Brendan Burgess
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Michael McGrath got the attached reply from the Cometition and Consumer Protection Commission
Extract
The concerns you raise regarding the current state of the banking sector in Ireland and the nature of competition between banks are well known to the Commission. However, I believe that a further study would not be useful at the present time as it would not resolve the issues inherent in the sector. Furthermore, I believe that the Commission's resources would be more appropriately utilised in other areas where our work could achieve meaningful change. I would point out however that the Commission continues to be active in the sector.
Original letter from Michael McGrath:
Ms Isolde Goggin, Chair of Competition and Consumer Protection Commission
Re: Banking sector in Ireland.
Dear Isolde,
In the first instance I would like to congratulate you and your colleagues on the establishment of the Competition and Consumer Protection Commission and wish you well in the important work you are undertaking. I am writing to you to raise my concerns regarding the state of the banking sector in Ireland and the nature of competition between banks.
I note from your mission statement that the Competition and Consumer Protection Commission is charged with “Investigating and challenging practices that are damaging to consumers and/or the wider economy,” and “Bringing anti-competitive behaviour and practices that are harmful to consumers to an end, where necessary via court actions.” In this context I believe there is a significant role for the Commission in addressing widespread concerns which currently exist regarding competition in the Irish banking sector.
In the UK the Competition and Markets Authority (CMA) has recently concluded that banks in that country have failed to meet the needs of retail and SME customers such as making it easier to switch banks or providing clear information on fees. As a consequence the CMA is launching a full scale investigation in to the banking sector in the UK. I believe that competition issues are even more acute in respect of the Irish banking sector.
As we are all aware there has been a significant reduction in the number of banks operating in the country As a result of the loss of competition, the two pillar banks now command approximately 70% of the current account market. Lack of competition can lead to unhealthy behaviour, most obviously in terms of pricing.
An example of the lack of competition in the market place can been in respect of home loans. The standard variable rate charged by mortgage lenders has converged at around 4.5%, well above the cost of funds incurred by the banks. The interest rate charged to new customers in Ireland is almost 2% above the average rate across European countries. In addition the market for switching mortgage is almost non-existent. New products are extremely rate within the market for home loans and innovations such as allowing people to retain their tracker mortgage when they move home have had very limited take up due to the highly restrictive conditions which apply.
As well as the difficulties encountered by personal customer, SMEs have also raised concerns about how they are treated by banks. In particular the view has been expressed to me that there is a lack of transparency around how credit decisions are taken and the manner in which fees are set. While the Credit Review Office plays an important role it is not in itself a substitute for tackling fundamental difficulties which exist in the sector.
Now that the ECB stress tests have been completed there is an opportunity for the banking sector in Ireland to enter a new phase. It is my belief that there is a need for a full examination of how the sector operates with clear recommendations for remedial action where needed. The Competition Authority report “Competition in the (non-investment) banking sector in Ireland” published in September 2005 was a very important piece of work and indeed noted that “that competition between banks for core banking services was actually limited and largely superficial.” While we operate in a much changed banking environment since then it is clear that competition has diminished further.
I would therefore request that the Commission invoke its powers under the Competition and Consumer Protection Act 2014 and initiate an investigation in to the banking sector in Ireland. I believe this has the potential to be of significant benefit to individual customers and also benefit the wider economy. I trust you will give consideration to my suggestion in this regard.
Extract
The concerns you raise regarding the current state of the banking sector in Ireland and the nature of competition between banks are well known to the Commission. However, I believe that a further study would not be useful at the present time as it would not resolve the issues inherent in the sector. Furthermore, I believe that the Commission's resources would be more appropriately utilised in other areas where our work could achieve meaningful change. I would point out however that the Commission continues to be active in the sector.
Original letter from Michael McGrath:
Ms Isolde Goggin, Chair of Competition and Consumer Protection Commission
Re: Banking sector in Ireland.
Dear Isolde,
In the first instance I would like to congratulate you and your colleagues on the establishment of the Competition and Consumer Protection Commission and wish you well in the important work you are undertaking. I am writing to you to raise my concerns regarding the state of the banking sector in Ireland and the nature of competition between banks.
I note from your mission statement that the Competition and Consumer Protection Commission is charged with “Investigating and challenging practices that are damaging to consumers and/or the wider economy,” and “Bringing anti-competitive behaviour and practices that are harmful to consumers to an end, where necessary via court actions.” In this context I believe there is a significant role for the Commission in addressing widespread concerns which currently exist regarding competition in the Irish banking sector.
In the UK the Competition and Markets Authority (CMA) has recently concluded that banks in that country have failed to meet the needs of retail and SME customers such as making it easier to switch banks or providing clear information on fees. As a consequence the CMA is launching a full scale investigation in to the banking sector in the UK. I believe that competition issues are even more acute in respect of the Irish banking sector.
As we are all aware there has been a significant reduction in the number of banks operating in the country As a result of the loss of competition, the two pillar banks now command approximately 70% of the current account market. Lack of competition can lead to unhealthy behaviour, most obviously in terms of pricing.
An example of the lack of competition in the market place can been in respect of home loans. The standard variable rate charged by mortgage lenders has converged at around 4.5%, well above the cost of funds incurred by the banks. The interest rate charged to new customers in Ireland is almost 2% above the average rate across European countries. In addition the market for switching mortgage is almost non-existent. New products are extremely rate within the market for home loans and innovations such as allowing people to retain their tracker mortgage when they move home have had very limited take up due to the highly restrictive conditions which apply.
As well as the difficulties encountered by personal customer, SMEs have also raised concerns about how they are treated by banks. In particular the view has been expressed to me that there is a lack of transparency around how credit decisions are taken and the manner in which fees are set. While the Credit Review Office plays an important role it is not in itself a substitute for tackling fundamental difficulties which exist in the sector.
Now that the ECB stress tests have been completed there is an opportunity for the banking sector in Ireland to enter a new phase. It is my belief that there is a need for a full examination of how the sector operates with clear recommendations for remedial action where needed. The Competition Authority report “Competition in the (non-investment) banking sector in Ireland” published in September 2005 was a very important piece of work and indeed noted that “that competition between banks for core banking services was actually limited and largely superficial.” While we operate in a much changed banking environment since then it is clear that competition has diminished further.
I would therefore request that the Commission invoke its powers under the Competition and Consumer Protection Act 2014 and initiate an investigation in to the banking sector in Ireland. I believe this has the potential to be of significant benefit to individual customers and also benefit the wider economy. I trust you will give consideration to my suggestion in this regard.
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