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Monday, 15th April 2024
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Banking group explains liberal stance on takeovers Back  
The Department of Finance and Central Bank review of strategic issues in the banking sector has chosen a liberal stance on the issue of political approval of mergers and acquisitions in the Irish banking sector. The Minister for Finance should no longer have to vet mergers and acquisitions of Irish banks, the banking review group said, despite arguments from some industry participants that the common good required some intervention in foreign takeovers.

The report recommends that the Minister for Finance should cease to have a direct role in approving significant bank mergers, and says they should instead be explicitly brought under Mergers and Acquisitions law. It also expressed scepticism about any advantages to the emergence of a single, dominant domestic bank.

The review group’s view is set out in an appendix analysing ‘common good’ reasons for the Minister for Finance’s intervention. However, some participants in the banking industry appear to have favoured the retention of a role for the Minister for Finance in relation to takeovers of domestic by foreign banks. The review group reported ‘a view among many of those consulted by the Group that the maintenance of headquarters decision-making functions by banks within Ireland was a common good consideration which should be taken into account’. The review group received eight submissions in the course of the last six months and actively sought the views of banks and building societies which did not make written submissions.

The report concludes that the ‘greatest scope for cost savings would be through a merger of the two major banks or the takeover of both by one purchaser’. It did not see much scope for cross-border acquisitions of Irish banks based on cost-cutting grounds ‘because of the relative inefficiency of the major banks in Ireland’.

Given the roles of the Minister for Enterprise, Trade and Employment and the Central Bank, the review group took the view that the Minister for Finance’s role was redundant.

The group said that foreign takeovers created a risk of negative consequences for the Irish economy overall. But it added the risk for the Irish economy might never be realised, and instanced two problems with justifying a public policy that would discourage such takeovers. First, ‘what price is Ireland willing to pay to avoid such an unquantifiable risk that foreign takeovers might lead to negative results for the domestic economy overall?’ The price identified was that, ‘a concomitant of discouraging foreign bank takeovers would be a greater willingness to facilitate mergers between domestic banks’. The review saw no public policy advantage to this outcome.

Second, the report asked, ‘can such an approach be reconciled with the wider policy framework for the development of the Irish economy?’ The answer was no, on the basis that the economic framework includes the promotion of the Irish economy within a single European market. The disadvantages ‘will be more than offset by the benefits arising from the integration in the European economy on the basis of the efficiencies achieved on a Europe-wide basis.

The review group concluded, ‘common good’ considerations arising in relation to foreign ownership of Irish banks should only be reflected in a manner consistent with wider policy goals and commitments of Ireland and in line with overall competition policy’.

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