The Financial Sector

Continuity and Change

THE FIANNA FAIL blueprint required increased capital resources and new institutions to handle them. In 1929 Lemass had expressed determination to reduce the extent of foreign investment by the banking and insurance sectors (Gallagher Papers MS 18339) by developing an Irish financial center and money market (CBC 1938, evid 395). This plan posed a major threat to established financial institutions that increased with the founding of the state industrial bank, the Industrial Credit Company. However, Fianna Fail never attempted a radical break in financial policy, and although Lemass proposed the establishment of a state bank to fund public works and a break with sterling in November 1932 (S6222), there is no evidence that such steps were considered.1

The years following 1932 brought changes in the structure of Irish capital holdings, a state industrial credit company, and increased taxes on banking, but in contrast to the attempted revolutions in industry and agriculture, the Irish pound retained parity with sterling and 100% sterling backing, while Irish commercial banks retained close links with the London financial market. At a time when sterling’s international role had weakened, and deferential dominions such as Australia and South Africa broke with sterling and established central banks, Ireland retained the sterling links. There was logic to this continuity. Sterling was no longer over valued following the 1931 decision to leave the gold standard. Continuity in financial policy reflected the lack of a developed money market and continuing links with the British economy. In 1934 economist Henry Clay noted that a country without a money market must link itself with one of the larger financial markets and that Ireland, like Denmark, would naturally link with Britain because of the volume of mutual trade (BI, secretary’s file).

By 1932, the banking community, which had displayed open hostility to the new state, had achieved a certain coexistence that survived the election of Fianna Fail. The 1929 Bank of Ireland Act had required a majority of shareholders in the state’s largest financial institution to be natives of the Saorstat, and this may have preempted more radical intervention under Fianna Fail, while the appointment of Lord Glenavy, the former Gordon Campbell, as governor of the Bank of Ireland and the decision in 1932 to finance trade loans following years of refusal (Daly 1984a) signified a new accommodation.

A commission of inquiry into banking, currency, and credit, appointed by the minister for finance in November 1934, provided further reassurance. Its majority report, published in 1938, concluded that the system was “a well-designed and well-built, well-driven piece of mechanism, in first class working order and condition” (CBC 1938, pars. 5–12). It recommended the establishment of a central bank, financed and largely controlled by the commercial banks. The conservative tone of the report reflects the commission’s membership, which was dominated by Irish and foreign bankers and by the Department of Finance, with Joseph Brennan, former secretary of finance, as chairman. Although the commission heard numerous witnesses, it received no formal testimony from either the Department of Finance or from the Irish banks, an omission that may reflect the belief that such testimony would prove superfluous in the light of their almost total control over proceedings. Virtually all criticism was directed at government policy and at aspects that might result in departures from the banking status quo.

In the absence of formal testimony from the banks, it is difficult to pinpoint their precise views on Fianna Fail policy. The best guide is probably provided by the memorandum contributed by Lord Glenavy, a member of the commission, who signed the majority report but appended a twenty-one-page memorandum (CBC 1938, add. 2) that trumpeted the commission’s satisfaction with the Irish banking system. He emphasized its dependence on “two buttresses,” overseas investments and bank deposits, and attacked policies that might injure either factor, such as the establishment of the Agricultural Credit Company which competed on unequal terms for deposits, or efforts to encourage domestic investment at the expense of foreign holdings.

Bank deposits fell by over £12 million in the years 1931–1935 (CBC 1938, par. 123), reflecting the impact of recession on the farming community, which accounted for 39% of deposits in 1937 (CBC 1938, add. 2, par. 20), and the attraction of new investments. Bank of Ireland dividends fell from 17.5% from 1926 to 1931 and 13.5% from 1932 to 1939 (Hall 1946, app. H).

External Investments and New Company Formation

Irish external investments declined during the ‘thirties, though not at a rate to occasion concern. No balance of payments figures exist before 1933 and the early figures give rise to suspicion as certain sums tend to recur year after year (For example, £550,000 was recorded each year from 1933 to 1936 as representing the net outflow of insurance company investments.). In 1932 Irish external investments were estimated at £170 million, £70 million invested in gilts (£50 million of this held by Irish banks) and £100 million in industrial securities (11 May 1932); by 1936 external investments had fallen by £10 million (CBC 1938 evid. par. 2921). British economist Geoffrey Crowther, in a memorandum on credit policy prepared for the Bank of Ireland in October 1932, noted that the external assets of the Irish banks exceeded liabilities by £83.5 million, a sum that “probably represents a higher proportionate amount of foreign assets than is possessed by any other banking system of the world” (Bank of Ireland, credit policy memo., 4).

The 1930s were characterized by a reorientation in investment patterns and by substantial capital inflow. In 1932, the first year for which figures are available, 31.2% of commercial banking assets were invested in the Free State compared with 37.5% in 1939, an increase concentrated in the private sector. The shift indicates responsiveness to an increased demand for capital and a more profitable domestic environment. Bankers and historians (Olleranshaw 1988, 222–32) have argued that the level of external investments reflected the lack of profitable domestic opportunities. This shift may have averted pressure for government action. By 1936 Leydon believed that there was no evidence of a shortage of business capital (CBC 1938, par. 1817).


While the banks escaped largely unscathed the insurance industry was subjected to significant intervention. By the late 1920s approximately 80% of insurance business was under British control; the majority of native firms were insolvent, and the industry invested the overwhelming majority of its premiums outside Ireland, an annual capital drain of £1 million. Insurance companies had invested a mere £90,000 in Irish government securities; unlike their British counterparts they did not finance government-guaranteed loans, and they held negligible investments in Irish industrial securities. Cumann na nGaedheal set up a commission of inquiry into the insurance industry in 1926 that produced no concrete results, probably because the report revealed major ideological differences between the majority, including John Leydon, then of Finance, which refused to regard external investment as a drain on resources and dismissed allegations of a shortage of capital, and the minority, including J. Barrington of Industry and Commerce who urged state control to redress the inevitability of foreign control and to channel capital into the Irish economy (S2348, S4989).

The draft legislation adopted in 1934 provided for the amalgamation of weak companies, under compulsion if necessary, and the creation, with state assistance, of one or more Irish firms; only Irish-registered companies with at least 60% native shareholding would be permitted to engage in nonlife insurance; all companies would be obliged to invest in the domestic market; and a state reinsurance company would be established. The process of amalgamation proved more time-consuming than was anticipated. Several English companies sold their Irish holdings, and the vested interests of small Irish companies proved difficult to appease. Ultimately the Irish Life Insurance Company was created, with the government as majority shareholder. While the requirement to invest in the Irish market was not enforced, the strengthening of the native insurance industry and the emergence of a state-owned company increased the proportion domestically invested, though the failure to establish an Irish reinsurance company ensured a continuing outflow (S2349, S9441 A).


Annual Averages of Securities Holdings in Estates Subject to Death Duties (in pounds sterling)

Group 1926–1930 1934–1938
Brit, and for. govts. 1,948,803 1,958,839
Brit, and for. co. shares 3,263,440 3,284,723
Irish govt. and mun. 312,907 1,042,721
Irish co. shares 1,394,149 1,824,623

Source: Statistical Abstracts.

Irish Investment Holdings

The register of British government and India stocks held at the Bank of Ireland by Saorstat residents declined from £97 million in 1923 to £72.8 million by 1929 and £52.5 million by 1940, though this trend reflects the emigration or death of stockholders rather than the transfer of investments. Irish estate duty statistics suggest no decline in foreign investment holdings among those dying in Ireland in 1926–1930 and 1934–1938 though there was a substantial increase in holdings of Irish securities (see table 10). The growth of Irish holdings reflects an increase in the number and value of Irish enterprises. Companies Office records show a rise in the number of registered companies from 1,803 in 1931 to 2,832 by 1939. The number of companies registered averaged 120 in the years 1925–1931 and 209 for 1932–1939. The paid-up value of registered companies rose from £36 million in 1925 to £37.9 million by December 1931 and £50.8 million by the end of 1939. The average annual value of new companies was £3.98 million for the years 1932–1939 more than treble 1925–1931 values. Companies registered in 1931 were valued at £670,200 compared with £1.7 million in 1932 and £8.4 million in 1933. By 1939 there was a total of 360 public companies with a paid-up capital of £27.4 million and 2,472 private companies with a paid-up capital of £23.4 million. The majority had a nominal share capital of less than £10,000.

The Stock Exchange

The total value of shares quoted on the Dublin Stock Exchange in 1933 amounted to £3.25 million, and new issues in the preceding three years had been a mere £160,750 (Industrial Credit Co. annual report 1936). In 1934 new industrial issues valued at £2.8 million were launched and new industrial issues in the period 1933–1939 totalled over £7.9 million (Industrial Credit Co. AGM Dec. 1934, Dec. 1939). The flurry of business was a consequence of protection and the desire to fulfill share-holding requirements under the Control of Manufactures Acts. The 1932 Finance Act provided an income tax concession of 20% on investments in Irish public companies, though Dublin stockbrokers were divided as to the significance of this measure (CBC 1938, evid. 2926). The greatest incentive was probably the buoyant share market. The Dublin market had fallen steadily throughout the years 1922–1926, in contrast to London, though it recovered somewhat in the years 1927–1929, and the 1929 fall was significantly less than in London. The years 1931–1938 saw a sustained rise that outstripped the London market (Thomas 1986, 182).

The source of these funds remains a matter of dispute. One witness on behalf of the stock exchange told the Banking Commission that every industrial issue was accompanied by a sale of foreign securities (CBC 1938 evid, pars. 2879–2905) and claimed that over the preceding two years, sales of securities other than government securities practically balanced purchases of Saorstat securities. This impression is not backed by statistics. Figures on stock exchange transactions carried out by Saorstat brokers suggest that purchases and sales of foreign securities were virtually in balance over the years 1933–1939, while figures for net investment income from abroad show no obvious decline. Official figures record a net capital inflow of £10.4 million in 1933 and £7.5 million in 1934, small net outflows in 1935 and 1936, and inflows of over £5 million in both 1937 and 1938. Part of this inflow was a result of the fall in Irish external assets, but £12 million is unaccounted for, suggesting substantial investment in Ireland by foreigners during the thirties (or inaccuracies in balance of payment statistics). Officials estimated that foreign-held capital accounted for 10% of share purchases, mostly from Northern Ireland. A sample investigation of the ownership of 90 companies in the years 1933–1935 revealed that 9.3% of paid-up capital was owned by shareholders outside the state, which would represent investment by foreigners of approximately £550,000 during the years 1932–1936 (CBC 1938 evid. par. 97). Some investment, as in the case of Gentex textile firm or Waterford Ironfounders, took the form of secondhand equipment rather than finance, and some foreign capital probably hid behind Irish nominee shareholders. Irrespective of its composition, the sums were significant, though the flotation of Ranks (Ireland) resulted in substantial capital outflow to Britain.

Domestic funds came from a variety of resources including bank deposits, which fell by £12 million. The industrialization drive led to the formation of development committees, who mobilized the small savings of provincial towns, and resulted in many small first-time investors. The initial shareholders in the Portlaoise plant of Irish Worsted Mills included a cross section of the local community: doctors, widows, accountants, teachers, shopkeepers, shop assistants, nurses, an Electricity Supply Board driver and collector, engine drivers and railway porters, priests, and retired police officers. The local convent invested £75 (TID 19/145). Local capital reduced start-up costs and anchored outside businesses more firmly in the community. Vincent Crowley, who chaired Irish Tanners, insisted on holding the company’s first annual general meeting in its hometown of Portlaw to give the local investors an opportunity of attending.2

While several issues were heavily oversubscribed, the patriotic urge to invest in the country’s future was tempered by a desire for security. Preference shares in established companies and the subsidiaries of well-known British firms were favored. An issue of 20,000 preference shares in Fry-Cadbury (Ireland) Ltd. was heavily oversubscribed, a list for preference shares in Sunbeam Wolsey closed early due to oversubscription (Ir. Ind. Yearbook Oct. 1933; IT 11 Dec. 1934), and 175,000 Ranks s. Ordinary Shares were issued at a price of 15s. (CVO evid. doc. 69A). The value of some shares was boosted because few were available to the public: Dunlop and Sunbeam Wolsey offered only preference shares; only £131,000 of Ranks £1.3 million shares were on public offer, a pattern repeated by P. J. Carroll (F200/16/38). Established investors bought such blue-chip shares; one stockbroker’s books show Ranks (Ireland) and Ever-Ready (Ireland) shares being added to portfolios containing government securities, Guinness, and leading British shares (Dublin Municipal Archives, B1/).

Such investments proved highly profitable, especially the shares of firms in a position to capitalize on their protected status such as Ranks, which benefited from the high flour prices set to ensure the viability of small mills. By 1935 Ranks yielded an annual 20%; other milling shares such as Bolands and Barrow Milling also paid high dividends. The shoe firm of J. H. Woodington, established as a private company with a new manufactures license, was floated on the stock exchange in 1936 at a price of £90,000, 50% above its physical asset value (which critics alleged represented the capitalized value of protection). At the same time, the Dublin pharmaceutical company May Roberts, with an annual turnover of £250,000, was capitalized at £175,000, of which £100,000 represented goodwill including the benefits of the package tax, though the ICC claimed that May Roberts was extremely profitable in 1930.

Many firms publicized the benefits of protection or monopoly to boost flotations. The prospectus for Irish Wire Products noted their 75% tariff and reproduced a letter from Lemass that stated that “the Minister will not be disposed to grant facilities … to any other firm or individual proposing to manufacture articles already being supplied by your company.” A similar letter was contained in the prospectus for Irish Dunlop while Cement Ltd. noted the firm’s control of import quotas (CVO evid. doc. 69a and pars. 4735–70).

Stock exchange activity was heavily dependent on government policy (CBC 1938 evid, pars. 11707–8), though a benevolent tariff regime did not ensure success. The financial record of many new companies was unimpressive, and few firms founded without the support of a foreign parent paid dividends on ordinary shares before 1939. The subscription list for Irish Tanners was heavily oversubscribed (IT 11 Dec. 1934), but no dividend was paid on ordinary shares until 1937 and then and for several years at the rate of 5%. Pressure to pay dividends, irrespective of commercial prospects, was high. When Irish Tanners applied for a price increase in August 1935, one official noted: “The Directors at Portlaw also want to ensure that a decent dividend will be payable to the shareholders. Apparently there is no intention of waiting till the business is a success but good dividends must be paid right away” (TID 43/63). A growing awareness of the poor return on many new shares deterred investment in subsequent new issues (CBC 1938 evid. p. 395), making it difficult to raise funds for unproven companies.

The Industrial Credit Company

The state investment bank, the Industrial Credit Company, was responsible for underwriting more than 60% of issues between 1934 and 1939. In the years 1933–1935 the ICC underwrote three issues in excess of £500,000—Ranks, the Irish Sugar Company, and Irish Cement, all high-quality investments—and five for sums between £100,000–£200,000. In later years the quantity and quality of issues declined; only three issues were for sums in excess of £100,000 in the years 1936–1939, and the shares proved less attractive. The ICC was forced to take up over 35% of ordinary shares underwritten in the years 1935–1937, though debentures and preference shares remained popular (BP26290A). The company handled only eight issues in the years 1936–1939, compared with twenty-one in the years 1933–1935.

Although the establishment of an industrial credit company had been mooted by officials on several occasions during the Cumann na nGaedheal administration (McG Papers P35/b/20), it did not receive cabinet consideration until Fianna Fail came to power. In May 1932 J. P. Colbert, chairman of the state-controlled Agricultural Credit Company, proposed that the ACC provide credit for industry; however, a cabinet committee recommended a separate industrial credit organization (S6315; S6341). The committee proposed that share capital and directorships should be jointly held by the state and the banks with bank branches acting as agencies. The new body would provide direct advances, guarantees, underwriting of new issues, and investments in industry (S6467).

However, Lemass proposed that the banks concentrate on providing short-term capital and that a wholly state-owned company with a capital of £1 million be established to underwrite and hold shares in unproven Irish companies. Although he envisaged the possibility of heavy losses on some shares he emphasized that if the government wished to start “any industrial enterprise of doubtful possibilities … in the national interest” the capital should be secured by other means. This proposal received cabinet endorsement in March 1933 (Cab. C7/17) and was introduced to the Dail as a matter of urgency (S4871). The bill provided for a limited company with a capital value of £5 million. Shares were to be offered to the public with the minister for finance taking up the balance. MacEntee, the minister for finance, envisaged an extensive range of investments being financed by the new company such as mineral development, paper making, industrial alcohol, cement, and sugar beet. While all shares underwritten would be offered to the public, he anticipated a significant proportion remaining in ICC hands (PDDE 4 July 1933).

The company commenced business in December 1933. Of the initial £500,000 offered for public subscription only £7,936 was taken up, while a second issue of £500,000 offered in July 1936 attracted a mere £75 (CBC 1938, par. 427), perhaps because the ICC failed to pay a dividend until 1940. The commercial banks had expected a request to take up the shortfall but De Valera believed that they were not disposed to help the government’s development program, and the minister of finance reassured them that any subscription would be voluntary (BI, Irish Banks Standing Committee minutes 31 March, 6 July 1933).

The absence of bank involvement, in contrast to the ACC, left the ICC with greater operating freedom though lack of funds ruled out the creation of a state holding company. Until 1936 it operated with a capital value of £500,000; the 1936 issue of £500,000 was not fully paid up so that the company’s capital then amounted to £812,500, a figure maintained for many years. Lack of capital meant that the ICC provided little long-term finance for industry. By October 1936 it had provided twelve loans amounting to a total of £323,778, and only one loan, for £166,559 to the Irish Sugar Company, was for a substantial sum (CBC 1938, par. 434). ICC chairman J. P. Colbert claimed that the majority of loan applications were “of an unacceptable character,” and the ICC discouraged trade loan business preferring that firms apply to the commercial banks (B Papers 26290A). The ICC’s loan business may have been constrained by an unwillingness to compete with the commercial banks, an ambition that would appear to have been realized as, in contrast to the ACC, there is no evidence that ICC was criticized by the Irish Banks Standing Committee. However, it was criticized by the Banking Commission for its underwriting activities, and by the FII for promoting “alien penetration.”

The Banking Commission claimed that by beginning its underwriting with Ranks and the state-owned Irish Sugar Company the ICC set unduly high expectations in terms of security and profitability, expectations that would not be met by newer companies. However, J. P. Beddy claimed that if the company had confined itself to underwriting new projects its record would have been “a succession of failures”; underwriting Ranks furthered the aim of establishing a capital market for Irish industrial issues (CVO evid. doc. 66). The commission criticized the company for underwriting smaller, more speculative shares because the ICC, and indirectly the state, was left holding a substantial proportion of shares in private industry—though this had been originally envisaged. The commission argued that alternative underwriting facilities would have been available both for large and small issues. It recommended that the ICC’s capital be limited to £1 million, that it should be largely precluded from borrowing funds and prevented from acting as an underwriter when holding borrowed funds (CBC 1938, par. 436–43).

However, it is doubtful whether as many shares could have been launched in the company’s absence; the ICC underwrote in excess of 60% of all issues for the years 1934–1939, ranging from 83% in 1934 to 35% in the following year (B Papers 26290A). Those not underwritten by the ICC consisted of larger issues for cinemas, gas, Irish Shell, Independent Newspapers, and established firms such as P. J. Carroll and J. and L. F. Goodbody. Less than 5% of non-ICC underwritten issues related to new or unestablished firms3. The assertion that small issues would have found alternative support was refuted by ICC chairman Colbert who argued that “except in the case of the Slane Brick Co. (where the underwriters were unable to meet their engagements) no entirely new industrial proposition has been underwritten by any institution other than the ICC” (B Papers 26290A). ICC officials noted that their success had been responsible for attracting other underwriters into the field, such as the commercial banks and the New Ireland Assurance Company. They claimed that when they sought support from the stock exchange and issuing houses for their first major venture—the Sugar Company Debenture stock—“the making of a public issue was strongly deprecated, on the ground that it had an Industrial background, and failure was predicted for the Issue” (F200/16/38). The ICC’s failure to pay a dividend until 1940 and then a modest 2.5% suggests that a company motivated by profit would have been unlikely to replace the state enterprise. By 1939 an investor with an equal amount in ICC-underwritten securities would have suffered a depreciation of 4.94% on his investment and would earn a gross dividend of 4.21% on stock; by the end of 1940 this hypothetical investor would have shown an appreciation of 3% with 5.12% on dividend (Industrial Credit Co. annual reports 1939, 1940), a record much inferior to the stock market as a whole.

A comparison between the ICC’s performance and the ideas outlined by the minister for finance suggests that the company fulfilled its brief of launching new Irish industries. The criticism voiced by the Banking Commission suggests that certain individuals disapproved, notably Joseph Brennan, who drafted the critical paragraphs4. His hostility was shared by senior Finance officials. When Brennan queried why the company had been given a share capital of £5 million A. Bayne of Finance responded with a note stating that “Ministers devised the bill with the minimum of advice and assistance and prepared their own briefs” (BP 26290A). Brennan criticized the 6% return offered on preference shares for the Irish Sugar Company, criticism rejected by Colbert on the grounds that 6% “was barely sufficient to interest the Stock Exchange and attract the public” (BP 26349). Brennan argued that public companies were using their “privileged conditions” to raise capital by means of 6.5% preference shares, a practice that was “definitely prejudicial to the raising of capital on any moderate terms by business concerns that do not enjoy such favour” (BP 26350).

While Brennan’s wish for a lower cost of capital is laudable, inexperienced Irish investors may have required a higher return than their British counterparts, and a unilateral policy by the ICC of providing a lower return on preference shares is unlikely to have succeeded. Preference shares issued by other underwriters for two established companies, Irish Cinemas Ltd. and James Crean and Son, carried 6% dividends, and most of the latter issue remained with the underwriter. ICC figures suggest that the weighted average return on preference shares in Dublin was 5.646% compared with 5.246% in London (F200/16/38).

The ICC was subjected to further criticism on the grounds that it underwrote foreign-controlled companies and furthered alien penetration. In 1935 the FII argued that the primary purpose of the ICC should be to finance industry “in the beneficial ownership of Saorstat nationals” (Daly 1984b, 266). In response, the ICC expressed its concern that the provisions of the Control of Manufactures Acts were observed “in the letter and in the spirit” but did not see it as the ICC’s duty “to usurp the functions of the Oireachtas by going beyond these Acts to legislate privately for industrial promoters” (ICC annual report 1936). Beddy informed the Commission on Vocational Organisation “that if the Legislature passes an Act of Parliament which can be over-ridden we are powerless to prevent it being overridden…. There are devices which are resorted to by various people which enable them to get around the Act. We cannot stop them. It is done all the time” (CVO evid, qs 4725–26).

Companies underwritten by the ICC such as Ranks or Salts had their shareholding structured to comply with the Control of Manufactures Act. The ICC connived at such practices, as did Industry and Commerce, though the advice on how to comply was given by outside lawyers (often suggested by the ICC), most commonly Arthur Cox5. The ICC claimed that many businesses required “the co operation of an external organisation” to ensure technical success and argued that these issues resulted “in placing into predominant Irish ownership and control businesses which were previously largely owned by outside interests” (ICC annual report 1936; CVO evid., doc. 66).

While outwardly the ICC remained unrepentant, public criticism was not without effect. In 1937, “in view of the allegations which had been recently made that his company was one of the agents for ‘alien’ penetration in Saorstat industries,” Beddy sought Lemass’s opinion on the proposed shareholding of a steel company, admitting that while “the arrangements complied technically with the Control of Manufactures Act, he felt it was open to objection in being opposed to the spirit of the Act” (TID 94/49).

Allegations of discrimination against Irish companies were a corollary of charges that the ICC was an agent of “foreign penetration.” The Commission on Vocational Organisation was unable to determine the merits of the case but noted the existence of “sharply conflicting evidence on this point” (CVO par. 424). In evidence the ICC noted that it had received 89 underwriting proposals, 55 relating to new and 34 to established companies. Of the new applications, 24 were wholly Irish of which 12 were rejected, 4 because they were not manufacturing concerns, while 14 of 31 that were not exclusively Irish were rejected; however, J. J. Walsh alleged that of twenty new companies underwritten by the ICC only Arklow Pottery was wholly under Irish control (CVO evid. par 4920, doc. 66A). That the ICC promoted companies with substantial foreign participation is indisputable; this was inevitable given their bias towards large enterprises, most of which had substantial foreign participation. The attacks by Irish business interests reflect a general disenchantment with industrial policy and the ICC’s apparent immunity from interest groups. Beddy affirmed their independence from ministerial intervention and emphasized that they had “turned down several propositions that were rather wished upon us,” none of which subsequently proved successful.

The Commission on Vocational Organisation adopted a similarly neutral stance towards allegations that the ICC connived at the capitalization by firms of import quotas, tariff protection, or new manufactures licenses. Colbert emphasized that “we have turned down several propositions which mean cashing in on government post-1933 protection,” though several prospectuses of shares underwritten by the ICC mentioned the company’s protected position. The prospectus for the Ranks issue noted that the company held milling licenses and that they were transferable, though the ICC only accepted this inclusion following government approval (CVO evid. pars. 4694–4807).

The ICC could dismiss allegations of anti-Irish bias in the knowledge that they were part of an overall criticism of government policy; however, Banking Commission recommendations to limit ICC capital and to forbid underwriting while the company held borrowed funds gave rise to considerable concern. The commission’s assessment was not fully accepted even within the Department of Finance. In July 1938 Finance noted that “the Commission has based its criticism of these organisations [ICC, etc.] on the somewhat narrow grounds of financial technique and it has not sufficiently appreciated the underlying circumstances which rendered the creation of these organisations necessary” and proposed that the recommendations be discussed with the departments primarily involved (S10612).

The ICC sought clarification of government policy on the grounds that its business was being impeded by uncertainty. However, no action was taken, and in April 1939 Industry and Commerce pressed for a statement rejecting the recommendations of the Banking Commission respecting the ICC. The department argued that in the absence of the ICC, the state would have been forced to supply £7.5 million of capital for industrial development and that the capital market developed by the ICC remained essential to government policy. However, MacEntee wrote to De Valera opposing such a statement, and the matter remained in limbo (S11244) with the ICC seriously short of capital and consequently vulnerable, which was possibly a deliberate Finance ploy. World War II relieved the ICC of its immediate problems; underwriting was deferred, and share buoyancy boosted its investments and postponed the debate over its future.

The ICC claimed to operate independently of government departments, instituting its own examination of company proposals, examining prospective markets and production costs, and liaising with commercial banks on an applicant’s financial standing.6 This independence gave rise to concern in Finance in 1934 when it was feared that the ICC would support firms that would compete with existing firms “to a point beyond the known capacity of the market,” and arrangements were instituted to prevent such an occurrence (F97/2/34). The ICC advised companies on choosing directors and recommended strategies in times of difficulty but do not appear to have used shareholdings to influence policy. While the prospect of establishing a state holding company similar to the Italian IRI (Institute per la Ricostruzioni Industriale [Institute for Industrial Reconstruction]) was briefly mooted, such an option was precluded by shortage of finance, though proposals prepared by Industry and Commerce in 1943 envisaged the ICC exploring and preparing new industrial projects and promoting the establishment of new companies which it would finance (S11987A).

Trade Loans

The March 1933 paper on industrial credit drafted by Sean Lemass envisaged the ICC as part of a three-pronged approach. Short-term credit was the preserve of the commercial banks, while a letter from the Irish Banks Standing Committee in October 1932 announced their willingness to become actively involved in the provision of longer-term industrial finance through the trade loans guarantee scheme, offering funds at an interest rate 0.5% below bank rate. This decision was in marked contrast to the banks’ opposition in earlier years and reflected an awareness that the trade loans scheme was smaller and less of a threat than had been feared, coupled perhaps with the impact of a depression that made it difficult to overlook secure investments (S6467). In 1933 the Committee on Industrial Finance recommended that trade loans legislation should be extended until the ICC was in operation. However on 20 March 1933 the executive council extended the measure for a further five years, increased the finance available by £1 million, and removed the restriction forbidding loans for working capital. Funds had already been made available for house building, and guarantees were extended to small businesses (Daly 1984a, 85).

Despite this extension trade loans were viewed as a temporary measure (PDDE 4 July 1933). In practice a total of 78 guarantees were issued during the years 1932–1937, amounting to almost £600,000, the majority for sums less than £10,000. In 1936 firms assisted by trade loans were alleged to have generated 5,790 jobs compared with 674 in 1931 (F97/3/38). The post-1932 loans were substantially more successful than earlier ventures, with only £14,500 in default by 1937, because of the greater profitability of protected markets. While several loans were issued for large amounts—notably £90,000 for bog development—most were for modest sums directed to small industries. This pattern may reflect the wishes of Lemass who told the Dail in 1933 that he envisaged trade loans as assisting companies too small to have recourse to the public capital market (Daly 1984a, 86). Trade loans were complementary to the ICC rather than in competition—an Irish solution to the “Macmillan gap”7.

Despite an improved success rate the scheme was subjected to considerable criticism by the Banking Commission, notably from McElligott. The commission’s 1938 report repeated the recommendations of the 1926 Banking Commission that the restrictions imposed in the original legislation “shall be carefully and rigidly insisted on” and emphasized that “the Government should not seek to deal directly with individual businesses in providing assistance for long-term credit.” It recommended that state provision for long-term credit should be handled not by a government department, as in the case of Trade Loans, but by the Industrial Credit Company. That the legislation was due to lapse in 1938 lent urgency to these recommendations.

The possibility of establishing a small loans section within the ICC was considered but opposed by Lemass on the grounds that the majority of applicants would be rejected because of inadequate security. Lemass pressed for their continuation, seeing trade loans as an instrument of regional policy, and his will prevailed against the objection of Finance and less than wholehearted support from Leydon, in part because of the existence of superior government loan facilities in Northern Ireland (F97/3/38). Lemass welcomed having trade loans under his direct control, granted on the recommendations of advisory committees.


While the financial sector was affected by the new economic regime, its fundamental institutions remained unscathed, and the country’s banks and currency remained independent of government authority. Despite a deterioration in the balance of payments and some decline in external investments held by Irish residents, the country’s creditor position remained intact, and in 1939 she was one of “less than ten creditor nations in the world,” with an excess of sterling assets over liabilities in the banks of £63.5 million (F39/5/39). Fianna Fail failed to channel external investments into domestic outlets as Lemass had urged while in opposition, and this was also true of insurance funds.

The major changes related to the Dublin capital market with the establishment of the ICC and the rising volume and value of transactions, especially in industrial companies. Some of this was in response to more profitable investment opportunities and would have occurred independent of further government initiatives but the ICC played a major role.

The restraint of Fianna Fail intervention in the financial sector is of considerable significance. There was no effort to establish a state holding company; ICC shareholdings resulted from the reluctance of private investors rather than from defined policy, and the long-term aim was the encouragement of private shareholding rather than state investment. A more active state financial policy involving tapping commercial banks for investment funds or gaining control over the country’s external assets could have funded investments such as cement or an oil refinery without the danger of foreign control. However, such proposals were never mooted, and while Lemass proved eager to control exports, he never expressed similar designs on the banking system.

Further, perhaps conclusive evidence of Fianna Fail conservatism is provided by the Banking Commission, a body dominated by banking interests and the Department of Finance, whose advocacy of the status quo and criticism of government policy cannot have been unexpected. Its main function appears to have been the destruction of those groups advocating the unorthodox financial ideas of Major Douglas such as a currency backed by social credit. Such ideas were not without support in sections of Fianna Fail; among supporters was Frank Aiken, minister for defense. However, given the apparent, if unvoiced, opposition of De Valera, Lemass, and MacEntee, they were doomed to failure, while alternatives such as Keynesianism were not considered.

1. Unless otherwise stated, figures in this chapter come from Statistical Abstracts for various years in the 1930s and from annual reports of the Companies Office; share values and dividends come from the Stock Exchange share listings.

2. Information supplied by Dr. Jeremiah Dempsey who was first secretary of Irish Tanners.

3. Analysis derived from app. 5 of the Banking Commission report.

4. BP 26290A contains a pencil draft of para. 442 and other key sections.

5. Information supplied by the ICC.

6. Information supplied by Frank Casey, managing director of the ICC.

7. So-called because the “gap,” the shortage of financial institutions lending to companies too small to borrow on the stock exchange, was first identified by the British government’s Committee on Finance and Industry (1931 Cmd 3897) chaired by Lord Macmillan.

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