Banking Inquiry: Taking Anglo under government control was 'considered too risky' on night of guarantee
Former Central Bank Governore John Hurley gives evidence
Former Central Bank Governor John Hurley has said that taking Anglo Irish Bank under government control was considered but was considered too risky.
Mr Hurley, who was head of the Central Bank between 2002 and 2009, told the Banking Inquiry that the option of excluding Anglo from the bank gurantee and nationalising was raised on the night of the guarantee but dismissed.
He told the Oireachtas that taking Anglo under government control was deemed "more negative than positive" on that night, and it was decided that nationalising the bank could possibly raise concerns market-wide as to the systemic weakness of all banks.
"There was a strong view on the night that the Government had one opportunity to assuage the markets.
"If the decisions taken were considered inadequate and failed the consequences for the banking system would be devastating and lead to very serious economic and social fallout for the country as a whole.
"I supported the decision taken as being the one most likely to ensure that these consequences for the banking system and the country would be avoided."
Initially against the idea of a bank guarantee, Mr Hurley said he supported it under these circumstances.
Mr Hurley told the Banking Inquiry that he believed that “regulation on its own could not have stopped this crisis from happening.”
He very much regretted that the Central Bank had “underestimated the risks”.
Under questioning from Sinn Féin finance spokesperson Pearse Doherty, Mr Hurley said that looking back, the risks were much higher than they thought.
He said that they made their assessments in good faith but it changed in a short period of time.
He agreed that the Central Bank should have taken stronger action in 2005 and that the bank's Financial Stability reports were not adequate.
Mr Hurley said: "We did not see the crisis coming....we should have escalated our warnings at the time."
He added "it is quite clear we got it wrong."
"We were the leading guardian of financial stability...we have to accept a large share of responsibility."
The former governor explained that there was a “strong view” on the night of the Bank Guarantee “that the government had one opportunity to assuage the markets.
“If the decisions taken were considered inadequate and failed, the consequences for the banking system would be devastating and lead to very serious economic and social fallout for the country as a whole”, he added.
At meetings held during the weekend before the guarantee decision it appeared likely that the financial institutions would have sufficient liquidity to get through the following week.
“The liquidity outlook changed quickly on the morning of the 29th September when it became clear that without assistance Anglo would not be able to open for business the following morning,” he said.
Mr Hurley said when the Anglo situation arose “the major concern was how to prevent contagion from Anglo spreading to the other banks, which were not then liquid but had and were experiencing significant outflows.”
He told the committee that arrangements had been made in the Central Bank to provide assistance to Anglo to enable it to open for business on the morning of September 30th.
“The bigger issue was how to avoid the risk to the entire banking system materialising with catastrophic consequences for the entire country.
“Without decisive intervention the risk of such an eventuality was very likely. I supported the guarantee in these circumstances”, he added.
Following Mr Hurley's departure, the Central Bank has been completely restructured, introducing more intrusive regulation of banks and has become more independent of Government.