Banking Inquiry: Central Bank had placed 'undue reliance on regulator's assessment' of bank reports
The Banks created the economic crisis but the Central Bank and the Financial Regulator should have done more, a former Secretary General of the Department of Finance has told the Banking Inquiry.
David Doyle who was appointed in 2006 said bank lending was “by far the greatest factor” but the Central Bank had placed “undue reliance on the regulator’s assessment” of banks’ financial reports.That was a mistake”.
Mr Doyle, who was appointed in 2006 criticised the Regulator for taking these reports “at face value” and not subjecting bank loan books to “any meaningful scrutiny”.
He said the Department was “wrong to rely on consensus forecasts for a soft landing”. He regretted this.
“What really caused the banking crisis” concluded Mr Doyle was the €25billion a year average increase in lending by banks to individuals and non-financial business between 1998-2008.
On the night of the Bank Guarantee the question of emergency liquidity assistance was considered for Anglo Irish Bank but it was thought the chances of keeping this secret was “slim to none”.
“The view was that the information would leak with dire consequences”
Involuntary liquidation of Anglo and Irish Nationwide would have created a real danger of a complete collapse in the banking system with all that would entail for the economy as a whole.
On 29 September it emerged that Anglo had exhausted all avenues in terms of raising funds and “the option of doing nothing was simply not a runner”.
Mr Doyle described the Guarantee as the “least worst action” on the night saying it was essential to avoid a collapse of the banking system.
He also said Minister Brian Lenihan and Kevin Cardiff, the Department’s head of banking, had been in favour of nationalisation of Anglo initially.
Mr Lenihan had gone out for a private meeting with Taoiseach Brian Cowen and when they came back, Mr Cowen announced the guarantee without the nationalisation of Anglo
Earlier another former Secretary General said civil servants and the Minister for Finance were “nervous” about interfering with the property market in case they caused a severe downturn.
Tom Considine held the post in the Department of Finance from 2002-2006 when he retired on a pension of €118,000 a year.
He is also paid an additional annual fee, which amounted to €98,000 last year, as a public interest director on the board of Bank of Ireland from which he has earned more than half a million euro since his appointment in 2009, the Inquiry heard.
In his evidence to the committee Mr Considine said the financial crisis could have been averted if the Irish banking system had double the buffers it actually had in place at the time.
During his period in office “the available safety margins seemed to be more than adequate”.
This had not proved to be the case given the “seismic” shock that hit the economy and “I very much regret that I did not see that”.
Mr Considine described to the Inquiry how attempts had been made by Government to cool the property market in 2006.
At the time, however, he added, there was a general belief that the economy was strong and the public finances healthy.
This put “intense pressure” on Government for additional spending and tax reliefs.
He told Senator Susan O’Keeffe that cuts imposed in the 2003 and 2004 Budgets meant that by 2005 “the political pressure to ease up on this was enormous”.
Mr Considine referred to “a great nervousness” about tackling tax incentives for the property market.
He said they should have been phased out earlier but initial experience in trying to do this which led to higher rents “made everyone very nervous about touching the property market.
“It wasn't until 2004 that we set about it. In hindsight it should have happened a lot earlier.”
He explained that the civil service advisors and the Minister “were both concerned that we needed to be extremely careful in interfering with the property market in case you would cause a severe downturn.”
The issue, he added, needed to be handled carefully and phased out rather than brought to an abrupt end.
Asked about his post on the Board of Bank of Ireland, Mr Considine told how the late Finance Minister Brian Lenihan had personally asked him to go on the Bank board in 2009.
He said he had first been asked by the then Secretary General of the Department of Finance if he was interested in the post.
“I was somewhat reluctant so then Minister Lenihan came on the phone and said I would like you to do that so I said yes.”
Senator Susan O’Keeffe wanted to know if he thought of waiving the annual fee when he took up the post as he already had a pension but he replied “No”.