Tuesday 6 December 2016

'Ireland should consider laws to deal with reckless bankers' - Governor Patrick Honohan

Published 09/04/2015 | 11:29

Patrick Honohan, Governor of the Central Bank at a briefing about the new mortgage rules at the Central Bank in Dublin. Picture: Damien Eagers
Patrick Honohan, Governor of the Central Bank at a briefing about the new mortgage rules at the Central Bank in Dublin. Picture: Damien Eagers

Ireland should consider enacting laws to deal with reckless bankers similar to those being put in place in the UK, Central Bank governor Patrick Honohan has said.

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Mr Honohan said the behaviour of bankers in the run-up to the crisis in Ireland was, for the most part, unwise rather than criminal.

And he also suggested the directors and managers of the banks were chiefly to blame for the banking crisis here and not the regulators, although there were “supervisory flaws”.

“There have been convictions of some senior Irish bankers found to have committed a criminal offence in the latter phases of the crisis (though no prison sentences), and a number of other cases, criminal and civil, are still in preparation,” Mr Honohan said, in a speech in Paris this morning.

“But the Irish legislative framework deserves to be strengthened to take account of egregious recklessness in risk-taking by those who were in charge of failed financial firms. 

“Recently the UK enacted legislation of this type which I believe could be usefully mirrored in Ireland.”

New powers are being put in place in the UK to jail bankers for up to seven years for reckless misconduct.

Senior bankers will also be presumed guilty until proven innocent under strict new rules proposed by British regulators seeking to hold individuals accountable for bank failures.

Mr Honohan said it was a fact to say 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.”

He said it is partly true that lax supervision was to blame, because “any attempt to assign responsibility must start with the banks.”

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

"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.

“In Ireland the scale of the bank credit expansion and the associated construction and housing price boom was of a different life-threatening order of magnitude. 

“Credit expansion on such a scale should have rung alarm bells triggering much more intrusive examination of the vulnerabilities and corrective measures should have been introduced.”

 

 

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