Labour proposes strategic bank to invest in indigenous firms

THE LABOUR Party in government would set up a new State-owned bank, with €2

THE LABOUR Party in government would set up a new State-owned bank, with €2.8 billion made available for investment in Irish companies.

Labour finance spokeswoman Joan Burton TD said yesterday the proposed strategic investment bank would be “small, tight and focused”. It would be staffed by fewer than 100 people and would not be a “retail relationship” bank. It might have a number of regional branches in the future, she said.

Ms Burton cited the National Treasury Management Agency, which manages the national debt and has traditionally been regarded as a well-run institution, as an example of the kind of compact, professional organisation Labour wants to create.

The need for a strategic investment bank has come about because of the failure of the Irish banking system to support small and medium-sized enterprises (SMEs), Ms Burton said. The bank and its credit function was a key element in Labour’s economic strategy, she added.

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SMEs and firms with high growth potential would be eligible to access funding from the bank. Its investments would be focused on infrastructure, among other things, with projects such as renewable energy, next-generation communications networks, smart grids and electric transport favoured.

Capital of €2 billion would come from the National Pensions Reserve Fund in the bank’s initial phase. In the second phase, the bank would begin to take deposits and function more like a conventional commercial bank. The time frame for the two phases would depend on the credit rating the bank can obtain.

The size of investments made by the bank would range from €2 million to €10 million per project or company. According to the Labour document published yesterday, investments could take different forms, including straight loans; the taking of equity stakes in companies; and loan guarantees which would allow companies raise finance from private sources more cheaply.

The bank would be run on strictly commercial lines, Ms Burton said. Its business model would be based on those of financial institutions in Germany and Japan, according to the policy document. Ms Burton cited approvingly the example of Finland in the early 1990s: after the country’s economy suffered one of the worst property market collapses and banking crises in recent times, the Finnish government made strategic investments in education which has paid off handsomely, she said.

The strategic investment bank would work closely with Enterprise Ireland, the State agency responsible for supporting the start-up and expansion of indigenous companies.

Although the bank would be fully State-owned, it would be structured to ensure its balance sheet is not included on that of the State as determined by EU accounting rules. This would ensure the new bank would not affect national debt levels.

On Friday, at the launch of its strategy for the banking industry, Fine Gael ruled out establishing a new banking institution. The party, with which Labour is expected to form a coalition after the general election on February 25th, previously advocated setting up a State-owned investment bank but abandoned the proposal, saying the State now owns or part-owns most of the Irish banks.

Fianna Fáil made similar criticisms yesterday. Minister of Finance Brian Lenihan said: “Bank of Ireland and AIB will be in a position to return to their correct role of supporting businesses and consumers in this economy. The State has already given substantial support to these two banks. As a result, we own most of the banking system. What sense does it make for any government to set up yet another State-owned bank to compete with these two banks for funding and customers?”