The announcement by Government of the establishment of a Strategic Banking Corporation of Ireland (SBCI) is a very welcome development. The timescale for its establishment, its mode of operation and delivery and the scale and impact of that delivery will be vital to an assessment of the impact of SBCI. The Programme for Government agreed in 2011 by the incoming Government committed to the following:

‘We will create a Strategic Investment Bank that will become a provider of finance to large capital projects, a conduit for venture capital and a lender to SMEs.’

The announcement of the SBCI appears to signal that this commitment may be implemented in the not too distant future. The mention of ‘Bank’ may come as a surprise as it was widely thought that the original intention to establish a ‘Strategic Investment Bank’ had been watered down to the establishment of a Ireland Strategic Investment Fund housed in the National Treasury Management Agency. Legislation to establish this Fund has been published.

The new bank will be funded from capital provided by the Ireland Strategic Investment Fund (ISIF), the European Investment Bank (EIB) and the German state development bank KfW (the Kreditanstalt für Wiederaufbau (KfW) to give its full title). The involvement by the latter is of interest given the inclusion of the following sentence in the recent Government statement:

The involvement of KfW follows directly from discussion between the Taoiseach and Chancellor Merkel following Ireland’s successful exit from the EU/IMF Programme on finding ways to reinforce Ireland’s economic recovery.

The establishment of a new Irish investment bank – especially one that is a state investment bank – is viewed with caution and even hostility by some commentators. These critics do not see any significant role for such a new institution since, it is claimed:

• Ireland’s capital stock is more than adequate in terms of roads, airports and railways
• Any lending body under the control of the state is liable to be used for ‘pork barrel’ politics especially in the run up to a general election where local and national constituency interests might prevail over economic rationale
• The key to economic recovery is entirely located in private investment and export led-growth and not domestically primed investment in projects of questionable worth; and
• Ireland has enough banks and some of these are a drain on public finances and liabilities as matters stand.

An additional, but ill-informed, objection is sometimes raised that the Government is raiding the ‘people’s pension fund’ to invest money in white elephants (in fact the pension fund was raided many times over in 2009-2010 to recapitalise banks with the ultimate effect of penalising taxpayers so that bondholders could be paid back).

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