Monday 23 October 2017

Four key bank leaders summoned to crucial stage of Banking Inquiry

David McWilliams
David McWilliams

Clodagh Sheehy

The four key bank leaders who met the Taoiseach and Finance Minister on the fateful night of the bank guarantee have been called to the next phase of the Oireachtas Banking Inquiry.

Former bosses at Bank of Ireland, Richard Burrows and Brian Goggin, and Allied Irish Banks’ Dermot Gleeson and Eugene Sheehy are being summoned to the next and crucial stage of the parliamentary inquiry into the €64bn collapse of the Irish banking system in autumn 2008 along with other banking figures and the heads of NAMA.

The four bank principals met at Government Buildings with Taoiseach Brian Cowen, Finance Minister Brian Lenihan and a large group of senior government officials for six hours of talks which led to the bank guarantee on September 30, 2008.

Other banking figures listed include: Bank of Ireland’s Richie Boucher, Michael Torpey and Laurence Crowley; Donal Forde and Michael Buckley, formerly of AIB; and former Ulster Bank boss Cormac McCarthy.

Earlier today, economist and broadcaster David McWilliams told the Banking Inquiry that the Bank Guarantee should have been a temporary measure.

While he believed it was the "only decision that could have been made at the time which would have stopped a bank run", the key was that it needed to be temporary.

He said he had told Finance Minister Brian Lenihan at the time that the Guarantee should have been made conditional and not open ended so they did not end up having to pay off risk capital.

At no stage, he added, did he suggest to the Minister that it should include subordinated debt.

Read More: Banking Inquiry: Economist David McWilliams says collapse was 'absolutely preventable'

Mr McWilliams described how he had met the Minister for the first time on September 6 2008 and then at his own home 11 days later.

Over a period of two weeks they also had 12-13 phone calls but after October 4 2008 he had never seen him again and "I found myself back on the outside".

Mr Lenihan had told him he was getting different financial assessments from everyone and he had advised the MInister he needed to do something to buy himself time to get the facts.

The economist suggested to Mr Lenihan that he introduce a temporary guarantee of perhaps two years to stem the run on deposits and give the government time to arrange audits.

He said he became worried about the guarantee that was eventually introduced because it appeared less like an emergency measure to protect depositors than a blank cheque to protect bank creditors.

The economist told the Inquiry the banking crisis and property bubble were both "predictable and absolutely preventable".

Mr McWilliams said that many ordinary people could see what was happening and they were "forced to play a game where the dice is loaded against them."

He did not believe the country was taken by surprise and described the housing market at the time as a "scam funded by overlending".

The bank guarantee and the bailout  were "all the consequences of pathetic policy in 2008"he added.

The Irish banking system and by extension the Irish economy was set up to fail, said Mr McWilliams.

"I saw this earlier than anybody else and spent best part of a decade trying to warn as many people as possible"

The economist said the crash was "inevitable because of the way in which the banks were financing themselves".

The banks had started the fire by giving credit and when they ran out of deposits, they borrowed other people's money - from France and Germany - "to give us money to buy houses"

Light touch regulation meant you were almost guaranteed the baking system would implode.

Using a football analogy the economist told Senator Marc McSharry that bankers were like "bangers' on football teams and if they scored too many goals you should know there was something wrong.

If a bank began to record profits that were extraordinary, either the people were genuises or there was something going on.

"If I were a politician I would always  be hyper sceptical of hyper success." he added.

Asked by Chairman Ciaran Lynch  if he ever thought before the bust that he could have been mistaken, Mr McWilliams replied: "No in fact I became increasingly certain".

Prof Terrence McDonough, an economics professor from National University Galway told the hearing  that the light touch banking regulation introduced with the setting up of the IFSC "persists down to the present day".

Professional politicians and professional economists in the lead up to the crisis saw things in the same way.  To avoid it they would have needed to see things differently.

Online Editors

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