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How to Start a Bank in Ireland

Overview

Establishing a new bank is not like establishing any other business.  Virtually all new businesses in Ireland are started by individuals and/or families, and the founders each hold a substantial share.  Establishing a "greenfield" bank requires a much larger group - an absolute minimum of 20 - and none of them may be a dominant shareholder.  It therefore does not fit well with Irish business practices.  And so it is no wonder that no new significant indigenous bank has emerged to seriously challenge the incumbents, since the current licensing legislation was introduced in 1971.

And when established, there is no guarantee that customers will transfer to the new bank.  Irish bank customers are notoriously conservative, and do not easily change their banking habits.

  • If you are an existing bank in Ireland or elsewhere, with an established track record and an existing banking licence, then establishing a bank in Ireland is relatively easy, either by obtaining an Irish banking license or by using passport arrangements from a country in which you hold a licence.  This site is not for you.
  • If you are an existing financial institution but not a bank in Ireland, then the process may be a bit more difficult - but again, this site is not for you.
  • But if you are a member of a group who wants to establish a new bank, then read on... and prepare for formidable challenges.

Legislation

The main licensing provisions are in the Central Bank Act 1971 and in subsequent Central Bank Acts, and in Statutory Instrument Number 395 of 1992 "EUROPEAN COMMUNITIES (LICENSING AND SUPERVISION OF CREDIT INSTITUTIONS) REGULATIONS, 1992."

Effect of the legislation

The effect of the legislation and the associated form of regulation is, in the opinion of this author, to perpetuate more of the same style of banking. Firstly, preference is given to applications from existing banks.  Secondly, the requirements mean that in practice, many of the significant board and management positions must go to experienced bankers.  And the dominance provisions mean that a major entrepreneur is unlikely to put his reputation on the line for a small shareholding.

Assembling an application for a banking licence

To obtain a banking licence, the applicant must:-

  • Have a significant paid-up share capital. The documents available from IFSRA indicate a requirement for IR£5m paid up share capital - this amount has remained unchanged for more than 20 years.  IFSRA has powers to amend this amount, and reflecting the change in the value of money in the intervening period, this author is of the opinion that the amount required now would exceed €10m.
  • Have a demonstrable capacity to access or subscribe such further capital as may be required from time to time
  • Ensure that there is no dominant shareholder among the group.  Any shareholder holding more than 5% would be subject to exceptional requirements.  The dominance rule refers to immediate connections of the shareholder.  In practice, the holdings of a husband, wife, and children are considered together for calculation of dominance.  In practice, the dominance rule suggests that a minimum of 20 shareholders are required, while conforming with the dominance requirement.
  • Also, it must ensure that the bank's deposits are not dominated by a single shareholder, or by the top 10 depositors (who together may not exceed 50% of the banks deposits)
  • Have objectives and a plan which conform to sound banking principles
  • Establish a legal entity and corporate structure which is suitable for the business of banking, with appropriate board-level controls, internal controls, including risk controls and audit controls, and reporting systems
  • Board members must be undoubted, and have suitable experience and skills, and IFSRA reserves the right to approve (or reject) individual members.
  • Ensure appropriate insurance or other guarantees for the fidelity of it's staff.
  • Conform at all times to a range of financial ratios including specified capital adequacy requirements, liquidity ratios, etc.
  • Put in place suitable systems for control of lending exposure, including exposure to businesses in which a shareholder has an interest
  • Conform to a wide range of legislation including money-laundering legislation
  • Participate in the deposit protection scheme

The above list is far from complete, but indicates the nature of the most significant requirements.