Sunday 25 September 2016

Honohan calls for new laws on risk-taking by bankers

Published 10/04/2015 | 02:30

Central Bank Governor Patrick Honohan (left) and Greek Finance Minister Yanis Varoufakis at the annual conference of the Institute for New Economic Thinking in Paris
Central Bank Governor Patrick Honohan (left) and Greek Finance Minister Yanis Varoufakis at the annual conference of the Institute for New Economic Thinking in Paris

New laws are needed to ensure reckless bankers are punished, Central Bank Governor Patrick Honohan has admitted.

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Seven years after the country suffered the worst banking crisis in Europe, Mr Honohan said tougher rules are required to crack down on irresponsible bankers.

It came as new figures from the European Central Bank (ECB) confirmed that Ireland's bank bailout was by far the most expensive in Europe.

Speaking at an event in Paris, Mr Honohan said the law "deserves to be strengthened to take account of egregious recklessness in risk-taking by those who were in charge of failed financial firms."

Regulators

He pointed to Britain, where regulators last month unveiled details of a "presumption of responsibility" rule, which requires senior managers to demonstrate that, where a firm is guilty of misconduct, they took steps to avoid it happening.

While the Irish bank crisis was far worse, no such steps have been taken here.

He suggested the bulk of blame for the crisis should be put on the banks, not the regulator, although he said there were "supervisory flaws".

In the main, the behaviour of bankers here in the run-up to the crash was "unwise rather than criminal", Mr Honohan said.

The new UK rule is part of a set of sweeping new measures to deal with alleged misconduct, with separate new powers also being put in place to jail bankers for up to seven years for reckless misconduct.

Mr Honohan suggested it was the directors and managers of the banks who were chiefly to blame for the crisis here and not the regulators, although there were "supervisory flaws".

He said it was a fact that it was the "unrestrained and reckless" behaviour of the banks that destabilised the economy and public finances.

"Of course, there are many ways of allocating blame, but in my view the first line of defence against what has happened must be the directors and managers of the banks," he said.

"With greater prudence by management and boards of the lending banks, this bubble could not have happened."

Mr Honohan said it is partly true that lax supervision was to blame, but "any attempt to assign responsibility must start with the banks".

Ineffectual

"Still, we must not neglect the ineffectual supervision which failed to inhibit this banking behaviour," he added.

"These supervisory flaws were similar in character to what happened in half a dozen other countries, reliant on un-intrusive supervision that presumed a well-managed bank would not create systemic failure."

But what was happening here was different and should have precipitated closer scrutiny, Mr Honohan said.

He said that it is partly true to say the European institutions had pushed Ireland into the bailout. And he also claimed it was only partly true that Ireland did not lose its sovereignty as a result of the crisis.

Senior bankers would be guilty until proven innocent under proposal from UK regulator

Senior bankers in the UK are to be presumed guilty until proven innocent if something goes wrong under strict new rules proposed by British regulators seeking to hold individuals accountable for bank failures.

The Financial Conduct Authority (FCA) announced details last month of a “presumption of responsibility” rule which requires senior managers to demonstrate that where a firm is guilty of misconduct, they “took such steps as a person in their position could reasonably be expected to take” to avoid it happening.

The proposals are in response to public anger over scandals. Many Britons complained that no senior bankers faced criminal action for those failures.

The outline of the new rules were already known, with new powers

being put in place to jail bankers for

up to seven years for reckless misconduct.

The rules also include a certification regime that will require firms to run annual checks to assess the “fitness and propriety” of staff who are “deemed capable of causing significant harm to the firm or any of its customers”.

Irish Independent

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