January 2014        

Central Bank boss predicts a three-way banking split

Over recent years Socialist Voice has been warning that the future of the credit union movement is at risk, along with other banking sectors. Now our warnings are coming to fruition. Recent proposed changes from the head of Irish banking underline our warnings.
      The governor of the Central Bank, Prof. Patrick Honohan, has said that a recent review of bank assets has been a very elaborate and expensive exercise involving thousands of file reviews. Describing it as a “ground-clearing exercise,” he said the review was intended to cover much the same ground as the asset quality review organised by the European Central Bank. This review is part of the move to a single European banking regulator.
      Prof. Honohan said the EU-level tests will be carried out in the same way, with “communication between the central bank and the commercial banks.” He also set out his view on what Irish banking may look like by the end of the decade. And it is this vision that gives cause for alarm.
      Honohan said he foresees a three-way division, with transnational business and very wealthy individuals served by a few big international banking groups. Then there will be a group of Irish-owned banks concentrating on serving the middle market, with an emphasis on Irish small and medium enterprises.
      Finally, a community banking sector will serve small and micro-businesses. In other words, there will be change to the credit union sector. This move puts alarm bells ringing among community and social activists.
      In the past, Honohan has acted as a mouthpiece of Irish capitalism as it welcomed the tightening embrace of the EU and transnational imperialism. His claim to regulate was a fairly shallow one as he sat on his hands and chose to ignore failures in regulating the big banks and financial institutions. But despite the openly fraudulent activities of the banking chiefs, no-one has still been prosecuted for any crime. A public inquiry into the banking scandal has been repeatedly delayed, ostensibly because of Garda investigations.
      Meanwhile politicians and government figures such as Honohan stand accused of protecting bank executives, presumably in the hope of limiting their own exposure to scandal and prosecution.
      First the credit union movement was subject to severe scrutiny, instigated by Charlie McCreevy and his mates. This scrutiny was designed to bring it under the thumb of local capitalism. As minister for finance, McCreevy set out to treat the credit unions in the same way as banks, in effect ignoring the fact that they are a voluntary, non-profit movement.
      Honohan’s move effectually copperfastens that process. He has stated that “there will have to be consolidation in the credit union sector,” which will lead to “a dilution of the very local control enjoyed by the members of some very small town-based credit unions.” This vision foresees “several dozen mutually owned community banks operating at county or large-enterprise level,” instead of the present credit union structure of some four hundred individual credit unions.
      Honohan adds that “operating a modern credit union requires a greater degree of organisational skill than in the past, and the inevitable intensification of regulatory burden has also contributed to the need to reduce overall operational costs by consolidation, while still retaining a sufficient local presence.”
      To say that national banks need not be pressed to reduce in size or split into regionally or sectorally specialised sub-units is not to dispute the value of the community bank. A community bank may be able to offer the range of retail services that low or middle-income households and small and micro-businesses require even if operating on a scale well below €1 billion—and do it professionally and efficiently, and with sensitivity to local conditions.
      Already we have a large involvement in community banking with an astonishingly deep credit union sector: it has a massive penetration measured by the ratio of accounts to population. Its governance is mutualistic rather than capitalist: this strengthens the bonds between the members.
      The sector is also very fragmented, with almost four hundred separate credit unions around the country. But it is quite large in aggregate, reporting almost €14 billion in assets. It is a juicy target for any merchant of greed.
      The move to amalgamate the credit unions into bigger units is well recognised as an essential step towards a takeover, with ordinary member paying the tidy-up process from which the ultimate owners will benefit.
      Now is the time to stop even more bank robbery and get stuck in to campaigns for saving credit unions—the mutually owned people’s bank.

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