The Bank Bailout of the mid 90's

Vronsky · 07-11-2017 2:00am #1

Back in the mid 90s if I recall correctly the Cork and Limerick savings bank merged with the Trustee savings bank which was then nationalised by the state. It operated for some time as TSB bank before the state sold it off to Irish Life and Permanent and was rebranded as Permanent TSB.

Being only a little fella at the time, my memory and dates of the event are sketchy, but I remember being frightened by a relative that I could lose my communion money which I (my mother!) had used to open a savings account with them. Irish Life and Permanent seems to have erased the episode from their history only mentioning that they bought the TSB bank from the state but do not say how it was that TSB had ended up in state ownership.

Can anyone here recall this bank nationalisation, the dates, and the events leading up to the bank being taken into state ownership in the 90's?

Peregrinus · 08-11-2017 4:36am

There was no "bailout", so far as I recall. Other way round, if anything.

The trustee savings bank movement originated in the nineteenth century. At that time bank insolvencies were relatively frequent, and small and medium-sized savers were wary of investing in banks. They tended to hoard their money at home, which protected them from the risk of losing it in a bank collapse, but of course exposed them to other risks - theft, fire, loss. Plus, it meant they had no access to credit from the banks and were reliant on pawnbrokers and moneylenders.

The trustee savings banks were an attempt to address this problem. They were small local banks which were run on a voluntary basis by trusted (and financially/commercially well-established) local figures, the trustees. They accepted deposits from small savers and invested them in government securities, which meant they were (and were seen as) much safer than commercial banks. They paid lower rates of interest, generally, and they would only advance small loans, since most of their funds had to be invested in government securities.

They were very successful at their primary goal, which was to provide affordable banking services to small savers and the low-paid. But they weren't very efficient, since they have a very large number of very small accounts to administer, and they were better at providing deposit-taking services than at lending.

The twentieth century was characterised by a series of mergers, in an attempt to improve efficiency. Local TSBs merged to form regional TSBs, and this reached its logical conclusion with the formation of a single national Trustee Savings Bank in 1992. The movement also faced increased competition from the major commercial banks - they were seen as much less risky, plus to expand their businesses they actively sought to provide banking services to the small saver and the low-paid. After the merger in 1992, which was accompanied by law changes subjecting the TSB to the same Central Bank supervision as other banks, TSB was just another bank, albeit a fairly small one. The rationale for a separate bank catering to the industrious proletariat had more or less disappeared by then, and the TSB was at a disadvantage in having no links with other financial services companies. The TSB was reorganised into a limited compeny owned by the Minister for Finance, and in due course was sold to IL&P.

I recall there was some controversy, with an argument that the TSB was owned by its depositors, and any sale proceeds should therefore have gone to the depositors and not to the State; there may even have been court proceedings about this, but I'm not sure. But the correct legal position was that the depositors didn't own the TSB; all they were ever entitled to was the return of their deposits, plus interest. So the State got the money.

tabbey · 08-11-2017 12:03pm

Before the Cork & Limerick Savings Bank was merged into TSB, one of its employees was a contestant in a pageant, Rose of Tralee or such like.
When she was asked what she would do with the prize money, she was initially lost for words, then with a flash replied that she would put it in the Cork & Limerick Savings Bank, of course!

pedroeibar1 · 09-11-2017 2:06pm

To add to what Peregrinus has written…bank collapses are not new, there were many UK & Irish bank failures in the 1800’s, a well-known one being that of Tipperary based Sadlier’s Bank. Invariably the causes were no regulation, bad management and fraud. (Not much different to what happened in the 'noughties'.)

Financial regulation in post-independence Ireland was never strict. As late as the 1960’s new banks were being created – one was City of Dublin Bank, which had a small subsidiary named Anglo Irish Bank. Most of the small banks of that era were second or third tier, all bottom-feeding and frequently stories of financial instability would surface or be associated with a ‘merger’. In the early 1980’s Merchant Banking Ltd collapsed; the Gardai did not proceed with a fraud prosecution but the RUC did and the CEO Patrick Gallagher ‘did time’ in NI. A couple of years later the State ‘bought’ Insurance Corporation of Ireland from AIB for £1. The insurer’s losses were huge, unquantifiable and it risked bringing down its parent AIB, with a ripple effect on other Irish banks.

In the scale of things ILP always was ‘fringe’, never a mainstream bank.

The Bank Bailout of the mid 90's

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