Former central banker Willie Slattery, now head of IFSC group StateStreet, believes Irish banks are undeserving of most of the criticism they attract, writes Una McCaffrey.

Mr Willie Slattery, well-known champion of Dublin's International Financial Services Centre (IFSC), has learned from experience that, when he raises his voice, people tend to listen.

A former high-ranking central banker, he caused ructions a few years ago when, after moving into the private sector, he openly worried about the pace of growth in Irish mortgage lending.

As borrowing surged beyond all predictions and prices soared, home-buyers were facing a "crucifying dilemma", he warned, unsurprisingly attracting much media attention as he did so.

Headlines were made more recently too when, in his capacity as chairman of bankers' representative body Financial Services Ireland (FSI), Mr Slattery stood beside the Minister for Finance, Mr McCreevy, at an industry lunch and tore shreds off his plan to impose a €300 million levy on the financial sector.

He went on to take the decidedly unfashionable stance of defender of the Irish banking sector and its capacity to generate enormous profits.

Mr McCreevy, surrounded by a room full of bankers with access to sharp knives, had little choice but to let him talk.

Mr Slattery, who heads major IFSC funds operation State Street, genuinely believes that Irish banks are undeserving of most of the criticism they attract. In fact, he has consistently argued that we should all be happy to have a "strong, profitable" banking system, which separates the Republic from many of its international competitors.

"It's important to realise that banks that are well-regarded have an overall positive impact on the economy," he says. "They're well-regarded because they're well-managed and profitable."

He asks which banking system the detractors would prefer to live within, comparing German banks' lending problems with the financing abilities of their Irish counterparts.

"We have to be careful in terms of what we wish for," he cautions.

"Banks can only finance growth in lending if their capital increases by the same amount. Without profits, they cannot focus on lending."

He also underlines the importance of Irish banks being Irish-owned so that strategic decisions on their future are made at home, a point that has been echoed by the Minister for Finance over recent months.

"Do we want to weaken them to the extent that they become vulnerable to takeover?" asks Mr Slattery. "The biggest defence against takeover is that thy are strong and profitable."

Mr Slattery had a personal taste of takeover activity earlier this year, when Boston-based State Street took over the operations of Deutsche Bank in the IFSC and Kilkenny.

He first joined Deutsche Bank in Dublin in 1996, months before its parent fell prey to irregular trading losses of about £400 million sterling (€580 million) linked to fund manager Peter Young.

The crisis, which attracted much attention when Young appeared for his fraud trial at the Old Bailey immaculately dressed as a woman, led to Mr Slattery taking up a compliance role with the bank in London.

He later progressed to the position of head of risk management with Deutsche's asset management arm, eventually arriving back in Dublin as chief executive of the IFSC operation in 2002.

State Street (as it is now known), which employs 800 people in the Republic, is typical of the many large, quietly successful companies that have grown within the IFSC within the past decade.

Its name is unrecognisable for most of the population and few, if any, have a clear idea of what it actually does.

For the most part, this suits members of the IFSC community just fine, since they traditionally serve international markets and have little need to sell themselves to Irish customers.

Mr Slattery is a touch concerned that the IFSC's profile may have sunk just a little too low over the past couple of years, however.

He says he has a feeling that the ending of the IFSC's "specific tax environment" may have resulted in less pro-active efforts from bodies such as the IDA on marketing the Republic as a centre for international financial services.

"It's not as easy to get the attention of the authorities," he says.

Recognising that the international financial sector has had a rough ride of late, as markets plunge and corporate activity dries up, Mr Slattery is worried that the IFSC is losing its competitiveness against other centres, such as Luxembourg.

Moreover, he says, the Republic's low taxation rate, which has provided the basis for the IFSC, remains "under threat" from opposing influences within the EU.

It was for this reason that Mr Slattery actively pushed for a "Yes" vote in last year's Nice Treaty within the "IFSC For Yes" grouping.

"Much of this regime relies on the goodwill of the European Commission or other member-states. A situation where we're seen to be semi-detached from the European project and taking from the European table rather than contributing will definitely be negative."

Irish regulation, company law and underlying taxation provisions all require attention, with burdensome measures contained within the Companies (Auditing and Accounting) Bill 2003 particularly problematic, according to Mr Slattery.

The licensing of hedge funds should also be emphasised, he says.

He argues that such efforts are required, now more than ever, as companies facing into cost pressures seek to lighten the load by reducing staff numbers.

"Not only will employment not grow but it may decline. I think there may be redundancies in the IFSC this year," he predicts, adding quickly that State Street is "very committed" to its Irish operations.

Back in the domestic banking industry, Mr Slattery still has concerns about lending growth in the Irish economy, but acknowledges that it started from a low base in pre-boom years.

The same argument applies to the banks' profitability, he argues, attributing the current state of the banking nation largely to a "cyclical element".

"We're at the tail end of the single-most positive banking cycle or lending cycle any of us can remember," he says. "As we go into a weaker economy, profitability may not be as strong and bad debts are likely to be a little bit higher. It's not right to measure banks' profitability at a particular point in time."

Mr Slattery denies a direct correlation between substantial banking profits and high prices for consumers. The sector requires deregulation rather than an increased regulatory burden, he argues, claiming that excessive regulation will ultimately reduce innovation and add to costs for customers.

He says the sector is competitive, particularly in the area of mortgages, and attributes perceptions that competition is weak in part to customer inertia.

"You do have the capacity to argue about rates with your bank manager," Mr Slattery suggests, going on to reject the notion that banking services are, in many cases, cheaper in other markets such as the UK.

"You can't take one service and isolate it. What service is and what competition is - you have to look at it in the round."

The incoming regulator, the Irish Financial Services Regulatory Authority, must not treat an over-emphasis on consumer regulation as if it is "a panacea for all issues faced by consumers", Mr Slattery says, pointing out that bad regulation can have "a stultifying effect" on business.

As for the levy, which he describes as "an arbitrary imposition on a single sector", it will not be "costless", in Mr Slattery's view.