The Minister for Finance, Mr McCreevy, has strongly criticised the banking sector, effectively accusing it of charging exorbitant rates of interest to customers until it faced aggressive competition from the Bank of Scotland.

Addressing the Institute of Bankers' annual dinner last night, Mr McCreevy stressed the need for customers to be able to trust the banks to offer them competitive interest rates. He said he had been disturbed by some of the revelations of certain practices in the banking sector and suggested it was now timely to undertake a strategic review of the industry.

"A bank's duty to its customers is crucial. As well as providing a service on commercial terms, you also have a duty of care - one that should take your customers' best interests into account," the Minister stated.

He added he had been disappointed that it took the arrival of an aggressive foreign competitor - Bank of Scotland - to force the Irish banks to offer lower mortgage interest rates. Mr McCreevy said it was appropriate for the Government and the banking industry to tackle these competitive issues and invited the banks to meet him before the end of the year to discuss these issues. "There will be issues under the industry's own control that will have to be tackled. Also, there may be aspects of Government policy that will be reviewed to facilitate change," he said.

Disturbing revelations that had emerged in recent years in some parts of the banking sector must also be addressed, he said. The probity and standards followed by the banking system had always been key elements in maintaining the proud record in the industry and must be kept that way in the future, he told members.

"I would call on everyone concerned within the banking industry to review their corporate governance and compliance and control systems to ensure that the highest standards apply across the industry."

This is the first time a Minister for Finance has directly accused the banks of maintaining artificially high interest rates.

Mr McCreevy has also hardened his own approach. When National Irish Bank was revealed to have facilitated tax evasion by marketing unauthorised offshore products last year, the Minister played down the scale of what had been uncovered. Last night, Mr McCreevy emphasised the Government's plans to introduce new arrangements for the regulation of the financial sector and the need for greater consumer protection.

In his address, Institute of Bankers' president Mr Brian Goggin referred to the recent "very painful critical analysis" of the industry which had taken some of the gloss off what was a period of remarkable growth.

He warned, however, that the various inquiries which are currently under way into various financial institutions ran the risk of "demonising" individuals and businesses unjustly by suggesting an entire group of people were seeking to exploit every opportunity to gain an illicit advantage.

Full text of the Minister's speech at The Irish Times on the Web: www.ireland.com