic mix that could end up destroying our democracy. Both the political and financial systems are corrupt enough already; mixing them is playing with fire.

Bank chiefs will say they are often cornered by TDs, particularly after Oireachtas committees, who start by talking about national issues but almost always bring up the pain of some local constituent who is under pressure paying down debts at the bank.

Clientism comes first in Irish politics. And it was always only a matter of time before ministers and deputies started lobbying banks on behalf of constituents -- with disastrous effects.

Business is naturally tempted by all the talk of forcing banks to lend to companies, but they too often miss the fact that there is a credit draught in almost all countries at the moment.

The unpleasant truth is that companies are going to have to get used to borrowing less in the years ahead.

Forcing banks to lend to companies is only a stop-gap measure that will end up costing prudent companies who will have to pay more in tax to support failed lending. The easy credit party is over everywhere.

A third reason why banks should be moved as far as possible from government hands is that the State cannot, and should not, own and regulate services. We have seen this with the mess surrounding the personal insolvency legislation.

The Government does not seem to be able to come to any sort of decision that might damage its own interests, but this delay is only serving to prolong the crisis.

Most bankers are probably paid too much. It is difficult to justify the salaries and pensions paid to many of the people who figured in the media this week.

But in our justified rage and eagerness to bring the banks to heel, we should not forget that the banks are not another arm of the State, and bankers should not be at the beck and call of politicians unless we want a political and banking system that is even more imperfect than the existing one.

Irish Independent

Also in Business