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Dan White: The virtual disappearance of any competition in the banking system will cost customers dear

Taxpayers and bank customers, usually the same people, have been hit with a double whammy.

As taxpayers they will have to foot the huge €70bn bill, in reality closer to €100bn, for fixing the banking system unassisted, while as bank customers they face a future of higher bank charges and dearer loans due to the restoration of the old AIB/Bank of Ireland duopoly.

I tried as hard as I could to extract some sort of positives from the government's latest set of announcements on the banking system, I failed miserably. And no wonder. There was nothing in them but bad news for either taxpayers or bank customers.



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Even if, and that's an awfully big 'if', the cost of bailing out the banks holds at €70bn, the Irish national debt is set to hit €250bn by the end of the bailout deal in 2013. This includes a €140bn 'official' national debt, the latest €70bn and the €40bn of NAMA bonds issued to the Irish banks when the government's 'bad bank' bought their bad property and construction loans.

That's twice the value of the goods and services which will be produced by the Irish economy this year. It's more than six times the forecast level of tax revenues by 2014.

How do you make those numbers add up? The answer, of course, is that you can't. Some sort of Irish sovereign debt default now looks inevitable by 2013 as the public finances finally collapse under the huge burden that has been placed upon them by the combination of our unwillingness to eliminate the budget deficit quickly enough and the escalating cost of bailing out the banks.

Even before that happens, Irish taxpayers can look forward to a raft of new taxes, including a property tax, and higher rates for existing taxes, almost certainly including income tax.

Just as Ireland Inc collapses into bankruptcy, bank customers will find themselves having to deal with the most over-capitalised and expensive banking system in Europe. The Government is proposing to restructure the banking system around two 'core' banks, AIB and Bank of Ireland. EBS is being forced into a shotgun marriage with AIB while Permanent TSB will almost certainly be subsumed into Bank of Ireland.

This will result in the recreation of the old AIB/Bank of Ireland duopoly in an even more extreme form. And what is this likely to mean for bank customers? To get an idea of the likely consequences of the disappearance of bank competition, we need only look back to what happened as recently as the late 1980s and early 1990s.

In the new back to the future world of Irish banking, we will see frequent loan famines where the banks, no longer able to readily access loans from overseas banks, ration mortgages and other loans to customers.

Those customers who are lucky enough to be approved loans will have to pay a top whack interest rate. Meanwhile, interest rates for savers will be cut to the bone and bank charges will soar as the banks, not having to worry about competition, squeeze every last cent from their customers.

This combination of higher taxes and dearer banking will have devastating consequences for the Irish economy as the banks and the exchequer bleed us dry. Those of us still in employment will be working for the banks and the government, not the other way around.

We will be the economic equivalent of the worker bees condemned to endure a lifetime of toil ensuring that our masters, the exchequer and the banks, are kept fed.


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