Thursday 29 September 2016

Philip Lane: Transition from economist to executive will be key challenge at Central Bank

Published 21/10/2015 | 02:30

Prof Lane will need to find out why the Central Bank has failed to get to grips with the long-term mortgage arrears issue
Prof Lane will need to find out why the Central Bank has failed to get to grips with the long-term mortgage arrears issue

WHEN Philip Lane crosses the road from Dublin's Trinity College and walks the short distance to the Central Bank's offices on Dame Street he will be confronted with a huge challenge.

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The Central Bank has come a long way from the economy's darkest days before the bailout, but it has many problems still to sort out.

Retiring governor Patrick Honohan slowly brought about some semblance of order. The banks were bailed out, some of their bosses were sent on their way, and now they are slowly returning to making profits. And Honohan's appointment got away from the old system of rewarding the outgoing head of the Department of Finance with the Central Bank gig.

His taking up of the role coincided with the reunification of the Central Bank and the Financial Regulator into one body. But the State's main financial regulator still has a number of hurdles it needs to overcome, many of which have been allowed to fester for too long.

It has taken its eye off the ball when it comes to consumer protection, one of the key roles a creditable regulator like the Central Bank should fulfil.

Prof Lane will need to find out why the Central Bank has failed to get to grips with the long-term mortgage arrears issue.

He needs to ask why the motor insurance market is such a state that it is pushing up premiums by 26pc. This is the regulator that was asked by Finance Minister Michael Noonan in 2012 why it had estimated the appointment of an administrator to Quinn Insurance would cost €300m, when it fact the bill is nearer €1.2bn.

The new governor will also face calls to take a different approach to the thorny problem of banks overcharging for variable rate mortgages.

Efforts will be made to get the Bank to soften mortgage lending restrictions, although this is likely to be resisted. The lack of lending to small firms, and the belated realisation by the regulator that banks were wrongfully denying homeowners their trackers are also set to feature in his in-tray.

All of this is important, as the time has passed for putting banks' survival ahead of ensuring they treat consumers fairly. Anyway, much of the bank supervisory work will move to Frankfurt soon.

As well as attending European Central Bank meetings, Prof Lane (46) will have to master the sheer complexity of the Central Bank, with its 1,400 staff - 50pc more than before the crash.

In a recent video to staff, Patrick Honohan said he is an "ideas man not an implementation man". As a fellow academic, Prof Lane will have to guard against this failing.

A professional life lecturing and researching is hardly good preparation for taking on the task of managing such a complex body.

This means he will need to appoint someone with managerial experience as deputy governor.

All this means Prof Lane will now get to see just what happens when economic theory has to be replaced by action.

Irish Independent

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