New bank chief to take over a work in progress
The country needs a financial sector structured to support the rest of the economy
Patrick Honohan will be leaving the Central Bank in December in considerably better condition than it was back in September 2009 when he arrived in Dame Street. He has had to devote much of his term as Central Bank governor to firefighting. The fires may not be decisively extinguished but the reputation of the Bank has been restored. His successor, Philip Lane, will wish to do more than consolidate what has been achieved.
The country needs a financial sector structured to support the rest of the economy without exposing it to excessive risk. Such restructuring as has occurred has been driven by events rather than by policy. One of the big lessons of the crisis is that managing an economy without a currency places heavy demands on the efficacy of financial regulation and supervision. There have been changes but there is more to be done.
The failures at the Central Bank and at the office of the Financial Regulator have been addressed in two ways. The Bank has reabsorbed the regulation function, whose separation into a distinct unit in May 2003 was a blunder and may have contributed to the subsequent weaknesses. The Bank has strengthened its in-house capacity and expanded staff numbers substantially while some of its supervisory headaches have been taken off its hands by the European Central Bank. The four largest Irish banks, including AIB and Bank of Ireland, are now supervised from Frankfurt.