Speech
BPFI “Future of Retail Banking” Minister Paschal Donohoe Keynote Speech
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Introduction
Good morning everyone and thank you to Brian and the team in the Banking Payments Federation of Ireland and Nigel and EY for organising what is an interesting and timely conference. It is another sign of normality returning when this event is back in physical “in person” format.
In my remarks today, I will discuss the Retail Banking Review, the need for coordinated support for those customers who have to transition to a new banking provider this year, and finally will update you on the progress of Banking Union in Europe and the discussion at Eurogroup yesterday afternoon.
Review of Retail banking in Ireland
We witnessed significant developments in the retail banking sector in Ireland last year. These included the announcement of bank branch closures, followed by the announcements that Ulster Bank and KBC would withdraw from the Irish market, events which will lead to further reduction in the branch network.
These announcements followed a decade of significant change in the retail banking sector, due to difficult economic circumstances at the start of the decade and the advancements in technology and fintech in recent years. Covid-19 and Brexit further accelerated the rate of change.
The changes we have seen are not just on the supply side of financial services but also on the part of customers and their asks of the sector. Today, when consumers and SMEs need or want a retail banking product or service, many of them don’t look solely to the traditional providers of these services. They can look to the credit unions, An Post, the digital banks, the payment providers, and the many non-banks that provide bespoke products such as mortgages and SME credit.
Many consumers and businesses, where they can, choose to access banking services without ever meeting a bank employee face-to-face. Increasingly, we are seeing consumers and businesses access the products and services they need using remote or digital platforms. For many, these digital platforms provide a seamless and more efficient way to access services. However, for others, these new platforms are a barrier to access, and for these people and businesses, financial exclusion is a concern which we must ensure is addressed.
As a society, and as an economy, we need a functioning banking system that helps households and businesses achieve their financial, economic and social needs. Government, the Regulator and other stakeholders, especially the boards and senior management of the retail banks, need to take decisions now to ensure that transition in the industry is well managed and delivers outcomes that we want and need.
It is critical, that we are not passive in our reaction to sectoral changes, domestically and globally, but rather give proper consideration to what impact they will have and how Government policy should respond.
Therefore, given these developments, it was appropriate that I asked my Department to conduct a Review of retail banking in Ireland, and last November, I published the Terms of Reference of this Review.
We need to take stock of all this change, and the implications of this change.
The focus of Retail Banking Review is on the core retail banking services provided by the sector, such as current accounts, saving accounts, consumer and SME credit, and mortgages. Accordingly, it is not solely about the traditional banks but rather about all providers of these services.
At the core of the review will be the input from stakeholders within and outside the sector - we need to listen and hear what stakeholders have to say. Most importantly, we want to hear your views on developing a sector that is fit-for-purpose, treats consumers and SMEs fairly, and serves the needs of society and the economy.
In two weeks’ time, my Department has organised a Retail Banking Dialogue, which I hope many of you will attend. This day-long event, to be held in Tullamore on May 16th, will be an opportunity to raise issues that you believe need to be considered as part of the Review.
The attendees will come from a cross section of society – ranging from the firms in the sector, to representative organisations and consumer groups, as well as others whose experience and perspective is important and valuable to the work my Department is undertaking.
The Retail Banking Dialogue will also be used as the platform for launching a public consultation on retail banking. The consultation will cover a range of issues, including competition, branch and cash services, as well as consumer choice across the range of products that are within the scope of the Review. In addition, it will seek input on operational matters specific to the Irish retail banking sector.
Critically, and in support of the Government’s Climate Action Plan, the consultation will also address how the retail banking sector can best support consumers and SMEs in moving to a low carbon future. I note that the first session of today’s conference will explore this topic in more detail reflecting I believe, the priority that must be given by the sector to the green agenda.
My Department is listening to key stakeholders in other ways. We undertook a face-to-face survey of 1,500 consumers to learn of their personal interactions and experiences of the retail banking sector. We will publish the results of this survey at the Retail Banking Dialogue, which will enable stakeholders consider the points raised and factor these into their response to the public consultation.
The team from the Department of Finance, responsible for conducting the Review is here today to listen to the various presentations and contributions that will be made. They welcome your views and perspectives. As such, when the public stakeholder consultation is launched, I would ask that you consider the content carefully, and engage fully with the process.
Customer migration to new accounts
While the review looks to the future and is about the longer-term structure of our retail banking sector, it is important to highlight the change being faced by bank customers in the shorter-term. The decision of KBC and Ulster Bank to leave will affect hundreds of thousands of consumers across the country.
I don’t underestimate the challenge being faced by the sector to facilitate this large scale migration of current account and business customers that will take place across 2022. However, it is essential that we keep customers at the heart of the process and minimise the disruption to them.
Since they gave notice of their decision to leave the Irish market, I have emphasised to the withdrawing banks that their departure from the Irish market must be smooth and orderly. I welcome the recent announcements from Ulster Bank and KBC which confirmed that they will provide their customers with 6 months’ notice to close their accounts.
My officials and I are engaging with the Banking and Payments Federation of Ireland (BPFI) to ensure that the remaining Banks are prepared to accept applications from customers who are switching from the closing banks.
The Department will also be monitoring closely the number of accounts that have closed/switched over the coming months and will continue to engage with all stakeholders including the Central Bank and the Competition and Consumer Protection Commission (CCPC) to ensure that the impact on consumers is minimised.
In terms of supports for vulnerable customers, the Central Bank’s consumer protection framework is designed to ensure that customers’ best interests are protected and requires banks to specifically consider the impact of their decisions on vulnerable customers and provide the assistance necessary to reasonably mitigate those impacts and retain access to basic financial services.
We will continue to work closely with the banking sector to make the process as orderly as possible, as you rise to meet this challenge.
Banking Union
Finally, a few words with the second hat I wear - as President of the Eurogroup.
The completion of Banking Union has been on the European agenda for many years.
The reforms we introduced at European level over the last decade played their part in ensuring the resilience of the European economy in the face of the pandemic.
We have made political and institutional strides to ensure that the banking sector is now in a position to contribute to the recovery. Banks continue to play an important role to play in ensuring economic resilience in the face of war.
However there are new challenges to face – in terms of financing the green transition and the increasing digitalisation of the wider economy which will require enormous investment.
Governments cannot provide all of the funding for these transitions. We need the banking sector and capital markets to provide the majority of this funding.
That is why, one of my key priorities is to deliver a work plan on Banking Union. Just yesterday, I convened a virtual Eurogroup meeting to present a detailed proposal for a stepwise and time-bound work plan on all outstanding elements to complete the Banking Union.
I proposed four elements: a stronger framework for the management of failing banks in the EU, more robust protection for depositors, a more integrated market for banking services and increased diversification of banks’ sovereign bond holdings in the EU.
There are two phases for each work stream. In the first phase I propose measures for immediate implementation. In the second phase, following a political checkpoint, are additional, longer-term measures to complete the Banking Union.
At a time of terrible war on European soil, I was encouraged by the contributions of fellow Finance Ministers that shared challenges can foster a shared sense of responsibility.
The time has come to both compromise and to move forward. I have pursued this project with determination. I will continue to put every effort into achieving progress on Banking Union and I will continue to put significant time against this important political issue. I look forward to engaging with industry here in Ireland and across the EU as we finalise the work plan in the coming weeks.
As far as I know, there is no written record of James Joyce’s thoughts on the banking system. But given this year is the centenary of his novel Ulysses, I will call on him nonetheless - “I am tomorrow, or some future day, what I establish today.” The developments I have outlined to you this morning will have wide-reaching implications on the banking system domestically and across Europe tomorrow or some future day and I urge you all to play your part in this today.
Thank you for your time this morning and I wish you well with your conference.