BANKING CRISIS:THE GOVERNMENT has effectively become the Competition Authority for the Irish banking sector, as the State's bank guarantee Bill allows for competition law to be set aside to allow financial mergers if deemed necessary to protect the Irish banking system, the authority's chairman told the Kenmare economic conference yesterday.
Bill Prasifka said the Government could permit mergers even where there was "a significant lessening of competition" to protect the financial integrity of the banking system.
He said that following the legislation, the Competition Authority would only be left with the monitoring of the equivalent of "abuse of dominant position".
"Even casual observers will know that in 17 years there has not been a single successful case in Ireland for that," he said.
Speaking on the subject of competition policy in Ireland, Mr Prasifka said that the exception created on competition law within the bank guarantee Bill should be be a one-off event.
"It should not alarm us unnecessarily that occasionally reforms need to be taken so that exceptional measures can be taken to protect our financial stability or the integrity of our banking systems," he said.
"Of course, we need exceptional measures, but we need also to understand that the long-term growth prospects of the country will be based on maintaining a strong competition ethos and any short-term exemptions should be measured against that."
Asked if he thought increased competition in banking contributed to excessive lending by banks and the current difficulties, Mr Prasifka said: "I don't think it is about too much competition. The idea that somehow the banks would behave more responsibly if you limited entry or restricted competition - I just don't see any sense in that argument whatsoever."
Mr Prasifka made his comments as the Sunday Timesreported that the State's third-largest lender, Anglo Irish Bank, had approached Irish Life & Permanent (IL&P), the largest mortgage lender and fourth-biggest financial group in the country, last month proposing a merger.
Anglo made a preliminary approach to IL&P about a week after it had expressed an interest in taking over Irish Nationwide Building Society.
IL&P rebuffed the approach from Anglo as it wants to avoid any merger that would give it an exposure to lending to the commercial property and building sectors, which are regarded as high risk in a declining market.
IL&P has no exposure to the building or commercial property sectors, having instead focused its growth in recent years on residential mortgage lending, perceived as lower risk.
Merging with IL&P would have given Anglo Irish Bank greater access to a channel of discounted liquidity from the European Central Bank as financial institutions can use residential mortgages as collateral to borrow from the Frankfurt-based bank, while commercial property loans cannot be used.
While the bank guarantee scheme has helped solve the short-term funding problems at the Irish banks, officials from the Department of Finance, the Financial Regulator and the Central Bank have been involved in contingency planning in recent weeks examining potential mergers and acquisitions within the Irish banking market that could bolster the system further.
The Sunday Tribunereported yesterday that Lloyds TSB and HBOS, owner of Halifax-Bank of Scotland (Ireland), have an interest in acquiring Irish Life, the life business of IL&P, were it to come on the market as a result of any consolidation in the Irish banking sector.
IL&P has indicated that it would fight to remain independent in any consolidation of the sector.
