News Comment

Monday 22 September 2014

There is never a wrong time to do the right thing – especially in banking probe

Published 19/06/2014 | 02:30

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Former Taoiseach Brian Cowen. 'Delays mean the report will arrive in time to embarrass FF ahead of the next general election.'
Former Taoiseach Brian Cowen. 'Delays mean the report will arrive in time to embarrass FF ahead of the next general election.'

The Taoiseach is in a tailspin. The latest blunder is reminiscent of Ballymcgash Council politics from an episode of Hall's Pictorial Weekly. Any apparent necessity for the government to have a majority on the Oireachtas banking Inquiry is patent nonsense, especially now that Fine Gael and Labour members have a free hand to act and vote.

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If ever this committee does divide through a vote, its value in terms of majority and minority factions is utterly redundant. Kenny refers to "the will of the people" – rest assured after recent election results, he'll do all in his power to avoid an updated verdict of the people. This crass clumsy politicking is but the latest instalment of government mishandling and a lack of understanding of what's required in a Parliamentary banking probe.

For many this is a yawn-fest. It is not. Okay, it's three years too late. We should have had a Leveson style inquiry; chaired by a judge, assisted by a panel of six experts, with hearings in public, procuring evidence through forensic skilled questioning by a lead prosecutor.

Admittedly we've already had three investigations into our banking collapse. Nyberg, Honohan and Wright reports did not involve any visible accountability and zero open oral first-hand explanations of decisions. The nearest glimpses we ever got to a rip-off reality came with the Anglo tapes – where we learned a tranche of €7bn of liquidity support was "plucked out of their arse." When this mask slipped corporate contempt was revealed.

The Anglo criminal trial evidence of amnesia by the Financial Regulator, Patrick Neary, told us he couldn't recall much .

The Government consistently misunderstands the vital significance and potential benefits of a proper banking probe. Last September, it decided the focus should be on three key areas: the 2008 State banking guarantee; the role of auditors and the role of state institutions.

They missed out on two key elements: what happened in the preceding six years where Irish banks allowed their loan books to balloon to six times Ireland's Gross National Product (GNP). Walls of unsustainable credit created an asset price bubble that burst the Irish economy and public finances.

The critical monetary factor here is that it coincided with our full membership of the euro currency on January 1, 2002. After which the European Central Bank facilitated this unsustainable dam burst of low cost credit throughout the Eurozone. Abysmal regulation and governance failed at every turn.

The other yawning gap in the potential scope of any investigation is the bailout itself. The Euro as a single currency was saved, by destroying Ireland's sovereign balance sheet. Then there was the fact that €64bn of liabilities were placed on generations' of Irish taxpayers to fully indemnify bondholders and depositors. Yet, with the benefit of hindsight, when Cypriot banks faced identical insolvency in March 2013, burdens were shared by investors.

Any final report by the Oireachtas banking inquiry must present just as compelling a case for us to be recompensed for taking the hit on the ECB's behalf. We need to quantify net losses after taking account of bank stakes sales, IBRC liquidation asset proceeds and the NAMA wind up. It's probably somewhere between €23 to €34bn out of the original €64bn. This should provide a game changer in our vain attempts to date to enforce the EU Council decision of June 2013 of burden sharing.

Last week's ham-fisted addition of two government senators is only the latest evidence of a party political agenda regarding a banking inquiry. This work could have been given to the Public Accounts Committee, but they declined due to previous comments by prominent members and chairmanship of opposition deputies. Appointing a Labour TD as chairperson was not obligatory, a suitably qualified independent opposition member could have been appointed.

One can't help suspect that unnecessary delays in establishing the probe were timed so that its final report would arrive neatly adjacent to the next general election campaign in late 2015. A rude reminder of Cowen's culpability in case voters were minded to forgive Fianna Fail.

Shallow sharp practice in the context of the most calamitous economic collapse in our country's history. Finance Minister Michael Noonan recently confirmed the annual costs to taxpayers of servicing the national debt directly attributable to the financial sector bailout is €1.6bn. This transform- ative figure is almost the amount that requires to be adjusted in the 2015 budget. It represents a sixth year of continuous incremental additional austerity on Ireland.

Simultaneously, we can now assess the full impact on the Irish economy as our banks deleverage their way out of the bust. The total outstanding bank loans for households have reduced since 2008 from €150bn to €100bn; for businesses the decline in credit has been more acute from €170bn to €70bn. People seem surprised that there's less money in circulation; cumulatively €150bn less cash is available. Ireland's economic recovery is handcuffed by the pincer effects of these dual legacy liabilities: Exchequer interest charges and constrained credit.

Petty politics of cabinet leaders should be buried along with their hubris. The Government's two senators Susan O'Keeffe and Michael D'Arcy should now resign from he committee to overcome the impasse. Stephen Donnelly should resume his role and start again. Absurd notions that Fianna Fail's two members Michael McGrath and Marc McSharry could ever convince a majority of five on the committee (including Sinn Fein) to somehow absolve the previous Fianna Fail administration were ludicrous.

Winners from this debacle to date are: David Doyle and Kevin Cardiff, formerly in charge of Department of Finance banking oversight; previous bank executives and board members of associated banks and other financial institutions; Central Bank and Financial Regulator top brass; ECB officials and past government members. Elsewhere it's different.

The UK's banking enquiry resulted in revamping of their Serious Fraud Office and incentives for whistleblowers to come forward. The US Congress enacted niche criminal banking laws.

Despite a litany of failings this debacle can and must be fixed. There's never a wrong time to do the right thing. However, there is no disguising the fact that this was another needless own goal by Kenny & Co.

Ivan Yates

Irish Independent

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