Any plan to merge Bank of Ireland and AIB would face "high hurdles", the chairman of the Competition Authority said yesterday.
Stating that he was speaking only generally and not in relation to any specific proposed transaction, Dr John Fingleton said such a deal was likely to be scrutinised by the European Commission as well as domestic authorities.
In comments that appear to cast doubt over the possibility of merging the Republic's two largest banks, Dr Fingleton outlined questions that would arise if such a deal was proposed.
Citing the size of the two banks and Bank of Ireland's operations in Britain, Dr Fingleton said such a transaction would be assessed by the European Commission.
He noted that a proposed link-up between the third- and fifth-largest banks in Sweden (FSB and SEB) was abandoned after a study by the Commission.
With AIB suffering the consequences of a €789.5 million fraud at its US division, the bank is said to be a takeover target. A link-up with Bank of Ireland has been mooted by that bank's new chief executive, Mr Michael Soden.
Dr Fingleton said it was likely that the offices of the Minister for Finance, Mr McCreevy, and the Tánaiste and Minister for Enterprise, Trade and Employment, Ms Harney, would have a role in the process.
People close to Mr McCreevy have indicated that he would not seek to block such a deal but Ms Harney has said she would oppose it.
Noting that such a merger would probably be designed to insulate the Irish bank industry from foreign ownership, Dr Fingleton said it was more likely the merged entity would be taken over by a larger international bank.
Domestic ownership was no guarantee of quality or competitive pricing in the market, he said. "I don't see that as an issue."
Dr Fingleton said such a transaction would be scrutinised in terms of the availability of services in localities and the dominance of particular banks in certain areas of the national market.
The market share of the new entity would be assessed, said Dr Fingleton, adding that companies with a 40 per cent share of certain markets could be deemed dominant. Those assessing such a deal would ask whether customers could easily switch between competing banks for particular services.
Dr Fingleton said a strategic review of banking conducted by the Central Bank in 2000 concluded that, while efficiencies could be generated by such a merger, public policy concerns would arise.
