Watchdog under fire on €112bn bank debt
PRESSURE mounted on the Financial Regulator last night as critics claimed he had failed to stop the banks lending as much as €112bn to property developers.
Patrick Neary was accused of failing to curtail the actions of banks, which inflated an unsustainable property bubble that has now burst.
Politicians and consumers demanded radical reform of the regulatory structures after Central Bank governor John Hurley and Mr Neary denied misleading the public about the extent of the banks' problems.
Mr Hurley insisted the global financial crisis was the reason the banks had to be rescued by the State on Tuesday.
The Central Bank chief conceded that bonuses and other incentive payments for bankers may have contributed to the financial institutions' problems.
However, there is widespread acceptance that the €112bn owed to the banks by property developers is a central issue in the current crisis.
Rapidly declining property values mean there is little hope of the banks recovering a huge proportion of this money. This is likely to pose a major problem for the Government over whether they should force the banks to confront this huge bad-debt problem.
There is increasing concern in political and financial circles that failure to act could leave banks with an even higher level of property-related debt.
The latest Central Bank figures show that banks have as much as €25.5bn tied up in construction activity and development land.
A further €87bn is tied up in investments, including funds that Irish investors have borrowed from locally based banks to buy properties here and abroad. There is less concern over the €147bn tied up in housing mortgages.
Fine Gael, Labour and the Consumers' Association all called for root-and-branch reform of regulation of the banks.
Fine Gael finance spokesman Richard Bruton said the claim by Mr Neary that bad lending had nothing to do with the banking crisis was nothing short of "incredible" and he questioned Mr Neary's "relaxed approach" to the crisis.
Mr Neary has repeatedly maintained that the central problem was the banks' liquidity -- their ability to secure money on the international money markets -- rather than bad lending.
And the regulator said that he did not regret saying two weeks ago that: "Irish banks are resilient and have good shock absorption capacity to cope."
Mr Bruton added that there had not been a sufficiently muscular approach to bank regulation by Mr Neary in the past.
Chairman of the Consumers Association, James Doorley, accused Mr Neary of "being too focused on keeping bankers happy".
"They have been too timid in relation to how they approached the banks. We now need a complete review and overhaul of the workings of the Financial Regulator."
He said that it was a "fiasco" that the State had to step in to support domestic banks after years of property-based lending.
Labour leader Eamon Gilmore said there was an urgent need to change the regulatory regime to prevent reckless behaviour by the banks jeopardising the entire economy.
"The six chief executives of the six banks covered earned €13m between them. Yet, the Government refuses to include any provision in the bill to curb the banking culture that brought us here in the first place.
"Once again, we are told to take it on trust that something somewhere will somehow be done. What will be done? We still don't know."
Meanwhile, Taoiseach Brian Cowen issued a stark warning last night to Irish banks that predatory practices or profiteering would not be tolerated.
Last night, a spokeswoman for the Financial Regulator insisted it did all it could to ensure banks behaved responsibly, and had acted in 2006 and 2007 to force them to put more capital aside when lending to developers. The main issue for Irish banks was the near collapse of the global financial system.
"The world changed when Lehman Brothers collapsed," the spokeswoman said.
- Charlie Weston, Michael Brennan and Donal Buckley
