Minister for Finance Paschal Donohoe was briefed to say over-regulation was not to blame for the departure of KBC Bank from the Irish market.
The bank announced last month it was selling up, leaving Irish consumers with even less choice in what is already one of the EU’s most expensive markets.
An internal briefing said Mr Donohoe should say Ireland had “learned the hard way” what happens when there is inadequate regulation.
If asked whether “over-regulation [was] the problem”, he could point to the Covid-19 pandemic and how the financial shock had not “called into question the stability” of the financial system.
The briefing note said: “Instead, banks have been part of the solution in supporting their customers, eg with payment breaks.”
Mr Donohoe was also advised that strict capital requirements – which impact heavily on Ireland’s high rates of mortgage interest – helped make the banking system “safer and more robust”.
The briefing explained: “Determining the appropriate level of capital is a matter for the Central Bank and the SSM [Single Supervisory Mechanism].”
It said high levels of capital were the foundation of a safe financial system and allowed banks to withstand the “ups and downs” of business.
Mr Donohoe was advised that credit risks and capital requirements remained elevated in Ireland because of the “historical loss experience” of the crash of the Celtic Tiger.
‘No role in decisions’
If asked what the Government was doing to address the challenges in the Irish banking sector, he was advised to say they had “no role in these decisions”.
The briefing said: “Decisions regarding operational and strategic matters are the sole responsibility of the boards and management of the individual banks, which are run on an independent and commercial basis.”
The departure of KBC was “very concerning”, coming so soon after Ulster Bank had also withdrawn, and it was essential that they engage with employees and customers on the “very disappointing news”, the memo advised.
It continued: “The two recent announcements highlight that international retail banks believe that they cannot make a sufficient return on their investment in Ireland.”
If asked about competition concerns, Mr Donohoe was advised to say there were now fewer banking players in the market and no sign of any new entrants.
The brief said the remaining banks should continue to compete against each other and that the Competition and Consumer Protection Commission was available to enforce competition and consumer protection law.
It also said it would be worth mentioning that the nature of banking was changing and that other alternatives were available.
Non-bank options such as An Post, credit unions, other firms such as Avant and Finance Ireland, and online bankers such as Revolut were also offering services.
A spokeswoman for the Department of Finance said: “Neither the Department of Finance nor [Mr] Donohoe have any role in the commercial decisions of the banks. Both the Minister and the department were of the view that KBC was an important player in the Irish banking market.
“[Mr] Donohoe is disappointed by the decision taken by KBC to exit the Irish market and has publicly expressed this view on numerous occasions.”