Big banks' behaviour was just unacceptable, says Governor of Central Bank
Central bankers are innately cautious, and use circumspect language.
They need to, I suppose, as their words can move markets.
Economist Philip Lane, the Trinity College academic who has just marked his first year as governor of the Central Bank of Ireland, is no exception. When he speaks, you can almost see his percipient brain filtering his thoughts before he commits them to words.
So when he takes a customary, considered pause before describing the tracker mortgage crisis as "wide scale" and "unacceptable", it's a big, if wholly understated, deal.
Yesterday, Bank of Ireland, one of our "pillar" banks, dropped a bombshell when it admitted that it had overcharged almost 4,000 tracker customers.
It is a practice that now appears endemic, if not systemic, across the Irish banking sector - with more than 10,000 customers expected to be compensated following a review by the Central Bank. The probe includes AIB (including EBS and Haven), Bank of Ireland, Permanent TSB, Ulster Bank, KBC, ACC, Bank of Scotland, Danske Bank, IBRC, Dilosk, Leeds Building Society, Pepper Asset Servicing, Springboard, Start Mortgages and Stepstone Mortgage Funding.
"It [the tracker controversy] is not random, it's not idiosyncratic," said the quiet-spoken Dubliner with uncharacteristic force. "It was not acceptable and is not acceptable."
It has been an eventful year for Prof Lane, the Harvard doctoral graduate who also sits on the governing council of the European Central Bank (ECB) in Frankfurt, where I met him last week.
The centenary of the Easter Rising has brought the ill winds of Brexit and president-elect Donald Trump with his nativist protectionism and corporate tax-cutting manifesto. It has also brought an unhelpful European focus on our own corporate tax regime and an incessant, fraught domestic debate over the Central Bank's mortgage rules aimed at insulating Ireland against another extreme, boom-bust property cycle.
Prof Lane is unrepentant about the controversial rules. And you get the sense he is just that little bit thrilled that Ireland was not one of the eight countries recently warned by the European Systemic Risk Board that their residential property markets were at risk of overheating. He also denied that the Government played a cat-and-mouse game with the Central Bank's independence by responding with a rebate - of up to €20,000 for first-time buyers - just before the Central Bank relaxed its rules requiring first-time buyers to have only a 10pc (instead of a 20pc) deposit.
"The real test of our rules will be in the next downturn," said Prof Lane, adding that they will be tightened once again if Ireland's highly open economy overheats.
"Have we enabled households and banks to acquire enough insulation that they'd be better able to withstand a downturn?
"That is the goal, that is really the motivation here."
What motivated him to apply to become governor? For Prof Lane, who spent his pre-Central Bank years studying how small economies manage volatility - he is a lifelong advocate of a fiscal reserve fund to manage windfall revenues during a credit boom and the risks associated with banking crises - it was a "natural evolution".
It was also an opportunity to "make a difference" and convert his views on the world into policy actions.
"That [comes] with a heavy responsibility but it is also quite rewarding," said the avid walker, who made more than 40 overseas trips during his first year of office.
Prof Lane expressed a deep sympathy with the various cohorts of citizens affected by the recession, including first-time buyers, renters, those battling negative equity, debtor homeowners and tenants dealing with so-called vulture funds and those losing their homes.
He encouraged people in mortgage distress to engage with their lenders and said, despite the negative publicity surrounding the activities of vulture funds, the fact Ireland has been able to attract global investment has reduced the collective cost of the crisis, even if individuals don't feel that way.
The solutions to the housing crisis, he insisted, must be on the basis of maintaining a sound financial system based on long-term planning.
The Central Bank's macro-economic and financial stability mandate has led to accusations that it is blind, or at least partially deaf, to the plight and cries of hard-pressed consumers, including homeowners and those paying exorbitant rates for motor insurance.
The spiralling rates are the subject of a separate investigation by the Competition and Consumer and Protection Commission. But the Central Bank has been in the line of fire over issues such as the rates of insurance premiums that are outside its control, and others - such as transparency by insurance companies - which could ameliorate the crisis.
"We welcome the criticism and we reflect on the criticism," said Prof Lane, whose young charges at the Central Bank's soon-to-be-vacated Dame Street HQ have resorted to alternative therapies if the scores of staff armed with yoga mats is anything to go by.
There have been taunts about the award-winning facade at the new HQ in Dublin's Docklands. The "pale bronze" (ie, gold) flakes on the building's outer skin could give Trump Tower a run for its money. But the jibes have been weathered well by staff.
"There is a big body of work of self-improvement here at the Central Bank," said the Liverpool FC fan. "My commitment is to do the best we can to make sure we deliver a stable financial system which also protects consumers". It is legacy issues that have crystallised in recent times that has led to a record year for the Central Bank's enforcement division. Fines of more than €12m were imposed in 2016, including a €4.5m fine on Springboard Mortgages (a subsidiary of Permanent TSB) in respect of breaches of its obligations to tracker mortgage customers.
Ulster Bank was fined €3,325,000 in respect of anti-money laundering and terrorist financing failures. The Central Bank also shut down (some argue belatedly) Rush Credit Union after it was found to have suffered from the fraudulent misappropriation of funds, amid suspicions of tax dodging and money laundering.
Will bankers and others who oversaw misapplied tracker mortgages face sanctions in the future?
Prof Lane was reluctant to prejudice any future enforcement cases. But he is a strong proponent of the "intrusive supervision" philosophy adopted by the ECB and implemented by a beefed-up team in Dublin led by Derville Rowland, the Central Bank's director of enforcement.
As the Irish economy recovers, Prof Lane said it would be advisable to adopt a "contrary and pessimistic" view at this time.
He added there are four systemic risks facing the Irish economy. These are Brexit, the future of Europe, the actions of the incoming US administration - with its threats of protectionism - as well as the threat posed to Ireland's business environment as the US and the UK consider lowering their corporate tax rates.
To that could be added public-sector pay rises, which he said must be sustainable, the inevitable rise of interest rates, and the eventual tapering off of the quantitative easing policies implemented by the ECB.
Prof Lane (and this could be that Central Banker conservatism at work again) has been more sanguine than other commentators about the impact of Brexit.
Cities such as Frankfurt and Paris have been falling over to entice London's City stars to their shores.
Prof Lane, in contrast, has sounded a note of caution against any post-Brexit bonanza, explaining that the regulatory framework for major banks and insurance companies is common throughout the EU.
"We have to be assiduously neutral," he said.
Whatever that means.
Dearbhail McDonald is INM Group Business Editor