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What are we going to do about Bank of Ireland?

The reality of the Irish banking sector is beginning to hit home. Bed rest and tender loving care are not going to be enough to save it. The bank is not in a position to pay a dividend on the State’s investment in it. The banks need to be restructured to get them operating effectively again.

Most interesting are Michael Soden‘s comments on RTE Radio’s News at one yesterday:

Mr Soden said the likelihood of either foreign or domestic investors taking a stake in the bank is remote while the prospect remains of the Government’s shareholding getting bigger.

He also has a money-generating idea:

[He] said that the bank could generate a considerable amount of money if it sold its payments system.

The bank’s payments system is the infrastructure over which bank customers are charged for processing cheques and using bank cards, which Mr Soden says generates significant cash flow each year and would be worth a substantial sum of money.

This idea is also applicable to AIB and other banks. As rescue ideas for the banking sector in Ireland go, this is one of the better ones so far. The payments business is certainly worth something. There is no inherent need for it to stay as part of the bank itself.

You could also go further. The parts of the bank network that are related to cash handling  could be hived off into the payments company. This would include a large part of the branch operations.

Customers of any bank could get their payments facilities (lodging cheques, getting change, etc.) from this new payments/cash handling company. This company would also operate the ATM network.

The main Bank of Ireland business would then concentrate on providing credit and deposit facilities. It would no longer have the benefit of a branch network (which is an effective way of keeping coin and banknote intense companies loyal).

This would have a positive benefit for competitiveness in the Irish banking marketplace. Cash intensive SME’s wouldn’t be stuck with using a high-street bank for their banking needs. They could shop around and get the best deal on credit.

Note: there has been some suggestion that this would mean selling the Bank’s share in IPSO. I don’t think this is what Soden had in mind. The shares in IPSO, in themselves are not likely to be worht very much.

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  1. I think this is a very good idea. Given the increase in internet banking, ATMs, and non-cash money like credit cards, I think it is feasible. Also separating the essential payment system from risky aspects of lending would prevent a bank collapse from totally ruining the whole economy. This would help prevent another crisis.

  2. One thing that struck me afterwards is that I might have mischaracterized what Michael Soden said. He suggested breaking up only one bank, Bank of Ireland, into electronic payments and cash payments. He did not suggest breaking off the cash handling part. He was suggesting this as a step towards restructuring and refinancing BoI, not the sector as a whole.


  • » Blog Archive » Change is a comin’, if we want it March 2, 2010

    […] be something like Shinsei bank in japan in the 1990’s. An alternative or complement might be Michael Soden’s idea or some extension of it, although it is probably a bit late for […]