SPEECH/06/770 Charlie McCreevy European Commissioner for Internal Market and Services Address at the official opening of the St Stephen’s Green Branch St Stephen’s Green Branch Halifax, 1st December 2006 Good morning Ladies and Gentlemen: I am delighted to have been invited today to open this very fine branch in one of the most prime locations in Dublin. I know you did some research before deciding whether to brand your retail business here in Ireland under the Halifax or Bank of Scotland name. I recall that some years ago when Bank of Scotland and Halifax announced their decision to merge, questions were asked of the then chief executive of the Bank of Scotland about the challenges of merging the two organizations' cultures and brands. He replied that there should be no problem: Yorkshiremen were just like Scotsmen - but with the generosity squeezed out!! And I can see – from looking at HBOS's latest results – what he meant: The cost income ratio for the combined group (the key efficiency ratio in banking) is just a fraction over 40 per cent. This, I believe, is among the best, if not THE BEST, of any multi-functional banking group in Europe. And when it comes to acquisitions I understand that HBOS's reputation for short arms and deep pockets is much prized by its shareholders. Aside from the sponsorship of Leinster rugby, HBOS's brands in Ireland - principally Halifax and Bank of Scotland Ireland - will always be associated with the pioneering of real competition in the mortgage market and the deepening of competition in the business banking market. It only took the dipping of one Scottish toe in our waters back six or seven years ago to see net interest margins on mortgages on offer from all of the banks here tumble. The incumbents were forced to respond to the new challenge by improving their efficiency, reducing their costs, cutting their margins, and delivering an overall better value proposition to their customers. Demand for mortgages rose – and mortgage holders and mortgage providers alike benefited. It was yet another example of a win-win for competition, for customers and for the economy as a whole. Mortgages are, I know, the most price sensitive of all banking products: Mortgage repayments account for a huge proportion of the average young person's budget. Price comparison is relatively easy to make and price transparency is high. At an EU level, we are working hard to ensure that these benefits are widened and deepened across Europe and to ensure that barriers to cross-border provision between Member States are broken down. You are, I understand, the first retail bank to establish from scratch in the Irish market for over 120 years - with 23 branches now trading and the number set to double over the next 9 months. Mortgages aside, I am delighted to see that now, under the Halifax brand, you are set to bring more competition to other parts of the retail banking market, with this new office as your flagship. This country has a deserved reputation for operating an open and competitive environment, for welcoming new entrants and for encouraging innovation. It is one of the many factors that have contributed to Ireland's tremendous success over the past decade. But we still retain some things which discourage innovation. These include price controls on banking services – controls that are unique within the 25 Member States across Europe: In my view they discourage innovation and timely market developments in a sector that should be dynamic, quick acting and responsive to change. This is something which impacts disproportionately on new entrants: Incumbents have legacy businesses and unlike new entrants are not seeking to process new requests for entire product and service ranges. New entrants who want to win market share through innovation and rapid responses to market change should not have this burden imposed on them. 2 But if there was ever a case for price controls on banking services, I have no doubt that with the introduction of the SEPA (Single European Payments Area) their rationale will be completely redundant. For that reason – and because the procedural burdens surrounding price controls are such an impediment to rapid innovation - I would like to see their abolition in parallel with the launch of SEPA. With new market entrants like Halifax it is fair to say that right across the financial services market there has been an improvement in the competitive environment over recent years. But there is more to be done. Customer churn is still below the EU average. There are still some bumps in the road for the new entrants. The Switching Code was launched some time back by my good friend Pat Farrell, the Chief Executive of the Irish Bankers Federation, who I see is here today. That Code represented worthwhile progress. I understand, however, that one of the Code's requirements - for the concurrent closing of the switcher's old account - can sometimes be a deterring hurdle for consumers wishing to switch. However, I am very pleased that Pat and his colleagues in the industry have started work on reviewing the code with a view to improving its operation further. Clearly, with Halifax as the biggest mortgage lender in Europe, mortgages will be one of the mainstays of your business here for the foreseeable future. With interest rates rising in the eurozone questions are being asked about the sustainability of the growth of the market that we have seen in recent years. Those of us who lived through the fifties, sixties, seventies and eighties are well aware of the ups and downs of economic cycles and the risks they present. We tend to forget, however, that there is now a whole generation whose adult life has been characterised by boom, who never saw or can't remember tougher times. But tougher times – if they come – will bring opportunities as well as threats. And I have little doubt that organizations like Halifax will be able to capitalize on those opportunities and will move forward with all the competitive strengths that it's branding, innovation, scale and customer service can bring to become a formidable force in Irish retail banking. I wish you well and am delighted to officially open this branch here today. 3 .