Tuesday 25 October 2016

Banking inquiry: Lack of crisis management at ECB complicated crisis

Clodagh Sheehy and Philip Ryan

Published 15/07/2015 | 02:30

John Corrigan
John Corrigan
Former Secretary General Dermot McCarthy

A lack of crisis management skills in the European Central Bank complicated the banking crisis in this country, a former CEO of the National Treasury Management Agency has claimed.

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John Corrigan today told the Banking Inquiry the lack of reliable information in a hugely volatile environment at the time meant decision making could “seem like trying to catch a falling knife”.

In this climate it was only on the third attempt that Irish banks were adequately capitalised.

He said that the crisis here was domestically generated “but the complexity of its resolution was added to by the global banking crisis”.

"The apparent absence of crisis management skills in the ECB (in contrast to the IMF) was, I believe also a complicating factor," he added.

Mr Corrigan believed that the NTMA had responded positively in helping to seek a resolution and “our involvement brought us into areas which were well outside what were our core functions”.

He told the committee he believed too that the decision to set up NAMA was the correct one and “I am strongly of the view that its success played a huge role in Ireland later regaining access to the debt capital markets”.

He had written to the Minister for Finance on 21st November 2010 recommended an application be made to the EU/IMF for an assistance programme.

Mr Corrigan said in the letter that while such assistance was likely to be expensive it would also provide sizable funding to the State.

“I stressed that appropriate liquidity support from the ECB would be a necessary complement to a decision to apply.

“Unfortunately, such liquidity support was, in my view, only grudgingly provided by the ECB to the extent that their public utterances could have been more supportive in helping restore confidence in the banking system.”

He had written to the Minister again on November 27th of that year with comments on the proposed programme of financial assistance pointing out that in his view the €35bn earmarked for potential capital injections into the banking system would “substantially increase the risk to the sustainability of the national debt”.

The NTMA  had commissioned a study to look at a bail-in/burden sharing scheme involving senior as well as sub-ordinated debt holders in the covered institutions.

That scheme, he said, identified substantial potential savings, depending on the level of discount/haircut applied.

“For the scheme to proceed” said Mr Corrigan,  “the support of the Troika was critical but once again such support was not forthcoming”

Mr Corrigan said the NTMA held the view that Anglo Irish bank was “a bottomless pit, fatally flawed”.

He did not know if it would have saved any money to nationalise Anglo on the night of the bank guarantee rather than months later but he felt they would have “got our hands on the throat of the problem sooner’.

Later today, Former secretary general in the Department of the Taoiseach Dermot McCarthy will tell the Banking Inquiry there was huge concern in Government that it would be forced to raise corporation tax as part of a bailout package.

However, Mr McCarthy - who was the country's most senior civil servant for more than a decade - will not say where this pressure was coming from in his opening statement.

John Corrigan, former CEO, of the NTMA and Pat Farrell, former chief executive of the Irish Banking Federation will also give evidence today.

Last week, Cathy Herbert, an advisor to former Finance Minister Brian Lenihan, told the inquiry that the European Commission had said it was "unrealistic" for Ireland to retain its 12.5pc corporate tax rate in a bailout programme.

Mr McCarthy, who stepped down in 2011, served under Taoisigh Bertie Ahern and Brian Cowen as secretary general to the Government and the Taoiseach, which were previously two separate positions.

Mr McCarthy played a central role in social partnership and benchmarking - which included pay rises and pensions for civil servants during his tenure in office.

He retired from the civil service at 53 years of age with a pension package of more than €700,000, and he will be eligible for an annual pension in excess of €100,000.

He was present on the night of the bank guarantee and was central to Government's acceptance of a bailout.


The Irish Independent understands Mr McCarthy will use his opening statement to criticise the lack of Oireachtas scrutiny of Government decisions during the boom years.

He will also say the financial crisis was missed by the International Monetary Fund (IMF), which later formed part of the Troika, along with European Central Bank, and European Commission, that bailed out Ireland after the crash.

The former high-ranking civil servant will also say the Government was forced into the blanket bank guarantee because the European Commission ruled out helping Ireland as our financial system collapsed.

It is understood he will say the guarantee was the best option for the liquidity problems facing the country's banks.

He will also confirm previous evidence that the banks sought a two-year guarantee, which was implemented and later extended by the then Government.

On the bailout, he will say the Government discussed imposing haircuts on senior bondholders but this was resisted by Troika.

Irish Independent

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