Forcing the State’s three banks to pay €150 million in the bank levy this year could lead to “further cost cutting” and higher costs for consumers, the Department of Finance has warned.
Officials said that maintaining annual income from the levy as KBC and Ulster Bank departed the Irish market would leave AIB, Bank of Ireland, and Permanent TSB to foot the full bill.
They said forcing the three banks to bear a “higher share” of the levy would ultimately hit consumers in the form of higher charges and lending rates.
In detailed arguments on the future of bank levy, they said it remained a factor that any new bank looking to enter the Irish market would consider if planning to do business here.
It also said that the levy – no matter what – would “never provide for the recovery of the costs of the financial crisis”.
And that in any event, the money raised from it was being used to fund day-to-day expenditure and not for repayment of any debt.
The submission for Minister Paschal Donohoe said: “There is increasingly a disconnect between supporting the costs of full-service banks, maintaining lower interest rates for loans and mortgages and maintaining the existing or advocating a higher bank levy.”
In Budget 2022, Minister Paschal Donohoe ultimately opted to exclude the departing Ulster Bank and KBC from the levy, and for the three remaining banks to pay what they had last year.
This will result in the state taking in around €87 million this year, as opposed to the €150 million that the bank levy raised in 2021.
In backing early plans from officials, Minister Donohoe agreed that a lower rate should apply to the three remaining banks.
He said: “We should not levy additional cost on AIB, PTSB [Permanent TSB] and Bank of Ireland due [to] the departure of KBC and Ulster Bank.”
In a note to officials, he added: “If KBC/Ulster Bank meet the requirement to pay, then they should pay. If their exit/change means they do not pay – then we consider the issues re: this in future of banking review.”
A later submission explained however, how the system for the bank levy could actively encourage KBC and Ulster Bank to exit the Irish market even more quickly than they might have intended.
If they disposed of their deposits in full by October 2022, then they would avoid the bank levy entirely according to officials.
The submission explained: “This is likely to be detrimental for consumers. In addition, the three domestic banks who most of the deposits are likely to be transferred to … will be required to pay the amount of levy that would have been previously paid by these other banks.”
In a discussion with officials, Minister Donohoe had told them he wanted an “orderly and measured transfer” of the business of Ulster Bank and KBC.
He said that “consumer protection is paramount” and that the simplest option was to just remove the two departing banks from the scope of the banking levy for 2022.
Asked about the submission, the Department of Finance said they had nothing to add.
