The Financial Services Industry Association has warned of significant job losses, branch closures and the demise of smaller Irish retail banks, with control of the sector increasingly being directed by foreign players.

In its submission to the Department of Finance working group on the strategic review of the future of the banking sector, the association has also signalled a downgrading of the Irish banking sector by the major international rating agencies.

In the submission, the association states that the banking model as it stands is no longer sustainable and is urging the Government to review issues such as pricing control and supervision in a bid to create a level playing field to allow Irish banks to compete with international players.

As more foreign competitors enter the Irish market, they will increasingly "cherry pick" the best customers from the domestic players and bring greater pressure on the sector to cut costs. The submission, which was reported on RTE's Business News yesterday, states that the opportunities to rationalise the cost base will be concentrated on reducing the number of outlets and cutting staff numbers. "The increasingly competitive environment is likely to increase social exclusion as new entrants and alternative channels will cherry-pick best customers and ignore other needs . . . an industry which has grown significantly in employment recently will see employment levels drop off significantly."

Banks which are focused solely on the domestic market will find their market share eroded as profitable customers are cherrypicked and there is a "serious risk" that some small players will struggle to survive, the submission adds.

It also draws attention to the likelihood that Irish financial institutions will increasingly be controlled by overseas players and the knock-on impact of that development.