If PTSB returns to private ownership following the proposed sale of the Government’s 57 per cent stake in the bank, it will finally draw a line under the massive State intervention in the sector during the financial crisis.
The Government had to inject some €64 billion into the Irish banks in the years following the 2008 financial crisis to stave off a collapse of the sector and while a significant amount of cash has been recouped, the financial and economic price has been enormous.
It is unsurprising that there has been little sympathy for bankers in the intervening period. Some Opposition parties have opposed the State selling down its stakes in the banks on the basis that government control was the most effective way of ensuring that there would never be a repeat of the reckless lending standards that caused so much damage in the years leading up to the 2008 crash.
While this position is understandable, it is akin to fighting the last war. The Single Supervisory Mechanism (SSM) was established in 2014 as part of the European Central Bank oversight of EU banking and it imposes a strict regulatory regime on banks operating in the bloc. It is an independent body that is impervious to pressure from banks whether they are in private or state ownership.
RM Block
One of the promised benefits of EU Banking Union is that it would pave the way for much greater mergers and acquisitions across the region, which would promote cross-border financial flows. A positive outcome from the sale of PTSB would be if it was acquired by one of the bigger, well-resourced EU financial institutions.
In 2007, there were six domestic retail banks and a raft of foreign owned banks serving the economy. A combination of intense competition with light touch regulation proved to be a toxic mix. Now there are only three domestic banks – Bank of Ireland, AIB and PTSB – and just one new entrant, Bankinter, a Spanish-owned bank, which owns Avant. Other non-bank players compete in the mortgage market, while savers can get access to EU bank products.
Whereas in the noughties there were too many banks for the needs of the economy, now there are too few. A potential benefit of the sale of PTSB is increased competition from a player with the resources to take on the two bigger lenders and to help to fund housing development here. Irish financial institutions need to play a greater role in this latter area and the Government is looking at ways in which State involvement could help.
The State will continue to have a big role in the housing market, but ownership of financial institutions does not seem to be a necessary part of this. And a significant new player could play a useful role in boosting competition in all areas of banking. The healthy profits being earned by the big two may well attract just such a buyer.
